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Tax Court warns against arguing wages aren't taxable

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In rejecting a man’s argument that his employment wages shouldn’t be subject to Indiana’s adjusted gross income tax, the Indiana Tax Court warned that those who present a similar argument in the future may be subject to paying the attorney fees of the other party.

Lyle Lacey, a verification engineer at Adecco, attached a federal Form 4852 to his state and federal income tax returns indicating his wages were zero. He didn’t attach his W-2 form. Lacey actually was paid quite a bit from the company for the 2007 tax year, although the amount was not specified. Lacey also claimed a refund in state and county income taxes.

The Indiana Department of State Revenue determined that Lacey actually owed more than $1,000 in state income tax and denied his protest.

On appeal in Lyle Lacey v. Indiana Dept. of State Revenue, No. 49T10-0906-TA-25, Lacey argued his income from Adecco for the 2007 tax year isn’t income within the meaning of the 16th Amendment of the United States Constitution or the Internal Revenue Code. He also argued that the U.S. Supreme Court has held that the 16th Amendment’s provision “exempting a tax from apportionment [is in] irreconcilable conflict with the general [constitutional] requirement that all direct taxes be apportioned.”

Senior Tax Judge Thomas Fisher rejected his arguments, finding them to be without merit. The U.S. Supreme Court has repeatedly rejected the argument that income is limited to gain or profit, as Lacey argued. Also, congressional power to tax is articulated in Article 1, Section 8, and "'embraces every conceivable power of taxation’ including the power to lay and collect income taxes,” wrote the judge.

Lacey’s employment compensation is income subject to Indiana’s adjusted gross income tax. Judge Fisher also pointed out this is the third time the Tax Court has rejected the argument that one’s employment wages don’t constitute income subject to Indiana’s adjusted gross income tax.

“Consequently, the Court now provides the following warning: in the future, when a taxpayer advances the same (or a substantially similar) argument, the Court will not hesitate to consider whether an award of attorney fees is appropriate,” he wrote.

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  1. A sad end to a prolific gadfly. Indiana has suffered a great loss in the journalistic realm.

  2. Good riddance to this dangerous activist judge

  3. What is the one thing the Hoosier legal status quo hates more than a whistleblower? A lawyer whistleblower taking on the system man to man. That must never be rewarded, must always, always, always be punished, lest the whole rotten tree be felled.

  4. I want to post this to keep this tread alive and hope more of David's former clients might come forward. In my case, this coward of a man represented me from June 2014 for a couple of months before I fired him. I knew something was wrong when he blatantly lied about what he had advised me in my contentious and unfortunate divorce trial. His impact on the proceedings cast a very long shadow and continues to impact me after a lengthy 19 month divorce. I would join a class action suit.

  5. The dispute in LB Indiana regarding lake front property rights is typical of most beach communities along our Great Lakes. Simply put, communication to non owners when visiting the lakefront would be beneficial. The Great Lakes are designated navigational waters (including shorelines). The high-water mark signifies the area one is able to navigate. This means you can walk, run, skip, etc. along the shores. You can't however loiter, camp, sunbath in front of someones property. Informational signs may be helpful to owners and visitors. Our Great Lakes are a treasure that should be enjoyed by all. PS We should all be concerned that the Long Beach, Indiana community is on septic systems.

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