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Income Tax Myths

"Nothing bad ever happens to tax protestors."

Some tax protestors parade around the Internet saying "I haven't paid taxes in years, and look, I'm not in jail! There must be no duty to pay!" (See, for example, this film starting at 12:58 and again at 17:35.)

The law’s mill grinds slowly, but exceedingly fine. It may take the IRS a while to catch up with tax protestors, but a check of the law reports shows that there are many, many cases in which the IRS does catch up with and nail them. Some notorious tax protestors have received substantial jail sentences:

  • Ed and Elaine Brown, who proclaimed that the federal court trying them was a "fiction," and who were finally arrested in 2007 after a bizarre, months-long standoff in their home, got over five years for not paying their taxes.
  • John Cheek, who got the Supreme Court to reverse his first conviciton, was convicted again on retrial and sentenced to a year and a day and fined $62,000. This conviction was upheld and the Supreme Court declined to get involved a second time. U.S. v. Cheek, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994).
  • Arthur Farnsworth, another tax protestor with an Internet site explaining his kooky theories, was sentenced on April 3, 2007 to over two years in prison for tax evasion (this judgment was affirmed in December 2008).
  • Sherry Peel Jackson, former IRS agent, Certified Public Accountant, and Certified Fraud Examiner, who gave seminars on absurd tax protestor theories (and who appears in the film linked above, boasting about not paying taxes), was sentenced in 2008 to four years imprisonment after being convicted of federal tax crimes.
  • Peter Hendrickson, author of "Cracking the Code," a book propounding bizarre income tax theories, was sentenced on April 19, 2010 to nearly three years in prison, plus a $25,000 fine, nearly $30,000 in restitution, and the cost of his prosecution. (On appeal, Hendrickson's conviction was affirmed, but his sentence was reduced to 27 months in prison.)
  • Karl Kleinpaste, who used to have an Internet site about his eccentric tax theories, in 2003 got two and a half years in prison for not paying his taxes.
  • Larken Rose (a proponent of the "861 argument") got 15 months in 2005. Quite a price to pay for a crazy theory.
  • Irwin Schiff, perhaps the granddaddy of all tax protestors, was convicted three times of tax offenses and on this third conviction in 2006 was sentenced to over twelve years in prison.

Those are just some well-known protestors. You can see bulk statistics from the IRS here (page 10). As you can see, the government brings hundreds of criminal prosecutions every year against those who don't file their tax returns. According to the statistics, the average sentence in recent years (2009-2011) been about 25 months -- that's over two years in prison.

And those are just the criminal cases. The IRS can also just go after people civilly, that is, just going after the money, without trying to put them in jail. The result is that not only does the IRS charge tax protestors for the tax they owe, it increases their tax by the applicable statutory penalties for failing to file or for filing a frivolous return. These penalties can easily increase your tax bill by 25% and in some cases by 75%.

Moreover, the courts regard tax protestors as a thorn in their side. The courts have become completely fed up with tax protestors and won’t give them the time of day. Not only do courts routinely rule against tax protestors (often, these days, without even bothering to address the protestors’ arguments), but many courts have started a practice of issuing a “sanction” against tax protestors for wasting the courts’ time with frivolous arguments. Some courts of appeals, for example, routinely charge tax protestors an extra $4000 or more as a sanction for their frivolous appeal. So do not imagine that, once you run the gauntlet of all the preliminary IRS proceedings, your “day in court” will finally be the day that you are vindicated. In fact, your day in court will more likely be the day that you are slammed with an extra monetary penalty for wasting the court’s time.

Moreover, the above increases, penalties, and sanctions are just the civil penalties that tax protestors are made to pay. If the government chooses to go after you criminally, you can wind up in prison.

I can’t promise that you will be caught if you don’t pay your taxes. But I can tell you that a lot of tax protestors are caught and that it ends up costing them a lot of extra money and, in some cases, jail time. It is cheaper just to pay the taxes that you owe. It would certainly make your life a lot simpler.