Tax Defiers and the Tax Gap: Stopping Frivolous Squared before it Spreads

I. INTRODUCTION Ever since the Sixteenth Amendment was ratified over ninety-five years ago and then upheld by the Supreme Court three years later, (1) the central debate over income taxation has focused on what will be taxed, much it will be taxed, and for long it will be taxed. Over those many years, Americans have legitimately protested the what, the how much, and the how long. These protestors have sought change by working within the system, advocating tax legislation before Congress, commenting on proposed IRS regulations interpreting the tax laws, and arguing before the Tax Court and other federal courts about the meaning and application of particular tax laws. These protestors do not question the underlying legitimacy of the United States' tax system but channel their protest to the details of the taxes themselves. Over the last fifty years, the term protestor has devolved from describing those individuals engaged in legally valid and protected conduct to those individuals engaged in illegitimate tax defiance, who deny the legal underpinnings of the tax system itself. This defter conduct has taken many forms, including filing frivolous returns or no returns at all, flooding the IRS and courts with meritless arguments and positions that courts have uniformly rejected for decades, and trying to pay off their tax debts with fictitious financial instruments, such as comptroller warrants, sight drafts and bills of exchange. The tax defiers have evolved their distribution network for their positions over the years, from initially peddling their products to a relatively small audience in books, then audiotapes, videotapes, and DVDs, to reaching out to mass audiences through websites and blogs on the Internet that can be accessed with the click of a mouse. The irony of the tax defiers' situation is that the very system that they reject pays for their ability to live in and reject that system. While tax defiers refuse to pay their fair share of taxes, they have no problem accepting their fair share of the benefits paid for by that tax system, including the courts they litigate in, the roads they drive on, the police and fire departments they call during emergencies, the military that defends them, the sanitation trucks they rely on to pick up their garbage, and the regulators they count on to ensure the safety of the food they eat, the water they drink, and the air they breathe. These tax defiers seemingly do not believe that, as Justice Oliver Wendell Holmes once said, [T]axes are what we pay for society. (2) They simply assume that someone else will bear that burden. To them, their cost to live in a civilized society is essentially nothing. But any civilized society, and in particular America's civilized society is enormously expensive to operate--over $2.65 trillion annually at current count. (3) To raise these funds through a voluntary self-assessment tax system, tax defiers' arguments must be promptly addressed and effectively defeated to ensure maximum compliance with the law. Such maximum compliance among the nation's over 138 million taxpayers filing over 235 million returns annually (4) can only be achieved if honest taxpayers, who represent well over eighty-five percent of all taxpayers, (5) have trust in the overall fairness of the system. Maintaining maximum compliance and a high level of trust in the system's fairness are crucial, in turn, in addressing the Tax Gap--the gap between the amount of tax owed and collected on an annual basis. All efforts to ameliorate the Tax Gap are premised on the bedrock belief in the tax system's legitimacy. Should such legitimacy come into question, the Tax Gap could well spiral upwards, rather than trend downwards. This Article will address the impact of the conduct of illegitimate defiers, (6) as opposed to legitimate protestors, on the Tax Gap. (7) To understand this impact, the Article will first identify the arguments tax defiers have promoted and then highlight the consistent responses that the courts have had rejecting these arguments. …