Tax protester history
Encyclopedia
A tax protester, in the United States, is a person who denies that he or she owes a tax
based on the belief that the constitution
, statute
s, or regulation
s do not empower the government to impose, assess or collect the tax. The tax protester
may have no dispute with how the government spends its revenue. This differentiates a tax protester from a tax resister, who seeks to avoid paying a tax because the tax is being used for purposes with which the resister takes issue.
, sometimes violently.
In the colonial era, Americans insisted on their rights as Englishmen to have their own legislature raise all taxes. Tax loads were very light. Beginning in 1765 the British Parliament asserted its supreme authority to lay taxes, and a series of American protests began that led directly to the American Revolution
. The first wave of protests attacked the Stamp Act of 1765
, and marked the first time Americans from each of the 13 colonies met together and planned a common front against illegal taxes. The Boston Tea Party
threw British tea into Boston Harbor because it contained a hidden tax Americans refused to pay. The British responded by trying to crush traditional liberties in Massachusetts, leading to war in 1775.
In 1794, settlers in western Pennsylvania
responded to a federal tax on liquor with the Whiskey Rebellion
. President George Washington
led an army to crush the rebellion--the rebels dispersed and federal supremacy in taxation was assured. The Fries Rebellion saw German Americans in Pennsylvania protest new federal taxes on houses in 1798. It also failed, but when the low-tax Democratic Republican Party came to [power in 1801, it repealed the whiskey and land taxes. Anger at the Tariff of 1828
led South Carolina to reject the federal law, until President Andrew Jackson
threatened to send in the army to enforce it. The tariff was lowered, again and again, as Southern insistence until 1861. In the Civil War, with Republicans in control, the tariff was raised to produce needed revenue; after the war it was kept high to encourage industrialization, and became a major issue with conservative Bourbon Democrats such as President Grover Cleveland
opposing, and Republicans led by William McKinley
promoting tariffs as the route to national wealth. In each of these cases, some opponents of the tax in question contended that it was not merely bad, but exceeded the authority of the body that enacted it.
The Civil War saw the enactment of the first federal income tax
; it was temporary. A federal income tax in 1894 was declared unconstitutional by the Supreme Court. To remedy that defect conservatives (led by Senator Nelson Aldrich wrote and the nation passed the 16th Amendment in 1909. The goal was to shift away from tariffs to a more widely based tax, which proved essential in financing World War I.
The Great Depression made tax delinquency was widespread during the presidency of Franklin D. Roosevelt
, when income taxes increased dramatically to pay for New Deal
programs and U.S. involvement in World War II
.
, and in a more narrow sense. The modern tax protester movement appears to have originated in the 1940s and then to have become, in the mid-1970s, a phenomenon specifically characterized by legally frivolous arguments as some people came to assert that the federal tax on individual income is nonexistent, unconstitutional
, or inapplicable to various forms of income such as wages.
was an early advocate of the position that the tax laws were ineffective. In 1948, frustrated that the government had not reduced the historically high tax rates assessed during World War II
, Kellems refused to withhold payroll taxes for her employees. She did not dispute the propriety of the tax at that time, but contested the power of the government to require her to collect taxes on its behalf.
. That argument
was ruled to be without merit in Porth v. Brodrick, United States Collector of Internal Revenue for the State of Kansas. He continued his tax protester activities and was eventually convicted of willful failure to file returns and other tax crimes; see United States v. Porth.
In another early case, Lamb v. Commissioner, the taxpayer argued that because his income was not received in the form of gold or silver currency, none of the income was taxable. He also argued that his income was not taxable because Federal Reserve notes were bogus and counterfeit under the Constitution. The United States Tax Court rejected those arguments.
See also Gordon Kahl
.
Ideas associated with the tax protester movement have been forwarded under different names over time. These ideas have been put forth, for example, in the broader Christian Patriot
and Posse Comitatus
movements, which generally assert that the Constitution has been usurped by the federal government. More recently, tax protesters have styled themselves as the "Tax Honesty Movement".
. The prohibition stemmed from complaints about the excessive use of the term not only to describe persons who raised frivolous theories, but against any persons who protested the amount of their tax assessment. Specifically, section 3707 of the Internal Revenue Service Restructuring and Reform Act of 1998
states that IRS personnel: shall not designate taxpayers as illegal tax protesters (or any similar designation); and in the case of any such designation made on or before the date of the enactment of this Act [i.e., made on or before July 22, 1998]--
Following this ban, some agents have resorted to euphemisms like "Constitutionally challenged" to replace the banned designation. Further, subsection (b) of section 3707 specifically authorized IRS personnel to use the term "nonfiler" to describe certain taxpayers.
This prohibition has had no bearing on the courts, which continue to use the term. For instance, in Hattman v. Commissioner, a per curiam opinion issued in September 2005 (and joined by future Supreme Court Justice Samuel Alito
), the United States Court of Appeals for the Third Circuit stated:
Ironically, the Congressional Committee Report on the legislation that introduced the prohibition on the use of the term by the IRS used the term "tax protester" in a different section to describe frivolous anti-tax arguments that should be given no weight. In a section of the report discussing the burden of proof in tax hearings, the Committee stated that although the IRS carries the burden of overcoming evidence that a tax assessed is not owed, "Implausible factual assertions, frivolous claims, or tax protestor-type arguments are not credible evidence."
Within the tax protester movement, there has been discord as to which arguments are appropriate to bring, based in part on the belief that different courts will respond differently to certain arguments. Attorney Larry Becraft, who has spent much of his career defending tax protesters, has recently decried "innocents who today believe certain legal arguments popular years ago, but which were litigated by ill prepared, desperate people and lost. To continue going down such dead end roads and to follow these dead arguments will only result in disaster".
Furthermore, in addition to those who express heartfelt beliefs about the tax laws, some con artists have been known to take advantage of the beliefs of tax protesters by profitably engaging in "tax scams". Such scams have included "the marketing of bogus trusts, 'untax' kits or other devices that would ostensibly allow people to avoid paying income taxes".
or other tax crimes, and have been prosecuted, convicted and imprisoned. The following sections describe some notable proponents of tax protester arguments (in the narrow legal sense of arguments that are legally frivolous).
. Beginning with the 1980 tax year, Cheek stopped filing Federal income tax returns. He was eventually charged with six counts of willfully failing to file Federal income tax returns under for 1980, 1981, and 1983 through 1986. He was also charged with tax evasion under for years 1980, 1981, and 1983.
At his criminal trial, Cheek represented himself. He stated that he sincerely believed that the tax laws were being unconstitutionally enforced, and that his actions were lawful. Cheek specifically testified that he believed he was not required to file tax returns or pay taxes. He also contended that his wages from a private employer did not constitute income under the internal revenue laws. Cheek argued that he therefore had acted without the "willfulness" required for a criminal tax conviction.
Cheek was convicted, but his conviction was reversed by the United States Supreme Court because of an erroneous jury instruction. The Supreme Court remanded the case for a re-trial with a correct jury instruction.
In the re-trial, the jury rejected Cheek's claim that he believed that wages were not taxable. He was again convicted. The second conviction was upheld by the United States Court of Appeals for the Seventh Circuit
, and the United States Supreme Court let that decision stand, denying Cheek's petition for a writ of certiorari. John L. Cheek was sentenced to a year and a day in prison, and was released from prison in December 1992.
has been convicted on three separate occasions in connection with Federal tax crimes: (1) for tax years 1974 and 1975; (2) for tax years 1980 through 1982 and, (3) most recently, for tax years 1997 through 2002, and has spent several years in Federal prisons. Among the arguments raised by Irwin Schiff in various court cases are the argument that no tax assessment can be made unless a tax return has been voluntarily filed; the argument that the Internal Revenue Service, in enforcing the income tax, seeks to impose a tax not authorized by the taxing clauses of the United States Constitution; and the argument (still displayed, as of early 2007, on Schiff's internet web site) that "[f]or tax purposes, 'income' only means corporate 'profit.' Therefore, no individual receives anything that is reportable as 'income.'" All the arguments were rejected by the courts.
Schiff's latest convictions came in late 2005, when he was found guilty of multiple counts of filing false tax returns, aiding and assisting in the preparation of false tax returns filed by other taxpayers, conspiring to defraud the United States, and income tax evasion. Schiff was sentenced to 13 years and 7 months in prison (including a year for contempt of court), and was ordered to pay over $4.2 million in restitution. He is scheduled for release in October 2016.
Ms. Meredith is imprisoned at the Victorville Federal Correctional Center (Victorville Medium II) near Adelanto, California, and is scheduled for release in February of the year 2013.
, was sentenced to 15 months in prison for willful failure to file income tax returns in five years in which the government alleged he earned approximately $500,000 in income. He was released from prison in December 2006.
Clayton filed tax returns for 1997 and 1998. On August 29, 2006, he was found guilty by a jury in Federal court in Austin, Texas, of two counts of willfully making false statements on some returns that he had filed, and six counts of willfully failing to file tax returns. According to The Courier of Montgomery County, "Clayton's defense at the trial centered on the '861 argument' -- a defense used numerous times in previous years, but never successfully [ . . . . ]" According to an April 7, 2006 Justice Department news release shortly after he was indicted, Clayton failed to file income tax returns for years 1999 through 2004 while receiving over $1.5 million in gross income. The government also charged that for years 1997 and 1998 Clayton filed false amended returns, claiming refunds of over $160,000. The conviction was upheld on appeal.
Criminal investigators of the Internal Revenue Service had gathered information on Clayton during the IRS investigation of Larken Rose (see above). According to the prosecutor's office, Clayton "disregarded multiple written notices from the Internal Revenue Service informing him that his 861 argument was without merit," and Clayton "had also been told the same thing by two Certified Public Accountant
s."
On December 15, 2006, Clayton was sentenced to five years in prison and a fine of $50,000, plus a requirement that he pay over $7,400 in prosecution costs. Clayton was incarcerated at the Federal Correctional Institution at Bastrop, Texas. As a result of his conviction, the Texas Medical Board revoked Clayton's license to practice medicine.
Clayton was released from federal prison in June 2011. Under the sentence, he is subject to supervision for one year following his prison term.
was found guilty on three misdemeanor counts of failing to file Federal income tax returns. He was acquitted on one felony count of conspiracy to defraud the government and one felony count of filing a false claim with the government. The allegations against Snipes had included charges that he filed a false amended return including a false tax refund
claim of over US$4 million for the year 1996 and a false amended return including a false tax refund claim of over US$7.3 million for the year 1997, using the "861 argument." The indictment said Snipes used accountants who already had a history of filing false returns to obtain refund payments for their clients. On April 24, 2008, Snipes was sentenced to three years in prison.
(in which Benson had argued that the Sixteenth Amendment was not properly ratified), was convicted of tax evasion and willful failure to file tax returns in connection with over $100,000 of unreported income, and his conviction was upheld on appeal. He was sentenced to four years in prison and five years of probation. See United States v. Benson. Benson's "Sixteenth Amendment was not properly ratified" argument was rejected. On December 17, 2007, the United States District Court for the Northern District of Illinois ruled that Benson's "Reliance Defense Package" (including Benson's Sixteenth Amendment non-ratification argument), constituted a "fraud perpetrated by Benson" that had "caused needless confusion and a waste of the customers' and the IRS' time and resources."
was indicted in 1994 for conspiracy to impede, impair, obstruct and defeat the functions of the Internal Revenue Service under . Clarkson gave seminars in which he asserted that it was legal to claim false exemptions, to hide income, and to refuse to file income tax returns or pay income tax. He and two associates were convicted, and the convictions were upheld on appeal. He was sentenced to 57 months in prison, and was released in 1999. Clarkson died on March 1, 2010.
was a tax protester who became involved with the We the People Foundation
and espoused the "income taxes are voluntary" argument. He served a seven year sentence for convictions on ten counts of willfully failing to collect and pay over employment taxes under , fifteen counts of knowingly making and presenting false, fictitious or fraudulent claims for refund of employment taxes under and , and four counts of willfully failing to timely file federal income tax returns under . Five days after his release from prison, he was sent back to jail pending a hearing regarding alleged violations of the terms of his release. On July 2, 2010, his terms of release were revoked, and the Court sentenced him to an additional six years and seven months in prison. Simkanin died while serving his prison sentence in late 2010, at the age of sixty-seven.
was convicted of twelve counts of willful failure to collect, account for, and pay over Federal income taxes and FICA
taxes under , forty-five counts of knowingly structuring transactions in Federally-insured financial institutions to evade the reporting requirements of , in violation of , and 31 C.F.R. sec. 103.11, and one count of corruptly endeavoring to obstruct and impede the administration of the internal revenue laws under . Twelve of the charges were for failing to pay employee-related taxes, totaling $473,818, and 45 of the charges were for evading reporting requirements by making multiple cash withdrawals just under the $10,000 reporting requirement (smurfing
).
Hovind had argued that he was not liable for taxes that and his ministry did not have to pay taxes because his workers were "missionaries" not "employees". In previous dealings with the IRS, Hovind had asserted tax protester arguments including the “income taxes are voluntary” argument.
The government charged that Hovind falsely listed the Internal Revenue Service as his only creditor in a bankruptcy case, and that Hovind filed a false and frivolous lawsuit against the IRS in which he demanded damages for criminal trespass, made threats of harm to those investigating him and to those who might consider cooperating with the investigation, filed a false complaint against IRS agents investigating him, filed a false criminal complaint against IRS special agents (criminal investigators), and destroyed records.
Former and current workers, IRS agents, a bank employee, and a lawyer of a non-profit Christian organization testified in the trial. Workers testified that they had to punch time cards, had vacation and sick days; while others testified Hovind claimed he had "beat" the tax system.
On January 19, 2007, Hovind was sentenced to ten years in prison and three years of probation, and was ordered to pay the federal government restitution of over $600,000.
"believe the IRS and the federal income tax are part of a deliberate plot perpetrated by Freemasons
to control the American people and eventually the world." On January 18, 2007, Edward Lewis Brown, an ex-convict who previously served prison time for assault and armed robbery, was found guilty by a jury in a Federal District Court in Concord, New Hampshire
of one count of conspiracy to defraud the United States under , one count of conspiracy to structure financial transactions to evade the Treasury reporting requirements in violation of , and , and one count of structuring financial transactions to evade the Treasury reporting requirements and aiding and abetting under and . On that day the same jury found Elaine A. Brown guilty one count of conspiracy to defraud the United States under , five counts of tax evasion
and aiding and abetting under and , eight counts of willful failure to collect employment taxes under and aiding and abetting under , one count of conspiracy to structure financial transactions to evade the Treasury reporting requirements in violation of , and , and two counts of structuring financial transactions to evade the Treasury reporting requirements and aiding and abetting under and .
The Browns stated that they had not been presented with any statute or law that required them to pay income taxes (see Tax protester statutory arguments
). The tax evasion convictions of Mrs. Brown involved the failure to report income of $1,310,706 over a period of five years. On April 24, 2007, Ed and Elaine Brown were sentenced to five years and three months in prison each. After a long standoff at their New Hampshire residence, the Browns were arrested by Federal law enforcement authorities on October 4, 2007, and began serving their prison sentences.
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
based on the belief that the constitution
Constitution
A constitution is a set of fundamental principles or established precedents according to which a state or other organization is governed. These rules together make up, i.e. constitute, what the entity is...
, statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
s, or regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
s do not empower the government to impose, assess or collect the tax. The tax protester
Tax protester (United States)
A tax protester is someone who refuses to pay a tax on constitutional or legal grounds, typically because he or she believes that the tax laws are unconstitutional or otherwise invalid...
may have no dispute with how the government spends its revenue. This differentiates a tax protester from a tax resister, who seeks to avoid paying a tax because the tax is being used for purposes with which the resister takes issue.
Origin of American tax protesters
People have protested taxation at various times in the history of the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, sometimes violently.
In the colonial era, Americans insisted on their rights as Englishmen to have their own legislature raise all taxes. Tax loads were very light. Beginning in 1765 the British Parliament asserted its supreme authority to lay taxes, and a series of American protests began that led directly to the American Revolution
American Revolution
The American Revolution was the political upheaval during the last half of the 18th century in which thirteen colonies in North America joined together to break free from the British Empire, combining to become the United States of America...
. The first wave of protests attacked the Stamp Act of 1765
Stamp Act 1765
The Stamp Act 1765 was a direct tax imposed by the British Parliament specifically on the colonies of British America. The act required that many printed materials in the colonies be produced on stamped paper produced in London, carrying an embossed revenue stamp...
, and marked the first time Americans from each of the 13 colonies met together and planned a common front against illegal taxes. The Boston Tea Party
Boston Tea Party
The Boston Tea Party was a direct action by colonists in Boston, a town in the British colony of Massachusetts, against the British government and the monopolistic East India Company that controlled all the tea imported into the colonies...
threw British tea into Boston Harbor because it contained a hidden tax Americans refused to pay. The British responded by trying to crush traditional liberties in Massachusetts, leading to war in 1775.
In 1794, settlers in western Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
responded to a federal tax on liquor with the Whiskey Rebellion
Whiskey Rebellion
The Whiskey Rebellion, or Whiskey Insurrection, was a tax protest in the United States in the 1790s, during the presidency of George Washington. Farmers who sold their corn in the form of whiskey had to pay a new tax which they strongly resented...
. President George Washington
George Washington
George Washington was the dominant military and political leader of the new United States of America from 1775 to 1799. He led the American victory over Great Britain in the American Revolutionary War as commander-in-chief of the Continental Army from 1775 to 1783, and presided over the writing of...
led an army to crush the rebellion--the rebels dispersed and federal supremacy in taxation was assured. The Fries Rebellion saw German Americans in Pennsylvania protest new federal taxes on houses in 1798. It also failed, but when the low-tax Democratic Republican Party came to [power in 1801, it repealed the whiskey and land taxes. Anger at the Tariff of 1828
Tariff of 1828
The Tariff of 1828 was a protective tariff passed by the Congress of the United States on May 19, 1828, designed to protect industry in the northern United States...
led South Carolina to reject the federal law, until President Andrew Jackson
Andrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...
threatened to send in the army to enforce it. The tariff was lowered, again and again, as Southern insistence until 1861. In the Civil War, with Republicans in control, the tariff was raised to produce needed revenue; after the war it was kept high to encourage industrialization, and became a major issue with conservative Bourbon Democrats such as President Grover Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
opposing, and Republicans led by William McKinley
William McKinley
William McKinley, Jr. was the 25th President of the United States . He is best known for winning fiercely fought elections, while supporting the gold standard and high tariffs; he succeeded in forging a Republican coalition that for the most part dominated national politics until the 1930s...
promoting tariffs as the route to national wealth. In each of these cases, some opponents of the tax in question contended that it was not merely bad, but exceeded the authority of the body that enacted it.
The Civil War saw the enactment of the first federal income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
; it was temporary. A federal income tax in 1894 was declared unconstitutional by the Supreme Court. To remedy that defect conservatives (led by Senator Nelson Aldrich wrote and the nation passed the 16th Amendment in 1909. The goal was to shift away from tariffs to a more widely based tax, which proved essential in financing World War I.
The Great Depression made tax delinquency was widespread during the presidency of Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
, when income taxes increased dramatically to pay for New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
programs and U.S. involvement in World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
.
The modern tax protester movement
The remainder of this article discusses the history of tax protesters with respect to the U.S. federal income taxIncome tax in the United States
In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...
, and in a more narrow sense. The modern tax protester movement appears to have originated in the 1940s and then to have become, in the mid-1970s, a phenomenon specifically characterized by legally frivolous arguments as some people came to assert that the federal tax on individual income is nonexistent, unconstitutional
Constitutionality
Constitutionality is the condition of acting in accordance with an applicable constitution. Acts that are not in accordance with the rules laid down in the constitution are deemed to be ultra vires.-See also:*ultra vires*Company law*Constitutional law...
, or inapplicable to various forms of income such as wages.
Early example: tax protest in transition
Connecticut industrialist Vivien KellemsVivien Kellems
Vivien Kellems, was a Connecticut industrialist and tax resister who fought the U.S. federal government for over 25 years over withholding under , and other aspects of income tax in the United States...
was an early advocate of the position that the tax laws were ineffective. In 1948, frustrated that the government had not reduced the historically high tax rates assessed during World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, Kellems refused to withhold payroll taxes for her employees. She did not dispute the propriety of the tax at that time, but contested the power of the government to require her to collect taxes on its behalf.
Modern tax protesters: Positions based on legally frivolous arguments
Another early protester was Arthur J. Porth, who argued that the Sixteenth Amendment to the U.S. Constitution should itself be declared unconstitutional, under his theory that the income taxes under the Internal Revenue Code of 1939 imposed "involuntary servitude" in violation of the Thirteenth AmendmentThirteenth Amendment to the United States Constitution
The Thirteenth Amendment to the United States Constitution officially abolished and continues to prohibit slavery and involuntary servitude, except as punishment for a crime. It was passed by the Senate on April 8, 1864, passed by the House on January 31, 1865, and adopted on December 6, 1865. On...
. That argument
Argument
In philosophy and logic, an argument is an attempt to persuade someone of something, or give evidence or reasons for accepting a particular conclusion.Argument may also refer to:-Mathematics and computer science:...
was ruled to be without merit in Porth v. Brodrick, United States Collector of Internal Revenue for the State of Kansas. He continued his tax protester activities and was eventually convicted of willful failure to file returns and other tax crimes; see United States v. Porth.
In another early case, Lamb v. Commissioner, the taxpayer argued that because his income was not received in the form of gold or silver currency, none of the income was taxable. He also argued that his income was not taxable because Federal Reserve notes were bogus and counterfeit under the Constitution. The United States Tax Court rejected those arguments.
See also Gordon Kahl
Gordon Kahl
Gordon Wendell Kahl is best known for his involvement in two fatal shootouts with law enforcement officers in the United States in 1983....
.
Ideas associated with the tax protester movement have been forwarded under different names over time. These ideas have been put forth, for example, in the broader Christian Patriot
Christian Patriot
The Christian Patriot movement is a movement of American political commentators and activists. They promote various interpretations of history and law with the common theme that the federal government has turned against the ideas of liberty and individual rights behind the American Revolution, and...
and Posse Comitatus
Posse Comitatus (U.S. movement)
The Posse Comitatus is a loosely organized far right social movement that opposes the United States federal government and believes in localism...
movements, which generally assert that the Constitution has been usurped by the federal government. More recently, tax protesters have styled themselves as the "Tax Honesty Movement".
Current level of civil and criminal tax protester cases
Tax protester cases appear to be a relatively small percentage of total Federal tax decisions. An "unscientific" May 2, 2006 search of one database used by tax lawyers, certified public accountants, and other tax professionals revealed 56 likely decisions in the year 2003 where the term "tax protester" was used and 42 such decisions in 2004. Seventy-two likely tax protester decisions were rendered in 2005, or less than 7% of the approximately 1,121 Federal tax decisions (including Tax Court and all district court, bankruptcy court, appeals courts and U.S. Supreme Court tax cases) rendered during that year. These statistics do not take into account the fact that some reported, rendered decisions involve multiple levels (trial court, appellate court) of the same case. They also do not take into account cases where taxpayers presented tax protester arguments but the court did not mention the term "tax protester" in its decision (e.g., where the court instead used the legal term "frivolous" or another similar term). The statistics also do not take into account the decisions for which the courts rendered a judgment but no written opinion. The statistics include both civil and criminal tax cases.Prohibition on IRS use of the designation
In 1998, the U.S. Congress passed a prohibition on the use of the term "illegal tax protester" by officers and employees of the Internal Revenue ServiceInternal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
. The prohibition stemmed from complaints about the excessive use of the term not only to describe persons who raised frivolous theories, but against any persons who protested the amount of their tax assessment. Specifically, section 3707 of the Internal Revenue Service Restructuring and Reform Act of 1998
Internal Revenue Service Restructuring and Reform Act of 1998
The Internal Revenue Service Restructuring and Reform Act of 1998, also known as Taxpayer Bill of Rights III, , resulted from hearings held by the United States Congress in 1996 and 1997...
states that IRS personnel: shall not designate taxpayers as illegal tax protesters (or any similar designation); and in the case of any such designation made on or before the date of the enactment of this Act [i.e., made on or before July 22, 1998]--
-
- (A) shall remove such designation from the individual master file; and
- (B) shall disregard any such designation not located in the individual master file."
Following this ban, some agents have resorted to euphemisms like "Constitutionally challenged" to replace the banned designation. Further, subsection (b) of section 3707 specifically authorized IRS personnel to use the term "nonfiler" to describe certain taxpayers.
This prohibition has had no bearing on the courts, which continue to use the term. For instance, in Hattman v. Commissioner, a per curiam opinion issued in September 2005 (and joined by future Supreme Court Justice Samuel Alito
Samuel Alito
Samuel Anthony Alito, Jr. is an Associate Justice of the U.S. Supreme Court. He was nominated by President George W. Bush and has served on the court since January 31, 2006....
), the United States Court of Appeals for the Third Circuit stated:
- It is readily apparent that Hattman's appeal and "petitions" in this Court, as well as his petition for redetermination filed in the Tax Court, are nothing other than the thinly veiled arguments of a tax protester. These types of tax protester arguments have been rejected as patently frivolous, and require no additional analysis here.
Ironically, the Congressional Committee Report on the legislation that introduced the prohibition on the use of the term by the IRS used the term "tax protester" in a different section to describe frivolous anti-tax arguments that should be given no weight. In a section of the report discussing the burden of proof in tax hearings, the Committee stated that although the IRS carries the burden of overcoming evidence that a tax assessed is not owed, "Implausible factual assertions, frivolous claims, or tax protestor-type arguments are not credible evidence."
Old arguments and new
Since the advent of the tax protester movement, all the arguments that have been raised in actual court proceedings have ultimately been deemed incorrect by the courts. Many tax protesters have taken these setbacks to mean that the courts, the Congress, and the executive branch are conspiring to continue receiving the revenue which pays their salaries and supports their benefits.Within the tax protester movement, there has been discord as to which arguments are appropriate to bring, based in part on the belief that different courts will respond differently to certain arguments. Attorney Larry Becraft, who has spent much of his career defending tax protesters, has recently decried "innocents who today believe certain legal arguments popular years ago, but which were litigated by ill prepared, desperate people and lost. To continue going down such dead end roads and to follow these dead arguments will only result in disaster".
Furthermore, in addition to those who express heartfelt beliefs about the tax laws, some con artists have been known to take advantage of the beliefs of tax protesters by profitably engaging in "tax scams". Such scams have included "the marketing of bogus trusts, 'untax' kits or other devices that would ostensibly allow people to avoid paying income taxes".
Notable tax protesters
Some people who do not pay income taxes have been able to do so successfully for many years. Others have been arrested for tax evasionTax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
or other tax crimes, and have been prosecuted, convicted and imprisoned. The following sections describe some notable proponents of tax protester arguments (in the narrow legal sense of arguments that are legally frivolous).
John L. Cheek
John L. Cheek was a pilot employed by American AirlinesAmerican Airlines
American Airlines, Inc. is the world's fourth-largest airline in passenger miles transported and operating revenues. American Airlines is a subsidiary of the AMR Corporation and is headquartered in Fort Worth, Texas adjacent to its largest hub at Dallas/Fort Worth International Airport...
. Beginning with the 1980 tax year, Cheek stopped filing Federal income tax returns. He was eventually charged with six counts of willfully failing to file Federal income tax returns under for 1980, 1981, and 1983 through 1986. He was also charged with tax evasion under for years 1980, 1981, and 1983.
At his criminal trial, Cheek represented himself. He stated that he sincerely believed that the tax laws were being unconstitutionally enforced, and that his actions were lawful. Cheek specifically testified that he believed he was not required to file tax returns or pay taxes. He also contended that his wages from a private employer did not constitute income under the internal revenue laws. Cheek argued that he therefore had acted without the "willfulness" required for a criminal tax conviction.
Cheek was convicted, but his conviction was reversed by the United States Supreme Court because of an erroneous jury instruction. The Supreme Court remanded the case for a re-trial with a correct jury instruction.
In the re-trial, the jury rejected Cheek's claim that he believed that wages were not taxable. He was again convicted. The second conviction was upheld by the United States Court of Appeals for the Seventh Circuit
United States Court of Appeals for the Seventh Circuit
The United States Court of Appeals for the Seventh Circuit is a federal court with appellate jurisdiction over the courts in the following districts:* Central District of Illinois* Northern District of Illinois...
, and the United States Supreme Court let that decision stand, denying Cheek's petition for a writ of certiorari. John L. Cheek was sentenced to a year and a day in prison, and was released from prison in December 1992.
Irwin Schiff
Irwin SchiffIrwin Schiff
Irwin A. Schiff is a prominent figure in the United States tax protester movement. Schiff is known for writing and promoting literature that claims the United States income tax is applied incorrectly. He has lost several civil cases against the federal government and has a record of multiple...
has been convicted on three separate occasions in connection with Federal tax crimes: (1) for tax years 1974 and 1975; (2) for tax years 1980 through 1982 and, (3) most recently, for tax years 1997 through 2002, and has spent several years in Federal prisons. Among the arguments raised by Irwin Schiff in various court cases are the argument that no tax assessment can be made unless a tax return has been voluntarily filed; the argument that the Internal Revenue Service, in enforcing the income tax, seeks to impose a tax not authorized by the taxing clauses of the United States Constitution; and the argument (still displayed, as of early 2007, on Schiff's internet web site) that "[f]or tax purposes, 'income' only means corporate 'profit.' Therefore, no individual receives anything that is reportable as 'income.'" All the arguments were rejected by the courts.
Schiff's latest convictions came in late 2005, when he was found guilty of multiple counts of filing false tax returns, aiding and assisting in the preparation of false tax returns filed by other taxpayers, conspiring to defraud the United States, and income tax evasion. Schiff was sentenced to 13 years and 7 months in prison (including a year for contempt of court), and was ordered to pay over $4.2 million in restitution. He is scheduled for release in October 2016.
Bonita Lynne Meredith
Bonita Lynne Meredith was sentenced in June 2005 to ten years and one month in prison for conspiracy, four counts of mail fraud, two counts of using a false social security number, making a false statement in a passport application, and five counts of failing to file a tax return. In its press release following the sentencing of Ms. Meredith, the Department of Justice stated: "The evidence presented during a 13-week trial showed that beginning in 1991 and continuing until April 2002, Meredith conducted seminars at which she sold books and bogus 'pure trusts' to people with the purpose of leading them to believe they could legally shield income and assets from taxation. Meredith and her co-defendants encouraged and assisted taxpayers by forming phony 'pure trusts,' opening bank accounts with phony Taxpayer Identification Numbers, filing fraudulent income tax returns and encouraging taxpayers to stop filing income tax returns." Four other persons convicted of conspiracy in connection with the activities of Ms. Meredith were also sentenced to prison.Ms. Meredith is imprisoned at the Victorville Federal Correctional Center (Victorville Medium II) near Adelanto, California, and is scheduled for release in February of the year 2013.
Wayne C. Bentson
In May 2005, the IRS announced that Wayne C. Bentson was sentenced to four years in prison and three years of supervised release, and was ordered to pay the IRS over $1.1 million in restitution. In December 2004, Bentson was convicted on charges of conspiracy and willful failure to file his income tax returns. According to the U.S. Justice Department, Bentson told clients that he was a tax expert and falsely advised clients that the tax laws applied only to individuals living in the Virgin Islands, Guam, and Puerto Rico. According to the Justice Department, Bentson also falsely advised clients that they were not taxpayers, that they had not earned income, and that they were not required to pay federal income tax. Some witnesses reportedly testified during Bentson's trial that they also had been prosecuted after following Bentson’s advice. Bentson was released from prison in May 2008.Larken Rose
Larken Rose, an adherent of the 861 argumentTax protester 861 argument
The 861 argument is a statutory argument used by tax protesters in the United States, which interprets a portion of the tax code as invalidating certain applications of income tax...
, was sentenced to 15 months in prison for willful failure to file income tax returns in five years in which the government alleged he earned approximately $500,000 in income. He was released from prison in December 2006.
Charles Thomas Clayton
Charles Thomas (Tom) Clayton, M.D., regularly filed Federal income tax returns until he became involved with a "tax protest organization." For the year 1992, he failed to file a return. In October 1996 he pleaded guilty and was sentenced to one year of probation for failure to file the 1992 return.Clayton filed tax returns for 1997 and 1998. On August 29, 2006, he was found guilty by a jury in Federal court in Austin, Texas, of two counts of willfully making false statements on some returns that he had filed, and six counts of willfully failing to file tax returns. According to The Courier of Montgomery County, "Clayton's defense at the trial centered on the '861 argument' -- a defense used numerous times in previous years, but never successfully [ . . . . ]" According to an April 7, 2006 Justice Department news release shortly after he was indicted, Clayton failed to file income tax returns for years 1999 through 2004 while receiving over $1.5 million in gross income. The government also charged that for years 1997 and 1998 Clayton filed false amended returns, claiming refunds of over $160,000. The conviction was upheld on appeal.
Criminal investigators of the Internal Revenue Service had gathered information on Clayton during the IRS investigation of Larken Rose (see above). According to the prosecutor's office, Clayton "disregarded multiple written notices from the Internal Revenue Service informing him that his 861 argument was without merit," and Clayton "had also been told the same thing by two Certified Public Accountant
Certified Public Accountant
Certified Public Accountant is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA...
s."
On December 15, 2006, Clayton was sentenced to five years in prison and a fine of $50,000, plus a requirement that he pay over $7,400 in prosecution costs. Clayton was incarcerated at the Federal Correctional Institution at Bastrop, Texas. As a result of his conviction, the Texas Medical Board revoked Clayton's license to practice medicine.
Clayton was released from federal prison in June 2011. Under the sentence, he is subject to supervision for one year following his prison term.
Wesley Snipes
On February 1, 2008, actor Wesley SnipesWesley Snipes
Wesley Trent Snipes is an American actor, film producer, and martial artist, who has starred in numerous action films, thrillers, and dramatic feature films. Snipes is known for playing the Marvel Comics character Blade in the Blade film trilogy, among various other high profile roles...
was found guilty on three misdemeanor counts of failing to file Federal income tax returns. He was acquitted on one felony count of conspiracy to defraud the government and one felony count of filing a false claim with the government. The allegations against Snipes had included charges that he filed a false amended return including a false tax refund
Tax refund
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the...
claim of over US$4 million for the year 1996 and a false amended return including a false tax refund claim of over US$7.3 million for the year 1997, using the "861 argument." The indictment said Snipes used accountants who already had a history of filing false returns to obtain refund payments for their clients. On April 24, 2008, Snipes was sentenced to three years in prison.
William J. Benson
William J. Benson, the co-author of the book The Law that Never WasThe Law that Never Was
The Law That Never Was: The Fraud of the 16th Amendment and Personal Income Tax is a 1985 book by William J. Benson and Martin J. "Red" Beckman which claims that the Sixteenth Amendment to the United States Constitution, commonly known as the income tax amendment, was never properly ratified...
(in which Benson had argued that the Sixteenth Amendment was not properly ratified), was convicted of tax evasion and willful failure to file tax returns in connection with over $100,000 of unreported income, and his conviction was upheld on appeal. He was sentenced to four years in prison and five years of probation. See United States v. Benson. Benson's "Sixteenth Amendment was not properly ratified" argument was rejected. On December 17, 2007, the United States District Court for the Northern District of Illinois ruled that Benson's "Reliance Defense Package" (including Benson's Sixteenth Amendment non-ratification argument), constituted a "fraud perpetrated by Benson" that had "caused needless confusion and a waste of the customers' and the IRS' time and resources."
Robert B. Clarkson
Robert B. ClarksonRobert Clarkson
Robert Barnwell Clarkson was an American tax protester in South Carolina.-Early life:Clarkson graduated in 1969 from Clemson University with a bachelor of arts degree in economics. He served as a platoon leader in the Vietnam War...
was indicted in 1994 for conspiracy to impede, impair, obstruct and defeat the functions of the Internal Revenue Service under . Clarkson gave seminars in which he asserted that it was legal to claim false exemptions, to hide income, and to refuse to file income tax returns or pay income tax. He and two associates were convicted, and the convictions were upheld on appeal. He was sentenced to 57 months in prison, and was released in 1999. Clarkson died on March 1, 2010.
Richard M. Simkanin
Richard Michael SimkaninRichard Michael Simkanin
Richard Michael Simkanin was a tax protester who was imprisoned after having been convicted on twenty-nine counts of United States federal tax crimes.- Background :Simkanin owned a company in Bedford, Texas, called Arrow Custom Plastics, Inc...
was a tax protester who became involved with the We the People Foundation
We the People Foundation
We the People Foundation for Constitutional Education, Inc. also known as We the People Foundation is a non-profit education and research organization in Queensbury, New York with the declared mission "to protect and defend individual Rights as guaranteed by the Constitutions of the United States."...
and espoused the "income taxes are voluntary" argument. He served a seven year sentence for convictions on ten counts of willfully failing to collect and pay over employment taxes under , fifteen counts of knowingly making and presenting false, fictitious or fraudulent claims for refund of employment taxes under and , and four counts of willfully failing to timely file federal income tax returns under . Five days after his release from prison, he was sent back to jail pending a hearing regarding alleged violations of the terms of his release. On July 2, 2010, his terms of release were revoked, and the Court sentenced him to an additional six years and seven months in prison. Simkanin died while serving his prison sentence in late 2010, at the age of sixty-seven.
Kent Hovind
In November 2006, Kent HovindKent Hovind
Kent E. Hovind is an American young earth creationist. Hovind speaks on creation science and aims to convince listeners to reject theories of evolution, geophysics, and cosmology in favor of the Genesis creation narrative as found in the Bible...
was convicted of twelve counts of willful failure to collect, account for, and pay over Federal income taxes and FICA
Federal Insurance Contributions Act tax
Federal Insurance Contributions Act tax is a United States payroll tax imposed by the federal government on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers...
taxes under , forty-five counts of knowingly structuring transactions in Federally-insured financial institutions to evade the reporting requirements of , in violation of , and 31 C.F.R. sec. 103.11, and one count of corruptly endeavoring to obstruct and impede the administration of the internal revenue laws under . Twelve of the charges were for failing to pay employee-related taxes, totaling $473,818, and 45 of the charges were for evading reporting requirements by making multiple cash withdrawals just under the $10,000 reporting requirement (smurfing
Smurfing (crime)
Structuring, also known as smurfing in banking industry jargon, is the practice of executing financial transactions in a specific pattern calculated to avoid the creation of certain records and reports required by law, such as the United States's Bank Secrecy Act and Internal Revenue Code...
).
Hovind had argued that he was not liable for taxes that and his ministry did not have to pay taxes because his workers were "missionaries" not "employees". In previous dealings with the IRS, Hovind had asserted tax protester arguments including the “income taxes are voluntary” argument.
The government charged that Hovind falsely listed the Internal Revenue Service as his only creditor in a bankruptcy case, and that Hovind filed a false and frivolous lawsuit against the IRS in which he demanded damages for criminal trespass, made threats of harm to those investigating him and to those who might consider cooperating with the investigation, filed a false complaint against IRS agents investigating him, filed a false criminal complaint against IRS special agents (criminal investigators), and destroyed records.
Former and current workers, IRS agents, a bank employee, and a lawyer of a non-profit Christian organization testified in the trial. Workers testified that they had to punch time cards, had vacation and sick days; while others testified Hovind claimed he had "beat" the tax system.
On January 19, 2007, Hovind was sentenced to ten years in prison and three years of probation, and was ordered to pay the federal government restitution of over $600,000.
Edward Lewis Brown and Elaine A. Brown
Tax protesters Edward Lewis Brown and his wife Elaine A. BrownEdward and Elaine Brown
Edward Lewis Brown and his wife, Elaine Alice Brown , residents of the state of New Hampshire, gained national news media attention in early 2007 for not paying the U.S. federal income tax and refusing to surrender to federal government agents after having been convicted of tax crimes...
"believe the IRS and the federal income tax are part of a deliberate plot perpetrated by Freemasons
Freemasonry
Freemasonry is a fraternal organisation that arose from obscure origins in the late 16th to early 17th century. Freemasonry now exists in various forms all over the world, with a membership estimated at around six million, including approximately 150,000 under the jurisdictions of the Grand Lodge...
to control the American people and eventually the world." On January 18, 2007, Edward Lewis Brown, an ex-convict who previously served prison time for assault and armed robbery, was found guilty by a jury in a Federal District Court in Concord, New Hampshire
Concord, New Hampshire
The city of Concord is the capital of the state of New Hampshire in the United States. It is also the county seat of Merrimack County. As of the 2010 census, its population was 42,695....
of one count of conspiracy to defraud the United States under , one count of conspiracy to structure financial transactions to evade the Treasury reporting requirements in violation of , and , and one count of structuring financial transactions to evade the Treasury reporting requirements and aiding and abetting under and . On that day the same jury found Elaine A. Brown guilty one count of conspiracy to defraud the United States under , five counts of tax evasion
Tax avoidance and tax evasion
Tax noncompliance describes a range of activities that are unfavorable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities....
and aiding and abetting under and , eight counts of willful failure to collect employment taxes under and aiding and abetting under , one count of conspiracy to structure financial transactions to evade the Treasury reporting requirements in violation of , and , and two counts of structuring financial transactions to evade the Treasury reporting requirements and aiding and abetting under and .
The Browns stated that they had not been presented with any statute or law that required them to pay income taxes (see Tax protester statutory arguments
Tax protester statutory arguments
Tax protesters in the United States make a number of statutory arguments that the assessment of the federal income tax in the United States violates the statutes enacted by the United States Congress and signed into law by the President...
). The tax evasion convictions of Mrs. Brown involved the failure to report income of $1,310,706 over a period of five years. On April 24, 2007, Ed and Elaine Brown were sentenced to five years and three months in prison each. After a long standoff at their New Hampshire residence, the Browns were arrested by Federal law enforcement authorities on October 4, 2007, and began serving their prison sentences.
Andrew Joseph Stack III
Andrew Joseph Stack III was a computer programmer who on February 18, 2010 set fire to his own house, drove to a local airport, then flew a Piper Dakota into a local IRS field office in Austin Texas. Stack and an IRS employee were killed and 13 people were injured.Further reading
- David F. Burg. A World History of Tax Rebellions: An Encyclopedia of Tax Rebels, Revolts, and Riots from Antiquity to the Present (2003)