The History of the Jury System

 

 

              The jury system has been in existence for thousands of years. The ancient Greeks used juries as early as the Seventh Century, B.C. (. L. Moore, The Jury (Cincinatti: W.H.  Anderson Co., 1973), p.2..  These juries were called "decuries," and were chosen by lot.  They made decisions on both the fact and the law without an appeal.

 

           The decuries had 200 to 500 members with up to 2,000 jurors in more important trials.  The ancient Romans used a trial system with judices (judges).

 

              In Germany, landholders formed groups to help make decisions in the courts.  They were composed of seven people, or twelve in the most important cases.  Germany was the first country to seclude juries during their deliberations. (M. Bloomstein, Verdict:  The Jury System (New York: Dodd, Mead and Co., 1968), pp. 3-7.  In 788 A.D., the Franks established the "inquisitio."  This system involved interrogation during the "trial," and it became very popular in the Norman Provinces during the Eighth Century (Moore, supra, pp. 13-17).

 

              The Saxons used an "oath of compurgation" instead of a jury during the Ninth and Tenth Centuries (Holdsworth, A History of English Law, vol. 1 (London: Methuen Co., 1903), p. 312).  Under the oath method, the plaintiff swore his innocence in response to interrogation.  Both parties were supported by compurgators, who swore to the truthfulness of the litigants. (Moore, supra p. 39).  After the invasion of William the Conqueror, who came from France's Norman Provinces, the English system began to change into what it is today.

 

              The early juries were composed of a body of neighbors called an "assize," who decided the facts.  By  1350, the functions of the jury and the witness became distinct and the Crown could control juries with the action of "attaint" by which jurors could be held subject to fine and imprisonment for a wrongful verdict.  The process of attaint ended at the end of the Seventeenth Century (Holdsworth, supra, pp. 317, 323, 325-26).

 

              During the Colonial Period in America, it was difficult to find twelve individuals to serve on a jury so smaller numbers were used.  In 1765, Blackstone wrote Commentaries on the Common Law and enthusiasm started in the Colonies for the jury system. (Bloomstein, pp. 21, 24). At the time of the American Revolution, jurors in most of the colonies were still deciding the law and not confining themselves to the facts.  Soon after the American Revolution, the modern jury system was incorporated into the state constitutions and the Federal Constitution.

 

              Juries have historically consisted of twelve individuals.  We don't know why that is so but an English publication from the year 1682, suggests that the number was based on the Biblical twelve prophets and twelve apostles. (Moore, pp. 107).  However, U.S. Supreme Court Justice Byron White stated in the case of Williams v. Florida, that the number twelve was a "historical accident." Williams v. Florida, 399 U.S. 78, 102 (1970). The trend today is to use juries of less than twelve. Twenty six states now allow juries of fewer than twelve. There is no federal statute prescribing the number of jurors.  Rule 48 of the Federal Rules of Civil Procedure states that the parties may stipulate that the jury will consist of fewer than twelve.

 

              In the United States, today, there is increased consciousness about the jury system.  Many realize that the ability of the jury to judge the law as well as the fact is the ultimate safeguard against bad law.  It is the ultimate safeguard against bad government.  There is a movement afoot to teach the people about their rights and to keep oppressive government under control.  That is why you should serve on a jury if called; it may be the only vote you have that makes any difference.

 

The Juries Need to Know the Truth

 

           Years ago, I watched several juries convict innocent patriots of willful failure to file.  I watched the judges misinform the juries and tell them that they had no right to judge the law as well as the fact.  And yet this position flies fully in the face of tradition and the whole purpose of the jury system.  Jury nullification is a long- established and treasured liberty that is well established. John Adams, the second president of the United States said: "it is not only his right, but his duty...to find the verdict according to his own best understanding, judgment, and conscience, though in direct opposition to the direction of the court."  Quoted in Yale Law Journal, 1964:173. Alexander Hamilton (1804) the jurors should acquit even against the judge's instruction "if exercising their judgment with discretion and honesty they have a clear conviction that the charge of the court is wrong."  Quoted in Joseph Sax, Yale Review 57 (June 481-494, 1968).

 

           "The jury has a right to judge both the law as well as the fact in controversy."  John Jay, first Chief Justice, U.S. Supreme Court, Georgia v. Brailsford, 1794:4. "The jury has the power to bring a verdict in the teeth of both the law and fact."  Oliver Wendell Holmes, U.S. Supreme Court Justice, 1920.  "I consider the trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its Constitution."  Thomas Jefferson, letter to Thomas Paine, 1798.  "In the trial of all criminal cases, the Jury shall be the Judges of Law, as well as of fact, except that the Court may pass upon the sufficiency of the evidence to sustain a conviction." Article XV, Section 5 of the Constitution of Maryland.

 

           "If the jury feels the law is unjust, we recognize the undisputed power of the jury to acquit even if its verdict is contrary to the law as given by a judge, and contrary to the evidence. This power of the jury is not always contrary to the interests of justice." Supreme Court, U.S. v. Maryland, 1969 And for a more recent case:  "the jury has an unreviewable and irreversible power...to acquit in disregard of the instruction on the law given by the trial judge."..."the pages of history shine on instances of the jury's exercise of its prerogative to disregard instructions of the judge; for example, acquittals under the fugitive slave law."  Supreme Court, U.S. v.  Dougherty, 1972.

 

           As you can see, there is plenty of evidence to show that the jury can decide the law as well as the fact. However, the judge simply won't tell the jury about their right.  Instead, the judge is likely to say that the jury can consider "only the facts" of the case and may not let their opinion of the law or the motives of the defendant affect their decision.

 

           Judges don't want ordinary citizens making decision about the law.  This lack of information undermines the concept of a judgment by as jury of one's peers.  Most Americans know that there is a right to trial by jury but few know that the jury has a right to judge according to conscience regardless of the laws and the facts of the case.

 

           If you are reading this article, you will certainly be an informed juror.  You will know that you have a right to judge the law as well as the facts.

 

           As a matter of fact, you might even consider the following approach.  After the judge gives the instructions and asks the jury if they have any questions about the instructions; you might ask the judge if he has any recourse against the jury if they decide to interpret the law through their eyes rather than the judges eyes.  You might be surprised at his answer.  The informed jury is one of the most important components in the fight against tyrannical government.  So hang in there and keep educating your fellow men and women.

 

 

Declaratory Judgment and Quiet Title Actions

 

            In Guthrie, 970 F2d 733, (10th Cir. 1992), the court ruled that the waiver of sovereign immunity contained in 28 USC 2410 gives the federal district court jurisdiction over claims for the IRS's failure to meet procedural requirements for assessment, levy, and seizures. The taxpayer's assertion that the required notice of intent to levy under Section 6331(d) was not sent to the taxpayer was a claim within the grant of jurisdiction under 28 USC 2410.  In Stoecklin, 943 F2d 42, the court ruled that a taxpayer could challenge the procedural validity of a federal tax lien under 28 USC 2410. Stoecklin filed suit against the United States in an effort to quiet title to the property against which the IRS had issued a notice of levy.  He claimed that the IRS had made an invalid assessment because it had not issued a notice and demand for payment or a final notice and demand.  The court ruled that he could contest the procedural validity of a federal tax lien under Section 2410. 

            In Winebrenner, 924 F2d 851 (9th Cir. 1991), the court kicked out an action under 7426 (wrongful levy) for failure to file the complaint within the 9 month statute of limitations a       and ruled that the plaintiff could not sue under 2410 because he was a third party.

            In Robinson, 920 F2d 1157, the court ruled that the prohibition against assaults on the merits of an assessment applies to the amount of tax due and does not prevent scrutiny of procedural lapses by the IRS. 

            In Bullock, 306 F2d (2d Cir. 1962), court ruled that a declaratory judgment suit is permissible to determine title to property seized for a tax deficiency.

Court Actions Against Levies

 

            In Gordon, 322 F. Supp. 537 (EDNY 1970), an individual sued the IRS for levying her wages for taxes that were owed by corporations owned by her parents.  Her signature had been forged on a corporate signature card.  The court ruled that Section 7426 governed the case because an assessment had not been made against the plaintiff.  The court could issue an injunction since Section 7421(a) did not govern.

 

 In Monsky, 297 F. Supp (EDNY 1968),  The court granted an injunction because the collection of the tax would cause irreparable injury and the IRS could not prevail under any circumstances.  The plaintiff argued that the collection of the tax would result in the loss of his insurance policies and business and that the IRS could not prevail  because the assessments were made after the statute of limitations had run.

 

            In Logan Planing Mill Co. 212 F. Supp 906 (D. W. Va. 1962), the court allowed an injunction suit by a third party. The wrongful taking of a third party's property by the IRS is not within Section 7421.

 

            In Helvey, 199 F. Supp (WD Okla. 1961), the plaintiff argued that her signature was forged on joint returns by her husband.  The returns did not reflect any of her income.  The IRS assessed her and the IRS  argued that the joint return was ratified by the fact that she signed the tax court petition. She argued that she signed the petition because her husband's attorney promised her that her signing would not cause a problem for her.  The court ruled in her favor and granted an injunction.

           

In Kamholz, 94 TC 11 (1990), the IRS issued a Statutory Notice of Deficiency and the individual petitioned the Tax Court.  The IRS sent a final notice of levy while the actions were pending.  The IRS had not invoked jeopardy assessment procedures.  The court held that the IRS failed to prove the assessments were not the subject of the matters pending before the court and the court enjoined the IRS from further collection proceedings.

 

Most of the time injunctive relief against the IRS is denied because of the Anti-Injunction Act.  In Williams Packing and Navigation Co, 370 US 965 (1962), the Supreme Court said that the lower court's reliance on the doctrine of Miller v. Standard Nut Margarine Co, 284 US 498 (1932), did not apply because the IRS's claim had foundation. 

 

            In Church of Scientology of California 920 F2d 1481 (9th Cir. 1990, the court ruled that the anti-injunction act precludes granting of injunctive relief against the IRS to restrain tax assessments. In Bilbo, 633 F2d 1137 (5th Cir. 1981), the court ruled that even though the assessment was based on gambling information from an illegal wiretap, the anti-injunction act prevented the taxpayer from restraining the IRS from collecting the tax.

 

            In Blech,595 F2d 462 (9th Cir. 1979), the court held that it had no jurisdiction over a suit to enjoin the collection of taxes because of the anti-injunction act.

 

            In Professional Eng, Inc. 527 F2d 597 (4th Cir. 1975), the court denied injunctive relief when the taxpayer challenged the constitutionality of various provisions of the Internal Revenue Code. In Westgate-California Corp, 496 F2d 839 (9th Cir. 1974), the Court of Appeals ruled that the district court did not have the jurisdiction under Section 6213(a) to enjoin the IRS's actions. In Kopas, 33 AFTR2d 74-884 (6th Cir. 1974), the court denied injunctive relief when the taxpayer sought to enjoin a jeopardy assessment.  In Walker, 333 F2d 768 (9th Cir 1964), the court ruled that the taxpayer could test the merits of an assessment by suing for a refund and that he could not get injunctive relief. In McClure, 330 F2d 954, (6th Cir. 1964), the court denied the individual's request for a temporary restraining order because he did not show extraordinary or exceptional circumstances to warrant an exception to the ban on such suits  that Section 7421 establishes. In Botta, 314 F2d (2d Cir. 1963), the court denied an injunction to corporate officers that were resisting the collection of unpaid withholding taxes because the Supreme Court held in Williams Packing and Navigation Company. 370 US 1 (1962) that an injunction will lie only where there is both an adequate remedy at law and a clear showing that the IRS cannot possibly prevail.

 

            In Fair 89-2 USTC (D. Colo 1989), the court dismissed a mandamus action and stated that the individual had another available method to contest a statutory notice of deficiency.  The proper way to contest a deficiency is to petition the Tax Court or pay the deficiency and sue for a refund.

 

            In Burns, 84-2 USTC (SD Fla. 1984), a suit to stop the collection by the IRS was dismissed under the anti-injunction rule.

 

The Offer in Compromise

 

            Internal Revenue Manual 5323 Section 3462 of the Internal Revenue Service Restructuring and Reform Act of 1998 imposes a duty on the Internal Revenue Service to allow more flexibility in the use of its allowable expense standards. Revenue Officers and employees of the Collection Division are not allowed to use standard schedules to the extent that such a use would result in the fact that the individual would not have enough funds to provide for living expenses.  Section 3462 should force the IRS to look at the actual expenses of the taxpayer and not rely on its arbitrary determination of the appropriate housing expenses.

 

            An Offer in Compromise is submitted on a Form 656.  The individual seeking the Offer must also include a Form 433A and a Form 433B if he is self-employed. The Offer should include a discussion setting forth the reasons that an offer in compromise is appropriate.  The submission of the offer waives the statute of limitations for collection for the duration of the offer plus one year thereafter.  The Reform Act of 1998 prohibits the IRS from collecting a tax liability by levy (1) during any period that a taxpayer's offer in compromise for that liability is being processed, (2) during the 30 days following rejection of an offer, (3) during any period in which an appeal of the rejection of an offer in being considered, and (4) while an installment agreement is pending (IRC 6331(k)).

 

            The IRS uses a formula that combines an analysis of the current net worth with a determination of the taxpayer's future ability to pay. In March of 1999, the IRS created a new offer referred to as a Deferred Payment Offer, which allows an individual to pay the discounted value of his assets plus monthly payments for the remainder of the statute of limitations for collection.

 

            When the IRS receives an offer in compromise, it is sent to an offer coordinator for the IRS district where it is reviewed.  The offers are reviewed to determine if the individual is currently paying taxes, has filed all tax returns and is not currently involved in a bankruptcy proceeding.  Once it is determined that an offer can be processed, it is sent to the service center for a search of the tax records to determine the exact amount of the tax due.  The offer will not be processed if the individual is not currently filing returns and paying current taxes.

 

            The offer is then sent to a Revenue Officer for further investigation.  Offer in Compromise specialists do the investigation, The individual may be required to submit financial records, bank statements, etc. 

            There are three basic plans for the payment of the offer in compromise.  The offer may be paid in cash within 90 days of acceptance.  The individual should offer the realizable value of his assets (quick sale value) plus the total amount that the IRS could collect over 48 months of payments. 

 

            The IRS basis its acceptance of the offer with the following formula:

 

Quick Sale Value Plus Present Value of Income Equals Offer in Compromise (QSV + PVI = OIC).  The IRS determines the Quick Sale Value of al the client's assets and then adds the amount of the present value of the ability to pay.

 

            The IRS also has a short-term payment offer.  This offer requires that the amount be paid within two-years of acceptance.  The offer must include the quick sale value of current assets plus the amount that the IRS could secure in 60 months or the remainder of the ten-year statutory period for collection, whichever is less. 

 

            There is also a deferred payment option that requires payment of the offer amount within the remaining statutory period for collecting the tax.  This must include the realizable value of your assets plus the amount that the IRS could collect through monthly payments during the remaining life of the collection statute. There are several options. The firs option is to pay the full payment to the realizable value of your assets within 90 days from the date the IRS accepts your offer and your future income in monthly payments during the remainder of the statue for collections.

 

            The second option is a cash payment for the realizable value of your assets within 90 days from the date the IRS accepts the offer and monthly payments during the remaining life of the collection period for both the balance of the value of your assets and your future income.  The third option is the entire offer amount in monthly payments over the life of the collection statute.

 

            In determining the amount of the offer, the IRS uses a quick sale value of assets.  The IRS also looks at the amount that can be collected from future income.  Pension plans can be a problem in an offer in compromise. The Internal Revenue Manual gives the following guidelines:

 

"(1) Where under the terms of employment, a taxpayer is required to contribute a percentage of his gross earnings to a retirement plan and the amount contributed, plus any increments, cannot be withdrawn until separation, retirement, demise, etc., this asset will be considered as having no realizable equity.

 

(2)  Where the taxpayer is not required as a condition of employment to participate in a pension plan, but voluntarily elects to do so, the realizable equity for compromise purposes shall be the gross amount in the taxpayer's plan reduced by the employer's contributions.  However, in these situations each case should stand on its own merits.

(3) If the taxpayer is permitted to borrow up to the full amount of his equity in a plan, this should be taken into consideration in the computation of realizable equity.

(4) The current value of property deposited in an IRA or Keogh Act Plan Account should be considered in the computation of realizable equity. Cash deposits should be included at full value.  If assets other than cash are invested (e.g. stock, mutual funds), the IRS should be valued at the quick sale value, less expenses.  The penalty for early withdrawal should be subtracted in computing net realizable equity."

 

            The Revenue Officer generally accepts the valuation of personal items that is listed on the financial statement.  If the taxpayer has jewelry, paintings, antiques, coin, stamp or gun collections, the Revenue Officer will probably look closer at the situation. 

 

            The IRS may grant special relief for property that is held in tenancy by the entirety because they cannot seize it if the spouse does not owe back taxes.  (IRM 57(10)(13).92.  If property is held in joint tenancy or tenancy in common, the IRS will want a 50% chunk of the value.

 

            The Revenue Officer will look at the individual's budget as it is shown on the Form 433A.  He will also look at the future job prospects of the taxpayer including his education, profession, age. experience, and past income.  The IRS will determine a present value based on the individual's ability to pay.  If the citizen makes a cash offer, the Service will decide how much he can pay per month and then multiply it by 48 months to determine its present value.  If the individual requests a short term deferred offer, the IRS will use 60 months to determine the present value unless there is less than five years on the statute of limitations.

 

            Some IRS districts seem to be more strict in their acceptance of offers in compromise than other districts. The offer in compromise works best for an individual who has few assets and not much disposable income. If you wish to file an offer in compromise, it is best to look very carefully at the bankruptcy statutes so that you don't inadvertently extend a statute.

 

The Economic Situation

           

            The economic boom of the 1990s has left Americans in worse financial shape than ever.  For 25 years after World War II, the average person in America became more prosperous.  Families in each fifth of income distribution doubled their incomes between 1947 and 1979, but during the next quarter of a century things changed.  Between 1979 and 1998, the top fifth gained 38 percent and the top 5 percent gained 64 percent.  The bottom fifth lost 5 percent of real income.  In 1989, the United States had 66 billionaires and 31.5 people living below the poverty line.  A decade later, the United States had 268 billionaires and 34.5 people living below the official poverty line which is about $13,000 for a family of three. At the beginning of the 21st Century, the distribution of wealth has returned to the levels of the 1920s.  The top 1 percent of households hold more wealth than the combined wealth of the bottom 95 percent.  Since 1977, the top 1 percent has doubled its share   of the nation's wealth to 40 percent.  The 400 richest Americans are worth more than $1 trillion which is about one-ninth of the gross domestic product.  The people in the Forbes 400 could all stay at a luxury New York Hotel at the same time and they would have as much wealth as 50 million households.  Consumer credit has more than tripled since 1989 and the personal savings rate has dropped from 7 percent in 1993 to 2 percent in 1999.  Bankruptcies more than doubled between 1989 and 1999.  One out of five households has zero or negative net worth compared with one in 10 in 1962.  About 90 percent of all the stock and mutual fund value is owned by10 percent of the nation's richest households. 

 

            If wages had risen at the same rate as productivity, the median working would be earning about $17 per hour instead of the current $11.00 per hour.  The pay gap between CEOs and workers is five times wider than it was in 1990.  Married-couple families have higher poverty rates today than they did in the 1970s.  The percentage of people in extreme poverty rose from 4.9 percent in 1989 to 5.1 percent in 1998.  Those without health insurance rose from 13.6 percent of the population in 1989 to 16.3 percent in 1998.  

The Issue of Transferee Liability

 

            All around the country, there are individuals who are selling pure trusts and other situations that claim to protect assets.  The problem with the approach is that the trust can be attacked from many angles and the most ignored weakness is the issue of transferee liability.  The politicians who run governments weren't born yesterday.  They have figured out every way that people might try to protect their assets.  In the case of Altmark, 331 F. Supp, 1346, the court ruled that although the taxpayers were not liable for the tax liability of the father, the trustee of the bank account was liable as a transferee.  In the case of Elias, 100 TC 510, the court ruled in favor of the IRS because the taxpayers failed to comply with the service and pleading requirements of 28 USC 2410(b) in the quiet title action brought in state court against the United States.  The quiet title judgment in state court did not cause the IRS to waive sovereign immunity and the state court had no jurisdiction against the IRS. the motion for summary judgment was denied because there were issues of material fact as to whether the taxpayers were liable as transferees. In the case of Borg, 54 TCM 1243, the court determined that the   taxpayer was liable for her son's tax liability to the extent of the property transferred to her.  The son had transferred property to the mother which rendered him insolvent and it was not transferred for adequate consideration.  In Rev. Rul 69-211, 1969-1 CB 305), the IRS ruled that a church was liable for taxes of a corporation that had given it a donation which rendered it insolvent.  In Coca Coca Bottling Co of Tucson, Inc. 334 F2d 875, the court ruled that a taxpayer was liable for the unpaid taxes of the corporation when assets were transferred to him without consideration by the corporation in spite of an indemnification agreement.  In Pittsburgh Reality Inv. Trust, 67 TC 260 (1976), an individual purchased stock from a company, liquidated it and received the assets. The IRS went after the individual for taxes triggered by a recapture of depreciation.  The court ruled that transferee liability applied.

 

            In Berlin, 65 TC 676 (1975), the court ruled that individuals were responsible under the transferee liability theories for taxes of the corporation. In Diamond-Gardner Corp, 38 TC 875 (1962) the court ruled that there was no transferee liability when the statute of limitations has expired. Shareholders can be liable for taxes under transferee theory.  In the case of Sellers, 592 F2d 227, the court ruled that the taxpayer was considered the corporate transferee as a result of receiving certain corporate funds from which the tax liability arose.  In Delia 362 F2d 400, the court ruled that liability existed against the transferee-taxpayer to the extent that corporate assets were transferred to him. In the case of Ginsberg, 305 F2d 664, the court ruled that transfer liability applied when a father transferred stock of his corporation to his son even though the son reconveyed the property to his father.  In Dillman, 64 TC 797 (1975), the court ruled that the United States can collect taxes owed by a dissolved corporation through an in rem action in equity against corporate assets that have passed to transferee stockholders and that right cannot be abridged by state low governing corporate dissolution. In Hine, 54 TC 1552 (1970), the court ruled that the taxpayer was liable as transferee for corporate taxes even though another corporation had agreed to assume liability for the tax.

           

In the case of Holmes, Transferee, 47 TC 622 (1967), the court decided that the filing of claims for a refund after the taxes had been paid kept the transferee liability open pending the outcome of the court action.  The IRS could continue, therefore, in its efforts to collect the tax from the transferee.  In the case, Estate of Stein, 37 TC 945 (1962), the court ruled that payments constituting taxable income in one accounting period can be the basis for transferee liability in a subsequent period.  Transferee liability was based on local law concerning a voluntary conveyance made by a debtor while he was indebted.

 

            In Sebok, 43 TCM 255, an individual transferred a corporate money mortgage to herself for $1.00.  Since she did not pay fair consideration she was liable for the debts.  Shareholders of dissolved corporations and donees are transferees for purposes of the tax law and are liable as transferees. 

 

            In Newsome, 35 TCM 335, the court ruled that under applicable state law, a transfer made without consideration that renders the transferor insolvent, subjects the transferor to liability on the conveyance.  The court ruled that there was a case a transferee liability because the corporation transferred its principal asset, a patent for cash which rendered it insolvent.

 

            In Brown, 34 TCM 583, an individual received funds in excess of salary and the corporations paid his personal expenses, he was liable for the corporations' tax deficiencies.  In Schneider, 92-2 USTC, the court ruled that the IRS must personally assess the taxpayer-transferee for estate taxes and their failure to do that prevented them from holding her liable as a transferee.  The time for assessment had passed. In Baptiste Jr, 100 TC 252 (1993), the court determined that each transferee was liable for interest under federal law on the amount of his personal liability for unpaid estate tax from the due date of the transferor's estate tax return.  In Gumm 93 TC 475 (1989), the court imposed transferee liability on the beneficiaries. In Illinois Masonic Home, 93 TC 145 (1989), the court ruled that there was no transferee liability where the period of limitations expired before the transfer of assets.  In Yagoda, 39 TC 170 (1963), the court ruled that the trust beneficiary was not liable as a transferee when the trust's liability for tax did not exist at the time of its termination.  

Tax Claims in Bankruptcy Court

 

            The court ruled in the case of Nordic Village Inc 112 S.Ct.1011 that Bankruptcy Code 106C does not waive the sovereign immunity of the United States from an action seeking monetary recovery in bankruptcy.  Congress has not empowered a bankruptcy court to order a recovery of money from the United States.  In the case of Beiger, Jr. 496 US 53, the court protected the trust fund payments that were paid by the debtor.  The court said that trust fund payments are not the property of the debtor but are transfers of property held in trust for the IRS. Although not defined by the Code "property of the debtor" is property that would have been part of the estate if it had not been transferred. In Energy Resources Co, 495 US 545, the court held that if the bankruptcy court determines the designation of which debt is to be paid off first is necessary to the success of a reorganization plan, then it has the authority to order the IRS to apply payments to trust fund liabilities first.  The court stated that it can issue orders designating how payments are to be applied to tax debts.  In Ron Pair Enters, Inc., 489 US 235, the court ruled that post-petition interest is collectable on a bankruptcy claim.  In Whiting Pools, Inc. 462 US 198, the IRS seized property and the taxpayer filed suit in bankruptcy court. The court ruled in favor of the taxpayer and ordered the IRS to return the property that it had seized.

 

            In the case of Sanford, 979 F2d 1511, the bankruptcy court reduced the IRS's claim for penalties by approximately two thirds and the district court affirmed when the debtor argued that he had shown good faith when failing to file or pay the tax.  The court of appeals vacated for the IRS and remanded because each penalty is fully enforceable or unenforceable depending on whether the taxpayer has reasonable cause not to comply.

 

            In the case of Wilson, 974 F2d 514 (4th Cir. 1992), the court ruled that the bankruptcy court had jurisdiction to resolve the debtor's  tax liability even though the automatic stay against the Tax Court proceeding had been lifted. In the case of Pinkstaff, 974 F2d 113, the court ruled that sovereign immunity did not prevent recovery of damages against the IRS for willfully violating the bankruptcy automatic stay by filing a notice of federal income tax lien after the taxpayers filed a bankruptcy petition.  In Schwartz, 954 F2d 569, the court ruled that a tax penalty which is assessed in violation of the Bankruptcy Code's automatic-stay provision is void.  The bankruptcy court's order granting the taxpayers' objection to the IRS  penalty assessment was correct and should not be disturbed.  In Fuller, 134 BR 945, the court ruled that a federal tax lien did not attach to post-petition inheritance that became property of the bankruptcy estate pursuant to Bankruptcy Code Section 541(a)(5)(A). When the taxpayers filed their bankruptcy petition, they had no interest in the inheritance so the federal tax lien had not attached and could not have been perfected.  By the time the inheritance was acquired, the automatic stay was in place and it prevented the attachment of the federal tax lien against the inheritance. 

 

            In the case of Roberts, 906 F2d 1440, the court ruled that a discharge in bankruptcy discharges tax penalties related to non-dischargeable tax liabilities incurred more than three years before the filing of a bankruptcy petition.  The court ruled that a tax penalty which is imposed with respect to a transaction that is more than three years old is also dischargeable in bankruptcy. 

 

            In Kroh, 98 TC 383 (1992), the court ruled that the IRS can assess a joint filer after a bankruptcy spouse's settlement.  The IRS is not precluded from litigating a joint tax liability with one spouse following a  settlement of that liability with the other spouse in bankruptcy.  

THE JEOPARDY ASSESSMENT

 

 

            The jeopardy assessment is the method the IRS uses to collect taxes if they think somebody is going to hide their assets.  Anytime the IRS thinks that you are going to hide something, they have the power to assess the deficiency and make an immediate demand for the payment of the tax. (See IRC 6861(a). Also see Reg. Section 301.6861-1.

 

            The IRS can actually do a jeopardy assessment of a phony liability.  There is nothing in the Code  that requires that the assessment be exactly proper.   The congress has given the IRS the power under the jeopardy assessment provisions to put a strangle hold on the assets of anyone it wishes to hit.

(Homan Mfg. Co., Inc. v. Long, 242 F2d 645 (CA7, 1957 and 264 F2d 158 (CA7, 1959. Also see Shapiro v. Comm., 73 TC 313.

 

            The IRS agent can abate the assessment before the decision of the Tax Court if he believes the amount was excessive. (See IRC Section 6861(c).  The IRS can also abate if they determine that there is no jeopardy (IRC Section 6861(g).

 

            There is also a type of assessment called the termination assessment.  If the IRS thinks that the "taxpayer" is going to leave the country, they can do a termination assessment (IRC Section 6851).

 

            The jeopardy assessment is used only when the deficiency is determined after the end of the taxable year.  The termination assessment can be used even before the end of the taxable year (Doesn't that sound scary!).

 

            There are remedies that you can use to fight the jeopardy assessment.  Within five days after the date (IRC Section 7429(d)), of the jeopardy assessment the IRS must give you a written statement of the information upon which the IRS relied in making the assessment. (IRC 7429).

 

            Then you have thirty days to request a review of the assessment: IRC Section 7429(a)(2).  After the request is made, the  IRS must make a determination about the reasonableness and the amount assessed. (IRC 7429(a)(3).

 

            Within 30 days after the IRS decides, (IRC 7429(b)), you can file an action in the Federal District Court to contest the determination.  After the commencement of the action, the District Court is required to determine the reasonableness of the assessment and the reasonableness of the amount of the assessment. The Court can order an abatement.  The decision about the validity of the jeopardy assessment is final, but the court is not expected to decide the ultimate tax liability.  The court can only decide if the amount of the assessment in reasonable.  The 7429 proceeding is a separate proceeding which is unrelated to other subsequent proceedings to determine the correct tax liability.  However, if the district court dismisses a jeopardy assessment proceeding because you take the Fifth Amendment (Hiley v. U.S., 807 F.2d 623 (CA7, 1986); the Circuit Court of Appeals can determine if the action should have been dismissed. (Well, at least we win one once in a while!)

 

          

THE IRS AND COMPUTER ASSESSMENTS

 

            Internal Revenue Code Section states that the IRS shall make an assessment "by an assessment officer signing the summary record of assessment...The date of the assessment is the date the summary record is signed by an assessment officer."

 

            In United States v. Posner, 405 F.Supp. 934 (D. Md. 1975); the court noted that the "23C Date" is the date the assessment officer signed the summary record. (Id. at 936). Therefore, it is the act of signing by an officer that is the actual assessment itself.

 

            In the case of Brafman v. U.S. 384 F.2d 863 (5th Cir. 1967); the court stated that an assessment requires the signature of an assessment officer:

 

            It appears to us that the requirement of the applicable Treasury Regulation - that an assessment officer sign the assessment certificate - is consistent with the literally mechanical procedures for recording of liability.  The recordation is to be accomplished through "machine operations," but the actual and final assessment step, the step that establishes a prima facie case of taxpayer liability, can be taken only with the approval of a responsible officer of the Internal Revenue Service.  The Government may want to postpone assessment in certain cases because of the limitations on collection and lien perfection that begin to run at the time of assessment.  This might be accomplished, after the computers have run their course, only by the assessment officer refusing to sign the already prepared certificate. (Id. at 867).

 

            I suggest that you write to the IRS under FOIA and ask them for a copy of the assessment document that has been signed by an assessment officer pursuant to Sections 6201 and 6203 of the Internal Revenue Code. IRS Regulation 301.6203-1 explains IRC Section 6203.  If the IRS cannot comply with your request, you just might have a very valid  issue.

The Innocent Spouse

 

 

       Individuals who sign returns with their spouse may be headed for problems if there is something the spouse did that results in allegations of understatement of income or fraud. The Innocent Spouse Rule was enacted to help protect the innocent spouse.

 

             Section 6103(3) of the Internal Revenue Code extends relief to the innocent spouse.  A spouse will be relieved of liability when a joint return has been made for a taxable year and there is a substantial understatement of tax attributable to erroneous items of one spouse on the return.  (I.R.C. 6013(e)(1)(B).  The innocent spouse must establish that in signing the return he or she did not know or had no reason to know that there was a substantial understatement (I.R.C. 6013(e)(1)(C) and taking into account all the facts and circumstances it is not reasonable to hold the innocent spouse liable for the deficiency.  The innocent spouse may be relieved of the liability for the tax, interest and penalties for the amount attributable to the substantial understatement.

 

             If the liability is not attributable to the omission of gross income, relief can be given in a limited number of situations.  (I.R.C.  6013(e)(4)(e). If the omission is not attributed to gross income, If the innocent spouse's adjusted gross income is $20,000 or less, relief will be given to the innocent spouse only if the liability is greater than 10 percent of the adjusted gross income.  If the income is more than $20,000; the liability must be greater than 25 percent of the adjusted gross income.  (I.R.C. 6013(e)(4)(B).  The determination of the spouse to whom items of gross income are attributable shall be made without regard to community property laws. (I.R.C. 6013(e).

 

 

EXCEPTIONS TO THE ANTI-INJUNCTION ACT

 

As most of you know, there is a federal law called the Anti-Injunction Act that makes it almost impossible to sue the IRS.  However there are some exceptions. Although these exceptions are by no means, a silver bullet; they can be effectively used in many cases.

 

For example, if the IRS makes an assessment before they have issued a notice of deficiency or if they assess while your case is in the Tax Court, they have made a mistake.  If the IRS has violated deficiency procedures, an injunction might work. It is also possible to sue the IRS under the Wrongful Levy Doctrine.  This doctrine is Section 7426 of the Internal Revenue Code.  If the IRS levies or sells the property of a person other than the individual assessed, then the individual who is a victim of the wrongful levy may sue.  A very important concept to understand when you are dealing with injunctive relief against the IRS is the Shapiro Doctrine which came about as a result of the Supreme Court Case of the Commissioner v. Shapiro, 424 U.S. 614 (1976).  You must be able to prove three elements to win your injunction.

 

You must prove that the government cannot sustain its claim that taxes are due, that you will suffer irreparable harm if the IRS is permitted to continue their collection, and that you do not have any other means of obtaining the requested relief.  Also, remember that the burden of proof is upon you:  It is not an easy fight. Under the case of Bothke v. Fluor Engineers and Constructors, 713 F.2d 1405 (9th Cir. 1983); the court determined that we have a right to seek judicial intervention if the government has messed up in its deficiency procedures. If the IRS has assessed without a Notice of Deficiency or they assess during the Tax Court proceeding; there is a good chance of an injunction.

 

If you are considering an injunction, you might first determine if a Tax Court Petition or a refund claim and subsequent refund suit might serve your purposes better.  Remember also that you must get in the ring and litigate or you must at least try to support those who do if you truly want to effect change in our tax system.  Good Luck and Good Fighting!

 

Tax Liens

 

            The IRS is required to notify the taxpayer of the filing of a Notice of Lien within five days of its filing.  During the 30-day period beginning with the mailing or delivery of the notification, the taxpayer may demand a hearing.  The following Regulations apply to any Notices of Federal Tax Lien that are filed after January 18, 1999:

 

            1.  A taxpayer is entitled to the notice of the filing of an NFTL not more than five business days after the date of filing.

 

            2.  This notice describes the taxpayer's right to request a Collection Due Process hearing with respect to any taxable periods described on the NFTL, within the 30-calendar day period beginning on the day after the five-day period for notification has expired.  The taxpayer is entitled to only one CDP hearing with respect to each taxable period to which the unpaid tax relates.

 

            3.  The determination made by Appeals may be appealed to either the United States Tax Court or a United States District Court. 

 

            4.  The running of the periods of limitations for collection after assessment, for criminal prosecutions, and for suits described under IRC Section 6532, are suspended for the periods in which the CDP hearing and any appeals are pending.

 

            If a taxpayer does not request a CDP hearing within the 30-day period, a taxpayer can still request a hearing at a later date and the IRS will provide a hearing equivalent to a CDP hearing.  However, the taxpayer will not be entitled to judicial review of the later hearing.

 

            The individual should file a Form 12153, Request for a Collection Due Process Hearing.  The request should set forth the individual's name, address, daytime phone number, type of tax, taxable period, taxpayer's
 TIN, a statement that the individual requests a CDP hearing concerning the NFTL and the reasons that the taxpayer   disagrees with the NFTL finding.  The request must be signed and dated by the taxpayer or the taxpayer's representative.

 

            After the hearing the individual has 30 days to appeal an adverse determination to court.

Allocating Payments

 

            When the IRS garnishes wages, they may apply the payments in their favor.  However, when you make payments based on a 433A voluntary payment agreement, you can argue that the payments must be applied in your favor.  This can be especially useful if you are forced into bankruptcy court before some of your taxes are three years old.  When you make a payment agreement with the IRS, be sure to send in a note each month stating the year to which the payments should be applied.  In 1966, the Tax Court discussed the "voluntary/involuntary" distinction in the case of Amos v. Commissioner, 47 TC 65.  That ruling still governs the allocation of payments today.  In Muntwyler v. U.S., 703 F.2d 1030, 7th Cir. 1983, the appeals court noted:

 

"The distinction between a voluntary and an involuntary payment in Amos and all the other cases is not made on the basis of the presence of administrative action alone, but rather the presence of court action or administrative action resulting in an actual seizure of property or money, as in a levy." 

 

            A few years later in In re Energy Resources Co. Inc. 871 F.2d 223 (1st Cir. 1989), the First Circuit also discussed the distinction between voluntary and involuntary tax payments:

 

"IRS policy has long permitted a taxpayer who voluntarily submits a payment to the IRS to designate the tax liability to which the payment will apply.  However where the taxpayer involuntarily makes the payment, the taxpayer has granted the IRS no such freedom to designate the allocation, the IRS will decide how to apply the payment.  The Tenth Circuit in Neir v. US, 127 BR 669 (D Kan. 1991), distinguished between voluntary and involuntary payments.

 

            If you designate your payments to apply to your most current year in a voluntary payment agreement, you should be able to argue in an adversary proceeding in the bankruptcy court that they apply to the most current and non-dischargeable year.  The IRS will try to make them apply to the oldest year.  If you designate the payments correctly, you should win the argument.

 

Tax Liens and Levies: A Discussion

 

            The following case should give you an idea of the fragile situation of the 4th Amendment to the United States Constitution.  The IRS made a jeopardy assessment against an individual and then issued jeopardy levies pursuant to Section 6331(a) upon the contents of two safe-deposit boxes leased by him from Citibank and Chemical Bank of New York.  The banks refused the IRS access to the boxes and the IRS filed summary proceedings pursuant to Section 7402(a) to enforce the levies.  The taxpayer who was a party to the enforcement action, moved for leave to intervene.  The court ruled for the IRS.  The Second Circuit decided that Section 7402(a) conferred adequate jurisdiction upon the district court to enforce IRS levies via summary proceedings.  The court cited Mellon, 521 F2d 708 (3rd Cir. 1975) and held that since Section 7421(a) only restricted suits whose aim was to restrain the assessment or collection of a tax, there was no bar to the taxpayer from intervening and interposing defenses to the government's action.  The court ruled then that the levy on the safe-deposit boxes did not violate the taxpayer's Fourth Amendment rights against unreasonable searches and seizures and that there was sufficient probable cause to order the bank to allow the IRS to search the box and even if the search violated Fourth Amendment rights, intervention in the summary process proceeding was not necessary to protect his rights because he could object in any subsequent civil or criminal proceeding to the use of the evidence that was improperly obtained. (First Nat'l City Bank, 568 F2d 853, 39 AFTR2d 77-789 (2d Cir. 1977).

Dear Willie

 

Dear Willie:

 

What do you know about the issue of the IRS using informants?

 

Sincerely,

 

Ms. Paranoia

 

------------------------------

 

Dear Ms. Paranoia:

 

Great Question! and I am glad you asked.  There is really not a right of privacy or confidentiality with respect to informants.  The government cannot tap a phone or bug a room without a warrant, but they can send in a  person to listen to and report back what he heard.  Generally informants can make concealed recordings of conversations without a warrant. Some states, however, do require prior judicial authorization for informants to use concealed recording devices but it applies only to state law enforcement agencies. (There are six states that require judicial warrant for wiring police agents:  Alaska, Michigan, Washington, Illinois, Pennsylvania and Montana).

 

            Informants can be any person who gives the government information whether or not they formally work for the agency. The rules that govern the use of informants come from Executive Order Number 12333; Section 2.9, 46 Fed. Reg. 59941 (1981).  The attorney general procedures governing informants are principally found in the FBI's Guidelines on the Use of Informants. (See Attorney General's guidelines on General Crimes, Racketeering Enterprise and Domestic Security/Terrorism Investigations (March 7, 1983) (also known as the Smith Guidelines). These guidelines state that informants may only be used in the course of an authorized investigation and that special care must be taken to minimize their use and to ensure that individual rights are not infringed and that the government itself does not become a violator of the law.

 

            As we all know, the IRS does use informants; they set up individuals and they encourage and coerce individuals to break the law; but as you can see, there are some guidelines they are supposed to follow.  I hope that answers your question.  Good luck and keep your eyes open for any wolf in sheep's clothing that might be hanging around.

 

 

Sincerely,

 

 

Willie

IDEAS FOR ATTACKING IRS LEVIES

 

 

            As a general rule, the IRS can only issue a levy within the first ten years after a tax is assessed.  The statute used to be six years, but about  twelve years ago Congress decided that the six-year statute gave taxpayers too much freedom and they increased it to ten years. The IRS can file a suit after the statute of limitations ends in order to reduce the IRS lien to a state judgment. It is unlikely the IRS will sue unless they know there are significant assets that are waiting to be taken.

 

            Believe it or not, the levy authority still has some limitations placed on it by the Fourth Amendment.  See G. M. Leasing Corporation v. United States, 429 US 338 (1977).  The IRS has to have a search warrant to get stuff on private property.

 

            If you will look at Section 6334 of the IRC; you will see a specific list of items that are exempt from levy.

 

 

            If your wages are levied, the most practical way to remove the levy is either with a bankruptcy or a 433A negotiated agreement followed up by a bankruptcy.  If your house is seized and sold, an effective means of fighting back is to use a State Quiet Title Action.  Future articles will discuss this important method of fighting back.  Remember that front liners must be judgment proof.  If you have wages you are not judgment proof and the IRS will get their money through levy.

 

            If you suspect the IRS has violated their procedures, then you might wish to file a Quiet Title Action under 26 USC Section 2410; but it is a good idea to stop the wage levy first through negotiation and then set out to destroy the assessment through showing up the IRS' faulty procedures.

 

            However you look it, the IRS Beast has incredible power. You must know how to fight back.  Whatever your situation, there is a place for you in the Freedom Movement, but it may not be on the front lines. Don't sit in a position you are uncomfortable with, call me.

 

IRS TAKES A MAJOR MONEY HIT

 

      Recently when a friend of mine was playing with his computer and doing a little research in Westlaw, he came upon the following great case.  In the case of Elvis Johnson v United States of America, et. al., the IRS took a major money hit.

 

            The court ruled that the IRS was liable under Texas Doctrine of respeondeat superior and negligent supervision of employees and the taxpayer was entitled to damages of $10,902.117.  The Court determined that the issuance of press releases violated the statute prohibiting disclosure of tax returns and return information and rendered useless an entirely proper plea bargain and the issuance of the news release resulted in the taxpayer's being fired from his job.

 

A BRIEF HISTORY OF THE LAW

 

Our legal system is a hodgepodge of stuff from many different places.  There is law from England and smaller pieces of law from Rome, Spain, France and ancient biblical times.  Our law has been changed by our own particular experience in this country.  The "common law" began in England after William The Conqueror entered that country in the Eleventh Century.  Common Law was the approach of looking to see how judges had decided in previous decisions.  The European Continent continued with a system of "codes" which is known today as "civil law."

 

From the time of William the Conqueror to the American Revolution, two kinds of law developed in England. There was the common law and there was also law that was covered by statutes passed by the English Parliament over the last two hundred years. Many of the common law principles have been adapted as statutes but the statutes are interpreted by court opinions.  These opinions add up to create precedent, which is binding on subsequent court decisions.

 

This all adds up to the fact that if you want to know what the law means, you must read the cases that interpret the statutes. Good luck, remember that it is not an excuse to be ignorant of the law.

 

THE HISTORY OF SEARCH WARRANTS

 

 

      We, believe it or not, did not invent search warrants.  The first legal restrains on search and seizure came in England after King John accepted the Magna Carta in 1215. Article XXXIX of the Magna Carta said that: "No freeman shall be taken or imprisoned or outlawed or exiled or in any way destroyed, nor will we go upon him nor send upon him, except by the lawful judgment of his peers or by the law of the land."

 

            Starting in the fourteenth century in England, various laws granted specified individuals the power of search and seizure. The problem was that these powers were very general in nature.  Also the English Privy Council and the famous Star Chamber Courts issued a general type of warrant. Later, in the seventeenth century, English officials could issue "writs of assistance," which was a kind of general search warrant.  The American colonists were quite upset with the "writs of assistance" because they justified British agents rummaging through an individual's home whenever they wanted to find smuggled goods.  In the 1760's the execution of these writs caused a lot of ill will and resentment on the part of the colonists and one main reason why we fought and won a revolution was because of the abuse of search warrants.

 

            The Fourth Amendment Warrant Clause was written because of the historical abuse and oppression of search warrants; and such a position has been repeated even recently by the Supreme Court in United States v. Rabinowitz, 339 U.S. 56 (1950), when Justice Frankfurter stated:

 

            It is true. of journeys in the law that the place you reach depends on the direction you are taking.  And so, where one comes out in a case depends on where one goes in..... It makes all the difference in the world whether one recognizes the central fact about the Fourth Amendment, namely, that it was a safeguard against recurrence of abuses so deeply felt by the colonies as to be one of the potent causes of the Revolution, or one thinks of it as merely a requirement for a piece of paper.

 

 

            As you can see, your right to challenge a search warrant is deeply buried in our history and you should be careful if you are the victim of a search, to be sure that the government has followed the rules.  You can file a motion for a return of property or a motion to suppress.  If you have been the object of a State Warrant, there are special rules for your state. Good luck and keep on keeping on!

 

THE HISTORY OF THE GRAND JURY

 

 

            Many of us have heard of the grand jury system, but we don't have any idea where it came from. The grand jury in America came from the English.  Its history stems back for more than 800 years.  Originally, in England, there was a presenting jury that was established in 1166 to see to it that individuals involved in criminal activities would be tried.

 

            Historically, there is disagreement about the origins of the English grand jury before 1166.  It is possible that it developed from a native Saxon jury.  The law of Ethelred (978-1016) required that twelve senior thanes of each hundred (a subdivision of a shire) attend court and swear that "they will accuse no innocent man and conceal no guilty one." Edwards, Jr. The Grand Jury (1973).

 

There is other evidence that leads us to believe that the grand jury had its beginning in the Caroligian kings' inquisition, and that the Norman conquest brought the jury system to England. (Holdsworth, A History of English Law).  Most historians do agree that the accusing jury, the ancestor of the modern grand jury and trial jury, was formally made a part of English procedure during the reign of Henry II.  The Constitutions of Clarendon which forced the Church to recognize the traditional rights of the English kings had the provision that a layman could be tried by an ecclesiastical court without a sworn public accusation.  If there was not a sworn accusation, then charges would have to be instituted by twelve men selected by the sheriff from the neighborhood who would swear to the accused's guilt.  (See Pollock and Maitland, The History of English Law  140-143).

 

            The modern grand jury has its actual roots in the middle of the Twelfth Century.  It was a body of laypersons that initiated prosecutions for serious crimes.  The early presenting juries did not hear evidence and their accusations were made on their own knowledge of the events or on what they knew of rumors and suspicions in the community. The jurors had to present all known suspects.  Gradually the role of the jury changed so that they were responsible to hear witnesses and review the evidence for the charges.  As time went on, the jury was seen as a means to protect the innocent from unfounded prosecutions.

 

 

            By the Seventeenth Century, the grand jury (otherwise known as the grand inquest) had developed much as it is today.  The grand jury was seen as a bulwark against frivolous and malicious accusations of the government. When the English came to America, they brought the grand jury system.  It was then the principal method for starting prosecutions for serious crimes.

 

            During the Revolutionary war, the grand jury was very effective in preventing unpopular royal prosecutions. (Obviously, it could be used the same way against the IRS' frivolous prosecutions if the jurors were informed).

 

            The Fifth Amendment to the United States Constitution provided a guarantee for a grand jury indictment on serious crimes.  Some states, however, have provided that prosecutions can be initiated by the prosecutor's information.  Today there are only nineteen states that require a grand jury indictment for a serious criminal charge; (These states are Alabama, Alaska, Delaware, Georgia, Kentucky, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and West Virginia).  There are four other states that require an indictment to initiate charges that could mean life imprisonment or capital punishment.  (These states are Florida, Louisiana, Minnesota, and Rhode Island).

 

            One of the current criticisms of the grand jury system is that it has lost its traditional independence and today it is just a rubber stamp for the prosecutor's decisions.  Some of the suggested reforms include the requirement of an adversarial review before a neutral judicial officer to screen out unfounded charges before the trial and the right of the accused to have counsel present in the grand jury room.