Sometimes You Crack The Code And Sometimes The Code Cracks You

What would happen if you wrote to the IRS, by way of an amended return say, and asked for all the money back that you have paid in the last couple of years?  Frankly, they just might send it to you and there is a chance. possibly a good chance, that that would be that. (See note)

Does that mean that those of us, who are conventionally tax-compliant, are being hoodwinked by a corrupt system? That’s the discussion I have been having with Peter Hendrickson, who recently lost in Tax Court.

Judge Buch Cracks Down On The Code Cracker

“The Hendricksons are not strangers to judicial proceedings relating to their Federal income tax” might be Tax Court Judge Ronald Lee Buch’s entry into some sort of understatement competition.  It comes early in his recent decision in the case of Peter and Doreen Hendrickson TCM 2019-10.

Peter Hendrickson is the author of Cracking The Code – The Fascinating Truth About Taxation In America and maintains the website Lost Horizons.

Judge Buch, when he was relatively new to the Tax Court with less than three years on the bench, took on “Cracking the Code” in the case of Stephen Waltner TCM 2014-35. In the current decision, he follows the more common practice of dismissing Hendrkickson’s arguments out of hand.

The Hendricksons are tax protesters, their returns were frivolous, and their positions in this litigation are also frivolous. We addressed most of their arguments in Waltner v. Commissioner, T.C. Memo. 2014-35, aff’d, 659 F. App’x 440 (9th Cir. 2016), and we need not address them further.

Not surprisingly, Judge Buch upheld the IRS noticed of deficiency and penalty assertions with one exception:

Because the Hendricksons’ returns for 2002 and 2003 and Mr. Hendrickson’s return for 2004 are not valid returns, we cannot uphold section 6663(a) penalties.

Arguably this decision falls into the “Nothing to see here, folks” category.  Just another silly protester making silly arguments and getting shot down.

What’s In A Name?

I thought the case deserves more attention, though, because my impression is that Peter Hendrickson has stepped into the shoes of the late Adam Schiff in providing the most spirited defense of the alternate reality of the people referred to as “tax protesters”.

Out of respect for objections to the “tax protester” moniker, I have coined a more neutral one – “not conventionally tax compliant”  (NCTC).  Mr. Hendrickson refers to people as being CtC educated.

The Fight Goes On

I reached out to Peter Hendrickson to see if he intended to appeal and he responded.

Thanks for asking, although without meaning to be in any way hostile (after all, I don’t know you, or even of you– maybe you are an honest journalist, and it will be my pleasure to come to know you), I’m curious about why you keyed on this event, after apparently not having paid any attention to those on exhibit at Lost Horizons – Bulletin Board and Lost Horizons – Every Which Way But Loose, for example, or the material presented at Lost Horizons – Tax Fraud .

Seriously. How about you comment on 250,000 or so complete refunds over 15 years by more than 3 dozen governments in eyes-wide-open response to heavily-vetted claims by tens of thousands of men and women (as discussed briefly at Lost Horizons – Gauntlet? Or how about on the history of all this (and the fictions deployed by the government throughout) as laid-out at Lost Horizons- Crime Of The Century?

Seriously.

Of course I will appeal. This decision brushes past hugely substantial issues in this case as though they don’t exist or weren’t argued. But the decision was just issued today, and I have only had a chance to skim through. Thus, I can’t discuss it in any further detail right now.

Searching In A Lost Horizon

Of course, that got me digging into the Lost Horizons website (Not for the first time, I should mention) and exchanging some more e-mails with Mr. Hendrickson.  Mr. Hendrickson has some strong points compared to other promoters of what you might think of as tax mishegas.  He acknowledges courtroom defeats and discusses them.  When it comes to Judge Buch and the Waltner decision, don’t get him started.

Buch is really good at misunderstanding. In a footnote to his fallacious assertion about the meaning and effect of the 16th Amendment in defiance of ALL actual authority on the subject save only his own confused mind, Buch says this about the portions of the Brushaber decision excerpted above (which also are presented in CtC):

“Brushaber merits special mention, because Cracking the Code misleadingly cites that case. A stockholder brought suit to against a corporation to prevent the corporation from paying taxes imposed by the Tariff Act of 1913. The Supreme Court summarized the stockholder’s arguments, stating: “The various propositions are so intermingled as to cause it to be difficult to classify them.” Brushaber, 240 U.S. at 10. The Supreme Court then proceeded to untangle the stockholder’s arguments, which ultimately proved to be losing arguments. Yet Cracking the Code cites the Supreme Court’s summary of the losing arguments as though it were the Supreme Court’s analysis of the underlying constitutional issues.”

Brushaber – Remember That Name

Brushaber is an extremely important decision.  It was also at the heart of Adam Schiff’s work.  If you are foolish enough to travel down this rabbit hole, you really should read the entire decision more than once, before focusing on snippets.

Judge Buch has one view of Brushaber and Mr. Hendrickson has a different view.  That is the way I look at it, although Mr. Hendrickson does not believe it is possible to understand Brushaber differently than he does.  He wrote me:

There is no “reading” different from mine. What you call “my reading” is not my reading– it is the verbatim declarations of the Supreme Court on many different occasions, as well as those of Congress and the Executive.

Although I may have expressed an opinion elsewhere, I am going to be agnostic on Brushaber and the overarching argument of the NCTC or CtC educated that the income tax is extremely limited in its application.  Mr. Hendrickson put it this way to me:

The trouble reconciling it is because your mind persists in imagining “income” in the context of the tax (and hence, all tax law and all tax jurisprudence) to have its dictionary definition, which is, more or less, “all that comes in”. But it does not have that definition, in that context. In that context, “income” means only, “the gainful exercise of federal privileges” (and by the way, note as an aside that it is “incomes” in the 16th amendment, not “income”).

This is established by statutory construction, in which only that class of events IS taxed; by the Constitutional design, in which only that class of events CAN be taxed without apportionment; by the Supreme Court designation of the tax as an excise, which is synonymous with “privilege tax”; by direct testimony by executive department specialists (as in the F. Morse Hubbard congressional testimony); and of course the historical record in which no one had any notion to the contrary for about the first 80 years of the tax’s existence.

I’m going to go agnostic on that also, even though I have a very hard time reconciling it with the very broad definition of income in Code Section 61.

Where Does The Rubber Hit The Road?

I will say based on my reading of a lot of tax cases that whenever a judge faces the issues squarely, he or she will stand with the conventionally tax compliant.  But there is a problem.  Litigated tax cases are a very small and hardly random sample of all tax determinations.

What Mr. Hendrickson contrasts with the litigation record is the number of documented refunds to CtC educated filers, that he chronicles on his website.   He insists that the claims were examined and vetted.

As you’ll see in the documentation at the bottom of this page, every one of these refunds has been thoroughly vetted by the government before being issued, and all have issued even while the government has striven mightily to suppress the knowledge of the law by which these claims are made.

I’m not going to debate Mr. Henkrickson on that, but I will say I am not convinced.  Someone, who prefers to remain anonymous, recently sent me a book he has written on a different theory that has the same practical import as CtC. He told me that he had filed refund claims based on the theory and he had gotten all his money back.

Either Way There Is A Scandal

The conspiracy that Mr. Hendrickson alleges is mind-boggling and slightly bizarre.  The income tax is very narrow, but key element of the executive and judicial branches pretend otherwise.  The IRS knows that it is hoodwinking most people so it will give the money back to just about everybody that asks for it.  It’s kind of like the technology charge that my managing partner had us implement for a while.

The explanation that I think is more probable, that Mr. Hendrickson thinks is preposterous, is that underfunding, aging technology and declining headcount have crippled the IRS enforcement capacity and that there is a lot that will get by that should not get by.

What you might want to consider is when it is that poor enforcement makes it so that the income tax is, in effect if not principle, voluntary.

Other Coverage

Lew Taishoff covered the recent decision with his usual panache.

My patient readers may remember Peter Hendrickson, the author of the Protesters’ Bible. If not, see my blogpost “Cracking Up,” 2/27/14, wherein I chronicled Judge Buch’s deconstruction of Steven T. Waltner’s frivolity.

Pete furnished the ur-text for Steve’s frivolous Tax Court sonata .

Now Pete himself, along with spouse Doreen, are before Judge Buch, in Peter E. Hendrickson and Doreen M. Hendrickson, 2019 T. C. Memo. 10, filed 2/11/19.

Pete is up to his old tricks. I’ll spare you the recitation of Pete’s frivolities. You’ll not be surprised that, although Judge Buch repeats Pete’s history, Judge Buch avoids “somber reasoning and copious citation of precedent.”

Mr. Taishoff has a more thorough discussion of the penalty issues than I shared.

Law360 is ensconced behind a paywall.

I picked the case up from a tweet by Joe Kristan.  I would probably have gotten to it eventually, but you never know.

Note

In principle, filing a frivolous refund claim can get you in trouble, so I don’t recommend that you try it.

 

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