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Legal Notes

A collection of observations for the benefit of those wanting to file proper, educated tax returns

 

General Considerations In The Filing Of Educated And Accurate Returns

THE FOLLOWING IS A SUMMARY of some basic concepts and issues related to filing knowledgeable, accurate and proper tax instruments. Each point or observation may or may not have relevance to any particular person's situation, and I suggest everyone read through them all. More particularized considerations will be found further down this page.

1. If "information returns" by a payer (i.e., W-2s, 1099s, K-1s) make what are believed to be erroneous allegations of the payment of "wages", "non-employee-compensation" or other revenue purportedly in connection with the conduct of an "income-taxable" activity, a filing intended to be true, complete and correct would seek to rebut the erroneous allegations and provide what the filer believes to be the correct amounts. This might be done by, for instance:

A. Attaching sworn statements specifically rebutting the errors on those forms with correct entries to one's federal (and/or state and local) 1040. Examples are Forms 4852 (to rebut and replace errant W-2s or 1099-Rs), or photocopies of errant original 1099-MISCs (or any other type of 1099 other than the 1099-R) with correct information replacing incorrect entries, and a sworn statement added declaring the instrument to be a rebuttal of an erroneous 1099-(xx) known to have been submitted by the listed payer.

and...

B. Using the rebuttal instruments as replacements for the erroneous "information returns" and the correct information from the rebutting instruments to complete one's 1040. For instance, if one has received erroneous W-2s and has created a rebutting 4852, where a 1040 asks for "wages received" and says to attach a W-2, one would declare the "wage" entry from line 7(a) of the 4852, and attach that form instead of the erroneous W-2.

Instruments rebutting erroneous 1099s (other than 1099-Rs) are attached to the return by themselves-- that is, not with some kind of schedule-- unless one really IS operating some kind of tax-relevant business or other activity, and one is acknowledging having had SOME "trade or business" "income", but just a different amount than what was reported on the erroneous 1099.

• If one engaged in no tax-relevant activities during the year there are likely no schedules that are appropriate for one's filing (unless, I suppose, one has something being carried over from a previous year in which something taxable WAS done...).

• If erroneous forms were included with a filing in which those erroneous forms are rebutted it would cause a contradiction in entries and make the return invalid and "frivolous", since everything included with a return is presumed to be attested to as correct by the filer.

• Failing to combine all amounts withheld as or for any kind of federal tax as a single figure on the line designated for "Federal income tax withheld", and/or failing to include and claim back any withheld amount while claiming back other amounts, is to create an apparent contradiction.

For instance, to report $0 "wages" and claim back amounts listed as withheld on a W-2 or 4852 as nominal "federal income tax" but to not also claim back amounts withheld as "Social Security tax" and "Medicare tax" would be to declare oneself to have not received "wages" as defined in 26 USC 3401(a) but to HAVE received "wages" as defined in 3121(a). Since both designations of "wages" refer to the same receipts and activities which produce them (with the latter being merely a surtax on a portion of the former) the declarations are contradictory of each other.

The same contradiction would arise if one listed anything as "Excess social security and tier 1 RRTA tax withheld", while denying having received 3121(a) "wages". One can only have "excess SS tax withheld" if one has had "SS tax" properly withheld up to the amount at which anything further becomes "excess".

2. A return is NOT an appropriate document for making legal arguments of any kind. To include a cover letter describing what is seen in the return (such as that erroneous "information returns" have been rebutted with instruments completed and attached for that purpose) does no great harm (though it risks making the filer appear a bit like a supplicant and uncertain, and therefore possibly vulnerable to browbeating). But a filing is not the place to be making assertions about whether one is or isn't an "employee", arguments about the nature of the tax, assertions that rebutted "information returns" contain "Bad Payer Data" and so forth.

A return is just a statement of the amounts one knows and believes to be true, complete and correct in regard to each item inquired-about on the 1040, properly-understood as to its statutory meaning. It's neither a soap-box nor a legal brief; further, some kinds of arguments can actually invite a "frivolous" assertion.

3. Amounts improperly or erroneously collected, withheld, paid-in, what-have-you can only be claimed for refund looking back three years. On the other hand, rebuttals/corrections of erroneous assertions for their own sake, or as a response to collections efforts based on erroneous information returns, have no look-back limit. Learn more about both issues here.

4. Returns varying from (or attempting to supplement) the principles and points listed here, and/or reflecting notions not presented in CtC or on this site (exclusive of forum pages)-- such as adding "UCC" references to jurats, or otherwise marking-up or adding-to a return-- invite problems. I believe such variations are sometimes seen as reflecting an uncertainty (and therefore an insincerity) about one's filing, which can create a pretext for treating a return as "frivolous" and invalid. They also make one appear to be a soft target for harassment, ill-equipped to stand one's ground and deal competently with pushback, which is therefore more likely to be attempted.

5. Most all of the above has long been posted amongst much other useful material on the FAQ pages. Make a point of staying up to date with those pages, and everything linked from the Site Map!!

6. For those new to filing educated returns and claims, the Bulletin Board has well over a thousand victories posted, hundreds of which include not only the check or notice or transcript, but also everything filed to make it happen. Examining any given half-dozen of these complete filings should equip anyone with a pretty clear picture of what's involved and what to do.

What Qualifies As Income-Taxable Privilege

*****

An Educated Filer's Checklist

Another helpful resource for first-time warriors for the rule of law, and a good refresher for veterans.

SO, YOU'VE DONE YOUR CAREFUL STUDY OF THE BOOK, and pored over the FAQs, legal notes and special-topic postings. "Information return(s)" erroneously characterizing payments made to you as being tax-relevant have arrived, or you've got money that was improperly paid-in or withheld to reclaim (or both). You're getting ready to file that first educated tax return.

Despite the best preparation, even someone with a solid grasp of the whole picture can still find his debut educated filing to be an anxious and drawn-out chore, if only for the heightened focus on getting everything right. And perversely, anxiety can lead to mistakes.

With this in mind, I offer the handy checklist below to this coming year's "newbies". It is my hope that it will reduce the anxiety and help make that first educated return more like the simple fifteen-minute affair that it is to veterans.

FOR "W-2-REBUTTING" FILERS:

1. Did I scrupulously verify and transcribe whatever is correct on each W-2 received to a corresponding spot on a Form 4852, and did I report what I believe to be correct in every place on the Form 4852 that corresponds to any incorrect entry on the W-2?

2. [For federal filings] Did I add up all amounts withheld and sent to the feds as taxes on income, whether under the names of "federal income tax", Social security tax or Medicare tax, and include them on the line of the 1040 for reporting the amount of federal income tax withheld?

3. [For state filings] Did I report the amount withheld as tax and sent to my state on the line of my state return for reporting the amount of income tax withheld?

4. Did I answer the questions on the Form(s) 4852 succinctly, factually and without arguments?

5. Did I carefully NOT attach the W-2(s) being rebutted to my filing, but carefully attach the Form(s) 4852 as substitutes for those at least partially-erroneous W-2(s)?

FOR "1099-R-REBUTTING" FILERS:

1. Did I scrupulously verify and transcribe whatever is correct on each 1099-R received to a corresponding spot on a Form 4852, and did I report what I believe to be correct in every place on the Form 4852 that corresponds to any incorrect entry on the 1099-R?

2. [For federal filings] Did I add up all amounts withheld and sent to the feds as taxes on income, whether under the names of "federal income tax", Social security tax or Medicare tax, and include them on the line of the 1040 for reporting the amount of federal income tax withheld?

3. [For state filings] Did I report the amount withheld as tax and sent to my state on the line of my state return for reporting the amount of income tax withheld?

4. Did I answer the questions on the Form(s) 4852 succinctly, factually and without arguments?

5. Did I carefully NOT attach the 1099-R(s) being rebutted to my filing, but carefully attach the Form(s) 4852 as substitutes for those at least partially-erroneous 1099-R(s)?

FOR OTHER 1099-REBUTTING FILERS:

1. Did I create a rebuttal instrument for each erroneous 1099 received by, for example, photocopying the received original, striking or whiting out all erroneous assertions and replacing them with correct information, with a plain and succinct signed declaration on the same page that the instrument is a rebuttal of an erroneous allegation known to have been made by the entity listed as "Payer", and that all information thereon is, to the best of your knowledge and belief and under penalties of perjury, true, correct and complete?

FOR K-1-REBUTTING FILERS:

1. Did I create a rebuttal instrument for each erroneous K-1 received by, for example, photocopying the received original, striking or whiting out all erroneous assertions and replacing them with correct information, with a plain and succinct signed declaration on the same page that the instrument is a rebuttal of an erroneous allegation known to have been made by the entity listed as "Payer", and that all information thereon is, to the best of your knowledge and belief and under penalties of perjury, true, correct and complete?

FOR FILERS WHO OWN THE BUSINESSES THAT PAY THEM

1. Did I ensure that any erroneous prior business filings for the relevant year concerning things being addressed on, or relevant to, my personal return (such as W-2s, or business returns treating my business as a federal corporation, for instance) have been corrected?

2. Did I ensure that any erroneous filings about others made by my business have been corrected (such as W-2s or 1099s, for instance)?

FOR FORMER "TAX HONESTY COMMUNITY" FILERS:

1. Did I refrain from quirky zip-code "bracketing" [] or other irrelevant and sometimes balk- or harassment-inviting indications that I'm really just a "tax honesty" wanderer trying things out without firm knowledge, confidence and intent?

2. Did I include the SSN assigned to my "account" with the tax agency so as to make it easy to process my return?

3. Did I sign the jurat without compromising it in any way (that is, without any strike-outs or additions that compromise its sincerity); and without any notations or other balk- or harassment-inviting indications that I'm really just a "tax honesty" wanderer trying things out without firm knowledge and confidence (such as expressions of a fear that one's rights are somehow compromised by signing a tax return, and need to be explicitly reserved against that danger)?

4. Did I carefully ensure that every conclusion reflected in the filing is squarely grounded in what is presented in CtC, and not tainted in any way with notions not found in CtC (such as any of those discussed here, for example)?

FOR ALL FILERS:

1. Did I attach instruments rebutting any and all erroneous "information return" allegations known to have been made concerning payments made to me, and supporting the entries on my 1040?

2. Did I only attach things to my return that I believe to be true, complete and correct, and nothing which contradicts anything else attached?

3. Do I have an entry in every field related to what I mean to be saying by way of my return? (That is, did I put a number-- whether 0 or otherwise-- in every spot intended for a filer's statements as to "income", "wages"-- if "wage" receipts have been alleged by anyone, "adjusted gross income", etc.? Leaving such a field empty is NOT a legally-functional statement as to how much of a thing one had, did or received.)

4. Did I refrain from making any kind of legal (or other) argument anywhere within or as part of the filing, and confine myself to filling in relevant blanks with fact entries?

5. Did I recognize that when Pete posts something someone else filed, it is NOT an endorsement of what is posted. Such posts (victories, arguments, whatever) are done to illustrate a principle, as in, "Mr. Smith  rebutted that allegation, (or maybe, "filed a return rebutting that allegation", or whatever) and here is what happened next." It is the "what" and the "why" that is being illustrated and endorsed, not the how (except in the kind of specialized sense of, "done with a return" or "done with a specialized rebuttal" and the like).

Sometimes people do the right and necessary thing, but only barely, while also including unnecessary and sometimes dangerously-close-to-self-defeating stuff. It is unwise to think that because "Mr. Smith" included some argument in his return "cover letter" and ended up with a refund that making that argument is necessary or even safe to do. It is especially unwise to imagine that Pete approves of it because it appears in a post on losthorizons.com.

Pete, as a matter of ethics, posts everything a victor or virtuous legal contestant filed if posting anything at all, because it would be wrong for him to pick and choose what parts of such things get posted. But only Pete's own writings, in print and/or on losthorizons.com, and his own posted filings, are endorsed, and everything anyone needs to know is covered in that collection of material.

Similarly, it is unwise to imagine that even when someone says, in something that ends up posted on losthorizons.com, that he or she got it from something Pete posted, that this is true or that if more-or-less true, that what was drawn on was accurately deployed or transcribed. Resort has to be made to Pete's material directly in order to ensure accuracy.

6. Did I make and save paper copies or high-quality scans of every page of the signed and dated filing?

7. Did I have my filing comprehensively witnessed?

8. Did I generously do my best to ensure that my family members, friends and acquaintances know why and how to file CtC-educated returns themselves?

I HOPE THIS CHECKLIST helps any who need it, and I hope that all will do their best to share it around. Unfortunately, not everyone finds his or her way to this page, and thus, without courteous sharing by those who do, much important or helpful material can be missed even by those who need it most.

AND BY THE WAY... When you have won them, SHARE YOUR VICTORIES!! That's a good chunk of YOUR part of the bargain in exchange for my efforts teaching you how to be free (and how to keep or regain control of a huge portion of your wealth). Find formatting guidance here.

*****

IRS Identity Verification Challenges

A minor annoyance, if taken in stride.

IRS "IDENTITY VERIFICATION" CHALLENGES have become more common in recent years. Over the last few seasons I've heard from at least 15 or 20 people that their filings first generated one of these challenges before their claimed refunds or credits issued.

A number of victories involving these challenges are posted on the Bulletin Board, with the challenge form included in the posted docs. Every scrupulous reader of these newsletters will have seen those, and the comments I posted with them.

THESE CHALLENGES are by no means specific to CtC-educated filings. For several years now the IRS has listed identity theft as among the commonest filing scams with which it is faced.

These fraudulent filings are made by people who have gotten ID information for someone else (perhaps due to one of the several incidents over the last decade in which millions of SSNs have been hacked from various government agencies and private businesses). They then file returns fraudulently claiming refunds of some amount or another of what was actually withheld from the victim (determined I know not how), but to be sent to the fraudulent filer's address.

The identity-verification process thus is geared toward having the person at the address on the challenged return, and to which the refund check will be sent, prove that they are the person whose withholdings are involved in the refund. Usually this is done by having that recipient person, to whom the challenge form is sent, read off entries from a previous tax return (which only the proper person is expected to know) and entries off the current return (which will demonstrate that they-- the proper person-- are the one who put those entries on the form).

SOMETIMES THE INDIVIDUAL facing the challenge is asked to appear in person at a local IRS office with photo ID. Usually that will only happen if some glitch arises in the phone-call procedure, such as the filer balking at reading off the "income" figure on the returns, due to thinking it is some kind of trap.

It's not a trap-- the IRS agent on the other end doesn't care whether the figure read off is $0 or anything else. They just care that it matches what they are looking at on the forms in their hands (though an eyebrow might be raised at that $0, and there might even be an effort to initiate a dialogue about it, which, in my view, should simply be politely declined, as being irrelevant to the purpose of the phone call).

There's nothing to be concerned about in these challenges for any honest filer. Here is how the process is described by the excellent Emily Marcellus:

On April 3rd I filed an honest and educated original self-assessment for 2016.

On May 24th I received an LTR 4883c requesting me to verify my identity by phone. 

In mid June I made the phone call which was easy enough. They asked me for the following information

  • "Social security number

  • Full name as written on 2016 return

  • Current address

  • Mothers birth name

  • Fathers birth name

  • Prior year main source of income

  • Amount of taxes paid from that main source of income

  • Current year refund amount

  • Current year adjusted gross income

  • Address listed on 2016 return”

THEN I Received my refund plus interest. It was a wonderful day with lots of jumping up and down and cheering :)

***

Another warrior who went through the same inquiry more recently, in regard to his claim for 2017, reports these as the only questions:

  • "Wages" as alleged on W'2s for 2016 and 2017

  • Refund requested for 2017

  • Mother's birth name

  • Father's birth name

  • Place of birth

*****

A Few Words About Wise Practices

You're playing in the big league, Warriors. Have big league tools.

IF YOU DON'T HAVE ONE, GET A SCANNER. Photos of documents taken with your smart-phone don't make for worthwhile or transmittable archives.

Have a printer along with that scanner. Do your filings and correspondences and so forth on your computer, and saved on your own hard drive, not in "the cloud", and print and mail anything you are sending to anyone related to the tax, rather than use "fill-in-the-field" on-line forms.

KEEP HARD COPIES or scans of hard copies, of everything you send anywhere (scanned after signing and dating) and everything you receive. Keep your postal receipts showing when and where you mailed things, even if not sending certified or signature required.

Make a file folder for every filing, and keep everything related to it in that folder. Be organized and be scrupulous. It's really that simple.

Take care of the little things by habit. Doing so could pay dividends in the unforeseeable future.

It's along the lines of Poor Richard's wise counsel: You watch the pennies and the dollars will watch themselves.

*****

The Only Real Issues In Any Income Tax Legal Contest

This is a very simple matter...

FIFTEEN YEARS INTO constant tax agency acknowledgements of the accuracy of CtC, two unsurprising things have happened. Some folks have become impatient with the occasional drawn-out tax-agency resistance to a refund claim, and the beleaguered tax agencies are struggling to contrive more effective pretexts for resisting claims.

As a result of these developments, there are now several lawsuits to compel the issuance of resisted refunds in the works throughout the CtC community, and some Tax Court actions can be expected, as well (such as in response to the amazing and amusing $0 Notice of Deficiency, for instance). It seems to me that a few words about what is involved in contests of this kind, and the ploys upon which the government relies when trying to defend its bad behavior, might be of interest.

TO BEGIN WITH, let me observe that confrontational situations are never pleasant. This fact is relied upon by officials intent on evading the law, who hope challenges to their malfeasance will thus be discouraged.

Members of this community are not going to be discouraged of course-- they are already self-selected as grown-ups. But the stress associated with confrontational situations can make it difficult for even the most narrow-eyed to stay on point and focused. This is especially true of those involving a hostile and unscrupulous adversary who relies on misrepresentations, strawmen and other fallacious arguments due to having no actual case to make-- that is, one who relies on keeping you off-point and un-focused.

However, should it happen that a legal contest becomes necessary for a CtC-educated filer, the actual issues involved are very simple and very straightforward. They can be summed up in two-and-a-half sentences:

1. WHAT QUALIFIES AS "INCOME" (as in, the thing(s) that qualify for the income tax).

2. HAS THE GOVERNMENT PROVEN that you had some (if using shorthand) or did some (if being technically precise).

2a. HAVE YOU REBUTTED ALLEGATIONS by others that you had some (or did some) in a legally-meaningful manner?

There is nothing beyond these two things (unless the answer to #2 is yes, at which point other legal issues arise relevant to the amount of proven "income", such as the availability of deductions, the proper rate of tax, etc., etc. ad nauseum).

OF COURSE, A GOVERNMENT ADVERSARY will do everything possible to divert attention from these fundamentals. As much as possible, these issues will be talked-past as though they are not live issues in the contest and otherwise evaded (even though they are ALWAYS live issues, and always the PRIMARY issues).

The primary evasion effort will be a pretense that one's alleged receipt of "income" can be treated as a settled thing. This will be occasionally be attempted by the argument (either vaguely-direct, or, more often, much less than direct) that because one does not deny having received money one therefore admits to having had "income".

Again, this argument that one's agreement to having received money (something never to be eschewed, and outright necessary when suing for the return of improperly-withheld amounts) is an agreement to having had "income" is only occasionally attempted. This is because no one in the "ignorance tax" scheme, whether tax agency workers or up through the ranks to judicial officers, will ever go on record as declaring that "all that comes in" is tax-relevant "income".

Thus, when push comes to shove, the pretense from one's agreement to merely having had receipts is unsustainable. (But see the discussion of sub-ploys below...)

THE MUCH MORE COMMON government argument rests on a resort to third-party "income" allegations. The government spokesperson will act (in filings and trial proceedings) as though whatever the third-party alleged can and must be taken as infallible truth and therefore need not be proven.

This latter "pass-the-buck" play is just as lame and ultimately indefensible as the "agreement to X is agreement to Y" thing, but doesn't rest on an outright false legal statement or legal implication for which a government actor will be liable. Instead it just rests on a ridiculous proposition for which the backing party can be found guilty of being a moron, but not guilty of fraud.

The only other play available to bad government actors in a legal contest with a CtC-educated filer (meaning one who has made an accurate and proper filing, conforming to-- or at least not dramatically variant from-- all the points listed here) is an equally strained effort to argue that the filing should not be recognized because it is insincere: "It's gotta be insincere, yer Honor. Everyone knows that everything comin' in gets taxed! (After all, we've been playing it that way for decades, so who could really doubt that's what the law says?)"

THESE OVERALL PLOYS will be supported by sub-ploys. Gratuitous pretenses of misunderstanding the filer's testimony and arguments are the most common.

For instance, a litigant's agreement of having received pay for labor will be repeated by the government shill as "Mr. ___ admits to having received "wages"...". Like all such ploys, this one contains the germ of its own undoing in the hands of a capable litigant, because such a deliberate "restatement" would be pointless unless there is a key legal difference between what the litigant actually said and what the shill is pretending he said. But it is often used nonetheless, for lack of any better alternative in the government's fog-and-mirrors collection.

Another sub-ploy, intertwined with the "Information return creators are infallible" nonsense is the "argument" that because amounts were withheld, what they could properly be withheld from must have been being paid. That is, that because "wage"-appropriate withholding was done, one must have been receiving "wages".

Again, the very resort to this kind of fallacious nonsense reveals and underscores its absurdity and indefensibility. But resort to it WILL be made, because, again, they've got nothing better.

AS CAN BE SEEN, while a legal contest with those who would resort to these ugly fallacies might be stressful and as much fun as a root canal, what is deployed against CtC-educated litigants is hopelessly empty of substance. More than empty, in fact, since every reliance on a fallacy actually illustrates the government's lack of any real arguments on behalf of its opposition to the educated filer's claims.

Leviathan's courts are not cheerily-disposed toward those whose claims will diminish Leviathan. But the opposition on offer is more Keystone Kop than Star-Chamber.

Legal contests will not be cakewalks for educated litigants, because the opposition will struggle vigorously on the hook. The struggles, though, will be as those of Proteus-- lots of eyewash, but all illusory, and all in vain against a hero who holds on tightly.

***

BTW, those interested can access a fully-prepared brief nailing down the two actual issues in any tax-related legal contest-- needing only a modest bit of case-specific customization-- here. Those interested in getting a suit going can find a complaint template here.

Access to either or both of these files requires a qualifying video. See more on that here, and please read that post and the guidelines to which you are directed from that post carefully and thoroughly. Many people make incorrect assumptions about the content and purpose of these videos.