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A Nice Example Of 1954 IRC Misrepresentations Of The Law, With A Frivolous Dimension

As always, a close look at an "ignorance tax" artifact yields big rewards.

WHILE WORKING ON AN HISTORICAL STUDY of 26 § 6201(a) and (a)(1) earlier this week, as part of a larger look at aspects of IRS "frivolous return penalty" abuse, I had the pleasure of addressing overt misrepresentations of the law in the current "code" language 6201(a)(1). These occasions are always happy things.

The joy is in the fact that these easily-demonstrated misrepresentations make great illustrations of the venal nature of the "ignorance tax" scheme which deploys and relies upon them. More joy lies in the fact that every explicit falsification of statutory text makes so much more simple the articulation and proof of the truth meant to be concealed or evaded by the overt lie. This misrepresentation of the assessment authority delivers abundantly on both counts.

SO, HERE IS THE STORY: 6201(a) goes by the label, "Assessment Authority". It [relevantly] reads as follows:

26 U.S. Code § 6201 - Assessment authority

(a) Authority of Secretary

The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law. Such authority shall extend to and include the following:

(1) Taxes shown on return The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title

[Additional specs follow, concerning taxes payable by stamp, erroneous prepayment credits and ordered criminal restitutions, none of which are relevant here.]

The first part of this text reflects the general authority of the Secretary to assess taxes. No big deal there, and remarkably, almost no deceit there, either.

But there IS a little bit, right at the end. The text of the law reflected at 26 U.S.C.  § 6201 doesn't include the sentence, "Such authority shall extend to and include the following:"

This is significant because what follows that addition in the "code" representation, which makes it appear that 6201(a) and 6201(a)(1) are a part of one single element of the tax law, is itself misleading in the extreme, suggesting that the Secretary is authorized to "determine" the taxes on returns made by any "taxpayer" (which will be taken as "made by anyone other than the Secretary").

In fact, 6201(a) and 6201(a)(1) are derived from two completely different statutes, and to the extent that they are related, it is only insofar as the assessment authority of 6201 is limited by the actual statutory language of which 6201(a)(1) is a gross misrepresentation. In the 1954 "code", they are juxtaposed as they are in order to conceal that fact and make "the Secretary" appear to have authority he does not.

6201 is derived from sections 3640 and 3647 of the IRC of 1939 Here is 3640 (we'll look at 3647 in a moment). Note that this section of the 1939 IRC is in turn derived from section 3182 of the Revised Statutes of 1873:

Now let's look at 26 U.S.C. § 6201(a)(1). The language in the 1954 "code" rendering reads:

"The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title."

Taken as offered, and especially after the statement of the general assessment authority of 6201(a), and the completely fictional, "Such authority shall extend to and include the following:", this 6201(a)(1) language suggests that "The Secretary" (or his delegate, under the provisions of 26 U.S.C. § 7701(a)(11)(B) and (12)(A)) is here being given broad authority over returns made not only by "the Secretary" but also on those made by "the taxpayer".

In fact, as ungrammatical as is the language of 6201(a)(1), this apparent authority can easily be taken as the real purpose of the sub-section. In other words, it is easy to mistake "the Secretary's" authority represented at 6201(a) and (a)(1) as being to declare any and amounts of tax due, on any return, period.

But...no. Let's look at the truth of the matter, which is very much otherwise than what is suggested by the misleading language of the 1954 "code".

26 U.S.C. § 6201(a)(1) IS DERIVED FROM section 3612(f) of the IRC of 1939. Unlike section 3640, from which 6201(a) is derived, 3612(f) of the 1939 IRC is derived not from section 3182 of the Revised Statues of 1873, but from R.S. section 3176, as amended by section 1103 of the Revenue Act of 1926.

(There were earlier amendments of R.S. 3176 and one later one in 1935 which changed only some penalty percentages. And of course, R.S. 3176 was itself derived from earlier revenue acts beginning in 1864. But those prior amendments and derivations are immaterial here, as we only need concern ourselves with the current state of the law, which is as amended in 1926 and 1935.)

As is typical of the content of the IRC of 1939 (and as very different from the systematic disrespect for accuracy seen in the IRC of 1954), it's reflections of R.S. 3176 are very nearly verbatim:

Plainly, this actual statutory language is quite different from 6201(a)(1) of the 1954 IRC. (Disregard the substitution of "The Commissioner" for "The Secretary", which came to have the same effective meaning under 1939 IRC section 3647:

...and the aforementioned 26 U.S.C. § 7701(a)(11)(B) and (12)(A); and also disregard the "stamp tax" reference, which is covered later in 6201(a)).

Let's study the differences.

Here is the current "code":

"The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title"

...and here is the actual law (in which I shall substitute the "Secretary" for the "Commissioner" and omit the "stamp tax" reference for purposes of clarity):

"The Secretary shall determine and assess all taxes as to which returns or lists are so made under the provisions of this section."

Here the actual law is again, with the key phrase highlighted for emphasis and attention:

"The Secretary shall determine and assess all taxes as to which returns or lists are so made under the provisions of this section."

Plainly, the authority reflected at 6201(a)(1) does NOT extend to any and all "returns made" under this title, as misleadingly suggested by the inaccurate presentation of the 1954 IRC. Instead, that authority extends only to returns made under the provisions of "this section".

So what is "this section"? Is it actually a general section, embracing all returns, as suggested by the 1954 IRC formulation of 6201? Not at all.

When we look deeper, as the 1954 IRC-schemers hope we will not know to do, we discover that "this section" is the one providing only for the Secretary-made returns under what appears in the current code as § 6020(b)!

(You can see the historical evolution of 6020(b) here-- if you have qualified for this level of information by submission of a video as indicated here.)

Here is "this section" in its entirety, as rendered in the 1939 IRC:

Here it is as enacted. (Be careful in your reading of either source material-- notice that while the statutory language does include a reference to a "taxpayer" making returns, it is only in the context of applying a penalty to such returns. Such returns are not returns "made under the provisions of this section". Only those directed to be made by the section qualify, and that is only those made by "the Secretary".)

SO, THIS BRINGS US TO THE "FRIVOLOUS" thing I mentioned in the title of this article. Here's how:

In the event that an amount has been collected against an alleged "frivolous return penalty" (FRP), it has to involve the production of a return. Not only are such returns mandated by regulation:

26 C.F.R. § 301.6020-1(b) Execution of returns-

(1) In general.

If any person required by the Internal Revenue Code or by the regulations to make a return ... fails to make such return at the time prescribed therefore, or makes, willfully or otherwise, a false, fraudulent or frivolous return, the Commissioner or other authorized Internal Revenue Officer employee shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise. ...

(Emphasis added.)

...but as noted in the assessment authority exhaustively parsed out above, such returns are required in order for the Secretary to assess the penalty.

Put another way, if no 6020(b) return has been created in regard to a FRP, any collection of such penalty would appear to be illegal. This is both for lack of the creation of the mandated return and therefore the lack of any articulated and verified claim to the money on behalf of the government, and, by the other side of the same coin, because under the provisions of law reflected at 26 U.S.C. 6501, no collection is legal without assessment, and under the provisions we have looked at above, the only way the Secretary can assess such a penalty and therefore legally collect it is by the creation of such a return.

In short, any amounts ever taken from anyone against an alleged FRP in regard to which no 6020(b) return has been made-- even those involving just a diversion of an overpayment for one year to an alleged "frivolous return penalty" concerning another year-- constitute illegal collections.

Good so far, yes?

But wait, there's more!

THIS ANALYSIS NOW LEADS US to what may be the solution to the illegal FRP harassment from which some have suffered that gives the IRS the plausible deniability it typically seeks for its bad behaviors-- that is, the avenue of redress available to the victim on which the IRS relies to excuse its behavior while hoping no one ever notices that solution. And here it is (from the IRC of 1939):

Remember, FRPs are to be collected and assessed as taxes, and so are subject to this provision as such:

26 U.S.C. § 6671. Rules for application of assessable penalties

(a) Penalty assessed as tax

The penalties and liabilities provided by this subchapter [which includes section 6702 -PH] shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes. Except as otherwise provided, any reference in this title to “tax” imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter.

In case that language or its implications seem unclear to anyone, and suspicion remains that somehow the 6702 penalties are not covered by the language regarding the illegal collection of taxes shown above, there is also this:

Put this all together, and it appears that the plausible deniability relied upon by the IRS to keep its FRP behavior from utter indefensibility might be this:

Victims of illegal diversions (which do happen occasionally in one of those remarkably telling exercises of dissonance-- an alleged FRP being held back from a complete refund, with the FRP sometimes even being alleged for the same filing by which the dinged refund is secured) have a remedy provided in the law. That remedy would be the filing a claim for the return of the illegally-collected amounts within three years of the offense.

It would appear, for lack of an identifiable alternative, and because they are the specified forms for filing claims for refund of "overpayments", that a 1040 or 1040X would be the proper form. At the same time, since a "frivolous" penalty is to be treated as a tax under the law, but not expressly as an "income" tax, this may be a more nuanced question, indicating that an inquiry of the IRS as to the proper form for a claim is probably in order.

Such a claim return would be dated for, or would concern, the year in which the diversion happens (not the year of the filing in regard to which the FRP is alleged). And, if a 1040 is appropriate it could, I suppose, be the same return one is filing for that year for more normal purposes, but simply with the illegal penalty claim somehow added in to the "Payments" area on the form (again, consultation with the tax agency is probably necessary to discover just how to do this).


Of course, litigation might still be necessary. The IRS is no more likely to do the right thing in regard to such a claim as it proved to be by the initial improper assertion of the penalty. But the filing of the claim is a required precursor to a lawsuit anyway, and might yield the desired results all by itself.

"Power concedes nothing without a demand. It never did and it never will. Find out just what any people will quietly submit to and you have the exact measure of the injustice and wrong which will be imposed on them, and these will continue till they have been resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they suppress."

-Frederick Douglass