FIGHT FEDERAL INCOME TAX BY CHANGE NOT REFUSING TO PAY

Fight Federal Income Taxes by Change, not Refusing to Pay

by Chris Moss CPA

Every year around tax time, I hear a few successful and intelligent taxpayers come explain to me that income tax is illegal.  When I ask them how this is possible, I am told that the 16th Amendment was never properly ratified.  It turns out these taxpayers had attended some seminar or read some book that promotes the 16th Amendment as a fraud on the American people.  So I thought it might be useful for us to look a little closer at the various arguments against paying income tax that are out there.   

The Benson case: William J Benson stopped paying income tax claiming the 16th Amendment was never properly ratified. He argued that state amendments were not of the exact language of the circulated congressional amendment, making the amendment fail to achieve the three-forths required majority of states. Benson even wrote a book in 1985 titled “The Law That Never Was: The fraud of the 16th Amendment and personal income tax.” History in fact shows that in 1913, Mr. Knox, Secretary of State, proclaimed that the amendment had been ratified by the necessary three-quarters of the states. Mr. Knox was clearly aware of the grammatical and minor changes in text between the various state and congressional amendments.

In United States v. House 617 F Supp 237 (1985) the Court said “The Solicitor of the Department of State drew up a list of the errors in the instruments and taking into account both the triviality of the deviations and the treatment of earlier amendments that had experienced more substantial problems [and] advised the Secretary that he was authorized to declare the amendment adopted. The Secretary did so.”

Benson was sentenced to four years in prison in 1995 but is still very actively promoting his beliefs. Trust me folks, every court out there has ultimately rejected Benson’s arguments.

The Cheek case: John L. Cheek stopped paying income tax claiming the tax laws were unconstitutionally enforced and the he did not have to pay tax. He ultimately lost all his civil claims and was forced to pay the tax. However, he was also criminally charged as well. He claimed he acted without the willfulness required for criminal conviction.

He was able to get his case to the Supreme Court on an issue of criminal intent. Cheek v. United States, 498 U.S. 192 (1991). He had a partial victory on a technicality in that the Court ruled that even though an honest belief may be irrational, if intent was not there, there could be no criminal liability. The Supreme Court remanded the case to the court below so new jury instructions could be given. Cheek’s victory was short lived, in that on remand, he was sentenced to a year in prison in 1991.

There are countless other tax protester arguments other than the 16th Amendment argument. One of my favorite arguments is to place all your assets and income in a foreign trust in a tax free haven with a foreigner in control of all the assets and income. Since only American citizens and resident aliens are taxed on worldwide income, the income deposited into this foreign trust would accumulate tax free.

However, most taxpayers never create the required “irrevocable” trust, but still retain control, either through a revocable trust or through a credit card access to the money, making the scheme illegal and criminal.

All of the promoters of these tax protest arguments and others like them are either serving time in Federal prison or have just been released. Taxes owed were all assessed and either paid or are due. No group or individual has ever successfully challenged the United States to collect income tax form its citizens.

Let’s start with our own local and state elected officials to move forward to legally change the system and to shut down these tax protesters for good. Remember if the tax advice is too good to be true, it isn’t.

(H Christopher Moss of Mount Pleasant , a CPA and attorney, is President and CEO of Infinite Partnerships Inc.)
AS PUBLISHED BY THE POST AND COURIER March 19, 2008

INCOME TAX IS OBSOLETE CLUNKER

Income Tax is Obsolete Clunker Tax

by Chris Moss CPA

Welcome to TaxView with Chris Moss CPA Tax Attorney

Remember the cash for clunkers program Congress created in 2009 for your old beat up car. You brought in your clunker car to the dealer and got cash to buy a new car to stimulate the economy? It seems that the 100 year old income tax has become an obsolete “clunker tax” and is not working. The income tax needs to be replaced with a new tax better suited for the 21srt century, a National Sales Tax. Stay tuned to TaxView with Chris Moss CPA Tax Attorney to find out why.

Historically income tax has always been somewhat of a voluntary tax. History shows most Americans when given the choice, choose not to pay. That is why in 1943 with the introduction of the W2 form in just two years revenue collection increased from $7 billion to $43 billion with 60 million Americans added to the tax rolls almost overnight.

Congress realized the power of the W2 with revenue collections as a percent of Gross Domestic Product surging from less than 6% to almost 20%. Unfortunately Americans would fight back against the W2 form. Slowly an underground economy thwarted forced W2 withholding now estimated to total almost $2 Trillion a year in unreported income. Congress fought back as well.
Over the last 30 years there has been an attempt by the Government to “capture” all that underground income by creating the 1099 network of reporting hoping for another W2-like increase in collections as percentage of GDP. The ultimate 1099 program was enacted in 2010 when Congress tried to capture all income from everyone, but Congress soon realized this was impossible to enforce let alone comply with. That law was repealed a year later in 2011.

The fact is that it is impossible in the 21st century to capture all income from 1099s unless the IRS audits everyone. The solution? An involuntary national sales tax, taxed at the source of each purchase at the same time state sales tax is collected. Easy, simple and very effective. But just in case you’re not convinced yet that a voluntary income tax does not work in the 21st century, there’s more: Identify theft, a 21st century crime is further eroding income tax collections.

The Government is losing at least $6 billion a year to identity theft as organized crime has moved its operations from drug dealing to identity theft. John Koskinen, the Commissioner of the IRS has recently commented that he has heard from police that “street crime is down because everybody is now filing false IRS returns”. Add identity theft to the underground economy and the IRS is unable to collect enough money each year to allow America to pay its bills. Further add additional tax revenue being lost to off shore illegal tax shelters and you have the triple crown of tax evasion: Underground economy, identify theft, and offshore tax shelters. No wonder our National Debt is dramatically approaching the unthinkable $20 Trillion level.

A National Sales Tax might just wipe out the Underground economy as well as drive organized crime out of the United States Treasury. As an added benefit, all off shore money would soon return home and many if not all tax shelters would disappear back to the 20th century where they belong. If Congress were bold enough to embark on a 21st century solution to increase revenue collection, perhaps annual deficits would be wiped out as well. Could the dramatic rise in collections as a percent of GDP from 1943 be recreated in 2015 with a National Sales Tax?

I don’t know about you all, but I don’t want to see our Government cut services to Americans, including our military, just because Congress does not have the courage to see that the income tax has become a “clunker tax”. If you all believe that the income tax is now an obsolete clunker, let your elected representatives know how you feel. Perhaps House Ways and Means and Senate Finance can best serve America by creating a new tax better suited for the 21st century rather than trying to reform a 100 year old clunker.

Thank you for joining us on TaxView with Chris Moss CPA Tax Attorney.

See you next time on TaxView with Chris Moss Tax Attorney CPA

Kindest regards
Chris Moss CPA

Substitute Tax Returns

IWelcome to TaxView with Chris Moss CPA Tax Attorney

Chris Moss CPA Tax Attorney

What is a substitute tax return? No your identity has not been stolen and a false return filed by the perpetrator. In fact, a substitute tax return is what the Government has the authority to file for you when you don’t file your tax return on time. Yes, isn’t that nice of the IRS to file your income tax return for you, and better yet, all at no charge! But wait a minute. Before you all start calling me asking how to get the government to file this free substitute tax return for you, let me make clear that a substitute return is not the real deal, it is more like a knock off return. You all know what knock offs are, those fake replicas of an authentic brand of luxury goods or service, often times not worth purchasing even at any price due to lack of quality and poor workmanship. The same holds true for a substitute tax returns, usually poorly prepared by the IRS and in worse cases substantially inaccurate, not reflective of your true net income and tax owed and unfortunately presenting you with a very large tax bill with even larger interest and penalties that is simply in many cases not correct. So if you have an outstanding tax return that has not yet been filed, or perhaps a few such returns, or if you are in any way just curious, then stay with us on TaxView with Chris Moss CPA Tax Attorney  to find out how you can get hit with a substitute knock off return and what you need to do to “return” the return back to sender where it belongs.

According to the Government’s own IRS website, the IRS warns us all: “…If you fail to file, we may file a substitute return for you. This return might not give you credit for deductions and exemptions you may be entitled to receive. We will send you a Notice of Deficiency proposing a tax assessment. You will have 90 days to file your past due tax return or file a petition in Tax Court. If you do neither, we will proceed with our proposed assessment….” Seems fair enough. In my view you get a pretty good deal. Either file or go to Tax Court. Although not everything with the IRS is quite what it seems to be especially when you go through the bizarre world of US Tax Court case law.

Gloria Spurlock did not file her tax returns for 1995 96 and 97 and in fact did go to US Tax Court in Spurlock v IRS 118 TC No 9 (2002). Judge Ruwe points out that under IRS Code Section 6020(b)(1), the Government has the authority to execute a return “If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return”. IRS wins Gloria loses. Sandra Stern also didn’t file a tax return and decided to go to Tax Court, Sandra Stern vs IRS TC 2002-212. Judge Beghe says: “…the above-quoted language of section 6020(b) makes clear that the Commissioner is not charged with preparing a perfectly accurate return. The Commissioner is required only to do the best he can with the information available to him, in the absence of a return prepared and filed by the taxpayer…” IRS wins Sandra loses.

The next case is even more interesting: Sam Kornhauser, a practicing attorney no less, didn’t file his 2007 tax return nor did he file one for 2008. The IRS prepared a substitute 2008 return and sent him the 90 day letter. Within the 90 day period Kornhauser signed a tax return and submitted it to the IRS for processing. However, the IRS did not process the return. Kornhauser appealed to US Tax Court, Kornhauser v IRS 2013-230. Judge Haines’ Opinion allowed into evidence Kornhauser’s “income” but not his deductions. Surprise, Surprise. Judge Haines says: “…It seems Kornhauser disputes the tax liability because the substitute return failed to take into account certain “deductions and credits”. Kornhauser’s only evidence to support his deductions and credits was his testimony as well as documents and records contained in exhibits…” Unfortunately for Kornhauser the Court did not feel the evidence Kornhauser presented to the Court or even his own sworn testimony to be credible. The Court concluded “….we find Kornhauser’s testimony to be self-serving and uncorroborated and do not accept it”. IRS wins Kornhauser loses.

In conclusion, there are certainly going to be times in your life that your tax return is going to be filed late, even years after the deadline, perhaps for reasons beyond your control. A death in the family, divorce, loss of job, natural weather disaster to name a few. So make sure you tax attorney communicates with the IRS that your return is running late and keep in constant touch with the Government until your return is eventually filed. In my view best practice in cases like this requires proper, regular, and effective written and verbal communication with the IRS to allow for cooperation not confrontation, and assistance not interference. Finally, for whatever reason, if you choose not to file your tax return without communicating to the IRS via your tax attorney, expect the IRS to file a substitute tax return for you. If you try to contest the substitute tax return in US Tax Court I bet you a Lobster dinner at the Palm that the Government wins every time. Happy tax return filings and remember, there is no substitute.

Thanks for joining Chris Moss CPA Tax Attorney on TaxView

Kindest regards

Chris Moss CPA Tax Attorney

Tax Return Identity Theft

Submitted by Chris Moss CPA

Welcome to TaxView with Chris Moss CPA Tax Attorney

Tax return identity theft is on the rise. Criminals illegally obtain your name and Social Security number, create phony W-2s and related forms, and file a bogus tax return before you can file your legitimate return. Many of these crooks are organized criminals who have figured out that it is easier to rip you off by filing a bogus tax return than robbing a bank or hijacking a car. These 21st century thugs are ripping off the US Government as well. Uncle Sam is losing millions of dollars if not potentially billions a year in bogus tax refunds and you the taxpayer are out in the cold if you are one of the unlucky taxpayers who get their identity stolen.

The typical identity theft scheme is for the perpetrator to file an early tax return with your social security number and your name but a different address around February through March up to the first week in April. The bogus tax return always shows a refund and is almost always mailed in to the IRS and not electronically filed. The mailing address on the tax return could be a PO Box or an executive office suite or any rented house. Sometimes the address could be an abandoned or foreclosed property where there is an outside mailbox or a mail slot in the door with no occupants to get the mail.

Here is how the scheme works: The refund check comes to the designated address and the mail is picked up by the perpetrator. The check is then either forged and cashed or deposited into a legitimate account but with a fictitious owner. There could be hundreds if not thousands of these refunds for hundreds of taxpayers from the same address to which the perpetrator has stolen identities from. Currently the IRS has absolutely no mechanism to detect such mass refund requests originating from the same address.

In addition the crooks know this crime must be a high volume scam to success. Criminals realize that many of their bogus tax returns will be delayed or questioned by the IRS. So when for example a few hundred of the refunds are received of the thousands of returns filed, the perpetrators close shop and move on. By the time the government investigates the crooks have moved on, new locations have been secured and the illegal operators get ready for the next year’s filing season to start the whole operation again.

How serious is tax return identity theft? The inspector general of the IRS indicate that bogus tax filings are in the millions with billions of dollars potentially at stake. A new proposed bill “Stop Identity Theft Act of 2013” calls for the Attorney General to: (1) make use of all existing resources of the Department of Justice (DOJ), including task forces, to bring more perpetrators of tax return identity theft to justice; and (2) take into account the need to concentrate efforts in areas of the country where the crime is most frequently reported, to coordinate with state and local authorities to prosecute and prevent such crime, and to protect vulnerable groups from becoming victims or otherwise being used in the offense.

What do I do for my clients? I am constantly on line with IRS Electronic Account Resolution (EAR) throughout tax season for all my clients. When I make an inquiry with the EAR portal prior to the tax return being filed, I get a zero transcript indicated no tax return has been received. When the response is like this one I know there has been identify theft: Dear Tax Professional, Your office submitted a request for taxpayer information. We apologize for the inconvenience but we are not able to process your request at this time. Please have your client contact the Identity Protection Specialized Unit (IPSU) at 800-908-4490. Sincerely Yours Director, Electronic Products & Services Support

While I hope you never have to call the Identify Theft Department of the IRS, once you get a hold of them you realize the road ahead is not going to be easy. You are required to complete Form 14039 Identity Theft Affidavit and submit copies of various documents like a passport and drivers license proving you are who you say you are. All documents and original tax return have to be submitted in a paper version and mailed either snail mail or overnight delivery. Processing takes up to six months or longer.

What can you do right now for the 2014 tax filing season? First, file early in 2015. There is no better way to stop identity theft than to file early. Second, if you move, please notify the IRS of your new address. Call the government and make sure they have your new address on file before you file your tax return and explain that you are concerned about identify theft. Tell your CPA you are concerned about identify theft so your tax professional will check up on your account throughout the year. Never give your entire social security number to anyone on the phone. Vendors will be happy to have you call them back to verify who they are before you give them your social security number.

My thoughts on how to solve tax return identity theft? The IRS should not refund any money to anyone until the taxpayer’s identify is confirmed. This process would significantly delay you all from receiving your refunds. But when you compare the inconvenience of delayed refunds to the absolute nightmare of having your tax return hijacked by criminals I would choose the delay of having my identify confirmed. If you agree with this approach, let your elected officials hear from you about your concern with tax return identify theft. Together we can help the IRS fight back against tax return identity theft and help you all keep your tax returns secure from theft.

Look forward to seeing you all next month,
Kindest regards from Chris Moss CPA Tax Attorney

It’s not the Tax Code, It’s the Tax

August 12, 2013

by Chris Moss CPA

Back in 1986 Bob Packwood and Dan Rostenkowski were the tax reform dynamic duo proposing sweeping new tax reform legislation; fast forward over twenty five years to 2013 and we have Max Baucus and Dave Camp proposing sweeping new tax reform legislation.

But Tax Reform in of itself has proven allusive to all who have tried. In a span of just over twenty five years, Reagan, Bush, Clinton, Bush and Obama have signed over 17 major tax bills creating a tax code of such complexity that the majority of CPAs use sophisticated computer programs to finish up the complex mathematical calculations needed for most lines on even simple tax returns.

What if Congress were to think “out of the box”? Could the answer to tax reform be that we are reforming a tax that cannot be reformed? Could the “income tax” be obsolete for the 21st century and be scrapped in favor of a new type of tax?

Historically over the years personal income tax receipts have consistently kept pace with the Gross Domestic Product (GDP) with the exception of a few years during World War II. However, in 1943, the newly created W2 form issued by the IRS added 60 million new taxpayers to the personal tax system. According to the White House office of Management Budget, by 1944 just one year after creation of the W2, receipts from taxes as a percentage of GDP more than doubled from 3.6% to 9.4%. This also matched the spike in expenditures as a percent of GDP to pay for World War II.

The additional revenue produced by the mid 20th century W2 has unfortunately not fit well into the 21st century. As a result, as US expenditures slowly rise each year as a percent of GDP, personal income tax receipts have been in decline. In 2012 receipts from personal income tax amounted to a paltry 7% of GDP. As a result, as all of us know, the US Treasury has had to borrow money to make up the difference.

Why is this? No it’s not because we spend too much. There is a much easier answer that no one talks about. Most Americans legally pay no tax at all and the very wealthy have found numerous tax strategies to legally avoid paying tax as well. The fact is that very few Americans are paying income tax in the 21st century because the income tax base, like the polar ice caps, keeps shrinking. As the tax base keeps shrinking America will need to borrow more and more each year to stay afloat.

What is the solution to a national shrinking tax base? Many in Congress feel that we spend too much money and that if we cut spending our tax revenues would be sufficient to fund the expenditures of the nation. We all know that is simply not going to happen without a dramatic drop in our standard of living. Many Federal Agencies provide essential government service to us. Do we really want our American way of life to decline because we don’t have enough money to pay our bills? We cannot and should not have to tell our kids that their life will not be as good as ours. To that end, America must keep its financial engines running with adequate tax receipts. In order to do this I propose a simple solution that will allow for America to remain strong.

The solution is a gradually phased in 2015 national sales tax coupled with a flat gross receipts tax of say 5% on every American with no exemptions for anything. Everyone pays 5% of their gross receipts coupled with a 10% sales tax on everything purchased. This includes all big ticket items including homes. Everyone pays tax. No exemptions for the poor, rich or middle class. If we do this, tax receipts would increase dramatically to an estimated 16% of GDP. The increase in receipts would be a major windfall of revenue in 2015 and every year thereafter. Such increased revenue would put our nation back on track. The US Treasury could match receipts to expenditures and show that world that we are fiscally responsible nation without cutting our standard of living. Essential domestic and foreign programs including our military would have the funding needed to keep America strong.

In conclusion, the combination of a national sales tax and a simple flat gross receipts tax is a 21st century tax to solve 21st century economic problems. So listen up Congress, particularly the Honorable Baucus and Camp: It’s not the tax code, it’s the tax.