Some argue that they are not required to pay federal taxes because the payment of federal taxes is voluntary. Proponents of this position argue that our system of taxation is based upon voluntary assessment and payment. They frequently claim that there is no provision in the Internal Revenue Code or any other federal statute that requires them to pay or makes them liable for income taxes, and they demand that the IRS show them the law that imposes tax on their income. They argue that, until the IRS can prove to these taxpayers’ satisfaction the existence and applicability of the income tax laws, they will not report or pay income taxes. These individuals or groups reflexively dismiss any attempt by the IRS to identify the laws, thereby continuing the cycle. The IRS discussed this frivolous position at length and warned taxpayers of the consequences of asserting it in Rev. Rul. 2007-20, 2007-1 C.B. 863 and in Notice 2010-33, 2010-17 I.R.B. 609.
The Law: The requirement to pay taxes is not voluntary. Section 1 of the Internal Revenue Code clearly imposes a tax on the taxable income of individuals, estates, and trusts, as determined by the tables set forth in that section. (Section 11 imposes a tax on corporations’ taxable income.)
Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the non-complying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.
In United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), the Eighth Circuit Court of Appeals stated, in discussing section 6151, that “when a tax return is required to be filed, the person so required ‘shall’ pay such taxes to the internal revenue officer with whom the return is filed at the fixed time and place. The sections of the Internal Revenue Code imposed a duty on Drefke to file tax returns and pay the appropriate rate of income tax, a duty which he chose to ignore.”
Although courts, in rare instances, have waived civil penalties because they have found that a taxpayer relied on an IRS misstatement or wrongful misleading silence with respect to a factual matter, there have been no cases in which the IRS’s lack of response to a taxpayer’s inquiry has relieved the taxpayer of the duty to pay tax due under the law. Such an estoppel argument does not, however, apply to a legal matter such as whether there is legal authority to collect taxes. See, e.g., McKay v. Commissioner, 102 T.C. 465 (1994).
Relevant Case Law:
United States v. Schiff, 379 F.3d 621 (9th Cir. 2004); see also http://www.usdoj.gov/tax/txdv04551.htm. – the court affirmed a federal district court’s preliminary injunction barring Irwin Schiff, Cynthia Neun, and Lawrence N. Cohen from selling a tax scheme that fraudulently claimed that payment of federal income tax is voluntary. In subsequent criminal trials, these three were convicted of violating several criminal laws relating to their scheme. See 2005 TNT 206-18. Schiff received a sentence of more than 12 years in prison and was ordered to pay more than $4.2 million in restitution to the IRS; Neun received a sentence of nearly 6 years and was ordered to pay $1.1 million in restitution to the IRS; and Cohen received a sentence of nearly 3 years and was ordered to pay $480,000 in restitution to the IRS. See http://www.usdoj.gov/opa/pr/2006/February/06_tax_098.html.
Keenan v. Commissioner, 233 F. App’x 719, 720 (9th Cir. 2007) – the 9th Circuit stated that “assertions that the tax system is voluntary” are frivolous.
Banat v. Commissioner, 80 F. App’x 705 (2d Cir. 2003) – The 2nd Circuit upheld $2,000 in sanctions against a taxpayer because his argument that “the payment of income taxes was voluntary” was “contrary to well-established law and thus was frivolous.”
United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993) – the court stated that the “[taxpayers’] claim that payment of federal income tax is voluntary clearly lacks substance” and imposed sanctions in the amount of $1,500 “for bringing this frivolous appeal based on discredited, tax-protester arguments.”
Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988) – the court rejected Wilcox’s argument that payment of taxes is voluntary for American citizens and imposed a $1,500 penalty against Wilcox for raising frivolous claims.
United States v. Schulz, 529 F.Supp.2d 341 (N.D.N.Y. 2007) – the court permanently barred Robert Schulz and his organizations, We the People Congress and We the People Foundation, from promoting a tax scheme that helped employers and employees improperly stop tax withholding from wages on the false premise that federal income taxation is voluntary.
Jones v. Commissioner, T.C. Memo. 2014-101, 107 T.C.M. (CCH) 1495 (2014) – the court imposed several sanctions of $25,000 against a taxpayer who argued, amongst other frivolous arguments, that “the Internal Revenue Code does not establish any liability for the payment of Federal income tax.”
Other Cases: Schiff v. United States, 919 F.2d 830 (2d Cir. 1990); United States v. Berryman, 112 A.F.T.R.2d (RIA) 2013-6282 (D. Colo. 2013); United States v. Sieloff, 104 A.F.T.R.2d (RIA) 2009-5067 (M.D. Fla. 2009); United States v. Melone, 111 A.F.T.R.2d (RIA) 2013-1369 (D. Mass. 2013); Foryan v. Commissioner, T.C. Memo. 2015-114, 109 T.C.M. (CCH) 1591(2015); Jones v. Commissioner, T.C. Memo. 2014-101, 107 T.C.M. (CCH) 1495 (2014); Horowitz v. Commissioner, T.C. Memo. 2006-91, 91 T.C.M. (CCH) 1120 (2006).
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