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Not paying Federal Income Taxes


Baboontyme

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I have a friend (legit, this is not me) who has long been a bit of a conspiracy theorist. He is the type of guy who likes alternate theories because I think psychologically he just likes to think that the public are sheep and being spread misinformation and that if you educate yourself about things, there is more to every single little slice of anything. This goes all the way back to Tower 7 stuff, etc. Without trying to get political (I don't think he's a Sandy Hook Truther, but I would not even want to talk about it with him), he's a big time 2nd Amendment guy, thinks Global Warming is a scam, etc. He's a smart guy, but he's a bit off the reservation and sometimes I think seeking to find an alternate truth so that he can feel like he's for lack of a better term, just the smartest guy in the room. He is also very sincere and honest and does not lie. I have known him pretty much my entire life. 

I've known about this particular "belief" of his before, but I tend to avoid any kind of heavy conversation with him because it's just exhausting. He likes to talk about it, and gets rolling, and I feign interest and then change the subject typically. Well last night he and another mutual friend and I were drinking beers and our other friend started probing on the Income Tax thing. 

He says he has not paid Federal Income Tax since 2003. He says that there is a very specific IRS code, and the language in the IRS code differs from common definitions that you and I have come to accept. It goes something like this (hell I probably have this wrong) - the IRS code states that as an employee you have to pay federal income tax. However, when you actually look up the IRS definition of employee, it is someone who derives a benefit from the Federal Government, and when you look that up, it boils down to someone who actually works for the Federal Government. Something like that. His claim is that if you work for a private or public non government entity, you do not owe Federal Income taxes on the basis of not being an actual employee as the IRS defines it. 

He claims that there is a community out there (and I haven't looked for it) where this is common knowledge and there are books on the subject, and that basically when the IRS comes to you demanding their penance, you can city X, Y, and Z and if you respond properly to their letters/inquiries, there is nothing they can do. He said they threatened to take his house, his bank account, etc, but he kept responding to their inquiries and citing the proper sources and definitions and eventually they just gave up. 

He's even gone so far as to demand a refund BACK from the IRS for years that he paid, before he realized this. He has actually shown me some of these checks in the past. 

Now, I am absolutely not thinking about doing this. I have too much to lose. He is single with a nearly grown daughter and his house is paid for, etc. But I know the Surl has a wealth of background and knowledge and I wondered if anyone has ever heard of this notion. 

Again, he's completely trustworthy. I believe him fully. I believe that he believes it is the truth. I also believe that in 5-10 years Uncle Sam is gonna come knocking at his door. He seems to think he's past that hurdle. 

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Yeah, that's like the "common law trust" people.  Google it.  There are reasonably intelligent people that have convinced themselves, mostly through out of context quotes from old decisions of the Supreme Court, that assets placed in a "common law trust" cannot be taxed or otherwise attached by the government and that it's totally legit.  It's not.

Also, I found the definition he is probably looking at:

26 USC 3401:

Quote

(c) Employee

For purposes of this chapter, the term “employeeincludes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation.

That is a section defining "wages" for the purpose of taxation.  In many cases it uses the term employee, for example, here:

Quote

(a) WagesFor purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid

So the really operative term in that definition of employee is INCLUDES.  It doesn't purport to exclusively define employee, it just means government employees make wages, too.  And get taxed on them.

Edited by TwiceHorn
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I’ve heard of something similar with an employee who worked at a company before I did. My understanding is that he completely believed the IRS didn’t have the authority to collect taxes and even got the company to not withhold income taxes (how he managed that, I have no idea).

Now this guy also owed the government millions of dollars due to the lucrative acquisition of a previous company but he still hadn’t paid any taxes. 

Eventually the g-men came & arrested him. He tried the same defense or similar your buddy is using and even said the court didn’t have the authority to try him. He was found guilty and when he was non-conciliatory with the federal judge, he was sentenced to 5 years in federal prison & his property was confiscated to pay the back taxes. 

My guess is that your buddy hasn’t warranted the full attention of the government because the amount he owes isn’t worth their time. Yet. 

Once he gains their attention, and eventually he will, they will come after him. It’s important to note that there is no statue of limitations on tax evasion - so even if he gets away with it for 30 years, they can eventually bust him for the entire period he wasn’t paying. 

Messing with the government’s cash flow is a fool’s errand and one day it will catch up to him.   

 

Edited by smokebomb
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I've thought about that before and it scares me. I mean I don't see any way around it. Either he's right, or he's going to end up in jail. And I don't think he's right (based on my completely uneducated opinion and a little thing called common sense). He's not exactly the sort that you can talk to about this stuff. He knows better than you. 

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Yeah, that withholding stunt is something else.

 

For the record, if you are a business owner with employees and subject to withholding taxes for them, do not EVER fuck around with that.  The IRS will come down on you hard and swiftly.  They will shutter your business, sell the assets, even the leased/loaned-on assets.  You will be fucked like Chuck.  They will ask zero questions until all that is done.

Edited by TwiceHorn
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I agree. Don't get me wrong. 

I guess the reason why I'm even bringing the discussion up is...he's been doing this for 15 years now. He has used his "evidence" to actually get refund checks from the government for years he's already paid. At what point are they going to step in? Not that I want them to. But I have to think it's coming. It's hard to believe that they would issue him refunds based on his evidentiary claims but then decide at a later point in time to step in. I guess he's just lucky? 

I guess there's credence to the small potatoes theory. I mean he does ok financially but nothing to raise flags. If I had to guess he's probably in the 100 - 150 range, again, single income family. 

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1 hour ago, Baboontyme said:

I agree. Don't get me wrong. 

I guess the reason why I'm even bringing the discussion up is...he's been doing this for 15 years now. He has used his "evidence" to actually get refund checks from the government for years he's already paid. At what point are they going to step in? Not that I want them to. But I have to think it's coming. It's hard to believe that they would issue him refunds based on his evidentiary claims but then decide at a later point in time to step in. I guess he's just lucky? 

I guess there's credence to the small potatoes theory. I mean he does ok financially but nothing to raise flags. If I had to guess he's probably in the 100 - 150 range, again, single income family. 

He hasn’t gotten a thin red dime back from the irs using his “evidence”.  He may have refiled for some years claiming zero income and they issued a refund based on that instead of auditing. 

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I've never gotten a notice from the Feds saying that I owe them or that filing was required. Aren't they supposed to at least tell you in writing? Maybe I signed some paperwork and just didn't catch that part. Beats me. Oh well, I'm off to the yacht club, it's regatta day.

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Mostly covered above, but random thoughts:

1. Dude could be facing some legit jail time;

2. Every asset he owns can be confiscated to satisfy his tax debts, plus a shit ton of interest and penalties; he isn’t saving himself one thin dime; he’s only mortgaging his future;

3. I’m guessing those IRS refunds were obtained via fraud, not because of his secret loophole;

4. IF, and it’s a giant IF, such a legal loophole exists/existed, Uncle Sam could close it with the stroke of a pen; this would have happened a long time ago;

5. You may think your friend is “a smart guy”; he’s not;

6. You should call him out for being a bitch for not paying his fair share and mooching off tax payers who do.

Bernard

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Hey baboon, could you tell your friend to tell all of his likeminded community that the state of Texas was annexed illegally without vote, and therefore should be repatriated immediately?  

Need to get some nationwide movement on this issue. The crackpots in Texas aren’t getting the job done by themselves. 

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 “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

 

As others have said; it’s not a matter of if but when.  Everything is slow with the irs as they prioritize bigger offenders, but once your buddies deficiency is large enough you’ll probably get to visit him at the federal pin.    

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We talked about this a little on the old board, but how much of our consumption economy do y'all think gets done under the table where no sales or income taxes are collected.  I used to think maybe 10%, but I would guess now it might be 25-33%. 

Every damn plumber or hairdresser out here makes $75-100k but reports $23k.  Waitresses, small contractors, mechanics, etc. There is a metric shit ton of cash floating/passing around (and not just drug dealers) , and I see more and more people/ small stores/businesses doing business and offering a cash discount so that it just goes in the bottom drawer and home to the safe/lockbox.

The rule out here is to file, but claim very little income.  And you better not send Joe a 1099 for his work on your new HVAC.  The guy who pays the income taxes is the poor dude making $50-150k  and getting a W2.  Below that and he is probably qualifying for credits.  Above that and his accountant is sheltering it. .

Edited by Whitman
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19 hours ago, Baboontyme said:

I've thought about that before and it scares me. I mean I don't see any way around it. Either he's right, or he's going to end up in jail. And I don't think he's right (based on my completely uneducated opinion and a little thing called common sense). He's not exactly the sort that you can talk to about this stuff. He knows better than you. 

Ask him about Serpent People.

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I'll definitely provide updates if anything goes down. 

I'm sure I could answer a lot of questions and fill in a lot more detail but it would require me asking, and more to the point, being willing to endure an hour + lecture on the subject. And I am decidedly not willing to do that. 

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39 minutes ago, Baboontyme said:

I'll definitely provide updates if anything goes down. 

I'm sure I could answer a lot of questions and fill in a lot more detail but it would require me asking, and more to the point, being willing to endure an hour + lecture on the subject. And I am decidedly not willing to do that. 

DO IT. IT’S AN ORDER.

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Seriously what's your friends name again?

Spoiler

You can file IRS Form 3949-A to report the alleged cheater and walk away. But if you want a reward, file Form 211 instead, says Bob Gardner, a consultant and former manager in the IRS whistle-blower office.

Whistle-blowers can get 15% to 30% of the amount collected if the case involves more than $2 million in taxes, penalties, interest and other amounts. (If the suspected cheater is an individual, he or she must also make more than $200,000 a year.) Below those thresholds, the award is discretionary.  In 2015, the rewards totaled more than $103 million for 99 whistle-blowers.

 

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Yeah, that withholding stunt is something else.
 
For the record, if you are a business owner with employees and subject to withholding taxes for them, do not EVER fuck around with that.  The IRS will come down on you hard and swiftly.  They will shutter your business, sell the assets, even the leased/loaned-on assets.  You will be fucked like Chuck.  They will ask zero questions until all that is done.


You will be held personally liable as well. No hiding behind the business on that.
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True story: I was audited for my first year of grad school because I had a significant reduction in reported income...  

I just provided documentation that I was in school and it was over but getting a certified letter had by but puckered.  

 

edit to add, that they didn't audit me for a couple of years after I had already graduated.  I may never know what triggered the review as it's not like I made a lot of money before school...

Edited by SDG
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