In various court actions, Harrell has argued at one time or another that:
- The receipt of Federal Reserve Notes is not income.
- Illinois is not a "State" as defined in the Internal Revenue Code.
- In his second Illinois state criminal income tax trial, Harrell is arguing that the prosecution is barred by the Paperwork Reduction Act. (How the federal PRA would apply to a state income tax form is anyone's guess.)
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In Harrell v. United States, 91 TNT 36-15, No. No. 90-3181 (U.S.D.C. C.D. Ill. 1/18/1991), Harrell sued the Internal Revenue Service, an agent of the IRS, and the United States to stop them from collecting taxes that had been assessed, alleging that he was a nonresident alien not subject to federal income tax, and that the two notices of levy served on his employer were invalid because the underlying assessment was never properly signed by an assessment officer for the international branch of the IRS. The court described the allegations as "somewhat obtruse" and dismissed the case for lack of jurisdiction because the anti-injunction act prevents courts from restraining the assessment or collection of taxes and Harrell had not filed the refund claim that is a necessary prerequisite for a suit for refund of taxes paid.
Harrell then filed a "quiet title" action against the United States, seeking to prevent a levy on his wages, and again describing himself as a "nonresident alien." As the court noted, "Different case — same result," and the suit was dismissed for lack of jurisdiction. Harrell v. United States, No. 91-3040, 1991 U.S. Dist. LEXIS 6773, 1991 WL 631008 (C.D. Ill. Apr. 11, 1991), aff'd 13 F.3d 232, 235, 94 TNT 7-20, No. 91-2077 (7th Cir. 12/30/1993) (claim that "Congress has no constitutional authority over citizens of the states of the United States" is frivolous and "frivolousness is an independent jurisdictional basis for dismissing a suit").
Harrell then filed a suit against the Internal Revenue Service under 26 U.S.C. section 7433(a), which allows a civil action for damages against the United States if, in connection with any collection of federal tax, any officer or employee of the Internal Revenue Service "recklessly or intentionally disregards" any provision of the Internal Revenue Code, or any regulation. The court dismissed the suit because Harrell had failed to exhaust his administrative remedies as required by 26 U.S.C. section 7433(d)(1), and imposed a penalty against Harrell of $500 for filing a frivolous lawsuit. Harrell appealed, and the 7th Circuit Court of Appeals affirmed the dismissal of the suit and imposed an additional $1,000 penalty against Harrell for filing a frivolous appeal. Harrell v. United States, No. 92-CV-3169 (U.S.D.C. C.D. Ill.), aff'd 4 F.3d 996 (table only), 93 TNT 195-23, 1993 U.S. App. LEXIS 22907, 1993 WL 339716 (7th Cir. 9/1/1993).
Meanwhile, Harrell had failed to file income tax returns for 1989 and 1990. The IRS determined deficiencies for both years, and Harrell filed a petition in the Tax Court, contending that he was a citizen of the "sovereign State of Illinois" and that the wages he had received were not taxable by the United States. The court warned Harrell his argument was frivolous and that if he persisted with the argument the court would impose damages against him under section 6673. He did not heed the warning and, noting that Harrell had already lost the cases cited above, the court imposed damages of $3,000 against Harrell and in favor of the United States. Harrell v. United States, T.C. Memo. 1994-406, aff'd without published opinion 72 F.3d 132, 77 AFTR2d Par. 96-401, No. 94-3736 (7th Cir. 1995).
Harrell was one of several plaintiffs who attempted another action for damages under section 7433, contending that they were exempt from federal income tax because Illinois was not "State" as defined in the Internal Revenue Code. The District Court dismissed the complaint and imposed sanctions under Fed. R. Civ. P. 11 on everyone else who had signed the complaint, including Harrell. LaRue v. Collector of Internal Revenue, No. 95-3036, 76 AFTR2d Par. 95-5011, 95 TNT 123-89 (U.S.D.C. C.D. Ill. 5/8/1995) (complaint dismissed), 1995 U.S. Dist. LEXIS 8225, 1995 WL 479521 (U.S.D.C. C.D. Ill. 6/21/1995) (sanctions imposed).
Harrell also did not file income tax returns for 1991, 1992, and 1993, and the IRS issued additional notices of deficiencies. Harrell petitioned the Tax Court again, this time claiming that he did not receive income but payments "traded for labor of equal value from which there can be no taxable gain." The Tax Court affirmed the deficiencies in a motion for summary judgment, noting that "there is nothing in petitioner's filings but tax protester rhetoric, unsupported assertions, and legalistic gibberish." Gaylon L. Harrell v. Commissioner, T.C. Memo. 1996-64, 96 TNT 36-16, No. 7339-95 (2/20/1996). However, the Tax Court did not reach the issue of whether there should be additions to tax. After a hearing during which Harrell both repeated his argument that the monies he received were for labor of equal value and not taxable, and argued that Federal Reserve Notes are not "money" within the meaning of the Constitution, the Tax Court then affirmed that Harrell was liable for an addition to tax for fraud under section 6651(f), and the Tax Court imposed a penalty of $10,000 for frivolous arguments. Gaylon L. Harrell v. Commissioner T.C. Memo. 1998-207, 98 TNT 115-13, No. 7339-95 (6/15/1998), aff'd 1999 TNT 163-9, 84 AFTR2d Par. 99-5194, No. 98-4120 (7th Cir. 8/19/1999) (rejecting arguments that taxation without apportionment under the 16th Amendment is a violation of the 10th Amendment, and that the receipt of Federal Reserve Notes is not income, and imposing additional sanctions of $2,000 for maintaining a frivolous appeal).
Harrell's one "victory" is that he was acquitted of failing to file Illinois state income tax returns in People of the State of Illinois v. Gaylon L. Harrell, No. 97CF89 (Cir. Ct. of St. Clair Co. Ill.).
However, in 2006, he was charged again with three counts of criminal failure to file Illinois income tax returns for 1996, 1997, and 1998, and was convicted on all three counts on 12/17/2008. People of the State of Illinois v. Gaylon L. Harrell, No. 2006CM215 (Cir. Ct. of Logan Co. Ill.). As noted above, Harrell filed a motion to dismiss the Illinois prosecution on the grounds that it was barred by the federal Paperwork Reduction Act, but the motion was denied. Harrell will be sentenced on February 5, 2009.