In our system of written law, Congress may use a term to mean almost anything, as long as the law itself defines that meaning. When the written law explains the meaning of a term used in the law, standard English usage becomes irrelevant. For example, by the definition in 26 USC 7701(a)(1), the term person includes estates, companies and corporations (in addition to individuals). While no one would call Walmart a person in everyday conversation, Walmart is a person under federal tax law. The legal use of a term is often significantly different from basic English, and therefore reading one section of the law alone can be very misleading. See more about the Rules of Statutory Construction
As a good example, 26 USC 5841 states that [t]he Secretary [of the Treasury] shall maintain a central registry of all firearms in the United States which are not in the possession or under the control of the United States. The law has a far more limited application than this section by itself would seem to imply. In 26 USC � 5845(a) it is made clear that the term firearm in these sections does not include the majority of rifles and handguns (while the term firearm in basic English obviously would), but does include "a shotgun having a barrel or barrels of less than 18 inches in length"(most shotguns are at least 18 inches and some like the Winchester Model 9410 are as long as 24 inches), silencers and grenades. The average citizen reading the law will naturally tend to assume that he already knows what the words in the law mean, and may have difficulty accepting that the legal meaning of the words used in the law may bear little or no resemblance to the meaning that those words have in common English. For example, reading the phrase all firearms in Section 5841 in a way that excludes most rifles and handguns is contrary to instinctive reading comprehension. But any lawyer reviewing Sections 5841 and 5845 would confirm that such a reading would be absolutely correct. Reading one section of the law without being aware of the legal definitions of the words being used can give an entirely incorrect impression about the application of the law.
As demonstrated, sometimes the apparent meaning of a simple phrase in the law is very different from the legal meaning. The income tax is imposed on income from whatever source derived. If the law did not explain what constitutes sources of income, then the law would be interpreted using basic English. However, the law does explain what the term means and therefore standard English usage is irrelevant.
Because the Constitution is the LAW, a good place to start in our discussion of tax laws would be right there. Have you read the Constitution lately? Have you read it since your 9th grade Civics class? This might be a good time to reacquaint yourself with the document that controls so much of our lives every day. You will be amazed at the ease with which you can read the document, especially when compared to current legal writings. It becomes obvious at first glance that the Constitution was written to be understood by the common Citizen who was very concerned with the content. Current legislation is usually not read by many people outside Washington, DC, and frequently not even by the legislators who vote on it. Because of the huge volume of legislation drafted each year, it is becoming common for most legislators to have one of their staff people review legislation to look for specific items so the legislators do not have to take the time to read it themselves. These legislators then vote yea or nay based on a staffer's review of certain items in the proposed law.
Laws today are not written to be understood by the common Citizen. They are written by legislators, who are usually lawyers, to be understood only by lawyers. In a very practical way, this is called "job security." I mean, whom better to interpret the law than one who played a role in writing and approving the law? As a result, most legislators go back to being lawyers when their terms are complete. So most legislation is specifically written by lawyers to be understood only by lawyers. Yet the whole concept of "common law" assumes the average Citizen has both read and understood the law. "Ignorance of the law is no excuse" is very true, but if you can prove you didn't understand how the law applied to you, it is common to get a case against you dismissed. That is how important it is for the law to be understandable! And yet the Internal Revenue Code is so complex and difficult to understand, even the IRS is not held accountable to the view or interpretation it gives you on any specific tax law! The U.S. Tax Court is full of cases where the IRS gave a written, researched opinion of the "law" and later changed its mind, resulting in a civil or criminal tax case against the person who was counting on the accuracy of the IRS in interpreting the tax laws!
This is a good place to make a statement on the type of government that was created by this great document, the Constitution. When you hear a politician speak of our government, almost always you will hear the politician refer to America as a democracy. Over the past sixty years or so, Americans have been brainwashed by our politicians into believing that we live in a democracy. WE DO NOT! Our Founding Fathers considered a democracy and dismissed it. They chose to create, instead, a republic. The differences between a democracy and a republic have been discussed and debated at great length by people more knowledgeable than I, so I won�t take much space here to add to their work. Allow me, instead, to make a simple comparison. In a democracy, if the people or their elected servants want to create a law or enact a change, all they have to do is demonstrate that a majority of the people wants the law or change. A majority vote is all that is necessary. In a republic, there might be a vast majority of the people in favor of a particular law or change, but that will not matter unless The LAW allows it. The LAW must allow it or The LAW must be modified before a new law or change can be passed. The Founding Fathers knew public opinion could be manipulated, or even misrepresented. This is the major weakness of a true democracy. So America elects its public servants to enact the will of the people, but only if The LAW allows it! Congress cannot, by majority vote, extend or increase its authority. The United States Supreme Court explains this principle:
"It is also not entirely unworthy of observation, that in declaring what shall be the supreme law of the land, the constitution itself is first mentioned; and not the laws of the United States generally, but those only which shall be made in pursuance of the constitution, have that rank.
Thus, the particular phraseology of the constitution of the United States confirms and strengthens the principle, supposed to be essential to all written constitutions, that a law repugnant to the constitution is void, and that courts, as well as other departments, are bound by that instrument." Marbury v. Madison, 5 U.S. 137 (1803)
The Supreme Court ruled in 1916 that "[B]y the previous ruling [Brushaber v Union Pacific Railroad] it was settled that the Sixteenth Amendment conferred NO NEW POWER of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning [of our national government under the Constitution] from being taken out of the category of indirect taxation to which it inherently belonged...." Stanton v. Baltic Mining Co., 240 U.S. 103, 112 (1916)
Despite 'common knowledge' to the contrary, the income of most Americans is not subject to the United States federal income tax. The strict limits on federal power imposed by the Constitution prohibited Congress from imposing a tax on the income of United States citizens who live and work exclusively within the 50 states, and the federal statutes and regulations demonstrate that Congress did not impose such a tax. This was not due to an oversight, or to some technical imperfection in the legislative process. Congress never even attempted to impose such a tax. Instead, a limited income tax was imposed, and was worded in such a way to give the impression that it was applicable to the income of most Americans. However, a more in-depth study of the federal statutes and regulations reveals that the tax is far more limited in scope than the public has been led to believe.
Just to be clear, there is no tax "on" income. "The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income, which they produce. The income is not the subject of the tax: it is the basis for determining the amount of the tax." - Congressional Record, 3-27-43, page 2580
The Supreme Court of Tennessee agrees.
"Privileges are special rights, belonging to the individual or class, and not to the mass; properly, an exemption from some general burden, obligation or duty; a right peculiar to some individual or body. Lonas v. State, 50 Tenn. 287, 307.
Since the right to receive income or earnings is a right belonging to every person, this right cannot be taxed as privilege."
Cole v. MacFarland, 337 S.W. 2d 453(Tenn. 1960)
See also Foster & Creighton Co. v. Edgar J. Graham, 285 S.W. 570(1926), Madison Suburban Utility Dist. of Davidson County v. Carson et al., 232 S.W.2d 277(1950), and Memphis Retail Liquors Dealers' Association, Inc, v. City of Memphis, 547 S.W.2d 244(1977).
The United States Supreme Court furthered elaborated on this: A tax laid upon the happening of an event as distinguished from its tangible fruits, is an indirect tax. Tyler v. U.S., 281 U.S. 497, page 502 (1930)
What about the Sixteenth Amendment? To help put things into perspective, here is some background on the 16th Amendment:
President Taft's speech on the Sixteenth Amendment,
Senate Joint Resolutions on Sixteenth Amendment and Who Wrote The Sixteenth Amendment?
The main argument is that it wasn't properly ratified. Therefore the so-called income tax is improper.
A tax court sums up the situation quite nicely: "In dealing with the scope of the taxing power, the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation of the question and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, section 8 of the Constitution. It is important that these provisions be clearly understood; what is required is an understanding of fundamental principles. The familiar statement that at this time we need education in the obvious more than investigation into the obscure (Holmes, Collective Legal Papers, pp. 292-293), although made in a different context, is peculiarly applicable here."
Penn Mutual Indemnity Co. v. Commissioner of Internal Revenue, 32 T.C. 653 at 5659 (1959)
What does Article 1, Section 8 say? With regard to the taxing power, it says in Clause 1:
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;
The court explains what duties and imposts and excises are: "Duties and imposts are terms commonly applied to levies made by governments on the importation or exportation of commodities. Excises are 'taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.' Cooley, Const. Lim. 7th ed. 680." Flint v. Stone Tracy Co., 220 U.S. 107 (1911)
The other taxing clauses are as follows:
Article 1, Section 2, Clause 3: Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers, which shall be determined by adding to the whole number of free persons, including those bound to service for a term of years, (and excluding Indians not taxed, three fifths of all other Persons-changed by Sec 2 of 14th amendment).
Article 1, Section 9, Clause 4: No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.
Article 1, Section 9, Clause 5: No Tax or Duty shall be laid on Articles exported from any State.
Did the Supreme Court actually rule on whether the "income" tax was a direct or indirect tax BEFORE it was authorized by the 16th amendment? Yes, in Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601 (1895), the court ruled that:
First. We adhere to the opinion already announced, that, taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.
Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.
Third. The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate, and of personal property, being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.
Since these sections of the act levied a direct tax without regard to apportionment, the court threw out the whole act and all the revenue collected under the act had to be refunded. This is what brought about the 16th amendment, which stated that Congress could collect taxes on incomes without apportionment. The Sixteenth Amendment did not define the taxes on income as direct or indirect. So it appeared that the constitution was in conflict with itself. It allowed for a tax on income, but the clause requiring direct taxes to be apportioned was not repealed. The United States Supreme Court in Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916) settled the issue when it said "Moreover, in addition, the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class [240 U.S. 1, 17] of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such..."
The Sixteenth Amendment reads as follows: 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.
It is the without apportionment language and without regard to census or enumeration that restricts taxation on incomes to the class of excises. Did the 16th amendment authorize a new kind of tax called the 'income' tax? No it did not. "This result, instead of simplifying the situation and making clear the limitations on the taxing power, which obviously the Amendment must have been intended to accomplish, would create radical and destructive changes in our constitutional system and multiply confusion." The court went on to say "It is clear on the face of this text that it does not purport to confer power to levy income taxes in a generic sense, an authority already possessed and never questioned,..." [240 U.S. 1, 18]
The 3rd Circuit Court of Appeals clarifies: "It did not take a constitutional amendment to entitle the United States to impose an income tax. Pollock v. Farmers' Loan & Trust Co.(citations omitted) only held that a tax on the income derived from real or personal property was so close to a tax on that property that it could not be imposed without apportionment. The Sixteenth Amendment removed that barrier. Indeed, the requirement for apportionment is pretty strictly limited to taxes on real and personal property and capitation taxes." Penn Mutual Indemnity Co. v. C.I.R., 277 F.2d 16 (1960)
The court also said "It is not necessary to uphold the validity of the tax imposed by the United States that the tax itself bear an accurate label." Congress is free to name the tax whatever it desires. The question still remains: Is it a direct tax? Capitation? Or is it a duty, impost, or excise?
The barrier refers to the consideration of the source of income. The United States Supreme Court in the Brushaber case said "Indeed, from another point of view, the Amendment demonstrates that no such purpose was intended, and on the contrary shows that it was drawn with the object of maintaining the limitations of the Constitution and harmonizing their operation." What was the problem? Was an amendment really necessary to make clear the taxing power that Congress always had?
There are three things to look for: The Rule, the Ruling and the Principle. The Rule applied relates to the rule of apportionment to all direct taxes before and after the Sixteenth Amendment.
The Ruling relates to the court's decision in Pollock that taxes on real estate and personal property and the rents and incomes derived from real and personal property are direct taxes.
The principle relates to the duty of the courts to disregard the form (name of tax) and consider the substance (subject of the tax). The 16th Amendment was to prevent the courts from treating the so-called 'income' tax as anything other than an excise tax. The courts can no longer void a statute in regard to income taxation because it was not imposed by the rule of apportionment like it had done in the Pollock case. The courts can't legally enforce the income tax as if it were a direct tax. The income tax can only be enforced as a tax on certain activities, privileges, events, etc... In my copy of "Frequently Asked Questions Concerning the Federal Income Tax" updated May 7, 2001, John R. Luckey, Legislative Attorney for the American Law Division writes on page four that "[T]he 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."
It is true that various personnel in the Office of the Commissioner of Internal Revenue claim that the Sixteenth Amendment gave Congress some new power of taxation. But the courts have settled the issue as to what the Sixteenth Amendment did and didn't do. The problem is not the Sixteenth Amendment; it is the disinformation regarding it.
Knowing this, maybe we should ask: Upon what, exactly is the indirect tax imposed? You probably would know now that the millions of people who work at jobs which do not involve any activity that is taxable for revenue purposes. Merely filing out an employment form and seeking employment is a right and not a privilege that can be taxed.
If an employer thinks the employee is subject to the tax, the employer should have to prove it. The U.S. Supreme Court has also already ruled that you can't be taxed for simply existing or exercising your right to work. "A state may not impose a charge for the enjoyment of a right granted by the Federal Constitution." Murdock v Pennsylvania, 319 U.S. 105, pg 113 (1943) In other words, such events must be taxable for revenue purposes and a law must have been enacted that imposes a tax on that activity or event. If it is law, it would be in the books. When the employer says you are required to submit a social security number or fill out a withholding form as a condition for being hired, is it based on a federal law or statute or just an employer making it up? I have a letter from the Social Security Administration that says "The Social Security Act does not require a person to have a Social Security Number to live and work in the United States, nor does it require a Social Security number simply for the purpose of having one."
On the IRS website, there is a paragraph that reads "Social Security and Medicare taxes pay for benefits workers and their families receive under the Federal Insurance Contributions Act (FICA). Social security taxes pay for benefits under the old age, survivors, and disability insurance part of FICA. Medicare taxes pay for hospital benefits." What this paragraph does is confuse the tax itself with the spending power. Taxes, regardless of their name are just that, taxes. They are not earmarked to any program regardless of the revenue act in which it is collected under. There is no such thing as a Social Security Trust Fund, nor is it anything related to paying insurance premiums. All these taxes, being uniform are taxes on certain activities and privileges and thus go into the general fund at the Treasury Department.
The proceeds of both taxes are to be paid into the Treasury like internal revenue taxes generally, and are not ear-marked in any way. Section 807(a), 42 U.S.C.A. 1007(a).
Helvering v. Davis, 301 U.S. 619 (1937)
(a) The proceeds of the tax in controversy are not earmarked for a special group.
Steward Mach. Co. v. Davis, 301 U.S. 548 (1937)
We must conclude that a person covered by the Act has not such a right in benefit payments as would make every defeasance of "accrued" interests violative of the Due Process Clause of the Fifth Amendment. Flemming v. Nestor, 363 U.S. 603 (1960)
Once again, with the exception of taxing exports, the States gave the federal government full taxing power, but could not have given the federal government any power they themselves did not possess according to Article 1, Section 8.
Simply put, what revenue law, if any, imposes a tax on your particular activity? The Internal Revenue Code doesn't make a person liable in and of itself, it only relates to those who are already liable i.e. "taxpayers" because the activities they are engaged in such as importers of tobacco products or distillers. See Sections 5703 and 5005. A person who files when they are not a taxpayer as defined is like a 90 year old woman filing for exemption from military service when the laws never subjected her to serve in the military in the first place. "FN3 The term "taxpayer" in this opinion is used in the strict or narrow sense contemplated by the Internal Revenue Code and means a person who pays, overpays, or is subject to pay his own personal income tax. (See Section 7701(a)(14) of the Internal Revenue Code of 1954.) A "nontaxpayer" is a person who does not possess the foregoing requisites of a taxpayer." Economy Plumbing and Heating Co. v. U.S., 470 F.2d 585 (1972)
It is the duty of the Congress to name the events which are taxable, and who is liable for it.
As to the false proposition that the income tax is voluntary, this is a misinterpretation of Flora v. U.S., 362 U.S. 145 (1960). What the court said was "Our system of taxation is based upon voluntary assessment and payment, not upon distraint." In another word, if you are subject to or liable for a tax(a taxpayer as defined), you can voluntary assess yourself and make payment, instead of having the IRS do the assessment for you. This of course is an absurd argument for a nontaxpayer to make.
It is also important to note that the requirement to make a tax return is not based upon "income" (profit or gain), but rather it is based upon the "taxable income" which means adjusted gross income, minus the standard deduction (in part), and who has a "taxable year"(taxpayer's annual accounting period).
So, where do you begin? First and foremost, understand what a direct tax is, a capitation, a duty, impost and excise. The name of the tax is of course immaterial. You will have to thoroughly read the court cases mentioned here and many more. You will have to ask the right questions. What is the subject of the tax? Have you engaged in an activity that is being taxed? How does the Internal Revenue Code define gross income, taxable income, taxpayer, etc�? This is just the beginning. But after reading this, you will probably already know more than most tax lawyers out there.
Why is the tax code so complicated?
