Anti-Tax Law Evasion Schemes - Talking Points
- All citizens must comply with the requirements of the tax law to file returns and pay taxes. Fortunately, the vast majority of Americans recognizes their civic duty and voluntarily complies with their tax-filing obligation. Taxpayers who fail to file income tax returns and pay taxes pose a serious threat to tax administration and the American economy. Their actions undermine public confidence in the Service's ability to administer the tax laws fairly and effectively.
- Whether because of an inability to pay or severe procrastination, some citizens drop out of the tax system. The IRS has made attempts to make it easier for persons to voluntarily comply with the tax laws and to bring themselves current on any outstanding filings or tax due. Assistance is provided to those persons to resolve issues that caused them to drop out of the tax system and bring them back into compliance.
- When the Sixteenth Amendment to the Constitution was ratified (February 3, 1913) giving Congress the power "to lay and collect taxes on incomes", citizens began arguing that it was not properly ratified and income taxes are illegal. Unfortunately, some citizens continue to raise such arguments in spite of the fact that they have no basis in law and the courts have repeatedly rejected their arguments as frivolous.
- Unscrupulous promoters and their followers have long employed frivolous arguments concerning the legality of the income tax as pretexts to enrich themselves or evade their taxes. Their motivation is usually monetary, not some legitimate purpose or belief. Anti-taxation groups have been around for a long time. They are small but vocal. Though the leadership of these movements used different arguments to gain followers, they all share one thing in common; they received substantial sentences in a federal prison for their activities. Their followers paid a steep price for following bad advice. Some were prosecuted, many more were involved in years of litigation and ultimately had to pay all taxes owed along with penalties and interest.
- People who are considering involving themselves in these anti-taxation "programs" should consider the consequences. Tax evasion is a serious crime punishable by imprisonment, fines, and the imposition of civil penalties.
- Complicated arguments against the American tax system are built by stringing together unrelated ideas plucked from widely conflicting court rulings, dictionary definitions, government regulations, and other sources. Some of the most popular arguments follow:
I. Compensation Argument
Wages, tips and other compensation received for personal services are not income because there is allegedly no taxable gain when a person "exchanges" labor for money.
The Truth: The Internal Revenue Code defines gross income as income from whatever source derived and includes compensation for services.
II. Internal Revenue Code Arguments
(1) There is no Internal Revenue Code that imposes taxes;
(2) Only "individuals" are required to pay taxes; or
(3) The IRS can only assess taxes against people who file returns.
The Truth: The tax law is found in Title 26 of the United States Code. The requirement to file an income tax return is not voluntary and it is clearly set forth in the Internal Revenue Code (IRC) Sections 6011(a), 6012(a), et seq., and 6072(a). Our system of taxation allows taxpayers to determine the correct amount of tax and complete the appropriate forms "voluntarily" rather than have the government do it for them. However, any taxpayer whose income falls below the statutory amount, does not have to file a return.
III. Sixteenth Amendment Argument
The Constitutional Amendment establishing the basis for income tax was never properly ratified.
The Truth: The Sixteenth Amendment was properly ratified in 1913, and it states "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
IV. Constitutional Argument
Filing a Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy.
The Truth: The courts have consistently held that disclosure of the type of routine financial information required on a tax return does not incriminate an individual or violate the right to privacy.
V. Religious Arguments
Individuals invoke the Freedom of Religion clause of the First Amendment by taking a vow of poverty or by fraudulently claiming charitable contributions of 50% or more of their adjusted gross income.
The Truth: Taking a purported vow of poverty or claiming fraudulent contributions to filter income through a church is not legal. Many fraudulent religious organizations use funds for personal expenses.
VI. Forming a Trust Argument
Forming a business trust to hold your income and assets will avoid taxes. A family estate trust will allow you to reduce or eliminate your tax liability.
The Truth: Although there are legitimate trusts and legitimate reasons why individuals establish trusts, establishing a trust, foreign or domestic, for the sole purpose of hiding your income and assets from taxation is illegal and will not absolve you of your tax liability. The underlying claims for many "untaxing" trust packages rely on other frivolous arguments--arguments that have subjected promoters, as well as willing participants, to criminal penalties.
- Some American citizens use these and other clever arguments advocating non-compliance with the tax laws. Don't be misled. Inspect their promotional material carefully. Aside from being false and misleading, you will notice the materials often contain elaborate disclaimers such as "this report is offered as vehicle for discussion and debate and for general informational purposes only. It does not constitute legal or professional advice and should not be relied on as a substitute for proper research and inquiries into original sources of authority." Actually, many of these promoters don't even follow their own advice but choose to pay their own taxes.
- The IRS will:
(1) Assist taxpayers who have been misled to correct their returns; and
(2) Vigorously pursue prosecution and prison sentences for individuals who violate the tax laws.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.