Seems like all the LostHead regulars are going down in flames lately ...... but who the heck is Jim and Vivian Blaga? (See below).
Pablo Rodriguez
Joined: 03 May 2008
Posts: 245
Posted: Sun Apr 12, 2009 10:10 am Post subject: You ARE an "Employee" - 26 USC § 3401(c)
FRIVOLOUS DETERMINATION BY THE STATE
The State of NN has declared my fully refunded 2006 return as "frivolous" and my 2007 return "frivolous" (although they didn't state what the issues were, much like the IRS, and the State law in this regard, is nearly identical to 26 USC § 6702) However, in a phone call with them, they argued that everything that one earns is taxable, the only thing I earned was "wages", and that I was an "employee". However, they also realized that I filed a "zero" amended return. Here's the issues as I see it:
1. I actually do have a math error on both return because the State takes the adjusted gross income after deductions and adds certain monies back into it before they begin their processing. When I amended my return, I neglected to put this money back in. When I figured out my math error, I realized that I had -$20,200 income plus $6,700 of State additions leaving me with a taxable State income of -$13,500 in both years.
2. I have taken a position that is frivolous (which is discussed below) or my return lacks evidences an intention to delay, impede or negate the revenue laws of the State.
In 2006, I have a U.S. Treasury Account Transcript that shows I had zero (0) taxable income. However, due to the State's "frivolous" determination, it demands that I return the "taxes" due plus a $500 "frivolous" penalty plus interest. For 2007, I filed the exact same reasons and words on all federal and state forms. The IRS recently challenged me to sue them in District Court to get them to process my 2007 return! In the meantime, the State declared the 2007 amended return "frivolous" for the same two reasons stated above.
The Long Decision
The "zero" amended return is easy to discuss with the Long decision out of the 9th circuit court. Besides that, there would have been no change in the taxable income because the math errors were inconsequential.
Identical Reasoning
In summary, both 2006 and 2007 State returns used Forms 4852. Each amended return has the identical reasons for amending. Further, each Form 4852 states that I earned no "wages" based on a reading of 26 USC 3401(a) and 3121(c). I think that no matter how you cut it, the key to the discussion of "wages" falls on a discussion of "employee", a constituent part of the definition of "wages" and "employer". Even though the burden is on the State to prove that I was an "employee", they reference the Federal law as to what constitutes an "employer", "employee", and "wages."
You ARE an "employee" and you earned "wages"
In reviewing State-level tax hearing decisions, the State of XX uses the following paragraph [quoted from an IRS web page!] to consistently deny someone's claim that they were not an "employee" or didn't earn "wages."
Quote:
Section 3401(c) defines "employee" and states that the term "includes an officer, employee or elected official of the United States . ." This language does not address how other employees' wages are subject to withholding or taxation. Section 7701(c) states that the use of the word "includes" "shall not be deemed to exclude other things otherwise within the meaning of the term defined." Thus, the word "includes" as used in the definition of "employee" is a term of enlargement, not of limitation. It clearly makes federal employees and officials a part of the definition of "employee", which generally includes private citizens.
This horrible piece of reasoning comes from the IRS' web site about "Anti-Tax Law Evasion Schemes - Law and Arguments (http://www.irs.gov/businesses/small/art ... 04,00.html):
Quote:
D. Contention: The only "employees" subject to federal income tax are employees of the federal government.
Some argue that the federal government can tax only employees of the federal government; therefore, employees in the private sector are immune from federal income tax liability. This argument is based on an apparent misinterpretation of section 3401, which imposes responsibilities to withhold tax from "wages." That section establishes the general rule that "wages" include all remuneration for services performed by an employee for his employer. Section 3401(c) goes on to state that the term "employee" includes "an officer, employee, or elected official of the United States, a State, or any political subdivision thereof".
The Law:
Section 3401(c) defines "employee" and states that the term "includes an officer, employee or elected official of the United States . ." This language does not address how other employees' wages are subject to withholding or taxation. Section 7701(c) states that the use of the word "includes" "shall not be deemed to exclude other things otherwise within the meaning of the term defined." Thus, the word "includes" as used in the definition of "employee" is a term of enlargement, not of limitation. It clearly makes federal employees and officials a part of the definition of "employee", which generally includes private citizens.
Relevant Case Law:
United States v. Latham, 754 F.2d 747, 750 (7 th Cir. 1985) - Calling the instructions Latham wanted given to the jury "inane," the court said, "[the] instruction which indicated that under 26 U.S.C. § 3401(c) the category of 'employee' does not include privately employed wage earners is a preposterous reading of the statute. It is obvious within the context of [the law] the word 'includes' is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others."
Sullivan v. United States, 788 F.2d 813, 815 (1 st Cir. 1986) - The court rejected Sullivan's attempt to recover a civil penalty for filing a frivolous return, stating "to the extent [he] argues that he received no 'wages' . . . because he was not an 'employee' within the meaning of 26 U.S.C. § 3401(c), that contention is meritless. . . . The statute does not purport to limit withholding to the persons listed therein." The court imposed sanctions on Sullivan for bringing a frivolous appeal.
Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D. Wis. 1985) - The court rejected the taxpayer's argument "that he is not an 'employee' under I.R.C. § 3401(c) because he is not a federal officer, employee, elected official, or corporate officer," stating, "[he] mistakenly assumes that this definition of 'employee' excludes all other wage earners."
Pabon v. Commissioner, T.C. Memo. 1994-476, 68 T.C.M. (CCH) 813, 816 (1994) - The court characterized Pabon's position - including that she was not subject to tax because she was not an employee of the federal or state governments - as "nothing but tax protester rhetoric and legalistic gibberish." The court imposed a penalty of $2,500 on Pabon for bringing a frivolous case, stating that she "regards this case as a vehicle to protest the tax laws of this country and espouse her own misguided views."
This analogy fails on so many points. Here's a counter-analogy: All computers are machines. A drill is a machine. Therefore, a drill is a computer. Or another analogy: All elephants are mammals. A dolphin is a mammal. Therefore, an elephant is a dolphin.
Research
I reviewed 26 circuit court decisions and over 111 Tax Court decisions about the use of 26 USC § 3401(a) and the fact that they were not "employees." In each case, the filer lost by the court willfully misinterpreting the term "Includes and Including." I think that if I'm going to state that I wasn't an "employee" and didn't earn "wages" and I want to fight the 3401(a) reasoning, I must provide a clear cohesive discussion about the real meaning of "Includes" and "Including", so crucial to the discussion of "wages" and "employee".
PLAN OF ACTION
1. In challenging the State's "frivolous" determination, I have determined that I must go "with all guns blazing." This paperwork may eventually lead to an administrative hearing and possibly State District Court. I have to have all my arguments in place now.
2. The State's taxable income begins with Federal gov't's determination. In 2006, I have IRS documentation showing that I had ZERO (0) taxable income. Therefore, I could not possibly have State taxable income.
3. I filed timely returns based on the State's requirements that an amended return must be filed within 6 months if there is a change to a federal taxable income or the federal gov't makes a change to taxable income.
4. There is still the issue of a "frivolous" charge that I must respond to. That is the only reason I am challenging the determinations and the reason I want an administrative review. As in the Federal gov't for frivolous tax submissions (26 USC § 6702), there are two main points and two points within each main point but the main points MUST BOTH BE TRUE:
(a)(1) I will use the Long decision to show that a "zero" return still has enough information by which taxes can be calculated.
OR
(a)(2) There were "math errors" due to failing to add-in the State's "additions" to federal taxable income. However, they were of such a nature that, when coupled with zero (0) "wages" (actually -$20,500), the amount of taxable income was not changed. Since there is no change to taxable amounts, their reasoning is weak at best, or a complete failure.
AND
(b)(1) The return must be viewed on "its face". There is nothing "on the face of the return" that shows that it is intending to "delay, impede, or negate" State revenue laws. Cite the applicable law that Jim and Vivian Blaga used.
OR
(b)(2) I have taken a "frivolous" position. If I can take care of part (a) above, there is no real need to discuss this. However, the State will probably disregard my arguments in part (a) above so I must also decimate this argument, too. First to mention is that a "frivolous" determination must be objective, not subjective (cite Jim and Vivan's case cites). And then, require the State to declare which position I've taken.
5. Fight for the admission of the 2006 amended State return FIRST. By doing this, the State will be forced to admit that my 2006 return, with its reasoning on all the Forms 4852 and amended return, was acceptable. If it is, then they must also declare my 2007 return as valid and not "frivolous" because it uses the exact same wording as the 2006 return.
QUESTIONS FOR DISCUSSION
1. Should I use my 2006 return with its reasoning (that the IRS accepted and completely refunded with a transcript showing zero (0) taxable income) to justify my 2007 return with its identical reasoning?
I have been advised that I cannot use the one to justify or support the other. I find this incredible to believe. If I go to court, you can believe that the State or the feds would lump both returns together for processing. Why would they do that? Well, it strengthens their case. But it also helps mine! And in my research, every multi-year tax return has been dealt with on a "combined" basis, that is, tax years 2004-2006, for example.
2. Should I delve into a deep discussion of the meaning of "Includes" and "Including", discuss the Treasury Decision of 1927, discuss the most recent "find" about using "Includes" when the IRS shows that it means "moreover or in addition to", etc.?
3. Should I discuss "wages" and "employee" in my legal reasoning?
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