Practical War Tax Resistance #6


Organizational War Tax Resistance:

Employers, Contractors, and Financial Institutions

Many people who are conscientiously opposed to paying taxes for war have assets controlled by someone else, such as an employer, a bank, a credit union, or a retirement fund. Increased IRS reporting requirements and stricter regulations regarding self-employment give rise to a larger role for employers, payers of independent contractors, and financial institutions in tax reporting and collection than in the past. As a result, individuals have less ability to earn an income, transact financial business, or hold assets without coming under IRS scrutiny, and become more dependent on organizational support to help keep their funds from collection.

This is the 6th in a series of Practical War Tax Resistance pamphlets published by the National War Tax Resistance Coordinating Committee (NWTRCC). Others in the series discuss withholding, filing, collections, self-employment, and living on a reduced income. (See list at the end of this pamphlet.) Here we will discuss the options and consequences for organizations taking a stand on war tax resistance.

This pamphlet is not intended to be a complete resource on the legal issues involved in organizational war tax resistance. It is intended as a resource primarily for individual war tax resisters dealing with organizations.

Organizational Conscience and War Tax Resistance

Before the 1940's, organizations had little to do with individual income taxes. During World War II the income tax rates went up and the employer tax withholding system was established. Because of patriotic support for the war, there was little or no protest of these changes. Even religious and pacifist groups, although working on conscientious objector status to military service, didn't pay much attention to the money draft.

After the Korean War, a few individuals challenged their employers not to withhold taxes from their wages and not to cooperate with IRS levies. However, even among progressive religious and secular groups, very few employers refused cooperation with the income tax laws. Today, most still see conscientious objection to war taxes as an individual, not an organizational, issue. The Friends Committee on War Tax Concerns engaged in the first serious effort to educate and organize around employers and war tax resistance in the mid-to-late 1980's, with some progress. When the Committee was discontinued around 1989, no work on employer issues occurred until the National War Tax Resistance Coordinating Committee, authors of this pamphlet, picked it up in 1996.

In 1956, Ralph DiGia asked the board of the War Resisters League (WRL) not to withhold federal taxes from his paychecks. WRL agreed, and other WRL employees followed Ralph's lead in asking WRL not to withhold from their paychecks. For a long time, the IRS ignored the situation, but in 1974 they froze WRL's bank account and seized the entire account balance of $2,537.43, about a thousand dollars less than they said was owed for resisted employee tax dollars. A few years later, the IRS placed a levy on DiGia's salary. Because of WRL's policy of not honoring IRS levies, the IRS sued WRL in U.S. District Court in 1978 for amounts that WRL willfully refused to pay under the levy. In its December 1979 ruling, the court did not challenge the sincerity of WRL's professed opposition to war. The court ruled in favor of the government, however, because WRL had no constitutional right to refuse taxes based on religious or conscientious objection. In 1981, WRL refused to cooperate with a request by the government to list its assets as an aid to collection of the judgment in the lawsuits. Two years later the U.S. Department of Justice seized $1,228.23 from WRL's bank account. WRL resists the federal phone tax, and though the IRS continues from time to time to send levies for other employees, they have not been enforced, and there has been little interaction between the IRS and WRL in recent years.

Approaching an Organization about War Tax Resistance

As noted above, few groups see conscientious objection to war taxes as an organizational issue. Action they take is usually in response to the requests of individuals. However, some religious and secular organizations that are pacifist in philosophy have developed specific policies on war tax resistance. Others that work to promote peace and justice may be sympathetic to the idea. Still others may be willing to advocate for an employee or account holder because they think the IRS is acting unfairly or is denying individual rights.

Just as individuals are concerned about the consequences to themselves if they engage in war tax resistance, organizations and institutions often worry that taking a stand on war taxes could adversely affect their business, their corporate mission, or the personal finances of their employees. Unfortunately, because of public relations efforts that portray the IRS as all-powerful, many institutions are intimidated and neglect to take even legally proper steps in support of a conscientious position. More might be willing to take action, either legally sanctioned or not, if they were clearly informed of their options and the real extent and nature of the risks involved.

If an organization or institution has not already developed a position of support for conscientious objection to paying for war, war tax resisters may have difficulty figuring out the best way to approach the subject. Do they tell their employers before taking new jobs that they are war tax resisters? Do they warn a bank that a levy notice may be arriving in the mail?

Individuals' decisions about if, when, or how to approach an organization will be based on many factors, such as their personal financial situation, their relationship to the organization, and the level of awareness of political issues within the organization, among others. Ideas about what actions are most effective also influence this decision; some war tax resisters believe that keeping all their money out of the hands of the IRS is the most important goal, while others may believe public education or purity of the individual's principled stance is more important.

The result is that some individuals choose not to ask organizations or institutions to support their war tax refusal and must figure out how to organize their financial lives to resist payment on their own. Others, in the interest of public education and possibly broadening the movement, may be willing to compromise their ideal war tax resistance plan, at least for a time, in hopes that an organization will eventually take a stand. Even if an organization or institution is not willing to take action in support of conscience, there may still be value in raising the issue and stimulating thought and discussion within the group.

Individual war tax resisters who decide to raise the issue of conscientious objection to war taxes with an organization will probably need to do their own homework by studying this pamphlet, reviewing IRS publications, or contacting a war tax resistance counselor to understand the options and possible consequences. Organizations will likely be more receptive to suggestions if war tax resisters provide documentation, preferably from the IRS or legal sources. IRS publications and other resources are readily available; see the list at the end of this pamphlet for further information. For organizations that are intimidated by the IRS, documentation alone may not be sufficient to persuade them to take action. In such cases, good communication and organizing strategies will be necessary to overcome their fears.

One war tax resister who closed her bank account to avoid IRS levies explained to a bank customer service representative exactly why she was closing her account. Some time later, the war tax resister ran into the customer service representative on the street. The bank worker told the WTR that she had written a letter to her Congressional representative based on the WTR's comments!

During WWII, Marion Bromley left a good secretarial job to work for the Fellowship of Reconciliation (FOR) at a very low wage. "Because my weekly check from the FOR was so small, the income tax deduction was small in dollars, but it still represented a sizable contribution to the war effort for someone who had changed her life to put her work days into opposing war. When I learned that a few people were refusing to pay that income tax, it made very good sense to me." Bromley told the FOR that she wanted them to stop taking taxes out of her pay. There was much debate by the National Council and the executive committee of FOR. Legendary pacifist leader A.J. Muste said he would find it difficult to remain as executive director of the FOR if Bromley's request was not honored. For a time, Bromley worked at a rate that did not oblige the FOR to withhold from her pay, while working at another part-time job. Eventually, however, Bromley found she had to leave the FOR. Fifteen years later, Muste became the first to bring his own war tax resistance before the U.S. Tax Court.

Legally Permissible Organizational Actions in Support of Conscience

There are many things that organizations or institutions can do, at little or no legal risk to themselves, to support conscientious objection to paying for war.

Education, Lobbying, and Statements of Concern

Organizations can make statements of concern among their own constituents, as well as disseminate information to elected officials and to the general public about how much tax money is going to the military and about their objection to enforced participation in the tax collection process. They may reprint figures in their publications from groups such as the War Resisters League, the National Priorities Project, or the Friends Committee on National Legislation about federal budget expenditures. Their materials can also include information about conscientious objection to paying for war and the stories of individual resisters. If conscientious war tax objectors offer them refused tax money to support their work, they can publicly accept it and use the opportunity for raising awareness about military spending and conscientious objection. They can point out how paying for the military system, militarized national policies, and military activities is destructive to the social, environmental, educational, and religious goals of their organization.

Subject to the lobbying restrictions that apply to some tax-exempt organizations, groups can work to establish conscientious objector status for taxpayers, such as the Religious Freedom Peace Tax Fund Bill, and other forms of legislative relief. They can endorse or lobby for changes in the IRS law to reduce or eliminate third parties' tax collecting responsibilities.

Most people consider there to be two distinct avenues of resistance to war taxes: direct action (through nonpayment of taxes or voluntary poverty), and legislative action. The National Campaign for a Peace Tax Fund takes legislative action, by pursuing a bill in Congress that would allow conscientious objectors to pay their full federal taxes into a separate fund that could not be used for the military.

While the Peace Tax Fund movement is comprised of several thousand individuals, it also relies heavily on support from organizations. These organizations range from local churches, to national religious bodies, to peace and civil rights groups. An effective way for an organization to support the Peace Tax Fund is to take an official stand endorsing the campaign. One organization that has done this is the national body of the nine-million member United Methodist Church (UMC).

In the late 1970's, the UMC had a general policy of support for conscientious objectors to war taxes. Building upon this policy, the Northwest Conference adopted a resolution in their annual meeting that explicitly endorsed the Peace Tax Fund. The Northwest Conference then submitted this resolution before the national policy-making body, the UMC General Board of Church and Society.

In 1995, Bishop McConnell of the Pacific Northwest Conference of the UMC invited the Peace Tax Fund's director, Marian Franz, to speak before the Northwest Conference and some members of the General Board of Church and Society. Bishop McConnell and his wife were both war tax resisters who were enthusiastic about taking action on their endorsement.

By 1996, the national body of the United Methodist Church adopted a resolution explicitly endorsing the Peace Tax Fund. The impact of this process of organizational endorsement has been great. In early 1998, when a delegation of Peace Tax Fund supporters met with officials from the Treasury Department, a UMC national representative joined the delegation. It was amazing to hear Bishop Thom Whitewolf Fassett tell the Treasury officials that "the nine million members of the United Methodist Church stand behind this bill."

Flexible Financial Arrangements

Another option for corporate entities is to research and implement existing legal options for their employees, subcontractors, or account holders that will lawfully circumvent income tax liability, withholding, reporting requirements, and/or levies.

Minimizing the Employee's Tax Liability

Options for avoiding tax liability include paying workers partially or entirely in the form of nontaxable benefits such as: services provided to employees at no additional cost to the employer, qualified employee discounts, a company car for business use, qualified tuition reductions, medical care reimbursements under an employer's plan, life insurance coverage up to $50,000, meals provided on work premises by the employer, lodging provided by the employer under certain circumstances, qualified transportation fringe benefits, and some employee achievement awards, scholarships and fellowships paid to a degree candidate. In many cases, nontaxable income may also be free of withholding or reporting requirements. (See IRS Publications #15, Circular E, Employer's Tax Guide; #15-A, Employer's Supplemental Tax Guide; #525, Taxable and Nontaxable Income; and #535, Business Expenses.)

Organizations may also agree with workers to make corporate contributions to charitable or other causes in lieu of all or part of the worker's salary or wages. If the employer donates directly to the charitable causes, the amount is not taxable income to the employee. The employee's income is the gross pay shown on the payroll account. The employee works a certain number of hours for wage compensation, and then additional hours as a volunteer, trusting that the employer will contribute to charitable causes, even though not legally obligated to do so.

One war tax resister writes: "Rent is always my biggest expense and thus the biggest burden on my practice of war tax resistance. Usually, I try to arrange housing as a component of one of my jobs. By doing this, I significantly reduce the amount of cash I need to earn. I currently work as the caretaker of buildings and grounds at a camp for people with disabilities. The camp provides me with a residence on the premises so I can keep watch over the facility and so I can be available on short notice for critical maintenance needs. Although our arrangement is a barter of services in exchange for housing, the value of this particular type of barter is excluded from my income under the Internal Revenue Code (26 USC §119). In brief, the law states that the value of lodging furnished to an employee can be excluded from the employees income if (1) the lodging is being furnished on the business premises, (2) the lodging is furnished for the employer's convenience, and (3) the employee is required to accept the lodging as a condition of employment so the employee can properly perform his or her duties. IRS Publication #535, Business Expenses, provides more detail on this type of exclusion."

Avoiding Withholding

To avoid income tax withholding (although not necessarily Social Security or Medicare withholding), organizations can, among other options, subcontract work to individuals who are self-employed according to the IRS's definition (see box), "lease" employees from a corporation, hire household employees or certain types of workers who are declared to be employees by law ("statutory employees") but not subject to income tax withholding, reimburse workers for business expenses that do not exceed government rates, or make non-cash payments for services that are not in the course of the employer's trade or business. (See IRS Publications #15, Circular E, Employer's Tax Guide, #15-A, Employer's Supplemental Tax Guide, and #535, Business Expenses.) They can allow workers to share jobs or they can agree to pay employees less per hour or for fewer hours of work in order to keep their pay below the taxable limit (see IRS Publication #501, Exemptions, Standard Deduction, and Filing Information).

Avoiding Reporting

Financial institutions that wish to avoid IRS reporting requirements can agree to set up interest-free accounts for depositors or pay less than $10 per year in interest. Organizations can contract services from incorporated individuals or businesses, or keep payments or awards to unincorporated individuals below $600 in any given tax year, to avoid the requirement to file form 1099 in most cases. Employers can elect to report fringe benefits at the end of the year only, rather than quarterly. (See IRS Publications #15, Circular E, Employer's Tax Guide, #15-A, Employer's Supplemental Tax Guide, and #535, Business Expenses).

Avoiding Levies

Employers can legally avoid levies by allowing workers, either on an on-going basis or in response to a notice of levy, to reduce their rate of pay or hours of work so their wages are below the level that is exempt from levy (see IRS Publication #1494, Table for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income, adjusted annually). Employers may deduct certain amounts from the gross pay of workers, such as insurance payments, regular pre-existing payments to charity, and automatic payments to savings plans before calculating the amount to be levied, although a direct deposit of the whole net pay cannot be deducted. Those who use the services of independent contractors can pay their invoices immediately upon receipt to reduce the amount of time they actually owe money to the worker. (See below regarding levies on compensation paid to independent contractors.) Although levies do apply to payments made to workers in advance of their performing the work, any advance payments that are made before the notice of levy is received would avoid the seizure, or garnishment, of wages.

Payments in cash are subject to the same requirements and exceptions as other forms of payment, but can be helpful to individuals who do not use bank or credit union accounts.

Job sharingcan be a way of keeping income below taxable levels as well as balancing other parts of life. Nancy and Gary T. Guthrie, a husband-and-wife parenting team, shared the job of Iowa Peace Network Coordinator. This allowed them to be involved in both meaningful employment and parenting; it also let them keep their income below taxable levels. By sharing the job and giving one another breaks, the Guthries were able to enjoy serving in the job for six years, twice as long as any previous coordinator had stayed in the position. This experience encouraged the Guthries to continue living below the taxable level after leaving the job in 1997.
Steve Soucy, WTR from Orland, Maine, arranged with his employer to reduce his hours after a levy notice arrived at his workplace. "I had received a proposed assessment from the IRS for the first years that I'd earned enough to be taxed. From that notice it was clear they knew my current employer, and so it seemed just a matter of time before they would try to collect directly from my wages. After some soul searching, I decided to prepare myself to leave that position, or cut back my hours, and I began training for a career change to something which I believe will let me earn money in a way that would be more difficult for the IRS to track. Up until the notice of attachment I did not tell my employer why claimed nine exemptions on my W-4, since if they knew, they would be obliged by law to report me. But once the levy arrived, I was able to be more open about my tax resistance. I wrote a letter to my boss and my program manager (my supervisor's boss) explaining that for reasons of conscience, I would no longer be able to continue in my position full time. I stated my willingness to work up to a certain number of hours per week until they were able to find a replacement, or decide what to do. I eventually tapered my hours from the maximum allowed before withholding to just a few hours per week, while increasing my employment in my other jobs to cover the loss in income and benefits. The most rewarding part was talking to my co-workers, who I found quite sympathetic to my reasons for tax resistance. In a way it was like coming 'out of the closet,' and gave them the opportunity to be supportive. "

Levies on Compensation Paid to Independent Contractors

IRS levies on "wages and salaries" remain in effect until the total tax liability is paid (Internal Revenue Code §6331). This is referred to as a continuing levy. All other levies are one-time levies and extend only to "property possessed and obligations which exist at the time of the levy" (Treasury Regulation §301.6331-1(a)(1)). For example, a levy on a bank account only covers the money in the account at the time the levy is received by the bank. Once that amount is paid, even if it doesn't cover the complete tax liability, the IRS must issue a new levy to take any future money which may be deposited in the account.

In the past, the term "wages or salaries" has been interpreted to mean only the compensation paid to employees, not the compensation paid to independent contractors. Therefore, levies on compensation paid to independent contractors have been one-time levies, not continuing levies. Also, since an employer has a continuing obligation to pay an employee for every hour of labor performed, but someone who uses the services of an independent contractor is only liable to pay the person at the completion of a job and upon receipt of an invoice, there is a much narrower window of time during which a payer actually owes money to an independent contractor. This has made it harder for the IRS to collect money from people who use the services of self-employed persons for resisted taxes.

However, NWTRCC's legal sources report that in recent years, despite the fact that the laws and regulations have not changed in regards to either levies or the definition of salaries and wages, the IRS has relied on its own Internal Manual to pressure groups who owe compensation to independent contractors to treat levies as continuing rather than one-time. It is unclear whether the IRS regulations give them the authority to do this, but they have resorted to threats and intimidation which have thus far been effective in getting such groups to back down. There is a reasonable chance that payers of independent contractors could win in court on this issue if they were willing to fight back. However, none have yet been willing to spend the necessary time and money to engage in a court case.

At the very least, war tax resisters should ask those who pay them to read levy notices very carefully, interpret them narrowly, and follow them strictly. The notices typically ask if the war tax resister is an employee, to which the payer of an independent contractor may validly answer no. They also ask if any money is owed to the person at the time the notice is received. The independent contractor's customer should consider only answering yes if they have an unpaid invoice in hand at that time.

IRS Requirements for Independent Contractors:

 To determine whether a worker is an employee or an independent contractor, the IRS examines evidence of control and independence in the relationship between the worker and the business. The IRS relies on a case-by-case, multi-factor approach, rather than mechanical rules. One or more of the following factors that ordinarily indicate an employment relationship may exist in a true contracting relationship in a particular case, and vice versa. Specific factors include:
  1. Instructions. Unlike an independent contractor, an employee must comply with instructions about when, where, and how to work. Even if no instructions are given, they may still be considered an employee if the employer has the right to control how the work results are achieved.

  2. Training. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods.

  3. Expenses. An employee's business and travel expenses are generally paid by an employer.

  4. Investment. An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.

  5. Services offered to general public. An independent contractor generally makes his or her services available to the general public rather than to a single entity at a time.

  6. Payments. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job or on a straight commission (with some exceptions, such as lawyers, who are usually paid by the hour).

  7. Profit or loss. Because of their own responsibility for expenses, an independent contractor can make a profit or suffer a loss.

  8. Contracts. Independent contractors usually have written contracts describing the relationship the parties intended to create.

  9. Benefits. An employee usually has benefits such as insurance, a pension plan, vacation pay, or sick pay.

  10. Continuing relationship. An employee is usually hired with the expectation that the relationship will continue indefinitely, rather than for a specific project or period.

  11. Key aspect of business. An employee generally provides services that are a key aspect of regular business activity, making them more subject to the control of the employer.

(Source: Publication 15-A, Employer's Supplemental Tax Guide, January 2007, pp. 6-7)

For many years, the National Writers Union (NWU) was one of freelancer Ed Hedemann's regular clients. The IRS sent the NWU three or four levy notices over the years to try to collect taxes Hedemann had refused to pay. The levy notices stated that if Ed was an employee the NWU should turn over his pay; if he was not an employee, the IRS asked the NWU to turn over any money they owed him. The NWU took the position that they only owed Ed money when he submitted an invoice. This has been the standard position for many years on IRS levy of fees for consultants and independent contractors. Since NWU never happened to have an invoice in hand when they received a levy notice, they said they didn't owe Ed anything and returned the levy form to the IRS. The IRS subsequently threatened to sue the NWU for Ed's back taxes and to investigate the independent contractor status of NWU's other workers. The IRS may have been bluffing, but the NWU was already involved in an unrelated legal battle and wasn't willing to take on another. The IRS implied that they would back off if the NWU got rid of Ed, and succeeded in intimidating the small union into no longer using Ed's services.

Following the Letter of the Law

Organizations that feel intimidated may end up doing more than the law strictly demands in an effort to appease the IRS. At the very least, war tax resisters can ask the organizations they are involved with not to over cooperate.

No organization or institution need provide any assets or information to the IRS beyond what is required of them by law. They can scrutinize any communication from the IRS carefully, checking with the individual involved, NWTRCC, or legal consultants, to be sure the IRS has followed the proper procedures, is basing its action on correct information, and has the proper authority to take that action. They need answer only those questions required on the IRS forms, without offering additional information. The IRS has no authority to insist on additional information unless it issues a summons. If the organization, or one of its officers or employees, has any question regarding an IRS communication, they may ask for clarification or even ask the IRS to withdraw its request or demand. Organizations may also notify the war tax resister if they have advance information about impending IRS action, to allow the individual time to deliberate on a course of action.

When a war tax resister who had an IRA with Pax World Fund, a socially responsible investment account, received a notice that the IRS was levying the IRA, she asked the Fund to return the money she had on deposit with them. The Fund did so, but subsequently realized they were in error, since an asset that is already under levy can only be turned over to the IRS. Pax World Fund contacted the war tax resister and told her, in a friendly, non-hostile way, that she had to return the money and if she did not, they would provide the IRS with information about her assets. While not required to give this information, the Fund apparently does not have a policy of refusing to provide such information. Not wishing to have further financial information disclosed to the IRS, the resister returned the money to the Fund.

W-4 Forms

 Employers determine the amount to be withheld from their employees' wages on the basis of the number of "allowances" the employee claims on the withholding certificate, Form W-4. For tax purposes, W-4 "allowances" are not identical with the number of "dependents" to be listed on the 1040 tax return. Individuals may claim extra W-4 allowances for anticipated deductions and credits. War tax resisters sometimes claim extra allowances in order to have money to refuse to pay at the end of the year.

When accepting withholding certificates ("W-4 forms") from employees, the organization is not required to question the number of allowances or a claim of exemption from withholding except in particular circumstances, such as the employee has altered or added on to any of the printed language on the W-4 or has verbally communicated that s/he is claiming allowances or exemptions not permitted by IRS rules.

After an employer has submitted tax information to the IRS at the end of each year on W-2 forms, the IRS has the possibility of matching that information with the amount withheld. If the IRS suspects that an employee has excess allowances, they may require the employer to send them a copy of the W-4 form and order a change in allowances for future withholding to the IRS. (For more information see NWTRCC's "Practical War Tax Resistance #1, Controlling Federal Tax Withholding," or IRS Publication #15, Circular E, Employer's Tax Guide.)

Corporate Civil Disobedience in Support of Conscience

Quiet vs. Public Resistance

Based on IRS figures about non-compliance with income tax laws, it appears that many organizations and institutions are engaged in violations of IRS requirements, for a variety of reasons. As far as we can tell, the IRS is not paying any more attention to groups who are non-cooperating due to war tax concerns than to groups who are not complying for other reasons - and sometimes less.

There are advantages and disadvantages to being quiet about noncooperation. For example, employers who pay wages under the table or groups who don't report payments to independent contractors, may, by not publicly announcing their actions, never get "caught" or may go years without attention from the IRS. Still, they would be wise to think through their position and strategy in case they come under IRS scrutiny. If that happens, they will probably be more vulnerable than those who are open about their refusal, such as by adopting policies of not withholding or not honoring levies, because it is hard to develop community support and public sympathy for secret actions. They also could be subject to larger amounts of penalties and interest because of fraud charges, which are unlikely for open resisters, and perhaps a greater likelihood of criminal prosecution for tax evasion.

Some groups hold open public witness as a corporate value and practice it for its own sake. As with individual resisters, the IRS must balance the advantages and disadvantages of going after a non-cooperating employer, contractor, or financial institution in terms of IRS resources, the amount of money involved, and the public relations effects. No organizations of which the WTR movement is aware have been charged with criminal penalties for corporate resistance, and few have ever been assessed civil penalties. Only in rare instances has the IRS attempted to go after a "responsible person" for penalties (see section on "responsible persons" below). Some organizations or institutions do suffer financial consequences, and accept it as part of the stand they take. Others arrange for individual war tax resisters to reimburse the organization for all or part of any penalties so as to reduce or eliminate the financial burden.

Organizations and institutions also think of the consequences of their actions among their constituents and the general public. The public relations effects of taking a stand on corporate conscience can obviously go either way; it can adversely affect a group's effectiveness in the community or enhance it.

Resistance of corporate income taxes

Those organizations and institutions which have expressed concern about their participation in the process of collecting taxes for war have primarily been tax exempt religious and educational groups, or other non-profit groups. Therefore they have not been liable for corporate taxes. The war tax resistance movement is not aware of any group without tax exempt status that has refused to pay corporate taxes because of conscientious objection to war. This remains an unexplored avenue for organizational resistance.
Sojourners, a nonprofit organization committed to following Jesus and to the use of nonviolent means of resolving conflict, has been involved in corporate war tax refusal since its founding in 1971. At first, staff salaries were all below the taxable level. In the late 1970s, however, Sojourners began paying taxable salaries. At that point, although no policies were put in writing, Sojourners adopted the following position, according to former Managing Director Joe Roos: "We knew we couldn't preach against war, argue for nonviolence, encourage personal war tax resistance, and then turn around and voluntarily collect those taxes from our employees and hand them over to the IRS. We also felt our greatest concern was with the preparations for and conducting of war in the present or future. We didn't particularly feel we should refuse, in principle, support moneys going for veterans services and the like. With the help of War Resisters League and others we determine each year what portion of the U.S. budget we feel goes toward the preparations for war or the conducting of war.

We decided that we would withhold the amount of employee wages required by the federal government, we would fill out Form 941E accordingly, but that we would only send in the amount that would not be going to war preparations and war conducting. It is also our policy to refuse to comply with any IRS levy to garnish the wages of employees who owe the federal government taxes because of their own choice to personally refuse to pay war taxes. To date we have been threatened with levies, with the confiscation of our property, with arrest and prison terms and, most recently, with the money we refused to turn over being taken out of my personal account since the IRS views me as a "responsible person." Despite all these threats, the only action they have taken is to levy our corporate account, taking the amount they say is still due plus interest, plus penalty."

Resistance of telephone excise taxes

Beginning during the Vietnam War a common method of low-level war tax resistance was to resist the federal excise tax on long distance and local telephone service. Many organizations participated in this form of resistance as a way of expressing their conscience. In 2006 the IRS was forced to drop the tax on long distance service, but it is still applied to local-only telephone bills. The telephone excise tax had an historic association with war spending and still provides revenue to federal funds that help to pay for war. (For information on telephone tax resistance, see http://www.hanguponwar.org.) Tax exempt nonprofits should remember to apply that status to their local telephone billing and have the tax removed, but thousands of individuals still refuse this tax as a protest to war.

As with individuals, telephone companies do not have the right to disconnect an organization's phone service for nonpayment of the excise tax. Although required to collect the tax, phone companies are not required to enforce collection of the tax. If the phone subscriber does not pay, the phone company is simply required to report nonpayment to the IRS. The most typical consequence of telephone tax resistance is the periodic hassle of reminding the phone company that it is supposed to credit the bill for the amount of the tax rather than adding it onto the next month's bill as an unpaid balance. This often occurs because of communication problems between the phone company and the resister. For instance, telephone companies often require any statement of refusal to be sent to an address that is different from the billing address.

Sometimes telephone companies threaten to cut off service, and a few have done it occasionally. Organizations do not appear to face any more or less difficulty with telephone tax resistance than individual resisters. (For regulations on the telephone tax, see 26 CFR 49.4291-1, a provision in the excise tax regulations, effective 11/12/1996, which states that the collection agency, i.e., telephone company, cannot enforce collection of the tax).

Resistance to reporting

One form of non-compliance with reporting requirements engaged in by some employers is to pay workers "under the table," which essentially means not reporting payments or benefits to the IRS. If such payments were discovered and documented by the IRS, the employer would owe not only the income taxes which should have been withheld, as would the employee, but both the employer's and employee's share of Social Security taxes. In addition, the potential penalty for intentional disregard of filing requirements for "information returns," such as form W-4 or 1099, is 10% of the aggregate amount of the items that were required to be reported (Internal Revenue Code §6721(e)). This means if an organization paid a worker a total of $2,500 in a year, the potential penalty would be 10% of that amount, or $250. We are not aware of any groups in the WTR movement who have been charged with this penalty.

Resistance to withholding

Some organizations refuse to comply with withholding, filing, or turning over employment taxes. In such a case, the taxes not turned over can be assessed and collected by the IRS directly from the employing organization. A civil penalty of 10-15% of the amount not paid over may also be imposed. If the IRS is unable to collect the unpaid tax from the employer, it can use the "Trust Fund Recovery Penalty" which allows it to collect the tax owed from any "responsible person" who fails "willfully" to pay the tax. (See section on "responsible persons") In addition to exposing an employer to civil penalties, willful failure to collect or turn over withholding is also a felony, subject to a 5-year maximum sentence and a possible fine of $250,000 for an individual or $500,000 for an organization (see Internal Revenue Code §6656). Actual sentences are typically far less. Based on the administrative policies of the past 25 years, it is unlikely, but certainly not impossible, that any legitimate organization or its officers would face criminal prosecution.

Employers or other entities which refuse to withhold from the assets of a war tax resister on religious grounds actually have a chance of justifying their actions in court thanks to a 1973 case involving the American Friends Service Committee (AFSC) and the IRS. A federal district court ruled that the AFSC and its employees had the First Amendment right not to be required to participate in the withholding system, since the IRS has other methods of satisfying its objectives, such as levies. The decision was overturned by the Supreme Court, but solely on procedural grounds. This position is possibly strengthened by the Religious Freedom Restoration Act (RFRA), passed by Congress in 1993. (See section on RFRA)

One way some employers refuse to comply with withholding is to treat workers as independent contractors even if they don't fit the IRS definition (see independent contractor box). If the IRS follows up and decides the organization had no reasonable basis for their classification, they can reclassify the workers as employees and apply the failure to withhold penalties described above.

Employers who wish to resist withholding sometimes accept W-4 forms that claim extra allowances or exemption from withholding, even if they know the individual is avoiding withholding because of conscientious objection to war. (See box above for information on the legal requirements of employers in regards to accepting W-4 forms.) If the IRS decides that a W-4 form is invalid, it can order the employer to withhold from an individual's pay at the highest possible rate. Employers who do this may be subject to the penalty for failure to withhold, file, and turn over employment taxes. Additionally, an organization can be held criminally liable for conspiracy and for aiding and abetting submission of false or fraudulent W-4's. Tax protest groups who argue that IRS collections are unconstitutional have received such criminal penalties, but, to our knowledge, not groups involved in tax resistance because of objection to militarism and war.

Some employers establish in-kind or benefit arrangements that make it easier for individuals to keep money away from the IRS, even if the arrangements are questionable under the law, and then wait to see if the IRS notices or follows up. If the IRS catches on and disallows the arrangements, the penalties for failure to withhold, file and pay may apply.

Some organizations take the required amount of taxes from the pay of workers, but refuse to turn some or all of the money withheld over to the IRS. They then redirect the withheld money to life-affirming causes, or place it in a separate account in preparation for a possible IRS seizure of the refused amount or for the day that the government accommodates the conscience of taxpayers by allowing them to pay for life-affirming activities rather than the military. In these situations, as above, the IRS could find that the organization is responsible for failure to withhold, file, and pay over employment taxes and hold it and/or a "responsible person" liable. More often, however, the under-remitted employment taxes are later seized from the employer's account, with only a lateness penalty added.

Some payers of reportable interest or dividends who receives a notice from the IRS to begin backup withholding refuse to withhold, or withhold and refuse to turn over the tax, with the same possible penalties as above.

Resistance to levies

Some employers, payers of independent contractors, and financial institutions refuse to turn over money in response to a levy on the pay or assets of a conscientious objector. The IRS Code does not allow for criminal enforcement of levies. In civil proceedings the IRS can, and does sometimes, sue to collect the amount levied, plus "costs and interest" and occasionally a further penalty equal to 50% of the money required to be turned over (see Internal Revenue Code §6332). The Internal Revenue Code does not clarify what such "costs and interest" might be, and such suits are too rare for WTRs to have accumulated much experience with them. The amount could be collected from either the organization or a "responsible person." (See section on "responsible persons" below.) Some organizations which resist levies take the amount demanded in the levy out of a worker's pay and set it aside in a separate account, to have in case the IRS sued to collect from them; others refuse to take any money from the worker at all.
Bill Ramsey resisted taxes as an employee of the American Friends Service Committee (AFSC) from 1976 to 1997. For most of that time he claimed additional allowances on his W-4 form to avoid withholding. In 1995 the IRS ordered the AFSC to start withholding from Ramsey's paycheck at the highest possible rate. Despite the fact that Ramsey claimed extra allowances on his W-4 form for 20 years and was very public about his resistance, the IRS did not threaten the AFSC with any penalties for having accepted a "fraudulent" W-4 form in the past. At that point Ramsey took advantage of the AFSC policy on resisting withholding. Their policy directs them to withhold all the required taxes from a war tax resisting employee, but to place the percentage of the taxes that go to current military expenses (they used figures determined each year by the Friends Committee on National Legislation) in a separate AFSC account. The rest of the taxes are paid to the IRS. To date, the IRS has taken no action in regards to the taxes AFSC has withheld but refused to turn over.

In 1988, Philadelphia Yearly Meeting (PYM) of the Religious Society of Friends (Quakers) developed a policy regarding ways in which it would support the witness of individual employees who were pacifists. PYM had had employees with conscientious objections to paying for the military since before 1970. In 1988 PYM was sued by the U.S. Justice Department for sums owed by two employees, because PYM had refused to honor a levy on the wages of those employees. The IRS also tried to impose a penalty on PYM of 50% of the taxes due for having refused "without reasonable cause" to comply with a levy. Attorney Peter Goldberger found errors in the government's claims and PYM, after prayerful discernment, decided to defend its position in federal court in April, 1989.

PYM argued that as a religious employer of people whose jobs included educating others about the historic peace testimony of Quakers, PYM was not acting "without reasonable cause" in refusing to enforce collection that was in violation of a religious witness. Between the court appearance and the Judge's decision, however, the U.S. Supreme Court decided a case called Smith v. Oregon Department of Unemployment. This decision, which was written by Judge Antonin Scalia, said that "free exercise of religion could not be protected against the incidental infringements of generally applicable laws." Had it not been for the Smith decision, the PYM case might have set an important precedent for organizational war tax resistance. Even so, the court refused to uphold the 50% penalty.


When war tax resisters Titus Peachey and Linda Gehman Peachey received a Notice of Levy from the IRS in November 1996, they tried to engage their financial institution, the Pennsylvania Mennonite Federal Credit Union, in a conversation about the potential for a creative response to the levy. The Credit Union Board of Directors agreed to consider the issue at a Board Meeting, even though the meeting was scheduled for three days after the IRS deadline for compliance. In agreeing to consider the matter, the Board summarized their position in this way: "Our position in the past has been to comply with the legal requirements of the levy by forwarding the required funds along with a letter to the IRS stating that we affirm our member's position and we ask the IRS to not levy the account in the future. As you are well aware, this issue creates a tension for our directors because they want to be supportive of our members on faith issues and also carry out their fiduciary responsibilities as directors of the financial institution." At that time, the Credit Union decided to comply with the IRS levy. The primary considerations leading to this decision included the desire to operate legally, concerns about the personal liability of the Board of Directors, and a belief that any conflict with the IRS over this issue would be both time consuming and futile.

Once the levy was paid, Peachey and Gehman Peachey arranged a face-to-face conversation with Credit Union staff to explore the tensions between faith issues and fiduciary responsibilities. As a result, at a February, 1998 board meeting, the Credit Union approved a policy of initially requesting the IRS to lift levies related to war taxes prior to deciding whether to comply.

Titus commented, "We recognize that the systems in our country which protect and multiply financial assets are often at odds with concerns for peace and justice in our world. Just as we must decide on a personal level how much risk we will take with our "financial nest," so institutions must decide how much risk they will take in order to hold to their core values and beliefs. In a society where money is quickly becoming the primary value and ethic, it is especially important for church institutions to examine what informs their decisions and why."

Resistance to IRS Summonses or Inquiries

In the process of trying to collect unpaid taxes, the IRS has no authority to insist that organizations or institutions give them information about a person's financial situation unless it uses its "summons" power. If it does issue a summons, an institution can comply with it and get the IRS to pay for the cost of gathering and delivering the information, as allowed by IRS regulations (IRC §7610). If the institution refuses to honor a summons, the IRS would have to go to the Justice Department for permission to bring a summons enforcement action, which is a civil case, in federal district court. If a party is ordered by the court to respond to a summons and still refuses, they may be subject to civil contempt charges, such as fines or jail, until they comply (see Internal Revenue Code §7602).

One common defense to a summons enforcement action against an individual resister is to claim the Fifth Amendment privilege against self-incrimination. While this has been successful for some individual war tax resisters, the Supreme Court has ruled that "impersonal entities" such as corporations and partnerships do not have a constitutional right against self-incrimination.

Responsible Persons

As mentioned in the section on Resisting Withholding above, if the IRS is unable to collect the unpaid tax from organizational accounts it can impose, on any "responsible person" who "willfully" failed to pay over the tax, a "Trust Fund Recovery Penalty" equal to the taxes not paid. This was formerly known as the "100% penalty." In such a case, the tax liability is actually shifted to the "responsible person" and may be collected from their personal assets. If so collected, the IRS deems the tax to have been paid and will no longer attempt to collect it from the war tax resisting individual. The IRS may also attempt to convince the Justice Department to seek criminal penalties on "responsible persons" for willful failure to collect and turn over withholding.

A "responsible person" is an organizational officer or employee who is under a duty to withhold and pay over taxes. Typically, all executive officers are designated, although in any particular case the Revenue Officer assigned to investigate may decide who is "responsible." After July 1996, unpaid volunteer board members of exempt organizations who are not involved in day-to-day financial activities and do not know about the penalized failure are exempt from the penalty unless the exemption results in no one being liable for it. It is possible that the IRS would find it difficult to determine "responsible persons" in organizations that place all responsibility for making decisions with respect to withholding tax or complying with levies in a collective group rather than in an individual. Thus far, to our knowledge, the few successful IRS collection actions against conscientious organizations have been on corporate accounts, not the personal accounts of "responsible persons."

Tax exempt status

To date, the war tax resistance movement is unaware of any nonprofit organization that has lost 501(c)(3) tax exempt status due to its position or action relating to conscientious resistance to war taxes. There is also no indication that the IRS has ever even considered a campaign to challenge tax exempt status on such a basis. However, it is possible the IRS could argue that support for war tax resistance violates the definition of "charitable" in the legal sense.

Due to varying decisions in court cases in recent years, it's not clear how the IRS or a court would rule on the question of "charitable" status if faced with an organization that supported war tax resistance but did not directly and immediately advocate it. It is clear that a group whose primary purpose was to advocate civil disobedience of any sort would have trouble qualifying for tax exempt status. However, there is some precedent that tax exempt status would not be revoked if illegal activities were merely incidental to the purposes of the organization (U.S. v. Omaha Live Stock Traders Exchange, 366 F.2d 749, 751 (8th Cir. 1966).

The IRS and Political Repression

In addition to concerns about tax exempt status, some organizations whose work is seen as opposing the government fear that taking a position on military taxation could open them to attack by the government in the form of IRS harassment about other financial business. The IRS has, in fact, been used as a tool in the past to target some opposition groups. There is no guarantee that this wouldn't happen again. Large, well-established religious or financial institutions are less likely to suffer such repression. Smaller, more radical groups might be at greater risk.

Religious Freedom Restoration Act

 A Supreme Court ruling in 1990, Employment Division v. Smith, followed by the Religious Freedom Restoration Act (RFRA) passed by Congress in 1993, have significant ramifications for organizational conscience in regards to war taxes.

Prior to the Smith decision, the "compelling interest" test was used as a guide in court cases where an individual's conscience conflicted with governmental requirements. This meant that in order to justify a burden on the free exercise of religion and conscience, government had to show a "compelling" state interest, such as public health or safety, and had to use the "least restrictive means" to achieve their goals. In the Smith decision the Supreme Court ruled that, as long as a law in question was not specifically aimed at limiting the free exercise of religion, was generally applicable, and was neutral among different religions, the government did not have to accommodate the practices of religious people.

In response, a coalition of religious and secular organizations legislatively re-established the compelling interest test by introducing and passing, with an overwhelming majority in Congress, the Religious Freedom Restoration Act of 1993. In 1997 the Supreme Court heard a test case on RFRA, City of Boerne v. Flores, and ruled that RFRA was unconstitutional in disputes between individuals and states. However, the Justice Department has taken the position RFRA is still applicable in cases involving the federal government and individuals. In 1998, the Tax Court rejected war tax resister Priscilla Adams' claims under RFRA that the government had not used the "least restrictive means" to collect her taxes, therefore she should not have to pay them, nor should she be penalized for refusing to do so. In 1999 the Federal Court of Appeals for the Third Circuit ruled against her in Priscilla Adams v. the IRS. Other military tax conscientious objectors continue to prepare RFRA cases in Tax Court and in U.S. District Court.

Conclusions

Changes in the economic and political climate of the United States, plus changes in tax laws and IRS practice, have led more conscientious objectors to ask the institutions that employ them and handle their assets to examine their institutional positions concerning reporting and collecting taxes for the military. Conscientious and courageous leaders in a number of organizations have paved the way for an organizational stand on the issue. They have challenged the accepted and unspoken idea that paying for war and its preparations, as organizations and employers, is an acceptable way of doing business. It remains to be seen whether larger numbers of organizations and institutions will take a stand supporting war tax resistance. Their decisions may have a profound effect on the ability of individual war tax resisters to make a living while successfully keeping their taxes from the war machine.

Resources

Available from the IRS: All available for free. Call 1-800-829-3676 or use the IRS web site: www.irs.gov (most forms and publications can be instantly downloaded using Adobe Acrobat Reader).

Available from NTWRCC

NWTRCC can also provide more information about organizational war tax resistance; referral to lawyers knowledgeable about war tax resistance; addresses and phone numbers for the organizations listed below.

Available from War Resisters League
339 Lafayette Street, New York, NY 10012,
Phone: 212/228-0450 Email: wrl@warresisters.org,
Web: www.warresisters.org

Available from the National Campaign for a Peace Tax Fund
2121 Decatur Place, NW, Washington, DC 20008-1923,
Phone: 202/483-3751; 888/732-2382 Email: info@peacetaxfund.org,
Web: www.peacetaxfund.org

Selected organizations with statements on conscientious objection to war or endorsements of the Religious Freedom Peace Tax Fund Bill:

Presbyterian Church USA - Washington, DC
Women's International League for Peace and Freedom - Philadelphia, PA
Fellowship of Reconciliation - Nyack, NY
Lawyers Committee on Nuclear Policy - New York, NY

Selected organizations which have used legally sanctioned means to support war tax resisters:

Iowa Peace Network - Des Moines, IA
Friends for a Nonviolent World - Minneapolis, MN
Pennsylvania Mennonite Federal Credit Union - Akron, PA

Selected organizations which have refused to pay the telephone excise tax

Episcopal Peace Fellowship - Chicago, IL
Jubilee Partners - Comer, GA
Lakeside Printing Cooperative - Madison, WI
Christian Peacemaker Teams - Chicago, IL

Selected organizations which have gone to court against the IRS:

Friends Journal - Philadelphia, PA
Philadelphia Yearly Meeting of the Religious Society of Friends - Philadelphia, PA
American Friends Service Committee - Philadelphia, PA
War Resisters League - New York, NY
National War Tax Resistance Coordinating Committee - Brooklyn, NY
Friends United Meeting - Richmond, IN
Nonviolent Action Community of Cascadia - Seattle, WA
General Conference Mennonite Church - Newton, KS

Selected organizations which have resisted levies or established policies to resist levies:

War Resisters League - New York, NY
Sojourners - Washington, DC
National Campaign for a Peace Tax Fund - Washington, DC
Friends Committee on National Legislation - Washington, DC

This brochure was produced by the National War Tax Resistance Coordinating Committee. NWTRCC is a coalition of local, regional, and national groups supportive of war tax resistance. Additional copies are available for $1.00 each.

Published 10/2004 Updated: 1/2008

NATIONAL WAR TAX RESISTANCE COORDINATING COMMITTEE

PO BOX 150553, Brooklyn, NY 11215
1 (800) 269-7464
Email: nwtrcc@nwtrcc.org
Web: www.nwtrcc.org