THE TRUTH ABOUT FRIVOLOUS TAX ARGUMENTS January 2015 Table of Contents I. FRIVOLOUS TAX ARGUMENTS IN GENERAL .......................................................................................... 1 A. The Voluntary Nature of the Federal Income Tax System ................................................................ 1 1. Contention: The filing of a tax return is voluntary. ...................................................................... 1 2. Contention: Payment of federal income tax is voluntary. ........................................................... 3 3. Contention: Taxpayers can reduce their federal income tax liability by filing a “zero return”. ... 5 4. Contention: The IRS must prepare federal tax returns for a person who fails to file. ................. 7 5. Contention: Compliance with an administrative summons issued by the IRS is voluntary. ........ 8 B. The Meaning of Income: Taxable Income and Gross Income .......................................................... 9 1. Contention: Wages, tips, and other compensation received for personal services are not income. ................................................................................................................................................. 9 2. Contention: Only foreign‐source income is taxable. .................................................................. 13 3. Contention: Federal Reserve Notes are not income. ................................................................. 15 4. Contention: Military retirement pay does not constitute income. ............................................ 16 C. The Meaning of Certain Terms Used in the Internal Revenue Code .............................................. 17 1. Contention: Taxpayer is not a “citizen” of the United States and thus is not subject to the federal income tax laws. ..................................................................................................................... 17 2. Contention: The “United States” consists only of the District of Columbia, federal territories, and federal enclaves ........................................................................................................................... 18 3. Contention: Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws. .............................................................................................. 20 4. Contention: The only “employees” subject to federal income tax are employees of the federal government. ........................................................................................................................................ 21 D. Constitutional Amendment Claims ................................................................................................. 23 1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment. ........................................................................................................... 23 2. Contention: IRS summonses violate the Fourth Amendment protections against search and seizure. ................................................................................................................................................ 24 3. Contention: Federal income taxes constitute a “taking” of property without due process of law, violating the Fifth Amendment. .................................................................................................. 26 4. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against self‐ incrimination found in the Fifth Amendment. ....................................... 27 5. Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment. ............................................................................................ 28 ii 6. Contention: The federal income tax laws are unconstitutional because the Sixteenth Amendment to the United States Constitution was not properly ratified. ........................................ 30 7. Contention: The Sixteenth Amendment does not authorize a direct non‐apportioned federal income tax on United States citizens. ................................................................................................. 31 E. Fictional Legal Bases ....................................................................................................................... 32 1. Contention: The Internal Revenue Service is not an agency of the United States. ................... 32 2. Contention: Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act. .................................................................................... 33 3. Contention: African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment. ............................................................................................................... 35 4. Contention: Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime. ............................................................................................................................................... 37 5. Contention: An “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes. ................ 37 6. Contention: A “corporation sole” can be established and used for the purpose of avoiding federal income taxes ........................................................................................................................... 39 7. Contention: Taxpayers who did not purchase and use fuel for an off‐highway business can claim the fuels tax credit. .................................................................................................................... 41 8. Contention: A Form 1099‐OID can be used as a debt payment option or the form or a purported financial instrument may be used to obtain money from the Treasury. .......................... 42 II. FRIVOLOUS ARGUMENTS IN COLLECTION DUE PROCESS CASES ........................................................ 45 A. Invalidity of the Assessment ........................................................................................................... 45 1. Contention: A tax assessment is invalid because the taxpayer did not get a copy of the Form 23C, the Form 23C was not personally signed by the Secretary of the Treasury, or a form other than Form 23C is not a valid record of assessment. .................................................................................... 45 2. Contention: A tax assessment is invalid because the assessment was made from a substitute for return prepared pursuant to section 6020(b), which is not a valid return. .................................. 47 B. Invalidity of the Statutory Notice of Deficiency .............................................................................. 48 1. Contention: A statutory notice of deficiency is invalid because it was not signed by the Secretary of the Treasury or by someone with delegated authority. ................................................. 48 2. Contention: A statutory notice of deficiency is invalid because the taxpayer did not file an income tax return. .............................................................................................................................. 49 C. Invalidity of Notice of Federal Tax Lien ........................................................................................... 49 1. Contention: A notice of federal tax lien is invalid because it is unsigned or not signed by the Secretary of the Treasury, or because IRS employees lack the delegated authority to file a notice of federal tax lien. ................................................................................................................................... 49 2. Contention: 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. ................................................................................................................. 51 iii D. Invalidity of Collection Due Process Notice .................................................................................... 51 1. Contention: A collection due process notice (e.g., Letter 1058, LT‐ 11 or Letter 3172) is invalid because it is not signed by the Secretary or his delegate. .................................................................. 51 2. Contention: A collection due process notice is invalid because no certificate of assessment is attached. ............................................................................................................................................. 52 E. Verification Given as Required by I.R.C. § 6330(c)(1) ..................................................................... 52 1. Contention: Verification requires the production of certain documents. .................................. 52 F. Invalidity of Statutory Notice and Demand .................................................................................... 53 1. Contention: A notice and