Income Taxes and The Destruction of Liberty

1. Income Taxes andThe Destruction of Liberty Vernon K. Jacobs (C) 2008 All Rights Reservedwww.offshorepress.com/liberty.htm

2. The Framers Feared Taxes • According to Charles Adams, author of For Good & Evil • “The concept of checks and balances in government had its origin, most of all, in checks on the tax gatherers.”

3. Civil Law & Criminal Law • The Founding Fathers would be aghast at the extent of non-criminal regulation in our society.  And that is the key to stripping us of our Constitutional rights • If all of the civil enforcement mechanisms were treated as criminal matters, suddenly all manner of Constitutional safeguards would attach. • By an International Tax Attorney

4. The 8th Amendment • “Excessive … fines (shall not be) imposed, nor cruel and unusual punishments inflicted.” • What about a $95,000 fine for filing an information return 6 days late?

5. Article 1, Section 9 • “No Capitation, or other direct,Tax shall be laid, unless in Proportion to the Census or Enumeration ….” • The purpose of the 16th Amendment was to over-rule this provision.

6. The 5th Amendment • “… nor shall private property be taken for public use without just compensation.” • This clause clearly did not anticipate the income tax or the 16th Amendment

7. The 4th Amendment • “The right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause …”

8. The 10th Amendment • “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” • This did not contemplate direct taxation of state residents by the federal government

9. The 16th Amendment • “The Congress shall have the 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.” • This marked the beginning of the loss of freedom in the U.S.A.

10. What is a “Direct” Tax? • In 1796, the Supreme Court held that a direct tax was a tax on land or a head tax, but in 1894, the Court concluded that it also included an income tax. • The 1894 decision over-ruled an income tax introduced in that year

11. Motives for Passing the 16th Amendment • Resentment of extremely wealthy North East “Robber Barons” • Popularity of Populist, Socialist and Communist political/economic views • Let someone else pay the taxes • Belief by conservatives that the Amendment would never pass

12. Constitutional Challenges -1 • The 16th amendment was quickly taken to the high court which “disposed of the question with little more than a one-liner.” (Charles Adams) • The Court held that the argument against the Amendment was without merit and having an “Absolute want of foundation in reason.” (Magoun 1898)

13. Constitutional Challenges - 2 • “Legal scholars were almost dumfounded at the ease with which the Court had side-stepped what they believed should have been the most important tax case in the history of the nation.” (Charles Adams) • Hundreds of subsequent challenges have met with similar treatment by the Supreme Court and such arguments are now considered to be frivolous and subject to sanctions

14. Frivolous Tax Disputes • “We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit. The constitutionality of our income tax system--including the role played within that system by the Internal Revenue Service and the Tax Court--has long been established.” (Crain v. Commissioner, 737 F.2d 1417 (1984))

15. Unreasonable Searches • The 4th Amendment is Often regarded as the privacy Amendment • TCMP - Taxpayer Compliance Measurement Programs • MSSP - Market Segment Specialization Program • Abusive Audits to Secure Customer Lists from Entity Formation Services

16. IRS Tax Collectors • Collectors initiate levies, liens, garnishments and seizures of taxpayer’s assets. • The 1998 IRS Restructuring Act was passed due to collection abuses • Shelley Davis wrote about numerous abuses in “Unbridled Power” • Taxpayers have little recourse after an assessment is sent to collections, even if the taxpayer does not owe any tax

17. Confiscation withoutCompensation • The 5th Amendment clearly did not contemplate the income tax • The 16th Amendment does not mention the 5th Amendment but it clearly over-rides the protection from taking private property for public use without compensation • However, most lawyers will argue that this Amendment is about imminent domain and/or confiscation of property for the military

18. Excessive Fines - 1 • The 8th Amendment prohibits excessive fines, bail or punishments • A 2007 tax law permits a penalty on a tax preparer of 50% of his fees -- but the fees are also subject to income taxes of up to 50% • The penalty for not filing information returns about foreign entities is $10,000 per year even if the entity had no income

19. Excessive Fines - 2 • The penalty for filing a late return for a foreign trust is 5% of the gross assets • The penalty for not filing a report of your foreign financial accounts is $10,000 for up to six years • If a foreign corporation with U.S. income files a late return, the tax is based on gross income without any deductions or credits

20. Powers Reserved to States • The federal income tax bypasses the states and puts the Federal government in direct contact with state citizens • “The state government lost more and more of their autonomy … and (are) compelled to apply to the central authorities for help (and became dependent on the Federal government.” (Frank Chodorov)

21. Non Uniform Taxation • “If the Court sanctions the power of discriminating taxation and nullifies the uniformity mandate of our Constitution … it will mark the hour when the sure decadence of our government will commence.” • Justice Stephen J. Field, Pollack, 157 U.S. 607 (1894)

22. Discriminatory Taxation-1 • Unmarried vs. married • Young vs. seniors • Renters vs. home-owners • Rich vs. the poor • Employees vs. self-employed • Earned vs. passive income

23. Discriminatory Taxation-2 • Capital gains & dividends vs. other income • Tax haven USA • U.S. mutual funds vs. foreign funds • Non-filing of U.S. tax returns vs. foreign information returns

24. Is Tax Reform Possible? • Voters who depend on federal funds such as Seniors, government employees, federal contractors, indigent elderly, tax industry, charities, the arts, businesses • Populists, socialists and economic liberals • Tax subsidies vs. direct payments • Politicians derive power and influence from the income tax to reward or punish • The elusive meaning of “income” • Consumers vs. capitalists

25. What is a “Fair Share” • An equal amount for everyone? • An Equal percentage of some common and measurable value (sales)? • Exemptions or rebates for the poor? (How to define who is poor?) • Progressive tax rates? • Taxes on corporate revenues or profits?

26. Reform Alternatives - 1 • Flat rate income tax & simplification (1986) • National sales tax - “Fair Tax” and revenue neutrality • Cut spending first (Ron Paul & Libertarians) • Indirect tax on wages, dividends, interest, etc. (Similar to a V.A.T.) • Separate taxing and spending authority • Repeal the 16th Amendment and prohibit any direct tax by the Federal Government • Voter approval for tax increases (The Swiss)

27. Adams’ Reform Proposals-1 • Subject tax collectors to personal civil liability and criminal prosecution • Have federal tax districts = IRS districts • Provide voter recall for district directors • Treat tax disputes the same as any debt • Decriminalize the tax law • Immunize judges and congressmen from the tax collector

28. Adams’ Reform Proposals-2 • Prohibit taxes imposed directly on the taxpayer/individual • Adopt a maximum 10% tax rate and cut spending to equal revenues • Separate taxing and spending powers (Parliament and the King) • Prohibit punitive fines and penalties

29. Disclaimer • The author is not an attorney • Substantial portions of this presentation are based on Charles Adams book “For Good and Evil: The Impact of Taxes on the Course of Civilization (1993) • This presentation is not intended to constitute tax advice for any person

30. About Vernon Jacobs, CPA • Jacobs is a tax author and international tax practitioner • He is the author of the free Jacobs Report and the subscription newsletter, the International Wealth Protection Monitor • He has written over 25 books on taxation • He is the author of www.offshorepress.com and www.vernonjacobs.com