Tax protesters in the United States have advanced a number of arguments asserting that the assessment and collection of the federal income tax violates statutes enacted by the United States Congress and signed into law by the President. Such arguments generally claim that certain statutes fail to create a duty to pay taxes, that such statutes do not impose the income tax on wages or other types of income claimed by the tax protesters, or that provisions within a given statute exempt the tax protesters from a duty to pay.
These statutory arguments are distinguished from, although related to, constitutional, administrative and general conspiracy arguments. Statutory arguments presuppose that Congress has a constitutional power to tax income (and typically accept the validity of the 16th Amendment, unlike some other theories) but has not passed a statute doing so, or has done so in a way that renders certain types of income not liable to taxation.
Definition of the terms "state" and "includes"
In connection with various arguments that the Federal income tax should not apply to citizens or residents within the fifty states, some tax protesters have argued about the meanings of the terms "state" and "includes".
Tax protester arguments
One argument is that the definitions of "state" and "United States" in most subparts and the general definition in the Internal Revenue Code are what other amending code sectionsThe Alaska Omnibus Act, Pub. L. No. 86-70, 73 Stat. 141, was enacted on June 25, 1959 and states in pertinent part: "Sec. 22. (a) Section 2202 of the Internal Revenue Code of 1954 (relating to missionaries in foreign service), and sections 3121(e)(1), 3306(j), 4221(d) (4), and 4233(b) of such Code (each relating to a special definition of "State") are amended by striking out "Alaska".The Hawaii Omnibus Act, Pub. L. No. 86-624, 74 Stat. 411, was enacted on July 12, 1959, and states in pertinent part: "(c) Section 3121(e)(1) of the Internal Revenue Code of 1954 (relating to a special definition of "State") is amended by striking out "Hawaii,". "(d) Sections 3306(j) and 4233(b) of the Internal Revenue Code of 1954 (each relating to a special definition of "State") are amended by striking out "Hawaii, and"." refer to as "a special definition of 'state'", where the statutory definitions include the District of Columbia, Puerto Rico, and some other territories, without mentioning the 50 states. Under this argument, the definition of "state" within the Code in general, or within those certain subparts of the Code, refers only to territories, or the possessions of the federal government, or the District of Columbia. Alaska and Hawaii were formerly included in the "special" definition of a "state" until each was removed from that general definition by the Alaska Omnibus ActThe Alaska Omnibus Act, Pub. L. No. 86-70, 73 Stat. 141, was enacted on June 25, 1959, and states in pertinent part: "Sec. 22. (a) Section 2202 of the Internal Revenue Code of 1954 (relating to missionaries in foreign service), and sections 3121(e)(1), 3306(j), 4221(d) (4), and 4233(b) of such Code (each relating to a special definition of "State") are amended by striking out "Alaska,"." and the Hawaii Omnibus Act when they were respectively admitted to the Union.
The Internal Revenue Code general definition of the term "state" in section 7701 is as follows:
Other subparts of the Internal Revenue Code list the District of Columbia and territories of the United States in response to the definition of "State," or geographically, the "United States" (26 C.F.R § 31.3132 (e)-1)26 C.F.R § 31.3132 (e)-1: State, United States, and citizen. (a) When used in the regulations in this subpart, the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, the Territories of Alaska and Hawaii before their admission as States, and (when used with respect to services performed after 1960) Guam and American Samoa. (b) When used in the regulations in this subpart, the term "United States", when used in a geographical sense, means the several states (including the Territories of Alaska and Hawaii before their admission as States), the District of Columbia, the Commonwealth of Puerto Rico, and the Virgin Islands. When used in the regulations in this subpart with respect to services performed after 1960, the term "United States" also includes Guam and American Samoa when the term is used in a geographical sense. The term "citizen of the United States" includes a citizen of the Commonwealth of Puerto Rico or the Virgin Islands, and, effective January 1, 1961, a citizen of Guam or American Samoa.
The Internal Revenue Code general definition of the terms "includes" and "including" is as follows:
The 1911 case of Montello Salt Co. v. Utah,221 U.S. 452 (1911). the Supreme Court stated that the term "including" is generally interchangeable with "also" but not necessarily, and can sometimes have a meaning of exclusivity. The Montello Salt case was not a Federal tax case, and no issues involving the meaning of the terms "state" or "includes" or "including" as used in the Internal Revenue Code were presented to or decided by the Court. The word "tax" is not found in the text of the Montello Salt decision.
Court rulings on the Internal Revenue Code definitions of "state" and "includes"
In a 1959 tax case, the United States Supreme Court indicated that the term "includes" in the Internal Revenue Code () is a term of expansion, not a term of exclusivity.Sims v. United States, 359 U.S. 108, 79 S. Ct. 641, 59-1 U.S. Tax Cas. (CCH) paragr. 9338 (1959), at . Subsection (c) of section 7701 provides:
Similarly, in the case of United States v. Condo, the United States Court of Appeals for the Ninth Circuit stated:
No federal court has upheld the argument that the term "state" as used in the Internal Revenue Code excludes the fifty states or that the term "state" means only the "District of Columbia." The argument that the term "state" as used in Federal income tax law means only the District of Columbia and the territories was specifically rejected by the United States Court of Appeals for the Eleventh Circuit in United States v. Ward.833 F.2d 1538 (11th Cir. 1987), 88-1 U.S. Tax Cas. (CCH) paragr. 9177, cert. denied, 485 U.S. 1022 (1988). Similarly, in the case of Nieman v. Commissioner, the taxpayer argued that "Congress excludes the 50 States from the definition of "United States", for the purposes of 26 U.S.C., Subtitle A." The United States Tax Court rejected that argument, stating:
See also United States v. Bell (taxpayer's argument -- that the term "United States" encompasses "only territories and possessions such as the 'Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa' [ . . . ] but not the contiguous 48 states, Hawaii and Alaska" by contending that the term "include" was a term of "limitation"—was rejected).27 F. Supp. 2d 1191, 98-2 U.S. Tax Cas. (CCH) paragr. 50,791 (E.D. Calif. 1998), aff'd, 17 Fed. Appx. 661, 2001-2 U.S. Tax Cas. (CCH) paragr. 50,619 (9th Cir. 2001). See also Friesen v. Commissioner (taxpayer's argument—that Nebraska was "without" the United States and that as a Nebraska resident the taxpayer was "alien to the foreign Federal jurisdiction" and therefore not subject to income tax—was rejected).71 T.C.M. (CCH) 1672, T.C. Memo 1996-2, CCH Dec. 51,103(M) (1996).
The argument that the United States does not include all or a part of the physical territory of the fifty states, and variations of this argument, have been officially identified as legally frivolous Federal tax return positions for purposes of the $5,000 frivolous tax return penalty imposed under Internal Revenue Code section 6702(a)., as amended by section 407 of the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, 120 Stat. 2922 (Dec. 20, 2006). See Notice 2008-14, I.R.B. 2008-4 (Jan. 14, 2008), Internal Revenue Service, U.S. Department of the Treasury (superseding Notice 2007-30); see also Notice 2010-33, I.R.B. 2010-17 (April 26, 2010).
The private sector employee argument
An argument linked to the meaning of the words "includes" and "including" is the argument that for Federal income tax purposes, the term "employee" under Internal Revenue Code section 3401(c) does not include a regular, private-sector employee. The courts have uniformly rejected this argument. The text of section 3401(c), which deals only with the employer's withholding requirements and not with the employee's requirement to report Internal Revenue Code section 61 compensation for personal services (whether called wages, salaries, or any other term), is as follows:
In Sullivan v. United States, taxpayer Grant W. Sullivan argued that he had not received "wages" and was not an "employee" under Internal Revenue Code section 3401(c). The United States Court of Appeals for the First Circuit ruled against Sullivan, stating:
In United States v. Ferguson, taxpayer Joy Ferguson argued that she was not an "employee" under section 3401(c), and that she therefore could not have "wages." The court ruled against her, stating:
In Luesse v. United States, taxpayer Chell C. Luesse of St. Louis Park, Minnesota, argued that he received no "wages" because he was not an "employee" under section 3401(c). The court ruled against Mr. Luesse.Luesse v. United States, 84-1 U.S. Tax Cas. (CCH) paragr. 9389 (D. Minn. 1984).
In Richey v. Stewart, the court stated:
In United States v. Charboneau, the court stated:
In McCoy v. United States, the court stated:
Joseph Alan Fennell's argument — that the compensation he received in exchange for "non-federally privileged private sector labor" was not taxable—was rejected by the United States Tax Court.See Fennell v. Commissioner, Docket No. 26285-07L, United States Tax Court, Order of Dismissal and Decision (June 17, 2008). Fennell appealed his Tax Court loss, but the United States Court of Appeals for the District of Columbia Circuit ruled that Fennell's challenges were "frivolous on the merits in any event."Fennell v. Commissioner, no. 08-1314, March 12, 2009, United States Court of Appeals for the District of Columbia Circuit (per curiam). Similarly, in United States v. Buras, the argument that the taxpayer can be subject to the federal income tax only if he benefits from a "privilege extended by a government agency" was ruled to be without merit.633 F.2d 1356 (9th Cir. 1980), at . See also Olson v. United States760 F.2d 1003 (9th Cir. 1985) (per curiam), at . and Nichols v. United States.575 F.Supp. 320 (D. Minn. 1983), at .
A penalty of $1,000 under Internal Revenue Code section 6673 was imposed by the U.S. Tax Court on Patrick Michael Mooney for presenting frivolous arguments. The court rejected his argument that his wages earned from a private employer were not taxable. The court also rejected his argument that the term "employee" was limited to "someone performing the functions of a public office."Mooney v. Commissioner, Docket No. 21647-06, United States Tax Court, Order of Dismissal and Decision (May 5, 2008), aff'd per curiam, No. 08-1899 (4th Cir. Jan. 21, 2009)
The United States Court of Appeals for the Eleventh Circuit ruled that an argument by Robert S. Morse that his income was not subject to federal taxation because it was derived from employment in the "private sector" was frivolous, and that Morse was liable for monetary sanctions, under Rule 38 of the Federal Rules of Appellate Procedure, for making a frivolous argument.United States v. Morse, 532 F.3d 1130 (11th Cir. 2008) (per curiam).