John Schlabach v USA was a case brought before the Eastern
District Court of Washington in 2018. It regarded tax return amendments filed
for 2008-2010 tax years in 2013 by Mr. Schlabach to obtain all income
withholdings back. He was not approved for the refund and frivolous filing penalties
were assessed. Mr. Schlabach
then argued his position via two letters, resulting in $5000 for
each letter, for $10,000 in total penalties.
Why did this happen? Well, as we have stated
before, "One can only redeem lawful money from today-forward
and not retroactively." because the logic the IRS agent uses is: "If the
person claimed lawful money in those prior years then the returns would not
require corrections - it is therefore frivolous (a lie that one redeemed back
then)." To requote the court, "The
IRS had a RATIONAL basis for characterizing Schlabach's argument the way
it did."
The IRS did accept &
even applied (as we've shown with others) his 2015 and 2016 lawful money returns to his prior penalties. Showing the IRS accepted the current-year lawful money returns for a full refund, but never accepts amendments for lawful money returns. The IRS never addressed the 2013 refund owed because the return
requested withholdings plus penalties paid be refunded. While the initial penalty assessment by the IRS agent for the 2013 return was probably wrong (as the court
admits this on several occasions) - that doesn't matter to the IRS's Internal Revenue Codes (IRC) when meeting the 3
elements required for burden of proof. The IRS isn't arguing lawful money, they
are arguing the initial agent was correct by 'default' because a $0
return 'on its face' (while it may be proven valid later) is considered frivolous upon first-assessment.
Since District Courts cannot affect the internal regulations of a private company, which the IRS is, the court is left to judge based on material facts alone. The court could only hear evidence to which it had subject-matter jurisdiction (i.e. the 2013 tax return only) and make a decision based on material evidence. Mr. Schlabach provided no material evidence while the IRS provided 1) a tax return and 2) the return was it 'on its face' able to be called frivolous. The court even admits John had points that were valid (he only argued lawful money - so what else was could it be?) but the court found the arguments were not material to the case at hand. Since the IRS met the burden of proof through material evidence, judgement was found in favor of the IRS.
If John wanted to remove the penalties he did
not need to pay the IRS 100% of the penalty and go to court,
as required by IRC law, but instead send in a Form 843 Request for Abatement. His actions worsened the situation further by forcing a
District Court to hear the case rather than the IRS - who would have solved the
matter internally and settled quietly in his favor. Sadly he did a number of things wrong: filing amended tax returns,
claiming additional money owed on a return, arguing a tax position (frivolous
no matter what is said) and more.
The case cited by the IRS actually shows how the Ohio Supreme Court was forced to overturn their verdict by the US Supreme Court
(in other words they are misrepresenting what the court said): "It is not controverted by counsel
for defendant in error that under the United States law, the greenbacks
were not subject to taxation, or that if the Ohio statute, when properly
construed, authorizes such taxation, it is to that extent invalid. But the
question presented to us for consideration is whether the tax levied in this
case by the authorities of the state was a tax upon the legal tender notes issued by the government in the hands of
Shotwell. United States notes are exempt from taxation by or under
state or municipal authority; but a court of equity will not knowingly use
its extraordinary powers to promote any such scheme. His remedy, if he has any,
is in a court of law. ... So far as we can see, the statute which
does this does not tax the citizen for the greenbacks which he may
have held at any time during the year, but taxes him upon the moneys, [public]
credits, or other capital ... Of the right of the State of Ohio … Its
purpose is not to enable that state to tax the securities of the United States,
but to permit it to tax other investments, moneys on hand and on deposit
subject to order, while it combines in the same exemption the securities of
the general government, and those of the state."
What's another name for Greenback, U.S. Bank
Note or Treasury Note? [lawful money]
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