The United States Tax Court has labeled me a “tax protester.” The Court never seriously considered that I am simply looking for some straight answers. For the record, I am not protesting the income tax. I am simply trying to figure it out, follow the law, and get the IRS to do the same.
I’ll start with the bad news. Tax Court is not a fair venue to litigate the limited application or proper enforcement of 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 runs up the “frivolous” flag and, with threats and heavy fines, makes sure everyone salutes.
When the IRS calls you a “tax protester” the court doesn’t quibble. This should not be surprising. If the IRS and the U.S. Tax Court are indeed misapplying the law, they have been doing it for a very long time, and 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 other federal courts, you may challenge the IRS’s presumptions in Tax Court without first paying the tax. Tax Court is a civil court, which means you are simply arguing over money, not risking criminal penalties.
In pursuing my four cases and seeing many, many others, I’ve learned a great deal I wish I had known at the start. The purpose of this book is to pass that knowledge along. I hope it will help you to both 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.
Rules Unique to Tax Court
The main difference between Tax Court and other courts where you might find yourself fighting someone who claims you owe him money, is that the “burden of proof” in Tax Court is reversed from creditor to debtor. In every other judicial venue, the creditor is the plaintiff, and the debtor the defendant. Logically enough, a plaintiff-creditor must prove that the defendant-debtor owes the debt. The plaintiff has what is called “the burden of proof.” He must present undeniable fact evidence that the debt exists, evidence that the defendant owes it, and additional evidence that defendant has not paid it. These conditions are called the “elements” of the claim. The party alleging that the elements are true, the plaintiff, has the burden of proving each one by presenting evidence. The accused, or defendant, doesn’t have to prove anything.
In Tax Court, however, the taxpayer is forced to petition the court as the plaintiff. The court presumes the IRS’ claims are correct. As the petitioner, you have to prove that you don’t owe what the IRS says you do. Proving a negative is logically impossible, and a heavy burden legally, but it’s yours to bear in this forum.
Not A Level Playing Field
You will also find that the playing field is something less than flat. The court will interpret the rules in the government’s favor, grant the government “do overs” that petitioners would never receive, and, when necessary, bend the rules of evidence beyond recognition. Occasionally, though not by any means always, judges are openly hostile to pro se litigants. Judges frequently threaten $25,000 penalties for the mention of “frivolous” arguments, but will never tell you exactly what you are forbidden to say.
Keep in mind that Tax Court judges and IRS attorneys work for the same outfit. They get paid out of the funds they extract from people like you. Although the judge is theoretically a neutral party and generally maintains at least a façade of fairness, giving you some leeway because you don’t have a lawyer, he works with your opponent’s attorneys 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. None of them has any interest in finding that you don’t owe what they claim you owe.
Knowing the Rules
More often than not, pro se litigants (people pleading their own cases) know little or nothing about the rules of evidence and procedure. They are tricked during the poorly explained “stipulation process” into agreeing to allow what is called “hearsay” into evidence as if it were sworn truth or indisputable 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 IRS hearsay, if they support an argument the Court does not like, will be excluded or simply ignored as “self-serving,” or “a continuation of frivolous argument.”
The Law Should Be Clear
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.”1
If the words are doubtful? Any ambiguity? A nuclear submarine couldn’t navigate the deep end of the Internal Revenue Code2 (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 advisers 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 Movement3 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. Pete Hendrickson4 was imprisoned finally after three failed attempts by the feds to suppress his book, Cracking the Code.5 Irwin Schiff6, convicted of victimless federal crimes in his 70s, died in federal prison because he read the law and decided only “profits” are income. Larken Rose7 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 Simkanin8 died as a federal prisoner, also. He didn’t think he had to withhold taxes from his employees. Clearly there’s some ambiguity in the Code that the Courts are not resolving in favor of tax payers.
What Is It About the Income Tax?
It’s not like Congress doesn’t know how to write a clear law. Dozens of other tax laws are crystal clear about what they tax 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). 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. So what is it about the income tax?
But juries of average Americans can’t figure out the income tax when exposed to it for days at a time in a courtroom. Former IRS agent Sherry Jackson9 was found guilty of not filing tax returns. So was legal scholar Larken Rose.10 But juries found Lloyd Long,11 Tom Cryer,12 and Franklin Sanders13 not guilty of the same thing. And none of the aquitted, 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.
Why the Tax Court?
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 U.S. Tax Court Rules of Practice and Procedure,14 which are its own variation of the Federal Rules of Civil Procedure.15 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 you and him. 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.
To argue the misapplication of the law, 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.
What You Really Need to Know
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.16 You must also understand the Rules of Evidence 17 and, to a lesser extent, Civil Procedure.18 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. You can win or lose based on the procedural rules.
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.
You will find recommendations for further reading about self-representation, research, legal writing, and much more in the Bibliography of this book.
The Purpose of This Book
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 opinions, 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 facing a trip to Tax Court without an attorney. It is based on my own experiences there and what I’ve learned working with others on their cases. When you are finished reading On Your Own In Tax Court you will know what I wish I’d known going into my first case. The information is useful no matter what type of Tax Court case you pursue and whether you have an attorney or not.
1 U.S. v. Merriam, 263 U.S. 179, 24 (1923); http://openjurist.org/263/us/179/united-states-v-merriam-same
5 Mr. Hendrickson’s book is available online at http://losthorizons.com/cc.htm