Uncle Sam Spoils Dream Trip To Space

gollum123 writes about a dream come true and a dream dashed. Brian Emmett, a software consultant from the San Francisco Bay area, entered a contest sponsored by Oracle in 2005. He answered some questions on Java coding, won a free trip into space, and then reluctantly gave it up. The latter decision came once he had computed the taxes he would have to pay on the $138,000 prize — roughly $25,000. From the article: "Since the Internal Revenue Service requires winnings from lottery drawings, TV game shows, and other contests to be reported as taxable income, tax experts contend there's no such thing as a free spaceflight. Some contest sponsors provide a check to cover taxes, but that income is also taxable."

Comments

Re:American's don't have to pay taxes?

[Nitage]

In the US, taxes are unconstitutional for any reasonable interpretation of the constitution. Why then have taxes been ruled consitutional? Judical Activism

Re:A dream come true?

[operagost]

Sounds like the Democratic Party's dream version of the USA.

Re:American's don't have to pay taxes?

[gibson042]

In the US, [income] taxes are unconstitutional for any reasonable interpretation of the constitution.

Prior to 1913 you would be correct; however, quoting the 16th amendment to the US Constituition, "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Like so much common knowledge, this interpretation of the 16th amendment is wrong. Brushaber v. Union Pacific went before the Supreme Court in 1916, and their ruling concluded that the amendment created no new powers of taxation and instead merely addressed the issues surrounding "income"; all taxes on it were to be classified in the same category as excises. As this forbade them from being direct taxes, it also severely limited the de facto constitutional meaning of "income". Legally, the IRS has no authority to collect a direct tax on the earnings of ordinary workers.

Re:A dream come true?

[soft_guy]

The opposite to your argument is that the government treating different types of income differently is silly, and that they should just tax it all the same. Maybe if the government would stop wasting money on stupid shit, they wouldn't even need to tax people's incomes at all.

Re:American's don't have to pay taxes?

[gibson042]

It seems to me that Commissioner v. Glenshaw Glass Co. did nothing to expand the definition of income required by the Brushaber case, or to reinterpret the 16th amendment. Note that the "taxpayers" in context were corporations. The exercise of corporate privilege is certainly taxable, and the nature of the tax is an excise on the corporate activity with the amount measured by income; this is a perfectly legal income tax of precisely the sort required by Brushaber.

The Glenshaw Glass case affirmed that the Internal Revenue Code represented "a clear legislative attempt to bring the taxing power to bear upon all receipts constitutionally taxable", which meant that the punitive damages in question were taxable corporate income. The Brushaber case had limited "constitutionally taxable" receipts to those reachable by duties, imposts, and excises, and neither Glenshaw Glass nor (to my knowledge) any other case has changed that. Please enlighten me if you know of one, but my research leads me to near certainty that the IRS is constitutionally prohibited from imposing a direct tax on individuals (the fact that they seem to can only be explained by unlawful activity or paperwork (mis)characterizations of earnings).

Re:American's don't have to pay taxes?

[gibson042]

Thank you for the response. If I read correctly, then one of Cheek's fundamental claims was that his wages did not constitute income. That is surely contradicted by both the IRC and by point 5 of the footnote. But I think the contradiction is merely hidden instead of resolved. Wouldn't the term "wages", as part of "income", be subject to the same limitations imposed by the Brushaber ruling? If not, then by what rationale? And if so, then we are right back to the IRS either engaging in unlawful activity or, with the (unknowing?) assistance of the courts, mischaracterizing all earnings as wages (and thus by definition "income"). To be honest, I strongly suspect the latter. Most people, judges included, already misread the 16th amendment as if it created the power to levy an unapportioned direct tax, and that line of thinking renders moot the whole investigation.