Some individuals or groups claim that taxpayers may refuse to pay federal income taxes based on their religious or moral beliefs or on an objection to using taxes to fund certain government programs. In support of this frivolous position, these persons mistakenly invoke the First Amendment and, often, the Religious Freedom Restoration Act ("RFRA").
The Law: The First Amendment to the United States Constitution provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." The First Amendment, however, does not provide a right to refuse to pay income taxes on religious or moral grounds or because taxes are used to fund government programs opposed by the taxpayer. Likewise, it is well settled that RFRA does not afford a right to avoid payment of taxes for religious reasons. The First Amendment does not protect commercial speech or speech that aids or incites taxpayers to unlawfully refuse to pay federal income taxes, including speech that promotes abusive tax avoidance schemes.
Relevant Case Law:
United States v. Lee, 455 U.S. 252, 260 (1982) – the Supreme Court held that the broad public interest in maintaining a sound tax system is of such importance that religious beliefs in conflict with the payment of taxes provide no basis for refusing to pay, stating that "[t]he tax system could not function if denominations were allowed to challenge the tax system because tax payments were spent in a manner that violates their religious belief."
Jenkins v. Commissioner, 483 F.3d 90 (2d Cir. 2007) – upholding the imposition of a $5,000 frivolous return penalty against the taxpayer, the Second Circuit held that the collection of tax revenues for expenditures that offended the religious beliefs of individual taxpayers did not violate the Free Exercise Clause of the First Amendment, the Religious Freedom Restoration Act of 1993, or the Ninth Amendment.
United States v. Indianapolis Baptist Temple, 224 F.3d 627 (7th Cir. 2000) – the Seventh Circuit rejected defendant's Free Exercise challenge to the federal employment tax as those laws were not restricted to the defendant or other religion-related employers generally, and there was no indication that they were enacted for the purpose of burdening religious practices.
Adams v. Commissioner, 170 F.3d 173 (3d Cir. 1999) – the Third Circuit affirmed tax deficiencies and penalties for failure to file tax returns and pay tax, holding that the Religious Freedom Restoration Act did not require that the federal income tax accommodate Adams' religious beliefs that payment of taxes to fund the military is against the will of God, and that her beliefs did not constitute reasonable cause for purposes of the penalties.
United States v. Ramsey, 992 F.2d 831, 833 (8th Cir. 1993) – the Eighth Circuit rejected taxpayer's argument that filing federal income tax returns and paying federal income taxes violated his pacifist religious beliefs because he "ha[d] no First Amendment right to avoid federal income taxes on religious grounds."
Wall v. United States, 756 F.2d 52, 53 (8th Cir. 1985) – the Eighth Circuit upheld the imposition of a $500 frivolous return penalty against Wall for taking a "war tax deduction" on his federal income tax return based on his religious convictions, stating the "necessities of revenue collection through a sound tax system raise governmental interests sufficiently compelling to outweigh the free exercise rights of those who find the tax objectionable on bona fide religious grounds."
United States v. Peister, 631 F.2d 658 (10th Cir. 1980) – the Tenth Circuit found Peister's First Amendment right to freedom of religion was not violated and rejected his argument that he was exempt from income tax based on his vow of poverty after he became minister of a church he formed.
Salzer v. Commissioner, T.C. Memo. 2014-188, 108 T.C.M. (CCH) 284 (September 15, 2014) – the court found Salzer's justification for not paying taxes because he objected to the "socialist" policies of the government frivolous, holding that "[t]he legal duty to file a return exists independent of a taxpayer's personal political, economic, social, or religious convictions."
Droz v. Commissioner, 48 F.3d 1120 (9th Cir. 1995); Boardman v. Shulman, 110 A.F.T.R.2d (RIA) 2012-6987 (E.D. Cal. 2012); United States v. Ogilvie, No. 3:12–CR–00121–LRH–WGC, 2013 WL 6210645 (D. Nev. Nov. 27, 2013); Gardner v. Commissioner, T.C. Memo. 2017-107, 113 T.C.M. (CCH) 1482 (2017).
Some individuals or groups assert that summonses sent by the IRS to taxpayers and to third parties are per se violations of the Fourth Amendment's prohibition against warrantless search and seizure and are therefore unconstitutional.
The Law: The Fourth Amendment to the United States Constitution provides the "right of the people to be secure in their persons, houses, papers, and effects" and prohibits "unreasonable searches and seizures . . . ." The United States Supreme Court has held repeatedly that "the Fourth Amendment does not prohibit the obtaining of information revealed to a third party[.]" United States v. Miller, 425 U.S. 435, 443 (1976). The Fourth Amendment also provides that "no Warrants shall issue" unless there is "probable cause." The United States Supreme Court has ruled that the IRS "need not meet any standard of probable cause to obtain enforcement of [IRS] summons." United States v. Powell, 379 U.S. 48, 52 (1964). Where the enforcement of an IRS summons is challenged, the IRS bears the initial burden of showing "good faith compliance with summons requirements," which may "be demonstrated by the affidavit of the IRS agent." United States v. Norwood, 420 F.3d 888, 892 (8th Cir. 2005).
Relevant Case Law:
United States v. Miller, 425 U.S. 435, 443 (1976) – the Supreme Court held that the "Fourth Amendment does not prohibit the obtaining of information revealed to a third party."
United States v. Powell, 379 U.S. 48, 51 (1964) – the Supreme Court held that "the Government need make no showing of probable cause to suspect fraud unless the taxpayer raises a substantial question that judicial enforcement of the administrative summons would be an abusive use of the court's process."
Taliaferro v. Freeman, 595 F. App'x 961, 962–63 (11th Cir. 2014) – the Eleventh Circuit held that the taxpayer's contention that IRS levies violate the Fourth Amendment right to be free from unreasonable seizures was "simply without merit" and did not even warrant discussion and ordered sanctions against the taxpayer up to and including double the government's costs.
O'Brien v. Green, 114 A.F.T.R.2d (RIA) 2014-5613 (E.D. Va. 2014) – the court rejected O'Brien's Fourth Amendment arguments and characterized them as frivolous.
Nevius v. Tomlinson, 113 A.F.T.R.2d (RIA) 2014-1872 (W.D. Miss. 2014) – Nevius argued that IRS summons issued without probable cause of warrant violated the Fourth Amendment. The court rejected this argument, stating "IRS need not meet any standard of probable cause to obtain enforcement of [a] summons."
Lewis v. United States, 109 A.F.T.R.2d (RIA) 2012-1756 (E.D. Ca. 2012) – the court rejected Lewis's argument that summonses sent to third parties violated the Fourth Amendment, holding that "summonses issued by the IRS seeking documents in the possession of third-parties do not implicate petitioner's rights under the Fourth Amendment."
Donaldson v. United States, 400 U.S. 517, 522 (1971); United States v. Feminist Fed. Credit Union, 620 F.2d 305 (6th Cir. 1980); United States v. Theep, 502 F.2d 797 (9th Cir. 1974); United States v. Galloway, No. 114CR00114DADBAM, 2017 WL 735730 (E.D. Cal. Feb. 24, 2017), aff'd, 802 F. App'x 247 (9th Cir. 2020).
Some individuals or groups assert that the collection of federal income taxes constitutes a "taking" of property without due process of law, in violation of the Fifth Amendment. Thus, any attempt by the IRS to collect federal income taxes owed by a taxpayer is unconstitutional.
The Law: The Fifth Amendment to the United States Constitution provides that a person shall not be "deprived of life, liberty, or property, without due process of law . . . ." The United States Supreme Court stated that "it is . . . well settled that [the Fifth Amendment] is not a limitation upon the taxing power conferred upon Congress by the Constitution; in other words, that the Constitution does not conflict with itself by conferring, upon the one hand, a taxing power, and taking the same power away, on the other, by the limitations of the due process clause." Brushaber v. Union Pacific R.R., 240 U.S. 1, 24 (1916). Further, the Supreme Court has upheld the constitutionality of the summary administrative procedures contained in the Internal Revenue Code against due process challenges on the basis that a post-collection remedy (e.g., a tax refund suit) exists and is sufficient to satisfy the requirements of constitutional due process. Phillips v. Commissioner, 283 U.S. 589, 595–97 (1931).
The Internal Revenue Code provides methods to ensure due process to taxpayers: (1) the "refund method," set forth in section 7422(e) and 28 U.S.C. §§ 1341 and 1346(a), in which a taxpayer must pay the full amount of the tax and then sue for a refund in a federal district court or in the United States Court of Federal Claims; and (2) the "deficiency method," set forth in section 6213(a), in which a taxpayer may, without paying the contested tax, petition the United States Tax Court to redetermine a tax deficiency asserted by the IRS. Courts have found that both methods provide constitutional due process.
In Rev. Rul. 2005-19, 2005-1 C.B. 819 and in Notice 2010-33, 2010-17 I.R.B. 609, the IRS discussed this frivolous argument in more detail and warned taxpayers of the consequences of attempting to pursue a claim on these grounds.
For a discussion of frivolous tax arguments made in collection due process cases arising under sections 6320 and 6330, see Section II of this outline.
Relevant Case Law:
Flora v. United States, 362 U.S. 145, 175 (1960) – the Supreme Court held that a taxpayer must pay the full tax assessment before being able to file a refund suit in district court, noting that a person has the right to appeal an assessment to the Tax Court "without paying a cent."
Taliaferro v. Freeman, 595 F. App'x 961, 962–63 (11th Cir. 2014) – ordering sanctions against the taxpayer up to and including double the government's costs, the Eleventh Circuit held that the taxpayer's contention that IRS levies violate the Fifth Amendment right to due process was "simply without merit" and did not even warrant discussion.
Schiff v. United States, 919 F.2d 830, 832 (2d Cir. 1990) – the Second Circuit rejected a due process claim of a taxpayer who chose not to avail himself of the opportunity to appeal a deficiency notice to the Tax Court.
O'Brien v. Green, 114 A.F.T.R.2d (RIA) 2014-5613 (E.D. Va. 2014) – the court rejected as frivolous the taxpayer's claim that an IRS levy violated the Fifth Amendment.
Rivas v. Commissioner, T.C. Memo. 2016-158, 112 T.C.M. (CCH) 247 (2016), appeal dismissed sub nom. Rivas v. Commissioner, No. 16-16365-C, 2017 WL 4842564 (11th Cir. Aug. 15, 2017).
Some individuals or groups claim that taxpayers may refuse to file federal income tax returns, or may submit tax returns on which they refuse to provide any financial information, because they believe that their Fifth Amendment privilege against self-incrimination will be violated.
The Law: There is no constitutional right to refuse to file an income tax return on the ground that it violates the Fifth Amendment privilege against self-incrimination. As the Supreme Court has stated, a taxpayer cannot "draw a conjurer's circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law." United States v. Sullivan, 274 U.S. 259, 264 (1927). The failure to comply with the filing and reporting requirements of the federal tax laws will not be excused based upon blanket assertions of the constitutional privilege against compelled self-incrimination under the Fifth Amendment.
The IRS has discussed this frivolous argument in more detail and warned taxpayers of the consequences of attempting to pursue a claim on these grounds. Rev. Rul. 2005-19, 2005-1 C.B. 819; Notice 2010-33, 2010-17 I.R.B. 609.
Relevant Case Law:
Sochia v. Commissioner, 23 F.3d 941 (5th Cir. 1994) – the Fifth Circuit affirmed tax assessments and penalties for failure to file returns, failure to pay taxes, and filing a frivolous return and imposed sanctions for pursuing a frivolous case against taxpayers who, rather than provide any information on their tax return about income and expenses, claimed a Fifth Amendment privilege on each line calling for financial information.
United States v. Carlson, 617 F.2d 518, 523 (9th Cir. 1980) – Carlson asserted the Fifth Amendment on his 1974 and 1975 year-end tax returns; the Ninth Circuit held that "an individual who seeks to frustrate the tax laws by claiming too many withholding exemptions, with an eye to covering that crime and evading the tax return requirement by assertion of the Fifth Amendment, is not entitled to the amendment's protection."
United States v. Neff, 615 F.2d 1235, 1241 (9th Cir. 1980) – the Ninth Circuit affirmed a failure to file conviction, noting that the taxpayer "did not show that his response to the tax form questions would have been self-incriminating. He cannot, therefore, prevail on his Fifth Amendment claim."
United States v. Schiff, 612 F.2d 73, 83 (2d Cir. 1979) – the Second Circuit said that "the Fifth Amendment privilege does not immunize all witnesses from testifying. Only those who assert as to each particular question that the answer to that question would tend to incriminate them are protected. . . . [T]he questions in the income tax return are neutral on their face . . . . [h]ence privilege may not be claimed against all disclosure on an income tax return."
United States v. Brown, 600 F.2d 248, 252 (10th Cir. 1979) – the Tenth Circuit held that Brown made "an illegal effort to stretch the Fifth Amendment to include a taxpayer who wishes to avoid filing a return."
United States v. Daly, 481 F.2d 28, 30 (8th Cir. 1973) – the Eighth Circuit affirmed a failure to file conviction, rejecting the taxpayer's Fifth Amendment claim because of his "error in . . . his blanket refusal to answer any questions on the returns relating to his income or expenses."
Rader v. Commissioner, 143 T.C. No. 19 (2014) – the court overruled Rader's refusal to answer questions by "invoking his right, under the Fifth Amendment, not to 'be compelled in any criminal case to be a witness against himself.'" Imposing a $10,000 sanction on Rader, the Court held that "in order for an individual to validly claim the privilege against self-incrimination, there must be a 'real and appreciable danger' from 'substantial hazards of self-incrimination', and the individual must have 'reasonable cause to apprehend (such) danger from a direct answer to questions posed to him.'"
Lund v. Chase Bank, 114 A.F.T.R.2d (RIA) 2014-5613 (D. Or. 2014); United States v. Edlefsen, 114 A.F.T.R.2d (RIA) 2014-6105 (D. Or. 2014).
This argument asserts that being compelled to comply with federal tax laws is a form of servitude in violation of the Thirteenth Amendment.
The Law: The Thirteenth Amendment to the United States Constitution prohibits slavery within the United States as well as imposing involuntary servitude, except as punishment for a crime of which a person shall have been duly convicted. "If the requirements of the tax laws were to be classed as servitude, they would not be the kind of involuntary servitude referred to in the Thirteenth Amendment." Porth v. Brodrick, 214 F.2d 925, 926 (10th Cir. 1954) (per curiam). Courts have consistently found arguments that taxation constitutes a form of involuntary servitude to be frivolous.
In Rev. Rul. 2005-19, 2005-1 C.B. 819 and in Notice 2010-33, 2010-17 I.R.B. 609, the IRS discussed this frivolous argument in more detail and warned taxpayers of the consequences of attempting to pursue a claim on these grounds.
Relevant Case Law:
United States v. Drefke, 707 F.2d 978, 983 (8th Cir. 1983) – the Eighth Circuit affirmed the taxpayer's failure to file conviction and rejected his claim that the Thirteenth Amendment prohibited his imprisonment because that amendment "is inapplicable where involuntary servitude is imposed as punishment for a crime."
Ginter v. Southern, 611 F.2d 1226 (8th Cir. 1979) – the Eighth Circuit rejected the taxpayer's claim that the Internal Revenue Code results in involuntary servitude in violation of the Thirteenth Amendment.
Kasey v. Commissioner, 457 F.2d 369 (9th Cir. 1972) – the Ninth Circuit rejected as meritless the argument that the requirements to keep records and to prepare and file tax returns violate taxpayers' Fifth Amendment privilege against self-incrimination and amount to involuntary servitude prohibited by the Thirteenth Amendment.
Porth v. Brodrick, 214 F.2d 925, 926 (10th Cir. 1954) – the Tenth Circuit found the taxpayer's Thirteenth and Sixteenth Amendment claims "clearly unsubstantial and without merit" as well as "far-fetched and frivolous."
Wilbert v. IRS (In re Wilbert), 262 B.R. 571 (Bankr. N.D. Ga. 2001) – the court rejected the taxpayer's argument that taxation is a form of involuntary servitude prohibited by the Thirteenth Amendment.
United States v. Moleski, Crim. No. 12–811 (FLW), 2014 WL 197907 (D. N.J. Jan. 13, 2014); Caton v. Hutson, 100 A.F.T.R.2d (RIA) 2007-6982 (M.D. Fla. 2007).
This argument is based on the premise that all federal income tax laws are unconstitutional because the Sixteenth Amendment was not officially ratified or because the State of Ohio was not properly a state at the time of ratification. Proponents mistakenly believe that courts have refused to address this issue.
The Law: The Sixteenth Amendment provides that Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration. The Sixteenth Amendment was ratified by forty states, including Ohio (which became a state in 1803); see Bowman v. United States, 920 F. Supp. 623 n.1 (E.D. Pa. 1995) (discussing the 1953 joint Congressional resolution that confirmed Ohio's status as a state retroactive to 1803), and issued by proclamation in 1913. Shortly thereafter, two other states also ratified the Amendment. Under Article V of the Constitution, only three-fourths of the states are needed to ratify an Amendment. There were enough states ratifying the Sixteenth Amendment even without Ohio to complete the number needed for ratification. Furthermore, after the Sixteenth Amendment was ratified, the Supreme Court upheld the constitutionality of the income tax laws. Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916). Since then, courts have consistently upheld the constitutionality of the federal income tax.
In Rev. Rul. 2005-19, 2005-1 C.B. 819, and in Notice 2010-33, 2010-17 I.R.B. 609, the IRS discussed this frivolous argument in more detail and warned taxpayers of the consequences of attempting to pursue a claim on these grounds.
Relevant Case Law:
Sochia v. Commissioner, 23 F.3d 941 (5th Cir. 1994) – the Fifth Circuit held that defendant's appeals, which made Sixteenth Amendment challenges to income tax legislation, were frivolous and warranted sanctions.
Miller v. United States, 868 F.2d 236, 241–42 (7th Cir. 1989) (per curiam) – the Seventh Circuit imposed sanctions on Miller for advancing a "patently frivolous" position, stating, "[w]e find it hard to understand why the long and unbroken line of cases upholding the constitutionality of the sixteenth amendment generally, Brushaber v. Union Pacific Railroad Company . . . and those specifically rejecting the argument advanced in The Law That Never Was, have not persuaded Miller and his compatriots to seek a more effective forum for airing their attack on the federal income tax structure."
United States v. Stahl, 792 F.2d 1438, 1441 (9th Cir. 1986) – the Ninth Circuit, upholding Stahl's conviction for failure to file returns and for making a false statement, stated that "the Secretary of State's certification under authority of Congress that the sixteenth amendment has been ratified by the requisite number of states and has become part of the Constitution is conclusive upon the courts."
United States v. Foster, 789 F.2d 457 (7th Cir. 1986) – the Seventh Circuit, rejecting Foster's claim that the Sixteenth Amendment was never properly ratified, affirmed his conviction for tax evasion, failing to file a return, and filing a false W-4 statement.
Knoblauch v. Commissioner, 749 F.2d 200, 202 (5th Cir. 1984) – the Fifth Circuit rejected as "totally without merit" the contention that the Sixteenth Amendment was not constitutionally adopted and imposed monetary sanctions against Knoblauch based on the frivolousness of his appeal.
George v. United States, No. 5:21-CV-01187-EJD, 2022 WL 562758 (N.D. Cal. Feb. 24, 2022); United States v. Moleski, Crim. No. 12–811 (FLW), 2014 WL 197907 (D. N.J. Jan. 13, 2014); Banister v. U .S. Dep't of the Treasury, 110 A.F.T.R.2d (RIA) 2012-6790 (N.D. Cal. 2011); United States v. Benson, 2008 WL 267055 (N.D. Ill. Jan. 10, 2008); United States v. Schulz PDF , 529 F. Supp. 2d 341 (N.D.N.Y. 2007); Stearman v. Commissioner, T.C. Memo. 2005-39, 89 T.C.M. (CCH) 823 (2005).
Some individuals and groups assert that the Sixteenth Amendment does not authorize a direct non-apportioned income tax and, thus, U.S. citizens and residents are not subject to federal income tax laws.
The Law: The constitutionality of the Sixteenth Amendment has invariably been upheld when challenged. Numerous courts have both implicitly and explicitly recognized that the Sixteenth Amendment authorizes a non-apportioned direct income tax on United States citizens and that the federal tax laws are valid as applied. In Notice 2010-33, 2010-17 I.R.B. 609, the IRS warned taxpayers of the consequences of attempting to pursue a claim on these grounds.
Relevant Case Law:
Young v. Commissioner, 551 F. App'x 229, 203 (8th Cir. 2014) – rejecting as "meritless" and "frivolous" Young's arguments that the income tax is an unconstitutional direct tax, the 8th Circuit imposed $8,000 in sanctions.
Taliaferro v. Freeman, 595 F. App'x 961, 962–63 (11th Cir. 2014) – the Eleventh Circuit rejected as frivolous the taxpayer's argument that the Sixteenth Amendment authorizes the imposition of excise taxes but not income taxes, and ordered sanctions against him up to and including double the government's costs.
In re Becraft, 885 F.2d 547, 548–49 (9th Cir. 1989) – the Ninth Circuit, rejecting the taxpayer's frivolous position that the Sixteenth Amendment does not authorize a direct non-apportioned income tax, affirmed the failure to file conviction.
Lovell v. United States, 755 F.2d 517, 518–20 (7th Cir. 1984) – the Seventh Circuit rejected the argument that the Constitution prohibits imposition of a direct tax without apportionment, upheld assessment of the frivolous return penalty, and imposed sanctions for pursuing "frivolous arguments in bad faith" on top of 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 rejected as frivolous the taxpayer's arguments that individual income tax is unconstitutional because it is "a direct tax which must be apportioned among the several states," noting that "[i]t is well-established that the Sixteenth Amendment authorizes the imposition of an income tax without apportionment among the states."
Maxwell v. IRS, No. CIV. 3090308, 2009 WL 920533, at *2 (M.D. Tenn. Apr. 1, 2009) – the court characterized the taxpayer's arguments that there is no law that imposes an income tax, nor is there a non-apportioned direct tax that could be imposed on him as a supposed non-citizen as "routinely rejected."
Broughton v. United States, 632 F.2d 706 (8th Cir. 1980); George v. United States, No. 5:21-CV-01187-EJD, 2022 WL 562758 (N.D. Cal. Feb. 24, 2022); 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).
Some argue that the IRS is not an agency of the United States but rather a private corporation, because it was not created by positive law (i.e., an act of Congress) and that, therefore, the IRS does not have the authority to enforce the Internal Revenue Code.
The Law: Constitutional and statutory authority establishes that the IRS is an agency of the United States. Indeed, the Supreme Court has stated that "the Internal Revenue Service is organized to carry out the broad responsibilities of the Secretary of the Treasury under § 7801(a) of the 1954 Code for the administration and enforcement of the internal revenue laws." Donaldson v. United States, 400 U.S. 517, 534 (1971).
Pursuant to section 7801, the Secretary of the Treasury has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce such laws. Based upon this legislative grant, the IRS was created. Thus, the IRS is a body established by "positive law" because it was created through a congressionally mandated power. Moreover, section 7803(a) explicitly provides that there shall be a Commissioner of Internal Revenue who shall administer and supervise the execution and application of the internal revenue laws.
The IRS warned taxpayers of the consequences of attempting to pursue a claim on these grounds in Notice 2010-33, 2010-17 I.R.B. 609.
Relevant Case Law:
United States v. Fern, 696 F.2d 1269, 1273 (11th Cir. 1983) – the Eleventh Circuit declared that "[c]learly, the Internal Revenue Service is a 'department or agency' of the United States."
Nevius v. Tomlinson, 113 A.F.T.R.2d (RIA) 2014-1872 (W.D. Miss. 2014) – the court granted summary judgment in favor of the government, rejecting Nevius's claim that the IRS is a private corporation, rather than a government agency.
United States v. Provost, 109 A.F.T.R.2d (RIA) 2012-1706 (E.D. Cal. 2012) – the court rejected the taxpayer's arguments and stated that the United States is a sovereign, not a corporation, the IRS is a government agency, and that arguments to the contrary are "wholly frivolous."
Salman v. Dep't. of Treasury, 899 F. Supp. 471, 472 (D. Nev. 1995) – the court described Salman's contention that the IRS is not a government agency of the United States as "wholly frivolous" and dismissed his claim with prejudice.
Edwards v. Commissioner, T.C. Memo. 2002-169, 84 T.C.M. (CCH) 24 (2002) – the court dismissed the argument that the IRS is not an agency of the United States Department of Treasury as "tax protester gibberish" and stated that "[i]t's bad enough when ignorant and gullible or disingenuous taxpayers utter tax protester gibberish. It's much more disturbing when a member of the bar offers tax protester gibberish as a substitute for legal argument."
Some individuals and groups claim that taxpayers are not required to file tax returns because of the Paperwork Reduction Act of 1980, 44 U.S.C. § 3501, et seq. ("PRA"). The PRA was enacted to limit federal agencies" information requests that burden the public. The "public protection" provision of the PRA provides that no person shall be subject to any penalty for failing to maintain or provide information to any agency if the information collection request involved does not display a current control number assigned by the Office of Management and Budget [OMB] Director. 44 U.S.C. § 3512. Advocates of this contention claim that they cannot be penalized for failing to file Form 1040, because the instructions and regulations associated with the Form 1040 do not display any OMB control number
The Law: Courts have uniformly rejected this argument on multiple grounds. Some have simply noted that the PRA applies to the forms themselves, not to the instruction booklets, and because the Form 1040 has a control number, there is no PRA violation. Others have held that Congress created the duty to file returns in section 6012(a), and "Congress did not enact the PRA's public protection provision to allow OMB to abrogate any duty imposed by Congress." United States v. Neff, 954 F.2d 698, 699 (11th Cir. 1992). The IRS has warned taxpayers of the consequences of making this frivolous argument. Rev. Rul. 2006-21, 2006-1 C.B. 745; Notice 2010-33, 2010-17 I.R.B. 609.
Relevant Case Law:
Dodge v. Commissioner, 317 F. App'x 581 (8th Cir. 2009) – the Eighth Circuit treated the taxpayer's argument that the Form 1040 does not comply with the PRA as frivolous.
Lewis v. Commissioner, 523 F.3d 1272 (10th Cir. 2008) – Lewis argued that the Form 1040 was not valid because (1) the IRS never changed the OMB control number, (2) there is no expiration date, and (3) there are no PRA disclosures on the form 1040. The court held that "Lewis's arguments have no merit and cannot be supported by case law."
Wolcott v. Commissioner, 103 A.F.T.R.2d (RIA) 2009-1300 (6th Cir. 2008) – the Sixth Circuit rejected the taxpayer's argument that Form 1040 does not comply with the PRA and imposed sanctions of $4,000 under 12 U.S.C. § 1912 for bringing a frivolous appeal.
United States v. Patridge, 507 F.3d 1092 (7th Cir. 2007) – in upholding the taxpayer's conviction for tax evasion, the Seventh Circuit addressed and rejected the taxpayer's contention that the PRA foreclosed his conviction.
Salberg v. United States, 969 F.2d 379 (7th Cir. 1992) – the Seventh Circuit affirmed the taxpayer's conviction for tax evasion and failing to file a return, rejecting his claims under the PRA.
United States v. Holden, 963 F.2d 1114 (8th Cir. 1992) – the Eighth Circuit affirmed the taxpayer's conviction for failing to file a return and rejected his contention that he should have been acquitted because tax instruction booklets fail to comply with the PRA.
United States v. Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991) – the Ninth Circuit affirmed the taxpayer's conviction for failing to file a return, finding that the requirement to provide information is required by law, not by the IRS: "This is a legislative command, not an administrative request. The PRA was not meant to provide criminals with an all-purpose escape hatch."
Lonsdale v. United States, 919 F.2d 1440 (10th Cir. 1990) – the Tenth Circuit held that the PRA does not apply to summonses and collection notices.
United States v. Wunder, 919 F.2d 34 (6th Cir. 1990) – the Sixth Circuit rejected the taxpayer's claim of a PRA violation and affirmed his conviction for failing to file a return.
Perry v. Wright, 111 A.F.T.R.2d (RIA) 1209 (S.D.N.Y. 2013) – the court held that the PRA does not provide a waiver of sovereign immunity in a tax collection case.
Licha v. United States, 586 F. App'x 350 (9th Cir. 2014); Wheeler v. Commissioner, 528 F.3d 773 (10th Cir. 2008); United States v. Sanders, 110 A.F.T.R.2d (RIA) 2012-5910 (S.D. Ill. 2011); Shakir v. Commissioner, T.C. Memo. 2015-147, 110 T.C.M. (CCH) 137 (2015); Burt v. Commissioner, T.C. Memo. 2013-140, 105 T.C.M. (CCH) 1827 (2013); Saxon v. United States, T.C. Memo. 2006-52, 91 T.C.M. (CCH) 914 (2006).
One variation of this theory is that taxpayers are not required to comply with requests at a Collection Due Process (CDP) hearing to fill out and submit Form 443-A Collection Information Statement for Wage Earners and Self–Employed Individuals because the Form 443-A does not display an OMB control number as required by the Paperwork Reduction Act (PRA).
The Law: Pitts v. Commissioner, T.C. Memo 2010-101, 9 T.C.M. (CCH) 1406 (2010). The Court held that 44 U.S.C. section 3518(c)(1)(B)(ii) excludes administrative hearings—such as CDP hearings that evaluate the propriety of a specific collection action against a specific taxpayer—from the reach of the PRA. The lack of a control number on Form 433–A did not relieve Mr. Pitts from the obligation to submit the form and does not relieve him of the consequences of his failure to do so.
Proponents of this contention assert that African Americans can claim a so-called "Black Tax Credit" on their federal income tax returns as reparations for slavery and other oppressive treatment suffered by African Americans. A similar frivolous argument has been made that Native Americans are entitled to a credit on their federal income tax returns as a form of reparations for past oppressive treatment.
The Law: No provision in the Internal Revenue Code allows taxpayers to claim a "Black Tax Credit" or a credit for Native American reparations. It is a well settled principle of law that deductions and credits are a matter of legislative grace. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Unless specifically provided for in the Internal Revenue Code, no deduction or credit is allowed. The IRS has warned taxpayers of the consequences of claiming refunds or other tax benefits based on frivolous reparations tax credits. Rev. Rul. 2004-33, 2004-1 C.B. 628; Notice 2010-33, 2010-17 I.R.B. 609. And in Rev. Rul. 2006-20, 2006-1 C.B. 746, and Notice 2010-33, 2010-17 I.R.B. 609, the IRS warned taxpayers about the frivolous nature of claiming an exemption for Native Americans from federal income tax liability based upon an unspecified "Native American Treaty".
Persons who claim refunds based on the slavery reparation tax credit or assist others in doing so are subject to prosecution for violation of federal tax laws. Furthermore, the United States has a cause of action for injunctive relief against a party suspected of violating the tax laws. Sections 7407 and 7408 provide for injunctive relief against income tax preparers and promoters of abusive tax shelters, respectively, in these types of cases.
Relevant Case Law:
United States v. Bridges, 217 F.3d 841 (4th Cir. 2000) – the Fourth Circuit upheld the taxpayer's conviction of aiding and assisting the preparation of false tax returns, on which he claimed a non-existent "Black Tax Credit."
United States v. Foster, 89 A.F.T.R.2d (RIA) 2002-1063 (E.D. Va. 2002) – permanently enjoining Mr. Foster from preparing or assisting in the preparation of claiming refunds based on fabricated tax credits for slavery reparations or other comparable frivolous grounds.
George v. Commissioner, T.C. Memo. 2006-121, Tax Ct. Rep. (CCH) 56, 539 (2006) – the court rejected the taxpayer's frivolous argument that he is an "Indian not paying taxes," finding that, unless there is an exemption created by treaty or statute, Native Americans are subject to the same federal income tax laws as are other United States citizens.
Taylor v. United States, 57 Fed. Cl. 264, 266 (2003) – the court upheld the IRS's denial of the taxpayer's refund claim, which was based on "being reduced to a second class citizen, but billed first class citizenship taxes for over 60 years," and held that the Internal Revenue Code does not contain a provision allowing slavery reparation claims.
Wilkins v. Commissioner, 120 T.C. 109 (2003) – the court found that the Internal Revenue Code does not provide a tax deduction, credit, or other allowance for slavery reparations.
United States v. Haugabook, 2002 U.S. Dist. LEXIS 25314 (M.D. Ga. Dec. 9, 2002); United States v. Mims, 2002 U.S. Dist. LEXIS 25291 (S.D. Ga. Oct. 3, 2002); United States v. Foster, 2002 U.S. Dist. LEXIS 3092 (E.D. Va. Jan. 16, 2002); Hawkbey v. Commissioner, T.C. Memo. 2017-199, 114 T.C.M. (CCH) 417 (2017); Gunton v. Commissioner, T.C. Memo. 2006-122, 91 T.C.M. (CCH) 1261 (2006); Metallic v. Commissioner, T.C.M. (RIA) 2006-123 (T.C. 2006), aff'd, 225 F. App'x 1 (1st Cir. 2007).
Proponents of this contention encourage individuals to file claims for refund of the Social Security taxes paid during their lifetime on the basis that the claimants have sought to waive all rights to their Social Security benefits. Or they encourage taxpayers to claim a charitable contribution deduction for their "gift" of these benefits or of the Social Security taxes to the United States.
The Law: No provision in the Internal Revenue Code, or any other provision of law, allows for a refund of Social Security taxes paid on the grounds asserted above. Nor may a person claim a charitable contribution deduction based upon the purported waiver of future Social Security benefits. Crouch v. Commissioner, T.C. Memo. 1990-309, 59 T.C.M. (CCH) 938 (1990).
The IRS has discussed this frivolous argument in more detail and warned taxpayers of the consequences of attempting to pursue a claim on these grounds. Rev. Rul. 2005-17, 2005-1 C.B. 823; Notice 2010-33, 2010-17 I.R.B. 609.
Advocates of this idea believe that an "untaxing" package or trust provides a way of legally and permanently "untaxing" oneself so that a person is no longer required to file federal income tax returns and pay federal income taxes. Promoters who sell such tax-evasion plans and supposedly teach individuals how to remove themselves from the federal tax system rely on many of the above-described frivolous arguments, such as the claim that payment of federal income taxes is voluntary, that there is no requirement for a person to file federal income tax returns, and that there are legal ways not to pay federal income taxes.
The Law: The underlying claims for these "untaxing" packages are frivolous, as specified above. Furthermore, in Rev. Rul. 2006-19, 2006-1 C.B. 749, the IRS warned that taxpayers may not eliminate their federal income tax liability by attributing income to a trust and claiming expense deductions related to that trust.
Promoters of these "untaxing" schemes as well as willful taxpayers have been subjected to criminal penalties for their actions. Taxpayers who have purchased and followed these "untaxing" plans have also been subjected to civil penalties for failure to timely file a federal income tax return and failure to pay federal income taxes. Those who promote, advise on, or assist with these schemes can be enjoined from further carrying out this conduct or may be denied the ability to practice before the IRS.
Relevant Case Law:
United Sates v. Meredith, 685 F.3d 814 (9th Cir. 2012) – Lynne Meredith owned and operated several businesses, including We The People and Liberty International, that sold books and conducted seminars instructing people on how to avoid paying income taxes. At the heart of Meredith's operations was a bogus financial instrument she called a "pure trust," which she claimed was exempt from taxes. The Ninth Circuit affirmed Meredith's sentence of 121 months in prison for her role in promoting this fraud.
United States v. Bell, 414 F.3d 474, 479 (3d Cir. 2005) – the Third Circuit affirmed a permanent injunction against Bell, who sold customers access to materials instructing them on how to use a phony "U.S. Sources rationale" to file income tax returns reporting zero income.
United States v. Andra, 218 F.3d 1106, 1107 (9th Cir. 2000) – the Ninth Circuit affirmed the conviction of a promoter of an "untaxing" scheme for tax evasion and conspiracy, and found it proper, when calculating the effect of his actions for sentencing, to include the tax liabilities of those he recruited into this tax-fraud conspiracy.
United States v. Clark, 139 F.3d 485 (5th Cir. 1998) – the Fifth Circuit upheld convictions of defendants involved with The Pilot Connection Society for conspiracy to defraud the United States and aiding and abetting the filing of fraudulent Forms W-4.
United States v. Scott, 37 F.3d 1564 (10th Cir. 1994) – the Tenth Circuit affirmed the conviction of eight promoters of a multi-tiered trust package marketed to purchasers as a device to eliminate tax liability without losing control over their assets or income.
United States v. Meek, 998 F.2d 776, 778 (10th Cir. 1993) – the Tenth Circuit upheld Meek's conviction of willfully failing to file an income tax return and willfully attempting to evade taxes because his "trust" had been formed through his membership in an organization (a "warehouse bank") that provided its members the opportunity to warehouse their funds until directed to disburse them.
United States v. Kaun, 827 F.2d 1144 (7th Cir. 1987) – the Seventh Circuit affirmed the district court's injunction prohibiting the taxpayer from inciting others to submit tax returns based on false income tax theories.
United States v. Krall, 835 F.2d 711, 714 (8th Cir. 1987) – the Eighth Circuit affirmed Krall's conviction of willfully filing false income tax returns, stating, "[I]t is clear the alleged trusts were shams; Krall exercised the same dominion and control over the corpus and income of the trusts as he had before the trusts were executed."
Lizalek v. United States, T.C. Memo. 2009-122, 97 T.C.M. (CCH) 1639 (2009) – the taxpayer claimed a trust was created when the Social Security Administration issued a Social Security card to him and that the IRS accepted that the trust existed when it assigned an EIN to it upon the taxpayer's submission of a Form SS-4, Application for Employer Identification Number. The court found the trust did not exist, that the income assigned to the trust was includable in the taxpayer' gross income, that he was liable for penalties for failure to file returns and to pay tax as well as a civil penalty under section 6682.
United States v. Welch, 112 A.F.T.R.2d (RIA) 5783 (D. Colo. 2013); United States v. Binge, 94 A.F.T.R. 2d (RIA) 2004-6502 (N.D. Ohio 2004); King v. Commissioner, T.C. Memo. 1995-524, 70 T.C.M. (CCH) 1152 (1995); Robinson v. Commissioner, T.C. Memo. 1995-102, 69 T.C.M. (CCH) 2061 (1995).
Advocates of this idea believe they can reduce their federal tax liability by taking the position that the taxpayer's income belongs to a "corporation sole" (these have also been referred to as "ministerial trusts"), an entity created for the purpose of avoiding taxes. A valid corporation sole is a corporate form that enables religious leaders to hold property and conduct business for the religious entity. Participants in this scheme apply for incorporation under the pretext of being an official of a church or other religious organization. Participants contend that their income is exempt from taxation because the income belongs to the corporation sole, which is a tax-exempt organization described in section 501(c)(3).
The Law: A valid corporation sole enables a bona fide religious leader, such as a bishop or other authorized religious official, to incorporate under state law, in his capacity as a religious official. See, e.g., Berry v. Society of Saint Pius X, 69 Cal. App. 4th 354 (1999). A corporation sole may own property and enter into contracts as a natural person, but only for the purposes of the religious entity and not for the individual office holder's personal benefit. A legitimate corporation sole is designed to ensure continuity of ownership of property dedicated to the benefit of a legitimate religious organization.
A taxpayer cannot avoid income tax or other financial responsibilities by purporting to be a religious leader and forming a corporation sole for tax-avoidance purposes. The claims that such a corporation sole is described in section 501(c)(3) and that assignment of income and transfer of assets to such an entity will exempt an individual from income tax are meritless. Courts have repeatedly rejected similar arguments as frivolous, imposed penalties for making such arguments, and upheld criminal tax evasion convictions against those making or promoting the use of such arguments.
The IRS discussed this frivolous argument in more detail and warned taxpayers of the consequences of attempting to use this scheme in Rev. Rul. 2004-27, 2004-1 C.B. 625 and in Notice 2010-33, 2010-17 I.R.B. 609.
Relevant Case Law:
United States v. Heinemann, 801 F.2d 86 (2d Cir. 1986) – the Second Circuit upheld the conviction and three-year prison sentence imposed against the defendants for promoting use of purported church entities to avoid taxes.
United States v. Adu, 770 F.2d 1511 (9th Cir. 1985) – the Ninth Circuit upheld the defendant's conviction for aiding and assisting in the preparation and presentation of false income tax returns with respect to false charitable deductions to purported church entities.
United States v. Berryman, 112 A.F.T.R.2d (RIA) 2013-6282 (D. Colo. 2013) – the court rejected the taxpayer's attempt to use a corporation sole to avoid taxation and noted that "[c]ourts have repeatedly rejected similar arguments as frivolous, imposed penalties for making such arguments, and upheld criminal tax evasion convictions against those making or promoting the use of such arguments."
United States v. Gardner, 101 A.F.T.R.2d (RIA) 2008-2016 (D. Ariz. 2008) aff'd, 457 Fed. Appx. 611 (9th Cir. 2011) – the district court permanently enjoined the Gardners from promoting a tax fraud scheme involving a "corporation sole" program that they had sold to over 300 people. The Ninth Circuit affirmed.
Svedahl v. Commissioner, 89 T.C. 245 (1987) – the court sanctioned the taxpayer under section 6673 in the amount of $5,000 for using contributions to purported church entities to shield income and pay personal expenses.
United States v. Gardner, T.C. Memo. 2013-67, 105 T.C.M. (CCH) 1433 (2013).
Proponents of this idea assert that taxpayers can claim the section 6421 fuels-tax credit without regard to whether they qualify for the credit through the purchase and use of gasoline for an off-highway business. In addition, certain purveyors of fraudulent tax schemes have claimed on behalf of clients (usually on IRS Form 4136, Credit for Federal Tax Paid on Fuels) the tax credit under section 6427 for nontaxable uses of fuel when the taxpayers clearly are not entitled to the credit based on the facts, such as the taxpayer's occupation and income level, type of motor vehicle and how it is used, and the volume of fuel claimed.
The Law: These claims are frivolous. Section 6421(a) allows a tax credit for gasoline purchased and used in an off-highway business. Similarly, section 6427 provides a tax credit to certain purchasers of undyed diesel fuel used in an off-highway business. The diesel fuel credit is allowable both for off-highway business use or any use other than in a registered diesel-powered highway vehicle (e.g., in a private home for personal heating purposes). The circumstances in which the credits are available are specific and limited.
The principal requirement is that the fuel be used in an off-highway business. Off-highway business use is the use of fuel in a trade or business or in an income-producing activity other than as a fuel in a vehicle registered for use on public highways. IRS Publication 225 (2008), Farmer's Tax Guide , gives as examples of the off-highway business use of fuels: (1) use in stationary machines like generators, compressors, power saws, and similar equipment; (2) use in forklifts, bulldozers, and earthmovers; and (3) use in cleaning. Also, Publication 510 (2008), Excise Taxes, explains that, with some exceptions, a highway vehicle is one "designed to carry a load over a public highway," including federal, state, county, and city roads and streets. Passenger cars, motorcycles, buses, highway trucks, tractor trailers, etc., generally are highway vehicles. Taxpayers are claiming fuels tax credits without regard to these requirements and often in absurdly large amounts that cannot possibly be for the quantity of fuel expended for off-highway purposes. Notice 2010-33, 2010-17 I.R.B. 609, lists such positions as frivolous.
Relevant Case Law:
United States v. Harden, No. 618CV2148ORL41DCI, 2020 WL 7407588, at *1 (M.D. Fla. Jan. 3, 2020) – the court entered an order and judgment of permanent injunction and disgorgement where defendant prepared and filed federal income tax returns for customers improperly claiming false or fraudulent fuel tax credits.
United States v. Totou, No. 3:07-cv-391, 2008 BL 102279 (W.D.N.C May 14, 2008) – the court permanently enjoined a tax return preparer from preparing or filing federal tax returns. Totou claimed fraudulent fuels tax credits on customers' returns.
Advocates of this contention encourage individuals to use a Form 1099-OID, Original Issue Discount, or a bogus financial instrument such as a bonded promissory note as what purports to be a debt payment method for credit cards or mortgage debt. In an OID scheme, filers falsely list large amounts of OID income and corresponding large amounts of withholding. Instead of listing actual OID income, the filers list debt, including credit card debts and mortgages. The filers also falsely represent that a large amount of their OID income was withheld, and they thus claim that they are entitled to large tax refunds. This scheme has evolved somewhat from an earlier frivolous position under which a secret bank account (sometimes referred to as a "straw man" account) was supposedly created at the Treasury Department for each U.S. citizen that individuals could use to pay tax and non-tax debts and claim withholding credits. Those who put forth this theory often argue that the proper way to redeem or draw on the account is to use some form of made-up financial instrument. This has frequently involved what looks like a check drawn on the United States Treasury or other similar paper instruments, e.g., bonded promissory notes.
One variation of this theory claims that each citizen has a "private side" and a "public side." This theory contends that the government owns each person's public side or "straw man" by holding title to each citizen's birth certificate. By filing UCC–1 financing statements and their birth certificates in a state that accepts such filings, followers of this theory believe they can "redeem" their birth certificates. Redemption theorists view the redeemed birth certificate as an asset on which they place a value of up to $2 million and assert the U.S. Treasury Department acts as a clearinghouse for the funds. Under this theory, they then create money orders and sight drafts drawn on their "Treasury Direct Accounts." Courts have characterized this theory as "implausible," "clearly nonsense," "convoluted," and "peculiar."
Another variation of the "redemption theory" asserts that persons can draw on the secret or "straw man" Treasury account by sending a Form 1099-OID to a creditor and the creditor can present the form to the Treasury Department and receive full payment of the debt. The proponents of this theory appear to assert that the Form 1099-OID permits them to access their secret Treasury Account for an amount equal to the face amount of the Form 1099-OID in the form of a tax refund.
Proponents of this theory also argue that they have sold or transferred their debt or obligation to the person to whom they issued the Form 1099-OID in a transaction subject to sections 1271 through 1275 and that the debt or obligation is transferred with a discount of the full face amount. The issuer of the Form 1099-OID then treats the face amount of the Form 1099-OID as "other income" on the individual's return. The "other income" amount, however, is not included in the taxable income line.
Persons asserting this theory often significantly overstate withholding and claim an excessive refund in an amount close or identical to the inflated withholding.
The Law: Original Issue Discount (OID) is a type of interest that is not payable as it accrues. OID is normally created when a debt, usually a bond, is issued at a discount. In effect, selling a bond at a discount converts stated principal into a return on investment, or interest. OID is simply the excess of the stated redemption of the deposit, bond, or other financial obligation at maturity over its issue price. Original Issue Discount forms are tax forms designed to report an individual's interest income derived from these investments. As the instructions to the Form 1099-OID indicate, the form's purpose is to report the original issue discount of holders of OID obligations, like certificates of deposit, time deposits, bonds, debentures, bonus saving plans, and Treasury inflation-indexed securities, having a term of more than one year. Under section 1272, OID is taxable as interest over the life of the obligation and must be included in the holder's gross income each taxable year that the obligation is held. Certain obligations are excepted, including United States savings bonds and short-term (less than one year) and tax-exempt obligations.
The Form 1099-OID is in no way a financial instrument. It is not a legitimate method of payment of any public or private debt, and it is not a means to withdraw or redeem money from the Treasury. Furthermore, as the Sixth Circuit stated in United States v. Anderson, 353 F.3d 490, 500 (6th Cir. 2003), the Treasury Department does not maintain depository accounts against which an individual can draw a check, draft, or any other financial instrument. The notion of secret accounts assigned to each citizen is pure fantasy.
In addition to potential civil and criminal tax penalties for misusing Form 1099-OID, persons who fraudulently use false or fictitious instruments may be guilty of federal criminal offenses, such as under sections 287 and 514(a) of title 18.
The IRS warned taxpayers of the consequences of making such frivolous arguments in Rev. Rul. 2005-21, 2005-1 C.B. 822 (discussing the "straw man" theory) and Rev. Rul. 2004-31, 2004-1 C.B. 617 (discussing the commercial redemption theory).
Variations of this frivolous theory contend that individuals or groups may claim false withholding or tax payments on an income tax return or purported return using another document from the Form 1099 series of information returns or a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains. When the Form 2439 is used, it is prepared showing false amounts of tax payments allegedly made for the taxpayer by a Regulated Investment Company (RIC) or Real Estate Investment Trust (REIT).
Relevant Case Law:
United States v. Johnson, 795 F.3d 840 (8th Cir. 2015) – the Eighth Circuit upheld the defendants' criminal convictions relating to their misuse of the Form 1099-OID to inflate income and claim refunds.
United States v. Heath, 525 F.3d 451 (6th Cir. 2008) – the Sixth Circuit affirmed the defendant's conviction for presenting a fictitious financial instrument under 18 U.S.C. § 514(a) for sending to the IRS a so-called "Registered Bill of Exchange" that appeared to be a certified check but for which there was no actual account.
United States v. Getzschman, 81 F. App'x. 619 (8th Cir. 2003) – the Eighth Circuit upheld the Getzschmans' convictions for conspiracy to make and pass false or fictitious financial instruments in violation of 18 U.S.C. §§ 371 and 514(a)(1) and for producing, passing, and attempting to pass fictitious money orders in violation of 18 U.S.C. §§ 514(a)(1) and (2) relating to their attempts to use money orders drawn on the Department of Treasury.
United States v. Provost, 109 A.F.T.R.2d (RIA) 2012-1706 (E.D. Cal. 2012) – the court rejected the taxpayer's issuance of "Unlimited Indemnity Bond" as frivolous and characterized his attempts to draw on the government to pay his debts "nonsensical and meritless."
United States v. Cunningham, 107 A.F.T.R.2d (RIA) 2011-382 (S.D. Cal. 2011) – the court held the taxpayer in contempt for refusing to comply with a court order to provide documents and testimony summoned by the IRS pursuant to an investigation regarding his participation in a Form 1099-OID scheme.
Ernle v. Commissioner, T.C. Memo. 2010-237, 100 T.C.M. (CCH) 367 (2010) – the court held petitioner liable for fraud based on various filings, including phony Forms 1099-OID and imposed a penalty of $4,000 under section 6673(a).
United States v. Knupp, No. 1:09–CV–2724, 2010 WL 2245551 (N.D. Ga. May 14, 2010); United States v. Miller, No. 3:09–1030, 2009 WL 4060274, (M.D. Tenn. Nov. 23, 2009); United States v. Guan, No. 2:09–cv–07816, 104 A.F.T.R. 2d (RIA) 2009-7471 (C.D. Cal. 2009); Bryant v. Washington Mut. Bank, 524 F. Supp. 2d 753, 760 (W.D. Va. 2007) aff'd, 282 F. App'x 260 (4th Cir. 2008); Osband v. Commissioner, T.C. Memo. 2013-188, 106 T.C.M. (CCH) 124 (2013).