Woman Beats IRS in Court Over Income Tax Protest

FoxNews ^ | 08/14/03 | Staff Writer

[bedolido]

This is a partial transcript of The Big Story With John Gibson, August 12, 2003, that has been edited for clarity. Click here to order the complete transcript.

JOHN GIBSON, HOST: Every payday, Uncle Sam takes a good chunk of your paycheck. A woman in Tennessee decided enough was enough and stopped paying. The IRS (search) took her to court and, get this, she beat them.

[sinkspur]

She still owes the taxes. What did she win?

[Catspaw]

She didn't get a criminal conviction or do jail time, but she really won nothing. According to Judge Napolitano:

She owes a lot of money. You're talking about $1 million worth of income and easily $250,00 in taxes for which they will sue her and for which they will probably get a judgment. And if she doesn't pay, they will levy on her assets. But she is not going to jail. The government has lost its shot to convict her of a crime.

I'll have to do some checking, but if the IRS levies & seizes her assets, she won't be left with much.

[RonF]

She won the right to try to pay those taxes as a free person instead of sitting in jail.

[DB]

She won the criminal trial because the IRS screwed up the handling of her letters.

Nonetheless she still owes the money, as this trial did nothing on that front.

So her victory only amounts to her not going to jail - Yet.

After she gets done paying all the interest and penalties, I’d hardly call it any kind of victory (for her).

[Catspaw]

If she's shifted income and assets out of her name to protect them from seizure, they could nail her for fraudulent transfer.

Property exempt from levy

The following exemptions, which will be indexed annually for inflation, apply to individual taxpayers for calendar year 2002:

• Wearing apparel and school books that are necessary for the taxpayer or members of his or her family are exempt from levy

• Fuel, provisions, furniture, personal effects in the taxpayer's household, arms for personal use, livestock, and poultry up to $6,780 in value are exempt from levy

• Books and tools necessary for the trade, business or profession of the taxpayer up to $3,390 in value are exempt from levy

3. For seizures of the assets of an individual taxpayer used in the trade or course of business, including vehicles require Area Director approval. Other assets must also include the future income that may be derived from the commercial sale of fish or wildlife harvested under a state fish or wildlife permit. These types of seizures require approval by the Area Director.

4. Undelivered mail is exempt from seizure.

The exempt income sources are:

• Unemployment benefits,

• Certain annuity and pension payments, including payments under the Railroad Retirement Act, Railroad Unemployment Insurance Act, Special Pensions for Medal of Honor Winners, and Retired Serviceman's Family Protection Plan and Survivor Benefit Plan,

• Workers Compensation,

• Judgment for support of minor children, if the judgment is before the date of the levy,

• Certain military service connected disability payments,

• Certain public assistance payments,

• Assistance under the Job Training Partnership Act.

NOTE: IRC 6331(h) allows for levy on 15% of certain previously exempt government payments.

2. In addition to these exempt sources of income, a portion of a taxpayer's wages, salary, and other income is exempt from levy. See IRM 5.11.5.4 for additional information about this exemption.

4. Members of the military and Public Health Service employees may deposit money in a Special Treasury Fund. Money can be deposited while the employees are outside the U.S. and its possessions. This money can not be levied. See Subsection 1035 of Title 10 of the U.S. Code.

5. No other property is exempt from levy. No state or local law can exempt property from levy to collect federal tax.

EXAMPLE: Even if property is exempt under a state homestead exemption law, it is not exempt from federal le

§ 6334

Property exempt from levy

(a) Enumeration.

There shall be exempt from levy--
 

(1) Wearing apparel and school books.

Such items of wearing apparel and such school books as are necessary for the taxpayer or for members of his family;

(2) Fuel, provisions, furniture, and personal effects.

So much of the fuel, provisions, furniture, and personal effects in the taxpayer's household, and of the arms for personal use, livestock, and poultry of the taxpayer, as does not exceed $6,250 in value;

(3) Books and tools of a trade, business, or profession.

So many of the books and tools necessary for the trade, business, or profession of the taxpayer as do not exceed in the aggregate $3,125 in value;

(4) Unemployment benefits.

Any amount payable to an individual with respect to his unemployment (including any portion thereof payable with respect to dependents) under an unemployment compensation law of the United States, of any State, or of the District of Columbia or of the Commonwealth of Puerto Rico.

(5) Undelivered mail.

Mail, addressed to any person, which has not been delivered to the addressee.

(6) Certain annuity and pension payments.

Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.

(7) Workmen's compensation.

Any amount payable to an individual as workmen's compensation (including any portion thereof payable with respect to dependents) under a workmen's compensation law of the United States, any State, the District of Columbia, or the Commonwealth of Puerto Rico.

(8) Judgments for support of minor children.

If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

(9) Minimum exemption for wages, salary, and other income.

Any amount payable to or received by an individual as wages or salary for personal services, or as income derived from other sources, during any period, to the extent that the total of such amounts payable to or received by him during such period does not exceed the applicable exempt amount determined under subsection (d).

(10) Certain service-connected disability payments.

Any amount payable to an individual as a service-connected (within the meaning of section 101(16) of title 38, United States Code) disability benefit under--

(A) subchapter II, III, IV, V, or VI of chapter 11 of such title 38, or

(B) chapter 13, 21, 23, 31, 32, 34, 35, 37, or 39 of such title 38.

(11) Certain public assistance payments.

Any amount payable to an individual as a recipient of public assistance under--

(A) title IV or title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act, or

(B) State or local government public assistance or public welfare programs for which eligibility is determined by a needs or income test.

(12) Assistance under job training partnership act.

Any amount payable to a participant under the Job Training Partnership Act (29 U.S.C. 1501 et seq.) from funds appropriated pursuant to such Act.

(13) Residences exempt in small deficiency cases and principal residences and certain business assets exempt in absence of certain approval or jeopardy.

(A) Residences in small deficiency cases. If the amount of the levy does not exceed $5,000--

(i) any real property used as a residence by the taxpayer, or

(ii) any real property of the taxpayer (other than real property which is rented) used by any other individual as a residence.

(B) Principal residences and certain business assets. Except to the extent provided in subsection (e)--

(i) the principal residence of the taxpayer (within the meaning of section 121), and

(ii) tangible personal property or real property (other than real property which is rented) used in the trade or business of an individual taxpayer.

(b) Appraisal.

The officer seizing property of the type described in subsection (a) shall appraise and set aside to the owner the amount of such property declared to be exempt. If the taxpayer objects at the time of the seizure to the valuation fixed by the officer making the seizure, the Secretary shall summon three disinterested individuals who shall make the valuation.

(c) No other property exempt.

Notwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).

(d) Exempt amount of wages, salary, or other income.

(1) Individuals on weekly basis.

In the case of an individual who is paid or receives all of his wages, salary, and other income on a weekly basis, the amount of the wages, salary, and other income payable to or received by him during any week which is exempt from levy under subsection (a)(9) shall be the exempt amount.

(2) Exempt amount.

For purposes of paragraph (1), the term "exempt amount" means an amount equal to--

(A) the sum of--

(i) the standard deduction, and

(ii) the aggregate amount of the deductions for personal exemptions allowed the taxpayer under section 151 in the taxable year in which such levy occurs, divided by

(B) 52.

Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with only 1 personal exemption.

(3) Individuals on basis other than weekly.

In the case of any individual not described in paragraph (1), the amount of the wages, salary, and other income payable to or received by him during any applicable pay period or other fiscal period (as determined under regulations prescribed by the Secretary) which is exempt from levy under subsection (a)(9) shall be an amount (determined under such regulations) which as nearly as possible will result in the same total exemption from levy for such individual over a period of time as he would have under paragraph (1) if (during such period of time) he were paid or received such wages, salary, and other income on a regular weekly basis.

(e) Levy allowed on principal residences and certain business assets in certain circumstances.

(1) Principal residences.

(A) Approval required. A principal residence shall not be exempt from levy if a judge or magistrate of a district court of the United States approves (in writing) the levy of such residence.

(B) Jurisdiction. The district courts of the United States shall have exclusive jurisdiction to approve a levy under subparagraph (A).

(2) Certain business assets.

Property (other than a principal residence) described in subsection (a)(13)(B) shall not be exempt from levy if--

(A) a district director or assistant district director of the Internal Revenue Service personally approves (in writing) the levy of such property, or

(B) the Secretary finds that the collection of tax is in jeopardy.

An official may not approve a levy under subparagraph (A) unless the official determines that the taxpayer's other assets subject to collection are insufficient to pay the amount due, together with expenses of the proceedings.

(f) Levy allowed on certain specified payments.

Any payment described in subparagraph (B) or (C) of section 6331(h)(2) shall not be exempt from levy if the Secretary approves the levy thereon under section 6331(h).

(g) Inflation adjustment.

(1) In general.

In the case of any calendar year beginning after 1999, each dollar amount referred to in paragraphs (2) and (3) of subsection (a) shall be increased by an amount equal to--

(A) such dollar amount, multiplied by

(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, by substituting "calendar year 1998" for "calendar year 1992" in subparagraph (B) thereof.

(2) Rounding.

If any dollar amount after being increased under paragraph (1) is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10.
 

[Consort]

Who pays her lawyer, and how much?

[Republican Red]

I would think she would also owe interest and penalties. My father-in-law got into some trouble a while back and the amount of back taxes owed were nominal compared to the interest and penalties attached to it.

[MarkT]

I am not a lawyer but it seems that the same defense that saved her from criminal liability may assist her in a civil case. She solicited information from the Government as to why and what she owed and the basis on which the Government made that determination and was ignored (until the indictment.) If there is no note or other contractural obligation and nothing was paid on "the obligation" by the Obligor and the party representing the Obligee would not or could not explain, then there must be a strong presumption that there is no obligation. Candidly, I would not want to be in her position but she should demand a jury trial in that case also and roll the dice - I sincerely wish her well.

[mvpel]

"Well, there was until the 16th Amendment was enacted in the early part of the last century. The Constitution specifically prohibited the federal government from taxing individuals directly. The 16th Amendment amended that. And it was challenged several times in two cases right after it was enacted. And those cases have been called intellectually dishonest. But no one seriously, successfully, has challenged the power of the federal government since then to tax individual income."

No one that they are willing to talk about, and/or haven't killed or driven to suicide, that is.

Larken Rose, at TaxableIncome.Net is one in the former category, as is Joe Banister, a former IRS agent who was forced to resign when he asked his superiors for chapter and verse after trying in vain to debunk the anti-income-tax arguments himself. Banister's calculated income taxes are going into a irrevocable trust until the IRS can prove a claim on them or until his son goes to college, and he's been waiting for years.

The only surprise in this case is not the outcome, but that the judge wasn't colluding with the IRS to suppress the testimony of the defendant and her witnesses, as is usually done.

The Sixteenth Amendment did not expand Congress' taxing powers one iota, and the fact is, they can legally tax only those things that fall under their jurisdiction among the delegated powers in Article I, Section 8. They can not legally take power over something that is outside of that realm simply by calling it a tax, direct or indirect, and payment from an employer in a state to the employee in the same state for services rendered to the employer is not "in or affecting interstate or foreign commerce."

It'll be interesting to see what happens if and when the IRS issues a notice of levy and attempts to collect from this woman. They probably don't want to just kick her door in and gun her down now that she's gotten national media attention, and they can't truthfully answer some very specific, fundamental questions about the structure of Title 26 without their whole racket crashing down. They're in quite a bind.

[1rudeboy]

I'm not sure that's the case. The government failed to prove she had criminal "intent" because she established that she was trying to contact the IRS and was blown-off.

On the other hand, as a civil matter, she will have a much tougher time making the argument that she shouldn't pay because she was unclear on the law.

[CJ Wolf]

Here are my thoughts on this:
1. The government owes us all a massive refund.
2. The budget is based on a fallacy.
3. It's a great opportunity to go to a flat tax and fix this mess.
4. Corperations haven't been paying taxes anyway so they don't think it's news.
5. Social security should never be taxed.

[mvpel]

On the other hand, as a civil matter, she will have a much tougher time making the argument that she shouldn't pay because she was unclear on the law.

In the incredible tangle that is Title 26, how can anyone NOT be unclear on the law?

Can you tell me what a "source of income for the purposes of the income tax" is, for example? The IRS can't seem to, even though it's right there in their own regulations.

[HurkinMcGurkin]

and payment from an employer in a state to the employee in the same state for services rendered to the employer is not "in or affecting interstate or foreign commerce."

I agree with you, but we know the feds rule that anything and everything affects interstate commerce when they want their way. The current interpretation give the feds absolute power, but people claiming to be "conservatives" seem to embrace it when they want government to control something they don't like.

[Temple Owl]

If this leads to a simple tax--flat or sales-- so that the average American can understand it should named to honor Vernice Kuglin. Meanwhile we urge all FReepers not to try it without first getting good legal advice.

[Michael.SF.]

I'll have to do some checking, but if the IRS levies & seizes her assets, she won't be left with much.

If anything, that is an understatement.

My brother-in-law, who is an attorney, got crosswise with the IRS a number of years ago. Amongst the things they took from his law office where his Grandfather's shillelagh (walking stick) and hi other Grandfather's Buffalo rifle. Both were later purchased back from the IRS at a greatly inflated price based on their sentimental value.

[NYFriend]

You're missing the point on an amendment. Art. 1 Sec. 8, limited the government's actions on collection of taxes (Clause 1). The 16th Amendment changed that restriction. In order to presever the document, ammendment to the Constitution do not go back and strike or insert words in the original text. When there is a conflict, the most recent Amendment wins. Looks at 18 and 21, or any of the voting rigths and elections issues.

Sorry guys, the income tax is legit., and the IRS has a training manual for it's agents that spells out the legal basis for the manditory payment/collection of taxes. They don't audit everyone every year and they don't send you a letter telling you how much you owe, hence the voluntary compliance wording. You still have to pay.

The jury decided that the government hadn't proven this woman's guilt beyond a resonable doubt. Criminal evasion of taxes has to be willfull (a simple mathmatical error on you 1040 won't land you in you in jail, assuming you pay what you owe when they correct it). The fact that they didn't answer her letters may have saved her from jail. She still owes the taxes.

[HEY4QDEMS]

Interest isn't to bad, that's applied to the unpaid balance.
The Penalties are the real killer, they are applied against the original amount owed.

[Jack Black]

The question will be who will cooperate with the IRS to sieze her assetts? If her employer asks for a court order, not an administrative one, as he should then the IRS has to go to court again. If her lawyer is able to put that to a jury trial, as he will because of the money involved they will have to fight this fight all over again.

If they try to directly sieze her assetts with force, say by repossessing her car, or breaking and entering with a bogus "administrative warrent" they may find themselves at the wrong end of local law enforcment, or an angry lady with a shotgun.

Somehow I don't think this is over. But bureaucrats hate humiliation more than anything, and I just can't see the IRS letting this go. Hopefully it doesn't end in violence, but I could see it getting there.

[1rudeboy]

I understand your point, but if I was District Counsel for the IRS, one of the first questions I would ask of her in Tax Court would be: did you try to get an opinion from a qualified tax specialist whether your $900,000.00 in income was taxable?

If she answers yes, then I would ask what the response was.
If she answers no, then I would ask on what grounds did she presume her income was not taxable?