Tax Court Judges Need to Have a Sense of Humor

Originally Published on forbes.com on March 4th,2012

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No W-2 is No Excuse
Qunnia S. Hatch v. Commissioner, TC Memo 2012-50

Quinnia Hatch worked for North South Florida Rehab, Inc.  It was apart time job on an as needed basis.  She did filing, data entry and billing.   She earned $4,451.  She thought she was an employee.  North South thought otherwise and sent her Form 1099-MISC.  She did not report the income.  The IRS sent her a notice for additional income tax and self-employment tax.  Interestingly, the IRS appears to have concluded that she was an employee, since the Tax Court noted that they conceded the self employment tax.  Of course, she still has to pay income tax on the income.  The Tax Court considered sanctioning her for instituting the proceeding for purposes of delay, but let her off with a warning.

Interestingly, if you have been treated as an independent contractor and think that you are really an employee, you do have recourse.  You can fileForm 8919.  If the IRS agrees with you, you only have to pay the employee share of FICA/Medicare not the self employment tax.  You still have to pay the income tax.  The filing will make life miserable for your, presumably former, “employer”, so it might turn into a bridge burning exercise. 

Whether someone can be treated as an “independent contractor” can be afairly elaborate analysis.  I have come up with an easy rule of thumb.  If you ask the question, the person is probably an employee.

Show Me The Law
James R. Garber v. Commissioner, TC Memo 2012-47

I recently wrote about Ed and Elaine Brown, whom Ron Paul puts in the same category as Gandhi and Martin Luther King.  They refused to surrender when convicted for not filing and paying income tax, stockpiling food and weapons in their New Hampshire home.  They demanded that someone “show them the law”.  That exercise got them a few addtional decades of federal housing beyond what they had previously earned.  I speculated that they are banking on a pardon from President Ron Paul.

James Garber is coming from a similar school of thought, but as he is just making a pain of himself in Tax Court, he is not running as big a risk:

In his motion, petitioner contends that respondent has not been able to provide him with “any Section of the IRS code which makes the petitioner LIABLE for the tax imposed in Section 1 of the Code” and that “[i]f the respondent can locate any section of the code which makes the petitioner `liable’ or `required’ to file a return, the petitioner will immediately plead guilty thereby saving the court a great deal of time and money.”

The Tax Court lost patience with this stuff a very long time ago:

As we have said of similar arguments on previous occasions, petitioner’s arguments are frivolous and devoid of any basis in the law. We need not refute them with somber reasoning and copious citation of precedent; to do so might suggest that they have some colorable merit.

They could charge him as much as $25,000 for advancing frivolous arguments, but they let him off with $1,000 in addtion to the roughly $2,000 in tax assessments he was appealing.  The thing that gets me about the magical thinking going on in these cases is that if there were a conspiracy capable of convincing most Americans that their was a legal income tax, wouldn’t the group behind the conspiracy have the power to make that the law and be done with it ?  If you are thinking about embarking on the same path that cost Mr. Garber $1,000 and the Browns the rest of their lives in federal prison, there is something you should check out. It is called Here is The Law That Makes the Average American Liable for Income Tax.  They do make one concession:

Over the years and out of literally thousands of tax protestors who have been criminally prosecuted, a very small handful have won acquittals in their criminal trials, by convincing the jury that they were too stupid to understand that they had to pay taxes. But even in these “wins”, such as they were, all those tax protestors remained 100% liable to pay their taxes.

Once again I want to thank fellow forbes contributorJJ MacNab for pointing the site out to me.

You can follow me on twitter @peterreillycpa.