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Don't Try This at Home: Frivolous Tax Arguments


Pursuing tax cases on frivolous grounds? You should know that the courts often decline "to refute arguments with somber reasoning and copious citation of precedent" for a variety of reasons, according to Crain v. Commissioner, 1984.

Taxpayers conjure up frivolous arguments to avoid or evade federal taxes. But we all need to be aware that the government and courts are not precluded from penalizing taxpayers who raise frivolous arguments.

Let's delve more deeply into a few of these contentions.

Filing tax returns is voluntary. The IRS tells taxpayers in the Form 1040 instruction book that the tax system is voluntary. Taxpayers frequently quote Flora v. United States, 1960, which proposes that "our system of taxation is based upon voluntary assessment and payment, not upon distraint."

The word voluntary, as used in Flora and IRS publications, refers to our system of allowing taxpayers initially to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax amounts for them from the outset.

Any taxpayer who's received more than a statutorily determined amount of gross income in a given year is obligated to file a return for that tax year. Failure to file a tax return could subject the noncompliant individual to civil and/or criminal penalties, including fines and imprisonment.

Taxpayers can reduce their federal income tax liability by filing a zero return. Many taxpayers request a refund of any taxes withheld by an employer, attaching a corrected W-2 form that reports income and income withholding.

The IRS says taxpayers cannot legally avoid income tax by filing a zero return. Section 61 provides that gross income includes all income from whatever source from which it is derived, including compensation for services. Attaching a corrected W-2 form doesn't evidence an honest and reasonable attempt to satisfy tax laws or contain sufficient data to calculate tax liability, which are necessary elements of a valid tax return.

The IRS must prepare federal tax returns for a person who fails to file. Proponents of this argument contend that Section 6020(b) obligates the IRS to prepare and sign under penalties of perjury a federal tax return for a person who doesn't file a return. Section 6020(b) merely provides the IRS to prepare or sign under penalties of perjury tax returns for persons who don't file — it doesn't excuse the taxpayer from civil penalties or criminal liability for failure to file.

In 2011, in Jahn v. Commissioner, the 3rd Circuit held that even if the IRS prepares a return under Section 6020(b), this "does not relieve the non-filing taxpayer of his duty to file and does not equate to a filed return unless signed by the taxpayer." The court found arguments to the contrary frivolous.

Compliance with an administrative summons issued by the IRS is voluntary. Some summoned parties may assert that they are not required to respond to or comply with an administrative summons issued by the IRS. Proponents of this position argue that a summons can be ignored. The 2nd Circuit's opinion in Schulz v. IRS in 2005 is often inappropriately cited to support this position.

Contempt sanctions under Section 7604(b) shall not be levied based on disobedience of an IRS summons — until that summons has been enforced by a federal court and the summoned party, after having been given a reasonable opportunity to comply with the court's order, has refused.

Failure to comply with an IRS administrative summons can subject the noncomplying individual to criminal penalties, including fines and imprisonment.

Those who act on frivolous positions risk a variety of civil and criminal penalties. Those who adopt these positions may face harsher consequences than those who merely promote them. "Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement's illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned," according to United States v. Sloan in 1991.


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Katz Nannis + Solomon PC
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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