Time after time, the IRS has debunked these frivolous arguments through policy statements and Tax Court wins. And yet many of the arguments still persist, especially at tax time.It's worth a reminder, then, that Congress increased the amount of the penalty for frivolous tax returns from $500 to $5,000 as part of the Tax Relief Health Care Act of 2006. The penalty applies when a taxpayer submits a tax return or takes a position with a tax filing that the IRS has identified as frivolous.
And it can get worse. Section 6673 of the Tax Code allows the courts to impose a penalty of up to $25,000 if they decide that:
- a taxpayer instituted a proceeding primarily for delay,
- a position is frivolous or groundless, or
- a taxpayer unreasonably failed to pursue administrative remedies.
Some of the most popular frivolous tax arguments that the IRS has encountered are:
- The filing of a federal income tax return or the payment of federal income tax is voluntary.
- Only foreign-source income is taxable.
- The "United States" consists only of the District of Columbia, federal territories and federal enclaves -- not the separate states.
- The only "employees" subject to federal income tax are employees of the federal government and not private sector workers.
- Taxpayers can refuse to pay federal income taxes on religious or moral grounds by invoking the First Amendment.
- The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional.
- A "corporation sole" can be established and used for the purpose of avoiding federal income taxes.
The IRS and the Justice Department have to work a little harder these days to rebut these arguments because of the proliferation of sites on the Internet that perpetuate them. The IRS, however, cautions you to take a step back and think before you act.
Nobody likes paying taxes. But it's the law. If you're tempted, ask yourself: Is it worth it?