OUT OF VOGUE: FRIVOLOUS ARGUMENTS
Neither the IRS Nor the Courts Tolerate Frivolous Arguments Made by Taxpayers . . . and to Make Them Can be Very Costly
Most Americans despise having to pay taxes on their hard-earned income. Because of that frustration and anxiety of “Where will I find the money to pay the taxes I owe?”, promoters of frivolous and sometimes illegal schemes come out of the woodwork (like the cockroaches they are) to entice taxpayers by convincing them to make unreasonable and outlandish legal claims on their returns to avoid paying their taxes.
The IRS reminds taxpayers that time and again, that these frivolous arguments have been thrown out of court.
Some of the popular “secret” schemes that are promoted include:
The First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds;
The only “employees” subject to federal income tax are those who work for the federal government;
Only foreign-source income is taxable.
What Are the Consequences of Making Frivolous Arguments?
Not only can the perpetrators of illegal schemes be prosecuted, so can taxpayers who make use of them. “Don’t be fooled by people citing dubious legal schemes to avoid paying taxes,” said IRS Commissioner Chuck Rettig. “Despite what con artists may tell you, there is no secret way to avoid paying what you legally owe. Taxpayers should be on the lookout for these and other common tax scams.”
In addition to committing a civil crime, taxpayers can also face a variety of civil penalties for engaging in these schemes. Key among them is the $5,000 penalty for filing a frivolous tax return. The penalty applies to anyone who submits a frivolous tax return or other specified submissions, such as a request for a collection due process hearing, installment agreement, offer-in-compromise or taxpayer assistance order if any part of these submissions is based on a frivolous position. A list of more than 40 such positions can be found in Notice 2010-33, 2010-17 I.R.B.609. The list is not all inclusive, and the IRS and the courts may add to it at any time.
The IRS Reminds Taxpayers these Schemes also can Bring Other Civil Penalties Including:
Accuracy-related penalty—20 percent of the underpaid tax;
Civil fraud penalty—75 percent of the underpayment attributable to fraud;
Erroneous refund claim penalty—20 percent of the excessive amount.
Late-filing and late-payment penalties may also apply.
The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court. The Court is tired of repeatedly hearing various tax protest cases which have been struck down for eons. By imposing these penalties, it is the hope of the court that the penalties may deter others from abusing the court’s time.
For those taxpayers who make very egregious arguments where an intent to defraud the U.S. Government can be proven, immediately consult with a criminal attorney when IRS agents with shiny badges knock on your door. In addition to committing a civil crime, you could be found to have committed a criminal crime.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.