Thursday, May 04, 2006

Hm. Maybe There's Hope For The Little Guy Yet...

Happy returns for acquitted tax accountant

Newsday Staff Writer

May 4, 2006

A Bay Shore accountant has been acquitted of income-tax evasion charges after he filed returns for 36 clients claiming that salaries cannot be legally taxed.

But don't get ready to go rushing out to your tax preparer next April. While the tactic initially saved the clients $500,000 in taxes, the Internal Revenue Service has since required them to pay tax on their salaries, according to court records.

The acquittal Tuesday by a jury in U.S. District Court in Central Islip was the second time in three months that the government has failed to convict Paul Petrino of charges of aiding and abetting false tax filings from 1999 to 2001. His defense was based on arguments from the tax-protester movement, which questions the validity of the federal income tax laws. Petrino prepared the returns in his home office and most of his clients were from Long Island.

[...]The jurors who acquitted Petrino, who faced 61/2 years in prison, were angry that they had to do so, Fink acknowledged after speaking with them yesterday. But he said they accepted his argument that there was "reasonable doubt" that his client was intentionally committing a crime.
So he wasn't acquitted for filing false returns, just for not being deliberate about it? Interesting.
The tax-protest movement has made a number of arguments to contend that the federal income tax law is illegal or that citizens are not required to pay income taxes. But courts have ruled the arguments frivolous, according to federal officials and tax law experts.

In Petrino's case, he told his clients of one theory common in the tax-protest movement: that wages and salaries are not taxable because they are simply a return for an individual's labor -- "his blood, sweat and tears," according to Fink.

Petrino reported his clients' salaries on the line on the income tax form that called for it -- Line 7, according to court records, but then declared the exact amount as a loss on the line for other income -- Line 21, according to court records.
Now, let me weigh in a little with what scant expertise I have in this field.

The IRS and many courts have deemed the argument that wages are not taxable as a form of standardized barter invalid, since barter transactions are subject to tax. The special case usually raised by people protesting the income tax on salaries is that it is impossible to determine whether the barter in this case-- labor for money-- was a net profit or loss for the wage earner (which is why this idea works as declaring income on line 7 and deducting it on line 21, "Other Income" as a loss.)

Many of us would even make the argument that, since the transaction is a wash, we should get an additional deduction for the opportunity cost (what you might call "time spent working") that prevents us from earning other forms of income.

Naturally, since the income tax is vital to the operations of the country, no court in its right mind is going to rule in favor of this viewpoint. Still, it's an interesting issue that a candidate for office might consider raising and running on.

And also might form the basis of a mass protest of wage earners in the nation: since Bush has deemed fit to give away the tax-farm to the wealthy in terms of estate taxes and capital gains taxes, as a protest we could organize a one-year moratorium on paying income taxes on this basis.

In this case, 36 people were caught. Imagine if it was 36 million people? It would be kind of hard to prosecute all of us, and it might force a reconsideration of the heavily wealth-biased tax code in favor of a more fair, more progressive code.

We ought to think about this a bit, don't you think?

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