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Tax Myths – Paying Taxes Is Not A “Voluntary” Choice
As we approach the traditional tax-filing period, many taxpayers look for methods to cut their tax bills. Unfortunately, a number of tax scams also begin to appear at this time of the year, particularly the “voluntary tax” myth. On a variety of sites and newsgroups, you will find arguments indicating that the duty to pay taxes in the United States is a “voluntary” one. Such an assertion is no more legitimate than the SPAM you receive from individuals in Nigeria that want to send you a few million dollars.
Individuals arguing in favor of the “voluntary” tax position point to Flora v. United States, 362 U.S. 145, 176 (1960). In a twisted bit of reasoning, it is asserted that the ruling in the case establishes, “our system of taxation is based upon voluntary assessment and payment, not upon distraint.” Picking up a head of steam, these individuals further argue that the instructions for filling out the 1040 federal tax return form include language to the effect that payment of taxes is “voluntary.” Alas, these individuals have overshot the mark and you should not be baited by such arguments. The Flora case involved a question regarding whether a tax assessment had to be paid before the taxpayer could challenge the assessment. The case had nothing to do with the nature of the tax system in the United States and the effort to highlight one sentence in the decision is completely off base. The court did make a comment regarding “voluntary” taxation, but the terminology is particular to definitions in the tax code as explained below.
Sorry, You Have To File and Pay
Section 1 of the Internal Revenue Code clearly contains language imposing taxes on the income of individuals, estates and trusts. Section 11 of the Code addresses corporations. Section 6151 of the Code specifically requires taxpayers to submit payment with their tax returns and provides a basis for criminal penalties, including fines and imprisonment, to be levied if taxes are not paid. The courts have historically upheld these legal requirements, as evidenced by hundreds of reported cases involving tax protestors. If you wish to review a few of these rulings, you can do a browser search for the following cases.
United States v. Drefke, 707 F.2d 978 (1983)
United States v. Tedder, 787 F.2d 540 (1986)
United States v. Richards, 723 F.2d 646 (1983)
The Meaning of “Voluntary” In Relation To Taxes
Generally speaking, there are two primary income tax collection methods. The first is to simply have the government track all financial transactions and levy a specific tax against individuals, businesses, trusts and so on. The second method is a “voluntary” system wherein the taxpayer maintains the data and reports the information to the relevant tax agencies. In short, the term “voluntary” refers to the fact that taxpayers are allowed to determine the correct amount of tax, submit the information to the federal and state tax agencies, and pay the relevant amount of taxes. This is the system used in the United States and constitutes the “voluntary” payment of taxes.
The voluntary aspect of the US tax system allows people to become very “creative” when reporting their revenues and taxable income. No matter how you categorize it, taking your better half out for their birthday is not a deductible expense! The government keeps a tab on such creative efforts by auditing a certain percentage of tax returns filed each year for individuals and businesses. If your tax return constitutes the next great American novel, you can expect to pay back taxes, penalties and interest. The financial pain involved is nominal when compared to failing to file any tax returns at all because you are suckered in by the myth of a voluntary tax system.
Penalties for Pursuing Frivolous Tax Strategies
If you intentionally fail to file and pay taxes in the belief that the system is voluntary, you open yourself up to major personal and financial repercussions. Civil penalties for intentionally failing to pay taxes range from 25% to 75% of the underpayment amount not to mention fines totaling up to $250,000. If a finding of felony tax evasion is returned against you, imprisonment of up to five years can be assessed. In short, falling for the “voluntary” tax payment myths can cripple you from a financial perspective and even result in imprisonment. Is it worth it? The following example should prove that it is not.
If we assume you owe $20,000 in taxes, but do not file because you do not wish to “volunteer”, the potential penalties could be as follows:
$20,000 in taxes due
$15,000 penalty
9% interest on late taxes
$250,000 fine
Imprisonment – Loss of earning potential
As you can see, there is a significant downside to pursuing frivolous tax planning strategies. Is a few bucks worth going to jail? Perhaps the following example will enlighten you.
Promoter of Voluntary Tax Scheme Convicted
On December 8, 2003, Roosevelt Kyle was convicted by a jury for failing to file his personal taxes from 1995 through 1998. Evidence introduced at trial showed Kyle earned $300,000, but failed to file income tax returns. Kyle was a promoter of tax avoidance schemes in which he advised clients that they could permanently stop paying income taxes. Kyle also promoted the book “Vultures in Eagles Clothing”, which claims the income tax laws are not applicable to U.S. citizens. The author of the book, Lynne Meredith, is under criminal indictment in the Central District of California for various tax crimes.
You must pay taxes on your income. There are effective, legal strategies available for overcoming excessive tax burdens. If you are concerned that you are paying excessive taxes, you should investigate the legal options. Pursuing myths such as the “voluntary” right to pay taxes will accomplish only one thing: crippling your business and you.
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