Re: IRS's Multi-Billion Flimflam: "Double or Nothing" Taxation of Tax Refunds


Francis Keiser wrote:
>

> By L. Stuart Ditzen
>
> Inquirer Staff Writer
>
>
> Nancy Jardini, chief of criminal investigations for the IRS, said in
> an interview that Rose, in her view, was among the nation's top promoters of
> frivolous theories advocating nonpayment of taxes. She said the government
> is pressing criminal cases against other promoters and imposing civil fraud
> penalties on taxpayers who adopt their theories.

I wonder when she is going after "tax professionals" that exclude
refunds of tax overpayments that provided a tax benefit in a prior year
when the regular tax was paid from AMTI and those at IRS who are
responsible for the fraudulent instructions that result in the
exclusion. Remember, ignorance of the law is no excuse! THIS LITTLE
FRAUD HAS COST THE US TREASURY BILLIONS OF DOLLARS!

> One of the most famous among them is Irwin Schiff, 77, of Las Vegas,
> currently is under indictment in a third tax case in Nevada. He owes $2.2
> million in back taxes and penalties.

OBVIOUSLY, SCHIFF IS REAL IS A REAL PIKER COMPARED TO IRS AND THEIR
"STAKEHOLDERS".

> And he is under court order to stop selling his self-published book,
The Federal Mafia, because the book advocates tax evasion.

There also maybe some elements of truth that the government finds
objectionable.

After the minutes of my presentation to the Taxpayer Advocacy Panel in
2003 were posted on the TAP website, the link to the minutes of my
presentation to the Citizen's Acvocacy Panel in 1999 were removed from
"Minutes Page" on the CAP website. Why? Because the CAP minutes
described one of the issues but not the section of the IRC, 111(a),
being violated and the TAP minutes listed the sections of the IRC being
violated, 56(b)(1)(D) and 111(a). Someone obviously didn't want the
issues and the sections of the Code being linked.

> Assistant U.S. Attorney Floyd J. Miller, who prosecuted him, said Rose
> twists the meaning of Section 861.

Just like IRS twists the meaning of section 111(a) and 56(b)(1)(D) to
produce frauds on taxpayers and the US Treasury respectively.

> Miller said the section does not exempt
> domestic income from taxation, but instead protects taxpayers from double
> taxation when their income is drawn partly from within the United States and
> partly from another nation.

Contrary to IRS instructions, section 56(b)(1)(D) does not exclude
refunds of tax overpayments that provided a tax benefit in the prior
year when the regular tax was paid from AMTI.

And, contrary to IRS instructions, section 111(a) protects taxpayers
from "DOULBLE TAXATION" of itemized deduction recoveries from years
when the regular tax was paid. Section 111(a) also protects taxpayers
from "DOUBLE TAXATION" of the income/refunds related to tax overpayment
that provided a limited long-term capital gains rate based tax benefit
in a year that the regular tax was paid.
>
> "Let's face it, nobody likes to pay taxes, including me," Miller said.
> "But you have to follow the law."

So why doesn't IRS follow the law? Oh, they don't have to; they are
the IRS.

Since 1984, IRS has defrauded taxpayers with its bollixed
interpretation of section 111(a) of the IRC.

THE *** HITS THE FAN WHEN IRS FRAUDS COMES OUT DURING THE SCHIFF
TRIAL.

Here is a condensed version what Stephen J. Toomey of the IRS Office of
Chief Counsel wrote in a letter to me dated June 27, 1996. I have
inserted my comments. The complete version is shown (as redacted by
IRS) in the first message in this thead.

Tax Notes Today ,MARCH 18, 1999 THURSDAY,

DEPARTMENT: Official Announcements, Notices, and News Releases; IRS Tax

Correspondence

CITE: 1999 TNT 52-53

HEADLINE: 1999 TNT 52-53 TAXPAYER IRATE ABOUT IRS'S POSITION ON AMT AND

TAX BENEFIT RULE. (Section 111 -- Tax Benefit Recovery Items;)

(Release Date: DECEMBER 08, 1998) (Doc 1999-10275 (28 original pages))

CODE: Section 111 -- Tax Benefit Recovery Items;
Section 56 -- Minimum Tax Adjustments

ABSTRACT: In a December 8, 1998 letter, an individual whose name has
been withheld has complained about the IRS's "twisted interpretations"
of deduction recoveries under sections 111(a) and 56(b)(1)(D).

* * * * *
Refer Reply to: * * *


Date: * * *


Dear * * *


[39] This is in reply to your letter of * * * to * * * We are
responding on his behalf.

[40] In a number of letters to the Internal Revenue Service (Service)
and Congress you have stated your belief that the Service has not
followed the law as it relates to the inclusion of tax refunds in gross

income and is improperly excluding such refund from alternative minimum

taxable income (AMTI).
__________

Actually, I also took exception to the fact that the gross income
attributable to an itemized deduction recovery can exceed the amount of
the recovery by up to 85 percent. Take particular note that Mr. Toomey
carefully avoids this fact.
__________

In our responses to those letters, we have set
forth why we believe the Service is correctly interpreting the law as
it relates to those items of concern. This letter responds in more
detail to the points you have raised in your letters.

SECTION 111(a)

[41] You assert that section 111(a) /1/ requires that a refund of state

income taxes that provided a tax benefit for the taxable year deducted,

be taken into account in a manner that will result in an increase in
taxable income in the year of recovery only to the extent of the amount

of the refund. You point out that under the Service's position a
taxpayer's taxable income may be increased in the year of recovery by
more than taxable income was reduced in the year the excess state
income taxes were deducted. .
_______

That is right.
________

You believe it is improper for the Service to include
the entire refund in gross income thereby increasing adjusted gross
income (AGI) and possibly increasing the amount of social security
benefits required to be included in gross income, and possibly reducing

the allowable amount of medical expense deductions and miscellaneous
itemized eductions
________

The above is a deliberate distortion of my position. My position is
that neither the gross income nor the income taxable income
attributable to an itemized deduction recovery can exceed the amount of
the recovery. I have never objected to the amount of the recovery that
is required to be entered in gross income when the refund was from a
year when the regular tax was paid.
_________

[42] We agree that such a result may occur under the Service's
interpretation of the law. We do not agree, however, that section
111(a) requires a different result.

[43] Section 111(a) provides that "[g]ross income does not include
income attributable to the recovery during the taxable year of any
amount deducted in any prior taxable year to the extent such amount did

not reduce the amount of tax imposed by . . . [Chapter 1 of the Code]".

/2/

[45] Section 111(a) only excludes an item from gross income to the
extent deduction of that item did not reduce tax liability for the
taxable year deducted.
_________

Actually, section 111(a) provides that "[g]ross income does not
include
income attributable to the recovery". The word "attributable" makes
all the difference because the increase in gross income that results
from the inclusion of an itemized deduction recovery in the calculation
of taxable Social Security benefits is attributable to the recovery.
This is how the gross income attributable to a recovery can exceed the
amount of the recovery by up to 85 percent.
__________

If such item did provide a tax benefit when
deducted, there is no statutory justification to exclude any portion of

it from gross income for the taxable year of recovery
__________

O.K.
_________

, with all the attendant consequences flowing therefrom. Because of the
steps mandated in computing taxable income by the Internal Revenue Code
an item that is included in gross income necessarily affects the amount
of AGI which
in turn can affect other items of income or deduction.
_________

WRONG!

Section 111(a) provides that "[g]ross income does not include
income attributable to the recovery during the taxable year of any
amount deducted in any prior taxable year to the extent such amount did

not reduce the amount of tax imposed by . . . [Chapter 1 of the Code]".

The words "extent" and "attributable" makes all the difference..
_________

[46] Section 111(a) does not provide that taxable income shall include
the recovery of any amount previously deducted only to the extent such
amount previously reduced tax liability and taxable income.
_________

REALLY? When does the amount of the recovery included in taxable
income exceed the amount of the reduction in taxable income caused by
such amount?
____________

Nor does it
provide that gross income shall include the recovery of any amount
previously deducted only to the extent necessary to increase taxable
income in the year of recovery equal to the reduction in taxable income

caused by the prior deduction.
_________

Denial of a perversion of what is provided by "extent".
_________

However, once a determination has been made that a certain amount of a
deduction reduced both the tax base and tax liability, section 111(a)
has never provided a mechanism for considering what effect inclusion of
that amount in gross income might have on other items in the taxable
year of recovery.
_________

That is absolute BULL***!
________

[48] Once it has been determined that an amount previously deducted but

recovered in a later taxable year resulted in a tax benefit in the year

of the deduction, the recovered amount enters into gross income for all

purposes for the taxable year of recovery. There is no statutory
mechanism to ensure that the tax liability attributable to the recovery

equals the tax benefit previously received.
_________

Well nothing other than section 111(a).
_________

[50] Although we continue to disagree with your interpretation of
section 111(a) we understand why you consider its application to
produce arguably unfair results in certain circumstances. It has long
been recognized that the tax benefit rule is (NOT) a very precise error

correction device; it does not put the taxpayer in exactly the same
position that the taxpayer would have occupied if the taxpayer had
never deducted the refunded amount. As one commentator has noted:

The tax benefit rule is an example of inexact correction.
When applicable, the Rule creates current income equal to the
amount of a beneficial prior deduction. While that may appear to
be exact, it is not, for it omits several important collateral
considerations such as the time value of money, the effect of
penalties, the prior statute of limitations, changing tax rates,
changing tax brackets, changing tax character, filing status,
and the effect of the prior deduction and current inclusion on
other items.

In many cases, such collateral considerations can
have a greater impact than does the raw inclusion. . . .
[A] deduction from gross income may have many other
collateral consequences, affecting areas such as medical expense
deductions, at risk rules, hobby losses, and passive activity
deductions. Subsequent recovery inclusions will likewise affect
such areas in the recovery year. . . .
Thus, the tax benefit rule results in an inexact
correction. Ideally, a taxpayer would correct a recovered
deduction by repaying the actual tax saved, with interest. The
Rule does not even attempt to approximate that ideal.
Steven J. Willis, The Tax Benefit Rule: A Different View and a Unified
Theory of Error Correction, 42 Fla. L. Rev. 593-94 (1990)
__________

As I understanding it, Professor Willis currently agrees with my
position rather than IRS's position.
__________

[51] Although the example you pose illustrates an unfavorable result
for taxpayers, it must also be recognized that the tax benefit rule may

work in a taxpayer's favor. For example, as a result of including a
state income tax refund in gross income a taxpayer may be able to
deduct charitable contributions, the deduction of which is generally
limited to a percentage of AGI, the carryover of which would otherwise
expire without benefiting the taxpayer.
____________

Well whoop di doo . IRS instructions still violate the IRC.
_____________

[52] We would also like to point out that the unfavorable results you
illustrate, at least in the context of possible overpayments of state
income taxes, may either be greatly mitigated or entirely avoided
through careful tax planning. First, a taxpayer who anticipates an
adverse effect from a refund of state income taxes may, to the extent
allowed by state law, adjust estimated tax payments and wage
withholding to minimize the possibility of receiving such a refund.

[53] Second, it is true that once a taxpayer has claimed a proper
deduction the taxpayer may not in a subsequent taxable year avoid
having to include a refund of the deducted item in gross income by
amending the taxpayer's tax return for the taxable year of the
deduction. See Klinghamer v. Brodrick, 242 F.2d 563 (10th Cir. 1957);
Hillsboro National Bank v. Commissioner, 460 U.S. 370, 378 fn. 10
(1983). However, where on the original return a taxpayer does not claim

an allowable deduction for state income taxes that could have produced
a tax benefit, section 111(a) excludes a refund of the undeducted taxes

from gross income. McCabe v. Commissioner, T.C. Memo 1983-325; Rev.
Rul. 79-315, 1979-2 C.B. 27. Thus, a taxpayer who anticipates an
adverse effect from a refund of state income taxes may simply deduct
the correct amount of state income taxes on the taxpayer's original
return. If it turns out that the refund would not produce an adverse
result by being included in gross income, the taxpayer may amend the
original return to claim the entire deduction allowable.


[54] In other contexts Congress has provided more precise ways to deal
with events occurring in later years that are inconsistent with the
treatment of an item in a prior taxable year. /4/ Because of Congress'
recent tendency to increase the number of items of income or deduction
that are affected by AGI, results like those you have illustrated may
occur with increasing frequency. Thus, you may wish to write your
Congressional representatives to advocate a change in the law. However,

unless and until Congress enacts a statute providing for a more precise

error correction mechanism in the context of deduction recoveries, the
Service will be required to include tax refunds that resulted in a
prior tax benefit in gross income, with all the collateral consequences

flowing therefrom.
____________

When I filed two amended returns that reduced the taxable incomes
attributable to state income tax refunds from being more than twice the
amount of the refunds to being equal to the refunds, the amended
returns were accepted by IRS and the refunds were issued.

Obviously, IRS has engaged in a long term conspiracy to commit fraud!


****************************************************************


The IRS respondent never got around to explaing precisely how under
section 111(a) of the IRC the gross income attributable to a recovery
can exceed the amount of the recovery. Because IRS instructions
include itemized deduction recoveries in the calculation of taxable
Social Security benefits, the gross income attributable to an itemized
deduction recovery can be up to 1.85 times the amount of the recovery.
Taxable can be more than twice the amount of the recovery when, based
on IRS instructions, the gross income attributable to the recovery
reduces medical or casualty and theft loss deductions and miscellaneous

deductios.

The respondent also attempted to justify the exclusion from AMTI of
tax
refunds that provided a tax benefit in the prior year when the regular
tax was paid. He overlooked the fact that the justification for
section 56(b)(1)(D) is to exclude from AMTI a refund of a tax
overpayment in a prior year when the AMT was paid and there was a
limited tax benefit resulting from a tax overpayment and the two-tier
capital gains rate structure. See Page 2 of Form 6251, Schedule A,
Form 1040, and Schedule D. Based on IRS instructions since 1988,
neither the income used for a tax overpayment(to the extent that it
provided a tax benefit)in a year the regular tax was paid nor the
refund of the overpayment received in a year that the AMT is paid have
been taxed.

If there is a limited long-term capital gains rate based benefit from a

tax overpayment in a year the AMT is paid and the refund is received in

a year the regular tax is paid, the income used for the overpayment
will be tax at the AMT rate and the refund will be taxed at the regular

tax rate.

Based on IRS instructions, the sequence in which the regular tax and
the AMT is paid determines whether the overpayment income / refund is
taxed "DOUBLE OR NOTHING".


LOOKS LIKE AT TWO MULTI-BILLION TAX FRAUDS TO ME!!! ONE (OF THE TWO)
ON TAXPAYERS AND ONE ON THE UNITED STATES TREASURY
>
> The IRS posts a 54-page document, "The Truth About Frivolous Tax
> Arguments," on its Web site (www.irs.gov), citing statutory references and
> court rulings that refute or reject dozens of tax-avoidance theories.

Looks like IRS needs to do some HOMEWORK!

CHEERS,


WDK

.