Legal Theories for Refusing to Pay Income Tax

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 What Are The Most Commonly Used Legal Theories For Refusing To Pay Income Tax?

There are various arguments made as to why people should refuse to pay income tax. In response, the Internal Revenue Service (“IRS”) has provided a justification of why these arguments for refusing to pay income tax are fictitious, and why income taxes should be paid.

In short, the IRS has stated that taxes should be paid because they are intended for resources that keep the country going. Without income taxes, there are many things that would be shut down due to lack of funding. The most common examples would be schools and government funded programs, such as food assistance.

Some of the legal theories on which people refuse to pay income tax include:

  • The 861 Position: It may be argued that Section 861 of the Internal Revenue Code does not list “wages” as taxable. The IRS responds that “compensation for services,” which is listed in the section, is the definition of “wages;”
  • Payment is Voluntary: Another theory is that the payment of taxes is “voluntary,” as the word was used in the Supreme Court case Flora v. U.S. However, the word “voluntary” means that the taxpayer has the right to pay their own taxes instead of the government imposing their own tax calculations on citizens;
  • Not Taxable Income: It is commonly argued that wages, tips, and other compensation received for personal services is not “income,” because there is no taxable gain when a person exchanges labor for money. The IRS states that the Internal Revenue Code Section 61, and famous cases such as Glenshaw Glass, emphasize the broad range of what constitutes “gross income;”
  • Violation of the 5th Amendment: Another argument is that filling out a tax return violates the 5th Amendment self-incrimination clause. However, while the self-incrimination privilege protects the taxpayer from revealing an illegal source of income, it does not protect them from disclosing the amount of that income; and
  • Involuntary Servitude: Taxation is considered to be a form of involuntary servitude, which is prohibited by the 13th Amendment. However, Congress defines “involuntary servitude” as being forced to work against one’s will.

Can I Refuse To Pay My Income Taxes?

The power of the government to tax Americans was set forth in Article I of the Constitution: “Congress shall have power to lay and collect taxes.” The 16th Amendment in 1913 gave the government the specific power to collect income tax.

While many people feel that their tax bill is an unfair burden placed on them by the government, not paying your taxes is a crime known as tax evasion. Tax evasion occurs when an individual commits an act that is designed to defraud the IRS. The definition of tax evasion is intentionally broad so that the IRS can pursue an individual for nearly any intentional misstatements on their taxes.

Tax evasion generally involves an individual or corporation that misrepresents their income to the IRS. Misrepresentations may involve actions such as:

  • Underreporting yearly income;
  • Inflating deductions;
  • Hiding taxable money; and/or
  • Transferring funds to offshore accounts.

The IRS has 6 years in which to pursue an individual for any misstatements on their taxes. However, there is no time limit on when the IRS can audit an individual.

In tax evasion cases, the IRS must prove that:

  • An unpaid tax liability exists;
  • The defendant committed some kind of act in an to attempt to hide their taxable income and avoid paying taxes on their money; and
  • The defendant had specific intent to avoid paying the taxes that they had a legal duty to pay.

The jury must find the defendant guilty of each element, beyond a reasonable doubt. Because you are legally required to pay income tax, the previously discussed legal theories associated with refusing to pay income tax do not ever hold up in court.

Are There Legal Penalties For Refusing To Pay Income Tax? What About Taxpayer Rights?

None of the previously discussed theories have allowed someone to avoid paying their taxes. Anyone who uses one of these legal theories and files a return to the IRS based on one or more of these legal theories is subject to an IRS penalty of $5,000.

Additionally, the IRS can also enact a 20% penalty, as well as another 75% civil fraud penalty. You can also be held criminally liable for tax evasion and tax avoidance, as was previously discussed.

The Taxpayer Bill of Rights clarifies your rights as a taxpayer, as well as the code of conduct that the IRS must follow when working with taxpayers. However, taxpayers do not have any rights to refuse to pay income tax that is owed to the federal government.

Some of the most essential rights of a taxpayer include:

  • You are entitled to representation by an attorney, accountant, or other tax advisor when associating with the IRS. If you have sought representation, the IRS cannot interact with you without the presence of that representation;
  • You can record a conference with the IRS, as long as you have given at least 10 days notice that you will be recording the conference. However, you should be advised that the IRS can also record the conference as long as they give you 10 days notice; and
  • You can suspend an audit that is in process in order to consult with your professional advisor.

There a certain items that the IRS must include in an audit notice to a taxpayer:

  • Clear explanation of what the notice is about;
  • Provide additional information if requested;
  • Non-technical statement of your rights as a taxpayer; and
  • Explanation of IRS collection and tax appeals procedures.

If you owe $10,000 or less in income taxes, not including interest and penalties, you can request an installment plan with the IRS. As long as specific conditions are met, the IRS is required to agree to an installment payment schedule with a maximum of three years.

If the IRS is threatening to seize your property, and you feel that doing so would cause you significant hardship, you have the right to apply for a Taxpayer Assistance Order. This is done by filing IRS Tax Form 911 with an IRS Problem Resolution Office in your local district. Tax enforcement measures will be suspended while this is under review.

There are specific kinds of property that the IRS cannot seize:

  • $6,250 in fuel, furniture, and household effects;
  • $3,125 in tools, books, and other equipment used for your job;
  • If the tax liability is only $5,000 or less, your home is exempt from seizure;
  • When the tax liability is greater than $5,000, the IRS must get permission from a U.S. District
  • Court to seize your residence; and
  • If the IRS is seizing your property, they must give you at least 30 days prior notice so that you can contest the seizure. The notice must describe the procedures for seizure, as well any options you have to avoid the seizure and how you can get your property back once it is seized by the IRS.

Do I Need A Lawyer If I Am Refusing To Pay Income Tax?

If you are being audited or brought into court by the IRS for tax evasion, you hire a local tax attorney. It is important to note that there is no successful argument to fully refuse to pay taxes. Rather, you should be prepared to pay any back taxes that you might owe.

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