It All Starts With A Return
Editor’s Note: The following is written by Pete Hendrickson in his outstanding newsletter, Lost Horizons, and corresponding Website, http://losthorizons.com. Pete is responsible for what I call ‘The Hendrickson Discovery,’ namely the fact that the so-called federal income tax is not a direct tax—if it were it would have to be apportioned—rather an excise on the exercise of federal privilege (via employment by the federal government or a federal corporation, or receipt of funds via federal property). Thus, the vast majority of individuals who pay this tax are not required to pay this tax, and in fact are entitled to full refund of government-withheld amounts.
If you do not know these facts, if you have been paying the income tax in ignorance, now is the time to stop doing so and prepare yourself for a 2016 Christmas present this year—and, as everyone stops feeding the federal beast, everyone gets an enormous present of causing Leviathan to disappear in a pool of its longstanding hubris… and abject criminality of deception. So Merry Christmas, and thank you, Pete! [And to Doreen, Pete’s wife, who has been temporarily taken from him, and us, by corrupt and actionable machinations of the federal Mafia.]
MANY YEARS AGO, SOME TAX ATTORNEY OR IRS OFFICIAL made the unremarkable observation in a trial brief or in testimony that, “It [collection of the tax] all starts with the filing of a return.” The reference was to the filing of an “information return,” [IR] such as a W-2, 1099 or K-1.*
It IS an unremarkable observation. It is obvious that for the government to assert an excise-tax liability to itself on someone’s part, someone with purported personal knowledge must say that taxable events occurred, and this is what all IRs say. Any amount reported on such a form as having been paid is being said to have been paid in connection with the recipient’s conduct of a taxable activity.
But as unremarkable as it might be to observe the significance within the liability-allegation-structure of IRs, I imagine that very few folks have seriously considered IRs from a pre-emptive perspective. That is, I imagine that few have thought about the fact that it is ONLY because erroneous IRs have been issued about them that it is necessary to go to the trouble of rebuttal in order to secure refunds of improperly-withheld amounts, with a serious eye toward preventing these inconveniences.
The fact is, no one should have to rebut anything, because no one should be falsely testifying about anyone else (or testifying in ignorance, which is morally no different than false testimony). And yet, such false testimony is a common-place– so much so that beginning next month literally tens of millions of erroneous IRs will flood the mail and cyber-space like a liberty- and rule-of-law-destroying plague.
NOW, IT COULD BE FAIRLY SAID that much of the erroneous IR plague is launched out of the sheer ignorance of those responsible. Most of these folks have never spent five minutes seeking any personal knowledge of the tax or the meaning and effect of forms they sign.
But at the same time I think the ignorance of IR producers is so casually maintained simply because the responsible parties never face any downside from getting things wrong. Having never come to harm for doing so– even when their attestations have been wrong, as in every single one of these cases, and the hundreds of thousands of others of which these are a sampling, in which the IRS or state tax agencies themselves have agreed that the rebutted IRs were erroneous and issued refund checks accordingly– the producers of IRs follow the path of least resistance and choose to declare every payment made to anyone to be from taxable activity.
I think that this should change. And, in fact, Congress thinks it should, too:
Sec. 7434. – Civil damages for fraudulent filing of information returns
(a) In general
If any person willfully files a fraudulent information return with respect to payments purported to be made to any other person, such other person may bring a civil action for damages against the person so filing such return.
In any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the greater of $5,000 or the sum of –
(1) any actual damages sustained by the plaintiff as a proximate result of the filing of the fraudulent information return (including any costs attributable to resolving deficiencies asserted as a result of such filing),
(2) the costs of the action, and
(3) in the court’s discretion, reasonable attorneys’ fees.
Plainly, Congress intends for those who are victims of erroneous IRs to impose some discipline through civil suits, with the consequence of encouraging all who might imagine themselves obliged to produce these forms to get educated as to the specialized circumstances in which they actually are appropriate.
“When you can’t make them see the light, make them feel the heat.”
NOW, IT WILL BE NOTED that this statute provides for a civil action in regard to fraudulent IRs, rather than just erroneous ones, explaining the distinction by the deployment of “willfulness” as an element of the offense. Any erroneous IR that is filed in the knowledge that it is wrong is a fraudulent document– a part of a scheme effectively intended to defraud the victim of what the government will attempt to take from him or her in taxes not actually owed.
Certainly, what is found in the law about IRs and the nature of taxable activities is technically enough to make any erroneous IR-filer liable to the penalty (ignorance of the law being no excuse in our system). And suit could be filed on common-law grounds without regard to “willfulness”, there having been demonstrable harm caused.
But in order for the statutorily-provided incentive to accuracy at 26 USC § 7434 (and the remedy it offers to any victim) to be readily and easily available for use, the IR-filer must have been put on notice. Making that notice in preparation for a suit should the law be disregarded and an erroneous (and now willful, and thus, fraudulent) IR be filed about someone is what I mean here by being “pre-emptive”.
I suggest that anyone wanting to make use of this disciplinary and wrong-righting tool act now by providing anticipated IR-filers with a printed copy of this document, accompanied by print-outs of this, this, this, this, this, this, this and this. A close re-read of ‘Lies, Damned Lies And W-2s’, ‘W-9s And Other Alien Notions’ and ‘W-4s, The Blind Leading The Blind Down A Primrose Path’ in CtC, and what is found here and here, and attending to any tasks that might suggest themselves thereby, is strongly recommended.
The printouts should be accompanied by a cover letter explaining that they are being furnished in order to ensure that the furnisher suffers no harm due to erroneous declarations by way of W-2, 1099s or other “information returns” that taxable activities were involved in any payments he/she has received, and to protect his/her legal remedies under 26 USC § 7434 and the common law.
All this having been taken care of prior to the issuance of any IRs, it is my lay opinion that everything needed to unequivocally establish “willfulness” will be in place should false allegations end up being made. The progress of a suit then brought under 26 USC § 7434 should be swift and sure.
I hope those undertaking leadership roles in their state groups will step up and help interested members through the procedures outlined above, and that everyone however situated will encourage and help each other as needed.
“I am a great believer in luck, and I find the harder I work, the more I have of it.”
*Sadly, some folks in the “tax honesty” community who are ignorant of the structure and mechanics of the tax– and even that certain forms are known as “information returns”– have misunderstood this statement. They have imagined it to be a reference to the filing of a 1040 and have therefore imagined that the mere filing of such a form somehow makes the filer liable for a tax on any and all receipts. This has led many to embrace the seriously harmful, completely counter-productive practice of “non-filing.” See this document for some discussion of the error and its ill consequences.
NOTE: Though omitted from the discussion above for the sake of staying on message and out of respect for the KISS principle, accuracy requires acknowledgement that while the filing of information returns is far and away the most common– indeed, nearly exclusive– first event involved in any given collection of the income tax, the unilateral filing of a 1040 on which more than the exemption amount of “income” is declared would start the collections process all on its own, even in the absence of a prior or corresponding IR.
Click here for some additional material on the subject of erroneous information returns.
 It needs also be noted that many tens of thousands of individuals are RIGHT NOW receiving complete refunds of incorrectly withheld or paid federal taxes, Social Security and Medicare taxes, state income taxes, etc., to the aggregate amount of more than $3 billion (http://www.losthorizons.com/BulletinBoard.htm).
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