Monday, June 16, 2014

Becraft frivolous tax argument penalty; Congressional MUSTS

I have not read the court filings by attorney Larry Becraft which won him the $2500 sanction that the US 9th Circuit imposed upon him.  Maybe he forgot to dot an i or cross a t.  And maybe the judges simply cannot read and understand the Constitution and the law.  Or maybe Larry and his client couldn't.  But, what does it matter?  The client went to prison and Larry had to pay a fine for making certain arguments that the courts have rejected repeatedly as frivolous.  Therefore, if YOU plan to make such arguments, you will probably meet with failure like Larry did.

What did Larry do wrong?  Well, ...

  1. he claimed the 16 amendment did not authorize a direct income tax without apportionment (strangely, I agree with him - I believe it merely classified the income tax as an excise on some happening, event, or occurrence OTHER than the receipt of revenue);
  2. he claimed the several states did not sufficiently ratify the 16th amendment, so even if it did authorize a direct income tax without apportionment, it cannot apply (strangely, I agree with him, for I have seen sufficient evidence that a quorum of States did not ratify the precise language of the amendment);
  3. he claimed the income tax does not apply to resident citizens (strangely, I agree with him - I believe wage tax applies to nonresident aliens and foreign corporations earning income in the US);
  4. he claimed the income tax applies only in the Federal Zone (strangely, I agree with him, for I too have read Article I Section 8 Clause 17 limiting the territorial authority of Congress in most matters, and 4 USC 72 which forbids any Bureau of Internal Revenue office outside Washington DC without Congressional permission, and no such permission exists for the several states).
  5. he might have raised and pressed his arguments knowing that the 9th Circuit had not yet fully corroborated other Circuit opinions against his arguments (strangely, I agree with him if he had that position, for other circuit opinions do not bind the 9th Circuit, so why not give the 9th Circuit every opportunity to rethink their erroneous position).
  6. Circuits get the law wrong OFTEN, and that explains why the Supreme Court of the United States (SCOTUS) has overturned them so many times as to cause the student to lose count.

As of 2012 SCOTUS had overturned the buffoons in the 9th Circuit more than any other circuit panel other than the 6th, but by June 2013 SCOTUS had reversed 86% of the opinions it had reviewed from the 9th Circuit in the previous year.  I believe they were just as wrong in 1989 as they are today, and they were wrong in Larry's sanction.

Nevertheless, the courts have ruled that almost every "patriot" defense against the income/wage tax constitutes a frivolous, fraudulent, or defective defense for one reason or another, particularly when a high-profile "tax protestor" faces criminal prosecution.

See also the IRS position on the meaning of 26 USC 83, which many patriots say proves they owe no tax on wages because wages constitute a swap of one's labor for money, they have equal value, and thus the wage earner realizes no "income." http://www.irs.gov/pub/irs-drop/rr-07-19.pdf.  I have appended the relevant portion below the sanction opinion against Larry Becraft.

So, if you want to lose your tax case and maybe go to prison, just raise some arguments the courts have defined as frivolous.  And if you want the IRS to raise a tax case against you, just use some of those arguments on your agent.  You'll get labeled a "tax protestor," the IRS will slap liens and levies against you to bleed you of assets so you cannot afford a court battle, and your liberty and property will go down in flames.

Sorry, I didn't make this mess.  I just report it as one friend after another goes to prison for tax crimes.

Therefore I recommend finding the ways the IRS agents injure their individual adversaries, and SUE those agents, and engage in widespread political attack against the 16th Amendment and the tax code so as to reform them with language that blatantly forbids any direct imposition or collection of income tax from US Citizens.  As to the legal attack against crooked/rogue government employees or agents...

  1. One must first become "judgment proof"
  2.  One should attack the injuring party administratively for violating provisions of the Internal Revenue Code such as by acting without authority, failing to sign documents the code requires under penalty of perjury, changing tax records like the IMF outside the scope of authority, failing to produce valid assessments, sending time-sensitive letters to wrong addresses, etc.
  3. One should become politically active in concert with others to change the tax code and Constitution so as to eliminate direct taxation and collection of taxes from the Citizenry, and to create means of bringing swift punishment upon abusive US Attorneys, Judges, and IRS agents for mob-like plunder of Citizens and ruination of Citizen lives and fortunes.

Also, you might support legislation that eliminates income and wage tax laws altogether. 

First of all, so long as Congress has the power to spend more than it brings in, THAT reality makes taxes obsolete.  Congress should have a choice, perhaps.  Until it operates on a balanced budget, it cannot impose any taxes upon US businesses or citizens.  Why?  Well, you know Congress can order any money printed up that it needs.

Congress should not have the power to create or utilize a central bank OTHER than the bank of Congress itself.  That means Congress and ONLY Congress (not any other agency in or out of government) should print/coin money and should become the primary lender for banks.  Congress should take over the present functions of the Federal Reserve, and repudiate all debt to the Federal Reserve Banks, and mandate public disclosure of all shareholders in the Federal Reserve and other banks operating in or in connection with the US and its banks.

Congress should charge borrowing banks interest on its loans to them, and use that interest to replace income and wage taxes.

Congress should mandate that all foreign nations holding US currency (federal reserve notes) spend it in the US for US-provided goods and services, and once those notes return to the treasury, Congress should destroy them.

Congress should establish a Value Added Tax and impose it on all new goods imported into or made in the US, so as to eliminate the unfair competition between US and foreign suppliers.  Thus the US would tax consumption, rather than production, thereby encouraging Americans to SAVE and build cash reserves and surpluses for old age.  This would make more people pay cash for automobiles and houses, and eliminate much of the debt that has turned people into virtual slaves of creditors.

Congress should mandate destruction of all energy monopolies and prohibit companies from buying up private patents for the purpose of taking them off the market and destroying competition in the energy business.  Congress should force energy companies into becoming suppliers of devices that produce energy rather than of energy itself.  This will wean Congress off of the taxes from energy which stifles invention of devices that harness and provide free or nearly free energy and "over-unity" devices that produce more energy than they consume.

And Congress should mandate a high school diploma and passing a Constitution Competency test by all who would vote in any election, nationwide.  This would return the US to high status a land of mental responsibility more nearly as it was in the early 1800's when voters, governors, and legislators had to own land as a primary qualification for voting.  Bad government comes largely as a consequence of letting irresponsible, ignorant people vote.

Congress must ELIMINATE judicial and prosecutorial immunity, and restore the powers of grand juries to investigate all felonies and all crimes and abuses by public officers, and initiate prosecution therefor, restore the rights of Citizens to prosecute criminals who injured them, particularly if state/US prosecutors refuse to do it.

Congress must put TEETH into the loyalty oath by mandating that all who swear the oath to support the constitution MUST pass a competency test on the US and State constitutions before ascending to any government office or government employment, and by requiring all to post personal surety bonds against causing injuries through negligently or intentionally failing to support the constitutions or enforce their guarantees of rights when opportunity presents itself within the scope of employment or oversight obligations.

Congress must define the meaning and application of "Republic" to the states and enforce the guarantee of the republican form of government to the states by MANDATING removal of the state BAR organizations from the purview of the state supreme courts, removing the bars altogether from governments, and removing admission and regulation of attorneys from the supreme court and handing it to the Executive branches of all the states.  Congress must mandate elimination of Unauthorized Practice of Law penalties from application to non-attorneys.

Congress must mandate that government employees carry their credentials on them at all times, with the exception of undercover operatives in dangerous jobs where disclosure of their identities and credentials would subject them to life-threatening injury, and that all employees must present those credentials with full contact information and name of immediate senior upon demand. 

Congress should mandate that all law enforcers carry active camcorders on their person, recording their conversation and interactions with others while on duty, and mandate a severe penalty including termination and forfeiture of pension for non-compliance or losing the recording.

Congress must mandate that all governments must provide all Citizens with free on-line access to all laws, statutes, codes, rules, regulations, case law (opinions and case filings), active case documents, and government employee credentials, and that the judiciary cannot seal opinions that have no bearing on national security, and that a congressional committee must review and agree with the sealings.


WE THE PEOPLE need to get behind politicians who will push the foregoing principles through amendments to the Constitutions of the US and States, and through appropriate laws.


===========================

Ancient 9th Circuit Sanction against Larry Becraft- still scary.

for propounding so-called frivolous arguments against abusive imposition and collection of taxes...

885 F.2d 547

64 A.F.T.R.2d 89-5656, 15 Fed.R.Serv.3d 183

In re Lowell H. BECRAFT, Jr.
UNITED STATES of America, Plaintiff/Appellee,
v.
Kenneth W. NELSON, Defendant/Appellant.

No. 88-1113.

United States Court of Appeals,
Ninth Circuit.

Sept. 6, 1989.

Before FERGUSON, NORRIS and WIGGINS, Circuit Judges.

ORDER

1

In February 1988, Kenneth Nelson was convicted in the United States District Court for the District of Nevada on three counts of failure to file income tax returns in violation of 26 U.S.C. Sec. 7203. Nelson, represented by counsel Lowell H. Becraft, Jr., then appealed to this court claiming, inter alia, that the district court erred in refusing to give his proposed jury instruction that a United States citizen residing in the United States is not subject to the federal income tax laws.

2

By memorandum disposition dated March 22, 1989, this court affirmed Nelson's conviction, noting that Becraft's argument regarding the inapplicability of the federal tax laws to resident United States citizens had no basis in law. Becraft thereafter filed a petition for rehearing and/or suggestion for rehearing en banc [hereafter "petition for rehearing"]. In the petition for rehearing, Becraft once again argued that the federal tax laws are inapplicable to resident United States citizens.

3

Upon receipt of the petition for rehearing, we, sua sponte, issued a show cause order requesting Becraft to explain why damages in the sum of $2500 should not be assessed against him for filing a frivolous petition for rehearing. See Appendix A. We have now reviewed Becraft's several-hundred-page reply to our show cause order [hereinafter "reply"] and have reached the conclusion that Becraft's conduct warrants sanctions.

4

Federal Rule of Appellate Procedure 38 provides this court with the authority to impose sanctions to deter frivolous appeals and to conserve limited federal judicial resources.1 See, e.g., Grimes v. Commissioner, 806 F.2d 1451, 1454 (9th Cir.1986) (per curiam); Trohimovich v. Commissioner, 776 F.2d 873, 876 (9th Cir.1985); Nunley v. Commissioner, 758 F.2d 372, 373 (9th Cir.1985) (per curiam). Pursuant to Rule 38, sanctions may be imposed against pro se litigants, Grimes, 806 F.2d at 1454; Trohimovich, 776 F.2d at 876, litigants represented by counsel, First Investors Corp. v. American Capital Financial Services, Inc., 823 F.2d 307, 310 (9th Cir.1987); Wisconsin v. Glick, 782 F.2d 670, 673-74 (7th Cir.1986), and/or directly against appellate counsel. Nevijel v. North Coast Life Ins. Co., 651 F.2d 671, 675 (9th Cir.1981); Coghlan v. Starkey, 852 F.2d 806, 818 (5th Cir.1988); Braley v. Campbell, 832 F.2d 1504, 1511 (10th Cir.1987).

5

In assessing the propriety of appellate sanctions, we must determine whether the issue raised on appeal--or as in this case, a petition for rehearing--is indeed frivolous. It is well settled that an appeal is frivolous when the result is obvious or the arguments of error are wholly without merit. Grimes, 806 F.2d at 1454; Gattuso v. Pecorella, 733 F.2d 709, 710 (9th Cir.1984); Dewitt v. Western Pacific Railroad Co., 719 F.2d 1448, 1451 (9th Cir.1983). We have no hesitation concluding that the petition for rehearing filed by Becraft in this case meets the frivolity standard.

6

Notwithstanding Becraft's insistence that his argument regarding the inapplicability of the federal income tax laws to resident United States citizens raises numerous complex issues, his position can fairly be reduced to one elemental proposition: The Sixteenth Amendment does not authorize a direct non-apportioned income tax on resident United States citizens and thus such citizens are not subject to the federal income tax laws.2 We hardly need comment on the patent absurdity and frivolity of such a proposition. For over 75 years, the Supreme Court and the lower federal courts have both implicitly and explicitly recognized the Sixteenth Amendment's authorization of a non-apportioned direct income tax on United States citizens residing in the United States and thus the validity of the federal income tax laws as applied to such citizens. See, e.g., Brushaber v. Union Pacific Railroad Co., 240 U.S. 1, 12-19, 36 S.Ct. 236, 239-42, 60 L.Ed. 493 (1916); Ward, 833 F.2d at 1539; Lovell v. United States, 755 F.2d 517, 519 (7th Cir.1984); Parker v. Commissioner, 724 F.2d 469, 471 (5th Cir.1984); United States v. Romero, 640 F.2d 1014, 1016 (9th Cir.1981). Indeed, in Lovell, one of the more recent cases explicitly rejecting a Sixteenth Amendment argument virtually identical to Becraft's position in this case, the court sanctioned the pro se appellants for raising this and other federal tax exemption claims on appeal. See Lovell, 755 F.2d at 520. If a claim is sufficiently frivolous to warrant sanctions against a pro se appellant, it unarguably supports the assessment of sanctions against a seasoned attorney with considerable experience in the federal courts.

7

In reaching the conclusion the Becraft's petition for rehearing is frivolous, we rely not only on the fact that the argument is in direct conflict with "firmly established rules of law for which there is no arguably reasonable expectation of reversal or favorable modification," McDougal v. Commissioner, 818 F.2d 453, 455 (5th Cir.1987), but also on the fact that this wholly meritless claim was pressed in a petition for rehearing after this court had already summarily rejected the claim and characterized it as having no basis in law. Thus, the result of the petition for rehearing was even more obvious than the initial appeal.

8

Indeed, it is beyond our comprehension that a competent attorney, which Becraft certainly is, could harbor a good faith belief that this panel or the court sitting en banc would reconsider the rejection of Nelson's claim of federal tax exemption. While a finding of bad faith is not necessary to impose sanctions under Fed.R.App.P. 38, see Coghlan, 852 F.2d at 814-815 (bad faith not required element of imposition of sanctions under rule 38); Braley v. Campbell, 832 F.2d at 1512 (finding of subjective bad faith unnecessary to impose sanctions under Rule 38); Grimes, 806 F.2d at 1454 ("The purpose of Rule 38 ... is to induce litigants to conform their behavior to the governing rules, regardless of their subjective belief."), the fact that Becraft likely filed the petition for hearing absent a good faith belief of its justification contributes to our strong conviction that Becraft's conduct warrants the imposition of sanctions. See Coghlan, 852 F.2d at 814 ("Bad faith may aggravate the circumstances justifying sanctions....")

9

Moreover, we believe that Mr. Becraft's litigation record in the federal appellate courts demonstrates the necessity of sending a message to Becraft that frivolous arguments will no longer be tolerated. Our research reveals that we are not the first appellate court in which Becraft has raised this patently frivolous Sixteenth Amendment claim. In Ward, a case in which Becraft served as defendant's appellate counsel, see supra, n. 1, the Eleventh Circuit characterized as "utterly without merit" the identical argument raised by Becraft here regarding the applicability of the federal tax laws to resident United States citizens. 833 F.2d at 1539. Moreover, Becraft also advanced the patently frivolous claim in Ward that the federal income tax laws apply only to residents of federal territories and the District of Columbia. Id.; see supra, n. 1.

10

Unfortunately, Becraft's record of advancing wholly meritless claims does not end with Ward. United States v. Stahl, 792 F.2d 1438 (9th Cir.1986), cert. denied, 479 U.S. 1036, 107 S.Ct. 888, 93 L.Ed.2d 840 (1987), and United States v. Sitka, 845 F.2d 43 (2d Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 77, 102 L.Ed.2d 54 (1988), appeals in which Becraft served as co-counsel and counsel respectively, addressed the claim that the Sixteenth Amendment was never properly ratified and that therefore the federal courts lack jurisdiction to entertain tax evasion prosecutions. Needless to say, both courts soundly rejected this contention. See Sitka, 845 F.2d 44-47; Stahl, 792 F.2d 1438-1441. Becraft's record in the federal courts thus exhibits an alarming willingness to utilize appellate court resources to adjudicate claims that a competent attorney should realize have no reasonable possibility of success.

11

Based on Becraft's conduct in this case and prior cases, it is clear to us that Becraft has no appreciation for the limited nature of the federal judicial resources upon which all aggrieved individuals depend for vindication of statutory and constitutional rights. For if he did have respect for the extreme demands constantly placed on the court's resources, he would not continue to use the courts as testing ground for revisionist historical theories that have absolutely no basis in law.

12

While we are in general accord with the Seventh Circuit's statement that "[c]riminal defendants and their lawyers must abide by the rules that apply to other litigants, ... including the principle that litigating positions must have some foundation in existing law or be supported by reasoned, colorable arguments for change in the law," Wisconsin v. Glick, 782 F.2d 670, 673 (7th Cir.1986) (citation omitted), we are hesitant to exercise our power to sanction under Rule 38 against criminal defendants and their counsel. With respect to counsel, such reluctance, as evidenced by the absence of authority imposing sanctions against defense counsel,3 primarily stems from our concern that the threat of sanctions may chill a defense counsel's willingness to advance novel positions of first impression. Our constitutionally mandated adversary system of criminal justice cannot function properly unless defense counsel feels at liberty to press all claims that could conceivably invalidate his client's conviction. Indeed, whether or not the prosecution's case is forced to survive the "crucible of meaningful adversarial testing" may often depend upon defense counsel's willingness and ability to press forward with a claim of first impression. See United States v. Cronic, 466 U.S. 648, 656, 104 S.Ct. 2039, 2045, 80 L.Ed.2d 657 (1984). Moreover, because of the significant liberty deprivation often at stake in a criminal prosecution, courts generally tolerate arguments on behalf of criminal defendants that would likely be met with sanctions if advanced in a civil proceeding. See Glick, 782 F.2d at 673.

13

Notwithstanding the legitimate countervailing concerns that accompany imposing sanctions against defense counsel, we nevertheless believe that when a criminal defense counsel reasserts an argument in a petition for rehearing which was summarily rejected on direct appeal, and which flies in the face of unambiguous, firmly established law, that attorney exposes himself to the imposition of sanctions under Rule 38. Accordingly, we order Becraft to pay $2,500 in damages. With so many worthy claims waiting to be adjudicated, we are not obliged to stand by silently when an attorney repeatedly breaches his professional responsibility to the court.

14

We are fully confident that our assessment of sanctions for a frivolous petition for rehearing in this case will have no deterrent effect on litigants and attorneys' advancement of reasonably based novel positions in the future. We sincerely hope, however, that this assessment will deter Becraft from asking this and other federal courts to expend more time and resources on patently frivolous legal positions.4

15

The Clerk of this Court shall enter a judgment in the sum of $2,500 in favor of the United States of America and against Lowell H. Becraft, Jr.

APPENDIX A

ORDER

16

Counsel for the Appellant Lowell H. Becraft, Jr., 209 Lincoln Street, Huntsville, Alabama 35801, is ordered to show cause why damages in the sum of $2,500 should not be imposed upon him for filing a frivolous petition for rehearing and suggestion for rehearing en banc.

17

The reasons for the issuance of this order to show cause are as follows:1. Appellant Kenneth Nelson was convicted in the United States District Court for the District of Nevada on three counts of failure to file income tax returns in violation of 26 U.S.C. Sec. 7203.

18

2. By memorandum disposition dated March 22, 1989, this court affirmed the judgment of the district court.

19

3. On appeal, Nelson claimed, inter alia, that the district court erred in refusing to give his proposed jury instructions concerning his theory that a United States citizen is not a "person" and that his wages were not "income" within the meaning of the Internal Revenue Code.

20

4. In affirming Nelson's conviction, this court emphasized that his construction of the Internal Revenue Code has been consistently rejected by federal courts and had no basis in law.

21

5. On April 5, 1989, Lowell H. Becraft, Jr., as attorney for Appellant Nelson, filed with this court a petition for rehearing and suggestion for rehearing en banc.

22

6. In this petition, Nelson realleges the inapplicability of federal tax laws to income earned by United States citizens.

23

7. Counsel for Nelson acknowledges in his petition that this issue had been presented to, and rejected by, this court in its memorandum disposition of March 22, 1989.

24

8. While the court did not impose sanctions in its memorandum disposition, the issue of the applicability of federal tax laws to this case was and is patently frivolous as it finds no support in the Internal Revenue Code and ignores clear legal precedent. See Malhiot v. S. Cal. Retail Clerks Union, 735 F.2d 1133, 1137 (9th Cir.1984), cert. denied, 469 U.S. 1189, 105 S.Ct. 959, 83 L.Ed.2d 965 (1985) (appeal frivolous when "result is obvious or [when] the claims of error are wholly without merit").

25

9. Frivolous petitions such as this impose an unjustified burden on the federal judiciary. To raise the same frivolous contention on a petition for rehearing and suggestion for en banc review forces this court to consider sanctions in order to assure that its responsibilities are not hindered by wasteful, time-consuming petitions requiring consideration by not only a three-member panel of the court but also the entire court because of the en banc suggestion.

26

10. Pursuant to F.R.App.P. 38, this court has the authority to impose sanctions to deter frivolous appeals and to conserve federal judicial resources. See, e.g., First Investors Corp. v. American Capital Financial Services, Inc., 823 F.2d 307, 310 (9th Cir.1987); Trohimovich v. Commissioner, 776 F.2d 873, 875-76 (9th Cir.1985); Nunley v. Commissioner, 758 F.2d 372, 373 (9th Cir.1985) (per curiam); Stites v. United States Government, 746 F.2d 1085, 1086 (5th Cir.1984) (per curiam).

27

Therefore, Lowell H. Becraft, Jr., is ordered to show cause as set forth in this order.

28

All documents in opposition to this order must be filed with the Clerk of this court within 20 days from the date of the filing of this order.

29

The Clerk of the Court shall serve a copy of this order upon Mr. Becraft by United States mail and shall furnish counsel for appellee with a copy of this order.

1

Rule 38 provides:

If a court of appeals shall determine that an appeal is frivolous, it may award just damages and single or double costs to the appellee.

2

While Becraft devotes a good portion of his brief, petition for rehearing, and reply to a discussion of the structure of the Internal Revenue Service and the control numbers designated to income tax forms pursuant to the Paperwork Reduction Act, he does so only to provide support for his fundamental proposition that the Sixteenth Amendment does not authorize a direct non-apportioned tax on citizens residing in the United States. Hence, his entire legal argument hinges on the constitutionality of directly taxing resident United States citizens. Additionally, we note that much of Becraft's reply is also devoted to a discussion of the limitations of federal jurisdiction to United States territories and the District of Columbia and thus the inapplicability of the federal income tax laws to a resident of one of the states. We are somewhat perplexed as to why he included this contention in his reply since he omitted any reference to this issue in the petition for rehearing. In any event, as Becraft should be well aware, this claim also has no semblance of merit. The Eleventh Circuit summarily rejected the identical argument in United States v. Ward,833 F.2d 1538, 1539 (11th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 1576, 99 L.Ed.2d 891 (1988), a case in which Becraft served as the defendant's appellate counsel

3

Our research did not reveal any case in which the court has imposed sanctions on defense counsel under Rule 38 and only one case in which sanctions were assessed against a criminal defendant. See Glick, 782 F.2d at 673-74 (state criminal defendants sanctioned for bringing frivolous appeal after unsuccessfully attempting to remove their state criminal prosecutions to federal court)

4

We wish to emphasize that our decision in this case should not be read as authority for imposing sanctions against a criminal defense counsel for a frivolous direct appeal following conviction; we express no opinion on whether or in what circumstances Rule 38 sanctions may be imposed for such an appeal

============================================
For those who would argue that IRC Section 83 exempts them from wage tax on the basis of exchange of two things of equal value, producing no "income"...

From IRS document at http://www.irs.gov/pub/irs-drop/rr-07-19.pdf


Arguments that wages are not subject to federal income tax take many forms including, but not limited to, the following:

1.                   A tax on wages is a direct tax subject to the provision in Article I, Section 2, Clause 3 of the Constitution that requires that direct taxes be apportioned among the states by population.

2.                   Money received in exchange for personal labor constitutes an equal, nontaxable exchange of property.

 

3.                   Taxable income from wages or other compensation for personal services can only be determined after deduction of the cost of providing the labor.

 

 

LAW AND ANALYSIS

 

1.   Article 1, Section 2, Clause 3 of the United States Constitution states that “direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers . . . .”  This statement has been used to support the argument that there is a constitutional impediment to the imposition of a direct tax on an individual’s wages.  The Sixteenth Amendment to the Constitution, ratified in 1913, provides that “[t]he Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”  The Sixteenth Amendment has been reviewed by the Supreme Court and upheld.  Brushaber v. Union Pacific

Railroad Co., 240 U.S. 1 (1916). Thus, the imposition of income tax on wages, without apportionment among the states, is authorized. See, e.g., Funk v. Commissioner, 687 F.2d 264 (8th Cir. 1982); Abrams v. Commissioner, 82 T.C. 403 (1984).

Section 61(a) of the Internal Revenue Code defines gross income as income from whatever source derived, including (but not limited to) “compensation for services, including fees, commissions, fringe benefits, and similar items.”  I.R.C. § 61(a)(1). Courts consistently have upheld the determination that wages fall within section 61(a)(1)’s definition of compensation and, accordingly, constitute taxable income.  See,

 

e.g., Ledford v. United States, 297 F.3d 1378 (Fed. Cir. 2002); United States v. Connor,

 

898 F.2d 942 (3d Cir. 1990); Casper v. Commissioner, 805 F.2d 902 (10th Cir. 1986);

 

Connor v. Commissioner, 770 F.2d 17 (2d Cir. 1985); Lovell v. United States, 755 F.2d

 

517 (7th Cir. 1984); Perkins v. Commissioner, 746 F.2d 1187 (6th  Cir. 1984); Funk v.

 

Commissioner, 687 F.2d 264 (8th Cir. 1982); Lonsdale v. Commissioner, 661 F.2d 71

 

(5th Cir. 1981); Rowlee v. Commissioner, 80 T.C. 1111 (1983).

 

In United States v. Connor, 898 F.2d. at 943, the Third Circuit noted that “[e]very court which has ever considered the issue has unequivocally rejected the argument that wages are not income.”  All income received by a taxpayer is income under section 61 unless it is specifically exempted or excluded.  See Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955) (“Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to the intention of Congress to tax all gains except those specifically exempted.”).

2.   Some taxpayers claim that the payment of wages or other compensation in exchange for personal labor is a nontaxable exchange of property.  These taxpayers sometimes rely on sections 83 or 1001 of the Internal Revenue Code to support this argument.  Section 83 provides for the determination of the amount to be included in gross income and the timing of the inclusion when property is transferred to an employee or independent contractor in connection with the performance of services. Section 1001 provides for the determination of the amount and timing of the recognition of gain or loss from the sale or other disposition of property.


 

Courts have universally rejected the argument that labor is property that can be exchanged for wages or other compensation in a nontaxable transaction.  See Casper v. Commissioner, 805 F.2d at 905; Funk v. Commissioner, 687 F.2d at 265.  Courts recognize a distinction between selling labor and selling or exchanging property.  See Reading v. Commissioner, 70 T.C. 730, 733-34 (1978), aff’d, 614 F.2d 159 (8th Cir. 1980). Further, the courts have concluded that a taxpayer has no tax basis in one’s labor and, therefore, the full amount of the wages or other compensation received represents gain which may be taxed as income.  See, e.g., Casper, 805 F.2d at 905; Abrams, 82 T.C. at 407; Reading, 70 T.C. at 733-34.

3.   A related argument is that income from the sale of labor cannot be determined until the taxpayer’s investment in that labor has been recovered.  This argument has been repeatedly rejected.  See Rowlee, 80 T.C. at 1120; Reading, 70 T.C. at 733-34.  In Reading, the Tax Court examined the contention that gain must be realized for there to be income, analyzing the distinction recognized under federal tax law between  producing a physical product and providing services.  The court flatly rejected the idea that living expenses constitute the cost of “goods” sold for providing labor or services. Reading, 70 T.C. at 733-34.   Thus, the court concluded that the gain from the sale of labor is the entire amount received and upheld the disallowance of deductions for personal living expenses.

Courts have uniformly rejected arguments that wages and other compensation for personal services are not taxable income.  Accordingly, raising these arguments justifies the imposition of sanctions.  See Ledford v. United States, 297 F.3d at 1381-82 (Fed. Cir. 2002); Casper v. Commissioner, 805 F.2d at 906; Connor v. Commissioner,  770 F.2d at 20.

 

 

 

HOLDING

 

1.                   Wages fall within the definition of income set forth in section 61(a)(1) of the Internal Revenue Code. Taxpayer A’s wages and other compensation for services are income subject to federal income tax and must be reported on Taxpayer A’s federal income tax return.

2.                   The payment of wages and other compensation for personal services is not an equal exchange of property.  The full amount of wages received by Taxpayer A is subject to federal income tax and must be reported on Taxpayer A’s federal income tax return.

3.                   Wages and other compensation received by Taxpayer A in exchange for personal services are subject to federal income tax without reduction of Taxpayer A’s personal living expenses.



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