NEW COURT RULINGS JANUARY & JUNE 2005
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
"...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 behalf of its client, IRS, the DOJ had filed a motion with the Court,
requesting that the Court amend its decision in Schulz.
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."
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
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
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
"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 either capitulate to an IRS administrative demand--
without access to judicial review , or risk bearing the pains of IRS's wrath
if they refuse to comply, violates the Constitution.
Story Related Links:
(suggest RIGHT-Click to download all Court documents)
Click Here to Read the U.S. Court of Appeals ruling
denying IRS's request to rewrite its decision (June 29, 2005)
Click Here to Read the IRS's motion to "gut" the Appellate Court decision
in Schulz v. IRS that "threatened the tax system." (March 2005)
Click Here to Read the U.S. Court of Appeal's decision requiring a federal
to enforce an IRS administrative order. (January 2005)
Click Here to Read our 1-29-05 news update, "Dramatic Development"
announcing the Second Circuit's original decision and the associated WTP
Click Here to Read our 3-9-05 news update about IRS's motion to gut the
The material contained in this package does not constitute legal or tax
advice. This material has been prepared for you at your request for
educational and informational purposes and is intended for "nontaxpayers".
"The revenue laws are a code or system in regulation of tax assessment and
collection. They relate to taxpayers, and not to nontaxpayers. The latter
are without their scope. No procedure is prescribed for nontaxpayers, and no
attempt is made to annul any of their rights and remedies in due course of
law. With them [nontaxpayers] Congress does not assume to deal, and they are
neither of the subject nor of the object of the revenue laws".
Economy Plumbing and Heating Co. v. United States, 470 F. 2d 585 (1972)
"The laws of Congress in respect to those matters do not extend into the
territorial limits of the states, but have force only in the District of
Columbia, and other places that are within the exclusive jurisdiction of the
Caha v. United States, 152 U.S. 211, 215, 14 S. Ct. 513 (1894)
If you are a "taxpayer" defined at §7701(a)14, information can be obtained
None of this documentation is intended to interfere with the proper
administration or enforcement of the internal revenue laws; nor can there be
found any false, deceptive, or misleading commercial statement regarding the
excludability of income known to be false or fraudulent in relation to any
material matter or any information pertaining to the organizing or selling
of an abusive tax shelter, plan, or arrangement that might incite taxpayers
to attempt to violate the internal revenue laws, to unlawfully evade the
assessment or collection of their federal tax liabilities, or to unlawfully
claim improper tax refunds.
We assume no responsibility for the success or failure of this information
to produce the desired effects of the reader; however, we will ensure that
this material has been prepared in accordance with the 50 Titles of the
United States Code, Code of Federal Regulations, and respective Internal
Revenue Manuals. All codes, regulations, and procedures are adhered to in
the strictest sense. The codes, regulations, and procedures will evidence
any due-process violations. The method and utilization of this material is
strictly the choice of the reader.
If you do not agree with the above DISCLAIMER and/or material enclosed in
this package, please go back and review the educational materials you were
provided with when you signed up for our services. This includes any
literature, conference calls, and/or information on our website. If anyone
has told you differently than what is in the above DISCLAIMER, please
forward the above DISCLAIMER to him/her and notify us immediately of the
person who is giving you incorrect information.