Cracking the Code Failure - Doreen Indicted

[ManOntheLand]

Walter, that doesn't jibe with my experience. See here I filled up the 1040 form (page 2) that resulted in a full refund. Subsequently the IRS never came back with penalties or anything.

An information return creates a presumption of "taxpayer" status and tax liability (at least potentially). Redeeming lawful money of all such amounts mathematically eliminates the tax liability. I think you are still presumed to be a "taxpayer" i.e. "subject to internal revenue tax" if you did receive a transfer of Fed Reserve credit because you would have had a liability if it were not for redeeming lawful money. They could conduct an audit if they require substantiation of your claims. (Probably unlikely that any IRS agent would bother with this.) This is why it is a good idea to have your evidence repository and save copies of your checks where you made your demand for lawful money etc.

Arguably the information return may not create obligation on you in the first place, due to no voluntary knowing waiver of rights on your part, economic duress (you have to work for a living and are in no position to reject payment in the form of Fed Reserve credit) and unconscionable contract (why would any one willingly exchange their right to work for a living for a taxable privilege, absent consideration?).

But it seems far simpler to just make the demand for lawful money and eliminate your tax liability that way than to argue with IRS about information returns. Pete and Doreen's method revolves around arguing about the information returns.