Saturday, July 28, 2007

Um, yes, there is a law that says you have to pay income tax

There's a bit of a buzz going on about the acquittal of Tom Cryer, a Lousiana attorney who had been charged with the federal crime of failing to file his tax returns. Misleading articles, such as "IRS loses challenge to prove tax liability", kindle hopes that someone somewhere has finally convinced a court that we don't have to pay taxes.

A quick look at the Cryer case, however, demonstrates that the government failed to prove the "willful" element of the crime of failure to file. As with all elements of a crime, this must be proved beyond a reasonable doubt. The jury apparently decided that Mr. Cryer's mental state was not criminally willful, perhaps because they were convinced that he had a reasonable belief that he didn't have to file. But the legality of the tax law itself was not at issue in the trial. Cryer's motion to dismiss using that argument was denied before the trial.

But tax protestors everywhere are cheering, shouting "show me the law!" In the interests of public service, I show the law below. It's not as straigtforward as it could be, but it's there. If you earn income, and if it is high enough, you have to file a return. If you have to file a return, you have to pay the tax. Plain language leading to plain duties.

Title 26 United States Code
§ 1. Tax imposed
(a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of -
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table: If taxable income is: The tax is:
Not over $36,900 15% of taxable income.
Over $36,900 but not over $5,535, plus 28% of the excess over
$89,150 $36,900.
Over $89,150 but not over $20,165, plus 31% of the excess
$140,000 over $89,150.
Over $140,000 but not $35,928.50, plus 36% of the excess
over $250,000 over $140,000.
Over $250,000 $75,528.50, plus 39.6% of the
excess over $250,000.

. . . .

(c) Unmarried individuals (other than surviving spouses and heads
of households)
There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table:
If taxable income is: The tax is:
Not over $22,100 15% of taxable income.
Over $22,100 but not over $3,315, plus 28% of the excess over
$53,500 $22,100.
Over $53,500 but not over $12,107, plus 31% of the excess
$115,000 over $53,500.
Over $115,000 but not $31,172, plus 36% of the excess
over $250,000 over $115,000.
Over $250,000 $79,772, plus 39.6% of the excess
over $250,000.

Note, a tax is imposed on taxable income. Taxable income is figured out from gross income:

§ 61. Gross income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
. . . .
§ 63. Taxable income defined
(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term "taxable income" means gross income minus the deductions allowed by this chapter (other than the standard deduction).
. . . .

So a tax is imposed on taxable income, who has to report this income? This statute tells us that everyone with gross income above a minimum amount has to file:

§ 6012. Persons required to make returns of income (a) General rule
Returns with respect to income taxes under subtitle A shall be made by the following:
(A) Every individual having for the taxable year gross income which equals or exceeds the exemption amount. . . .

And finally, some people demand to know where it says that a person with income is liable. The statute below says that if you have to file, you are required to pay whatever you owe as deteremined by properly filling out the return:

§ 6151. Time and place for paying tax shown on returns(a) General rule
Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).

So the law is there. It says people with income over a certain level (which elsewhere is defined as being over the exemption amounts) have to file their return. If their return indicates taxable income, they have to pay.

So be careful out there. People claiming that there is no law requiring you to pay income tax are either deliberatly not looking or they are deceived.

And, even though Mr. Cryer was found not guilty of a tax crime, I am pretty sure the feds will get their money. Plus interest. Plus penalties. It's not a pleasant scenario.


Lauren said...

The Browns have been living comfortably at home since January. But then, they can't leave, either. I can't find any updates or any indication that Delta Force is going to be deployed to take them to prison. But this atypical restraint on the part of the government should not encourage similar challenges to the law. The Browns have already lost their case. It's just a matter of time before they see the consequences.

Vic said...

Well, regarding the Browns, it seems things are getting a little tightly strung. This last weekend they were especially paranoid, but apparently nothing has come of it.


lauren said...

Yes, I saw the bit about the "30-40 rounds fired" on a certain blog I regard as irresponsible and I wouldn't even report it as credible second-hand information. Other residents report they heard nothing. I'm not even clear how the Browns would get the word out--their internet line is cut off. This appears to be a bunch of paranoids looking for a rescue mission. Randy Weaver should be above this.

Ruben said...

Would repealing the 16th amendment have any impact on this tax law?

And as a more practical question, on what lines is it possible to convince a jury that I didn't mean to not pay a lawful tax?

Vic said...

Ruben, repealing the 16th amendment may or may not make any difference, it's a pretty complicated question.

The short answer is: Article I section 8 grants Congress the "Power To lay and collect Taxes. . . ." So it seems to give general authority for an income tax.

But Article I, section 9 prohibits a "Capitation, or other direct, Tax" unless it is done in proportion to the census. In other words, a "direct tax" can only be applied in such a way that states with more people contribute proportionately more to the federal government.

The question is: "is an income tax a direct tax?" Under an old common law reading, it is not, but instead is an excise tax, so it would be allowed. But, in Pollock v. Farmers' Loan, the US Supreme Court ruled in 1894 that an income tax was a direct tax, and therefore unconstitutional. Many commentators think it was an erroneous decision. Nevertheless, it became law. So the 16th amendment was enacted essentially to say that income tax was not a direct tax and was allowed.

So if we repeal the 16th amendment, the Pollock decision could be used to challenge the income tax, but it is likely that the USSCt would simply reverse Pollock.

As for the second question, the basic idea is to argue that the government did not meet its burden of proof. It has to establish beyond a reasonable doubt that the taxpayer was aware of a legal duty and willfully chose to violate the duty. Because the burden is on the government, it is the one that has to do the work. Usually it does this by showing that the taxpayer, sometime in the past, did file a return and pay a tax. End of story.

In the Cryer case, as I understand it, the defendant was able to present to the jury his own analysis about how the tax system was unconstitutional and did not apply to him. The question was not whether his analysis was right, but rather, whether he had a good faith belief that he did not have a legal duty. In other words, he rebutted the government's case by demonstrating that his mental state was not criminal but, at worst, an honest mistake. It's a dicey ploy, but it sometimes prevails. I wouldn't recommend it as a way of conducting your life.

Ryan S. said...

We need the Ron Paul Revolution

Vic said...

I'm with you, bro. Just because there's a law doesn't mean it's right!

Lisa M. said...

"Taxable Income" - Supreme Court decisions in the 1920's (after 16th Amendment) ruled that WAGES were NOT "income." The definition of income we think of today is not what they referred to as "income." I think it had more to do with return on an investment or federally-employed people?

Vic said...

Lisa, I've heard those arguments before, but no case cited from that period holds that income is not wages. What happens is that people pick up an out of context quote from a case dealing with a narrow issue (other than income) and repeat it as a rule of law.

Here are some on-point quotes from older cases:

“[T]he earnings of the human brain and hand when unaided by capital ... are commonly dealt with as income in legislation.”

Stratton’s Independence, Ltd. v. Howbert, 231 U.S. 399, 415 (1913).

“There is no doubt that the statute could tax salaries to those who earned them....”

Lucas v. Earl, 281 U.S. 111, 114 (1930).

“[The tax code] is broad enough to include in taxable income any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected.”

C.I.R. v. Smith, 324 U.S. 177 (1945).