The IRS Dirty Dozen 2015, #12: Frivolous Tax Arguments

The IRS concluded this year’s “Dirty Dozen” list with the shenanigans that drive the Tax Court literally up the wall.  The sheer number of frivolous tax arguments that have been made over the years has led the IRS to create a separate list solely dedicated to the many contentions that tax objectors have raised in the courts-and lost. 

The list is updated yearly and is currently 69 pages long.

A few examples of tax arguments that could cost you 

Filing a tax return is voluntary – When you read in the 1040 instruction book that the U.S. tax system is voluntary, that doesn’t mean that you can opt out of the entire process. Many cases have clarified that the term “voluntary” means that it is up to the taxpayers to initially determine the correct amount of tax to be paid rather than have the government determine it for them.

Compensation received for personal services is not income – Another failed argument is that there is no taxable gain where a person exchanges their time for money because the basis in their labor is equivalent to the fair market value of their wages.  This is wrong. All income, “from whatever source derived” is considered “gross income” and is taxable under I.R.C. 61, unless the taxpayer can demonstrate that a specific exemption or exclusion applies. 

Refusal to pay income taxes on religious or moral grounds – It makes no difference if you object to the use of tax funds for certain government programs. There is no First Amendment or Religious Freedom Restoration Act (“RFRA”) protection from the refusal to pay income taxes or from the participation in any abusive tax avoidance scheme.

The IRS is not an agency of the United States – The IRS is not a private corporation, as is claimed by some tax objectors. It is in fact a body established by “positive law,” having been created through a legislative grant. The Secretary of the Treasury has full authority to enforce the internal revenue laws, and the consequences of refusal can be severe. 

Collection due process claims – All taxpayers are entitled to notice and an opportunity for an administrative appeal when a federal tax lien is filed, and both before and after a tax levy. However, a taxpayer may be denied a hearing if the IRS determines that the hearing request is based on a frivolous argument intended to delay or otherwise interfere with a tax investigation. 

Note that the IRS clearly states that its list of frivolous arguments isn’t conclusive. 

Penalties for making a frivolous tax argument

The penalty for filing a frivolous tax return or for making a frivolous tax argument on any submission other than a return is a $5,000 fine.  If you receive a notice from the IRS that you have made a frivolous submission, it is possible to avoid the penalty if you withdraw your submission within 30 days of receipt of that notice.

The tax court can impose a penalty of up to $25,000 for a frivolous or groundless case.  

Don’t let anyone convince you that you can get out of paying your taxes with these or other crazy arguments. The experienced, qualified tax professionals at Moskowitz LLP can assist you in getting up to date on your taxes and can make a good case with a valid legal claim as to the amount of your actual tax liability.