JULY 2, 2001 VOLUME 9, NUMBER 1
Income tax protestors may really believe that they can choose to opt out of the federal government’s income tax system. Some objectors may think they are making an important political point. They keep losing, however, and paying extra taxes and court costs for making arguments that are simply specious.
A case in point: Californian Andy Hromiko. Mr. Hromiko is a computer analyst and programmer, and worked for Duraflame, Inc. and California Cedar Products, Inc. He also was the trustee of MatrixInfoSys Trust, which he apparently set up for the purpose of avoiding payment of income taxes.
When Mr. Hromiko failed to file tax returns from 1994 to 1997 the Internal Revenue Service determined his tax liability for him and sent a bill for about $80,000 in taxes and another $25,000 in penalties and interest. Mr. Hromiko objected, arguing that he had received no income. MatrixInfoSys Trust, he said, had been paid for his services, and so he was not liable for taxes.
The IRS responded in kind. It first determined that MatrixInfoSys Trust was liable for slightly more in taxes and higher penalties, and then brought an enforcement action against both Mr. Hromiko and the trust. One or the other, reasoned the IRS, owed taxes on Mr. Hromiko’s earnings.
Mr. Hromiko responded as organized tax protestors usually do. He argued that the IRS was precluded from suing him because of the doctrine of “unclean hands,” that the tax system itself is illegal, that the government had committed fraud and duress, and a host of other quasi-legal arguments. Mr. Hromiko even went so far as to file a “revocation” of any agreement he might have made with the United States government regarding the Social Security system.
As in every other case involving similar tactics and issues, the court in Mr. Hromiko’s case shot down his arguments summarily. The court found that he earned a wage, and that he owed the tax. Having his wages paid to a trust did not change the fact that he earned the money and the tax was due. There is no clever, magical way to declare oneself independent of the federal tax system.
Mr. Hromiko was ordered to pay the entire tax due plus interest and penalties. In addition the Tax Court decided that his conduct should be separately sanctioned. Mr. Hromiko “has wasted the time and resources of this Court,” wrote the Judge, and he was assessed an additional $12,500 court penalty. MatrixInfoSys Trust v. Commissioner, June 7, 2001.
Bottom line: sham trusts, “constitutional trusts” and similar “tax avoidance” devices do not work. Before considering a trust for tax avoidance purposes seek out a competent legal adviser. Expect him or her to tell you to save your money for the tax man.
