It is the season when the prospect of mind-numbing hours spent preparing a tax return can drive anyone toward fantasies that someone, somewhere has found a way to avoid the whole mess. Even those who do not self-prepare can be driven to wishful thinking at a mere glimpse of Line 63: The total taxes due.
But while most of us get real and get on with it, such wishful thinking has turned into actions of denial by some would-be filers.
Whether the action consists of simply failing to file a return or entering nothing but zeros, it often owes its inspiration and justification to the tax denier movement. It is a movement that persists despite the faulty legal theories and strategies its promoters sell, not to mention the court convictions racked up by its followers.
“No tax protester [who ended up in court] has ever avoided their tax liability. Prison maybe, but they still end up owing the tax,” emphasizes Jay Adkisson, an attorney and editor of Quatloos.com, a Web site dedicated to exposing tax scams . “They also owe the cost of their legal defense, interest, penalties and often end up paying many times over the actual tax that was due,” he adds.
Actor Wesley Snipes recently demonstrated this point. With his recent conviction, the U.S. Justice Department made it clear that even action heroes have to file tax returns and pay their taxes. Snipes faces possible jail time and owes the government substantial amounts in back taxes and penalties. He escaped a more serious charge of deliberately defrauding the government because the jury felt that he had been victimized by promoters who led him down the path of denial.
What are the arguments these promoters sell in their seminars, books and disk sets that could possibly compel someone into denying they are subject to the U.S. income tax or the IRS’s authority to impose it?
Some of these arguments are Constitutional in nature:
- The Sixteenth Amendment, which ushered in the income tax, was not properly ratified.
- Filing a Form 1040 violates the Fifth Amendment right against self-incrimination.
- Form 1040 violates the Fourth Amendment right to privacy.
- The Thirteenth Amendment defends against involuntary servitude.
- The First Amendment allows for objections on moral or religious grounds.
Adkisson points out that since 1913, when income tax came into being, there has never been any serious debate about the constitutionality of the tax by any legal scholar. It appears to be an area of contention dominated by people selling tax avoidance strategies.
But, not all the avoidance arguments rely on interpretation of the U.S. Constitution. Among the many others are that:
- Only those living in the District of Columbia and U.S. territories have to pay federal taxes. Everyone else is a citizen of the state they live in, and therefore not subject to federal taxation.
- Wages are not income. They are received in exchange for labor, so there is really no taxable gain.
- African and Native Americans can claim a special tax credit as reparations for slavery or other oppressive treatment that nullifies their tax liability.
- Because Form 1040 lacks an OMB control number as required by the Paperwork Reduction Act, it is invalid.
The creativity of the tax denier movement led the IRS to publish a handbook on all the arguments people use to justify not filing a tax return or paying their fair share. It is 74 pages long. Understand that not only does the IRS supply the legal citations debunking each theory or strategy — including those listed above — it has substantial case law on its side.
At the risk of spoiling the plot, it does not matter what the strategy is, it is easy to evaluate: I's just plain wrong. Taxes are legal, the IRS’s right to collect them is legal, and taxpayers who willingly dodge their tax liability may face the full wrath of the IRS. That includes confiscation of homes, cars, saving and checking accounts and the garnishing of wages. And that is just the game plan for paying what is owed. Jail time may also figure in.
Adkisson does think the denier movement may have peaked about five years ago, due in large part to what he views as increased IRS action against the promoters. “It has driven attendance at the tax protest rallies into the dozens from the thousands,” he says.
But Robert McKenzie, a tax attorney with Arnstein & Lehr, LLP in Chicago who has represented people who bought into various forms of tax protest since 1978, has seen a steady flow of clients throughout the years. “Every year, I see several new clients. I’m just one tax attorney. There have to be thousands and thousands who are still trying this,” he observes.
What keeps the scams alive, even if they are playing to smaller audiences, seems to be a combination of creativity, the inherent nature of human gullibility and relatively short jail sentences.
“It reminds me of a game of ‘Whack-a-Mole.’ As soon as one promoter is imprisoned, another one seems to pop up or is released after serving his time,” says McKenzie, adding that a history of multiple convictions is not uncommon in this area.
And that is only if the promoters are even convicted. Adkisson points out that many avoid serving time by invoking their right to free speech under the First Amendment — in this case, their right to say or write tax fantasies and sell them to wishful thinkers. Also, he asserts not all promoters are drinking their own Kool-Aid. They may be avoiding prosecution by actually filing their returns and paying all of their income tax each year.
Staring at a stack of 1099s, it is understandable to wonder if the IRS is really going to notice one less return this year. But when Benjamin Franklin wrote of there being only two certainties in life — death and taxes — the man was offering sound financial and legal advice.