ST. GEORGE — The Internal Revenue Service finished its 2016 “Dirty Dozen” tax scams list by warning taxpayers against using frivolous tax arguments to avoid paying their taxes.
The IRS also released the 2016 version of “The Truth about Frivolous Tax Arguments.” The document describes and responds to some of the common frivolous tax arguments made by those who oppose compliance with federal tax laws. Examples include contentions that taxpayers can refuse to pay taxes on religious or moral grounds by invoking the First Amendment. The cases cited in the document demonstrate how frivolous arguments are treated by the IRS and the courts.
“The IRS and the courts hear many outlandish arguments from people trying to avoid their legal filing and tax obligations,” IRS Commissioner John Koskinen said. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law.”
Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes.
Perpetrators of illegal scams may be subject to significant penalties and interest as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.
Debunking frivolous tax arguments
“The Truth about Frivolous Tax Arguments” describes and responds to some of the common frivolous tax arguments made by those who oppose compliance with federal tax laws. The 2016 version includes numerous recently-decided cases that demonstrate that the courts continue to regard such arguments as illegitimate.
Besides the First Amendment example cited earlier, other examples of frivolous arguments include contentions that the only “employees” subject to federal income tax are employees of the federal government and that only foreign-source income is taxable.
Don’t get talked into using a frivolous argument
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.
The penalty for filing a frivolous tax return is $5,000. The penalty applies to anyone who submits a purported tax return or other specified submission, if any portion of the submission is based on a position the IRS identified as frivolous in Notice 2010-33, 2010-17 I.R.B. 609, or reflects a desire to delay or impede administration of the tax laws.
Those who promote or adopt frivolous positions also risk a variety of other penalties. For example, taxpayers could be responsible for an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty or a failure to file penalty. The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.
Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement or other document that the person does not believe to be true and correct as to every material matter. Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a felony.