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Introduction to Tax Court
I’ll start with the bad news. The U.S. Tax Court is not a fair venue to litigate the limited application or proper enforcement of the income tax laws. The court vigorously suppresses any suggestion that there are limits to IRS authority or that the IRS might be misapplying the law. It does so by any means available except reasoned and researched legal argument. At the mention of certain difficult issues the court simply runs up the “Frivolous” flag and through threats and that application of heavy fines makes sure everyone salutes. When the IRS calls you a “tax protester” the court doesn’t quibble. This is to be expected. If the IRS and the court are indeed misapplying the law, they have been doing it for a long time. If it is true, and I believe it is, they are partners in a massive and shameful fraud. No public agency will ever find itself guilty of such a crime. The good news is that, unlike seeking justice on tax issues in the other federal courts, you may challenge the IRS’s presumptions in Tax Court without first paying the tax. The U.S. Tax Court is a civil court, which means you are simply arguing over the money, and not risking criminal penalties. In pursuing my four cases and seeing dozens of others I’ve learned a great deal that I wish I had known at the start. Most of what I’ve learned has nothing to do with the issues I raised. The purpose of this book is to pass that knowledge along. I hope it will help you avoid my many mistakes and understand the process well enough to successfully plead your own case. I guarantee you will do better than if you had never read this book no matter what kind of issues you are bringing to the court. The main difference between Tax Court and other courts where you might find yourself fighting someone who claims you owe them money is that the “burden of proof” in Tax Court is reversed from cretitor to debtor. In every other judicial venue, the creditor is the plaintiff, and the debtor the defendant. Logically enough, the plaintiff creditor must prove that the defendant owes the debt. He must present undeniable fact evidence of the debt, further evidence that the defendant owes it, and sworn testimony that he has not paid it. The creditor has what is called “the burden of proof.” In Tax Court, the taxpayer is forced to petition the court as the plaintiff. The IRS’s claims enjoy a “presumption of correctness.” Essentially, you have to prove you don’t owe what they say you owe. It’s a heavy burden to bear. The Court will threaten penalties of up to $25,000 for the mere mention of “frivolous” arguments, but will never tell you exactly what you are forbidden to say. The court will interpret the rules in the government’s favor. The government is often not held to them as strictly as you are. They will bend the rules of evidence beyond recognition. Occasionally, though not by any means always, judges are openly hostile. Tax Court judges and the IRS attorneys work for the same employer. Although the judge is theoretically a neutral party, and generally maintains at least a façade of fairness, giving you some lee way because you don’t have a lawyer, he works with your opponents regularly and knows them all. You may get the impression they are on the same side and working against you, and you may be right. More often than not, people pleading their own cases (pro se litigants) know little or nothing about the rules of evidence and procedure. They are tricked in the poorly explained “stipulation process” into agreeing to allow what is called hearsay into evidence as if it were sworn truth or undisputable fact. Inexperienced petitioners often scuttle their own ships at the dock by agreeing to statements presented as fact that are in reality hearsay that no experienced attorney would let pass without objection. Facts and sworn testimony offered by petitioners to controvert hearsay will be excluded or simply ignored as “self-serving,” or “a continuation of frivolous argument.” The Supremes have told us many times that laws, and tax laws in particular, are supposed to be clear and understandable. Where they are not, you, the citizen, are supposed to get the benefit of the doubt, not the government. They told us in U.S. v. Merriam:
"But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended by implication beyond the clear import of the language used. If the words are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer."
If the words are doubtful? Any ambiguity? A nuclear submarine couldn't negotiate the deep end of the Internal Revenue Code (IRC). The Code contains over three and a half million words. The word "income" is never defined. Whole industries dedicated to compliance, enforcement, and resistance have grown up around the IRC like weeds around a cesspool. Swarms of accountants, lawyers, and tax advisors depend on the law's baffling complexity for their continued prosperity. Have your tax return completed by ten different expert preparers and you can easily find you owe ten different figures. Consult any number of authors in the Tax Honesty Movement and you will find you owe no tax at all for a variety of reasons, all of which sound perfectly reasonable. Many knights errant of the Tax Honesty Movement have paid and are paying a high price for their interpretations of the mind numbing Code. Irwin Schiff, convicted in his 70s, is doing hard time because he read the law and decided only "profits" are income. Larken Rose went to jail because he read the law and decided the rules under section 861 show only income from international trade to be taxable. Dick Simkanin died as a federal prisoner. He didn't think he was required to withhold taxes from his employees. Clearly there's some ambiguity in the Code which is not being resolved in favor of taxpayers. And it's not like Congress doesn't know how to write a clear law. Dozens of other tax laws leave no doubt about what is taxed and who must pay. There are no Tax Honesty Movements for any of the hundreds of other federal taxes. There are no "tax protesters" fighting the taxes on gasoline, liquor, beer, wine, estates, luxury automobiles, wagers, tires, tobacco, or any other excise taxes. (And there are plenty more) The tax laws other than the income tax are written so clearly that there is never a question of who pays, or how much, or when. Juries of average Americans can't figure out the income tax when exposed to it for days at a time in courtrooms. Former IRS agent Sherry Jackson was found guilty of not filing tax returns. So was legal scholar Larken Rose. But juries found Lloyd Long, Tom Cryer, and Franklin Sanders not guilty of the same thing. And none of them, by the way, had actually filed. Americans are a law abiding bunch. We obey the law even when we would rather not. If we have to imprison intelligent, honest people for asking the wrong questions about a tax, we should be asking ourselves what it is about that particular tax that requires such drastic punishment. We should start asking the same questions that people like Sherry Jackson are in prison for asking. One of the safest and most logical places to ask them is in Tax Court. It is a civil, not a criminal court, and one of limited jurisdiction. It operates under the Federal Rules of Civil Procedure, with some minor variations in its own rules. And although it is an administrative court heavily biased in favor of the government, it is a less risky venue for citizens to present legitimate questions about the applicability of the income tax. You will have a lot of trouble finding a practicing attorney to represent you in Tax Court with any argument that questions the status quo. The court quickly threatens sanctions of up to $25,000 for raising “frivolous” arguments without ever specifying what arguments are frivolous. If you have an attorney, the threat is against him and you. It makes competent representation hard to find, not to mention that the price of a good attorney wouldn’t justify their hire for the small sums of money that are often at issue. If you believe the law is being misapplied, you will have to represent yourself. If you want any hope of success on this tilted playing field, you must have a solid understanding of how lawsuits work and of the peculiarities of the Tax Court. An intimate familiarity with the Internal Revenue Code will be of little help in this task. You need to know the Rules of the Court. You must also understand the Rules of Evidence and Civil Procedure. The rules themselves are not long or complex, but court interpretations of them fill volumes. A solid knowledge of the rules will help you greatly. They have the authority of law. Your case can be won or lost based on them. If you are unwilling to study these subjects, you are likely to do more harm than good by creating bad case law that will be used against others. To that end, I highly recommend the course offered by Dr. Fredrick Graves at Jurisdictionary.com. It was the single most useful piece of reading I did in preparing my case. And although it deals more broadly with lawsuits in general, it is well worth the price. I also recommend the assistance of the Tax Return Team.* The TRT is a paid members-only forum dedicated to helping people who want to stand up for themselves in the wonderland of IRS administrative processes and court proceedings. I didn’t find the TRT until after I had already written my second and third petitions, but the moral support alone has been more valuable than any help and advice I’ve paid for elsewhere. My amended petitions were recently accepted by the court over vigorous objection by my opponent. The purpose of this book is not to persuade you that there is something fishy about the income tax, or to promote any kind of tax protest. My understanding of the IRC necessarily colors my opions, but it does not alter the basics of understanding how a Tax Court action works. This is also not a book of legal advice. I urge you to consult a competent attorney for any legal advice you need. It is simply a guide for anyone who is facing a trip to the U.S. Tax Court without an attorney based on my own experiences there and what I’ve learned from them. When you are finished reading it you will know what I wish I’d known going into my first case. The information will be useful no matter what type of Tax Court case you are pursuing, and whether you have an attorny or not.
* In the interest of full disclosure, though I do not own or operate the TRT website, I work with TRT members and in some cases receive payment for my time.