Taxpayers That Don’t Live In the United States Do Still Pay Taxes?
Taxpayers That Don’t Live In the United States – As Understood By the Internal Revenue Code
Some argue that the United States consists only of the District of Columbia, federal territories (e.g., Puerto Rico, Guam, etc.), and federal enclaves (e.g., American Indian reservations, military bases, etc.) and does not include the “sovereign” states. According to this argument, if a taxpayer does not live within the “United States,” as so defined, he is not subject to the federal tax laws.The Law: The Internal Revenue Code imposes a federal income tax upon all United States citizens and residents, not just those who reside in the District of Columbia, federal territories, and federal enclaves. In United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990), cert. denied, 500 U.S. 920 (1991), the court cited Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916), and noted the United States Supreme Court has recognized that the “sixteenth amendment authorizes a direct nonapportioned tax upon United States citizens throughout the nation, not just in federal enclaves.” This frivolous contention has been uniformly rejected by the courts. Furthermore, the IRS issued Revenue Ruling 2006-18, 2006-1 C.B. 743, warning taxpayers of the consequences of making this frivolous argument.In April 2006, a federal district court in California permanently barred Michael Muhammad (a.k.a., Michael Eugene Wall and Michael Muta Ali Muhammad) from preparing federal income tax returns for others, because he promoted a fraudulent tax scheme by preparing returns reporting no income based on the theory that only income earned in the District of Columbia and other federal territories need be reported.In May 2005, a federal district judge sentenced Wayne C. Bentson to a four year prison term to be followed by three years of probation, as well as requiring Mr. Bentson to pay restitution of over $1.1 million for falsely advising clients, among other things, that the internal revenue laws only applied to individuals residing in the Virgin Islands, Guam and Puerto Rico.
Relevant Case Law:
United States v. Cooper, 170 F.3d 691, 691 (7th Cir. 1999) – the court sanctioned defendant for filing of frivolous appeal wherein he argued, in pertinent part, that only residents of Washington, D.C. and other federal enclaves are subject to the federal tax laws because they alone are citizens of the United States.United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994) – the court rejected “patently frivolous” argument that defendant was not a resident of any “federal zone” and therefore not subject to federal income tax laws.In re Becraft, 885 F.2d 547, 549-50 (9th Cir. 1989) – the court, observing Becraft’s claim that federal laws apply only to United States territories and the District of Columbia “has no semblance of merit,” and noting that this attorney had previously litigated cases in the federal appeals courts that had “no reasonable possibility of success,” imposed monetary damages and expressed the hope “that this assessment will deter Becraft from asking this and other federal courts to expend more time and resources on patently frivolous legal positions.”United States v. Ward, 833 F.2d 1538, 1539 (11th Cir. 1987), cert. denied, 485 U.S. 1022 (1988) – the court rejected as a “twisted conclusion” the contention “that the United States has jurisdiction over only Washington, D.C., the federal enclaves within the states, and the territories and possessions of the United States,” and affirmed a tax evasion conviction.Barcroft v. Commissioner, T.C. Memo. 1997-5, 73 T.C.M. (CCH) 1666, 1667, appeal dismissed, 134 F.3d 369 (5th Cir. 1997) – Barcroft claimed that he was not “a ‘U.S. citizen,’ subject to federal jurisdiction, such as ‘officers, employees, and elected officials of the United States,'” and did not “reside within a federal territory such as Washington D.C., or a federal enclave within a State, or a U.S. possession.” The court noted that Barcroft’s statements “contain protester-type contentions that have been rejected by the courts as groundless,” the court sustained penalties for failure to file returns and failure to pay estimated income taxes.