Quatloos! > Tax
Scams > Tax
Protestors > EXHIBIT:
Tax Protestor Dummies 2 > Cases
("Damn, We Lost Again!
And why is it
that people who sell
tax protestor materials file their tax returns anyway . . .")
Income taxes and two additional taxes were imposed on a
person who didn't report or pay taxes on commissions, pension
money, unemployment compensation, dividends, and wages.
KEEP READING IF:
* You want to show clients or prospective clients
that the income tax is real, it applies to them, and like
it or not, if they receive income, they have to pay it.
* The words from Where Have All The Flowers Gone, "When
will they ever learn?
Oh when will they ever learn?" play over and over in your
mind when you hear certain schemes and impossible dreams.
BUT FIRST, A TRU GRIT NEWS FLASH FROM SPECIAL LISI COMMENTATOR,
Delaware just became the first state to sign into law a
unitrust statute as part of its principal and income act.
New York passed its total return unitrust legislation last
Wednesday afternoon, and it is waiting for its Governor's
signature. issouri passed TRU legislation less than two weeks
ago and it is awaiting its Governor's signature.
Pennsylvania is just about to introduce a bill to the same
effect, giving trustees the choice between the power to adjust
and the unitrust.
A number of other states are moving quickly on their unitrust
You'll hear more soon from Bob Wolf on Total Return Unitrust
Right now, you can read a number of articles and found an
outline on TRUs at
to the right hand side of the home page and look
for a box marked TRUs. You'll find articles by Bob
Wolf, Michel Nelson, Mark Edwards, David Diamond, Patti Spenser,
and James Dam as well as link to a FORBES article on TRUs.
NOW BACK TO FURNISS, A HOT NEW CASE!
During 1990, Mr. Furniss received commissions of $17,516,
a pension of $3,433, unemployment compensation of $4,065,
dividends of $20, and wages of $804.
During 1994, Furniss received unemployment compensation
of $2,450, dividends of $46, and wages of $27,747.
During 1996, Furniss received a pension of $5,920, unemployment
compensation of $3,705, interest of $20, dividends of $36,
and wages of $20,131.
But in spite of receiving these sums of money, Furniss didn't
think he should have to file income tax returns or pay taxes
for those years - so he didn't!
The IRS, of course, felt otherwise. It said all of
that money Furniss received was reportable income.
Furniss didn't argue that he hadn't received the money -
only that "there is insufficient authority to hold him liable
for an income tax." (Where have we heard that one before?
- and how many times? Isn't it nice to think that you
are different from all the rest of us that have to report
and pay taxes?)
So what did Furniss argue to prove his case?
First, he argued that the income tax is unconstitutional.
Alternatively, he said, the definition of income in the
law didn't include what he received.
The Tax Court had no trouble shooting down his misguided
thinking with these long-standing reasons:
First, the income tax repeatedly has been held constitutional.
Second, the single most important and seminal section in
the income tax law, Code Section 61(a) defines gross income
generally as "all income from whatever source derived." That
section is careful to add that the term "all income" includes
but is not limited to such items as compensation for services,
commissions, interest, dividends, and pensions.
The Tax Court pointed out that Code Section 85(a) provides: "In
the case of an
individual, gross income includes unemployment compensation."
THE "FOREIGN INCOME" GAMBIT:
Furniss shot back that Code Sections 911 (perhaps for emergency
help?) and the regulations under Code Section 861 excluded
the money he received from income.
The court lobbed that back and held that nothing in either
Section 911 nor Section 861 operates to prevent Code Section
61 from applying to the money Furniss had received. Section
911(a) allows an exclusion from gross income for "foreign
earned income" at the election of a "qualified individual" (one
whose tax home is in a foreign country). Here, Furniss
had no foreign earned income and was not a qualified individual. (I
suppose you could argue that the tax laws of this country
may be strange and even alien at times but that does not
make receipts of income foreign).
Nor did Furniss's Section 861 argument help. He based
his reliance on Section 861 by reading it to provide that
items not defined in that provision are not subject to tax. But
he clearly misread (or read into it what he wanted to read
into it) because Section 861(a)(1) and (3) provides that
interest from the United States and compensation for labor
or personal services performed in the United States (with
exceptions that don't apply to his case) are items of gross
income which shall be treated as income from sources within
the United States. So there's nothing in Code Section
861 that excludes any of the money he received
NO PROOF, NO DEDUCTIONS:
Next, Furniss claimed that he was entitled to Schedule A,
Itemized Deductions, and Schedule C, Profit or Loss From
Business, deductions for the years in issue. Of course, the
law requires that the taxpayer has the burden of proof on
issue. Here, he failed to introduce any such
evidence or even indicate the
specific deductions to which he believed he was entitled. So
the court disallowed the deductions he had taken.SECTION
6651(a)(1) ADDITION TO TAX
Tax law imposes an additional tax for failure to file a
timely return. The only defense against this penalty
is to prove that the failure is due to reasonable cause and
not due to willful neglect. Since he couldn't prove a reasonable
cause for his failure to file, he was held liable for the
Section 6651 additional tax.
SECTION 6654(a) ADDITION TO TAX
As Doctor Seuss would say, THAT IS NOT ALL, OH NO, THAT
IS NOT ALL! Section
6654(a) imposes yet another addition to tax in the case
of any underpayment of estimated tax by an individual. This
tax is mandatory - unless a statutory exception applies.
The point is, there is no provision in this Code Section
relating to reasonable cause and lack of willful neglect.
It is mandatory and
extenuating circumstances are irrelevant. Since
none of the statutory
exceptions applied, and since Furniss presented no argument
regarding payments of
estimated tax, the Tax Court held him liable for this tax
THE QUESTION IS, WHY ARE THEY FIGHTING AN ALREADY LOST BATTLE?
Furniss was not alone in the loser's circle. One June
11th, in U.S. v. Robert R. Raymond, et al., (S. Ct. Dkt.
No. 00-1412) the Supreme Court denied certiorari (i.e. it
declined to hear) and by doing so upheld a permanent injunction
against the promotion of a "De- Taxing America Program".
This case involved two promoters, Robert Raymond and Robert
Bernhoft, who operated as Morningstar Consultants. They
found gullible taxpayers and sold them what they marketed
as their "De-Taxing America Program," a scheme
buyers of this plan to avoid paying income taxes. Detaxing
was found to be an
abusive tax shelter because false statements were made in
brochures and ads about the tax results plan purchasers would
The court had no doubt that, unstopped, Raymond and Bernhoft
would continue to encourage others to violate the tax law
so it held that injunctive relief was appropriate. It
discarded their argument that their program promotion was
political advocacy and that the injunction violated their
free speech rights. Although the court concluded that the
order was in fact a prior restraint on their speech, it held
that the injunction - even though permanent - was not constitutionally
Sometimes, for some folks, it seems that pain is not only
the best but the only way to learn.
HOPE THIS HELPS YOU HELP OTHERS STAY OUT OF TROUBLE AND
AVOID BOTH PAIN AND FAME!
Steve Leimberg's Estate Planning Newsletter
Copyright LISI 2001
TO CHANGE YOUR E-MAIL ADDRESS:
Go to http://www.leimbergservices.com Log
Once logged in, click on the maroon tab at the top right
hand corner that says: CHANGE E-MAIL ADDRESS. Just
delete the old address. Type in your new address.
Click UPDATE. It's that easy!
TO SUSPEND LISI NEWSLETTERS WHILE ON VACATION:
Go to http://www.leimbergservices.com Log
in. (Click on FORGOT PASSWORD if
you have misplaced your username or password) Once logged
in, go to the top right hand side and click on the maroon
tab where it says: MANAGE MY ACCOUNT. Just uncheck
the boxes of the newsletters you'd like to suspend. When
you return from vacation, just click those same boxes to
restart. Remember, LISI automatically and instantly
stores and indexes all newsletters - so you can quickly catch
up with what's happened when you get back from vacation.
David Furniss v. Commissioner; T.C. Memo. 2001-137; No.
13860-99, June 11th, 2001; IRC Sec. 61(a)(1), (4), (7), (11).
See also Solomon v. Commissioner, T.C. Memo. 1993-509, affd.
without published opinion 42 F.3d 1391 (7th Cir. 1994). )
IRC Sec. 911(d)(1). See Section 6651(a)(1) and
United States v. Boyle, 469 U.S. 241, 245 (1985); United
States v. Nordbrock, 38 F.3d 440, 444 (9th Cir. 1994); Harris
v. Commissioner, T.C. Memo. 1998-332 for information on additions
to tax for failure to file. For information on the addition
to tax under section 6654(a), see Recklitis v. Commissioner,
91 T.C. 874, 913 (1988); Grosshandler v. Commissioner, 75
T.C. 1, 20-21 (1980); Estate of Ruben v. Commissioner, 33
T.C. 1071, 1072 (1960)
For cases holding the income tax constitutional, see Charczuk
v. Commissioner, 771 F.2d 471, 472-473 (10th Cir. 1985),
affg. T.C. Memo. 1983-433; Abrams v. Commissioner, 82 T.C.
403, 406-407 (1984); Bivolcic v. Commissioner, T.C. Memo.
2000-62; Stelly v. Commissioner, 761 F.2d 1113, 1115 (5th
See United States v. Robert R. Raymond, et al., No. 99-4024
(7th Cir. Sept. 26, 2000).
Return to Tax Protestor Exhibit