The Internal Revenue Service has recently issued a guidance list of forty frivolous positions that taxpayers (or more precisely “nonpayers”) have attempted in the past. The IRS released this list to put the public on notice that these positions have no basis for validity in existing law. Tax returns containing these will be rejected. Furthermore, taxpayers attempting to use these positions on their returns could be subject to penalties from $5,000 to $25,000, along with other civil penalties based on tax underpayments.
It is important to note that the following is not an exhaustive list of all positions that the IRS has deemed frivolous. The penalty can also be assessed on a tax return that contains a position not included in this list, “yet reflects a desire to delay or impede the administration of Federal tax laws.”
Here are some of the frivolous positions that the IRS has warned the public will not work:
1) Compliance with the Internal Revenue laws is voluntary or optional and not required by law, including arguments that:
a) Filing a federal tax or information return or paying tax is purely voluntary under the law, or similar arguments.
b) An employer is not legally obligated to withhold income or employment taxes on employees’ wages.
c) A taxpayer may “untax” himself or herself at any time or revoke the consent to be taxed and thereafter not be subjected to Internal Revenue taxes.
d) Because filing a tax return is not required by law, the IRS must prepare a return for a taxpayer who does not file one in order to assess and collect tax.
e) A taxpayer may lawfully decline to pay taxes if the taxpayer disagrees with the government’s use of tax revenues.
f) Only certain types of incomes are taxable; for example, income that results from the sale of alcohol, tobacco, or firearms, or from transactions or activities that take place in interstate commerce.
2) Federal income taxes are unconstitutional or a taxpayer has a constitutional right not to comply with the federal tax laws for one of the following reasons:
a) The First Amendment permits a taxpayer to refuse to pay taxes based on religious or moral beliefs.
b) The requirement to file a tax return is an unreasonable search and
c) Income taxation, tax withholding, or assessment of taxes is a “taking” without due process of law in violation of the Fifth Amendment.
d) Mandatory or compelled compliance with the Internal Revenue laws is a form of involuntary servitude prohibited by the Thirteenth Amendment.
3) A “reparations” tax credit exists, including arguments that African-American taxpayers may claim a tax credit on their federal income tax returns as reparations for slavery or other historical mistreatment and that Native Americans are entitled to an analogous credit.
4) A taxpayer’s wages are excluded from Social Security taxes if the tax payer waives the right to receive Social Security benefits.
5) A taxpayer may lawfully avoid income tax by sending income offshore, including depositing income into a foreign bank account.
6) A taxpayer is allowed to buy or sell the right to claim a child as a qualifying child for purposes of the Earned Income Tax Credit.
The lesson here is to watch out for tax scams. Don’t be taken in by false claims to avoid taxes.