|
"NO."
U.S. Court Of Appeals Soundly Rejects IRS
Plea To Soften Ruling In Schulz v IRS
On January 29, 2005, we reported under the headline, “Dramatic
Development,” that the U.S. Court of Appeals for the Second
Circuit had issued a decision in Schulz v. IRS. The Court held
that taxpayers cannot be compelled by the IRS to turn over
personal and private property to the IRS, absent a federal
court order.
In our January report, we quoted from the decision,
“...absent an effort to seek enforcement through a federal
court, IRS summonses apply no force to taxpayers, and no
consequence whatever can befall a taxpayer who refuses,
ignores, or otherwise does not comply with an IRS summons
until that summons is backed by a federal court order…[a
taxpayer] cannot be held in contempt, arrested, detained, or
otherwise punished for refusing to comply with the original
IRS summons, no matter the taxpayer's reasons, or lack of
reasons for so refusing.”
On March 9, 2005, we reported under the headline, “IRS: Gut
Schulz v IRS. DOJ: Court’s Opinion Threatens Tax System,” that
on behalf of its client, IRS, the DOJ had filed a motion with
the Court, requesting that the Court amend its decision in
Schulz.
We reported that the DOJ stated in its motion that, “...the
Court's opinion threatens to seriously impede the effective
administration and enforcement of the nation's tax laws.”
We reported that the DOJ chastised the Court for “creating a
false impression,” and “misapprehending” and
“misunderstanding” and “misstating” and being “inaccurate,”
regarding the “consequences that flow from the issuance of an
IRS summons.”
On June 29, 2005, the Court issued its much-anticipated
decision regarding the government’s motion to amend the
Court’s earlier ruling. With a firm reliance on the Court’s
primary role of protecting the People’s individual,
unalienable Right to Due Process guaranteed by the 5th and
14th Amendments, the court soundly rejected the government’s
pleading.
Writing for the three-judge panel, Judge Straub wrote, in
part:
“…The government has moved to amend our per curiam opinion,
reported at Schulz v. IRS., 395 F.3d 463 (2nd Cir. 2005)
(“Schulz I”)… Having considered the arguments of the parties,
we grant the petition to rehear for only the limited purpose
and to the extent necessary to clarify our prior opinion and
hold that: 1) absent an effort to seek enforcement through a
federal court, IRS summonses “to appear, to testify, or to
produce books, papers, records, or other data,” 26 U.S.C.
Section 7604, issued “under the internal revenue law, “ id.,
apply no force to the target, and no punitive consequences can
befall a summoned party who refuses, ignores, or otherwise
does not comply with an IRS summons until that summons is
backed by a federal court order; 2) if the IRS seeks
enforcement of a summons through the federal courts, those
subject to the proposed order must be given a reasonable
opportunity to contest the government’s request; 3) if a
federal court grants a government request for an order of
enforcement then any individual subject to that order must be
given a reasonable opportunity to comply and cannot be held in
contempt or subjected to indictment under 26 U.S.C. section
7210 for refusing to comply with the original, unenforced IRS
summons, no matter the taxpayer’s reasons or lack of reasons
for so refusing.” [page 3].
Soundly rejecting the government’s view of Congress’s tax
enforcement scheme as “Draconian,” the Court said:
“…the government appears to argue alternatively, or in
combination, that: 1) the government may use the federal
courts to punish taxpayers who disobey an IRS summons even if
the summons is never enforced by court order; 2) if an IRS
summons is enforced by a court order, the court may punish
disobedience of the IRS summons before providing the taxpayer
an opportunity to comply with the court’s order; or 3) if an
IRS summons is enforced by a court order, the court may punish
disobedience of the IRS summons even if the taxpayer complies
with the court’s order. In our view, expressed in Schulz I,
none of these proposals is consistent with the comprehensive
tax-enforcement scheme in which 26 U.S.C. sections 7210,
7604(a) and 7604(b) are situated, constitutional due process,
or the relevant precedents of this Court and the United States
Supreme Court…" [ page 5].
Trumpeting the primary role of the Judiciary of protecting the
People from unconstitutional acts of the other two branches of
the government, the Court went on to say:
"…the IRS summons is administratively issued but its
enforcement is only by federal court authority in an adversary
proceeding affording the opportunity for challenge and
complete protection to the witness.” [page 9] (emphasis in the
original).
Most significantly, the Court held, relying on a 1920 decision
by the United States Supreme Court, that the principles of due
process apply to all administrative orders. We take that to
mean the Court’s order applies not only to IRS first party
summonses, but also to IRS third party summonses, and to IRS
levies and liens.
In what may be the most significant sentence in the 13-page
decision, the court stated:
“The rule of due process upon which we relied in Schulz I, and
upon which we rely now, can be stated thus; any legislative
scheme that denies subjects an opportunity to seek judicial
review of administrative orders except by refusing to comply,
and so put themselves in immediate jeopardy of possible
penalties ‘so heavy as to prohibit resort to that remedy,’
Oklahoma Operating Co. v. Love, 252 U.S. 331, 333 (1920), runs
afoul of the due process requirements of the Fifth and
Fourteenth Amendments.“ [Page 10].
Although the objects in contention in Schulz were IRS
administrative summonses, it is unavoidable that the Due
Process issues raised and articulated by the Court in Schulz
have direct implication for all forms of routine IRS
administrative process including liens, levies and seizures.
This decision reiterates those constitutional principles.
The Court's reaffirmation of Schulz I is clear: any
legislative scheme that forces a taxpayer to make a “Hobson's
choice” between either capitulating to an IRS administrative
demand, or risk bearing the pains of IRS's wrath if she
refuses to comply -- without access to judicial review,
violates the Constitution.
The Court granted both Schulz and the Government 45 days to
file a petition for an en banc rehearing.
Although the Second Circuit's decision has profound
implications in its own right, to date, neither the Court nor
the Government have addressed the fundamental issue underlying
the original litigation – i.e., Schulz's claim that the IRS
summonses were issued to him for the sole intent of infringing
and defeating the First Amendment Right to Petition process
that Schulz and the WTP Foundation are championing and which
challenges, on constitutional grounds, certain actions of the
government, including the authority of the IRS to force
ordinary working Americans to pay a direct, un-apportioned tax
on their labor.
Part of this historic effort includes the landmark
Right-to-Petition lawsuit which is currently awaiting further
action by the DC District Court. In that lawsuit, nearly 2000
Americans have petitioned the Court seeking a declaration of
their Right to withhold taxes from their servant government
until their Petitions are answered and Redress for Grievances
is secured, a Right explicitly expressed in 1774 by the
Founding Fathers, while sitting as the Continental Congress
after the war with England had begun. (Journal Number 1,
Continental Congress).
|
