Posted on 02/14/2002 10:25:16 AM PST by farmall
My wife and I are both public school teachers. We both teach additional day and after school classes. We both teach summer school and I have another job as a security guard. Combined total we earned @ $119,000 in 2001. IRS has already taken @ $19,000. It looks like they want another $ 3-5,000 on 4-15-02.
Why because it directly contradicts how you interpret income ?
The couple filed a 1040 and thus admitted under penalty of perjury that they were liable for the tax.
Schiff tried this argument and failed.
Yes I will read the code with you but I cannot get past section 1 which clearly shows 1. All US citizens are taxable and 2. Income includes everything from whatever source derived.
Do you work for the IRS by any chance?
No, but why would that make any difference ?
Oh, wait. No one has done it exactly as they are supposed to yet. It works now, it just didn't work before. Okie dokie, if you say so.
No it doesn't say that. It says that the tax is imposed upon all who have "taxable income" and who are required to file a return. Section 1 implies no liability whatsoever. It is specifically limited to those who file returns.
No you didn't. You gave me two cites regarding people who tried to use that argument after they had filed returns.
Schiff, Irwin A. v. U.S. (September 6, 1989)
United States District Court for the District of Connecticut
IRWIN A. SCHIFF
v.
UNITED STATES OF AMERICA
Docket No. N-86-354(WWE)
Date of Decision: September 6, 1989
Judge: Eginton, Warren, opinion
Tax Analysts Citation: 1989 TNT 205-21
Parallel Citations: 89-2 USTC Para. 9551
Principal Code Reference: Section 7430
Summary
Provided by Tax Analysts. Copyright 2002, Tax Analysts. All rights reserved.
JUDGE THROWS THE BOOK AT THE AUTHOR OF "HOW ANYONE CAN STOP PAYING INCOME TAXES."
ABSTRACT: A U.S. district court has dismissed a suit filed by the
author of "How Anyone Can Stop Paying Income Taxes," which challenged
the Service's procedures in determining, assessing, and collecting
income tax deficiencies, the constitutionality of the tax system, the
seizure of royalties from his book, and the determination that he had
fraudulently underpaid his taxes.
SUMMARY: Irwin A. Schiff is the author of the book "How Anyone Can
Stop Paying Taxes." On his 1976 income tax return, Schiff failed to
provide any information concerning his income or deductions. In the
alternative, Schiff typed a statement on his return which said, "I do
not understand this return or the laws that may apply to me."
Schiff failed to file a return for 1977 and 1978. Consequently,
the Service sent him a Notice of Deficiency for the 1976, 1977 and 1978.
When Schiff did not challenge the determination in Tax Court, the Service
assessed him for the tax deficiencies, interest, and penalties for fraud
and failure to pay estimated tax. The Service eventually levied upon the
royalties from Schiff's book to collect the unpaid liabilities.
Schiff filed a suit for refund, challenging the procedures
followed by the Service in determining and assessing the tax deficiencies,
the validity of the notice and assessment and demand for payment, the
constitutionality of income taxes, the seizure of his property, and the
determination that he had fraudulently underpaid his taxes. Both Schiff and
the government moved for summary judgment.
U.S. District Judge Eginton has awarded summary judgment to the
government. Judge Eginton ruled that the calculation and assessment of the
deficiencies was proper; if Schiff disagreed with them he should have
petitioned the Tax Court. Judge Eginton also noted that Schiff did not
produce any evidence proving that the deficiencies were incorrect. The
court rejected Schiff's contentions that an income tax is unconstitutional
and that the seizure of his property was improper, holding that both
arguments fail as a matter of law.
Finally, Judge Eginton held that there was persuasive evidence
that Schiff had committed fraud in not filing returns or paying taxes for
the years 1976 through 1978. Noting that Schiff ". . . is an intelligent
person with a broad knowledge of tax law," the court rejected Schiff's
attempts to exculpate himself from the fraud penalty based on the sincerity
of his beliefs, concluding that while a misunderstanding of law may be a
defense to fraud, disagreement with the law is not.
Full Text
Provided by Tax Analysts. Copyright 2002, Tax Analysts. All rights reserved.
RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
Plaintiff Irwin A. Schiff is no stranger to the federal courts, having litigated both the criminal and civil side of his liabilities for failure to pay income taxes, and having challenged the collection of liabilities assessed against him. In the present action against defendant United States of America (the "Government"), plaintiff seeks a refund of monies collected and applied in satisfaction of the liabilities assessed against him for the taxable years 1976-1978. Schiff challenges (1) the procedures followed by the Internal Revenue Service ("IRS") in determining that deficiencies existed and the subsequent assessment of those deficiencies; (2) the validity of the notice of the assessment and demand for payment; (3) the constitutionality of the income tax; (4) the seizure of his property after his failure to pay the assessment; and (5) the determination that he fraudulently underpaid his income taxes with respect to the years 1976-78. Plaintiff has now moved for summary judgment. Defendant has responded to plaintiff's motion and has filed a cross- motion for summary judgment. For the following reasons, plaintiff's motion for summary judgment will be denied and defendant's motion for summary judgment will be granted.
FACTUAL SUMMARY
On or about April 15, 1977, plaintiff filed a form 1040 with the IRS. Rather than providing any information concerning income received or deductions claimed, plaintiff either stated "NONE" or referred to a statement typed onto the form 1030 which said, "I DO NOT UNDERSTAND THIS RETURN OR THE LAWS THAT MAY APPLY TO ME. This means I take specific objection under the 4th or 5th Amendments to the U.S. Constitution to the specific question." In addition, he referred the reader to certain attachments to the return.
After plaintiff filed neither a return nor a form 1040 for the taxable years 1977 and 1978, the IRS determined that a deficiency existed with respect to plaintiff's taxable years 1976-78. A notice of this deficiency was sent to plaintiff by certified mail on December 2, 1982. Plaintiff did not thereafter file a petition with the Tax Court challenging the Commissioner's determination. Thus after the expiration of the statutory period, the IRS assessed the amount of deficiency for each of the years 1976-1978. In addition to the deficiencies in income taxes, the IRS assessed statutory interest, a failure to pay estimated tax penalty and a fraud penalty.
Thereafter, the IRS proceeded to administratively collect the unpaid assessed liabilities. The IRS levied upon plaintiff's royalties from his book How Anyone Can Stop Paying Income Taxes. Plaintiff not only attempted to enjoin the collection of these liabilities, but also brought suit against Simon and Shuster for complying with the levy. Both actions were subsequently dismissed.
DISCUSSION
To grant a motion for summary judgment, the court must determine that there are no genuine issues of material fact in dispute and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A "material fact" is one whose resolution will affect the ultimate determination of the case. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). A factual dispute is "genuine" when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The party opposing summary judgment must provide a factual basis for its allegations and may not rely on mere speculation or conjecture as to the true nature of the facts. Matshushita Electronics Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). That both sides have filed motions for summary judgment does not require that the court grant judgment as a matter of law for one side or the other. United States Brewers Ass'n v. Healy, 669 F. Supp. 543, 548 (D.Conn. 1987).
THE CALCULATION OF THE DEFICIENCY
In his motion for summary judgment, plaintiff first challenges the procedures used by the IRS in determining the existence of a deficiency.
Under the American system of "self-assessment," an individual is required to file an individual income tax return, disclosing to the IRS Commissioner his correct tax liability and the basis for arriving at that determination. Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944). Refusal to furnish the required information on the tax return "is the functional and legal equivalent of a self-assessment of 'zero'". Fuller v. United States, 786 F.2d 1437, 1439 (9th Cir. 1986).
When an individual's tax liability is greater than the liability reported on the return, a deficiency exists. Laing v. United States, 423 U.S. 161, 173-174 (1976). The determination of a deficiency triggers certain procedural rights on behalf of the taxpayer, including the requirement that a notice of deficiency issue, allowing the taxpayer 90 days in which to petition the Tax Court for a review of the determination. See Internal Revenue Code of 1954 ("Code"), 26 U.S.C. Sections 6212-13.
Plaintiff claims that since he did not file a return and the definition of a deficiency in 26 U.S.C. section 6212 contemplates the filing of a return, a deficiency could not be determined or assessed as it was in this case -- as the difference between the tax shown by the taxpayer on the return and any greater liability later determined by the IRS.
The court finds plaintiff's argument misplaced. A taxpayer's failure to file a return does not bar the determination of a deficiency. When "a taxpayer files no return, the deficiency can be determined as if a return was made showing the amount of tax to be zero." Hartman v. Commissioner, 65 T.C. 542, 546 (1975).
In order to reflect the amount of taxes owed by an individual as a deficiency, the IRS prepares a "dummy return," showing the taxpayer's name, address and social security number, and then recording "the amount shown as the tax by the taxpayer upon his return" as zero. 26 U.S.C. section 6211. This "dummy return" does not relieve the taxpayer of the obligation to file a proper return, but provides the administrative accounting procedure necessary to show the taxpayer's failure to file a return amounted to a self-assessment of zero. Thus, any tax found owing is in the nature of a deficiency. Fuller, 786 F.2d at 1439. By proceeding in this manner, the IRS grants all taxpayers the same procedural rights, even those taxpayers who fail or refuse to file returns.
In the instant case, the Government has submitted proof that the Examination Division of the IRS prepared "dummy returns" on or around November 9, 1982, for plaintiff's 1976-78 taxable years, which included his name, address and social security number. See Defendant's Exhibit 2 attached to defendant's statement of material facts ("Defendant's Exhibit 2"). The Court notes here that plaintiff's argument that such returns must not only be prepared, but also subscribed by the Secretary pursuant to 26 U.S.C. section 6020(b) must be rejected. See United States v. Harrison, 1972-2 U.S.T.C., para. 9573, aff'd 486 F.2d 1397 (2d Cir. 1972).
In light of the foregoing, plaintiff's argument that the IRS erred in determining a deficiency by preparing a "dummy return," and then issuing a statutory notice of deficiency must fail as a matter of law. The Notice of Deficiency submitted by defendant, see Defendant's Exhibit 3, sets forth in full the explanation and calculation of the deficiency, and its issuance gave plaintiff the right to petition the Tax Court and contest the Commissioner's determination prior to the payment of any taxes. Thus, plaintiff received the same procedural rights as those accorded to taxpayers who file proper returns and attempt to inform the IRS of their correct tax liability.
THE ASSESSMENT OF THE DEFICIENCY
Plaintiff next argues that the deficiency assessments were not properly proven to him pursuant to 26 U.S.C. sections 6201-6203.
An assessment is the "ascertainment of the amount due and the formal entry of the amount on the books by the Secretary." United States v. Dixieline Financial Co., 594 F.2d 1311, 1312 (9th Cir. 1979). An assessment is made when an assessment officer signs the summary record of assessment. This summary record, known as form 23C, along with any supporting information, shall "provide identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of assessment." Treas. Reg. section 301.6203-1. Upon request of the taxpayer, he shall be furnished a copy of the record of assessment. 26 U.S.C. section 6203. In the case of a deficiency, "[i]f the taxpayer does not file a petition with the Tax Court within . . . [90 days from the date of issuance of the Notice of Deficiency], the deficiency . . . shall be assessed, and shall be paid upon notice and demand from the Secretary." 26 U.S.C. section 6213(c).
Once an assessment has been made, the Government is entitled to pursue certain remedies, similar to those of a judgment creditor, in seeking satisfaction of the amount due. Bull v. United States, 295 U.S. 247, 260 (1935) [The Court held that "[t]he assessment is given the force of a judgment and if the amount assessed is not paid when due, administrative officials may seize the debtors property to satisfy the debt"].
In the instant case, plaintiff did not avail himself of the option of petitioning the Tax Court for a redetermination of the Commissioner's decision that a deficiency existed with respect to the taxable years 1976-1978. Thus, when more than 90 days expired from the date of the issuance of the Notice of Deficiency, the Government assessed the amount of deficiency in accordance with 26 U.S.C. section 6201 and 6213(c), as reflected on the Certificate of Assessments and Payments. See Defendant's Exhibits 4-6.
A Certificate of Assessments and Payments is presumptive proof of the validity of the assessment. United States v. Dixon, 849 F.2d 1478 (11th Cir. 1988). In addition to proving the assessment, the Certificate satisfies the requirements of 26 U.S.C. section 6203, that the taxpayer be provided upon request with proof of the assessment. Accordingly, the court finds that the assessment of deficiencies with respect to plaintiff's 1976-78 taxable years were made in accordance with all statutory and regulatory requirements.
THE CORRECTNESS OF THE ASSESSMENT
Plaintiff next argues that the tax assessments are incorrect.
A tax assessment is presumptively correct. United States v. Janis, 428 U.S. 433, 440 (1976). Once a Certificate of Assessment has been established, the taxpayer has the burden of going forward and the ultimate burden of persuasion. United States v. Lease, 346 F.2d 696 (2d Cir. 1965). This burden is not changed, as plaintiff contends, when an assessment is levied against a taxpayer who has failed to file a return.
In this case, plaintiff has failed to produce any evidence that the assessments made against him are incorrect. Plaintiff's conclusory denials and bald assertions that he could produce evidence at trial that the assessments are incorrect are insufficient, without more, to withstand the granting of defendant's summary judgment motion. Mere conclusory denials do not satisfy the dual burdens of proof and persuasion, and should be pierced upon a summary judgment motion. United States v. Prince, 348 F.2d 746, 748 (2d Cir. 1965).
In order to prevail, plaintiff must show not only that the Commissioner's determination was erroneous, but also his correct tax liability. Lewis v. Reynolds, 284 U.S. 281, 283 (1932). Plaintiff has done neither in this case.
Plaintiff's argument that the assessment made against him for the year 1976 is barred by the statute of limitations must fail as a matter of law. Had plaintiff filed a proper tax return for 1976, then absent fraud, the statute of limitations for making an assessment is three years. 26 U.S.C. section 6501. However, since plaintiff did not file a proper return, the statute of limitations did not begin to run until the assessment was made in April 1983.
THE CONSTITUTIONALITY OF THE INCOME TAX
The court now returns to plaintiff's contention that the imposition of an income tax on plaintiff is unconstitutional.
The authority given Congress to lay and collect taxes, see U.S. Const. Art. section 8, Cl. 1, as modified by the 16th Amendment, allows the imposition of an income tax without limitation. The 16th Amendment removed the limitation on Congress' authority to impose a direct tax only if proportioned among the States, stating that "Congress shall have the 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." Courts have repeatedly upheld the constitutionality of the 16th Amendment. See, e.g., Brushaber v. Union Pacific Railroad, 240 U.S. 1, 17-19 (1916) [The Court upheld the validity of the 16th Amendment, finding that it eliminated the requirement that direct taxes, such as the income tax, on all income from whatever source derived, need no longer be apportioned].
As set forth in the pages attached to the statutory Notice of Deficiency, see Defendant's Exhibit 3, during each of the years from 1976-78, plaintiff received income in the amount of $52,200, $51,226 and $121,219, respectively. Based on the foregoing, plaintiff's contention that this income cannot constitutionally be taxed must be rejected.
THE COLLECTION OF THE ASSESSMENT
Having determined that the assessments were proper and the imposition of an income tax on plaintiff was not unconstitutional as a matter of law, the court now turns to plaintiff's assertion that the assessment was improperly collected.
The Government has shown the plaintiff was sent notice of assessment and demand for payment through form 3552 Prompt Assessment Billing Assembly -- Statement of Tax Due on Federal Tax Return, as well a subsequent Final Notice demanding payment. See Defendant's Exhibits 7-9. While plaintiff does not deny receiving these notices, he claims that the IRS should have used a different form to send the notice, either form 17 or 17A Statement of Tax Due.
The court finds that the form used by the IRS in the instant case provided plaintiff with all the information required for notice and demand by 26 U.S.C. section 6303 and Treas. Regs. section 301.6303. Accordingly, plaintiff's argument that the assessment was improper must fail as a matter of law.
THE IMPOSITION OF FRAUD PENALTIES
The court finally turns to plaintiff's argument that he is entitled to summary judgment on the issue of fraudulent underpayment of taxes.
26 U.S.C. section 6653(b), as in effect during 1976-78, imposes an addition to tax equal to 50 percent of the underpayment if any part of the underpayment is due to fraud. See O'Connor v. Commissioner, 412 F.2d 304, 310 (2d Cir. 1969). The purpose of this fraud penalty "is to protect the revenue and reimburse the Government for the public funds which must be expended in the investigation and uncovering of tax evasion activities." Kahr v. Commissioner, 414 F.2d 621, 626 (2d Cir. 1969).
The Government bears the burden of proving fraud by clear and convincing evidence. Prince v. United States, 348 F.2d at 748. However, since "[t]ax evaders seldom leave tracks." Webb v. Commissioner, 394 F.2d 366, 380 (5th Cir. 1968), "fraud need not be established by direct evidence, but can be shown by surveying the taxpayer's entire course of conduct and drawing reasonable inferences therefrom." Korecky v. Commissioner, 781 F.2d 1566, 1568 (11th Cir. 1986).
In determining what constitutes fraud under 26 U.S.C. section 6653(b), courts have relied on several factors, including (1) the failure to file tax returns; (2) the failure to report income over a period of time; (3) failure to furnish the Government with access to his records; (4) failure to keep adequate books and records; and (5) the taxpayer's experience and knowledge. Solomson v. C.I.R., 732 F.2d 1459, 1461-62 (6th Cir. 1984). While any one factor may not be conclusive on the fraud issue, the combination of several factors is persuasive evidence of fraud. Schiff v. Commissioner, T.C. Memo 1984- 223, aff'd, 751 F.2d 116 (2d Cir. 1984).
In the instant case, the court finds that there is persuasive evidence that plaintiff committed fraud. It is undisputed that absent enforced collection, plaintiff paid no taxes for the years 1976-78, and failed to file returns disclosing either his income or tax liability. In addition, the evidence establishes that plaintiff is an intelligent person with a broad knowledge of tax law, as plaintiff has written books on the subject of income taxes and has appeared on television discussing the same.
The court finds plaintiff's attempts to exculpate himself from the fraud penalty based on the sincerity of his belief that he need not pay income taxes to be without merit. While a failure to pay because of a "misunderstanding of law" may not sustain the imposition of the fraud penalty, "disagreement with the law" provides no defense United States v. Schiff, 801 F.2d 108, 112 (2d Cir. 1986). As the Court of Appeals for the Second Circuit noted, "[t]he distinction [between a misunderstanding and a disagreement] is necessary to the functioning of our tax system. Without it, any taxpayer could evade tax obligations simply by stubbornly refusing to admit error despite the receipt of any number of authoritative statements of the law." Id.
In a prior action involving plaintiff's liability for tax evasion and fraudulent underpayment of taxes, the Tax Court, after reviewing the evidence and considering plaintiff's arguments, concluded:
Petitioner is free to argue his theories to Congress, but he cannot disregard the laws passed by Congress and upheld by the courts, fail to perform an affirmative duty imposed on him by those laws, and then expect to avoid the consequences of his avowedly freely exercised disobedience.
Schiff, T.C. Memo. 1984-223.
For the same reasons stated by the Tax Court, and based on the evidence of fraud presented by the Government in the instant case, the court will uphold the imposition of the fraud penalty on plaintiff with respect to the taxable years 1976-78.
CONCLUSION
For the foregoing reasons, the court finds that there are no genuine issues of material fact in dispute and that summary judgment should enter for defendant as a matter of law. Accordingly, defendant's motion for summary judgment is GRANTED and plaintiff's motion for summary judgment is DENIED. The clerk is directed to enter judgment in favor of defendant United States of America against plaintiff Irwin A. Schiff and to close this case. The parties cross- motions for sanctions are DENIED.
So ordered.
Dated this 6th day of September, 1989, at Bridgeport, Connecticut.
Warren W. Eginton
United States District Judge
As soon as you explain why OJ Simpson is not in jail. As soon as you explain why speeders speed without getting tickets or why alcholics drive drunk without having their license pulled ? Because someone has not been caught yet doesn't mean its legal.
Two questions. For purposes of section 1, where is "taxable income" defined ? Where does section one put limits of only taxing someone required to file a return. The only occurance of the word "file" in section 1 is in under (g)7 and is only relevant to a child being required to file a return.
Section 1 implies no liability whatsoever. It is specifically limited to those who file returns.
I read "Imposes a tax" as equivalent to liable. So do the judges. However, technically speaking a person is not liable until a tax is assessed.
You are extremely ill-informed. (Or maybe lying?)
Sec. 1. - Tax imposed
(a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of -
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and (2)
every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table:
[snip]
The entire section only applies to those people who are filing returns. Period. Nobody else.
Another business owner acquaintence of ours to hubby and I out to eat at a fancy restaurant--I'm sure the tab was at least $200. When the bill came, he announced/laughed that Bill Clinton was picking up the tab (no irony there, eh?).
Actually, this is also an unpleasant time of year for us. It's bad enough that the maximum possible is witheld from our paychecks, but then we also end up writing out a check to the Feds(anywhere between $5000 to $16,000) to cover "un-earned income." Mind you, this "un-earned income" is on "capital gains" for mutual funds we did not sell last year.
I do pay taxes. I still pay SS, State taxes, local taxes on everything I buy. I just don't pay any federal taxes.
What part do you hope is a joke and why?
We home school. We teach our kids better for 100 dollars per year than the public school across the street does for 10,000 per year.
I can't imagine why those that use less resources have to subsidize those that use more. Another flaw like the graduated tax. Maybe it's to buy more votes down the line...What happens when there becomes more takers than givers? At what point should tax credits/welfare become a disincentive for having more mouths to feed? Ever hear of birth control or is it against your religion?
You're funny. I hope it just burns you up that this Christian family is using up all of your resources.
*wetly* I do get a kick out of your irritation.
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