Jail Bait

by Harry Browne

(Adapted from Fail-Safe Investing)

You may encounter schemes that purport to eliminate all income taxes legally. These plans are based on misguided interpretations of the income tax rules, and they're dangerous.

The theories advanced by their proponents usually include one or more of following contentions:

  • Congress has never passed a law requiring you to pay taxes;

  • The 16th Amendment (authorizing an income tax) was never actually ratified;

  • The Internal Revenue Code applies only to corporations ó or it doesn't apply to wages or salaries ó or it applies only in U.S. possessions like Guam or the Virgin Islands;

  • The IRS itself says that paying income tax is voluntary;

  • A legal obligation to file a return that could incriminate you violates the 5th Amendment to the Constitution.

And there are other contentions.

It is beyond the scope of this article to examine all these claims. (However, if you believe there's no law requiring you to pay income tax, click here to see the portions of the law that do require you to pay income tax.)

Here let me make just two points.

People Go to Prison

First, it doesn't matter whether you believe the income tax is "legal." Whether or not it is, many people who don't pay income tax are put in prison.

One of the best-known promoters of these schemes has been in prison three times ó each time for tax evasion, and is now facing a possible fourth prison term. During his time in prison, he figures out what was wrong with his plan ó and he comes out with a new, safer way of getting around the system. He tries it ó and eventually goes back to prison.

Many others who have tried these schemes have paid for it with prison time. If they want to do that to protest the income tax system, that's their privilege. Most of them, however, went to prison because they thought there was a way to evade taxes without danger.

No matter how strong the argument someone makes to claim you don't have to pay income tax, remember that the question isn't: Is the logic correct? The question is: Do people go to prison for following it? And they do. Is that what you want to risk?

Don't Be Fooled by IRS Inattention

Second, the claims usually are accompanied by stories of people who have followed the recommended procedure for years and have never been bothered by the IRS.

If the Internal Revenue Service is aware that you haven't paid your taxes for a year or two, it may send you a notice asking whether you've filed a return that they missed. If you don't answer or you tell the IRS you have no legal obligation to pay, and the IRS stops sending you notices, it isn't because the IRS has given up on you.

Instead, the IRS will identify you as a tax-evader. The next step is to give you enough rope to hang yourself. The IRS wants you to go several years without paying tax for two reasons: (1) to establish that it was part of a pattern of deliberate evasion, rather than an isolated mistake; and (2) to allow the unpaid taxes, penalties, and interest to accumulate to a size that makes it worth prosecuting you. And then it will come after you with a vengeance. The full force of the federal government will be brought to bear to prosecute you, and possibly send you to prison.

Every one of the you-donít-have-to-pay-income-tax movements started out with "air tight" arguments that supposedly avoided the pitfalls of all the other you-donít-have-to-pay-income-tax movements ó the "mistaken" ones that had sent people to prison. But, eventually, people do go to prison, and I donít want you to be one of them.

Loopholes Can Be Plugged

I canít possibly deal with all the specific arguments made by all the different tax protest movements, but consider one simple point that applies to all such claims. If there is some loophole in the income tax code by which the taxing of U.S. income isnít authorized, why wouldnít Congress in one of its yearly tax-overhaul bills simply plug that loophole? 

The only rebuttal to that question that Iíve heard is that it would be unconstitutional (5th amendment and so on), but 99% of the laws passed by Congress violate the Constitution. Why would they shrink from passing an unconstitutional revenue act? (And, while we're on the subject, why would you think the Supreme Court would uphold the 5th amendment in your case when it has ignored the 5th amendment in so many other cases.)

Only for the Wealthy?

The latest incarnation of the tax-protest movement is the idea that the 16th Amendment was passed by Congress and ratified by the states with the intention of taxing only the wealthiest citizens. 

This may or may not have been the original intention, but it's of no importance ó because no such limitation was written into the 16th Amendment (authorizing Congress to impose an income tax). Such an unwritten "original intent" is irrelevant in a document like the Constitution, which is written mostly in very plain, straightforward language. 

One of the problems today is the desire of conservatives and liberals to want the Supreme Court to read into the Constitution various interpretations ó when such phrases as "Congress shall make no law . . ." are plain enough to require no interpretation. Once you go beyond the plain language of the Constitution, you're opening the door to a free-for-all over obscure second and third meanings of words, the intentions of legislators, and who-knows-what-else. 

How to Get Rid of the Income Tax

Although I haven't dealt with the details of every tax-evasion scheme here, or even mentioned every one that's promoted by someone, please understand that I've been aware of these plans for at least twenty years, I've investigated many of them, and I've found no value whatsoever in any of them.

And no matter how good you think the latest one is, I'll tell you now that I'm not going to drop what I'm doing to investigate one just because it happened to pop into your email Inbox.

For a more detailed review of various tax-protest plans, click here to read an excellent article by Daniel J. Pilla, who has spent years investigating the claims of no-tax promoters.

Itís very tempting to think you can evade income taxes and get away with it. But you are taking an enormous risk. And I believe it is irresponsible for someone to encourage other people to take that risk when the person doing the encouraging is not going to suffer the consequences.

The drive to prove that no one owes income taxes is not a libertarian cause. It does nothing to show people that government programs hurt, rather than help, America. By trying to focus on legalisms, it does nothing to show that government shouldn't be taxing your income.

We will get rid of the income tax only when we show enough Americans that they will be far better off by reducing government dramatically (including forgoing their own subsidies) so that they can be free entirely of the income and Social Security taxes. That, actually, will be easier to achieve than to convince them that the income tax is illegal. For more about showing Americans how much better off they'd be with smaller government and no income tax, click here or here.