The Internal Revenue Service has issued another warning to taxpayers against using frivolous tax arguments to avoid paying taxes. This scheme involving outlandish legal claims is on the agency’s top 12 list of tax scams.
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish legal claims to avoid paying their taxes. The IRS reminds people that time and again, these arguments have been thrown out of court.
The Dirty Dozen
The “Dirty Dozen” is compiled annually by the IRS as a consumer alert to warn people about common tax scams. The schemes occur throughout the year, but they frequently spike during tax filing season.
A recurring Dirty Dozen theme throughout the years involves claims peddled by promoters about “secret” schemes to avoid people paying taxes.
“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 “The Truth about Frivolous Tax Arguments,” the IRS outlines some of the more common frivolous arguments, explains why they’re wrong and cites relevant court decisions. Examples of these common myths 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.
Perpetrators of illegal scams, as well as those who make use of them, may face possible criminal prosecution. IRS Criminal Investigation works closely with the Justice Department to shut down scams and prosecute the criminals behind them.
Don’t get talked into using a frivolous argument
Taxpayers have the right to contest their tax liabilities using IRS administrative appeals procedures or in court, but they are still obligated to follow the law.
Besides risking criminal prosecution, 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 are 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 United States Tax Court may also impose a penalty (up to $25,000) against taxpayers who make frivolous arguments in court.
Further details, including a list of the Dirty Dozen and information about other tax scams, can be found on IRS.gov.
If you owe the IRS, or receive a letter from the IRS, come see us!
The Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic can consult with you to provide advice regarding your IRS tax problem, and/or potentially act on your behalf for FREE if you qualify for assistance (come to a clinic intake session)!
Jim Floyd is the Staff Enrolled Agent at the Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic. As an Enrolled Agent, Jim is a federally-licensed tax practitioner with unlimited rights to represent clients before the Internal Revenue Service. This means he is unrestricted as to which taxpayers he can represent, what types of tax matters he can handle, and which IRS offices he can represent clients before. Enrolled agent status is the highest credential the IRS awards.
Jim is also an Accredited Small Business Consultant™ (ASBC). By receiving the ASBC designation, Jim demonstrated the knowledge required in all core competencies of small business and SME consulting to effectively assist clients in improving operations and achieving higher profits.
Jim is a member of The American Society of Tax Problem Solvers (ASTPS), a non-profit professional association of practitioners that specialize in representing taxpayers before the IRS and other taxing authorities. Membership in ASTPS reflects commitment to excellence and high standards in taxpayer representation.
Source: Internal Revenue Service