Mutter's analysis

[Nikki]

MN:

You are confusing value, labor, and cost and are mixing common language terms with legal terms.

Let's look at from other viewpoints first.

If you buy a crate of apples for $10, that crate has a basis of $10. If you then sell it for $15, you have made a profit of $5 -- your receipt less your basis.

That's how, in highly simplified general, profit calsulations work.

Now, ignoring for the time being the IRS code's statement that compensation for services is an element of gross income, let's analyze your labor from a basis standpoint.

What did you pay to obtain that which you are selling as your labor? Absolutely nothing.
Now, many people argue that they have to pay the cost for their food, housing, transportation, etc to have the ability to sell their labor. But, they would have to pay the same things just to stay alive.

In any case, the law determines what you, anyone else, a business, or a corporation can deduct from their gross income to come up with taxable income. You may not like the rules, but your opinion doesn't count except when you write to your congress critter to complain about the situation.

As the rules (law) stand today, you have a basis in your labor of zero, nada, zilch. Whatever you receive for your physical or mental labor is gross income. You then go through the various rules, laws, and procedures to figure out what your final taxable income is.

You, however, can not claim that you are exchanging your labor for equal value thus having no profit. The courts have taken a very dim view of that approach.

Now, if you'd care to stick around to discuss your thoughts and the various aspects of CtC, we'll be happy to open one or more threads dedicated to you and will refrain from abusing you so long as you discuss things with an open mind.

What do you say?

[Famspear]

Dear MN Stix: OK, now we're gonna continue. Just forget about labor, wages, compensation, etc., etc. Right now, we're still concentrating on basic rules of U.S. federal income tax law.

Let's just look at what happens when you sell property (forget about labor, or whether labor is "property"). The rule on how you compute gain on the sale or other disposition of property for purposes of the U.S. federal income tax starts at subsection (a) of section 1001 of the Internal Revenue Code:

§ 1001. Determination of amount of and recognition of gain or loss

(a) Computation of gain or loss

The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.

See the words "adjusted basis provided in section 1011"?? THAT's what you get to deduct. You do NOT get to deduct the VALUE of the property that you are giving up. You can deduct ONLY your adjusted basis.

So, what is adjusted basis? Go to section 1011:

(a) General rule

The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016.

OK, still nothing here about the current "value" of what you are giving up. All you can deduct is the adjusted basis, whatever that amount is. We won't worry about all the exceptions. For now, let's move to section 1012 and section 1016.

Sec. 1012. Basis of property - cost

The basis of property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses). The cost of real property shall not include any amount in respect of real property taxes which are treated under section 164 (d) as imposed on the taxpayer.

Let's stop here for now. I just want you to follow the way the statutes work. More to come....

[Famspear]

OK, now, "cost" under section 1012 means historical cost. That's what you are stuck with when it comes to "basis", except as otherwise provided in the Code. There are several exceptions where "current fair market value" can actually BECOME your basis, but we won't get into that yet. Right now, basis equals cost. That means that when I buy that Microsoft stock for $100, THAT'S MY BASIS AMOUNT. It does not matter how much the stock goes up or down in value while I own it. That $100 is still my basis. THE VALUE OF THE STOCK IS LEGALLY IRRELEVANT. Under the tax law, you cannot change your basis in the asset just because you want to. Under the tax law, you cannot change your basis amount in the asset just because the value goes up and down.

Now, there are some things IN THE LAW ITSELF that can allow the basis amount to change. Section 1016 contains the main rules about that. What section 1016 does is to change, or "adjust" your "original" basis, your cost basis under section 1012, to something called "adjusted basis." We'll look at section 1016 later.

[The Operative]

Firstly, I wish mutter all the best. I support your looking for information anywhere it can be found. It would be unwise to turn a blind eye to facts. I also want to let you all know that I have a very open mind. I will listen to reason, the following quote will just not do. I will go through it as best I can. Maybe someone else here can make sense of this.

User MN Stix responded to the thread about Dan's FAQ.

http://losthorizons.com/phpBB/viewtopic.php?t=1299

He basically made a post saying it's absurd to say his labor has $0 value. You might notice, he doesn't even make the slightest attempt to show his opinion has any basis in law (not one citation of one court that agrees with his opinion). By contrast Dan's FAQ cites numerous court cases which strongly disagree with MN Stix's opinion:
[SNIP]

You or anyone attempting to say that labor has 0 value is a joke. Also, it has no basis in law. Please provide the statute, SCOTUS or any other court decision claiming this to be true.
Further, it is not my opinion, it is fact. I have a paycheck to prove it.

I never said that your labor has a $0 value. What I said, AND READ THIS VERY CAREFULLY, is that you paid nothing for your labor. Income or gain is not measured as a difference between what your labor is worth and for what you get paid for it by your employer. You have a gain because you didn't pay anything for your labor. If you work for someone for 40 hours a week at $20 an hour, you have $800 more at the end of the week than you did at the beginning of the week. That is income and is a gain to you. Whether you believe that or not is irrelevant.

Actually, he is right in that it is absurd to say his labor has $0 value. However, that is NOT the contention of the income tax laws or Dan's FAQ.

That is precisely the contention of the income tax and Dan’s FAQ . You, Dan’s FAQ, and IRS is saying just that. Labor = 0, therefore, all labor is “sold” at profit. If that is all the IRS has in its arsenal, I would have a jury laugh them out of court. The value of my labor is $20 per hour worked. That is what I place into my “bank account”, at the end of the week, I withdraw that bank account by paycheck. If I made over $20 per hour worked in my account, that would be the gain or profit. No, labor has value as contracted with your boss.

No, it is not. Gain is determined as the difference between your BASIS in something and the amount you receive for selling it or you receive in exchange for it. Your BASIS in your labor is $0. The value of your labor is what someone is willing to pay you for your time.

The contention is that a gain (which is income) is calculated as the difference between what a person PAID for something and what amount he or she SELLS it.

Now you are saying that I purchased my labor for $0 and sold it for a profit of $20 per hour. Sorry, at this point I can barely see I’m laughing so hard.

Wow, your lack of reading comprehension is impressive. I never said you purchased your labor. However, what I said was that you have expended $0 for your labor.

For example, if a person finds a diamond ring in their backyard that is worth $4,000 and sells it to his or her neighbor for $3,000. Does that person have a $1,000 loss? No, he or she has a $3,000 gain because the gain is calculated as the difference between what he or she PAID for the ring ($0) and the amount for which he or she sold it ($3,000).

Let me get this right, now I “found” my labor and its value is $20? Well yeah, I suppose if I found some magical labor tree, producing magical labor fruit. I then take said magical labor fruit and sell it for anything, that would be profit. So long as the magical labor fruit worked on its own every hour and I did not need to be present to control it.

Do you know what the word, EXAMPLE means? I never said you "found" your labor. What I said was that you have expended $0 for your labor.

It is the same with a person's labor.

ROFLMFAO!! Seriously, put down that crack pipe your smoking and get help. Labor is the same thing as finding a diamond ring? If this were provided as an example to a judge, the case would never see the inside of the welcoming area of a courthouse.

I attempted to provide a simple example that even the most dense person would understand. I see that there are people who are still too dense to understand even the simplest explanation.

It is irrelevant what the labor is worth to the individual selling it to someone else. The gain is the amount for which they sell it (his or her wage or salary) and the amount he or she paid for his or her own labor ($0).

Hold up chief, is it irrelevant? Now you are saying that if I deposit 20 into a bank account and get 5 dollars in interest, I will have to pay tax on all $25. If that were the case, you would never have anyone put money into an interest bearing account. Further, not even the biggest idiot would ever buy stock. I buy $1000 worth of stock and when I cash it out, the value is still $1,000. According to you, I would need to pay a tax on all $1,000.

You do not understand even the simplest concept. If you place $20 in a bank account, your BASIS in that account is $20. If the bank pays you $5 in interest, you have a gain of $5 or the difference between your BASIS in the account and the current amount in the account. Once you pay taxes on the $5 in interest, your basis in the account will then be $25. In the next period, if you earn $6 in interest, you have an additional gain of $6. ($31 - $25).

EDIT: After reading MN STIX additional posting, I feel the need to clarify. While a person does not sell all of his or her capability to labor for all time all at once, a person does sell a period of time of labor for an hourly wage or salary. Once a person works for a paycheck for a certain period of time, that time is gone forever. The amount of energy your body used during that labor is gone until you replenish it. That labor covering that amount of time has been sold by the laborer and the employer paid the laborer for it. It is that simple.

You have given way to complete unintelligible babble. Facts are facts and none of your post reflect that. Legally speaking, it either is or it isn't.

Please link me to where SCOTUS has determined whatever it is you are saying in the last quote. I’m pretty sure that a supreme justice will be able to lay it out properly.

Anyway, I’m here and willing to listen to anything that is somewhat understandable. You show me the code to back up what you are saying. At least a court ruling that compares apples to apples…not diamonds to labor. Although your opinions have value, they are still just opinions. You cannot convict someone by using opinions. Although, It may get persecutors laughed out of court.

I made that EDIT because of your babble about selling your labor to an employer for $20 meant that you could never work for another employer which is nonsensical.

Anyway, there are many court cases that explain that wages are income or the falsehood that wages cannot be taxed because it is an equal exchange. In Lukhard v. Reed, 481 U.S. 368, 375 (1987), the Supreme Court discusses a personal injury award to compensate a person for lost wages. The court said that since the award was to compensate a person for lost wages and since wages would be income that the part of the award that replaces it must be income. You can read it for yourself here.

[Famspear]

Dear MN Stix: I know that we give you a hard time. I also know that you can learn this. You can get this. Just take your time and read all the posts on this page carefully. Don't rush through this.

[Imalawman]

OK, now, "cost" under section 1012 means historical cost. That's what you are stuck with when it comes to "basis", except as otherwise provided in the Code. There are several exceptions where "current fair market value" can actually BECOME your basis, but we won't get into that yet. Right now, basis equals cost. That means that when I buy that Microsoft stock for $100, THAT'S MY BASIS AMOUNT. It does not matter how much the stock goes up or down in value while I own it. That $100 is still my basis. THE VALUE OF THE STOCK IS LEGALLY IRRELEVANT. Under the tax law, you cannot change your basis in the asset just because you want to. Under the tax law, you cannot change your basis amount in the asset just because the value goes up and down.

Now, there are some things IN THE LAW ITSELF that can allow the basis amount to change. Section 1016 contains the main rules about that. What section 1016 does is to change, or "adjust" your "original" basis, your cost basis under section 1012, to something called "adjusted basis." We'll look at section 1016 later.

Just a note Famspear and Stix. The idea behind the IRC is that you should not get taxed on "value" (used loosely here) on which you have previously paid tax. The converse is that you only get basis then to extent you have been taxed on the value you obtained. So, when you use after tax dollars to purchase an item, you have a "taxed" basis. The IRC does not require you to effectively pay tax on the dollars you used to buy the property twice. Thus, you're given basis. But when you haven't expended tax dollars to obtain an item, you do not get basis. In fact, basis can be created in many situations by paying tax on the value of property received.

There are of course exceptions for debt financing, but the idea is that you will have to pay the money back, you're not really getting a tax break...but that's little above the conversation.

Anyway, others have mentioned that you can't deduct living expenses or other indirect costs of your labor. The cites for that would be found in Sec. 162 and 262 and the regulations thereunder. In fact, you should first read sec 61, then 162 and 262, followed by the cites given out by Famspear. I think it would clear up the confusion. The more you read the code and study it, the more you get an overall idea of the code which makes your assumptions seem so absurd. Please keep reading and listening.

[LPC]

in all fairness thou I think mooney meant the court didnt have the authority to declare what he was paid was income, wages etc. Which would be a subject matter. right?

No. There is a difference between authority (or power) and jurisdiction. A court that has jurisdiction to adjudicate a shoplifting charge against me does not have the power to order me shot at dawn for it. A court which has jurisdiction over Mooney's tax case doesn't have the power to order him to (for example) pay treble damages. It does, however, surely have the power to declare his income wages subject to income taxation.

Both wserra and Famspear have taken a shot at this, and now I'd like to.

Mutter may be right that Mooney might have wanted to argue that the court didn't have the power to determine what his income was, but Wes is right that if that's what Mooney wanted to say he used the wrong words because that's not what is meant by "subject matter jurisdiction."

SMJ is the power to decide the case, but whether a court has the power to grant the relief requested is a question of substantive law and not jurisdiction, and goes to the merits of the case.

The acid test for whether a court has jurisdiction is whether the ruling of the court becomes legally binding on the parties. A dismissal for lack of jurisdiction means that the action is a nullity, and the parties are free to refile the case in a court that has jurisdiction (if there is one).

Let me give an example from Tax Court. The jurisdiction of the Tax Court is limited to certain matters, the most common of which is challenges to notices of deficiency, and a petition to challenge a notice of deficiency must be filed within 90 days of the notice. The courts have ruled that the 90 days is a jurisdictional issue, which is probably correct. The authority (or power) of the Tax Court is limited to determining the correctness of the deficiency.

Now, suppose that Mooney had filed his petition 91 days after the notice of deficiency, and had claimed in his petition that neither the IRS nor the Tax Court had subject matter jurisdiction to determine his income contrary to his sworn declaration and that the Tax Court should order the IRS to withdraw its notice of deficiency. The Tax Court would agree that it did not have SMJ because the petition was filed late, and would dismiss the petition. Because the dismissal was for lack of jurisdiction, it would not be considered to be a judgment on the merits, and Mooney could pay the tax and later sue for a refund.

Now suppose that Mooney had filed his petition 89 days after the notice of deficiency, and had claimed in his petition that the Tax Court did not have subject matter jurisdiction to determine his income contrary to his sworn declaration. The Tax Court would say that it did have SMJ because the petition was timely filed and that it (and the IRS) did have the power to determine his income contrary to his sworn declaration, but that it did not have the power to order the IRS to withdraw its notice of deficiency. And because Mooney had failed to challenge the correctness of the deficiency, the Tax Court might then dismiss the petition for failing to state a claim for which relief could be granted. Because the dismissal was not for lack of jurisdiction, it would be considered to be a judgment on the merits and would act as "res judicata," which means that Mooney would not be able to challenge that year's tax liabilities in a refund suit.

But I have to admit that courts themselves often get confused (or sloppy) about the difference between subject matter jurisdiction and the power to grant the relief requested. For example, courts usually describe a dismissal under the anti-injunction act as a dismissal for lack of jurisdiction, but a dismissal under the anti-injunction act is really a judgment on the merits, because the problem is not a lack of jurisdiction but the lack of a cause of action. I can't remember the name of the case, but one tp caught onto this distinction and refiled a case in state court after it had been removed to district court and dismissed for "lack of jurisdiction." The case got removed again and the district court had to admit that it was dismissing the case on the merits, and not for lack of jurisdiction.

[LPC]

Dear MN Stix: I know that we give you a hard time. I also know that you can learn this. You can get this. Just take your time and read all the posts on this page carefully. Don't rush through this.

The difference between "basis" and "value" are notoriously tricky. When I took "Federal Income Tax" in law school, the professor said that all of us would confuse the two at least once. I wound up doing it on the final exam.

And the DC Court of Appeals pretty much got confused about the difference between the two in the Murphy decision.

What Imalawman has said is a good way of looking at it, which is that (generally speaking) all income is taxed once, but only once. (There are exceptions, but let's not talk about them.) So if you receive money for the first time, it's income. But if you use that money to buy something, and later sell the something and get your money back, that is NOT income.

But, generally speaking (and this is very generally speaking), if you get money, and you can't trace that money back to show that it is a return of some other money you spent before, then you probably have income.

Money you get as compensation for services can't be traced back to anything you bought in the past, so it's all income, and has ALWAYS been considered income.

[LPC]

You are confusing value, labor, and cost and are mixing common language terms with legal terms.

Please don't encourage him to think that there is a difference between common language and legal terms. That's the foundation of Hendrickson's entire fantasy.

I think that "basis" is an accounting concept as well as a legal concept, and I think that the legal (and accounting) concept of "basis" is pretty close to the common meaning of "cost." (I don't think that there is a common language usage of "basis" comparable to the IRC use.)

[LPC]

Actually, he is right in that it is absurd to say his labor has $0 value. However, that is NOT the contention of the income tax laws or Dan's FAQ.

That is precisely the contention of the income tax and Dan’s FAQ . You, Dan’s FAQ, and IRS is saying just that. Labor = 0, therefore, all labor is “sold” at profit.

From my FAQ:

“[G]ain” is not the difference in the values of what is exchanged, it is the difference between the cost of what is given up and the value of what is received.

(emphasis in original)

No where in my FAQ do I ever say that labor has no value. And I never say that your income depends on the assumption that your labor has no value. In fact, I consistently assume that you are paid for the exact value of your labor.

My FAQ can be found at http://evans-legal.com/dan/tpfaq.html and I challenge you to find any statement in my FAQ that labor should be considered to have a value of $0.

It's a simple proposition: Either find evidence for your claim or stop making claims you know are false.

[MN Stix]

I want to thank everyone for jumping in and responding. I will only get to this one for now, I will address others when I have more time.

MN:

You are confusing value, labor, and cost and are mixing common language terms with legal terms.

Let's look at from other viewpoints first.

If you buy a crate of apples for $10, that crate has a basis of $10. If you then sell it for $15, you have made a profit of $5 -- your receipt less your basis.

That's how, in highly simplified general, profit calsulations work.

Now, ignoring for the time being the IRS code's statement that compensation for services is an element of gross income, let's analyze your labor from a basis standpoint.

What did you pay to obtain that which you are selling as your labor? Absolutely nothing.
Now, many people argue that they have to pay the cost for their food, housing, transportation, etc to have the ability to sell their labor. But, they would have to pay the same things just to stay alive.

In any case, the law determines what you, anyone else, a business, or a corporation can deduct from their gross income to come up with taxable income. You may not like the rules, but your opinion doesn't count except when you write to your congress critter to complain about the situation.

As the rules (law) stand today, you have a basis in your labor of zero, nada, zilch. Whatever you receive for your physical or mental labor is gross income. You then go through the various rules, laws, and procedures to figure out what your final taxable income is.

You, however, can not claim that you are exchanging your labor for equal value thus having no profit. The courts have taken a very dim view of that approach.

Now, if you'd care to stick around to discuss your thoughts and the various aspects of CtC, we'll be happy to open one or more threads dedicated to you and will refrain from abusing you so long as you discuss things with an open mind.

What do you say?

I do understand where you are comming from Nikki. I'm listening and do have an open mind about this. The problem I see in this forum so far, is everyone here is stuck comparing labor to stocks and commodities. It is not the same, nor are they treated the same way in the code. As I said above the quote, I will get back to the discussion when I have more time to do so.

For now, I would also like you to keep an open mind. Throw out your preconcieved idea of labor being related to stocks or items for sale. Income tax is on profit, gains and privilege...can we agree so far? Income tax is also an indirect tax, we can agree on that as well correct? If not, stop reading and reply to what it is. I could be wrong, maybe something has changed along the way.

If we still agree on the above, I want to show you my view on how tax on wages come into play. Also, how labor is nothing like stocks or sellable items. First, indirect tax must be avoidable. In the case of stocks, I can avoid the tax by not purchasing stock. If I choose to buy stock, I choose to be taxed on the gain/profit. Same is true for apples or diamond rings to be sold. I can avoid selling the item(s) and avoid the tax on the profit.

Now that is clear and I believe we can agree on the above points. We have only discussed gains and profit above. Gains and profits do not come from labor just yet. To do so, would be an unavoidable tax and would be a direct tax. I know what you are thinking but stick with me for a minute please. Damn, pause and take a breath, I can already feel you getting wound tight...

...


...


Alright, this is where the indirect part comes into play in what would otherwise be a direct tax. All federal, state, local or any political subdivision positions are in the category of "privilege". I can feel your blood pressure going up but stay with me. That is NOT to exclude any other type of government privilege. That is work visa's, green cards, the list goes on and on. These are all federal granted privileges, not simply government workers.

Taxing the privilege is the only way the government can call this an indirect tax, in what would otherwise be a direct tax. That being, the tax is still avoidable...as an indirect tax, it MUST be avoidable, right? In any case of Federally granted privilege, it can simply be avoided by not working for the government, or simply not working under a government granted license. Those foreign to this country are SOL if they are poor and need to work within the united States.

I hope you understand this, I really do. The idea of treating labor the same way as stock or items for sale, should now be understandably absurd. If you fail to make the connection, please review 1.1441, 1.1442, 1.1443 I forget the last 1.1467? At least attempt to make the connection.

To ignore the privilege issue, is a mistake. In the case of government workers, they have decided to concede their rights for privileges. In the case of foreigners, they are not entitled to natural rights secured by the consitution. They need government privilege just to work WITHIN the united States. When government is involved, there can only be privilege. No one has the abitlity to grant someone rights. If you are born in this country, your God given rights are protected any may not be infringed upon.

I hope we agree so far! Unless you believe you are a slave, I have hope for you. I did enjoy reading your post. I hope we can overcome the apples to oranges comparison you are all guilty of. Remember, I'm here with an open mind and I am listening.

[wserra]

Both wserra and Famspear have taken a shot at this, and now I'd like to.

And what follows is the clearest plain English treatment of the subject that I have ever read. Anyone who has not been banned from Lost Horizons might consider pasting it there. Be sure to credit Dan, so it gets the usual knee-jerk verbal mudpies thrown at it.

BTW, to any readers of this thread from LH: you do note how anyone can post here without fear of their posts being deleted or their IP banned - which, of course, is exactly what has happened to any Quatloos poster attempting to post there. Why do you think that is?

[.]

I can't believe that this thread has made it this far without reference to the words "legislative grace." As in each and every deduction from gross income is a matter of legislative grace.

As in while some TPs might think that common living expenses (incurred so that one may earn gross income) should be a deduction from gross income, they're not, never mind what your basis is.

Unless and until a federal statute is duly enacted that says non-business-related expenses like food, shelter, etc. are deductible from gross income, they ain't. And, until then, anyone who tries to make or use that goofy TP argument will wind probably up being sanctioned by either the IRS or any subsequent courts involved or both.

All of the discussion of basis is absolutely accurate, but it doesn't demolish the mistaken argument as directly. Maybe that's why MNStix objects to discussing capital asset gains in the same sentence as common income. Then again, he also seems to exhibit other confusion about "privilege."

[LPC]

First, indirect tax must be avoidable.

Wrong. There is nothing in the 16th Amendment that says that an income tax must be avoidable. Which means that you are (once again) arguing that the 16th Amendment doesn't mean what it says, and that a tax on income might or might not need to be apportioned, depending on the source of the income.

And the "avoidable" idea is historically wrong. It seems to come from the majority opinion in one of the Pollock decisions, which includes the following:

“The first question to be considered is whether a tax on the rents or income of real estate is a direct tax within the meaning of the constitution. Ordinarily, all taxes paid primarily by persons who can shift the burden upon some one else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes. Nevertheless, it may be admitted that, although this definition of direct taxes is prima facie correct, and to be applied in the consideration of the question before us, yet the constitution may bear a different meaning, and that such different meaning must be recognized.”

Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 558 (1895).

There are several problems with the meaning of “indirect taxes” as “all taxes paid primarily by persons who can shift the burden upon some one else” and “direct taxes” as taxes “the payment of which cannot be avoided”:

* First (and most importantly), there is no support for those meanings in the words of the Constitution, the Federalist Papers, or any writings of the authors of the Constitution. Both the Federalist Papers and the opinions of the justices in the Hylton decision (some of whom were members of the Constitutional Convention) support the conclusion that a “direct tax” means a tax on the value of property.

* There is no support for those definitions in any previous (or later) decision of the Supreme Court.

* In the Pollock case itself, the Supreme Court admitted in the very next sentence that “the constitution may bear a different meaning.” As explained previously, the Supreme Court has consistently held that a tax on incomes is not a “direct tax” within the meaning of the Constitution. The Pollock court itself held that a tax on incomes from “professions, trades, employments, or vocations,” is not a “direct tax” without ever discussing whether the tax was one “the payment of which cannot be avoided.” (158 U.S. at 637.) The above definition of “direct tax” is therefore inconsistent with the decision of the Pollock court itself.

The last consideration seems to have been recognized by the Supreme Court itself, because in a later opinion it explicitly rejected the principle that an inability to shift the burden of a tax should be the test of whether a tax is “direct.” In Knowlton v. Moore, 178 U.S. 41, 81-82 (1900), the Supreme Court upheld the constitutionality of a federal inheritance tax), and referring to the assertion that it was decided in the Pollock case that “in order to determine whether a tax be direct within the meaning of the Constitution, it must be ascertained whether the one upon whom by law the burden of paying it is first cast can thereafter shift it to another person,” the court found that “this disputable theory was not the basis of the conclusion of the court” in Pollock.

The same (or similar) arguments were also rejected in Nicol v. Ames, 172 U.S. 509, 515 (1899) (“t it is no part of the duty of this court to lessen, impede, or obstruct the exercise of the taxing power by merely abstruse and subtle distinctions as to the particular nature of a specified tax, where such distinction rests more upon the differing theories of political economists than upon the practical nature of the tax itself.”)

This argument was most recently rejected by a Circuit Court in Murphy v. I.R.S., 493 F.3d 170, No. 05-5139 (D.C. Cir. 7/3/2007). vacating 460 F.3d 79 (8/22/2006).

The idea of treating labor the same way as stock or items for sale, should now be understandably absurd.

The idea of treating income from labor differently from any other kind of income continues to be incomprehensibly absurd.

To ignore the privilege issue, is a mistake. In the case of government workers, they have decided to concede their rights for privileges.

And yet the history of the income tax is 180 degrees in the other direction. Initially, the Supreme Court held that Congress could NOT tax the salaries of state government employees, because to do so would burden state governments. Collector v. Day, 78 U.S. 113 (1870). The Supreme Court explicitly overruled Collector v. Day almost 70 years later, in Graves v. New York ex rel. O'Keefe, 306 U.S. 466, 486 (1939). Which means that for 70 years, Congress could NOT constitutionally tax the "privilege" of working for a state government, but could tax wages from private employment, and it is only since 1939 that Congress could tax the "privilege" of state employment.

In the case of foreigners, they are not entitled to natural rights secured by the consitution.

Wrong again. The Bill of Rights refers to "persons" not "citizens."

[wserra]

Income tax is on profit, gains and privilege...can we agree so far?

No, I'm afraid I can't agree with your very first proposition, so there is no need to go further.

Income tax is on taxable income - gross income less deductions. That comes from no less a source than 26 USC 1: "There is hereby imposed on the taxable income ...". If you truly want to argue law as to whether income tax is only imposed on "profit, gains and privilege", then you need to cite authority for that proposition. I see none in your post.

[Famspear]

Income tax is on profit, gains and privilege...can we agree so far?

The U.S. federal income tax has absolutely nothing whatsoever to do with the exercise of a "privilege" -- federal or otherwise. Peter Hendrickson borrowed this myth from other tax protesters. The "privilege" argument is an old argument from the 1980s, that was emphatically rejected every single time it was brought -- without exception.

The argument is based on a fallacy that involves taking words out of context -- in cases that talk about an "excise" involving a "privilege." What tax protesters do is take certain categorical statements in cases and accept them as being literally correct in all circumstances - including circumstances in which they do not apply.

No federal court has ever ruled that the federal income tax must involve the exercise of any privilege.

A related argument is that the federal income tax must involve an "activity." Hendrickson borrowed this from other protesters.

There is absolutely no validity to the argument that the federal income tax must involve an "activity."

When you examine every single case cited by Hendrickson and other protesters (and he is a "protester"), you find that the court never, ever ruled that the federal income tax had to involve an "activity" in connection with the exercise of a "privilege," federal or otherwise in order to be valid.

Later, we will list examples of the cases where this issue HAS been raised, and we will show that the argument has been rejected every single time.

[mutter]

I can't believe that this thread has made it this far without reference to the words "legislative grace." As in each and every deduction from gross income is a matter of legislative grace.

As in while some TPs might think that common living expenses (incurred so that one may earn gross income) should be a deduction from gross income, they're not, never mind what your basis is.

Unless and until a federal statute is duly enacted that says non-business-related expenses like food, shelter, etc. are deductible from gross income, they ain't. And, until then, anyone who tries to make or use that goofy TP argument will wind probably up being sanctioned by either the IRS or any subsequent courts involved or both.

All of the discussion of basis is absolutely accurate, but it doesn't demolish the mistaken argument as directly. Maybe that's why MNStix objects to discussing capital asset gains in the same sentence as common income. Then again, he also seems to exhibit other confusion about "privilege."

i always assumed that the amount the gov allows us to deduct, I cant remember what to call it, its $8950 this year was an offset to living expenses or maybe its just an off set to inflation
BTW good job all! I am glad to see the insults are gone and logic is prevailing! Take me as a lesson to heart. Once I gained enough education I changed my mind. What you need to understand is while it may be common place and easily understandable by those who have a legal education its not to those who do not. I could take a non IT person and stick them in my server room and start throwing tech terms at them, but they wont understand what I am talking about cos they dont have a point of reference to start from. understand what I mean? the hardest part of my job is to explain technical things to non technical people. I do that by learning their point of reference and going from there. To a techki I can say the backbone switch died. to a non techki I have to say the device that allows us to communicate with the outside world died.

[Famspear]

. . . . while it may be common place and easily understandable by those who have a legal education its not to those who do not. I could take a non IT person and stick them in my server room and start throwing tech terms at them, but they wont understand what I am talking about cos they dont have a point of reference to start from. understand what I mean? the hardest part of my job is to explain technical things to non technical people. I do that by learning their point of reference and going from there. . . . .

Good point.

[webhick]

I am glad to see the insults are gone and logic is prevailing! Take me as a lesson to heart.

You are a pleasant exception. Often times, TPs come here and throw massive fits and spend umpteen posts ranting about anything and everything, no matter how helpful or patient the members try to be. They desperately try to cling to their pet theories and lash out at anyone who disagrees. Not to mention the headaches and problems that TPs cause us in our personal lives. I honestly don't know how the others put up with it.

[Famspear]

Over at losthorizons, regarding the Andrew Scott case, user gdude wrote:

It would be nice to see all of the information pertaining to this case. Not just the courts' decision, but his filed returns and any past issues with the IRSS.
Link, anyone?

Mutter responded:

irrelevant. the case was judged upon its own merrits Scott himself admits he filed CtC.
any return with zero income and a 4852 that is used to correct either a w-2 or 1099 claiming the entire amount of wages is zero and not what is listed on the W-2 is CtC

I believe Mutter is correct. This is another problem I have seen over and over at losthorizons. When a Court decision contradicting Hendrickson's scheme is presented, some users will go off on tangents. This "behavior" may be learned from Hendrickson, who tries to divert attention from the losses by arguing such things as (1) that the individual didn't present CtC properly on his tax return, or (2) that the Court, in its decision, didn't explain itself well enough, or (3) that the Court somehow evaded some legal point that Hendrickson insists the Court should have covered.

The legal system is not bound by Peter Eric Hendrickson's personal feeling about how Courts should say things when Courts decide cases. Indeed, many Courts do not even explain their decisions at all when the case involves only frivolous arguments. That's because the arguments have already been rejected 100% of the time, and the Court concludes that there is no need to "explain" its decision.

In the Patrick Michael Mooney case at the United States Court of Appeals for the Fourth Circuit, I believe that's what the Court did. After Mooney posted page after page of CtC arguments in his written brief, the Court simply affirmed the decision of the Tax Court, without so much as a "thank you very much" to Mooney for his straining effort. The Court didn't respect the CtC arguments in Mooney's brief enough to even mention them in the text of the decision. This kind of treatment does not invalidate the Court's decision. This kind of treatment shows that the CtC arguments just didn't cut the mustard at the Court of Appeals!