[Lawdog]

The argument that federal income tax applies only to corporate profits is a 100% loser argument. From http://evans-legal.com/dan/tpfaq.html#corporations

This claim appears to be based on a strange chain of “logic.”

As noted above, Congress enacted taxes on the incomes of corporations from manufacturing and other industries after the Supreme Court held in Pollock that an income tax on incomes from property was unconstitutional unless apportioned, and the Supreme Court held that those corporate excise taxes were constitutional. See, for example, Flint v. Stone Tracy Co., 220 U.S. 107 (1911).

The cases that arose under those corporate tax cases necessarily developed a definition of “income” and, after the adoption of the 16th Amendment and the enactment of general income taxes on both individuals and corporations, courts continued to refer to those definitions of “income” under the corporate excise tax acts. This leads tax protesters to claim that “income” means only “corporate income,” which is ridiculous.

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (4) the Sixteenth Amendment to the Constitution is either invalid or applies only to corporations....”
Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“Plaintiff appears to argue that according to the Sixteenth Amendment, federal income tax is not a direct tax on wages or salaries of individuals, but that it is an excise tax on the privilege of engaging in some privileged or regulated activity. Therefore, according to plaintiff, this ‘indirect excise tax’ can only be imposed on the income of corporations and the dividend income of stockholders. Despite plaintiff’s many case citations allegedly supporting his argument, the Sixteenth Amendment, valid as described above, clearly authorizes Congress to levy a direct income tax upon individuals who are United States citizens.”
Betz v. United States, 40 Fed.Cl. 286, 296 (1998)

“Plaintiff argues ‘income’ should be interpreted as limited to corporate activities, and not include wages. He relies on a series of Supreme Court cases rendered shortly after ratification of the Sixteenth Amendment, and which define the scope of corporate income. NONE of those cases, however, stands for the proposition that only corporate income is taxable. To the contrary, like Richards, supra, many of these cases state: “income may be defined as gain derived from capital, FROM LABOR, OR FROM BOTH COMBINED”. See, e.g., Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174 (1926); Merchant’s Loan & Trust Co. v. Smietanka, 255 U.S. 509, 518 (1921); Eisner v. Macomber, 252 U.S. 189, 207 (1919); Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185 (1918); Stratton’s Independence. Ltd. v. Howbert, 231 U.S. 399, 415 (1913) (emphasis added). In particular, in Southern Pacific Co. v,. Lowe, 247 U.S. 330, 333-34 (1918), the Supreme Court quoted the income statute at the time as imposing a tax on “every person residing in the United States . . . upon the entire net income arising and accruing from all sources”. Thus, the plain language of the authorities upon which Plaintiff relies belies his position.”
Tornichio v. United States, 81 AFTR2D PAR. 98-582, KTC 1998-71 (N.D.Ohio 1998), (suit for refund of frivolous return penalties dismissed and sanctions imposed for filing a frivolous refund suit), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) Par. 50,394, 83 AFTR2d Par. 99-579, KTC 1999-147 (6th Cir. 1999). In affirming, the 6th Circuit stated that, “Tornichio’s legal assertions are patently spurious, as it cannot be seriously argued that an individual’s taxable income is based solely on income derived from corporate activities,” and imposed additional sanctions for filing a frivolous appeal.

“[T]he frivolous argument that wages are not income ‘has been rejected so frequently that the very raising of it justifies the imposition of sanctions.’ Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985); Bey v. New York, 164 F.3d 617, 617 (2d Cir. 1998). Section 61(a) of the Internal Revenue Code clearly defines gross income as ‘all income from whatever source derived,’ which includes wages, salaries, and compensation for services. 26 U.S.C. section 61(a); 26 C.F.R. section 1,61-2(a). The plaintiffs erroneously rely on cases that have defined the scope of corporate income to argue that non-corporate income is not taxable. ‘To the contrary, . . . many of these cases state: “income may be defined as gain derived from capital, from labor, or from both combined.”’ Tornichio [v. United States, 81 AFTR2D PAR. 98-582, KTC 1998-71 (N.D.Ohio 1998), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) Par. 50,394, 83 AFTR2d Par. 99-579, KTC 1999-147 (6th Cir. 1999)], 1998 WL 381304, at *3 (citations omitted). The plaintiffs’ claim that they are owed a refund because they had no tax liability for the years 1993 through 1996 is therefore foreclosed by well- established law.”
Gavigan v. United States, 87 AFTR2d Par. 2001-480, No. 3:99CV697 (DJS) (D.Conn. 11/30/2000), (suit for refund of frivolous return penalties dismissed).

“One of the bases for Plaintiff’s position is that he had no taxable income since “income” can only be a derivative of corporate activity. This position, however, is simply untenable and is directly contrary to the law.”
Myrick v. United States of America, 217 F Supp 2d 979, 2002-2 US TaxCas 650,487, KTC 2002-457, aff’d Docket: 02-16428, KTC 2003-327 (9th Cir. 2003).

See also, Rennie v. Internal Revenue Service, 216 F. Supp. 2d 1078, 1083 (E.D. Cal. 2002), (plaintiff’s “zero” return was frivolous when based on his argument that his wages were not derived from corporate activity); Olson v. United States, 760 F.2d 1003 (9th Cir. 1985); Gattuso v. Pecorella, 733 F.2d 709 (9th Cir. 1984); Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003).

The claim that “[o]nly certain types of taxpayers are subject to income and employment taxes, such as ... corporations, ..., or similar arguments described as frivolous in Rev. Rul. 2006-18, 2006-15 IRB 743” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.