Can an employee get a refund of all New Mexico income tax withheld by filing a return that reports zero income on tax-protester theories that wages aren't taxable?

Plain-English summary

Don Bass, an Albuquerque resident, earned $49,000 in wages working in the accounting department of Manana Gas, Inc. in 1995, and had $2,127 of New Mexico income tax withheld. He then filed a 1995 New Mexico return reporting zero federal adjusted gross income and demanded a full refund of the withholding. The Department denied the refund, and Mr. Bass protested with a series of tax-protester arguments.

The Hearing Officer denied the protest, rejecting each argument:

• Wages are income. New Mexico "piggybacks" on the federal system, starting from federal adjusted gross income (§ 7-2-2(B)). Federal gross income (26 U.S.C. § 61) is "all income from whatever source derived," expressly including "compensation for services" — so Mr. Bass's salary is income, is in his federal AGI, and flows into New Mexico "net income."
• "Sovereign citizen" / not subject to the Internal Revenue Code — rejected. New Mexico is within the United States, and Congress's power under Article I, § 8 to lay and collect taxes is, per Brushaber, "exhaustive." A citizen can't pick which constitutional provisions apply to him. His quote from United States v. Fox didn't actually appear in the case, and the real language cut against him.
• "Not a taxpayer" — rejected. The Internal Revenue Code taxes individuals' taxable income (26 U.S.C. § 1), and New Mexico defines "taxpayer" as any individual subject to the Income Tax Act (§ 7-2-2(Z)); a resident earning wages here (§ 7-2-3) plainly qualifies.
• "Right to labor isn't taxable" / Sixteenth Amendment — rejected. The Hearing Officer traced the history (Pollock, Flint, the Sixteenth Amendment, Brushaber) and found the amendment removed any apportionment problem, leaving Congress's full power to tax income — including income from labor. Mr. Bass's Brushaber quotation, with a page cite, again could not be found in the opinion.

Noting Mr. Bass was intelligent and college-educated but had plainly relied on misquoted and outdated authorities from the "tax protester movement," the Hearing Officer quoted Coleman v. Commissioner ("these are tired arguments... wages are income, and the tax on wages is constitutional") and warned that continuing to file this way could expose him to New Mexico's criminal tax-fraud statutes (§§ 7-1-72, 7-1-73) and the 50% civil fraud penalty (§ 7-1-69(B)) — urging him to file amended returns.

What this means for you

Employees thinking about a "zero income" return

Wages are income, full stop. Filing a return that reports zero income to reclaim your withholding is not a legitimate refund strategy — it's a frivolous filing that will be denied, and it can convert an ordinary tax situation into fraud exposure. The tax withheld from your paycheck is generally the tax you owe; you only get a refund if your actual, correctly-calculated liability is lower.

Anyone who has encountered "tax protester" theories

The arguments here — that a citizen is a "sovereign" outside the tax laws, that labor isn't taxable, that the Sixteenth Amendment doesn't reach wages — have been uniformly rejected by the courts for decades, and they often rest on quotes that don't exist in the cited cases or on pre-1913 law the Sixteenth Amendment superseded. Acting on them doesn't reduce your taxes; it adds penalties and potential criminal liability.

The stakes, specifically

New Mexico can prosecute filing false returns or evading tax as a felony (§§ 7-1-72, 7-1-73) and can impose a 50% civil penalty for fraudulent failure to pay (§ 7-1-69(B)). The Hearing Officer expressly warned that once you've been told the law, continuing to file frivolous returns makes those consequences more likely. If you've already filed this way, the fix is to file corrected (amended) returns promptly.

Accountants and tax professionals

This is a thorough, citable rebuttal of the standard wage/"sovereign" protester package under New Mexico law, tying state liability to federal AGI (§ 7-2-2(B)) and walking through Pollock → Flint → Sixteenth Amendment → Brushaber. Useful for a client who arrives with these theories: it also flags the enforcement backstop (§§ 7-1-72/73 criminal; § 7-1-69(B) fraud penalty) and the amended-return off-ramp.

Common questions

Q: I had tax withheld from my wages — can't I just claim it all back?
A: Only if your correctly-calculated liability is less than what was withheld. Wages are taxable income, so a return reporting zero income to reclaim all the withholding is frivolous and will be denied.

Q: Aren't wages just an "equal exchange" of labor for money, not taxable "income"?
A: No. Federal law defines gross income as all income from whatever source derived, expressly including compensation for services, and the courts have consistently held wages are taxable. The contrary "right to labor" theory has been rejected for decades.

Q: Doesn't the Sixteenth Amendment only allow certain "excise" taxes that don't reach wages?
A: No. The Sixteenth Amendment removed the requirement to apportion income taxes, leaving Congress's broad power to tax income — including wages. The decision traces this through Brushaber and the earlier cases.

Q: What's the risk if I keep filing "zero income" returns?
A: New Mexico can treat filing false returns or evading tax as a felony (§§ 7-1-72, 7-1-73) and impose a 50% civil fraud penalty (§ 7-1-69(B)). The Hearing Officer warned these consequences become more likely once you've been informed of the law, and urged filing amended returns.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It illustrates how New Mexico treats wage-based tax-protester refund claims, but your facts may differ.

Citations and references

Statutes:

• § 7-2-3 NMSA 1978 — imposes income tax on the net income of every resident individual and on nonresidents' New Mexico income; § 7-2-2(B) — "base income" starts from federal adjusted gross income; § 7-2-2(Z) — "taxpayer" is any individual subject to the Income Tax Act
• 26 U.S.C. § 61 — gross income is all income from whatever source derived, including compensation for services; 26 U.S.C. § 62 — adjusted gross income; 26 U.S.C. § 1 — tax imposed on individuals' taxable income
• U.S. Const. art. I, § 8 — Congress's power to lay and collect taxes; Sixteenth Amendment — income tax without apportionment
• § 7-1-72 and § 7-1-73 NMSA 1978 — criminal penalties for tax fraud/evasion; § 7-1-69(B) NMSA 1978 — 50% civil penalty for fraudulent failure to pay

Case law cited:

• Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916) — the income tax is constitutional; Congress's Article I, § 8 taxing power is "exhaustive"
• Flint v. Stone Tracy Co., 220 U.S. 107 (1911); Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429 (1895) — the direct/excise-tax history the Sixteenth Amendment resolved
• United States v. Fox, 94 U.S. 315 (1876) — cited (misquoted) by the taxpayer; did not support his position
• Coleman v. Commissioner, 791 F.2d 68 (7th Cir. 1986) — "these are tired arguments... wages are income, and the tax on wages is constitutional"; government may penalize those who act on protester beliefs

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Don Bass
• Decision PDF: D&O 97-33

Original ruling text

BEFORE THE HEARING OFFICER

OF THE TAXATION AND REVENUE DEPARTMENT

OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
DON BASS NO. 97-33
PROTEST TO DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

This matter came on for formal hearing before Gerald B. Richardson, Hearing Officer, on

February 24, 1997. Don Bass represented himself at the hearing. The Taxation and Revenue

Department, hereinafter, Department, was represented by Frank D. Katz, Chief Counsel.

Following the hearing the Hearing Officer requested that Mr. Bass clarify the issues he was

raising, and cite to facts of record and legal authority in support of his position on those issues.

The Department responded to Mr. Bass' submission and Mr. Bass was given the opportunity to

respond to the Department. The final submission was by Mr. Bass on July 24, 1997 and the

matter was considered submitted for decision at that time.

Based upon the evidence and the arguments submitted, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

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1. Mr. Bass was born in Heidelberg, Germany as a dependent of a family in the

United States military service.

2. Mr. Bass is a citizen of the United States.

3. Mr. Bass has lived in Albuquerque, New Mexico since 1981 and is a citizen and

resident of New Mexico.

4. During 1995, Mr. Bass was employed by Manana Gas, Inc. in their accounting

department and was paid $49,000 in wages.

5. Manana Gas, Inc. withheld $2,127 in New Mexico income withholding tax from

the wages it paid Mr. Bass in 1995.

6. On February 6, 1996, Mr. Bass filed a 1995 New Mexico personal income tax

return with the Department which reported zero Federal adjusted gross income on line 7 of the

return and requested a refund of the $2,127 of New Mexico income tax withheld from his wages.

7. On April 4, 1996, the Department denied Mr. Bass' claim for refund.

8. On May 8, 1997 Mr. Bass filed a written protest to the Department's denial of his

claim for refund.

9. Mr. Bass also filed a 1995 federal income tax return with the Internal Revenue

Service which reported zero Federal adjusted gross income.

10. There has been no determination by the Internal Revenue Service for tax year 1995

with respect to Mr. Bass' claim that he had zero Federal adjusted gross income.

DISCUSSION

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The determination of Mr. Bass' protest herein ultimately depends upon the determination

of whether the wages paid Mr. Bass for services rendered as an employee of Manana Gas, Inc. are

subject to New Mexico's personal income tax. Mr. Bass has raised a number of legal arguments

as to why his wages are not subject to income taxation which will be addressed individually.

Prior to such discussion, however, New Mexico's personal income tax system will be explained.

New Mexico imposes its income tax upon the net income of "every resident individual".

New Mexico is among the majority of states which "piggy-back" or use the federal income tax

system as the basis for calculating state income taxes. The calculation of personal income taxes in

New Mexico begins with a determination of "base income" which is defined to be the taxpayer's

"adjusted gross income" as defined in Section 62 of the Internal Revenue Code, plus certain net

operating loss deductions which can be deducted for federal purposes in arriving at federal

adjusted gross income but which New Mexico does not allow to be deducted in the same manner.

See, NMSA 1978, § 7-2-2(B). New Mexico then allows certain deductions, such as the federal

standard or itemized deductions and deductions for income from federal obligations, to arrive at

"net income" upon which income tax is imposed. See, NMSA 1978, 7-2-2(N) and 7-2-3. Because

Mr. Bass' arguments are, in essence, directed at the legality of the federal income tax, and

provisions of the Internal Revenue Code which provide the basis for calculating New Mexico's

income tax, the Internal Revenue Code, and the federal authority interpreting it and the United

States Constitution will be consulted to determine Mr. Bass' protest.

First, Mr. Bass argues that he is not subject to the jurisdiction of "the internal revenue

service for reasons of my alienage to the State of the forum of United States Tax Laws." (Mr.

Bass' submittal of May 11, 1997, p.7). By this, I understand Mr. Bass to argue that he is not

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subject to the Internal Revenue Code. Mr. Bass bases this argument upon several premises. First,

he argues that federal legislation applies only within the territorial jurisdiction of the United

States, unless a contrary intent appears in the statute. This decision maker has no quarrel with this

proposition and would direct Mr. Bass' attention to the Organic Act Establishing the Territory of

New Mexico, (Sept. 9, 1850, 9 Stat. 446, ch. 49), which established the Territory of New Mexico;

the joint resolution of Congress to admit the Territory of New Mexico into the union as a state,

(Aug. 21, 1911, No. 8, 37 Stat. 39) and the presidential Proclamation Admitting New Mexico as a

State Into the Union, (Jan. 6, 1912, 37 Stat. 1723). New Mexico is clearly within the territorial

jurisdiction of the United States. Mr. Bass' second premise under this argument is that if federal

legislation is restricted to the United States and its territories, that it does not apply to the citizens

of the fifty states unless the legislation specifically states such applicability. Mr. Bass supports

this argument, somehow, with the concept that the people of the United States, because we are a

republican form of government, are sovereign. Mr. Bass then cites to United States v. Fox, 94

U.S. 315 (1876) for the following quote:

Since in common usage, the term person does not include the
Sovereign, statutes not employing the phrase are ordinarily
construed to exclude it.

I have researched the case and could not find the quoted material. What I did find was this:

The term "person" as here used applies to natural persons, and also
to artificial persons, --bodies politic, deriving their existence and
powers from legislation,--but cannot be so extended as to include
within its meaning the Federal government.

94 U.S. at 321.

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This case is clearly inapplicable because it dealt with a situation where the sovereign was the

Federal government, not the people, and the terms were not being used synonymously as Mr. Bass

does in his argument. When the terms are used synonymously, there is no need to iterate each

synonym for the people of the United States to include them within the terms of the statute. It

would merely be redundant. Thus, the failure of the Internal Revenue Code to refer to persons as

sovereigns in no way restricts the Code from applying to persons who may also consider

themselves as sovereign. Furthermore, while I do not quibble with the concept that the power of

our form of government derives from the people, and that therefore, they can be called sovereign,

in our form of government, the people exercise their power of government through their elected

representatives to Congress, and under the Constitution, which was passed by the people, the

power to enact laws to govern all of the people has been granted to Congress. United States

Constitution, Article 1. In this regard, it is noteworthy that in Article 1, Section 8, the people

explicitly granted Congress the power to "lay and collect Taxes, Duties, Imposts and Excises..."

Although Mr. Bass claims that he is a United States citizen under the Constitution, he denies

being a citizen under Article 1, Section 8 of the Constitution. I know of no authority which allows

citizens to select the constitutional provisions to which they are subject. The Constitution was

enacted as a whole, and amended from time to time, by the people. As such, it applies in whole to

the citizens of this country.

Mr. Bass' next argument is premised upon his first. Since New Mexico's income tax is

based upon the Internal Revenue Code and since Mr. Bass believes he is not subject to the Internal

Revenue Code, he believes that New Mexico's Income Tax Act does not apply to him. As noted

above, his argument that he is not subject to the Internal Revenue Code is without merit.

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Next, Mr. Bass makes certain arguments with respect to the applicability of certain

provisions of the Internal Revenue Code. Specifically, he argues that he has zero federal adjusted

gross income. The Internal Revenue Code defines adjusted gross income to be gross income, less

certain deductions which are listed in Section 62 of the Code. Gross income is defined in Section

61 of the Code as follows:

Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, including (but not
limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe
benefits and similar items;

(2) Gross income derived from business;

(3) Gains derived from dealings in property;

(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Alimony and separate maintenance payments;

(9) Annuities;

(10) Income from life insurance and endowments contracts;

(11) Pensions;

(12) Income from discharge of indebtedness;

(13) Distributive share of partnership gross income;

(14) Income in respect of a decedent; and

(15) Income from an interest in an estate or trust.

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26 U.S.C. § 61 (1997). This definition is quite broad and inclusive, and is certainly broad enough

to include under the first listed category of compensation for services the wages or salary paid by

Manana Gas, Inc. to Mr. Bass.

Mr. Bass' next argument is that he has zero "net income" as defined in New Mexico's

income tax act. As noted above, New Mexico's definition of "net income" begins with the

definition of "base income" which is defined as federal adjusted gross income, and then certain

deductions are allowed. Since Mr. Bass' wages fall within the definition of adjusted gross income

under the Internal Revenue Code, this argument is without merit.

Next, Mr. Bass argues that he is not a "taxpayer" as defined by Title 26 CFR. Mr. Bass

quoted the definition at 26 CFR § 7701 as stating, "The term "taxpayer" means person subject to

any internal revenue tax." The Internal Revenue Code imposes an income tax upon the taxable

income of individuals. 26 U.S.C. §1. Taxable income is defined to mean gross income minus the

deductions allowed in Chapter 1 of the Internal Revenue Code, which covers §§ 1-1398 of 26

U.S.C. As noted above, gross income clearly includes wages paid individuals. Since wages are

taxable income, Mr. Bass meets the definition of a taxpayer.

Mr. Bass also argues that he is not a "taxpayer" as defined in New Mexico's Income Tax

Act. "Taxpayer" is defined at § 7-2-2(Z) NMSA 1978 to mean, "any individual subject to the tax

imposed by the Income Tax Act. Section 7-2-3 NMSA 1978 provides for the imposition of

income tax. It provides that:

A tax is imposed at the rates specified in the Income Tax Act upon
the net income of every resident individual and upon the net
income of every nonresident individual employed or engaged in the
transaction of business in, into or from this state, or deriving any
income from any property or employment within this state.

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Mr. Bass is a resident of New Mexico who derives income from employment in this state. This

argument is also meritless.

Mr. Bass has cited to a number of old federal cases in support of his protest. In more than

one instance, he has provided quotes from them which do not exist and in general, he has

misconstrued their meaning. Before responding to his reliance upon these cases, they will be

briefly summarized and explained to provide a context for the discussion of Mr. Bass' arguments.

The cases relied upon by Mr. Bass were part of the evolution of the law concerning the

power of Congress to impose an income tax and turned upon the limitations on Congress’ power

to impose taxes contained in Article 1, §2, Cl. 3 and Article 1, §9, Cl. 4 of the Constitution.

Article 1, §2, Cl. 3 of the United States Constitution provides that:

Representatives and direct taxes shall be apportioned among the
several States which may be included in this Union,.... (emphasis
added)

Additionally, Article 1, §9, Cl.4 provides that:

No Capitation or other direct, Tax shall be laid, unless in
Proportion to the Census or Enumeration herein before directed to
be taken. (emphasis added, capitalization in original)

These clauses became the basis of the Supreme Courts determination that the Income Tax Act of

1894 was unconstitutional. The Court held that the income tax was unconstitutional because it

imposed a tax on income from real estate. The Court ruled that this was the equivalent of a direct

tax on the real estate itself, and since the tax was not apportioned, it violated these clauses of the

Constitution. Pollock v. Farmers Loan and Trust Co., 157 U.S. 429 (1895). The ruling in this

case effectively thwarted the imposition of an income tax in this country for some years thereafter.

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In 1909, Congress passed a law imposing an excise tax on corporation of 1% of net income. This

tax was challenged on the same grounds as the 1894 income tax. In Flint, v. Stone Tracy

Company, 220 U.S. 107 (1911), however, the Supreme Court upheld that tax, ruling that the tax

was an "excise tax" and therefore not a direct tax which would be unconstitutional because it was

not apportioned. Thus, the determination of whether a tax was an "excise tax" or a "direct tax"

became crucial to the constitutionality of a tax. This concern was eliminated, however, by the

passage of the Sixteenth Amendment to the Constitution. It provides as follows:

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.

The first case to be decided by the Supreme Court following the passage of the Sixteenth

Amendment which challenged the constitutionality of the income tax was Brushaber v. Union

Pacific Railroad Co., 240 U.S. 1, 36 S. Ct. 236 (1916). In that case a stockholder of the Union

Pacific brought an action to restrain the company from paying income tax on the grounds of the

unconstitutionality of the income tax provisions of the Tariff Act of 1913. The income tax was

held to be constitutional. In doing so, the Court reiterated the inherent power of Congress to

impose an income tax under Article 1, §8, and found that the Sixteenth Amendment had merely

removed the requirement that such taxes be apportioned among the states. Of particular interest in

the Court's decision is its discussion of the power of Congress to tax under Article 1, §8:

That the authority conferred upon Congress by §8 of article 1 "to
lay and collect taxes, duties, imposts and excises" is exhaustive and
embraces every conceivable power of taxation has never been
questioned, or, if it has, has been so often authoritatively declared
as to render it necessary only to state the doctrine. And it has also
never been questioned from the foundation, without stopping
presently to determine under which of the separate headings the
power was properly to be classed, that there was authority given, as

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the part was included in the whole, to lay and collect income taxes.

240 U.S. at 12-13.

With this background, Mr. Bass' additional arguments will now be addressed. Mr. Bass

argues that Brushaber held that the sixteenth amendment, as correctly interpreted, and the federal

income tax are constitutional because they are restricted to the classification of indirect or excise

taxes. As the above discussion about the development of the federal law with respect to income

taxes makes clear, the Sixteenth Amendment did away with any need to examine whether a tax is

a direct tax, which was required to be apportioned, or whether it was an indirect tax, to determine

its constitutionality. With this limitation removed, what remained was Congress' inherent and

"exhaustive" authority to impose taxes, including income taxes. Brushaber, supra.

Mr. Bass also cites to a number of cases which discuss the "right to labor" as a

fundamental right protected by the Constitution. From this, he concludes that when a citizen is

exercising his or her right to labor, the compensation received is not "income" subject to any

income or other revenue tax. In support of this argument, Mr. Bass provides the following

quotation from Brushaber, and provides a page reference that it can be found at page 241 of the

Supreme Court Reporter volume in which the case is printed. The quotation provided was:

income has been taken to mean the same thing as used in the
Corporate excise tax of 1909 (36 Stat. 112). The individual worker
does not receive a profit or gain from his/hers labors--merely an
equal exchange of funds for services."

I have searched the page referenced and can find no language resembling the above quotation.

What I did find, however, was a discussion by the Court of its earlier Pollock case. With respect

to an income tax on income from "professions, trades, employments, or vocations", the court

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stated as follows:

...in the Pollock Case, in so far as the law taxed incomes from other
classes of property than real estate and invested personal property,
that is, income from "professions, trades, employments, or
vocations" (159 U.S. 637), its validity was recognized; indeed, it
was expressly declared that no dispute was made upon that subject,
and attention was called to the fact that taxes on such income had
been sustained as excise taxes in the past.

36 S.Ct. 236, 241. Thus, it can hardly be argued that Brushaber stands for the proposition that

the Federal government may not tax income arising from an individual’s exercise of his right to

labor or that such income is not "income" within the meaning of the Internal Revenue Code.

Referring back to the earlier quotation from Brushaber discussing Congress' power to impose

taxes, which was described as "exhaustive" and as embracing "every conceivable power of

taxation", Mr. Bass' argument that Congress may not tax income arising from the exercise of the

fundamental right to labor is simply erroneous.

At the hearing in this matter I was struck with both Mr. Bass' intelligence and his sincerity

in his belief that the Federal income tax, and thus, New Mexico's income tax which is based upon

determining federal adjusted gross income, were illegally and improperly applied to his earnings

from employment. I asked Mr. Bass about his education and he informed me that he was college

educated, with a degree in engineering. Thus, Mr. Bass is clearly capable of reading and

understanding the law, even as a layman. Yet, the authorities cited in his written submissions are

often misconstrued and contain quotations which cannot be found in the cases themselves. From

this, I can only conclude that Mr. Bass did not actually read the cases themselves and my hunch is

that he has learned what he espouses from some indirect source. I am seeing more and more of

the same arguments arise in the context of the administrative hearing process and the movement

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which is propounding these arguments is called the tax protester or tax resister movement. The

arguments propounded are often elaborately structured and rely upon quotations either

misconstrued, taken out of context, or from cases which are no longer current law, such as cases

decided prior to the adoption of the Sixteenth Amendment. Clearly, someone has taken great

pains to construct such arguments and to research archaic law. Yet, my review of the law

challenging the Federal income tax reveals numerous recent cases which directly address the

many arguments propounded by the tax resister movement. Surely, these cases are as easily

located and researched as the archaic ones. I would suggest to Mr. Bass that he has been sold a

bill of goods and I would direct him to one case in particular, which addresses the standard tax

resister arguments and cites to numerous federal cases upholding federal income taxes in the face

of these arguments, and I would urge him to read it and the other cases cited therein. In Coleman

v. Commissioner of Internal Revenue, 791 F.2d 68, the Seventh Circuit Court of Appeals

addressed the consolidated cases of Mr. Norman Coleman and Mr. Gary Holder. Both of these

individuals had argued that their wages were not subject to federal income taxation. The court

had this to say about those arguments:

Coleman says that wages may not be taxed because they come
from his person, a depreciating asset. The personal depreciation
offsets the wage, leaving no net income. Coleman thinks that only
net income may be taxed under the Sixteenth Amendment--net
income as Coleman defines it, not as Congress does. Holder, who
styles himself a "private citizen," insists that wages may not be
taxed because the Sixteenth Amendment authorizes only excise
taxes, and in Holder's world excises may be imposed only on
"government granted privileges." Because Holder believes that he
is exercising no special privileges, he thinks he may not be taxed.
These are tired arguments. The code imposes a tax on all
income. See, 26 U.S.C. § 61. Wages are income, and the tax on
wages is constitutional. See, among hundreds of other cases,
United States v. Thomas, 788 F.2d 1250, 1253 (7th Cir. 1986);

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Lovell v. United States, 755 F.2d 517 (7th Cir. 1984); Granzow v.
CIR, 739 F.2d 265, 267 (7th Cir. 1984); United States v.
Koliboski, 732 F.2d 1328, 1329 & n. 1 (7th Cir. 1984). See also
Brushaber v. Union Pacific R.R., 240 U.S. 1, 12, 24-15, 36 S.Ct.
236, 239, 244-45, 60 L.Ed. 2d 493 (1916).

Id. at 70. As this case and the cases cited therein indicate, there is really no question that Mr.

Bass' income from wages he earned in New Mexico are income for federal tax purposes, and as

such, would be included in federal adjusted gross income for federal purposes, and by inference,

for purposes of calculating New Mexico personal income taxes.

I would leave Mr. Bass with the following admonition:

Some people believe with great fervor preposterous things that just
happen to coincide with their self-interest. "Tax protesters" have
convinced themselves that wages are not income, that only gold is
money, that the Sixteenth Amendment is unconstitutional, and so
on. These beliefs all lead--so tax protesters think--to the
elimination of their obligation to pay taxes. The government may
not prohibit the holding of these beliefs, but it may penalize people
who act on them. (emphasis added).

The federal caselaw contains hundreds of cases where tax protesters have been sent to prison for

tax evasion or fined substantially for filing frivolous returns based upon the theories espoused by

the tax protester movement. New Mexico also makes it a felony to file false returns or to evade

taxes, see, NMSA 1978, §§ 7-1-72 and 7-1-73, and it imposes a 50% of tax civil penalty for the

fraudulent failure to pay any tax required to be paid. NMSA 1978 § 7-1-69(B). Mr. Bass may be

faced with such consequences if he should continue to file returns in the same manner as he filed

his 1995 state and federal returns. This is especially so now that he has been informed of the law.

He has the opportunity to rectify his error by filing amended returns with both New Mexico and

the Internal Revenue Service. I would urge his to act on this opportunity.

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CONCLUSIONS OF LAW

1. Mr. Bass filed a timely, written protest to the Department's denial of his claim for

refund and jurisdiction lies over both the parties and the subject matter of this protest.

2. Mr. Bass' wages from Manana Gas, Inc. are included in both "gross income" and

"adjusted gross income" as those terms are defined in the Internal Revenue Code.

3. Mr. Bass' wages from Manana Gas, Inc. are included in both "base income" and

"net income" as those terms are defined in the Income Tax Act, Chapter 7, Article 2, NMSA

1978.

4. Mr. Bass is not entitled to a refund of the taxes withheld from his wages earned

from Manana Gas, Inc. in 1995 because those wages were properly subject to the imposition of

New Mexico's income tax.

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For the foregoing reasons, the Taxpayer's protest IS HEREBY DENIED.

DONE, this 28th day of August, 1997.

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