Federal Income Tax: Legal Analysis of Common Tax Protester Arguments

Federal Income Tax: Legal Analysis of Common Tax Protester Arguments

Order Code 97-59 A
Federal Income Tax: Legal Analysis of Common
Tax Protester Arguments
Updated June 11, 2008
John R. Luckey
Legislative Attorney
American Law Division

Federal Income Tax: Legal Analysis of Common Tax
Protester Arguments
Summary
This report addresses some of the commonly raised historical, constitutional,
procedural, and legal questions concerning the federal income tax.
The constitutional questions include a discussion of: Congress’s taxing power;
the difference between a direct and an indirect tax; Fifth Amendment protection
against self-incrimination and tax returns; Fourth Amendment protection against
unreasonable searches and seizures and tax collection practices; Thirteenth
Amendment protections against involuntary servitude and tax withholding; Equal
Protection and Due Process questions; and the legality of the ratification of the
Sixteenth Amendment.
Other questions addressed include whether title 26 of the United States Code is
positive law; the taxability of wages; the voluntary or involuntary nature of the
income tax; what is meant by the income tax “being in the nature of an excise tax;”
when was the Internal Revenue Service established; the authority of the Internal
Revenue Service to operate outside of the District of Columbia; what is meant by the
term United States or United States citizen in the context of the Internal Revenue
Code; what is the “Liberty Amendment;” the use of the revenues raised through the
federal tax on telephone usage; taxation without representation; the repeal of the
original withholding act; and the frivolous tax return penalty.

Contents
1. What Specific Limitations on the Power of Congress to
Tax Are Found in the Constitution? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Is the Federal Income Tax a Direct or Indirect Tax? . . . . . . . . . . . . . . . . . . . . 2
3. What Does the Court Mean When it States That the Income Tax Is
in the Nature of an Excise Tax? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Was the Sixteenth Amendment Properly Ratified? . . . . . . . . . . . . . . . . . . . . . 5
A. Did the President sign the resolution which
became the Sixteenth Amendment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Do clerical errors in the ratifying resolutions of the various state
legislatures negate the ratification of the Sixteenth Amendment? . . . . . 5
5. Do Taxpayers Have the Right, under the Fifth Amendment,
Not to Answer Questions on Their Tax Returns? . . . . . . . . . . . . . . . . . . . . . 7
6. Is Title 26 of the United States Code (Internal Revenue) Law? . . . . . . . . . . . . 8
7. Are Wages Taxable as Income? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Do We Have a Voluntary Tax System? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9. Do the Internal Revenue Service’s Collection and Auditing
Procedures Violate the Fourth Amendment? . . . . . . . . . . . . . . . . . . . . . . . . 13
10. Do Such Aspects of the Federal Income Tax as Graduated Rates,
Deductions, and Exemptions Violate the Equal Protection Guarantees
of the Constitution? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. Has the Withholding Act Been Repealed (Victory Tax Act Questions)? . . . 16
12. When Was the Internal Revenue Service Established and
Where Does it Get its Power to Tax? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Does the Internal Revenue Service Have Authority to Operate Outside
of the District of Columbia (Seat of Government Act Questions)? . . . . . . . 17
14. What Is the Liberty Amendment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15. Is the Federal Telephone Excise Tax Used to Fund the Military? . . . . . . . . 18
16. Does Withholding on Wages Constitute Involuntary Servitude in
Violation of the Thirteenth Amendment? . . . . . . . . . . . . . . . . . . . . . . . . . . 18

17. Are Not Individuals Who Are Too Young to Vote or Who Are Residents
of the District of Columbia Unconstitutionally Subjected to Taxation
Without Representation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18. What Is Meant by the Term United States in the Context
of the Internal Revenue Code? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. May Congress Tax Occupations of Common Law Right? . . . . . . . . . . . . . . 22
20. What Is Meant by the Term “Includes?” . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
21. Do the IRC Source of Income Rules Exempt the Income
of U.S. Citizens? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
22. What Is the Frivolous Income Tax Penalty? . . . . . . . . . . . . . . . . . . . . . . . . . 24

Federal Income Tax: Legal Analysis of
Common Tax Protester Arguments
1. What Specific Limitations on the Power of
Congress to Tax Are Found in the Constitution?
There is only one express exception to federal taxing power found in the United
States Constitution. Article I, Section 9 provides “No tax or duty shall be laid on
articles exported from any State.”
The Constitution divides all taxes into two classifications: direct taxes and
indirect taxes. Direct taxes must be levied according to the rule of apportionment
and indirect taxes must be levied according to the rule of uniformity.
It is important to note and emphasize that these are classifications for purposes
of how taxes may be levied, not denials of taxing power. The federal government
may enact direct taxes, but if it does so, they must be apportioned among the states.
The classification of direct taxes and the rule of apportionment are set forth in
Article I, Section 9, clause 4 of the Constitution, which states:
No Capitation, or other direct, Tax shall be laid, unless in Proportion to the
Census of Enumeration herein before directed to be taken.
There are two types of direct taxes that therefore have to be apportioned: taxes
on property (real or personal) and “Capitation” taxes (head taxes). Congress has in
the past levied taxes on property. In 1813, Congress levied a direct tax on property
totaling three million dollars, which the statute apportioned among the 18 states and
then among the counties (parishes) of each state.1 Thus, for example, $369,018.44
was apportioned to Virginia and $6,354.50 of that amount apportioned to Fairfax
County. Provisions for assessing and collecting the tax were contained in the Act of
July 22, 1813.2 A direct tax on property totaling $20 million was levied in 1861,
apportioned among the states, territories, and the District of Columbia.3 Congress
has never enacted a “head tax.”
The classification of indirect taxes and the rule of uniformity are set forth in
Article I, Section 8, clause 1 of the Constitution, which states:
1 Act of August 2, 1813, 2 Stat. 53.
2 3 Stat. 22 (1813).
3 Act of August 5, 1861, § 8, 12 Stat. 295.

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The Congress shall have Power To lay and collect Taxes, Duties, Imposts
and Excises, to pay the Debts and provide for the common Defense and general
Welfare of the United States; but all Duties, Imposts and Excises shall be
uniform throughout the United States.
All taxes which are not direct are indirect and subject to the rule of uniformity.
The rule of uniformity requires that an indirect tax not discriminate geographically.4
For example, it would violate the rule of uniformity to enact a special income tax rate
for residents of the state of Texas; however, it does not violate the rule to have a
special income tax rate for individuals who make over $50,000 per year.
2. Is the Federal Income Tax a Direct or
Indirect Tax?
The most direct answer to this question is that, since the ratification of the
Sixteenth Amendment, it makes no practical difference which classification one
gives to the income tax. As stated above, the only distinction between a direct tax
and an indirect tax is that the direct tax must be apportioned. As discussed below,
the Sixteenth Amendment, without classifying the income tax, empowers Congress
to lay and collect taxes on incomes, from whatever source, without apportionment.
Prior to the ratification of the Sixteenth Amendment, the question of
classification of the income tax was central to the determination as to its
constitutionality. In Pollock v. Farmers’ Loan and Trust Company,5 the Supreme
Court struck down the Income Tax Act of 1894.6 The 1894 Act imposed a federal
income tax on:
the gains, profits, and income received in the preceding calendar year by every
citizen of the United States ... whether said gains, profits, or income be derived
from any kind of property, rents, interest, dividends, or salaries, or from any
profession, trade, employment, or vocation carried on in the United States or
elsewhere....
After extensive examination of the history of the constitutional provisions
dealing with the federal taxing power, the Court found that the Constitution had
sought to avoid the levy of a burdening tax on accumulations of property, real or
personal, except as subject to the “regulation of apportionment.”7 The Court
concluded that a tax imposed on the rents or income of real estate was not
significantly distinct from a tax on the property itself and was, therefore, a direct tax
within the meaning of the Constitution.8
4 United States v. Ptasynski, 462 U.S. 74 (1983).
5 157 U.S. 429, rehearing 158 U.S. 601 (1895).
6 28 Stat. 509 (1894).
7 157 U.S. at 581.
8 Id. at 583.

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The Pollock Court did not, however, hold that all income taxes were direct
taxes. Rather, it held that although income taxes are generally indirect taxes in the
nature of excises (subject only to the rule of uniformity), income taxes on the gains
derived from investments in real or personal property had so substantial an impact
on the underlying assets that they should be viewed as direct taxes falling on the
property. In this respect, the 1894 tax would have been valid to the extent that it was
imposed on “gains, profits, or income ... derived from... salaries, or from any pro-
fession, trade, employment, or vocation....”9 Nonetheless, on rehearing Pollock, the
Court struck down the entire 1894 Act because it believed that to void only the tax
on income derived from investments in real and personal property and leave the tax
burden solely upon wages and other forms of compensation income would be
contrary to the congressional intent.10
Some uncertainty followed in the years after Pollock. The Court held repeatedly
that various taxes imposed by the Congress were indirect in nature and could be
levied without regard to the rule of apportionment.11
The Sixteenth Amendment to the United States Constitution was ratified in
1913, and provides that:
The Congress shall have 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.
The Congress immediately took advantage of this perceived clarification of its
power and enacted another federal income tax substantially similar to the 1894 tax.12
The 1913 tax was imposed on:
gains, profits, and income derived from salaries, wages, or compensation for
personal service of whatever kind and in whatever form paid, or from
professions, vocations, businesses, trade, commerce, or sales, or dealings in
property, whether real or personal, growing out of the ownership or use of or
interest in real or personal property, also from interest, rent, dividends, securities,
or the transaction of any lawful business carried on for gain or profit, or gains or
profits and income derived from any source whatever, including the income from
but not the value of property acquired by gift, bequest, devises or descent.
In 1916, the Supreme Court examined the new income tax in light of the
Sixteenth Amendment and the other constitutional provisions discussed above and
found that it was constitutional in its entirety. The review of the 1913 income tax
9 28 Stat. 509.
10 158 U.S. at 637.
11 See, Nicol v. Ames, 173 U.S. 509 (1899) (tax on certain sales and exchanges of property);
Knowlton v. Moore, 178 U.S. 41 (1900) (estate tax); Patton v. Brady, 184 U.S. 609 (1902)
(tax on manufactured tobacco); and Flint v. Stone Tracy Co., 220 U.S. 108 (1911) (tax on
corporate franchise).
12 38 Stat. 166.

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came in Brushaber v. Union Pacific Railroad Company,13 in which a stockholder of
the Union Pacific Railroad Company sought to enjoin the corporation from paying
the recently-imposed income tax on the grounds that the tax was unconstitutional.
The Supreme Court, in a decision written by Chief Justice White, first noted that the
Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or
revoke the tax clauses of Article I of the Constitution, quoted above. Direct taxes
were, notwithstanding the advent of the Sixteenth Amendment, still subject to the
rule of apportionment and indirect taxes were still subject to the rule of uniformity.
Rather, the Court found that the Sixteenth Amendment sought to restrain the Court
from viewing an income tax, because of its close effect on the underlying property,
as a direct tax.
The Court noted that the inherent character of an income tax was that of an
indirect tax, stating:
Moreover in addition the conclusion reached in the Pollock Case did not in any
degree involve the holding that income taxes generically and necessarily came
within the class of direct taxes on property, but on the contrary recognized the
fact that taxation on income was in the nature an excise entitled to be enforced
as such unless and until it was concluded that to enforce it would amount to
accomplishing the result which the requirement as to apportionment of direct
taxes was adopted to prevent, in which case the duty would arise to disregard
form and consider substance alone and hence subject the tax to the regulation as
to apportionment which otherwise as an excise would not apply to it.14
The language of the Sixteenth Amendment, the Court found in Brushaber, was solely
intended to eliminate:
the principle upon which the Pollock Case was decided, that is, of determining
whether a tax on income was direct not by a consideration of the burden placed
on the taxed income upon which it directly operated, but by taking into view the
burden which resulted on the property from which the income was derived since
in express terms the Amendment provides that income taxes, from whatever
source derived, shall not be subject to the regulation of apportionment.15
3. What Does the Court Mean When it States That
the Income Tax Is in the Nature of an Excise Tax?
An excise tax is a tax levied on the manufacture, sale, or consumption of a
commodity or any of various taxes on privileges often assessed in the form of a
license or fee. In other words, it is a tax on a property transaction or on an activity,
13 240 U.S. 1 (1916).
14 Id. at 16-17.
15 Id. at 18. For more recent cases discussing the apportionment question, see, United States
v. Collins, 920 F.2d 619 (10th Cir. 1990), cert den., 500 U.S. 920 (1991); In re Becraft, 885
F.2d 547 (9th Cir. 1989); Lovell v. United States, 755 F.2d 517 (7th Cir. 1984), and
Broughton v. United States, 632 F.2d 706 (8th Cir. 1980).

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not a tax on the property itself. A sales tax is a clear example of an excise tax. The
tax is not on the property directly, but rather it is a tax on the transaction.
When a court refers to an income tax as being in the nature of an excise, it is
merely stating that the tax is not on the property itself, but rather it is a tax on the
transaction of receiving gain from the property or labor. The tax is based upon the
amount of the gain, not on the value of the property.
4. Was the Sixteenth Amendment Properly
Ratified?
A. Did the President sign the resolution which became the
Sixteenth Amendment?
President Taft did not sign the resolution which became the Sixteenth
Amendment to the Constitution of the United States.
The Supreme Court ruled in 1798 that resolutions of Congress proposing
amendments to the Constitution need not be submitted to the President.16 Therefore,
the failure of President Taft to sign the proposed amendment has no effect upon the
constitutionality or legality of the Sixteenth Amendment.
B. Do clerical errors in the ratifying resolutions of the
various state legislatures negate the ratification of the
Sixteenth Amendment?
The Sixteenth Amendment became part of the Constitution of the United States
in 1913 when certified by the Secretary of State, Philander C. Knox.17 Recently it has
been alleged by several defendants in tax litigation that the Sixteenth Amendment is
not properly part of the Constitution because it was improperly ratified by a number
of states, in that the ratification resolutions of these States contained variations from
the resolution enacted by Congress in punctuation, capitalization, and/or spelling.
Secretary Knox certified adoption of the amendment pursuant to Section 205 of
the Revised Statutes of the United States which provided:
Whenever official notice is received at the Department of State that any
amendment proposed to the Constitution of the United States has been adopted,
according to the provisions of the Constitution, the Secretary of State shall
forthwith cause the amendment to be published in the newspapers authorized to
promulgate the laws, with his certificate, specifying the States by which the same
16 Hollingsworth v. Virginia, 3 U.S. 378 (1798). This case involved the Bill of Rights,
which had been referred to the States without having been presented to President
Washington.
17 38 Stat. 785 (1913).

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may have been adopted, and that the same has become valid, to intents and
purposes, as part of the Constitution of the United States.18
The Supreme Court has held that certification under this statute is conclusive upon
the courts.19 Leser v. Garnett involved a challenge to the ratification of the
Nineteenth Amendment. The Secretary of State had certified its adoption. It was
contended, however, that the ratifying resolutions of Tennessee and West Virginia
were inoperative because the resolutions of those states had been adopted in violation
of their rules of legislative procedure. In answer to this contention the Court held:
The proclamation by the Secretary certified that from official documents on file
in the Department of State it appeared that the proposed Amendment was ratified
by the legislatures of thirty-six States, and that it “has become valid to all intents
and purposes as a part of the Constitution of the United States.” As the
legislatures of Tennessee and of West Virginia had power to adopt the
resolutions of ratification, official notice to the Secretary, duly authenticated, that
they had done so was conclusive upon him, and, being certified by his
proclamation, is conclusive upon the courts.20
In support of this conclusion the Court relied upon the reasoning of Field v. Clark.21
In that case the Court held that an enrolled bill was conclusive evidence of statutory
enactment. The Court noted that such a bill is signed by the Speaker and the
President of the Senate, an attestation that it passed Congress as signed, and when the
President signs, it also indicates his attestation that the measure was properly passed
by Congress. “The respect due to coequal and independent departments requires the
judicial department to act upon the assurance, to accept, as having passed Congress,
all bills authenticated in the stated manner.”22 The Court, in Leser, felt the same
respect must be given the certification by the Secretary of State.23
More recently, in Baker v. Carr,24 the Supreme Court set out a list of
formulations which may identify the existence of a political question in a given case:
It is apparent that several formulations which vary slightly according to the
setting in which the questions arise may describe a political question, although
each has one or more elements which identify it as essentially a function of
separation of powers. Prominent on the surface of any case held to involve a
political question is found a textually demonstrable constitutional commitment
of the issue to a coordinate political department; or a lack of judicially
18 Act of April 20, 1818, ch. 80, § 2, Rev. Stat. § 205 (2d ed. 1878)(amended version
codified at 5 U.S.C. § 160 (1940))(repealed Oct. 31, 1951); current version, as amended, at
1 U.S.C. § 106b.
19 Leser v. Garnett, 258 U.S. 130 (1922).
20 Id. at 137.
21 143 U.S. 649 (1892).
22 Id. at 672.
23 Leser v. Garnett, 258 U.S. 130, 137 (1922).
24 369 U.S. 186 (1962).

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discoverable and manageable standards for resolving it; or the impossibility of
deciding without an initial policy determination of a kind clearly for non-judicial
discretion; or the impossibility of a court’s undertaking independent resolution
without expressing lack of the respect due coordinate branches of government;
or an unusual need for unquestioning adherence to a political decision already
made; or the potentiality of embarrassment from multifarious pronouncements
by various departments on one question.25
Courts of Appeals in several circuits have considered the question of the
ratification of the Sixteenth Amendment and its certification by Secretary Knox.
Applying the precedent, discussed above, these courts have uniformly rejected these
challenges, holding that correctness of the Secretary’s certification is a political
question and therefore his certification is conclusive upon the courts.26
5. Do Taxpayers Have the Right, under the Fifth
Amendment, Not to Answer Questions on Their Tax
Returns?
Yes, taxpayers do have protection of the Fifth Amendment when filing their tax
returns. However, this has never been interpreted to permit a blanket refusal to give
any information on the return.
The Fifth Amendment states:
No person ... shall be compelled in any criminal case to be a witness against
himself.
The Supreme Court has held that the privilege against self-incrimination, though
founded in the Constitution itself, does not free a taxpayer from the obligation to file
an income tax return.27 An individual may, however, refuse to provide a specific
item of information if that information would tend to incriminate the individual. For
instance, while the amount of income a person received in a year would not be
protected, the source of the income might be incriminating and therefore the privilege
could be invoked.28
25 Id. at 217.
26 See, Miller v. United States, 868 F.2d 236 (7th Cir. 1989); United States v. Stahl, 792 F.2d
1438 (9th Cir.), cert. den., 107 S.Ct. 888 (1986); United States v. Ferguson, 793 F.2d 828
(7th Cir.), cert. den., 107 S.Ct. 406 (1986); United States v. Foster, 789 F.2d 457 (7th Cir.),
cert. den., 107 S.Ct. 273 (1986); Stubbs v. Commr., 797 F.2d 936 (11th Cir. 1986); Sisk v.
Commr., 791 F.2d 58 (6th Cir. 1986), and Knoblauch v. Commr., 749 F.2d 200 (5th Cir.
1984).
27 United States v. Sullivan, 274 U.S. 259 (1926).
28 Garner v. United States, 424 U.S. 628 (1976). See, also, United States, v. Brown, 600
F.2d 248 (10th Cir. 1979).

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The Court has set out the appropriate procedures to be followed by a taxpayer
who wishes to assert the privilege against self-incrimination with respect to an item
which should otherwise be reported on an individual’s tax return. The taxpayer
should assert the privilege on the return, submitting all other information. If the
Internal Revenue Service brings criminal charges against the taxpayer for failure to
file a complete return, the taxpayer may raise the privilege against self-incrimination
in defense. The judge would then determine whether or not the privilege was
justified and, if it was justified, the criminal charges would not be permitted to stand.
However, the IRS may recompute the income tax of a taxpayer who refuses to
provide requested data. If the IRS determines from its own investigation that a
taxpayer owes additional taxes, it may assess a deficiency. In this case, the taxpayer
has the burden to establish the correct liability. Absent evidence supplied by the
taxpayer, the assessment by the IRS will be presumed accurate.29 In this respect, the
taxpayer may assert the privilege against self-incrimination to prevent being
compelled to give certain information, but one result may be a liability for additional
income taxes.
6. Is Title 26 of the United States Code (Internal
Revenue) Law?
This question stems from the fact that some titles of the United States Code
(U.S.C.) have been enacted into what is called “positive law” and others have not.
Title 26, Internal Revenue, has not been enacted into positive law.
The U.S.C. is divided into fifty titles. Of these fifty titles, twenty and part of
another have been enacted into positive law. If a title has been so enacted, the text
of that title constitutes legal evidence of the laws in that title. If the title has not been
so enacted, the title is only prima facie evidence of the actual law. The courts could
require proof of the statutes underlying the title, which are the positive law when the
title has not been enacted into positive law.
The Office of Law Revision Counsel, which has the responsibility for preparing
titles for enactment into positive law, states that titles are chosen for enactment into
positive law on two bases. Some are chosen because of congressional mandate that
the laws be codified. Otherwise, the Office of Law Revision Counsel prefers to
select titles which cover areas of minimal legislative activity. The tax laws do not
meet either one of these criteria.
The underlying statute, and the positive law, for the tax code is the Internal
Revenue Code of 198630 as amended. Title 26 of the U.S.C. is an editorial
codification of this act prepared and published under the supervision of the House
Judiciary Committee, pursuant to statute.31 The courts, in short, have the discretion
29 Id.
30 P.L. 99-514, 100 Stat. 2085, 99th Cong., 2nd Sess. (1986).
31 See, 1 U.S.C. § 202.

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to recognize the title 26 as the applicable law, or require proof of the underlying
statute.32
7. Are Wages Taxable as Income?
Yes, wages are taxable as income. The question is usually based on one of two
arguments, historical or definitional.
The historical argument derives from the congressional debates on the Sixteenth
Amendment in 1909. Most of the debate centered on the taxing of income from
capital assets and the taxing of corporations. The proponents of the position that
wages are not taxable income claim that the Sixteenth Amendment was therefore
only intended to allow taxation of income from capital.
The fallacy of this argument is that taxation of wages had never been found
unconstitutional and therefore an amendment to the Constitution was not necessary
to permit this type of taxation. The Sixteenth Amendment was enacted in response
to the Supreme Court decision in Pollock v. Farmers’ Loan and Trust Company,33
in which the Income Tax Act of 189434 was struck down. The 1894 Act imposed a
federal income tax on:
the gains, profits, and income received in the preceding calendar year by every
citizen of the United States ... whether said gains, profits, or income be derived
from any kind of property, rents, interest, dividends, or salaries, or from any
profession, trade, employment, or vocation carried on in the United States or
elsewhere....
The Court, in Pollock, found that the Constitution had sought to avoid the levy of a
burdening tax on accumulations of property, real or personal, except as subject to the
“regulation of apportionment.”35 The Court concluded that a tax imposed on the
rents or income of real estate was not significantly distinct from a tax on the property
itself and was, therefore, a direct tax within the meaning of the United States
Constitution.36
The Pollock Court did not, however, hold that all income taxes were direct
taxes. Rather, it held that although income taxes are generally indirect taxes in the
nature of excises (subject only to the rule of uniformity), income taxes on the gains
derived from investments in real or personal property had so substantial an impact
on the underlying assets that they should be viewed as direct taxes falling on the
property. In this respect, the 1894 tax would have been valid to the extent that it was
imposed on “gains, profits, or income ... derived from ... salaries, or from any pro-
32 Young v. IRS, 596 F.2d 141, 149 (N.D. Ind. 1984).
33 157 U.S. 429, rehearing 158 U.S. 601 (1895).
34 28 Stat. 509 (1894).
35 157 U.S. at 581.
36 Id. at 583.

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fession, trade, employment, or vocation....”37 Nonetheless, on rehearing Pollock, the
Court struck down the entire 1894 Act because it believed that to void only the tax
on income derived from investments in real and personal property and leave the tax
burden solely upon wages and other forms of compensation income would be
contrary to the congressional intent.38 Therefore, since only the taxation of income
derived from capital had been found to be unconstitutional unless apportioned, the
debate on the Sixteenth Amendment centered on the taxation of this type of income.
The definitional argument concerning the taxation of wages is based on the
contention that labor worth a certain amount is exchanged for money worth the same
amount and therefore there is no income to be taxed.39 This argument fails from lack
of understanding of the concept of taxable income. There are three basic
requirements which must be satisfied before income is considered taxable income.
The requirements are gain, realization, and recognition.
The Sixteenth Amendment clarified the power of Congress to lay and collect
taxes on income, from whatever source derived.40 Income has been defined as gain
derived from capital, from labor, or from both combined.41 The operative word in
this definition is gain. Gain, in the tax context, is the surplus when the basis of an
item (in many cases basis is synonymous with cost) is subtracted from the item’s fair
market value. For example: John Doe purchases a piece of real estate with a fair
market value of $5,000 for a cost of $5,000. One year later the property has
appreciated in value to a fair market value of $6,000. Mr Doe has a gain of $1,000
(current fair market value, $6,000 minus $5,000 basis).
The gain in the example above is not a taxable gain though, because it has not
been realized. The Supreme Court has ruled that income is not taxable until it has
been realized (i.e., received or the right to receive has been established).42 Therefore
if Mr. Doe sold his property for $6,000 he would realize his gain of $1,000.43
The next question which must be answered is whether Congress has determined
that this type of gain should be taxed. In other words, should this gain be recognized.
Congress has determined, by enacting Internal Revenue Code (IRC) section 61(a),
37 28 Stat. 509.
38 158 U.S. at 637.
39 This argument has been uniformly rejected. See, Commr. v. Glenshaw glass Co., 348 U.S.
426, 429-30 (1955); Reese v. United States, 24 F.3d 228 (Fed Cir. 1994); United States v.
Connor, 898 F.2d 942 (3d Cir.), cert. den., 497 U.S. 1029 (1990); and Lonsdale v. Commr.
661 F.2d 71 (5th Cir. 1981).
40 Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916).
41 Eisner v. Macomber, 252 U.S. 189 (1920).
42 Id.
43 It should be noted that Mr. Doe does not have to receive money for the property for there
to be a realization of his gain. As long as the total value of money, property, and money’s
worth he receives is greater than his basis, he has realized a gain.

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that every type of gain should be taxed unless it has been specifically excluded in
some other part of the tax code. Section 61(a) provides:
Except as otherwise provided in this subtitle, gross income means all
income from whatever source derived....
The “except as otherwise provided” clause anticipates specific non-recognition
provisions. A good example of a non-recognition provision is IRC § 103 which
excludes the interest from certain state and local bonds from gross income. Interest
on these bonds is gain and when paid, or constructively received, it is realized, but
Congress has specifically decided not to recognize it.
Wages to be taxable must pass the same type of examination. For example, if
John Doe works 5 hours for $5.00 per hour, is the $25.00 he receives taxable income
to him? As we have seen in the above analysis, we must determine if there has been
a gain which is realized and recognized.
To see if there was a gain we do not look only to the fair market value of the
labor, but rather we determine the difference between what was received and the
basis (cost) in the labor. Generally one has a zero basis in one’s own labor.
Therefore, Doe’s gain is $25.00 minus 0, or $25.00. This gain is realized when Doe
is paid or has right to receive payment.
The gain is recognized specifically in IRC § 61(a)(1) (compensation for
services) and there is no non-recognition section which is generally applicable to
wages. Therefore, John Doe has $25.00 of taxable income.
8. Do We Have a Voluntary Tax System?
We do not have a voluntary tax system in the sense that payment of taxes is
optional. There are specific provisions of law which require the payment of income
taxes. There are civil and criminal penalties for failing to pay these taxes or file the
required returns. Several rather tenuous arguments have been put forward to support
the contention that paying income tax is optional.
First, statements by many, including some by past IRS Commissioners, have
been taken out of context to support this position. The phrase “voluntary tax system”
is commonly used in discussion of our tax compliance system. The United States
does have a system of collecting taxes that depends to a certain extent upon voluntary
compliance. Although this country does have withholding on certain types of
income, much of the income tax revenues come from tax on other sources of income
(such as interest, dividends, self-employment, etc.) where the individual must supply
the information for the system to function efficiently. Supplying this information is
not voluntary in the meaning of optional. However, if a large percentage of the
citizenry did not report their income, our system of collection would not work

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efficiently, leading to the often misunderstood statement that we rely upon voluntary
compliance in our tax system.44
Another argument which purports to support the optional nature of our tax
system is based upon the Privacy Act notice contained in the IRS 1040 Form. The
Privacy Act of 197445 requires, among other things, that each agency soliciting
information from the public state the authority which authorizes the solicitation,
whether the disclosure requested on the form is mandatory or voluntary, and the
effect of not providing the information. The Privacy Act notice in the IRS 1040
Form instruction booklet does not use the word mandatory. Therefore, the argument
is put forth that filing the return is voluntary.
The Privacy Act notice in the IRS 1040 Form instruction booklet states that the
authority to seek the information is found in IRC § 6001 and 6011 and their
regulations; that one must file a return, show a Social Security Number, and fill in
all parts of the form that apply; and that a criminal or civil penalty may result from
failure to do so. The federal courts have specifically found that use of the word
“mandatory” is not required and that the notice in the 1040 Form meets the
requirements of the Privacy Act.46
Another semantic argument put forth in this area revolves around the use of the
word “liable” in tax acts. The contention is made that the income tax statute does not
use the magic words “individual is made liable” and therefore an individual is not
liable for income taxes. The federal courts have not had much time for this
argument, characterizing it as “arrogant sophistry”47 and “blatant nonsense.”48 The
first description is perhaps the most apt. The proponent of this argument has set up
a standard that all taxes must meet. The income tax does not meet this standard. He,
therefore, concludes there is something wrong with the income tax. The problem is
not in the income tax, but in the standard. There is no requirement in fact or law that
a tax act must use the proponent’s magic words.
The federal income tax is imposed, in IRC § 1, on the taxable income of every
individual. Taxable income is defined in IRC § 63. Every individual whose gross
income exceeds specified amounts is required to file an income tax return under IRC
§ 6012. Gross income is defined in IRC § 61. When a return is required by the IRC,
the person required to make such return is required, without assessment or notice and
demand of the Secretary, to pay such tax to the internal revenue officer with whom
the return is filed under IRC § 6151. These sections, working together, make an
individual liable for income taxes.
44 Helvering v. Mitchell, 303 U.S. 391 (1938); United States v. Gerads, 999 F.2d 1256 (8th
Cir. 1993); Schiff v. United States,919 F.2d 830 (2nd Cir. 1990), cert. den. 501 U.S. 1238
(1991); and United States v. Tedder, 787 F.2d 540 (10th Cir. 1986).
45 P.L. 93-579, 88 Stat. 1896 (1974).
46 See, for example, United States v. Wilber, 696 F.2d 79 (8th Cir. 1982).
47 See, Donelin v. Commr., T.C. Memo. 1984-131, and Schiff v. Commr., T.C. Memo. 1884-
223.
48 See, Newman v. Schiff, 778 F.2d 460 (8th Cir. 1985).

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9. Do the Internal Revenue Service’s Collection and
Auditing Procedures Violate the Fourth
Amendment?
The Fourth Amendment to the Constitution states:
The right of the people to be secure in their persons, houses, papers, and effects,
against unreasonable searches and seizures, shall not be violated, and no
Warrants shall issue, but upon probable cause, supported by Oath or affirmation,
and particularly describing the place to be searched, and the persons or things to
be seized.
The present procedures followed by the IRS in assessment of income tax deficiencies
and the collection of unpaid taxes have generally been sustained by the courts as
valid and as not violative of the Fourth Amendment.
The income tax law requires all taxpayers to maintain such records as are
deemed by the Treasury Department, through the IRS, to be necessary for the
determination of the taxpayer’s liability.49 Furthermore, the IRS is authorized by
statute to inspect such records and to demand their presentation in order to determine
whether a return is correct and whether a return has been filed.50 This summons may
be enforced by the IRS by means of an action brought in the United States District
Court.51
The Supreme Court has held that the use of an administrative summons to
obtain a taxpayer’s records is not a violation of the Fourth Amendment right to be
free from unreasonable searches and seizures.52 However, the IRS must issue such
a summons in “good faith,” for use in determining the taxpayer’s civil liability for
income taxes, rather than the taxpayer’s criminal liabilities.53
The IRS follows a set pattern of procedures for assessing a deficiency in income
taxes and collecting those assessed taxes. If a taxpayer is determined to have
underpaid his income taxes, the IRS will issue a notice of proposed assessment,
giving the taxpayer an opportunity to seek administrative review of the determination
within the next thirty days. If the taxpayer fails to request administrative review, or
if the review sustains the liability, a notice of deficiency is issued.54 This notice
permits the taxpayer to petition the United States Tax Court for a redetermination of
the assessed deficiency without first paying the taxes allegedly due. If no petition is
filed by taxpayer within the ninety days from the issuance of the notice of deficiency,
49 IRC § 6001.
50 IRC § 7602
51 IRC § 7604.
52 See, United States v. Bisceglia, 420 U.S. 141 (1975).
53 United States v. Sullivan, 274 U.S. 259 (1926).
54 IRC § 6212.

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the Tax Court loses jurisdiction over the case.55 At that time, the IRS issues a
demand for payment of the tax.56 Now the taxpayer must legally pay the tax.57 If the
taxpayer fails to do so, the IRS may collect the tax through judicial proceedings or
through its power of levy and distraint.
The power of levy and distraint gives the IRS the ability to seize the assets of
a taxpayer and sell them, applying the proceeds to the outstanding tax liability.58 The
Supreme Court has held that the exercise of these powers is constitutional and that
such extra-judicial seizures and sales do not violate the protections of the Fourth
Amendment against unreasonable search and seizures because the taxpayer will
already have ample opportunity for judicial review of the deficiency.59 The Court has
referred to the power of the IRS to levy on a taxpayer’s property as an “essential part
of our self-assessment tax system ... [which] enhances voluntary compliance in the
collection of taxes.60
The Supreme Court has noted some constitutional limitations on the exercise
of the Government’s power of levy and distraint. In G.M. Leasing the Court held that
the IRS could not make a forced entry onto the taxpayer’s premises in order to seize
property without a court order. However, the agents could take the taxpayer’s
property which was not in an inclosed area.61
In some limited circumstances, the IRS will levy upon the property of a taxpayer
without first providing the opportunities for administrative or judicial review
discussed above. The IRS is authorized by statute to dispense with these procedures
and immediately seize the property if it believes that the taxpayer intends to remove
or hide himself or his property in order to defeat the collection of the tax.62 This
emergency procedure is known as “jeopardy assessment” and has been sustained by
the Supreme Court against a Fourth Amendment challenge.63
55 IRC § 6213.
56 IRC § 6155.
57 However, the taxpayer’s options for judicial review are not foreclosed. IRC § 7422
provides that after the taxpayer has paid the tax in full, a suit for a refund may be brought
in either the appropriate United States District Court or in the United States Claims Court.
58 See, IRC §§ 6331-6345.
59 Phelps v. United States, 421 U.S. 330 (1975).
60 G.M. Leasing Corp. v. United States, 429 U.S. 339 (1977).
61 Id.
62 See, IRC §§ 6851-6864.
63 Laing v. United States, 423 U.S. 161 (1976).

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10. Do Such Aspects of the Federal Income Tax as
Graduated Rates, Deductions, and Exemptions
Violate the Equal Protection Guarantees of the
Constitution?
The Constitution does not contain an express prohibition against the denial by
the federal government of a person’s equal protection of the laws. The Fifth
Amendment does, however, preclude the United States from depriving any person
of “life, liberty, or property, without due process of law....” The Supreme Court has
determined that this assurance also precludes the United States from denying persons
equal protection of the laws.64
The prohibition against denial of equal protection of the laws, however, does not
preclude Congress from creating reasonable classifications among taxpayers. The
Court has stated that the Congress is to be given wide discretion in classifying
taxpayers for purposes of tax deductions, exemptions, rates and other features. Such
classifications are to be sustained unless they are arbitrary and capricious.65 The
Court has, for example, upheld as reasonable classifications within the tax laws the
graduated nature of the income tax rates, imposing higher proportionate burdens on
more wealthy taxpayers66 and the taxation of domestic corporations in a fashion
distinct from foreign corporations.67
The latitude granted to Congress in tax matters was emphasized in the Supreme
Court’s decision in Commissioner v. Kowalski68 in which the Court ruled that
highway patrol officers were required to pay tax on meal allowances granted them,
even though similar allowances granted military personnel were expressly tax-free
by statute. In relation to this disparity of treatment, the Court stated that:
arguments of equity have little force in construing the boundaries of exclusions
and deductions from income, many of which, to be administrable, must be
arbitrary.69
64 See, Buckley v. Valeo, 424 U.S. 1 (1976); and Weinberger v. Weisenfeld, 420 U.S. 636
(1975).
65 Helvering v. Indiana Life Ins. Co., 292 U.S. 371 (1934).
66 Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916).
67 National Paper Co. v. Bowers, 266 U.S. 373 (1924).
68 434 U.S. 77 (1977).
69 Id. at 95-96.

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11. Has the Withholding Act Been Repealed
(Victory Tax Act Questions)?
The original withholding act for withholding on wages was enacted as part of
the Victory Tax Act of 1942.70 This act was a temporary act and was scheduled to
expire at the cessation of hostilities (World War II). The act did not expire, but was
instead repealed by the Income Tax Act of 1944.71 Previous to this repealing act, the
Withholding Tax Act of 194372 had been enacted containing a withholding provision
and not subject to an expiration date.
The present withholding provisions were enacted as part of the Internal Revenue
Act of 195473 and continued as part of the Internal Revenue Code of 1986. While
they have been amended, they have not been repealed.
12. When Was the Internal Revenue Service
Established and Where Does it Get its
Power to Tax?
The Office of the Commissioner of Internal Revenue was established on July
1, 1862 by act of Congress.74 There was an appropriation for the Bureau of Internal
Revenue as early as 1870.75 The Bureau’s name was officially changed to the
Internal Revenue Service in 1953.76
The Internal Revenue Service does not have the power to tax. Rather, it has
been charged by Congress with the responsibility of administering and enforcing the
internal revenue laws and related statutes which have been enacted by Congress.
70 Ch. 619, 56 Stat. 798, 77th Cong., 2nd Sess (1942).
71 Ch. 210, 58 Stat. 231, 78th Cong., 2nd Sess (1944).
72 Ch. 120, 57 Stat. 126, 78th Cong., 1st Sess. (1943).
73 Ch. 736, 65A Stat. 1, 83rd Cong., 2nd Sess. (1954).
74 Ch. 119, 12 Stat. 432, 37th Cong., 2nd Sess. (1862).
75 Ch. 56, 16 Stat. 83, 84, 41st Cong., 2nd Sess. (1870).
76 Treasury Department Order 150-29 (July 9, 1953).

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13. Does the Internal Revenue Service Have
Authority to Operate Outside of the District of
Columbia (Seat of Government Act Questions)?
Questions concerning the authority of the Internal Revenue Service to operate
outside of the District of Columbia generally are premised upon an incorrect reading
of the requirements of the Seat of Government Act.77 The act provides:
All offices attached to the seat of government shall be exercised in the District
of Columbia, and not elsewhere, except as otherwise expressly provided by
law.78
This act was first enacted in 1790 for the purpose of centralizing the national
government.79 The act did not (and does not) require that a department or agency
only have authority within the seat of government, but rather that the department or
agency be physically located at the seat of government. The same Congress which
passed the act set up districts for the collection of tariffs and taxes located outside the
seat of government.80
The Department of the Treasury is an office attached to the seat of
government.81 The IRS is a part of the Department of the Treasury.82 Therefore the
IRS must have its office in the District of Columbia unless otherwise expressly
provided by law. The IRS does have its national headquarters within the District of
Columbia.
There are several provisions of law which expressly authorize the IRS to operate
outside of the District of Columbia. Two of the more general such authorizations are
found in sections 7621 and 7803 of the Internal Revenue Code. The first of these
provides for the establishment by the President of internal revenue districts
throughout the states for the purpose of administering the tax laws.83 In the second,
the Secretary of the Treasury is authorized to employ such number of persons as the
Secretary deems proper for the administration and enforcement of the tax laws and
to designate and determine the posts of duty of such persons inside and outside of the
District of Columbia.84
77 4 U.S.C. §§ 71-73.
78 4 U.S.C. § 72.
79 Ch. 28, 1 Stat. 130, 1st Cong., 2nd Sess. (July 16, 1790). The act established Philadelphia
as the temporary seat of government until the first Monday in December of 1800 when the
seat of government would become the District of Columbia.
80 See, Ch. 35, 1 Stat. 145, 1st Cong., 2nd Sess. (August 4, 1790).
81 See, 31 U.S.C. § 301(a).
82 See, 26 U.S.C. § 7802.
83 26 U.S.C. § 7621.
84 26 U.S.C. § 7803.

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14. What Is the Liberty Amendment?
The Liberty Amendment is a proposed amendment to the United States
Constitution which has been introduced several times over the past 40 years. The
proposal would repeal the Sixteenth Amendment (which authorized Congress to levy
an income tax without apportionment among the states) and would preclude
Congress from levying taxes on persons, incomes, estates, and/or gifts. It would also
preclude the federal government from engaging in any business, professional,
commercial, financial, or industrial enterprise except as specified in the Constitution.
15. Is the Federal Telephone Excise Tax Used to
Fund the Military?
The revenue from the telephone excise tax85 goes into the general revenues of
the federal government. It is not specifically earmarked for the military.
This question is based on the fact that this excise tax was increased from 3% to
10% in 1966,86 at the request of the Johnson administration, to help meet the expense
of the military effort in Vietnam.
Protesters of the war in Vietnam, and later those opposed to military spending
in general, have used this tax as a vehicle for their protest because of the above
mentioned historical connection with military funding and because it is a tax levied
on most of the population which does not have a withholding system of collection.
Refusal to pay the tax may, of course, result in the imposition of civil and/or criminal
penalties.
16. Does Withholding on Wages Constitute
Involuntary Servitude in Violation of the Thirteenth
Amendment?
The Thirteenth Amendment provides that “[n]either slavery nor involuntary
servitude ... shall exist in the United States....” Although the Supreme Court has
upheld the constitutionality of income tax withholding, in the context of the corporate
income tax, as early as 1916,87 a few taxpayers have still contended, unsuccessfully,
that to require an employer, without compensation, to withhold income taxes from
the wages of employees places the employer in involuntary servitude in violation of
the Thirteenth Amendment.88 The courts have consistently and repeatedly held that
85 IRC §§ 4251-4254.
86 P.L. 89-368, 80 Stat. 38, 89th Cong., 2nd Sess. (1966).
87 Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916).
88 See, for example, Lorre, Jr. v. United States, 40 A.F.T.R. 2d 5664 (W.D. Tex. 1977); and
(continued...)

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a requirement of governmental service of this character does not constitute
involuntary servitude. A government has the right to require certain actions of its
citizens, including income tax withholding, jury service, and military service.89
17. Are Not Individuals Who Are Too Young to Vote
or Who Are Residents of the District of Columbia
Unconstitutionally Subjected to Taxation Without
Representation?
The argument has been suggested that individuals who are not 18 years of age
and individuals residing in the District of Columbia should not be subject to federal
taxes because they do not have voting representation in Congress. Individuals who
are not 18 years of age cannot vote for members of Congress or the President, and
residents of the District of Columbia cannot elect voting representatives to Congress,
although they may vote in Presidential elections.
The concept of no taxation without representation was a factor in the creation
of this country and was embodied in the Declaration of Independence, but it is not
an express guarantee of the Constitution. Rather, the Constitution establishes a
representative form of government with elected officials for all adults, except those
residing in the District of Columbia. As such, the Constitution permits taxation of
both residents of the District and individuals who are disenfranchised because of age.
This principle was clearly expressed by the Supreme Court in its decision in
Loughborough v. Blake90 in which Chief Justice Marshall stated:
The difference between requiring a continent, with immense population, to
submit to be taxed by a government having no common interest with it, separated
from it by a vast ocean, restrained by no principle of apportionment, and
associated with it by no common feelings; and permitting the representatives of
the American people, under the restrictions of our Constitution, to tax a part of
society, which is either in a state of infancy advancing to manhood, looking
forward to complete equality as soon as that state of manhood shall be attained,
as is the case with the territories; or which has voluntarily relinquished the right
of representation, and has adopted the whole body of Congress for its legitimate
government, as is the case with the district, is too obvious not to present itself to
the minds of all.91
88 (...continued)
United States v. Awerkamp, 34 A.F.T.R. 2d 5086 (7th Cir. 1974).
89 See, Arver v. United States, 245 U.S. 366 (1918); Butler v. Perry, 240 U.S. 328 (1916);
and Robertson v. Baldwin, 165 U.S. 275 (1897).
90 18 U.S. 317 (1820).
91 Id. at 324 to 325.

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18. What Is Meant by the Term United States in the
Context of the Internal Revenue Code?
This question has often appeared as a form letter which questions the meaning
of the term “United States” as used in the Internal Revenue Code. These letters
generally follow the form of: (1) a statement of confusion as to the meaning of the
term resulting from their review of the IRC and some court decisions; (2) citation to
three definitions of the term from the Supreme Court opinion of Hooven & Allison
Co. v. Evatt92; (3) question as to which of the cited meanings is applicable to an
Internal Revenue Service regulation;93 (4) citation to a portion of the Supreme Court
opinion of United States v. Cruikshank94 concerning the different obligations and
rights stemming from federal and state citizenship; and (5) concluding with a plea for
immediate response to end their confusion.
First it should be noted that neither of the Supreme Court opinions cited in the
letters have anything to do with the federal income tax. Hooven was a case
concerning state taxation of imports. The Constitution prohibits states from taxing
imports without the consent of Congress except what may be absolutely necessary
for executing its inspection laws.95 One of the issues in Hooven was whether the
items which had been taxed by the state had been imported, in that the items in
question came from the Philippine Islands, which at that time were a insular
possession of the United States. It was in this context that the Court entered into a
discussion of the meaning of the term “United States” stating:
The term “United States” may be used in any one of several senses. It may
be merely the name of a sovereign occupying the position analogous to that of
other sovereigns in the family of nations. It may designate the territory over
which the sovereignty of the United States extends, or it may be the collective
name of the States which are united under the Constitution.96
The Court decided for purposes of this constitutional provision that “United States”
did not include the Philippine Islands.
Cruikshank, a case decided 38 years before the ratification of the Sixteenth
Amendment and the enactment of the modern income tax, was a criminal case which
had nothing to do with taxes of any kind. The quote from the case cited in the letters
is part of lengthy section which discusses our federal system of government where
individuals are citizens of a state and of the nation and thus have rights and
92 324 U.S. 652 (1945).
93 26 C.F.R. § 1.1-1(a)(1).
94 92 U.S. 542 (1875).
95 U.S. Const. Art. I, § 10, cl. 2.
96 Hooven, at 671 and 672. It should be noted that the parentheticals in the letters are not
from the Court opinion, but rather appear to be interpretations of the definitions supplied
by the author and are not necessarily complete or accurate. It should be also noted that the
Court does not state or imply that this list of definitions is exhaustive or exclusive.

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obligations, which may vary, stemming from these two citizenships.97 If one insists
on applying this passage to the subject of taxes, it could best be summarized by
saying that an individual has certain rights and obligations under the federal tax laws
and certain rights and obligations under the state tax laws and such rights and
obligations may not be identical.
The IRC uses the term “United States” several hundred times. It uses the term
in all three of the ways mentioned in the Hooven case. For example, the IRC refers
to the United States Tax Court.98 This use of the term is obviously not used in the
geographical sense. Rather, it is used to indicate that the court is a part of the federal
government. In the unemployment tax provisions of the IRC the term is defined to
include the States, the District of Columbia, the Commonwealth of Puerto Rico, and
the Virgin Islands.99 The general IRC definition of the term states:
When used in this title,100 where not otherwise distinctly expressed or manifestly
incompatible with the intent thereof, the term “United States” when used in a
geographical sense includes only the States and the District of Columbia.101
The use of the term which the letters specifically inquire about is not from the
IRC, but from the IRS regulations. The regulation in question states in pertinent part:
Section 1 of the Code imposes an income tax on the income of every
individual who is a citizen or resident of the United States and, to the extent
provided by section 871(b) or 877(b), on the income of a nonresident alien
individual.102
The use of the term “United States” in this regulation is that of a modifier of the
terms “citizen” and “resident.” Further study of this regulation might well have
alleviated some of the constituents’ confusion. Subsection (b) of this regulation,
entitled “Citizens or residents of the United States liable for tax,” expands on the
discussion quoted above. Subsection (c) of this regulation, entitled “Who is a
citizen,” goes on to state:
Every person born or naturalized in the United States and subject to its
jurisdiction is a citizen. For further rules governing the acquisition of
citizenship, see chapters 1 and 2 of title III of the Immigration and Nationality
Act (8 U.S.C. §§ 1401-1459). For rules governing loss of citizenship, see
sections 349 to 357, inclusive, of such Act (8 U.S.C. §§ 1481-1489), Schneider
v. Rusk, 377 U.S. 163 (1974), and Rev. Rul. 70-506, C.B. 1970-2, 1. For rules
pertaining to persons who are nationals but not citizens at birth, e.g., a person
born in American Samoa, see section 308 of such Act (8 U.S.C. § 1408). For
special rules applicable to certain expatriates who have lost citizenship with the
97 See, Cruikshank, 92 U.S. at 549 to 551.
98 See, e.g., IRC § 7441.
99 IRC § 3306(i).
100 The IRC is codified in title 26 of the United States Code.
101 IRC § 7701(a)(9).
102 26 C.F.R. § 1.1-1(a)(1).

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principal purpose of avoiding certain taxes, see section 877. A foreigner who has
become a citizen but who has not yet been admitted to citizenship by a final order
of a naturalization court is an alien.103
19. May Congress Tax Occupations of Common
Law Right?
Yes, Congress may tax “occupations of common law right” and has done so
many times, for example the Social Security tax and the federal income tax.
The argument has been made that earning a living is a right, sometimes called
a “God given right” or a “common law right,” and not a privilege and therefore it
cannot be taxed. Sometimes those presenting this argument would distinguish
between natural occupations (i.e., farmer or rancher) and occupations created by the
government (i.e., government employee or lawyer), the latter being taxable while the
others are not. These types of distinctions have never been recognized in the area of
taxing power of the states or the federal government. The Supreme Court has
specifically rejected a challenge to the Social Security tax based on this type of
argument, stating:
The statute books of the states are strewn with illustrations of taxes laid on
occupations pursued of common right. We find no basis for a holding that the
power in that regard which belongs by accepted practice to the legislatures of the
states, has been denied by the Constitution to the Congress of the nation.104
In challenges to the federal income tax, the courts have consistently rejected the
claim that Congress may not tax occupations of common law right.105
20. What Is Meant by the Term “Includes?”
The use of the term “includes” in IRC definitions has given rise to at least two
questions concerning the application of the tax code. Does the “State” include the
fifty states? Does “employee” include anyone who does not work for the
Government or is an officer of a corporation?
The IRC defines “State” to include the District of Columbia.106 There are those
who argue that this means that the term “State” only includes the District of
Columbia and not the fifty States of the Union. The IRC defines “employee” to
include officers, employees or elected officials of the United States, a State, or any
103 26 C.F.R.. § 1.1-1(c).
104 Steward Machine Co. v. Davis, 301 U.S. 548 at 582 to 583 (1937).
105 See, for example, United States v. Russell, 585 F.2d 368 (8th Cir. 1978); United States
v. Silkman, 543 F.2d 1218 (8th Cir. 1976), cert. denied, 431 U.S. 919 (1977); and Jones v.
United States, 551 F. Supp. 578 (N.D. N.Y. 1982).
106 IRC § 7701(a)(10).

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political subdivision thereof, or the District of Columbia or an officer of a
corporation.107 There are those who argue that this means that only those in one of
these categories are “employees” for purposes of the income tax.
Each of these arguments displays a basic misunderstanding of the meaning of
the term “includes.” The term “includes” is inclusive not exclusive. The IRC
provides that the terms “includes” and “including” when used in a definition shall not
be deemed to exclude other things otherwise within the meaning of the term
defined.108
The courts have not given any credence to arguments that “includes” implicitly
excludes. They have been consistently found to be without merit and frivolous.109
21. Do the IRC Source of Income Rules Exempt the
Income of U.S. Citizens?
The answer to this question is no. The question is based on the claim that the
“sources of income” rules of the IRC only apply to nonresident aliens and foreign
corporations.110 This reading of the IRC and regulations contradicts the express
language of the IRC and regulations.
The IRC clearly states that “gross income means all income from whatever
source derived.”111 The regulations specifically state:
In general, all citizens of the United States, wherever resident, and all
resident alien individuals are liable to the income taxes imposed by the Code
whether the income is received from sources within or without the United
States.112
The reason that “source of income” rules apply primarily to nonresident aliens
and foreign corporations is that they are only taxed on domestic source income.
Therefore there is need of rules to determine the source of their income. As stated
above, a citizen or resident alien is taxed on all income regardless of the source.
Therefore, source rules are unnecessary.
107 IRC § 3401(c).
108 IRC § 7701(c).
109 See, U.S. v. Rice, 659 F.2d 524,528 (5th Cir. 1981), U.S. v. Latham, 754 F.2d 813, 815
(1st Cir. 1986), U.S. v. Ward, 833 F.2d 1538 (11th Cir. 1987), and U.S. v. Steiner, 963 F.2d
381 (9th Cir. 1992).
110 See, IRC § 861 and its regulations. This argument has been consistently rejected by the
courts. See, Williams v. Commr., 114 T.C. 136 (2000); Madge v. Commr., T.C. Memo.
2000-370, 80 T.C.M. 804 (2000) (CCH); and Aiello v. Commr., T.C. Memo. 1995-40, 69
T.C.M. 1765 (1995) (CCH).
111 IRC § 61.
112 Treas. Reg.§ 1.1-1(b).

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22. What Is the Frivolous Income Tax Penalty?
As part of the Tax Equity and Fiscal Responsibility Act of 1982,113 Congress
enacted a penalty for filing a frivolous income tax return. This penalty is codified at
IRC § 6702. It may be imposed on any individual who files any document which
purports to be a tax return but fails to contain information from which the substantial
correctness of the amount of tax shown on the return can be judged, or contains
information which on its face indicates that the amount of the tax shown on the return
is substantially incorrect. In addition, such conduct must arise from a frivolous
position taken by the taxpayer or a desire of the taxpayer, which is apparent from the
face of the return, to delay or impede the administration of the tax laws.114
The penalty is immediately assessable. The taxpayer need not be given any
advance warning before assessment. To challenge this penalty, the taxpayer must pay
15% of the penalty and file for a refund with the IRS. If the refund is denied, the
taxpayer may seek review in the Federal District Courts.115 The constitutionality of
the frivolous return penalty has been upheld against challenge under the First
Amendment116 and the Due Process Clause.117
The original penalty was $500. In 2006, Congress increased the penalty tenfold
to $5,000.118 As amended, the penalty may be imposed not only against frivolous tax
returns, but also against a “specified frivolous submission.” A “specified
submission” is defined as a request for a hearing under section 6320 or 6330, or an
application under section 6159, 7122, or 7811, where any portion of the submission
is based on a position identified by the Secretary as frivolous or reflects a desire to
delay or impede administration of the federal tax laws.119 Section 6702 was further
amended to add a new subsection (c) requiring the Secretary to prescribe a list of
positions identified as frivolous.
In March 2007, the IRS issued IRS Notice 2007-30 to provide the list required
by the new subsection (c). Positions that are the same as or similar to the positions
listed in the Notice are identified as frivolous for purposes of the penalty for a
“frivolous tax return” under section 6702(a) of the Internal Revenue Code and the
penalty for a “specified frivolous submission” under section 6702(b). Positions
identified as frivolous are:
(1) Compliance with the internal revenue laws is voluntary or optional and not
required by law, including arguments that:
113 P.L. 97-248, 97 Stat. 369, 97th Cong., 2nd Sess. (1982).
114 IRC § 6702.
115 IRC § 6703.
116 Kahn v. United States, 753 F.2d 1203 (3rd Cir. 1985).
117 Baskin v. United States, 738 F.2d 975 (8th Cir. 1984).
118 P.L. 109-432, § 407, 120 Stat. 2922, 109th Cong., 2nd Sess. (2006).
119 IRC § 6702(b)(2)(B).

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(a) Filing a Federal tax or information return or paying tax is purely
voluntary under the law;
(b) Nothing in the Internal Revenue Code imposes a
requirement to file a return or pay tax, or that a person is not
required to file a tax return or pay a tax unless the Internal
Revenue Service responds to the person’s questions,
correspondence, or a request to identify a provision in the Code
requiring the filing of a return or the payment of tax;
(c) There is no legal requirement to file a Federal income
tax return because the instructions to Forms 1040, 1040A,
or 1040EZ or the Treasury regulations associated with the
filing of the forms do not display an OMB control number
as required by the Paperwork Reduction Act of 1980, 44
U.S.C. § 3501 et seq.;
(d) Because filing a tax return is not required by law, the Service must
prepare a return for a taxpayer who does not file one in order to assess
and collect tax.
(e) A taxpayer has an option under the law to file a
document or set of documents in lieu of a return or elect to
file a tax return reporting zero taxable income and zero tax
liability even if the taxpayer received taxable income
during the taxable period for which the return is filed;
(f) An employer is not legally obligated to withhold
income or employment taxes on employees’ wages;
(g) A taxpayer may “untax” himself or herself at any time
or revoke the consent to be taxed and thereafter not be
subject to internal revenue taxes;
(h) Only persons who have contracted with the
government by applying for a governmental privilege or
benefit, such as holding a Social Security number, are
subject to tax, and those who have contracted with the
government may choose to revoke the contract at will;
(i) A taxpayer may lawfully decline to pay taxes if the
taxpayer disagrees with the government’s use of tax
revenues;
(j) An administrative summons issued by the Service is per
se invalid and compliance with a summons is not legally
required.
(2) The Internal Revenue Code is not law (or “positive law”) or its
provisions are ineffective or inoperative, including the sections
imposing an income tax or requiring the filing of tax returns, because
the provisions have not been implemented by regulations even though
the provisions in question either (a) do not expressly require the
Secretary to issue implementing regulations to become effective or
(b) expressly require implementing regulations which have been
issued.
(3) A taxpayer’s income is excluded from taxation when the taxpayer
rejects or renounces United States citizenship because the taxpayer is
a citizen exclusively of a State (sometimes characterized as a
“natural-born citizen” of a “sovereign state”), that is claimed to be a
separate country or otherwise not subject to the laws of the United
States. This position includes the argument that the United States

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does not include all or a part of the physical territory of the 50 States
and instead consists of only places such as the District of Columbia,
Commonwealths and Territories (e.g., Puerto Rico), and Federal
enclaves (e.g., Native American reservations and military
installations).
(4) Wages, tips, and other compensation received for the performance
of personal services are not taxable income or are offset by an
equivalent deduction for the personal services rendered, including an
argument that a taxpayer has a “claim of right” to exclude the cost or
value of the taxpayer’s labor from income or that taxpayers have a
basis in their labor equal to the fair market value of the wages they
receive.
(5) United States citizens and residents are not subject to tax on their
wages or other income derived from sources within the United States,
as only foreign based income or income received by nonresident
aliens and foreign corporations from sources within the United States
is taxable.
(6) A taxpayer has been removed or redeemed from the Federal tax
system though the taxpayer remains a United States citizen or
resident.
(7) Only certain types of taxpayers are subject to income and
employment taxes, such as employees of the Federal government,
corporations, nonresident aliens, or residents of the District of
Columbia or the Federal territories.
(8) Only certain types of income are taxable, for example, income that
results from the sale of alcohol, tobacco, or firearms or from
transactions or activities that take place in interstate commerce.
(9) Federal income taxes are unconstitutional or a taxpayer has a
constitutional right not to comply with the Federal tax laws for one of
the following reasons:
(a) The First Amendment permits a taxpayer to refuse to
pay taxes based on religious or moral beliefs;
(b) A taxpayer may withhold payment of taxes or the filing
of a tax return until the Service or other government entity
responds to a First Amendment petition for redress of
grievances;
(c) Mandatory compliance with, or enforcement of, the tax
laws invades a taxpayer’s right to privacy under the Fourth
Amendment;
(d) The requirement to file a tax return is an unreasonable
search and seizure contrary to the Fourth Amendment;
(e) Income taxation, tax withholding, or the assessment or
collection of tax is a “taking” of property without due
process of law or just compensation in violation of the
Fifth Amendment;
(f) The Fifth Amendment privilege against
self-incrimination grants taxpayers the right not to file

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returns or the right to withhold all financial information
from the Service;
(g) Mandatory or compelled compliance with the internal
revenue laws is a form of involuntary servitude prohibited
by the Thirteenth Amendment;
(h) Individuals may not be taxed unless they are “citizens”
within the meaning of the Fourteenth Amendment;
(i) The Sixteenth Amendment was not ratified, has no
effect, contradicts the Constitution as originally ratified,
lacks an enabling clause, or does not authorize a
non-apportioned, direct income tax;
(j) Taxation of income attributed to a trust, which is a
form of contract, violates the constitutional prohibition
against impairment of contracts.
(10) A taxpayer is not a “person” within the meaning of section
7701(a)(14) or other provisions of the Internal Revenue Code.
(11) Federal Reserve Notes are not taxable income when paid to a
taxpayer because they are not gold or silver and may not be redeemed
for gold or silver.
(12) In a transaction using gold and silver coins, the value of the coins
is excluded from income or the amount realized in the transaction is
the face value of the coins and not their fair market value for purposes
of determining taxable income.
(13) A taxpayer with a home-based business may deduct as business
expenses the costs of maintaining the taxpayer’s household along
with personal expenses.
(14) A “reparations” tax credit exists, including arguments that
African-American taxpayers may claim a tax credit on their Federal
income tax returns as reparations for slavery or other historical
mistreatment, that Native Americans are entitled to an analogous
credit (or are exempt from Federal income tax on the basis of a
treaty).
(15) A Native American or other taxpayer who is not an employer
engaged in a trade or business may nevertheless claim (for example,
in an amount exceeding all reported income) the Indian Employment
Credit under section 45A, which explicitly requires, among other
criteria, that the taxpayer be an employer engaged in a trade or
business to claim the credit.
(16) A taxpayer’s wages are excluded from Social Security taxes if
the taxpayer waives the right to receive Social Security benefits, or a
taxpayer is entitled to a refund of, or may claim a
charitable-contribution deduction for, the Social Security taxes that
the taxpayer has paid.
(17) Taxpayers may reduce or eliminate their Federal tax liability by
altering a tax return, including striking out the penalty-of-perjury

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declaration, or attaching documents to the return, such as a disclaimer
of liability.
(18) A taxpayer is not obligated to pay income tax because the
government has created an entity separate and distinct from the
taxpayer — a “straw man” — that is distinguishable from the
taxpayer by some variation of the taxpayer’s name, and any tax
obligations are exclusively those of the “straw man.”
(19) Inserting the phrase “nunc pro tunc” on a return or other
document filed with or submitted to the Service has a legal effect,
such as reducing a taxpayer’s tax liability.
(20) A taxpayer may avoid tax on income by attributing the income
to a trust, including the argument that a taxpayer can put all of the
taxpayer’s assets into a trust to avoid income tax while still retaining
substantial powers of ownership and control over those assets or that
a taxpayer may claim an expense deduction for the income attributed
to a trust.
(21) A taxpayer may lawfully avoid income tax by sending income
offshore, including depositing income into a foreign bank account.
(22) By purchasing equipment and services for an inflated price
(which may or may not have been actually paid), a taxpayer can use
the section 44 Disabled Access Credit to reduce tax or generate a
refund irrespective of whether the taxpayer is a small business that
purchased the equipment or services to comply with the requirements
of the Americans with Disabilities Act.
(23) A taxpayer is allowed to buy or sell the right to claim a child as
a qualifying child for purposes of the Earned Income Tax Credit.
(24) An IRS Form 23C, Assessment Certificate - Summary Record of
Assessment, is an invalid record of assessment for purposes of section
6203 and Treas. Reg. § 301.6203-1, the Form 23C must be personally
signed by the Secretary of the Treasury for an assessment to be valid,
the Service must provide a copy of the Form 23C to a taxpayer if
requested before taking collection action.
(25) A tax assessment is invalid because the assessment was made
from a section 6020(b) substitute for return, which is not a valid
return.
(26) A statutory notice of deficiency is invalid because the taxpayer
to whom the notice was sent did not file an income tax return
reporting the deficiency or because the statutory notice of deficiency
was unsigned or not signed by the Secretary of the Treasury or by
someone with delegated authority.
(27) A Notice of Federal Tax Lien is invalid because it is not signed
by a particular official (such as by the Secretary of the Treasury), or
because it was filed by someone without delegated authority.

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(28) The form or content of a Notice of Federal Tax Lien is controlled
by or subject to a state or local law, and a Notice of Federal Tax Lien
that does not comply in form or content with a state or local law is
invalid.
(29) A collection due process notice under section 6320 or 6330 is
invalid if it is not signed by the Secretary of the Treasury or other
particular official, or if no certificate of assessment is attached.
(30) Verification under section 6330 that the requirements of any
applicable law or administrative procedure have been met may only
be based on one or more particular forms or documents (which must
be in a certain format), such as a summary record of assessment, or
that the particular forms or documents or the ones on which
verification was actually determined must be provided to a taxpayer
at a collection due process hearing.
(31) A Notice and Demand is invalid because it was not signed, was
not on the correct form (e.g., a Form 17), or was not accompanied by
a certificate of assessment when mailed.
(32) The United States Tax Court is an illegitimate court or does not,
for any purported constitutional or other reason, have the authority to
hear and decide matters within its jurisdiction.
(33) Federal courts may not enforce the internal revenue laws because
their jurisdiction is limited to admiralty or maritime cases or issues.
(34) Revenue Officers are not authorized to issue levies or Notices of
Federal Tax Lien or to seize property in satisfaction of unpaid taxes.
(35) A Service employee lacks the authority to carry out the
employee’s duties because the employee does not possess a certain
type of identification or credential, for example, a pocket commission
or a badge, or it is not in the correct form or on the right medium.
(36) A person may represent a taxpayer before the Service or in court
proceedings even if the person does not have a power of attorney
from the taxpayer, has not been enrolled to practice before the
Service, or has not been admitted to practice before the court.
(37) A civil action to collect unpaid taxes or penalties must be
personally authorized by the Secretary of the Treasury and the
Attorney General.
(38) A taxpayer’s income is not taxable if the taxpayer assigns or
attributes the income to a religious organization (a “corporation sole”
or ministerial trust) claimed to be tax-exempt under section 501(c)(3).
(39) The Service is not an agency of the United States government but
rather a private-sector corporation or an agency of a State or Territory
without authority to administer the internal revenue laws.

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(40) Any position described as frivolous in any revenue ruling or
other published guidance in existence when the return adopting the
position is filed with or the specified submission adopting the position
is submitted to the Service. Returns or submissions that contain
positions not listed above, which on their face have no basis for
validity in existing law, or which have been deemed frivolous in a
published opinion of the United States Tax Court or other court of
competent jurisdiction, may be determined to reflect a desire to delay
or impede the administration of Federal tax laws and thereby subject
to the $5,000 penalty.
It should also be mentioned that the federal courts may impose penalties for
frivolous claims brought before them. These claims range from those which have no
basis in fact or law (for example, claiming that payment of income taxes is voluntary)
to those which may have been legitimate questions when first raised, but have been
so definitively decided by the courts that they are a waste of the courts time to bring
them up again (for example, questioning the constitutionality of taxing wages). The
Seventh Circuit Court of Appeals has stated:
The doors of this courthouse are, of course, open to good faith appeals of what
are honestly thought to be errors of the lower courts. But we can no longer
tolerate abuse of the judicial review process by irresponsible taxpayers who press
stale and frivolous arguments, without hope of success on the merits, in order to
delay or harass the collection of public revenues or for other non-worthy
purposes ... abusers of the tax system have no licence to make irresponsible
demands on the courts of appeals to consider fanciful arguments put forward in
bad faith. In the future we will deal harshly with frivolous tax appeals and will
not hesitate to impose even greater sanctions under appropriate circumstances.120
The United States Tax Court has statutory power to assess a penalty of up to $25,000
on a taxpayer who brings a frivolous claim before it.121
The following is a list of some of the types of returns where IRC § 6702 has
been invoked or arguments which have been found to be frivolous by the courts:
(1) Fifth Amendment returns — taking the Fifth Amendment
on all or most of the lines of the return;122
(2) claims of a war tax deduction — reducing the tax due on
ones taxable income by the percentage derived by dividing the
budget of the Department of Defense by the total Federal
budget;123
120 Granzow v. Commr., 739 F.2d 265 at 268-269 (7th Cir. 1984).
121 IRC § 6673.
122 See, question 5 and the cases cited therein. See, also, Brashier v. Commr., 12 Fed Appx.
698 (10th Cir. 2001); and Sochia v. Commr., 23 F.3d 941 (5th Cir. 1994), cert. den., 513 U.S.
1153 (1995).
123 See, Wall v. United States, 756 F.2d 52 (3rd Cir. 1985), and Hollingshead v. Commr., TC
(continued...)

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(3) claims that wages are not taxable;124
(4) gold standard returns — claiming no income because
federal reserve notes are not backed by gold or silver;125
(5) claims that the federal income tax is a voluntary tax —
Privacy Act defects, alleged lack of liability section in the IRC,
and misrepresentations of statements concerning voluntary
compliance;126
(6) claims of defects in the ratification of the Sixteenth
Amendment — fraud by the Secretary of State, mistakes in
ratification by the various states, failure of President to sign the
proposed amendment, improper admission of Ohio into the
Union;127
(7) failure to sign the return, striking out the perjury clause, or
in other ways modifying the income tax return;128
(8) claims that the Tax Court system violates the taxpayer’s
right to trial by jury;129
(9) claims that the imposition of an income tax denies the
taxpayer the freedom of contract;130
(10) establishing a “church” for the sole purpose of tax
avoidance;131 and
123 (...continued)
Memo 1984-158 (1984).
124 See, Wardell v. United States, 757 F.2d 203 (8th Cir. 1985), and question 7 and the cases
cited therein.
125 See, O’Brien v. Commr., 779 F.2d 50 (6th Cir. 1985).
126 See, Donelin v. Commr., TC Memo 1984-131 (1984), and question 8 and the cases cited
therein.
127 See, Pollard v. Commr., 816 F.2d 603 (11th Cir. 1987), and question 4 and the cases cited
therein.
128 See, Mosher v. IRS, 775 F.2d 1292 (5th Cir, 1985), and Olson v. United States, 760 F.2d
1003 (9th Cir. 1985).
129 See, Sauers v. Commr., 771 F.2d 64 (3rd Cir. 1985).
130 Id.
131 See, Dummler v. Commr., TC Memo 1985-224 (1985).

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(11) claims that the tax laws are not legal because they were not
enacted as positive law.132
132 See, Young v. IRS, 596 F. Supp. 141 (N.D. Ind. 1984), and question 6, above.