What’s a Guy to Do?

As before, I am indebted to attorney Larry Becraft’s substantial writing on these topics. You can find his work on taxation here.

In order to further illustrate the mixed messages that the courts are sending regarding income tax, I want to look at the court decisions on the nature of income (and the subsequent tax liability).

A direct tax applies to and taxes property while an indirect, excise tax is never imposed on property but usually an event such as sales; see Bromley v. McCaughn, 280 U.S. 124, 50 S. Ct. 46, 47 (1929).

The Court defined these two types of taxes in the following manner:

While taxes levied upon or collected from persons because of their general ownership of property may be taken to be direct . . . a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise which need not be apportioned . . .

Those courts which hold that an income tax is a direct property tax believe that income is property, yet those which hold that this tax is an excise declare that income is not property.

If the courts are not in agreement on something so fundamental, how can the average American citizen be expected to follow the law?

Income Is Property

First, let’s look at court decisions that say that income is property.

Aquilino v. United States, 363 U.S. 509, 512-13, 80 S.Ct. 1277, 1280 (1960)

it has long been the rule that "in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property . . . sought to be reached by the statute."

United States v. Baldwin, 575 F.2d 1097, 1098 (4th Cir. 1978)

Whether the life tenant subject to these restrictions, but possessed of these privileges, is seised of property or property rights is a determination for the State judiciary exclusively. 

Sims v. United States, 252 F.2d 434, 437 (4th Cir. 1958)

In unambiguous terms, Section 6331 authorizes the collection of delinquent taxes 'by levy upon all property and rights to property' belonging to a delinquent taxpayer; and it is not disputed that, in general, accrued wages are properly subject to levy.

James v. United States, 970 F.2d 750, 755, 756 n. 11 (10th Cir. 1992),

It is axiomatic, however, that an IRS levy on wages is a levy on the taxpayer's property.

Eliasberg Bros. Mercantile Co. v. Grimes

It is clear therefore that while "income" is a complex conception of elements and units which may be, and usually are, acquired, and used or disposed of at different times, its elements and units are in the most literal sense wealth and property . . .

Income Is Not Property

Next, these court decisions state that income is not property.

Hale v. Iowa State Board of Assessment and Review, 223 Iowa 321, 271 N.W. 168, 172 (1937)

. . . income is not property within the law of taxation.

Hattiesburg Grocery Co. v. Robertson

Income tax is an “excise tax” and not a property tax within constitutional requirement of taxation in proportion to value.

An income tax is an excise and not a tax on property within the meaning of the requirement of section 112 of the state Constitution of 1890 that property shall be taxed in proportion to its value and shall be assessed for taxes under general laws and by uniform rules according to its true value.

Jack Cole Co. v. MacFarland, 337 S.W.2d 453, 455-56 (Tenn. 1960)

Realizing and receiving income or earnings is not a privilege that can be taxed.

What to Do?

The confusion is so great that if someone follows the word of their own state court, they might be charged with a tax crime. However, they have a right to rely upon the word of the courts, even when erroneous.

United States v. Albertini, 830 F.2d 985, 989 (9th Cir. 1987).

(3) A belief that conduct does not legally constitute an offense is a defense to a prosecution for that offense based upon such conduct when:

(b) [the actor] acts in reasonable reliance upon an official statement of the law, afterward determined to be invalid or erroneous, contained in (i) a statute or other enactment; (ii) a judicial decision, opinion or judgment; (iii) an administrative order or grant of permission; or (iv) an official interpretation of the public officer or body charged by law with responsibility for the interpretation, administration or enforcement of the law defining the offense.

So this is the situation we’re in. The income tax court decisions are so contradictory that the average U.S. citizen has no clarity upon which to act. Their expectation of due process by following the law is compromised; which law are they supposed to follow? It follows, then, that the average American should not be found guilty of tax evasion when they choose one of the interpretations and act accordingly.