Tax protester

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In United States tax administration, a tax protester is an individual who does not pay a tax for which a government body has determined that person is liable based on a belief that the government is acting outside of its legal authority when imposing such a tax. Alternatively, the tax protester has been used to describe a person who participates in a tax demonstration, even if the individual believes that taxes are owed.

1 Terminology
2 History
3 Denial of tax liability
4 Responses to tax protesters
5 Arguments about constitutionality in U.S. tax crime cases: The Cheek Doctrine
6 Notes
7 See also
8 External links

[edit] Terminology

In the United States, the term "tax protester" has been used by the Internal Revenue Service (IRS) and by courts to describe those who believe that tax laws do not apply to them, or to their income. The related term "tax resister" refers to people who do not tend to dispute the legal validity of a tax such as the income tax, or its legal applicability to them, but who intend to defy tax collection for conscientious reasons (for instance, those who wish to stop financing a war).

Section 3707 of the Internal Revenue Service Restructuring and Reform Act of 1998 now prohibits IRS personnel from designating a taxpayer as an "illegal tax protester", or using any similar designation for a taxpayer.

A person could be both a tax protester and a tax resister if he or she believes that tax laws do not apply to him or her and also believes that taxes should not be paid based on the use to which the taxes are put. Some tax resisters have put forth legal arguments for their position — for instance that they cannot pay taxes for nuclear weapons development because this would put them in violation of the Nuremberg Principles — that could be considered varieties of tax protester theories.

In the United States at least, the term is misleading, in the sense that there is no law against "protesting" taxes, that being covered by the constitutional right to free speech. It is a taxpayer's refusal to pay taxes that is countered by the force of law.

[edit] History

Main article: Tax protester history

While there have been people throughout history who challenged the assessment of taxes as beyond the power of the government, the modern tax protester movement began after World War II. One of the first people to fit this description was Vivien Kellems, a Connecticut industrialist and political activist who in 1948 refused to withhold taxes from the wages of her employees based on the claim that the government had no power to require such withholding. Kellems lost a case contesting withholding, but later said that the income tax itself was not being assessed in accordance with the law.

The tax protester movement began to develop a greater following in the late 1960s and early 1970s. In 1975, the term "tax protester" began to appear in reported court decisions. Many books, lectures and other materials promise to help people avoid having to pay taxes. The Seventh Circuit Court of Appeals summed up one case as follows:

Like moths to a flame, some people find themselves irresistibly drawn to the tax protestor movement's illusory claim that there is no legal requirement to pay federal income tax. And, like the moths, these people sometimes get burned. Lorin G. Sloan believed these claims and because he acted upon them now faces four months in a federal prison; there can be little doubt that he has been burned.

[. . . .]

The real tragedy of this case is the unconscionable waste of Mr. Sloan's time, resources, and emotion in continuing to pursue these wholly defective and unsuccessful arguments about the validity of the income tax laws of the United States. Despite our rejection of Mr. Sloan's legal analysis of the tax laws, we are not unmindful of the sincerity of his beliefs. On the other hand, we are less sure of the sincerity of the professional tax protestors who promote their views in literature and meetings to persons like Mr. Sloan, yet are unlikely ever to face the type of penalties incurred by him.^[1]

Ideas associated with the tax protester movement have been forwarded under different names over time. These ideas have been put forth, for example, in the broader Christian Patriot and Posse Comitatus movements, which generally assert that the Constitution has been usurped by the federal government.

[edit] Denial of tax liability

Main article: Tax protester arguments

Arguments made by tax protesters generally fall into several categories: that the Sixteenth Amendment was never properly ratified; that the Sixteenth Amendment does not permit the taxation of individual income, or particular forms of individual income; that other provisions of the Constitution such as the First, Fifth, or the "Missing Thirteenth Amendment" eliminate an obligation to file a return; that citizens of the states are not also citizens of the United States; that the statutes enacted by Congress pursuant to their constitutional taxing power are defective or invalid; and that the government and the courts engage in various conspiracies to conceal the above deficiencies.

In another Seventh Circuit case, the Court observed:

Some people believe with great fervor preposterous things that just happen to coincide with their self-interest. 'Tax protesters' have convinced themselves that wages are not income, that only gold is money, that the Sixteenth Amendment is unconstitutional, and so on. These beliefs all lead — so tax protesters think — to the elimination of their obligation to pay taxes."^[2]

[edit] Responses to tax protesters

Federal courts have consistently rejected such arguments as frivolous. The Internal Revenue Service assesses tax penalties against taxpayers who file what it considers to be "frivolous" returns with tax protester arguments. Returns that include a defaced jurat embodying the oath verifying the truthfulness of the statements made on the return are almost certain to incur this penalty.

Many Appeals Courts have made blanket statements repudiating tax protester arguments. For example, see United States v. Buckner^[3]:

"For the record, we note that the following beliefs, which are stock arguments of the tax protester movement, have not been, nor ever will be, considered 'objectively reasonable' in this circuit:

"(1) the belief that the Sixteenth Amendment to the Constitution was improperly ratified and therefore never came into being;

"(2) the belief that the Sixteenth Amendment is unconstitutional generally;

"(3) the belief that the income tax violates the Takings Clause of the Fifth Amendment;

"(4) the belief that the tax laws are unconstitutional;

"(5) the belief that wages are not income and therefore are not subject to federal income tax laws;

"(6) the belief that filing a tax return violates the privilege against self-incrimination; and

"(7) the belief that Federal Reserve Notes do not constitute cash or income."

[edit] Arguments about constitutionality in U.S. tax crime cases: The Cheek Doctrine

A defendant prosecuted under Federal tax laws who argues that tax laws are unconstitutional incurs the risk that his or her own words may help the prosecution prove the element of willfulness, even if the defendant's belief is genuine and in good faith. See generally Cheek v. United States and Tax avoidance and tax evasion.

The Cheek case is the most recent U.S. Supreme Court decision on tax protester arguments. The case involved a tax protester who was prosecuted for tax evasion under 26 U.S.C. § 7201. In Cheek, the Court stated:

Claims that some of the provisions of the tax code are unconstitutional are submissions of a different order. They do not arise from innocent mistakes caused by the complexity of the Internal Revenue Code. Rather, they reveal full knowledge of the provisions at issue and a studied conclusion, however wrong, that those provisions are invalid and unenforceable. Thus, in this case, Cheek paid his taxes for years, but after attending various seminars and based on his own study, he concluded that the income tax laws could not constitutionally require him to pay a tax.^[4]

The Supreme Court in Cheek continued:

We do not believe that Congress contemplated that such a taxpayer, without risking criminal prosecution, could ignore the duties imposed upon him by the Internal Revenue Code and refuse to utilize the mechanisms provided by Congress to present his claims of invalidity to the courts and to abide by their decisions. There is no doubt that Cheek, from year to year, was free to pay the tax that the law purported to require, file for a refund and, if denied, present his claims of invalidity, constitutional or otherwise, to the courts. See 26 U.S.C. 7422. Also, without paying the tax, he could have challenged claims of tax deficiencies in the Tax Court, 6213, with the right to appeal to a higher court if unsuccessful. 7482(a)(1). Cheek took neither course in some years, and, when he did, was unwilling to accept the outcome. As we see it, he is in no position to claim that his good-faith belief about the validity of the Internal Revenue Code negates willfulness or provides a defense to criminal prosecution under 7201 and 7203. Of course, Cheek was free in this very case to present his claims of invalidity and have them adjudicated, but, like defendants in criminal cases in other contexts who "willfully" refuse to comply with the duties placed upon them by the law, he must take the risk of being wrong.^[5]

After a remand by the Supreme Court, the tax protester in Cheek was ultimately convicted, and the conviction was upheld on appeal. The Supreme Court refused to hear his petition for review of his conviction after the remand, and he was sent to prison.^[6]

If a jury finds that a criminal defendant had a subjective good faith belief due to a misunderstanding based on the complexity of the tax law (and not based on an argument about its constitutionality), that belief may be a defense with respect to the element of willfulness, even if the belief is unreasonable.^[7] This is due to the general mens rea requirement needed to hold someone criminally liable and the specific intent needed in the Cheek case and word willfully in the statute (see specific intent crimes).

[edit] Notes

^ United States v. Sloan, 939 F.2d 499 (7th Cir. 1991), cert. denied, 502 U.S. 1060 (1992).
^ Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir. 1986).
^ 830 F.2d 102 (7th Cir. 1987).
^ Cheek v. United States, 498 U.S. 192, at 205-206 (1991) (footnote omitted).
^ Cheek, 498 U.S. 192, at 206.
^ United States v. Cheek, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994).
^ Cheek v. United States, 498 U.S. 192 (1991).