Tax Guru – Ker$tetter Letter

Long time readers will remember that I used to be so frustrated at how IRS chose to deal with promoters of illegal tax evasion scams.  The official IRS policy was to ignore the scams and hope they would disappear on their own.  As anyone could have anticipated, the scam promoters used the IRS silence as proof that their schemes were perfectly acceptable.  I lost count of how many times I was accused of being incompetent or a government lackey by tax protestors because I dared to accuse them of being idiots and falling for illegal scams. 

In a case of better late than never, IRS finally wised up and they now take a more proactive stand against tax evasion scams. 

IRS Debunks Frivolous Tax Arguments

The full 87 page pdf report.

The Tables of Contents of the report give an excellent summary of the idiotic scams people have been trying to use to illegally evade taxes.

Contents-General Arguments

A. The Voluntary Nature of the Federal Income Tax System

1. Contention: The filing of a tax return is voluntary
2. Contention: Payment of tax is voluntary
3. Contention: Taxpayers can reduce their federal income tax liability by filing a “zero return
4. Contention: The IRS must prepare federal tax returns for a person who fails to file
5. Contention: Compliance with an administrative summons issued by the IRS is voluntary

B. The Meaning of Income:  Taxable Income and Gross Income

1. Contention: Wages, tips, and other compensation received for personal services are not income
2. Contention: Only foreign-source income is taxable
3. Contention: Federal Reserve Notes are not income
4. Contention: Military retirement pay does not constitute income

C. The Meaning of Certain Terms Used in the Internal Revenue Code

1. Contention: Taxpayer is not a “citizen” of the United States, thus not subject to the federal income tax laws
2. Contention: The “United States” consists only of the District of Columbia, federal territories, and federal enclaves
3. Contention: Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws
4. Contention: The only “employees” subject to federal income tax are employees of the federal government

D. Constitutional Amendment Claims

1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment
2. Contention: Federal income taxes constitute a “taking” of property without due process of law, violating the Fifth Amendment
3. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment
4. Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment
5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional
6. Contention: The Sixteenth Amendment does not authorize a direct non-apportioned federal income tax on United States citizens

E. Fictional Legal Bases

1. Contention: The Internal Revenue Service is not an agency of the United States
2. Contention: Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act
3. Contention: African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment
4. Contention: Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime
5. Contention: An “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes
6. Contention: A “corporation sole” can be established and used for the purpose of avoiding federal income taxes
7. Contention: Taxpayers who did not purchase and use fuel for an off-highway business can claim the fuels tax credit
8. Contention: A Form 1099-OID can be used as a debt payment option or the form or a purported financial instrument may be used to obtain money from the Treasury

Contents-Collection Due Cases

A. Invalidity of the Assessment

1. Contention: A tax assessment is invalid because the taxpayer did not get a copy of the Form 23C, the Form 23C was not personally signed by the Secretary of the Treasury, or Form 23C is not a valid record of assessment
2. Contention: A tax assessment is invalid because the assessment was made from a substitute for return prepared pursuant to section 6020(b), which is not a valid return

B. Invalidity of the Statutory Notice of Deficiency

1. Contention: A statutory notice of deficiency is invalid because it was not signed by the Secretary of the Treasury or by someone with delegated authority
2. Contention: A statutory notice of deficiency is invalid because the taxpayer did not file an income tax return

C. Invalidity of Notice of Federal Tax Lien

1. Contention: A notice of federal tax lien is invalid because it is unsigned or not signed by the Secretary of the Treasury, or because it was filed by someone without delegated authority
2. Contention: The form or content of a notice of federal tax lien is controlled by or subject to a state or local law, and a notice of federal tax lien that does not comply in form or content with a state or local law is invalid

D. Invalidity of Collection Due Process Notice

1. Contention: A collection due process notice (Letter 1058, LT-11 or Letter 3172) is invalid because it is not signed by the Secretary or his delegate
2. Contention: A collection due process notice is invalid because no certificate of assessment is attached

E. Verification Given as Required by I.R.C. § 6330(c)(1)65

1. Contention: Verification requires the production of certain documents

F. Invalidity of Statutory Notice and Demand

1. Contention: No notice and demand, as required by I.R.C. § 6303, was ever received by taxpayer
2. Contention: A notice and demand is invalid because it is not signed, it is not on the correct form (such as Form 17), or because no certificate of assessment is attached

G. Tax Court Authority

1. Contention: The Tax Court does not have the authority to decide legal issues

H. Challenges to the Authority of IRS Employees

1. Contention: Revenue Officers are not authorized to seize property in satisfaction of unpaid taxes
2. Contention: IRS employees lack credentials.  For example, they have no pocket commission or the wrong color identification badge

I. Use of Unauthorized Representatives

1. Contention: Taxpayers are entitled to be represented at hearings, such as collection due process hearings, and in court, by persons without valid powers of attorney

J. No Authorization Under I.R.C. § 7401 to Bring Action

1. Contention: The Secretary has not authorized an action for the collection of taxes and penalties or the Attorney General has not directed an action be commenced for the collection of taxes and penalties

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CCH has the newly announced limits for depreciation on vehicles first placed into service in 2011. 

For passenger automobiles first placed in service during 2011, the deduction limitations for the first three tax years are: $3,060 ($11,060 if bonus depreciation applies), $4,900, and $2,950, respectively, and $1,775 for each succeeding year. For trucks and vans first placed in service in 2011, the depreciation limitations for the first three years are $3,260 ($11,260 if bonus depreciation applies), $5,200, and $3,150, respectively, and $1,875 for each succeeding year.

I checked TheTaxLibrary, and they don’t have Revenue Procedure 2011–21 posted yet.  I will link to it when it shows up there.

Update:  Rev Proc 2011–21 (15 page pdf) from IRS.

Anyone who bills for their time should be able to relate to this funny song about people who feel no qualms about stealing our stock in trade.  When people complain about having to pay for our time, we ask them if they feel the same way about owners of retail stores.  Do they feel it’s okay to just walk in and help themselves to the inventory without having to pay for it?

TheTaxBook has a four page update on how tax preparers can opt out of this new stupid requirement to e-file client tax returns. 

Form 8944 is the IRS request to be exempted from this requirement. 

Reading the form and its instructions, I am drawn to this section which defines the issue of filing tax returns. 

From Tax Info

I guess there are tax prep firms that actually send in the paper 1040s directly to IRS.  It has always been our policy to prepare the tax returns and give them to the clients to sign and mail to IRS.  Only on a very few occasions, such as when a client is very ill or out of the country, have we actually mailed client tax returns from our office to the IRS.

Under this definition of having to file more than 100 tax returns (10 next year) rather than prepare that many, I don’t feel that we are even subject to this new rule; so I see no need to submit a 8944. 

Other preparers who want to avoid the e-filing requirement may want to consider allowing their clients to also mail in their own 1040s.

Latest GOP repeal tactic: Starve the IRS – Great idea.