Tax Protester Statutory Arguments - Arguments About The Legal Obligation To Pay Tax - Demanding An Explanation of Tax Obligations

Demanding An Explanation of Tax Obligations

A variation on the "there is no law requiring an income tax" argument and the "IRS refuses to say what law makes U.S. citizens liable for income tax" argument is the contention that the IRS has an affirmative duty to respond to taxpayer demands for an answer as to why taxpayers must pay income taxes. This argument is based on tax protester theories about both constitutional law and statutory law, but the constitutional and statutory arguments will be described together here for purposes of presentation.

Some tax protesters claim the following language from a court decision in Schulz v. Internal Revenue Service (2005) means that a taxpayer has a due process right to demand a response from the IRS as to why he or she is subject to taxation:

". . .absent an effort to seek enforcement through a federal court, IRS summonses apply no force to taxpayers, and no consequence whatever can befall a taxpayer who refuses, ignores, or otherwise does not comply with an IRS summons until that summons is backed by a federal court order. . . . any individual subject to must be given a reasonable opportunity to comply and cannot be held in contempt, arrested, detained, or otherwise punished for refusing to comply with the original IRS summons, no matter the taxpayer's reasons, or lack of reasons for so refusing."

The taxpayer Robert L. Schulz filed motions in a federal court to quash administrative summonses issued by the IRS seeking testimony and documents in connection with an IRS investigation. The court in Schulz did not rule that a taxpayer has a right to have the IRS explain why he or she is subject to taxation, and that issue was not presented to the court. The Court of Appeals for the Second Circuit affirmed the dismissal of the taxpayer's motions for a lack of subject matter jurisdiction because there was no actual case or controversy as required by Article III of the Constitution. The court reasoned that the summonses posed no threat of injury to the taxpayer, as the IRS had not yet initiated enforcement proceedings against him. In other words, the taxpayer was not entitled to a court order to quash the summonses until the IRS went to court to demand that he comply with the summons or otherwise face sanctions—something the IRS had not yet done. Once the IRS took that action, the taxpayer would then have ample opportunity to challenge the validity of the summonses.

The court was emphasizing that the law requires the IRS to use the judicial process to punish lack of compliance with an administrative summons; the summons is not self-enforcing. This is true of any government request where the citizen is free to ignore the request until the government brings enforcement action. Courts adjudicate only actual controversies. In the Schulz case the court left open the possibility that the IRS might decide to drop the investigation and never enforce the summonses, or that the plaintiff might voluntarily comply with the request. Until the IRS took the taxpayer to court, the injury was merely "hypothetical."

While there is disagreement over exactly how "imminent" an injury has to be before a taxpayer can obtain relief from a court, this is separate from the obligation to timely file a tax return (which is imposed by statute). The Schulz court did not rule that the IRS was required to "explain" to the taxpayer why he had to pay taxes, but rather that the taxpayer could not obtain a court order to quash the summonses until the IRS first went to court against him. Additionally, the taxpayer was challenging requests for documents and testimony for an investigation (similar to challenging a subpoena or warrant), not demanding that the IRS explain to him why he was subject to taxation. The court did not rule that a taxpayer has no obligation to respond to a summons until the IRS undertakes proceedings against the taxpayer. The court essentially ruled that the taxpayer cannot be punished for failing to comply until the taxpayer has violated a court order mandating compliance.

A subsequent attempt by taxpayer Robert L. Schulz to obtain a court order quashing an IRS "third party" summons issued to the internet payment service known as PayPal was rejected by a Federal court in June 2006.

In a separate case, Schulz and his We the People Foundation organization argued unsuccessfully that, based on the First Amendment right of the people to petition the government for a redress of grievances, the government should have a duty to respond to a taxpayer's demand for an explanation as to why taxpayers are subject to income tax. On May 8, 2007, the Schulz argument was rejected by the United States Court of Appeals for the District of Columbia Circuit in We the People Foundation, Inc. v. United States.

On August 9, 2007, the United States District Court for the Northern District of New York issued an order including an injunction permanently barring Schulz and his We the People Foundation from (1) advising or instructing persons or entities that they are not required to file federal tax returns or pay federal taxes; (2) selling or furnishing any materials purporting to enable individuals to discontinue or stop withholding or paying federal taxes; (3) instructing, advising or assisting anyone to stop withholding or stop paying federal employment or income taxes; and (4) obstructing or advising anyone to obstruct IRS examinations, collections, or other IRS proceedings.