Will the IRS treat a USC or LPR residing outside the U.S. who purposefully refuses to file U.S. income tax returns and information returns the same as “tax protesters”?
What is a “tax protester”? What is the significance for USCs and LPRs residing overseas?
What if the U.S. tax and its applicability to USCs and LPRs living overseas, specifically including the tax on expatriation seems unfair, unjust, overreaching, burdensome, etc.? Is that a legal basis for defying the law’s application and reach?
The author has consistency argued, that from a tax policy perspective, U.S. citizenship based taxation of worldwide income for those who live outside the U.S. needs to be repealed as it is unique in the world, dates to the 19th Century Civil War and is inappropriate for the global world we live in. See, “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, 2013.
“Tax protesters” and their frivolous arguments generally assert, somehow the U.S. federal tax laws are against the U.S. Constitution; i.e., unconstitutional. The U.S. Supreme Court has already ruled that U.S. citizenship based taxation is indeed Constitutional when it upheld as Constitutional the concept of citizenship based taxation in 1924 in Cook v. Tait. In that case, the U.S. citizen resided permanently and was domiciled in Mexico City with his Mexican citizen wife. See, Supreme Court’s Decision in Cook vs. Tait and Notification Requirement of Section 7701(a)(50)
These Constitutional arguments are not looked well upon by any branch of the U.S. federal government. The IRS and Tax Division of the Department of Justice regularly prosecute these cases. The Courts regularly uphold the government’s position; and the Congress has passed increasingly harsh penalties, including as late as in 2007 (See IRC section 6702 – Frivolous Tax Submissions).
The term “tax protester” became somewhat taboo after Congress passed a law designed at protecting taxpayer’s rights. The current, more politically correct terminology comes from the National Tax Defier Initiative, also known as the “TAXDEF Initiative” which was launched by the Tax Division of the DOJ.
In short, the Courts, specifically including the U.S. Supreme Court have consistently rejected a range of arguments that the tax law is unconstitutional. Those individuals who advance such arguments, which have consistently been upheld as frivolous legal arguments, are commonly referred to as “tax defiers” or “tax protesters.”
A classic quote from the 7th Circuit is apropos – Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir. 1986) –
- Some people believe with great fervor preposterous things that just happen to coincide with their self-interest. “Tax protesters” have convinced themselves that wages are not income, that only gold is money, that the Sixteenth Amendment is unconstitutional, and so on. These beliefs all lead—so tax protesters think—to the elimination of their obligation to pay taxes.
Hoards of taxpayers have been found liable for civil penalties, civil fraud penalties and criminal liability (in the most egregious of cases – with prison sentences) over the years as they have asserted a range of arguments found to be frivolous.
Will the IRS or the Tax Division of the DOJ take a similar position against UCS or LPRs who have resided overseas who argue the U.S. tax law should not apply to them? See an earlier post, Tracking U.S. Citizens and LPRs in and Out of the Country – Tracking Taxpayers (Entry/Exit System)
Who in the government will test the limits of enforcement overseas? Will the long-arm of the U.S. federal government, and its enforcement, grow even longer? Will information collected by the IRS via FATCA enable the government to compile and pursue such cases? See, U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations
Read Wikipedia for a colorful overview of – Tax protester history in the United States