Many Americans believe that the federal income tax as it’s now imposed is likely unconstitutional. Among other factors, they base their reasoning on the wording of the 16th Amendment (which authorizes a federal income tax), interpreting it as never intended to tax wages and salaries earned in the private sector, as well as early court decisions involving that amendment.
The courts have regularly struck these arguments down. Occasionally, though, I read about a case in which prosecutors fail to convict a defendant who hasn’t filed federal returns or didn’t pay tax on their income, or was accused of tax evasion. One came to my attention a few weeks ago, when a jury was unable to reach a verdict in the federal prosecution of an Oregon man accused of willfully failing to file tax returns. The judge was thus forced to declare a mistrial.
The defendant, Michael E. Bowman, testified that based on his religious beliefs, he objected to paying tax to fund abortions and organizations such as Planned Parenthood that performed abortions. Based on his study of the US Constitution, the federal Religious Freedom Reformation Act, and the Oregon Constitution, he believed that the IRS was either required to accept or accommodate his religious objection. At least one member of the jury agreed with him.
Does this case demonstrate that if you have a good faith belief you don’t need to pay income tax, you don’t have to? Unfortunately, it’s not nearly that simple – or easy.
For starters, while Bowman has succeeded in staying out of prison for now, Uncle Sam can still go after his assets administratively and in civil litigation. Indeed, that’s what Oregon tax authorities have been doing. They’ve cleaned out his bank account and continue to collect taxes they believe Bowman owes. And since the jury didn’t acquit Bowman, he can be tried again for tax evasion.
In a federal criminal tax evasion trial, the prosecutor must convince a jury that you willfully failed to pay what you owe. Your attorney’s job is to convince the jury that your failure to pay tax wasn’t willful. And yes, you should always hire an attorney to represent you. After all, if you willfully attempt to evade or defeat a tax the IRS collects, you could be imprisoned up to five years, fined up to $100,000, or both, plus the costs of prosecuting the case. And if you’re convicted of willfully failing to collect or pay tax, you may be imprisoned up to five years, fined up to $250,000, or both, plus the costs of prosecution.
What’s now known as the “willfulness defense” is based on a 1991 Supreme Court case which overturned the conviction of a pilot named John Cheek for willfully failing to file tax returns and pay tax on his income. The Court held that:
“A good-faith misunderstanding of the law or a good-faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable.”
“… a defendant's views about the tax statutes' validity are irrelevant to the issue of willfulness and should not be heard by a jury.”
We all know that “ignorance of the law is no excuse.” But with the Cheek case, the Supreme Court carved out a tiny exception to this rule. If you believe you aren’t required to pay federal income tax or file federal income tax returns, you can present evidence to support that belief to a jury to defend yourself in a criminal trial. But you can use the willfulness defense only in a federal criminal tax case. It won’t defeat a tax levy or other collection methods the IRS uses to collect tax. It won’t work against state tax collectors. And of course, there’s no guarantee a jury will believe that your failure to file tax returns or pay tax was non-willful.
In the 27 years since the Cheek case was decided, some criminal defendants have successfully used it to stay out of prison. But Cheek himself eventually spent a year in prison after being convicted of tax evasion in a second trial. He also paid the full amount the IRS claimed he owed, plus a penalty.
I regularly recommend to clients that they not take on the IRS and try to convince a jury they have a good-faith belief they don’t need to pay federal tax. The risks are simply too high, plus there are numerous legal ways to minimize or defer federal tax liabilities. Among them are contributions to Roth IRAs, solo 401(k) plans, defined benefit plans, and investments in qualified opportunity zones. I’ve written about all these opportunities for members of the Nestmann Inner Circle. (If you’re not already a member, click here to sign up for your risk-free subscription.)
What if you want to stop paying federal tax permanently, without risking seizure of your assets or imprisonment? In that case, there’s only one completely and unambiguously legal way to proceed. It’s to expatriate and give up your US citizenship and passport. You’ll also need to start living in another country, if you don’t already do so. And you’ll need a second citizenship and passport if you don’t want to become stateless – a person without a country.
Is expatriation for you? It's a step you should take only after consulting with your family and professional advisors. But if you want to be permanently free of the outstretched hands of Uncle Sam, it’s the only unquestionably legal option available.