Some individuals and groups argue that the Sixteenth Amendment does not authorize direct, undivided income tax and that, therefore, U.S. citizens and residents are not subject to federal income tax laws. The law: The constitutionality of the Sixteenth Amendment has always been upheld when challenged. Many courts have recognized, implicitly and explicitly, that the Sixteenth Amendment permits an undivided direct income tax for U.S. citizens and that federal tax laws are as valid as they are enforced. In Notice 2010-33, 2010-17 i.r.b. 609, the IRS warned taxpayers of the consequences of attempting to claim on these grounds. Relevant case law:Young v. Commissioner, 551 F.App`x 229, 203 (8th Cir. 2014) – Der 8. District rejected Young`s arguments that the income tax was an unconstitutional direct tax as “unfounded” and “frivolous” and sanctioned it with $8,000. Taliaferro v. Freemtran, 595 F.App`x 961, 962-63 (11th Cir.
2014) – The 11th District dismissed as frivolous the taxpayer`s argument that the Sixteenth Amendment authorizes the collection of excise taxes but not income taxes, and ordered sanctions against him up to twice the amount of United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990) – The 10th Circuit found the respondent`s argument that the Sixteenth Amendment did not authorize a direct, undistributed tax for U.S. citizens “without any reasonable legal basis.” Concerning Becraft, 885 F.2d 547, 548-49 (9th Cir. 1989) – der 9. Kreis, which rejected the taxpayer`s frivolous position that the Sixteenth Amendment does not allow direct, undistributed income tax, confirmed the absence of a declaration of conviction. Lovell v. United States, 755 F.2d 517, 518-20 (7th Cir. 1984) – The 7th Circuit rejected the argument that the Constitution prohibits the imposition of a direct tax without levy, upheld the assessment of the frivolous return penalty, and imposed penalties for pursuing “frivolous arguments in bad faith” in addition to the lower court`s award of attorneys` fees to the government. United States v. Jones, 115 A.F.T.R.2d (RIA) 2015-2038 (D.
Minn. 2015) – The Court dismissed as frivolous the taxpayer`s arguments that the personal income tax is unconstitutional because it is a “direct tax that must be shared between different states,” noting, “It is common knowledge that the Sixteenth Amendment allows for the levying of an income tax without apportionment among states.” Maxwell v. Internal Revenue Service, 103 A.F.T.R.2d (RIA) 2009-1571 (M.D. Tenn. 2009) – The Court noted that the taxpayer`s arguments were “consistently rejected,” primarily that there is no law imposing income tax, nor is there any direct undivided tax that could be imposed on him as a non-citizen collected. Other cases: Broughton v. United States, 632 F.2d 706 (8th Cir. 1980); United States v.
Troyer, 113 A.F.T.R.2d (RIA) 2014-387 (D. Wyo. 2013); United States v. Hockensmith, 104 A.F.T.R.2d (RIA) 2009-5133 (M.D. Pa. 2009); Stearman v. Commissioner, T.C. Memo.
2005-39, 89 T.C.M. (CCH) 823 (2005). Proponents of this claim encourage individuals to use a Form 1099-OID, an original issue rebate or a counterfeit financial instrument such as a promissory note as a debt-indebted payment method for credit cards or mortgage debt. This scheme evolved somewhat from an earlier frivolous position under which a secret bank account (sometimes referred to as a “straw man” account) was created at the Treasury Department for every U.S. dollar. Citizens that individuals could use to pay tax and non-tax debts and claim credits at source. Those who propose this theory often argue that the correct way to cash out or withdraw the account is to use some form of invented financial instrument. This often included what looks like a check drawn on the U.S. Treasury Department or other similar paper instruments, such as promissory notes.
A variant of this theory claims that every citizen has a “private side” and a “public side”. This theory claims that the government owns the public side or “straw man” of each person by holding the title of each citizen`s birth certificate. By filing UCC-1 funding statements and their birth certificates in a state that accepts such deposits, proponents of this theory believe they can “redeem” their birth certificates. Buyback theorists view the repurchased birth certificate as an asset on which they place a value of up to $2 million and claim that the U.S. Treasury Department acts as a clearing house for the funds. According to this theory, they then create payment instructions and write views that are drawn on their “direct treasury accounts”. The courts have described this theory as “implausible”, “clearly absurd”, “convoluted” and “particular”. Another variation of the “redemption theory” states that individuals can access the Treasury`s secret or “front man” account by sending a Form 1099-OID to a creditor and the creditor can submit the form to the Treasury Department and receive full payment of the debt. Proponents of this theory seem to claim that Form 1099-OID allows them access to their secret Treasury account for an amount equal to the nominal amount of Form 1099-OID in the form of a tax refund. Proponents of this theory also argue that they sold or transferred their debts or obligations to the person to whom they issued Form 1099-OID in a transaction under sections 1271 to 1275, and that the debt or obligation is transferred at a discount of the full principal amount. The issuer of Form 1099-OID then treats the principal amount of Form 1099-OID as “other income” when the person returns. However, the amount “other income” is not included in the taxable income line.
Those who invoke this theory often significantly exaggerate withholding tax and demand an excessive refund of an amount close to or identical to the excessive withholding tax. The Act: As evidenced by the instructions on Form 1099-OID, the purpose of the form is to report to the U.S. Department of the Treasury for a term of more than one year the initial issuance discount of holders of OID bonds such as certificates of deposit, term deposits, bonds, debt securities, enhanced savings plans and inflation-linked securities. The OID is simply the excess of the declared redemption of the deposit, bond or other financial obligation at maturity above its issue price. Under section 1272, the OID is taxable as interest over the life of the bond and must be included in the holder`s gross income for each taxation year in which the bond is held. Some bonds are exempt, including U.S. savings bonds and short-term bonds (less than one year) and exempt from tax. Form 1099-OID is in no way a financial instrument. It is not a legitimate means of payment for public or private debt, and it is not a way to withdraw or redeem money from the public treasury.
Like the United States Court of Appeals for the Sixth Circuit in United States v. Anderson, 353 F.3d 490, 500 (6th Cir. 2003), the Department of the Treasury does not maintain custodial accounts from which a person may draw a check, bill of exchange, or other financial instrument. The idea of secret accounts assigned to each citizen is pure fantasy. In addition to the potential civil and criminal tax penalties for misuse of Form 1099-OID, individuals who fraudulently use false or fictitious instruments may be guilty of federal criminals, as under sections 287 and 514(a) of Title 18. The IRS warned taxpayers of the consequences of such frivolous arguments in Rev. Rul. 2005-21, 2005-1 B.C. 822 (discussion of the “straw man” theory) and Reverend Rul.
2004-31, 2004-1 B.C. 617 (discussion of the commercial withdrawal theory). There are variations of this frivolous argument that certain individuals or groups may claim false source deductions or tax payments for a tax return or purported tax return using another document in the series of information returns on Form 1099 or Form 2439. Notice to shareholders of undistributed long-term capital gains. If such a taxpayer uses Form 2439, the form is prepared to report false tax payments allegedly made by a regulated investment corporation (CIR) or real estate investment trust (REIT) on behalf of the taxpayer. Relevant case law:United States v. Johnson, 795 f.3d 840 (8th Cir. 2015) – The 8th Cir. The district upheld the defendants` criminal convictions related to their misuse of Form 1099-OID to inflate income and seek compensation. United States v. Heath, 525 F.3d 451 (6th Cir. 2008) – The court convicted the defendant of presenting a fictitious financial instrument under 18 U.S.C.
§ 514(a) because he sent the IRS a so-called “registered bill of exchange” that resembled a certified check but for which there was no real account. United States v. Anderson, 353 F.3d 490 (6th Cir. 2003) – The court upheld criminal convictions related to a conspiracy to create and offer nearly 200 fictitious view projects allegedly drawn from the U.S. Treasury Department with a total face value of more than $550 million. United States v.
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