Historical Perspectives on the Federal Income Tax
Richard M. Creamer May 31, 2003
Director of Compliance Services
Internal Revenue Service
Department of the Treasury
Ogden, Utah 84201
Pamela F. Olsen
Assistant Secretary for Tax Policy
1500 Pennsylvania Ave. N.W. Room 1334
Washington, DC 20224
RE: Request for consolidation of case and freezing of "frivolous penalty" action.
(Document Locator Number: 91655-040-19405-02 [04/28/03]/ 0469104150 [01/22/02])
Dear Mr. Creamer,
We are requesting that you consolidate our case into one complete file so that the pending issues concerning our application for refund may properly be addressed. We also request that the current action regarding the assessment of "frivolous" penalties be frozen until such time as the issues we have presented are resolved through appropriate supporting documentation. As you are aware we have been pursuing our questions since 1996 and have yet to receive any direct answer. You are also aware that we have continued to file our tax returns and pay the taxes assessed thereby in full compliance with the law. Why are we being treated as though we are "tax protestors", when we are doing everything we can to comply with IRS requirements. It is your department who has refused to answer our questions.
Section 7422 of the Internal Revenue Code provides a method by which all challenges as to the proper application of taxes must be processed. Section 6402-2 states that a claim must be filed for obtaining a refund and such filing must include the reason and supporting documentation for granting such refund. We complied with those requirements in our Attachment A, Parts A, B, and Supporting Documentation letter attached to our 1040X form as provided for under Section 6402-3 (a) (2) and (5).
Our request was denied on January 22. 2002 without any specific documentation or reference to any Code section, Treasury Regulation, or court case supporting the denial. In addition your department assessed "frivolous" penalties under Section 6702, why? Section 6702 requires two things before an assessment of penalties can be made (1): That the return did not contain correct information upon which the assessment could be made, or the information provided is substantially incorrect. AND (2) the position is frivolous or the desire was to delay or impede the collection of the tax. Our taxes were fully paid and our 1040 tax returns accepted by your department as being substantially correct. Is your department saying that the mere filing of a 1040X form is "frivolous", if so, what is the point of Sections 7422, 6402-2 and 6402-3 (a) (2) and (5)?
On February 22, 2002 your office received our request for an appeal hearing and as of today we have not been granted that request. We thought maybe you understood our concerns as the letters addressing the assessment of penalties stopped after the second notice in April of 2002, however, we must have been mistaken as we have now received another notice, including additional interest, one year later. Why are you sending us notices of penalties, when all we want is a chance to talk directly with someone who can answer our questions? The questions will not go away until they are answered, and if you have no answers how are the questions "frivolous"? Stating that the court has rejected our argument without providing specific case references is of no help to anyone. The court, in Louisville & N.R. Co. v. Melton, 218 U.S. 36, 49 held:
"We primarily dispose of a motion to dismiss, which rested upon the ground that the Federal question relied upon has been so conclusively foreclosed by prior decisions of this court as to cause it to be frivolous, and therefore not adequate to confer jurisdiction. The contention may not prevail, even although it be admitted that a careful analysis of the previous cases will manifest that they are decisive of this. We say this because, for the purpose of the motion to dismiss, the issue is not whether the Federal question relied upon will be found, upon the examination of the merits, to be unsound, but whether it is apparent that such question has been so explicitly foreclosed as to leave no room for contention on the subject, and hence cause the question to be frivolous."
The question being asked is whether or not the common labor for hire employee falls within the definition of "sole-proprietor, independent contractor, branch, or division of the owner", as required by 26CFR301.7701-1, -2, and –3, not what constitutes income.
By operation of the Statute the Internal Revenue Code is based upon "commercial net income" as stated by Article 21 of Regulations 45 (1918), 26CFR39.21-1 (b) of the 1953 Regulations. Congress did not change that requirement through the 1954 Revisions. In fact, by stating that in the term "all income from whatever source derived", the word "income" is used in its constitutional sense, therefore, not in its meaning in everyday usage, they intended that the current understanding of "commercial net income" was to continue. The Secretary of the Treasury, in compliance with that understanding, defined the term "person" in relation to "commercial net income" by the words "sole-proprietor, branch, or division of the owner" [see 26 CFR 301.7701-2 (a)]. Are we to assume without facts that the common labor for hire employee is, in reality, a sole-proprietor or independent contractor, or possibly a branch or division of himself or herself? How else could their yearly gross wages be considered "commercial net income" under the constitutional meaning? Where is the court case deciding that issue, and who brought that action? What specific issues did they raise and what supporting documentation did they present?
We are simply asking for our right, under the Constitution, to have answers to our questions. Why are we being forced to resort to an action we would prefer not to take?
Gary and Michele Given
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