…it’s time to get educated. Go read all the material at http://losthorizons.com
Keep in mind that the letters are “proposals”, not bills. If you did not engage in taxable activity, then you don’t owe tax (whether you gained or lost money). Once you understand the applicable laws, all you have to do is write a rebuttal letter to explain your disagreement with the proposal. The kicker is knowing what constitutes (legally) taxable activity, and that is where the research at http://losthorizons.com comes in. So go read already!
Here’s some summarized and consolidated points (if you want a TLDR for this topic, which isn’t recommended):
Summary: The income tax is a bubble and it is in the process of crashing, as more and more people learn about the Big Lie we were told in 1942. The Lie is that the income tax is a direct tax and that all profits are “income.” The truth is that the income tax is an excise and that “income” means only profits acquired as a result of exercising a government-granted privilege. The man who is best measuring this crash is Pete Hendrickson ([firstname.lastname@example.org](mailto:email@example.com)).
- According to the Constitution, all taxes must fit into one of the mutually exclusive “two great classes,” namely: direct taxes and indirect taxes. [Pollock v. Farmers Loan & Trust Co., 157 U.S. 429, 39 L.Ed. 759, 158 U.S. 101, 39 L.E. 1108]
- According to the U.S. Supreme Court, an income tax is an excise and not a direct tax. [Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916) (“…the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise…”)]
- In 1942, amid wartime pressures and patriotism, somehow the government convinced all U.S. companies that the money they were paying workers (as well as their own earnings) was taxable “income,” starting the familiar rituals around W-2s and withholding. See: http://losthorizons.com/The16th.htm
- In each instance where money earned IS the result of the exercise of a government-granted privilege (e.g. administering labor law, or profitably extracting ore from government land), that money qualifies as “income” under the Internal Revenue Code. [See footnotes  and ]
- In each instance where the money earned is NOT the result of the excise of a government-granted privilege, that money does not qualify as “income” and it is actually a crime (perjury, etc.) to withhold taxes on that money and to sign any kind of form declaring that money to be taxable “income.”
- In 2003, Pete Hendrickson discovered the Big Lie and the proper way for people to accurately report earnings and withholdings, and to recover money incorrectly withheld or paid-in.
- Hendrickson himself was the first American in history as far as we know to obtain a complete refund of all taxes withheld, including FICA. See: http://losthorizons.com/overpay.htm.
- Making use of Hendrickson’s research, an exponentially growing number of Americans have been obtaining similar refunds since 2003. See: http://losthorizons.com/BulletinBoard.htm.
- The government has used a variety of ineffective methods (some of them tyrannical, some ridiculous) to try to stop this exponentially growing flood. See http://losthorizons.com/A/CrimeOfTheCentury.htm.
The government has NEVER used any of the methods that are available and would be lawful to use IF Hendrickson had been wrong about the excise nature of the tax, the Big Lie, and his method of filing 1040 and 4852 returns. See for example: http://youtube.com/watch?v=105GKdmJ9HU. See also: http://losthorizons.com/FRP/IRSFRPFraud.htm
 To help obscure this fact, the Internal Revenue Code does not define “income.” If you ask a CPA or tax attorney for the definition of “income” you will often be given 26 U.S.C. § 61 which is instead the definition of a different term, “gross income” – and, if it HAD been the definition of “income,” would have been a circular definition as the definition basically says “gross income means all income,” and no more defines “income” than the expression, “Gross floogle means all floogle from whatever source derived” defines “floogle”.
 Instead, the definition of “income” is established by its statutory and Constitutional usage, with the Supreme Court having declared the “income” tax to be an excise, and excise taxes to be “privilege taxes”: “[T]axation on income [is] in its nature an excise, entitled to be enforced as such…” Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916), a unanimous court re-iterating its conclusion in Pollock v. Farmer’s Loan & Trust, 157 U.S. 429 and 158 U.S. 601 (1895); “As was said in the Thomas case, 192 U. S. 363, supra, the requirement to pay [excise] taxes involves the exercise of privileges…” Flint v. Stone Tracy Co., 220 U.S. 107 (1911).