Myths about the US tax code are prolific, so much so that the case law refuting the arguments of their proponents is deep … and broad. There seems to be no end to the people willing to risk it all to avoid paying income taxes. Hey, I don’t like paying taxes either. But the simple fact is that we have to pay our taxes and anything or anyone that leads you to believe otherwise is simply wrong. And by “have to”, I mean under threat of fines and/or imprisonment: two results that happened to a chiropractor I once knew who tried virtually every one of these arguments. He went to jail.
US tax code myths can be broken down into 5 categories:
- The use of the word “voluntary”
- The definition of “income”
- The meaning of certain words and phrases used in the tax law
- The Constitutionality of the tax code
- Other fictional legal arguments
Today, without the payment of income taxes, many of the judges ruling on tax code violations wouldn’t have a paycheck. I can’t help but wonder if there isn’t a smidgeon of self-preservation mixed in their rulings. Judges ARE human and you can’t convince me they don’t have their own biases. Had the very first case gone in favor of the taxpayer, all other case law would be hinging that direction rather than hinging in favor of the IRS.
But it didn’t, and here we are, 100 years later, sending more than half of our income to people who know better how to spend it than we do and fending off the people who think we need to send more.
The voluntary nature of the US Tax Code
Nothing has caused more confusion and contention than the word “voluntary” in the US tax code. Looking back, I’m sure they wish they had used a different word. As much as I would also like the filing of a return and the payment of income taxes to be truly voluntary, US case law has defined it to mean that the returns are filed by the taxpayer, not the US government. The requirement to file a return and pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code. That section imposes “a tax on the taxable income of individuals, estates, and trusts” as determined by the tables set forth in that section. And in case you’re wondering, section 11 imposes a tax on the taxable income of corporations.
Some anti-tax arguments have gone so far as to say that should an individual fail to file a return, the IRS is required to file one for that individual — maybe they should use TurboTax??? This argument goes on to say that if enough people fail to file, the IRS would be overwhelmed and would just give up. Another risky argument is that the voluntary nature of the tax code means that taxpayer compliance with an administrative summons issued by the IRS is voluntary. Let me know how either of these works for you.
You have to file your tax return and you have to pay any income taxes you owe. You won’t get around it.
Defining the word “income”
Income for you and me is different than income for businesses. You and I are taxed on what we’re paid while businesses are taxed on whatever is left over after their operating expenses. Yeah, I wish I could only pay tax on what was left over after MY operating expenses! This argument contends that wages, tips, and other compensation received for personal services or time are not income, because there is allegedly no taxable gain when a person “exchanges” labor or their time for money. Under this theory, wages are not taxable income because people have basis in their labor or time equal to the fair market value of the wages they receive; thus, there is no taxable gain.
The 16th Amendment dictates that “Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” That’s pretty clear.Since it was passed in the 16th Amendment, the courts have consistently upheld the constitutionality of the federal income tax.
All compensation for personal services, no matter what the form of payment, must be included in gross income. This includes salary or wages paid in cash, as well as the value of property and other economic benefits received because of services performed, or to be performed in the future. Furthermore, criminal and civil penalties have been imposed against individuals who rely upon this frivolous argument.
And don’t fall for the lie that only foreign derived income is taxable. That one was defeated in case after case.
You must pay taxes on the compensation you receive. Though this is the one argument that HAS been used successfully in a tiny number of cases, your compensation is taxable and should you fail to pay your taxes, you will be criminally charged.
Terms Used in the Internal Revenue Code
What do YOU think of these arguments?
- A taxpayer is not a “citizen” of the United States, thus not subject to the federal income tax laws. Yeah, right.
- The “United States” consists only of the District of Columbia, federal territories, and federal enclaves. Yeah, right … again.
- Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws. Then what IS a person?
- The only “employees” subject to federal income tax are employees of the federal government. Yeah, right part 4.
They appear so ridiculous when you actually read them! Case law has soundly struck down each of these arguments … repeatedly.
You are a citizen, the US includes the 50 states, you are a person (I hope), and all citizens are subject to the income tax. Should aliens land and set up shop, I guarantee there will be a new amendment set up to tax them too.
Is the income tax Constitutional?
According to every court in the land, yes. The Constitutionality arguments usually center around the fact that in the original US Constitution, income taxes were forbidden. The founding fathers, in their great wisdom, understood that an income tax was a tax on the productivity of the people and they made sure it was excluded from any consideration. That’s why it took an amendment (the 16th) to start taxing incomes.
Constitutional arguments center around six contentions:
- That taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the 1st Amendment. The courts have ruled that the 1st Amendment does not provide a right to refuse to pay income taxes on religious or moral grounds or because taxes are used to fund government programs opposed by the taxpayer for whatever reason.
- That federal income taxes constitute a “taking” of property without due process of law, violating the 5th Amendment. But, The US Supreme Court has said that “it is . . . well settled that [the 5th Amendment] is not a limitation upon the taxing power conferred upon Congress by the Constitution; in other words, that the Constitution does not conflict with itself by conferring upon the one hand a taxing power, and taking the same power away on the other by limitations of the due process clause.” Any questions?
- That taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the 5th Amendment. The Supreme Court has stated, a taxpayer cannot “draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.”
- That compelled compliance with the federal income tax laws is a form of servitude in violation of the 13th Amendment. The US Supreme Court basically has said, “No it isn’t” and left it at that. Actually it said, “If the requirements of the tax laws were to be classed as servitude, they would not be the kind of involuntary servitude referred to in the 13th Amendment.”
- That the federal income tax laws are unconstitutional because the 16th Amendment to the United States Constitution was not properly ratified. But under Article V of the Constitution, only three‑fourths of the states are needed to ratify any Amendment. There were more than enough states ratifying the 16th Amendment (40+ depending on who you count).
- The 16th Amendment does not authorize a direct non-apportioned federal income tax on United States citizens. The constitutionality of the 16th Amendment has invariably been upheld when challenged. And numerous courts have both implicitly and explicitly recognized that the 16th Amendment authorizes a non‑apportioned direct income tax on United States citizens and that the federal tax laws as applied are valid.
All of the Constitutional arguments against the federal income tax have been struck down by the courts.
Other fictional legal arguments
The Internal Revenue Service is not an agency of the United States … taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an Office of Management and Budget control number as required by the Paperwork Reduction Act … African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment … taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime … an “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes.
If you happen across a “seminar” that claims it can show you how to reduce your income taxes to ZERO through some legal loophole or claims that paper money isn’t really “money” so therefore you don’t have to send anything to the IRS … IGNORE IT.
While there are legal and legitimate ways to reduce your income tax burden, anything that doesn’t involve a professional tax accountant with a stellar reputation is probably a scam and is designed to empty your wallet. Read more about Tax Preparation Scams.
None of these attempts to avoid paying your income taxes will work. None.
The Bottom Line on Taxes
- You have to file on time.
- You have to pay on time.
- Never cheat.
- The tax code is 100% legal and fully supported by the courts.
- If you think you pay too much, vote for someone who you believe will lower your taxes.
- Remember that no nation taxed itself into prosperity.