Don’t Get Burned By Frivolous Tax Arguments

A picutre of bug getting zapped.Disclaimer: Edgar & Edgar CPAs is not a law firm.  This blog is provided for informational purposes only and does not constitute legal advice.  In addition, if you rely on this blog post as a legal defense, you deserve the inevitable jail time and harsh fines coming your way.

As we approach the end of the year, I thought I’d address the surprisingly misunderstood topic of Frivolous Tax Arguments.  While some of the most commonly used arguments can seem humorous, there’s nothing funny about the civil and criminal penalties the IRS will pursue against anyone that promotes or uses them.  To borrow a quote from United States v. Sloan, “Like moths to a flame, some people find themselves irresistibly drawn to the tax protestor movement’s illusory claim that there is no legal requirement to pay federal income tax.  And, like moths, these people sometimes get burned.”  Beware any “authority” promoting one of the arguments below.

“Filing a tax return is voluntary”

Wrong, wrong, wrong.  If this were the case, then millions of Americans are far more altruistic than they realize!  This argument stems from IRS Publications referring to the “voluntary” nature of our tax system; the only problem is that it’s referring to the taxpayer’s ability to determine the correct amount of tax they owe and complete the return, instead of the government just determining it from the outset.  The requirement to file a return is clearly set forth in numerous sections of the Internal Revenue Code (IRC).

“The IRS must prepare federal tax returns for a person who fails to file”

This argument stems from a misunderstanding of Section 6020(b) of the IRC – the section instructs the IRS on how to determine the tax liability of a taxpayer who has failed to file a return, and says nothing about the IRS preparing a return for those who do not file.

“Wages, tips, and other compensation received for personal services are not income”

Proponents of this argument assert that there is no taxable gain when a person “exchanges” labor for money.  Other variations argue that there is no tax on “time reimbursement transactions,” or that the Sixteenth Amendment only authorized a tax on gain or profit, not wages or salaries.  In fact, the IRC specifically states that “gross income” means all income from whatever source derived, and subsequent court cases and Tax Court rulings have reinforced this.  Likewise, the Sixteenth Amendment provides that Congress shall have the power to lay and collect taxes on income, from whatever source derived.  The Supreme Court upheld this power way back in 1916, so good luck trying to argue against it!

“A Taxpayer is not a ‘citizen’ of the United States, and thus is not subject to federal income tax laws”

This one is interesting.  Some individuals have argued that they have rejected citizenship in the United States in favor of state citizenship, which relieves them of their federal income tax obligations.  Another variation holds that they are a free born citizen of their state, and never became a citizen of the United States.  This argument might be legally sound… prior to 1868.  The Fourteenth Amendment, however, states that all persons born or naturalized in the United States are citizens of the United States and of the state in which they reside – thus establishing simultaneous state and federal citizenship.

“You can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment”

A variation on this ploy argues that you can refuse if you object to how your taxes are being used to fund certain government programs.  Regardless, it is well established in case law that refusing to pay your income tax is not protected speech.

“You do not have to file a return/provide financial information because of the protection against self-incrimination found in the Fifth Amendment”

This is one of my favorites.  Reporting illegally obtained income would incriminate oneself; therefore, they don’t have to report it!  If this argument were valid, then you could refuse to file a return to hide criminal activity – Al Capone could have used this.  The IRS expects you to report all income, including income from illegal activity.

“African Americans can claim a special tax credit as reparations for slavery”

There is another variation on this argument for Native Americans, but neither are true.  There is no basis for this credit in the IRC, or any congressional legislation.

“The IRS is not an agency of the United States”

The argument here is that the IRS was not created by “positive law” (i.e. an act of Congress), and thus does not have the authority to enforce the IRC.  However, Congress has given the Secretary of the Treasury the authority to administer and enforce the internal revenue laws, and the Secretary has the power to create an agency to enforce such laws.  Thus, the IRS was established by “positive law” because it was created through a congressionally mandated power.

If someone is trying to persuade you to use one of the above tactics (or any tactic that avoids paying taxes that are legally owed), just remember that YOU are the one that the IRS will hold accountable.  If they determine your argument is frivolous, you may be subject to:

  • Failure to File penalty
  • Failure to Pay penalty
  • Accuracy-related penalties
  • Civil Fraud penalty
  • Erroneous Claim for Refund penalty
  • Fraudulent Failure to Timely File penalty
  • $5,000 penalty for Frivolous Tax Return
  • $25,000 if you argue a frivolous position in Tax Court
  • Possible criminal prosecution (up to $100,000 fine and five years imprisonment

Don’t get burned!