[Bilge_Rat]

the IRS view...

The Truth About Frivolous Tax Arguments

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4. Contention: The only “employees” subject to federal income tax are employees of the federal government.

This contention asserts that the federal government can tax only employees of the federal government; therefore, employees in the private sector are immune from federal income tax liability. This argument is based on a misinterpretation of section 3401, which imposes responsibilities to withhold tax from “wages.” That section establishes the general rule that “wages” include all remuneration for services performed by an employee for his employer. Section 3401(c) goes on to state that the term “employee” includes “an officer, employee, or elected official of the United States, a State, or any political subdivision thereof . . . .”

The Law: Section 3401(c) defines “employee” and states that the term “includes an officer, employee or elected official of the United States . . . .” This language does not address how other employees’ wages are subject to withholding or taxation. Section 7701(c) states that the use of the word “includes” “shall not be deemed to exclude other things otherwise within the meaning of the term defined.” Thus, the word “includes” as used in the definition of “employee” is a term of enlargement, not of limitation. It makes federal employees and officials a part of the definition of “employee,” which generally includes private citizens. The IRS warned taxpayers of the consequences of making this frivolous argument. Rev. Rul. 2006-18, 2006-1 C.B. 743.
Relevant Case Law:

Montero v. Commissioner, 354 F. App’x 173 (5th Cir. 2009) – the court affirmed a $20,000 section 6673(a) penalty against the petitioner for advancing frivolous arguments that he is not an employee earning wages as defined by sections 3121 and 3401.
Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986) – the court imposed sanctions on the taxpayer for bringing a frivolous appeal and rejected his attempt to recover a civil penalty for filing a frivolous return, stating “to the extent [he] argues that he received no ‘wages’. . . because he was not an ‘employee’ within the meaning of 26 U.S.C. § 3401(c), that contention is meritless. . . . The statute does not purport to limit withholding to the persons listed therein.”

United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) – calling the instructions the taxpayer wanted given to the jury “inane,” the court said, “[the] instruction which indicated that under 26 U.S.C. § 3401(c) the category of ‘employee’ does not include privately employed wage earners is a preposterous reading of the statute. It is obvious within the context of [the law] the word ‘includes’ is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others.”

United States v. Hendrickson, 100 A.F.T.R.2d (RIA) 2007-5395, 2007 WL 2385071 (E.D. Mich. May 2, 2007) – the court permanently barred Peter and Doreen Hendrickson, who filed tax returns on which they falsely reported their income as zero, from filing tax returns and forms based on frivolous claims in Hendrickson’s book, “Cracking the Code,” that only federal, state, or local government workers are liable for federal income tax or subject to the withholding of federal taxes.

Other Cases:
Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D. Wis. 1985); Pabon v. Commissioner, T.C. Memo. 1994-476, 68 T.C.M. (CCH) 813, 816 (1994).

http://www.irs.gov/Tax-Professionals...#_Toc350157899

This is not the first time the Hendricksons have been in Court on this issue.

Although I would agree that sending them to jail is a bit harsh. We also have tax protesters in Canada. The courts routinely reject their arguments, but Canada Revenue Agency is content just to enforce the tax assessments and collect the cash. Sending them to jail just creates martyrs to the cause.