Analysis: Did a Federal Court Decision Emasculate the IRS?
Robert Schulz has been battling the Internal Revenue Service for years. As head of the We the People Foundation for Constitutional Education, Schulz has a long history of sponsoring conferences, debates, symposia, and full-page newspaper ads agitating against the IRS and the income tax.
Schulz's philosophy is, among other things, that no law requires American citizens to file tax returns. Schulz argues that the filing of tax returns is essentially voluntary. He claims no law requires a worker to subject himself to wage withholding for income taxes. Schultz claims employers are under no legal duty to withhold income taxes from the wages of their employees.
Schulz calls himself a tax researcher. The IRS refers to him as a tax protester.
Not surprisingly, Schulz has raised the ire of the IRS. He has come under heavy scrutiny because on a broad scale he's encouraging others to stop filing tax returns and paying taxes. In June 2003, the IRS issued a series of administrative summonses to Schulz seeking testimony and documents from him in connection with its investigation of his affairs.
The ensuing court battle over those summonses has been the subject of much discussion in tax protester circles and by Schulz on his Web site. Schulz would have us believe that a January 25, 2005 court decision entered in his case, Schulz v. IRS, Docket No. 04-0196-cv, by the United States Court of Appeals for the Second Circuit, has emasculated the IRS.
He suggests the decision nullified key enforcement provisions of the Internal Revenue Code, stripping the IRS of much of its power to compel compliance with its administrative demands for personal and private property, according to a January 30, 2005 news release by the We the People Foundation.
Unfortunately, Schulz misunderstands the significance of the Court of Appeals decision in his case.
It's important to clear the air because the view advanced by Schulz will serve only to further confuse unwitting citizens, potentially leading many to subscribe to the faulty ideas of Schulz and others like him.
To understand what the court did and did not do in the Schulz decision, let me give you some background. An IRS summons is a tool used by the agency during an audit or investigation. It is not a subpoena, which is issued under the auspices of court authority, nor is it a court order. It's merely an administrative tool issued under section 7602 of the tax code to enable the IRS to gather records and testimony for use in the process.
Because a summons is not a court order or subpoena, it has no judicial force behind it. If the target of the summons fails to comply, the IRS has no authority to enforce the summons independently. For all practical purposes, the summons is just a request by the IRS to produce records or give testimony, albeit couched in somewhat ominous language. While it appears to be a demand, it is not self-enforcing. The Schulz decision fully supports this reading of the law.
Does this mean, as Schulz suggests, that we are free to ignore any IRS summons and the agency is at a loss to do anything about it? Not at all.
Not a Landmark
What is remarkable about the Schulz decision is that while he refers to it as a "landmark" ruling that will forever change the course of IRS enforcement procedures, there is nothing novel about it. In fact, the decision is a mere restatement of the law that's been settled since the Supreme Court first addressed the issue in 1964.
At that time, the Court ruled in the case of Reisman v. Caplin, 375 U.S. 440 (1964), that IRS summons have no independent force until the IRS seeks to enforce them through the judicial process. That is to say, only a federal judge can enforce an IRS summons. That rule was restated in 1975 by the Supreme Court in the case of United States v. Bisceglia, 420 U.S. 141 (1975).
This means simply that if one refuses to comply with an IRS summons, the agency is free to petition a United States District Court for an order enforcing the summons. A federal judge then reviews the process by which the summons was issued, considers any defenses raised to the summons by the person summoned, and finally determines whether an order should be issued compelling compliance.
Procedure Is Well-Established
This procedure is well known to tax practitioners as a "summons enforcement proceeding." It is a common procedure that has been around for 40 years. (See United States v. Powell, 379 U.S. 48 (1964).)
The IRS brings hundreds of such cases to court every year. In the vast majority, federal courts order the summoned person to release records or provide testimony to the IRS. If the person refuses to comply with the court's order, he faces sanction by the court in the form of a contempt order.
More than a few people have been fined or jailed for contempt of court for violating a court's order to disgorge records or testimony. In such cases, a federal judge admonishes the recalcitrant citizen that he "holds the keys to the jail door." In other words, all he need do is comply with the court's order and he'll be set free.
Schulz claims on his Web site, http://www.givemeliberty.org, that the court's decision in his case cut at the heart of IRS collection enforcement tools such as levies, liens, and property seizures, but nothing could be further from the truth. Summons enforcement litigation is a well-established procedure that has nothing whatsoever to do with collection procedures.
In addition, in 1934 the Supreme Court ruled the IRS was under no obligation to seek or obtain a court order before enforcing collection of a tax through liens, levies, or seizures. The procedures allowing the agency to collect without a court order have been held to be constitutional. (See Bull v. United States, 295 U.S. 247 (1934).)
Procedures Allow Review
There are procedures allowing a person to seek and obtain judicial review of IRS collection actions, but the burden is on the citizen to invoke them. (See code sections 6320 and 6330, known as the "collection due process procedures.") More importantly, in any such proceeding, the burden of proof as to the propriety of the action is largely on the citizen, not the IRS.
Perhaps the most astonishing aspect of this latest episode in the Schulz saga is the fact he's hailing the Court of Appeals decision as a great win for his cause. The truth is, he lost the case. He commenced a court action seeking an order preventing the IRS from getting his records, and the district court denied his request. He appealed the decision, and the Court of Appeals upheld the district court. Schulz lost.
Dan Pilla (firstname.lastname@example.org) is a nationally known tax litigation consultant and author of eleven books on IRS abuse prevention and cure, and problems resolution issues. His latest book is The IRS Problem Solver (HarperCollins). His Web site is http://www.taxhelponline.com.
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For a detailed analysis of the arguments advanced by Robert Schulz and others, see Dan Pilla's special report, "The Untax Promise," available online at http://www.taxhelponline.com/Report%20Tax%20Protestor%20Claims.htm.