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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. You can put your photos anywhere you like... When someone steals it they know it doesn't belong to them. And, a man getting a divorce is automatically not a nice guy...? That's ridiculous. Since when is need of money a conflict of interest? That would mean that no one should have a job unless they are already financially solvent without a job... A photographer is also under no obligation to use a watermark (again, people know when a photo doesn't belong to them) or provide contact information. Hey, he didn't make it easy for me to pay him so I'll just take it! Well heck, might as well walk out of the grocery store with a cart full of food because the lines are too long and you don't find that convenient. "Only in Indiana." Oh, now you're passing judgement on an entire state... What state do you live in? I need to characterize everyone in your state as ignorant and opinionated. And the final bit of ignorance; assuming a photo anyone would want is lucky and then how much does your camera have to cost to make it a good photo, in your obviously relevant opinion?

  2. Seventh Circuit Court Judge Diane Wood has stated in “The Rule of Law in Times of Stress” (2003), “that neither laws nor the procedures used to create or implement them should be secret; and . . . the laws must not be arbitrary.” According to the American Bar Association, Wood’s quote drives home this point: The rule of law also requires that people can expect predictable results from the legal system; this is what Judge Wood implies when she says that “the laws must not be arbitrary.” Predictable results mean that people who act in the same way can expect the law to treat them in the same way. If similar actions do not produce similar legal outcomes, people cannot use the law to guide their actions, and a “rule of law” does not exist.

  3. Linda, I sure hope you are not seeking a law license, for such eighteenth century sentiments could result in your denial in some jurisdictions minting attorneys for our tolerant and inclusive profession.

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