CtC "Warriors" Penalized?

[Quixote]

I may have found one of PH's cases. In Wachovia Bank, N.A. v. United States, 2005-1 U.S. Tax Cas. (CCH) P50,300, the district court for the Middle District of Florida held that IRC §6511 did not apply to a refund suit by a trust which had no filing requirement. The decision was reversed and remanded in Wachovia Bank, N.A. v. United States, 455 F.3d 1261, 2006 U.S. App. LEXIS 17485, 19 Fla. L. Weekly Fed. C 787, 98 A.F.T.R.2d (RIA) 5303, 2006-2 U.S. Tax Cas. (CCH) P50400 (11th Cir. Fla. 2006).

The key issue was whether the phrase "... tax imposed by this title in respect of which tax the taxpayer is required to file a return ..." meant a tax for which the claimant had a filing requirement, or meant a tax assessed and paid on the basis of a return, as opposed to one paid by stamp. The 11th Circuit decided Congress meant the second one.

[LPC]

Q, normally I don't dispute you, it's just that I chanced across this at Pete's appendix page, and was wondering if you had any comment. Oh, and what kind of frivolous returns are not frivolous on their face?

Two federal districts courts ruled in different cases during 2005 that in cases in which no tax was actually ever owed, claims for refund of amounts erroneously, illegally, etc. collected as tax were subject to the six-year statute of limitations which is the generic standard for claims against the federal government (see 28 USC 2401), rather than the shorter period provided within the "income" tax statutory scheme. Perfectly reasonable rulings. I don't know whether they have been appealed...

One of the advantages of not providing any name, citation, or other way of finding a court decision is that you can make whatever claim you want and no one can contradict you.

In this case, I can contradict Pete anyway, because those cases were about people suing the government for refunds of money seized by the government for which there was absolutely no assessment at all.

Unless you are claiming that the IRS is collecting frivolous return penalties which have never been assessed, the cases Pete refers to are irrelevant and useless.

[John J. Bulten]

For everyone's general information, only one CtC warrior of whom I am aware has ever had a "frivolous" penalty actually taken from her.

A frivolous return penalty is valid for all CTC returns, most of which are frivolous on their face.

Oh, and what kind of frivolous returns are not frivolous on their face?

I fail to see the relevance of that question to this discussion. Try to focus.

(a) Civil penalty
If - (1) any individual files what purports to be a return of the tax imposed by subtitle A but which - (A) does not contain information on which the substantial correctness of the self-assessment may be judged, or (B) contains information that on its face indicates that the self-assessment is substantially incorrect; and (2) the conduct referred to in paragraph (1) is due to - (A) a position which is frivolous, or (B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500.
(b) Penalty in addition to other penalties
The penalty imposed by subsection (a) shall be in addition to any other penalty provided by law.

"Frivolous" in relation to returns through 2006 is defined by the bolded text. "Frivolous" in relation to positions is defined by the IRS list of meritless positions. Briefly, as above, frivolous returns are incomplete or contradictory, as well as meritless or dilatory. Incomplete and contradictory are both judgments as to the face of the return, even though only the second is so stated in law. Therefore my side point to Q was simply that all frivolous returns are frivolous on their face. I would certainly agree with grammarian that proper understanding of frivolity (painstakingly explicated in several places on Pete's site) is crucially fundamental.

As to Q's main point, that a frivolous return penalty is allegedly valid for all CtC returns, it simply restates our ongoing dispute without adding anything new. I argue that CtC returns are complete, consistent, lawful, and direct, and that it's much more often IRS responses which are incomplete, contradictory, meritless, and dilatory. Did anyone wish to rejoin that battle?

At uscode.house.gov and http://www.law.cornell.edu I could not find the latest revision of this section that I recall reading. Someone else may wish to post it, but it does not substantially change my observation IIRC.

(I suppose at some point I will need to message Demo about correcting my new rank.)

[jg]

(a) Civil penalty
If - (1) any individual files what purports to be a return of the tax imposed by subtitle A but which - (A) does not contain information on which the substantial correctness of the self-assessment may be judged, or (B) contains information that on its face indicates that the self-assessment is substantially incorrect; and (2) the conduct referred to in paragraph (1) is due to - (A) a position which is frivolous, or (B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500.

...
As to Q's main point, that a frivolous return penalty is allegedly valid for all CtC returns, it simply restates our ongoing dispute without adding anything new. I argue that CtC returns are complete, consistent, lawful, and direct, ...

The claim that the wage income reported on Form W-2 should be changed to zero, for example, is incomplete without any substantiation or a reason that the reported amount is incorrect (e.g. "the check given to me bounced so I could never collect the money"; "I was actually working in Nepal, am not a resident or citizen and was not in the US in that year", etc...)

The claim that the W-2 wage amount was not "income" because, for example, one did not engage in an activity subject to income tax, or was not in the employ of the government, or whatever excuse is current for the Form 4852 explanation is commonly frivolous (see above examples for legitamate reasons) and is often incomplete as to the reason that the income was not included on the tax return.

The listing of zero wages on the tax return; but some amount withheld for income taxes from a W-2 is inconsistent and incomplete without an explanation (though I can not even imagine a valid example for this reporting).

These are, of course, general examples of the manner in which CtC returns are frivolous; but Mr. Bulten will no doubt dodge and duck by quibbling over the details I have used in these examples to show how CtCers use of the Form 4852 to make a self serving claim that the W-2 is incorrect is frivolous and has no legal basis.

Or perhaps Mr. Bulten will once again try to make a distinction in the IRS list of frivolous positions from CtC due to details and not to real differences; and so on and so forth...

[Quixote]

As to Q's main point, that a frivolous return penalty is allegedly valid for all CtC returns, it simply restates our ongoing dispute without adding anything new.

No, it restates my repeated, and as yet unrefuted, assertion that CTC returns are internally inconsistent in that they contain the contradictory assertions that the filer received no wages and had tax withheld from his wages.

[Joey Smith]

As to Q's main point, that a frivolous return penalty is allegedly valid for all CtC returns, it simply restates our ongoing dispute without adding anything new.

No, it restates my repeated, and as yet unrefuted, assertion that CTC returns are internally inconsistent in that they contain the contradictory assertions that the filer received no wages and had tax withheld from his wages.

That is a great way to put it.

[LPC]

Speaking of "CtC Warriors," Joy Ferguson's motion to vacate the judgment against her for the erroneous refund she received was denied on 7/30/2007.

This is another CtC victory, given that there were no Rule 11 sanctions even though her motion was largely incoherent.

[John J. Bulten]

[1] The claim that the wage income reported on Form W-2 should be changed to zero, for example, is incomplete without any substantiation or a reason that the reported amount is incorrect (e.g. "the check given to me bounced so I could never collect the money"; "I was actually working in Nepal, am not a resident or citizen and was not in the US in that year", etc...)

[2] The claim that the W-2 wage amount was not "income" because, for example, one did not engage in an activity subject to income tax, or was not in the employ of the government, or whatever excuse is current for the Form 4852 explanation is commonly frivolous (see above examples for legitamate reasons) and is often incomplete as to the reason that the income was not included on the tax return.

[3] The listing of zero wages on the tax return; but some amount withheld for income taxes from a W-2 is inconsistent and incomplete without an explanation (though I can not even imagine a valid example for this reporting).

[4] CTC returns are internally inconsistent in that they contain the contradictory assertions that the filer received no wages and had tax withheld from his wages.

Gratuitously assuming arguendo that CtC were a frivolous position, it is still necessary to prove incompleteness or contradiction as described by the statute. That is, I don't even have to argue CtC to show the returns are not frivolous.

(1) Does not apply to CtC returns, because the substantiation or reason is provided on line 9 of the current 4852 (after two post-CtC revisions). Whether or not the substantiation or reason is frivolous, the return is still statutorily complete.

(2) Insofar as this does not repeat (1), even if payments were actually "income" or "wages" (as jg assumes, begging the question), the tax position might be meritless but the return would not be incomplete for that reason; nor contradictory, unless it contained some admission that payments were in fact "income" or "wages", which admission does not appear on CtC returns. And why must one provide a reason for not reporting nonincome?

(3) Zero wages is not contradictory or incomplete in itself; lots of folks, even many of the rich, earn zero wages. Zero wages, according to the Dirty Dozen, is only a frivolous position when you actually have "wages", and only results in a frivolous document when a contradiction betrays it (insofar as this does not repeat (2)). More important, zero wages plus amounts withheld is not contradictory. It's perfectly legitimate for a nonemployer payor and nonemployee payee to join into a voluntary withholding agreement (extracurricular to 3402(p)) just in case the IRS should decide rightly that the payments were income. If they were not income, of course, the full refund would be due.

(4) Insofar as this does not repeat (3), the CtC return nowhere asserts that tax was withheld from wages. It is possible to attempt to impeach the 4852 language "tax withheld", but the statutes (6401(c)) describe this as "amount paid as tax", to be treated as an overpayment. Certainly if, like many Americans, one overpays one's "withholding tax", the overpayment portion is not truly tax, as USSC affirms, but the filer's property, escrowed against potential obligation which did not materialize, and now due. There is no other assertion that can be stretched into tax withheld from wages, because there is no proof the withholding agreement was pursuant to 3402(p) in the absence of assertions of employer/employee status.

Consider (for those who cannot even imagine) if a workplace and worker can't agree on employee vs. contractor status, but want to have an ongoing work relationship anyway. The worker bills regularly like an independent contractor business, but the workplace withholds quarterly like an "employer", and submits a W-2. Assuming that the payments were truly contractor "income", the worker would be perfectly correct to report zero wages via 4852 and to report his earnings as gross business receipts. Perhaps via valid business deductions he has zero tax, in which case the full refund of SS, Medicare, and federal withholding would be due him. I know you know this can happen. The only difference with CtC is that the payments are not income and so do not need to be rereported in some other place. After all, when the bank pays me my money out of my account, I don't report that particular nonincome payment either.

In short, the burden rests with those who believe CtC returns are "frivolous", i.e., at least incomplete or contradictory. There can simply be no assault on the basis of incompletion, because all information requested by the prescribed forms is provided. An assault as to contradiction would require demonstration that some assertion of a CtC return was incompatible with some other assertion thereof. An internally self-consistent return does not facially indicate incorrect assessment, because it is only by inserting some other testimony into the sworn statement (i.e., evidence of "income") that it might become so. But it is illegal for another to insert testimony into my sworn statement.

As you can see, I don't even have to argue CtC to show that the return is neither incomplete nor contradictory, the first of the two tests. Arguing CtC (which you all seem so tired of) is the second test and need not be joined in a discussion of frivolous returns.

[.]

assuming arguendo that CtC were a frivolous position

Say no more. If you forget the arguendo, you have arrived at the truth, dude.

Put down the tax-bong before you are indicted and have imposed on you much more dire circumstances than merely attempting to defend your idiocy to people who laugh at you but can't indict you.

There are other people who may be interested in indicting you. If you actually file returns based on the junk you post, I suspect you will soon know them better than you ever wanted to.

[The Observer]

Put down the tax-bong before you are indicted...

You meant "liberty tool", right?

[Joey Smith]

assuming arguendo that CtC were a frivolous position

Let me put your mind at ease: CtC is a frivolous position, 100% positive, no doubts, and every future court case that refers to CtC will refer to it as "frivolous".

Trust me on this one.

[.]

You meant "liberty tool", right?

'aksis' and John J Bullshite have much in common.

[jg]

Revenue Ruling 2006-18 (2006-03-16) says:

Under the Internal Revenue Code, wages include any compensation received due to the performance of services as an employee, and the term employee includes any individual for whom the legal relationship between the individual and the person for whom the individual performs services is the legal relationship of employer and employee. All wages are included in gross income for purposes of determining federal income tax liability, and are also subject to federal employment taxes. Any argument that Forms W-2 only record and report payments made to federal employees, or that only federal employees or residents of the District of Columbia or federal territories and enclaves earn wages subject to tax, has no merit and is frivolous.

See http://www.irs.gov/pub/irs-drop/rr-06-18.pdf

The IRS has made it very clear that "claims that wages or personal service income are not “income,” are “nontaxable receipts,” or “are a nontaxable exchange for labor”" constitute a frivolous position as it applies to requests for TAMs or TEAMs on any issue under the jurisdiction of the Associate offices. See http://www.irs.gov/irb/2006-01_IRB/ar07.html#d0e7786

Of course, Mr Bulten will (again) claim that CtC is distinct from the frivolous postions stated above; but does not recognize that the claimed distinctions do not make a difference.

[Quixote]

More important, ...

Only because it is at least facially relevant to the discussion.

It's perfectly legitimate for a nonemployer payor and nonemployee payee to join into a voluntary withholding agreement (extracurricular to 3402(p)) just in case the IRS should decide rightly that the payments were income.

But payment withheld under such an agreement would not be income tax withheld under the IRC, the nonemployee would not be eligible for a credit under IRC §31, and the amount withheld could not legitimately be included on line 7f of Form 4852.

As usual, you have sidestepped the real arguments in favor of strawmen.

Insofar as this does not repeat (3), the CtC return nowhere asserts that tax was withheld from wages.

Of course it does. Form 4852 is a substitute for a Form W-2, related to wages or Form 1099. All withholding on CTC returns is listed on line 7f, the line for withholding that would be shown on a correctly completed Form W-2. Such withholding is only from wages.

It is possible to attempt to impeach the 4852 language "tax withheld", but the statutes (6401(c)) describe this as "amount paid as tax", to be treated as an overpayment.

Wrong again. 6401(c) doesn't describe anything. It refers to amounts "paid as tax", but does not support in the least your assertion that amounts withheld contractually, rather than according to statute, are amounts "paid as tax". Even if the amounts withheld were paid to the IRS, hardly a certainty, they would not necessarily be amounts "paid as tax". From your description of the withholding agreement, they would appear to be payments in the nature of a cash bond.

[John J. Bulten]

Quixote, this is a surprising tack, even for you.

"Payment withheld under such an agreement [a voluntary withholding agreement (extracurricular to 3402(p))] would not be income tax withheld under the IRC." Great! So in this situation, where should one claim any overpayment portion of such payment? If there is no proper line on the 1040 or 4852, then an attached affidavit would be proper.

"From your description of the withholding agreement, they would appear to be payments in the nature of a cash bond." Great!

There was merely an interim arrangement to cover whatever contingencies the future might define. The tax obligation did not become defined until April 1938. And this is the practical construction which the Government has placed upon such arrangements. The Government does not consider such advances of estimated taxes as tax payments. They are, as it were, payments in escrow. They are set aside, as we have noted, in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. Money in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due .... Accordingly, where taxpayers have sued for interest on the 'overpayment' of moneys received under similar conditions, the Government has insisted that the arrangement was merely a 'deposit' and not a 'payment' interest on which is due from the Government if there is an excess beyond the amount of the tax eventually assessed .... If it is not payment in order to relieve the Government from paying interest on a subsequently determined excess, it cannot be payment to bar suit by the taxpayer for its illegal retention. It will not do to treat the same transaction as payment and not as payment, whichever favors the Government.

Near as I can tell, you're saying 7f is the wrong line to use to get back any overpayment from the payment you countenance. So why not resolve this nitpick by attaching an affidavit to the effect, "Overpayment portion of payment withheld under a voluntary withholding agreement extracurricular to 3402(p): $X" and ask the IRS to pass this money on back if it's seen it?

[Quixote]

Quixote, this is a surprising tack, even for you.

Telling the truth is a surprising tactic? You've been spending way too much time on LH.

Near as I can tell, you're saying 7f is the wrong line to use to get back any overpayment from the payment you countenance. So why not resolve this nitpick by attaching an affidavit to the effect, "Overpayment portion of payment withheld under a voluntary withholding agreement extracurricular to 3402(p): $X" and ask the IRS to pass this money on back if it's seen it?

You seem to be assuming that whoever is withholding the money under the extra-legal withholding agreement is not paying it to the IRS to be credited to the withholdee's account. If he were actually making estimated tax payments or cash bonds on behalf of the taxpayer, the taxpayer should just claim the payments as estimated tax payments. Any cash bonds would become payments once the tax was assessed.

As to why PH does not tell people to file such an affidavit, you're obviously asking the wrong person. If I had to hazard a guess, I would say that PH knows that CTC filers don't have extra-legal withholding agreements, so the affidavit would be pointless.

BTW, the IRC has been amended and IRS procedures have changed since Rosenman was decided. Almost nothing in the quoted material is true today.

[Brian Rookard]

Seems that tax protestors (still) cannot read.

26 USC 3402(p) applies to requests to withhold "specified Federal payments" ... which is defined as ...

For purposes of this paragraph, the term “specified Federal payment” means—
(i) any payment of a social security benefit (as defined in section 86 (d)),
(ii) any payment referred to in the second sentence of section 451 (d) which is treated as insurance proceeds,
(iii) any amount which is includible in gross income under section 77 (a), and
(iv) any other payment made pursuant to Federal law which is specified by the Secretary for purposes of this paragraph.

This is *additional* withholding.

R.I.F. John.

[John J. Bulten]

Telling the truth is a surprising tactic?

Hey I like Smullyan puzzles too!

If he were actually making estimated tax payments or cash bonds on behalf of the taxpayer, the taxpayer should just claim the payments as estimated tax payments. Any cash bonds would become payments once the tax was assessed.

Except for the overpayment portion, which the Secretary shall refund.

Brian, I've missed you. You might enjoy the quite extensive ongoing discussions on this topic at our forum. Particularly, specified Federal payments are only described by (p)(1), not all of (p) as you imply. Rather, (p)(2) describes unemployment compensation, and (p)(3) the quite fascinating situation of other payments which (but for this provision) would not constitute wages. Yes, of course, these are all additional withholding. But what I'm talking about is "extracurricular" withholding that is neither mandated by (a)(1) or (c)(1), nor voluntary under (p).

[Florida]

Telling the truth is a surprising tactic?

Hey I like Smullyan puzzles too!

If he were actually making estimated tax payments or cash bonds on behalf of the taxpayer, the taxpayer should just claim the payments as estimated tax payments. Any cash bonds would become payments once the tax was assessed.

Except for the overpayment portion, which the Secretary shall refund.

Brian, I've missed you. You might enjoy the quite extensive ongoing discussions on this topic at our forum. Particularly, specified Federal payments are only described by (p)(1), not all of (p) as you imply. Rather, (p)(2) describes unemployment compensation, and (p)(3) the quite fascinating situation of other payments which (but for this provision) would not constitute wages. Yes, of course, these are all additional withholding. But what I'm talking about is "extracurricular" withholding that is neither mandated by (a)(1) or (c)(1), nor voluntary under (p).

[Quixote]

Quixote wrote:

If he were actually making estimated tax payments or cash bonds on behalf of the taxpayer, the taxpayer should just claim the payments as estimated tax payments. Any cash bonds would become payments once the tax was assessed.

Except for the overpayment portion, which the Secretary shall refund.

No, the overpayment portion becomes payments, too. Otherwise, there would be no overpayment, just payments equal to the assessment and unapplied cash bonds.

As fascinating as this subject is, it has nothing to do with CTC returns, because no CTC filer has entered into a withholding agreement of any kind.