THE AMTAX GUIDE - Title Page a The AMTAX Guide To Internal Revenue Laws as They Pertain to Individuals or What the IRS Doesn't Tell You ‘The Research FoundationSection 8 Acknowledgements - THE AMTAK GUIDE Acknowledgements ‘The material in this booklet was compiled for AMTAX by Scott Rendelman, E. A. The US Constitution, the Intemal Revenue Code, IRS Forms and Publications, Court decision texts, and The Congressional Record, from which material is teprinted here, are all part of the public domain. Additional research material was provided by the following: Patrick Amold Detches Lynn Johnston inwin A. Schiff Page 7 BASIC BINDER The Research FoundationTHE AMTAX GUIDE - Table of Contents Section 8 Table of Contents Introduction ......-.0+.0+n0.un-5: tesunesad 6 41 A Brief History of the Income Tax...........4 is 2 What is Taxable? 13 3 Who is Required to File?..............0 005 18 4 Who is Liable for the Tax?........00..0. 2. 22 5 Must I have Taxes Withheld During The Year? .. 02.0.0... .0..0e0eee eee 31 6 How the IRS Gets Away With It............36 ‘The Rasearch Foundation BASIC BINDER Page 5Section 8 Introduction - THE AMTAX GUIDE Introduction Most taxpayers (including those who prepare tax retums for others) rely heavily on three main IRS Publications: Pub. 17 (individuals), Pub. 225 (farmers), and Pub. 334 (small business). These publications reprint and highlight portions of the Intemal Revenue Code, IRS Regulations (both legislative and interpretative), and Revenue Rulings. Most people assume that when réading these publications, they are reading the law. However, except for those sections that quote the Internal Revenue Code and IRS Legislative Regulations, what these people are reading is not the law. Read the following statement found on the inside cover of Publications 17 and 334: The explanations and examples in The publication covers some subjects this publication reflect the official on which courts have taken positions interpretation by the Internal Revenue more favorable to taxpayers than the Service of: official positions of the Service. Until these interpretations are resolved by - Tax laws enacted by Congress, higher court decisions, or otherwise, - Treasury regulations, and the pubtication will continue to + Court decisions. represent the viewpoint of the Service. This booklet has been prepared to show how various courts have interpreted four key provisions of the Internal Revenue Code regarding individual income taxes: What is taxable, who is required to file a return, who is liable for the tax, and if you must have taxes withheld from your pay if you are an employee. You will find the interpretations given here are quite different from those found in the IRS publications. Page 6 BASIC BINDERTHE AMTAX GUIDK - Introduction Section 8 Ineach case we show you 1. The law as it is written in the Internal Revenue Code, 2, The IRS’s interpretation of that law, and 3. How the same law was interpreted by the courts. We give you the name of the court case and its citation. AMTAX has developed its own interpretations as a result of this research, and our conclusions are given at the end of each section. ‘The Research Foundation BASIC BINDER Page?Section 8 A Brief History of the Inocme Tax - THE AMTAX GUIDE A Brief History of the Income Tax The taxing authority granted the United States Congress under Article I of the U.S. Constitu- tion: Section 8. Powers of Congress: (1) The Congress shall have power to lay and collect taxes, duties, imposts, excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States; This authority is subject to an apportionment requirement with respect to “direct” taxes: Section 2. House of Representatives: (3) Representatives and direct taxes shall be apportioned among the several states which may be included within this Union, according to their respective numbers, which shall be determined by [a census] Section 9, Powers denied Congress: (4) No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken. Thus, the taxes Congress is authorized to pass are grouped in two broad categories: direct taxes, ‘which must be apportioned among the several states according to population, and indirect taxes, which must be uniform throughout the United States: Direct taxes bear immediately upon persons, upon the possession and enjoyment of rights; indirect taxes are levied upon the happening of an event as an exchange. Knowlton v. Moore, 178 US. 41, 20 S. Ct. 747. Page 8 BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDK - A Brief History of the Income Tax. Section 8 Basically, a direct tax is a tax on an ownership interest which the owner cannot pass on, while an indirect tax is on an event or transaction and the impact of the tax can be passed on in whole or in part to others ‘The first major 1 taxal come Tax Act of 1894 (08/17/1894), was clared unconstitutional in 1895. In rendering its decision, the Supreme Court, (Pollock v. Farmers Loan & Trust Company, 157 U.S. 429, rehearing 158 U.S. 601) said: Itis the duty of the court in this case simply to determine whether the income tax now before it does or does not belong to the class of direct taxes, and if it does, to decide the constitutional question which follows... ‘Taxes on real estate being indisputably direct taxes, taxes on the rents, or income of real estate are equally direct taxes, ‘Taxes on personal property, or on the income of personal property, are likewise direct taxes. The tax imposed by sections twenty-seven to thirty-seven, inclusive, of the act of 1894, so far as it falls on the income of real estate and personal property being a direct tax within the meaning of the Constitution, and therefore, unconstitutional, After the 1895 decision in Pollock, the Congress took a hiatus on “income tax”, at least in so far as individuals were concerned, and tumed its attention instead to the collection of “exeises” on monopolies, franchises, corporations and other state-created privileged entities In Spreckles Sugar Ref. Co. v. McClain, 192 U.S. 397 (1904), the Supreme Court affirmed that Congress has the power to tax income arising from the government granted privilege of incorporation. Having suffered defeat in the Pollock case, Congress was apparently unaware it could tax corporate profits. ‘The foregoing can be verified from the pages of the Congressional Record (Senate) of 1909 as follows: June 16, $-3344; June 17, $-3377; June 28, S-3900; June 29, S-3935 and 3936; June 30, S- 3976; July 2, S-4043 ‘When the 61* Session was assembled in 1909, drafting sessions were held to frame an amendment to the Constitution. The purpose was not to create any mew tax but to deal with the problem of the Pollock case. President William H. Taft addressed the Congress and revealed that his chief concem ‘was to raise additional revenue, but to do so in accordance with the Constitution and thereby avoid litigation. He mentioned that recent court decisions.had shown that corporations could constitutionally be subjected to federal taxes. The corporation excise tax act, H. R, 1438 (36 Stat. 112), was introduced on June 28-29, 1909. During the debates which ensued, the Senate frequently adverted to the Spreckles Sugar case, as a standard upon which to pattern the Sixteenth Amendment. ‘There were those in the Senate who were antagonistic to the Supreme Court for its decision in Pollock. These members wanted to repeat the provisions of the Act of 1894 and thereby test the court. Among such members was Sen. Norris Brown of Nebraska. On June 17, 1909, ke presented S.LR. 39 which read as follows: “The Congress shall have the power to lay and collect direct taxes on incomes...” ‘The Research Foundation ‘BASIC BINDER Page 9Section 8 A Brief History of the Inocme Tax - THE AMTAX GUIDE At the same time, for the record, Senator McLaurin of Mississippi stated, “I think if the senator from Nebraska will change his amendment to the Constitution so as to strike out the words ‘and direct taxes’ in Clause 3, Section 2, of the Constitution, and also to strike out the words, ‘or other direct’ in Clause 4 of Section 9 of the Constitution, he will accomplish all that his amendment proposes to accomplish, and not make a constitutional amendment for the enacting ofa single act of legislation.” On July 5, 1909, Senator Bristow of Kansas offered a substitute for $.J.R. 39. It also read: “The Congress shall have the power to lay and collect direct taxes on incomes...” By request of Senator Bristow, the number of S.J.R. 39 was changed to S.L.R. 40. S.LR. 40 became the 16" Amendment of the Constitution, but the word ‘direct’ was omitted. The 16" Amendment reads: The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. By leaving out the words which would have required a direct tax, the Congress complied with the wishes of President Taft. It provided a tax by which corporations could be reached. It was in accordance with the Constitution. It would not result in litigation, which would have been certain. had it done otherwise. ‘The Corporation Excise Tax Act of 1909 was adjudicated in Flint v. Stone Tracy Co.,220U.S. 107 (1911), 31S. Ct. 349 wherein the Supreme Court said: ‘The tax under consideration .. may be described as an excise upon the particular privilege of doing business in a corporate capacity, i.e., with the advantages which arise from corporate or quasi corporate organization .. the requirement to pay such taxes involves the exercise of privileges Excises are laid ... upon licenses to pursue certain occupations and upon corporate privileges . . . the requirement to pay such taxes involves the exercise of privileges Itis this distinctive privilege which is the subject of taxation. Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.’ 31 S.Ct. at 349, the Court held that government granted privilege is a proper subject from whence to exact an excise tax whereby the value of the privilege thus conferred may properly be measured by the income derived. Shortly after ratification of the Sixteenth Amendment, ‘two (2) cases came before the U.S. Supreme Court, challenging what was perceived as being a new form or kind of tax. Those cases were Brushaber v. Union Pacific R.R. Co., 240 US. 1 (1915) and Stanton v. Baltic Mining Co., 240 US. 103 (1916). In the 1915 Brushaber case, the court, in discussing the Pollock case said that the Income Tax Act of 1894 was declared unconstitutional because, to permit it to operate, - Would leave the burden of the tax to be borne by professions, trades, employments Page 10 ‘BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDE - A Brief History of the Income Tax Section & or vocations, and in that way, what was intended as a tax on capital would remain, in substance, a tax on occupations and labor, a result which, it was held could not have been contemplated by the Congress. ‘The Brushaber case has never been overruled, in fact, it is the primary case upon which the Federal Government relies. The Brushaber court, in explaining the 16" Amendment, held that: ‘The Sixteenth Amendment does not purport to confer power to levy income taxes in a generic sense, as that authority was already possessed, or to limit and distinguish between one kind of income tax and another; but its purpose is to relieve all ‘income’ taxes when imposed from apportionment: from consideration of the source whence the income is derived. Chief Justice White, writing for the majority, clearly set forth that the intended result of the Amendment was the prevention (of the resort to the sources from which a taxed income was derived in order to cause a direct tax on the income to be a direct tax on the source itself and thereby to take an income tax out of the class of excises, duties, and imposts, and place it in the class of direct taxes. 240 U.S. 19 [sic] It was because the Sixteenth Amendment separated the source from the income, that the Brushaber court declared the income tax to be constitutional, What the Brushaber court declared constitutional was an indirect (excise) tax on income, with- out apportionment, leaving the source (wages, salaries, fees, commissions, ete.) free of any such tax. Chief Justice White also wrote the opinion in Stanton v. Baltic Mining Company, where it is again set out that: the Sixteenth Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged and being placed in the category of direct taxation... 240 U.S. 112. Between 1913 and 1939 Congress passed fifteen revenue acts. During that time whenever it was necessary to change the law, a new law was substituted for the old with much of it taken from the old. To circumvent this cumbersome method, Congress adopted the Internal Revenue Code of 1939 so that it could be changed by amendment. Between 1939 and 1953 the Internal Revenue code of 1939 was amended twenty-one times. Then in 1954 the present Code, the Internal Revenue Code of 1954, was adopted primarily to establish a more logical arrangement BASIC BINDER Page 11Section 8 A Brief History of the Inocme Tax - THE AMTAX GUIDE, ‘The Internal Revenue Code Title is divided into 8 subtitles: Subtitle A: Income Taxes (Chapters 1 to 6) (Sections 1 - 1564) SubtitleB: Estate and Gift Taxes (Chapters 11 to 13) (Sections 2001 ~ 2622) Subtitle C: Employment Taxes (Chapters 21 to 25) (Sections 3101 — 3507) Subtitle D: Miscellaneous Excise Taxes (Chapters 31 to 44) (Seetions 4001 4998) SubtitleE: Alcohol, Tobacco, and certain Other Excise Taxes (Chapters 51 to 53) (Sections 5001 — 5872) Subtitle F: Procedure and Administration (Chapters 61 to 80) (Sections 6001 ~ 7852) Subtitle G: The Joint Committee on Taxation (Chapters 91 to 92) (Sections 8001 ~ 8023) Subtitle H: Financing of Presidential Election Campaigns (Chapters 95 to 96) (Sections 9001 — 9042) Uh THE COMPLETE + INTERNAL REVENUE CODE . 88 88 [funn Page 12 BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDE - What is Taxable? What is Taxable? ‘The general term “income” is not defined in the Internal Revenue Code. United States v. Ballard, 535 F. 2" 400 (1976) Section 8 ‘This is true. Moreover, Congress CANNOT define income. The U.S. Supreme Court has held: itbecomes essential to distinguish between what is, and what is not “ineome” Congress may not, by any definition it may adopt, conclude the matter, since it, cannot by legislation alter the Constitution from which alone it derives power to legislate, and within whose limitations alone, that power can be lawfully exercised. Eisner v. Macomber, 252 U.S. 189 (1920) ‘Thus the definition of “income” must be left to the courts. “Income” has been taken to mean the same thing as used in the Corporation Excise Tax of 1909 (36 Stat. 112), in the 16" Amendment, and in various revenue acts subsequently passed. Bowers v. Kerbaugh-Empire Co., 271 US. 170, 174 (1926) (Supreme Court) ‘There can be no doubt that the word (income) must be given the same meaning and content in the Income Tax Act of 1916 and 1917 that it had in the Act of 1913. When to this we add that in Kisner v. Macomber, supra, a case arising under the same Income Tax Act of 1916 which is here involved, the definition of “income” which was applied was adopted from Stratton’s Independence v. Howbert, arising under the Corporation Excise Act of 1909, with the addition that it should include “profit gained through the conversion of capital assets”, there would seem to be ‘no room to doubt that the word must be given the same meaning in all of the Income ‘Tax Acts of Congress, that was given to it in the Corporation Excise Tax Act, and that what that meaning is, now become definitely settled by this Court ie Research Foundation BASIC BINDER Page 13Section 8 What is Taxable? - THE AMTAX GUIDE Merchants Loan and Trust Co. v, Sinietkana, 255 U.S. $09, 41 S. Ct. 388 The Intemal Revenue Code sets out that the calculation of taxable income begins with the determination of “Gross Income”, which is defined in the Code below. Notice how “Gross Income” is defined as “income from whatever source derived”, but the word “income” itself is not defined, neither here nor anywhere else in the Code: SEC. 61. GROSS INCOME DEFINED. (a) General Definition. — Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (out not limited to) the following items: (1) Compensation for services, including fees, commissions, and similar items; (2) Gross income derived from business; (3) Gains derived from dealings in property; (4) Interest; | (5) Rents; (6) Royalties; (7) Dividends; (8) Alimony and separate maintenance payments; (9) Annuities; (10) Income from life insurance and endowment contracts; (11) Pensions; (12) Income from discharge of indebtedness; (13) Distributive share of partnership gross income; (14) Income in respect of decedent; and (15) income from an interest in an estate or trust. In regard to wages (compensation for services), the IRS instructs that “You must include ing you receive in payment for personal services in you come.” Pub. 17 (Rev. Nov. 82), pg. 33. The IRS alleges here that gross receipts are equivalent to gross income. Let’s see how the courts interpret this: Of course, gross income, and not gross receipts, is the foundation of income tax liability, for it is only eamings, profits, and gains which the statute subjects to tax. Clark v. ULS., (1954) 211 F.2d 100 (C.A. 8, 1954) Income, as used in the statute should be given the meaning so as not to include everything that comes in. The true function of the words “gains” and “profits” is to limit the meaning of the word “income”. So. Pacific v. Lowe, 238 F. 847 Rela BASIC BINDER The Research FoundationTHE AMTAX GUIDE - What is Taxable? The statute and the statute alone determines what is income to be taxed. It taxes only income derived from many different specified sources; one does not “derive” income by rendering services and charging for them. Edwards v. Keith, (1916), 231 F. 110. Decided cases have made the distinction between wages and income and have refused to equate the two. Central Illinois Publishing Service v. U.S, 435 US. 31 There is a clear distinction between “profit” and “wages” or compensation for labor. Compensation for labor cannot be regarded as profit. US. v. Ballard, (1976), 535 F. 2d 400. . . There is a clear distinction between “profit” and "wages" or compensation for labor. “Compensation” for labor cannot be regarded as profit within the meaning of the law. The word “profit” as ordinarily used, means the gain made upon any business or investment ~ a different thing altogether from mere compensation for labor. Commercial League Association v. the People ex rel Needles, Auditor, 90 Ill. 166. Even the state courts agree that wages are not profit (gain). The Virginia State Supreme Court has held that: ‘There is a clear distinction between “profit” and “wages” or compensation for labor. Compensation for labor cannot be regarded a profit within the meaning of the law, Oliver v, Halstead, 196 Va. 992; 86 S.B. 24 858. The State Supreme Court of Pennsylvania has held that: Reasonable compensation for labor or services rendered is not profit. Lauderdale Cemetery Assoc. v. Matthews, 345 P.A. 239; 47 A. 2277, 280. ‘A case that simply illustrates the true legal meaning of “income” according to tax statutes is Edwards v. Keith, 231 F. 111, which involved the taxing of sales commissions on insurance. It was held that the FIRST commission was not taxable because that was mere compensation for services and therefore no gain was involved. However, it was held that the additional commissions ‘on renewal premiums WERE taxable because they were ruled to be gain, that is, something over and above, or in addition to compensation for the original services Whatever difficulty there may be about a precise and scientific definition of “income”, it imports, as used here, something entirely distinct from principle or capital either as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activity. Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918) (Supreme Court). The Government, although basing its argument upon the definition as quoted, ‘Ths Research Foundati Section 8 BASIC BINDER Page 15Section 8 What is Taxable? - THE AMTAX GUIDE places chief emphasis upon the word “gain” which was extended to include a variety of meanings, while the significance of the next three words was either overlooked or misconceived. “Derived” — from —“capital”; - “the gain ~ derived — from - capital”, etc. Here we have the essential matter, not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property severed from the capital however invested or employed, and coming in, being “derived” that is, received or drawn by the reoipient (the taxpayer) for his separate use, benefit and disposal; hat is income derived from property. Nothing else answers the description. (emphasis in the original) Eisner v. Macomber, 252 U.S. 189 (1920) . . The definition of “income” approved by this court is: the gain from capital, from labor, or from both combined, provided it be understood to include profits gained through sale or conversion of capital assets, Eisner v. Macomber, 252 U.S. 207 (1920) As set forth in Eisner, “income” is a gain or profit, severed from the capital however invested or employed. The Eisner case did not merely rule that stock dividends were taxable income, it ruled that regardless of whether or how income was taxed, there was no income at all if it did not partake of the character of gains and profit. Let us consider some examples of each form of income as set forth by the Eisner court: 1. GAIN DERIVED FROM CAPITAL: Two most common types would be stock dividends and interest (from banks, bonds, loans, etc.) 2. GAIN DERIVED FROM LABOR: This refers to labor-contracting, such as in the construction industry, home service businesses, etc. 3. GAIN DERIVED FROM BOTH CAPITAL AND LABOR COMBINED: This ‘would refer to manufacturing where a capital outlay for machinery, etc is necessary and labor must be hired to run it, in order to produce a product; also included would be any business which required a capital outlay for rent, equipment, etc. plus hiring of staff. 4. PROFITS GAINED THROUGH SALE OF CAPITAL ASSETS: This refers to the sale for profit, of real estate, businesses, stock, bonds, ete. It is the sale for profit, of any assets you may have to sell. PROFITS GAINED THROUGH CONVERSION OF CAPITAL ASSETS: This could be a real estate trade of sevetal small pieces of real estate for one large piece, provided there was not an even exchange and that a profit did occur. Cancellation of indebtedness is also included here and the property settlements in divorces, under certain circumstances. ‘Under the passage of the 16" Amendment, these items were deemed part and parcel of the Page 16 BASIC BINDER The Research FoundationTHE AMTAX GUIDE - What is Taxable? Section 8 property and could not be taxed except by a direct tax laid by apportionment. Whatever may constitute income, therefore must have the essential feature of gain to the recipient. This was true when the Sixteenth Amendment became effective, itwas true at the time of Eisner v. Macomber, supra, it was true under Sec. 22(a) of the Internal Revenue Code of 1939, and it is likewise true under Sec. 61(a) of the Internal Revenue Code of 1954. If there is no gain there is no income. Connor v. US., 393 F. Supp. 1187 (1969) Federal Appellate Court in United States v. Ballard, 535 F. 2 400, 404 (8 Cir., 1976), said: (Income) imposts . . . something entirely distinct from principal or capital as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activities. Income within the meaning of the Sixteenth Amendment and the Revenue Act, ‘means “gains” . .. and in such connection “gain” means profit... proceeding from property, severed from capital, however invested or employed, and coming in, received, or drawn by the taxpayer, for his separate use, benefit and disposal Stapler v. U.S., 21 F. Supp. 737, 739. Ifthere is one common and recurrent thread that travels through all the myriad cases surrounding, income taxation, it is that there must be severable gain or profit, not merely the receipt of money. AMTAX Conclusion: D _ascs ave not profit or gain they cannot be taxed as an excise tx under the 16* Amendment It is our position that an exchange of time and labor, personal property, for an equivalent value of money or other forms of property, is an exchange which lacks the essential element of gain ot profit, and is anon-taxable event. Strictly speaking, the Sixteenth Amendment allows an excise tax only on “gains” or “profits”, such as bank interest, dividends, business profit based on capital investment (not your own services) and other forms of passive investment income. With regard to all forms of compensation, present IRS interpretations are actually directed towards collecting a direct tax on both the source and the income, when the law (16% Amendment) allows only for an indirect tax on income ‘Tho Research Foundation ‘BASIC BINDER Page 17Section 8 Who is Required to File? THE AMTAX GUIDE Who is Required to File? In the IRS Instructions to the Form 1040, we are given a list of people who “must” file a return: Who Must File Your income and your filing status generally determine whether or not you must fle @ tax return. See page 8 of these instructions to find out which income you should include, You must file a return And your for 1982, even if you income was ‘owe no tax: at least: Ifyou were single (this also means legally separated, divorced, or married with a dependent child and living apart from your spouse for all of 1982) and: Under 65 -++ $3,200 65 or over 4,300 you were married fling a jointreturn and wereliving with your spouse at the end of 1982 (or on the date your spouse died), and: Both were under 65 5,400 One was 65 or over . Both were 65 or over 6,400 = 7,400 you were married fling a separate return or married but were not living with you spouse at the end of 1982:. mete Ifyou could be claimed as a dependent on your parents’ return, and had taxable dividends, interest, or other uneamed income of $1,000 or more: Ifyou were a qualifying widow(er) with a dependent child and: Under 65 65 of over. Ifyou could exclude income from sources within U.S. possessions, ‘The IRS Clearly spells out who “must file a return”. But this is not the wording used in the actual law. Let’s look at what the law actually says Page 18 BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDE - Who is Required to File? Section & SEC. 6012. PERSONS REQUIRED TO MAKE RETURNS OF INCOME. {a) General Rule. — Retums with respect to income taxes under subtitle A shall be made by the following: (1) (A) Every individual having for the taxable year a gross income of $1,000 or more, except that a return shall not be required of an individual (other than an individual referred to in subparagraph (C)) — (i) who is not married (determined by applying section 143), isnot a surviving spouse (as defined in section 2(a)), and for the taxable year has a gross income of less than $3,300; (ii) who is a surviving spouse (as so defined) and for the taxable year has an income of less than $4,400, or (ii) who is entitled to make a joint return under section 6013 and whose gross income, when combined with the gross income of his spouse, is, for the taxable year, less than $5,400, but only if such individual and his spouse, at the close of the taxable year, had the same household as their home. Clause (ii) shall not apply if for the taxable year such spouse makes a separate retum or any other taxpayer is entitied to an exemption for such spouse under section 151(c). (B) The amount specified in clause (i) or (i) of subparagrph (A) shall be increased by $1,000 in the case of an individual entitled to an additional personal exemption under section 151(c)(1), and the amount specified in clause (ii) of subparagraph (A) shall be increased by $1,000 for each additional personal exemption to which the individual or his spouse is entitled under section 151(c). (C) The exemption under subparagraph (A) shall not apply to — (i) a nonresident alien individual; (ii) a citizen of the United States entitled to benefits of section 931; (ii) an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period; (iv) an individual who has income (other than earned income) of $1,000 or more and who is described in section 63(c)(1)(D); or (v) an estate or trust. We see here that the IRS has changed the wording of the law. While the IRS gives us a list of those who “must” file an income tax retum, the statute, on the other hand, gives us a list of those who are “not required” to file an income tax return. First of all, what does it mean when a statute says that something “shall” be done? Here are four court cases that explain what the word “shall” means: ‘The word “shall” in a statute may be construed to mean “may”, particularly in ‘The Research Foundation ‘BASIC BINDER Page 19Seotion 8 Who is Required to File? - THE AMTAX GUIDE order to avoid constitutional doubt. Fort Howard Paper Co. v. Fox River Heights Sanitary Dist., 26 NW 2d 661. If necessary, to avoid unconstitutionality of a statute, “shall” will be deemed equivalent to “may” Gow v. Consolidated Coppermines Corp., 165 A 136. “Shall” in a statute may be construed to mean “may” in order to avoid constitutional doubt. George Williams College v. Village of Williams Bay, 7 NW 21 891. As against the government, the word “shall” when used in statutes is to be construed as “may”, unless a contrary intention is manifest. Cairo and Fulton RR. v. Hecht, 95 U.S. 170 (Supreme Court) It is the opinion of the courts that if a statute specifies that a certain act “shall” be done, and there is a question about whether or not it would be constitutional for the act to be mandatory, then the word “shall” takes on the permissive meaning rather than the mandatory one. What could be unconstitutional about the mandatory filing of an income tax return? The answer to this lies in two Supreme Court decisions dealing with tax returns and the Fifth Amendment to the Constitution. ‘The phrase in the Fifth Amendment that would apply to tax returns is: S No person shall ... be compelled in any criminal case to be a witness against himself... The Fifth Amendment seems to apply only to criminal matters. but the Supreme. Court ruled in McCarthy v, Anderson, 266 U.S. 34, that the Fifth Amendment “applies alike to criminal and civil proceedings.” Have the courts found that the mandatory filing of an income tax return is unconstitutional? Here are the two Supreme Court decisions referred to above: There can be no questions that one who files a retum under oath is a witness within the meaning of the Amendment. Sullivan v. United States, 15 F 2" 809 (1926). ‘The information revealed in the preparation and filing of an income tax retumnis, for Fifth Amendment analysis, the testimony of a “witness” as that term is used herein. Garner v. United States, 424 U.S. 648 (1976). A United States Court of Appeals, in the case of Ballou v. Kemp, gives significant added insight as to how we can determine when “shall” in a statute really means “may”. ‘The word “shalt” in a statute may be construed as “may” where the connection in which it is used or the relation to which it is put with other parts of the same Page 20 ‘BASIC BINDER The Research FoundationTHE AMTAX GUIDE - Who is Required to File? Section 8 statute indicates that the legislative intended that it should receive such a construction. Ballou v. Kemp, 92 F. 28556. Since you can’t be compelled to witness against yourself, and since the Supreme Court has held that the filing of a tax retum is an act of being a witness against one’s self, it follows that any statute compelling the filing of a tax return would be unconstitutional. Thus, the word “shall” cannot have a mandatory construction, for if it did, the Intemal Revenue Code would be unconstitutional with respect to individual income taxes. In order to pass a constitutional Internal Revenue Code with respect to individual income taxes, Congress had to use a permissive construction when it cams to establishing that individual income tax returns be filed. Congress also knew that if the statute was clear in stating that there was no real requirement for people to file income tax returns, few, ifany, would file. This is why Section 6012 is worded the way it is. The law states that returns “shall be made” by some, while retums “shall not be required” by others. By giving a list of those who are “not required” to make a return, the people reading the law would assume that a requirement existed for others. Itcan hardly be called accidental that Congress used mandatory language in one part of the chapter and permissive in another. Ballou v. Kemp, 92 F. 2" 556. If Congress had intended to declare that filing individual income tax retums was mandatory, then the section would have read “Retums with respect to income taxes under Subtitle A are required to be made by the following . ..” Since Congress did not choose such wording, it follows that the legislature did not intend to convey a mandatory construction. ‘The IRS changed the word “shalt” in the law to “must” in the instructions, but the word “must”, like “shall”, means “may”. Only the word “required” can be used here to denote mandatory construction. AMTAX Conclusion: The AMTAX conclusion is the same conclusion reached by the Supreme Court: > Our tax system is based upon voluntary assessment and payment, not upon distraint. Flora v. United States, 362 U.S. 145. ‘The individual Income Tax in the United States is truly a voluntary compliance system. It is because our system is voluntary that it is not (and cannot be) unconstitutional. There is no law mandating that the filing of an individual income tax retum is required. Thus, if you file, you do so voluntarily. ‘The Research Foundation BASIC BINDER Page 27Section 8 Who is Required to File? . THE AMTAX GUIDE. Who is Liable for the Tax? ‘The IRS instructs you to pay the amount shown on line 71 of the tax return you file: Reta [60 Fine G7 argo tn ne BS rier rious OVERPAID ic or 150 Amount fling 68 te REFUNDED TO YOU. > [ae Amount | 70 Amount one 68 tbe appied to your 1080 ected tx >i You owe 71 tne 5 largerinan ine 67, entar AMOUNT YOU OWE. tach cick ar any oder Ta Rl am payabolt Itemal Revenue Sones. Wits your aoc ecu number and 1082 Ferm 1040" oni. | 71 (Check Fam 22102210) ie stactad. Seo page (af nerasons) Please — | Under enstios of aran, | dare ht hve oxorinod sem, cdg ecconoanyrascmcios a state, nda the est Bion | mrtcmsn na sn uc Sonat pe Ge Yn nonce 7 ‘roperer as any kno er Li Viarama aT Pate ng { oo a ‘Seal Pos a Pea ee, =e a Notice how the words “AMOUNT YOU OWE” are in bold type. Notice also that the tax return is signed “Under penalties of perjury... to be“... true, correct and complete.” Thus when signing a completed tax return, you swear, “under penalties of perjury”, that YOU OWE any amount shown on line 71 Let’s see how this is explained in the instructions accompanying the Form, 1040: Itis interesting to see how you are instructed to “Attach vour check or money order for the full Line 71 Attach your check or money order for the full Amount You Owe amount when you file. Make it out to “Internal (if fine 59 is larger than line 67) Revenue Service” and be sure to write your social security number and “1982 Form 1040" Subtract line 67 from line 59. Thisis the amount on it. Ifline 71 is under $1, you do not have to you owe. Enter the amount on this line. pay. Page 22 BASIC BINDERTHE AMTAX GUIDE - Who is Required to Filet Seotion 8 amount .. .”, but nowhere are you specifically told in the instructions that you are the one required to pay the amount shown on line 71, You are told, however, that “you do not have to pay” the amount on line 71 ifit is less than $1. Now look at the wording found in Publication 17 (Rev, Nov. 82) pg. 12: Amount You Owe If you owe additional tax, you should pay it with your return. if you owe less than one dollar, you need not pay it. The phrase “you should pay” is not a mandatory construction, and even so, this applies only “IF YOU” are the one who owes the additional tax. Now let’s look at the law: That’s right. That is what the law says. NOTHING! THERE IS NO SECTION IN THE INTERNAL REVENUE CODE ESTABLISHING ANY LIABILITY FOR TAXES ON INCOME. Keeping in mind the well-settled rule that the citizen is exempt from taxation unless the same is imposed by clear and unequivoca! language, and that where the construction of a tax law is doubtful, the doubt is to be resolved in favor of those upon whom the tax is sought to be laid . . Spreckles Sugar Ref. Co. v. McClain, 192 U.S. 397, 24 S. Ct, at 382. Liability for any tax imposed by Congress must be spelled out clearly in the law. Otherwise, how are we to know who is to pay the tax? In the case of tax levied on income, should the tax be paid by the person receiving the income, by the person paying the income, or by a third party (such as the parent of a minor)? Is Congress clear with respect to any of the other taxes it imposes? BASIC BINDER Page 23Section 8 Who is Required to File? - THE AMTAX GUIDE Look at Section 5005: SEC. 5005. PERSONS LIABLE FOR TAX. (a) General. - The distiller or importer of distilled spirits shall be liable for the taxes imposed thereon by section 5001(a)(1). (b) Domestic Distilled Spirits. — (1) Liability of persons interested in distilling. - Every proprietor oF possesscr of, and every person in any manner interested in the use of, any stil, distiling apparatus, or distillery, shall be jointly and severally liable for the taxes imposed by law on the distilled spirits produced therefrom. (2) Exception. - A person owning or having the right of control of not more than 10 percent of any class of stock of a corporate proprietor of a distilled spirits plant shall not be deemed to be a person liable for the tax for which such proprietor is liable under the provisions of paragraph (1). The exception shall not apply to an officer or director of such corporate proprietor. (c) Proprietors of Distilled Spirits Plants. — (1) Bonded storage. — Every person operating a bonded premises ofa distilled spirits plant shall be liable for the internal revenue taxon al distilled spirits while the distilled spirits are stored on such premises, and on all distilled spirits which are in transit to such premises (from the time of removal from the transferor's bonded premises) pursuant to application made by him. Such liability for the tax on distilled spirits shall continue until the distilled spirits are transferred or withdrawn from bonded premises as authorized by law, or until such liability for taxis relieved by reason of the provisions of section 5008(a). Nothing in this paragraph shall relieve any person from any liability imposed by subsection (a) or (b). (2) Transfers in bond, ~ When distilled spirits are transferred in bond in accordance with the provisions of the section 5212, persons liable for the tax on such spirits under subsection (a) or (b), or under any similar prior provisions of internal revenue law, shall be relieved of such liability, if proprietors of transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and all persons liable for the tax under subsection (a) or (b), or under any similar prior provisions of internal revenue law, have divested themselves of all interest in the spirits so transferred. Such relief from liability shall be effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later. (4) Withdrawals Free of Tax. ~ All persons liable for the tax under Page 24 BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDE - Who is Required to File? Section 8 subsection (a) or (b), or under any simitar prior provisions of intemal revenue law, shall be relieved of such liability as to distilled spirits withdrawn free of tax under the provisions of section 5214(a)(1), (2), (3), or (12), or under section 7510, at the time such spirits are so withdrawn from bonded premises, (e) Withdrawals Without Payment of Tax. (1) Liability for tax. Any person who withdraws distilled spirits from the bonded premises of a distilled spirits plant without payment of tax, as provided in section 5214(a)(4), (5), (6), (7), (8), (9), or (10), shall be liable tor the internal revenue tax on such distilled spirits, from the time of such withdrawal; and all persons liable for the tax on such distilled spirits under subsection (a) or (b), or under any similar prior provisions of internal revenue law, shall, at the time of such withdrawal, be relieved of any such liability on the distilled spirits so withdrawn if the person withdrawing such spirits and the person, or persons, liable for the tax under subsection (a) or (b) or under any similar prior provisions of internal revenue law, are independent of each other and neither has proprietary interest, directly or indirectly, in the business of the other, and all persons liable for tax under subsection (a) of (b) , or under any similar prior provisions of intemal revenue law, have divested themselves of all interest in the spirits so withdrawn (2) Relief from liability. ~ All persons liable for tax on distilled spirits under paragraph (1) of this subsection, or under subsection (a) or (b), or under any similar prior provisions of internal revenue law, shall be relieved of any such liability at the time, as the case may be, the distilled spirits are exported, deposited in a foreign-trade zone, used in the production of wine, deposited in customs manufacturing bonded warehouses, laden as supplies upon, or used in the maintenance or repair of, certain vessels or aircraft, or used in certain research, development, or testing, as provided by law. This code seems to be clear as to who is liable for the tax imposed by Section S001 (a)(1) on distilled spirits Look at Section 5043: SEC. 5043. COLLECTION OF TAXES ON WINES. (a) Persons Liable for Payment. - The taxes on wine provided for in this subpart shall be paid — (1) Bonded wine cellars. ~ In the case of wines removed from any bonded wine cellar, by the proprietor of such bonded wine cellar; ‘he Research Foundation BASIC BINDER Page 25Section 8 Who is Required to File? - THE AMTAX GUIDE. except that — (A)In the case of any transfer of wine in bond as authorized under the provisions of section 5362(b), the liability for payment of the tax shall become the liability of the transferee from the time of removal of the wine from the transferor’s premises, and the transferor shall thereupon be relieved of such liability, and (B)In the case of any wine withdrawn by a person other than such proprietor without payment of tax as authorized under the provisions of section 5362(c), the liability for payment of tax shall become the liability ot such person from the time of the removal of the wine from the bonded wine cellar, and such proprietor shall thereupon be relieved of such liability. (2) Foreign wine. — In the case of foreign wines, by the importer thereof. (3) Other wines — Immediately, in the case of any wine produced, imported, received, removed, or possessed otherwise than is authorized by law, by any person producing, importing, receiving, removing, or possessing such wine; and all such persons shall be jointly and severally liable for such tax with each other as well as with any proprietor, transferee, or importer who may be liable for the tax under this subsection. (b) Payment of Tax. — The taxes on wines shall be paid in accordance with section 5081 ‘The tax referred to above is a tax imposed on all wines. Is there any question, after reading the above, about who is liable for the tax? Look at Section 5703: SEC. 5703. LIABILITY FOR TAX AND METHOD OF PAYMENT. {a) Liability for tax. ~ (1) Original Liability. - The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed thereon by section 5701 (2) Transfer of Liability. - When tobacco products and cigarette papers and tubes are transferred, without payment of tax, pursuant to section 5704, the liability for tax shall be transferred in accordance with the provisions or this paragraph. When tobacco products and cigarette papers and tubes are transferred between the bonded premises of manufacturers and export warehouse proprietors, the transferee shall become liable for the tax upon receipt by him of articles, and the transferor shall thereupon be relieved of his liability for such Page 26 BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDE - Who is Required to File? Section 8 tax. When tobacco products and cigarette papers and tubes are released in bond from customs custody for transfer to the bonded premises of a manufacturer of tobacco products or cigarette papers and tubes, the transferee shall become liable for the tax on such articles upon release from customs custody, and the importer shall thereupon be relieved of his liability for such tax. All provisions of this, chapter applicable to tobacco products and cigarette papers and tubes in bond shall be applicable to such articles returned to bond upon withdrawal from the market or retumed to bond after previous removal from a tax-exempt purpose. {b) Method of Payment of Tax. ~The taxes imposed by section 5701 shall be determined at the time of removal of the tobacco products and cigarette papers and tubes. Such taxes shalll be paid on the basis of a retum. The Secretary shall, by regulations, prescribe the period or event for which such return shall be made, the information to be furnished on such return, the time for making such retum, and the time for payment of such taxes. Any postponement under this subsection of the payment of taxes determined at the time of the removal shall be conditioned upon the filing of such additional bonds, and upon compliance with such requirements, as the Secretary may, by regulations, prescribe for the protection of revenue. The Secretary may, by regulations, require payment of tax on the basis of a return prior to removal of tobacco products and cigarette papers and tubes where a person defaults in the postponed payment of tax on the basis of a return under this subsection or regulations prescribed thereunder. All administrative and penal provisions of this tile, insofar as applicable, shall apply to any tax imposed by section 5701. Some other examples follow: Chapter 11 (Estate Tax): SEC. 2002. LIABILITY FOR PAYMENT. The tax imposed by this chapter shall be paid by the executor. Chapter 21 (FICA Tax) SEC. 3102. DEDUCTION OF TAX FROM WAGES. ‘The Research Foundation BASIC BINDER Page 27Section 8 Who is Required to File? - THE AMTAX GUIDE (c) Indemnification of Employer. - Every employer required so to deduct the tax shall be liable for the payment of such tax, and shall be indemnified against claims and demands of any person for the amount of any such payment made by such employer. Chapter 22 (RRTA Tax) SEC, 3202. DEDUCTION OF TAX FROM COMPENSATION. (b) Indemnification of Employer. - Every employer required under subsection (a) to deduct the tax shall be liable for the payment of such tax and shall not be liable to any person for the amount of any such payment. Chapter 24 (Collection of Income Tax at Source on Wages): SEC. 3403. LIABILITY FOR TAX. The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall nct be tiable to any person for the amount of any such payment. As you can clearly see, there ARE sections in the Internal Revenue Code that make specific persons liable for certain taxes. But in the case of taxes imposed on “income”, there is no section anywhere in the Internal Revenue Code establishing liability for these taxes. NOR CAN THERE BE IN THE CASE OF AN INDIVIDUAL. Remember, the tax on income is an excise tax. ‘The terms “excise” tax and “privilege” tax are synonymous. American Airways v. Wallace, 57 F. 2" 877, 880 (6 Cir., 1932) (Federal Appellate Court) ‘The individual, unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity which owes its existence and charter powers to the state; but the individual’s right to live and own property are natural rights for the enjoyment of which an excise cannot be imposed. Redfield v, Fisher (1930) 292 P.813, 819. How then can the IRS ever allege that an individual is “liable” for a tax on income? Here is a Page 28 BASIC BINDER Tho Research Foundation‘THE AMTAX GUIDE - Who is Required to File? Section 8 court decision illustrating how ‘When one files a return showing a tax due, he has presumably assessed himself and is content to become liable for the tax and to pay it either when it is due according to the statutes or when he can get his money together. Lyddon & Company v. U.S. 158 Fed. Supp. 951 Since a tax retum is signed under penalties of perjury, the following code sections could apply if you do not pay the tax you swear you owe: Section 7206: SEC. 7206. FRAUD AND FALSE STATEMENTS. Any person who — (1) Declaration under penalties of perjury. — Willully makes and subscribes any retum, statement, or other document, which contains oris verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or (2) Aid or assistance. ~ Wilfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a retum, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such retum, affidavit, claim, or document; or (3) Fraudulent bonds, permits and entries. — Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof or procures these same tobe falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof; or (4) Removal or concealment with intent to defraud. — Removes, deposits, or conceals, or is concemed in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or (5) Compromises and closing agreements. — In connection with any compromise under section 7122, or offer of such compromise, or inconnection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully — (A) Concealment of property. ~ Conceals from any officer or employee of the United States any property belonging to the estate The Research Foundation BASIC BINDER ‘Page £9Section 8 Who is Required to File? - THE AMTAX GUIDE, of a taxpayer or other person liable in respect of the tax, or (8) Withholding, falsifying, and destroying records. - Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax, Shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than 3 years, or both, together with the cost of prosecution. Section 7207: SEC. 7207. FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS. Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both. Any person required pursuant to sections 6047(b) or (c), 6056, or 6104(d) to furnish any information to the Secretary or any other person who willfully furnishes to the Secretary or such other person any information known by him to be fraudulent or to be false as to any material matter shall be fined not more than $1,000 or imprisoned not more than 1 year, or both. AMTAX Conclu: S Last lable for income taxes. There is no seston inthe Intemal Revenue Code that makes you liable for income taxes. ‘Ifyou file a tax return, YOU are the one assessing yourself, and you swear “under penalties of perjury” that YOU are the one who owes the tax. Ifyou don’t pay, the IRS proceeds under Section 7206 and Section 7207. Page 30 BASIC BINDER ‘The Research FoundationTHE AMTAX GUIDE - Must | Have Taxes Withheld During the Year? Section 8 Must | Have Taxes Withheld During the Year? The IRS gives you the option to claim “exempt” from withholding on the Form W-4 you file with your employer: From Deparmentot he Treasry ~ intemal Revenue Sonics (ie No, 295.0018 (Rev January 1069) Employee's Withholding Allowance Certificate Eipres #318 Type o pant yoo aTnamme 2 Your social secuiy number ome address (number and aveat or eral roulo) Ci SeeeD wines 3 Marital JG] mores, out witnhoding at ighr Sing rate Gi ortown, Sta ad DP cade (Status) Nt rar, tat gay seperated, or pee 6 s nomosien stn, he ha Sl oe 4 Tola numberof alowancas you are caiing (For Ine F of the workahoct on page 2) 5 Adkitional amount, fany you want deducted from each pay 6 | claim exemption from witiholding because (sea instuctions and chock boxes below that apply}: ‘8 CLast year | cd not owe any Federal income tax and had aright to ful refund af ALL income tax witha 1B Tis year | donot expect to owe any Federal income tax and expect to have a right to a full refund of OO — © Ifyou entered EXEMPT” on line 6b, are you a fume student? é vEl¥es GNo Under he pealies of peu | cry hat am ented to anime of wating towances decared on bs anisto orbtanra eration fom inhaling, Bat amended o decor th exempt Sati Emeloyee's signature Date 19 7 Employers name and address (Employer: Complete 7.8, and ony eandng eS) |8 Offlcw | 8 Employers Menfcaton number The option to claim “exempt” from withholding is spelled out on lines 6(a) and 6(b) of the Form W-4 shown above, The average worker reading this is lead to believe that he cannot claim exempt unless he received a full refund of all income tax withheld last year, and he would expect to The Research Foundation BASIC BINDER Page 31Section 8 Mus I Have Taxes Withheld During the Year? - THE AMTAX GUIDE have a full refund of any income tax withheld this year. Now compare the wording used on lined 6(a) and 6(b) of the W-4 form above with the actual Wording in the law: ‘SEC. 3402. INCOME TAX COLLECTION AT SOURCE. {n) Employees Incurring No Income Tax Liability. — Notwithstanding any other provision of this section, an employer shalll not be required to deduct and withhold any tax under this chapter upon the payment of wages to arremployee if there is in effect with respect to such payment a withholding exemption certificate (in such form and containing such other information as the Secretary may prescribe) furnished to the employer by the employee certifying that the employee — (1) incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and (2) anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year. The Secretary shall by regulations provide for the coordination of the provisions of this subsection with the provisions of subsection (f) Thus, the law provides that if you incurred no liability for income tax last year, and you do not expect to incur a tax liability this year, and you furnish your employer a withholding exemption certificate certifying this, the employer will not withbold any Federal Income tax from your pay. Although the IRS has changed the wording somewhat, the Form W-4, signed “under penalties of perjury” is the certificate to be used to claim “exempt” status. The IRS changed “incur(red) no liability for” in the law to “do (did) not owe any” on the Form W-4, but the two phrases mean the same thing. The IRS also added two immaterial items not found in the law. These two items were added pethaps, to convince the worker that withholding is required, even if he understands that he is not going to have a tax liability this year. First, the Form W-4 states that, for last year, you must have had a “right to a full refund of ALL income tax withheld.” It should be clear to you, reading this now, that if money was paid in for taxes which you had no liability for, you had a “right” to a full refund of ALL the money. You had this right, even if you didn’t actually receive you full refund. However, most workers when filling out their Form W-4 are lead to believe that they cannot check off the box on line 6(a) unless they actually received a full refund of ALL Federal Income Tax withheld front their pay last year. ‘Once you understand the difference between actually receiving a full refund, and having a “right to a full refund”, you will see that adding the “right to a full refund” phrase (which is not in the law) to the Form W-4 serves no purposes and is immaterial. Second, the IRS added a question about whether or not the worker is a full-time student. The rumor is that you cannot claim “exempt” unless you can check off the box saying that you are a full-time student. There is nothing in the law that says being or not being a full-time student has any effect on whether or not you can claim “exempt” status. The question is totally immaterial and Page 32 BASIC BINDER ‘The Research Feandation