Money: Courts and the Taxing Power


Tax rebels who are pursuing fundamental legal challenges to the Federal income tax are engaged in an exercise in futility. No matter how logical, how historically sound the arguments, the government's need to support itself through taxation is a fundamental "political question" of the sort courts have traditionally refused to entertain. I do not believe any court, even the Warren Court in its heights of judicial megalomania, ever believed it was "constitutionally" permitted to strike down the major source of government revenue.

Anyone who believes that the Federal income tax will be struck down by a court once it understands that Federal Reserve Notes are not lawful money, or that the form 1040 violates the Fifth Amendment, or that the Sixteenth Amendment is not part of the Constitution because Ohio was not part of the union until 1954, simply does not understand what courts do.

All that these challenges do is clutter the casebooks with pronouncements upholding the taxing power of the government. Should, by some miracle, a future court be receptive to a challenge to some fundamental aspect of the taxing power, these decisions will have to be explained away before any progress can be made.

Or, to take another example, should some libertarian used car dealer convince a court that he is constitutionally indistinguishable from a church, the result will far more likely be that churches will also be taxed that that used car dealers will be exempt.

The government's power to raise revenue through taxation is not a justifiable issue. But, how they go about taxing is.

I believe that tax reform through the courts is possible if litigation concentrates on the civil rights aspects of tax administration. In the areas of collection and investigation the tax system raises a number of conventional civil rights issues which may be decided favorable to the taxpayer without involving the courts in any potentially serious disruption of the flow of revenue.

This suggestion will not appeal to tax rebels who want to bring down the government by cutting off its tax collections, or to purists who want to be able to keep everything they earn. My point is simply that they cannot obtain their ends through judicial challenges to the income tax and are wasting their time to do so. There are, however, some positive measures which can be achieved through the courts and these are the subject of this article.

We might begin by examining the justification for the rather amazing collection powers of the Internal Revenue Service, particularly with respect to seizures without prior judicial determination. Courts here have recognized that such practices raise serious constitutional issues in commercial debt collection settings In fairness to the I.R.S. it should be said that they seldom use their more extraordinary powers. On the other hand, the fact that they have so seldom used them may be evidence that they are not essential to the orderly collection of taxes.

Even more interesting questions arise with respect to the investigatory powers of the I.R.S. As it happens, the Service is presently engaged in seeking to establish by judicial precedent that their investigatory powers are coextensive with those of a grand jury, so that anything which a grand jury may do the Service may also do. This would be a very dangerous precedent to establish and one which would seem to be only marginally related to the overall efficiency of the tax system.

Another issue in which a taxpayer might be able to develop a favorable case involves the degree of the Service's interest in a potential criminal investigation necessary to taint an administrative summons for a taxpayer's records. As the law now stands, the Supreme Court has held that a court should not enforce an I.R.S. summons if it is issued solely in furtherance of a criminal investigation. Litigation might usefully be developed here to liberalize the judicial test for determining what facts constitute a sole criminal purpose.

Another example of a traditional civil rights issue emerged recently when a taxpayer learned that the Service had a file of his letters-to-the-editor clipped from local newspapers in which he complained of I.R.S. practices. The Service explained that these letters were kept in order to establish the intent of the writer to violate the tax law.

There are a good many other potential issues which tax reformers might concentrate on if they want to use the courts. There is the problem of the taxpayer/lawyer and taxpayer/accountant privilege, the problem of access to taxpayer returns for non-tax purposes, and the general problem of privacy and access to bank records.

These issues are ones which are in the mainstream of current constitutional development. They involve civil rights recognized by a broad spectrum of the community, witness the A.C.L.U.'s involvement in challenges to the Bank Secrecy Act. They are difficult issues, but ones in which favorable developments are possible, given time and effort and the willingness to abandon constitutional fundamentalism in favor of a realistic view of the role of the courts in protecting the rights of the taxpayer.

© 1977 Davis E. Keeler