Tax Tips
Why Pay Taxes - The Truth About Frivolous Tax Arguments - February 2006
Richard Scrivanich - Partner
It’s “tax season” and perhaps you’re wondering if you really have to pay taxes altogether. Maybe you’ve heard or read about a taxpayer or group that claims to have a reason or a scheme for not paying taxes. To address the issue, the IRS has published a booklet, the Truth About Frivolous Tax Arguments, which highlights some of the more common false “legal” arguments made by individuals and groups who oppose compliance with the federal tax laws.
The arguments generally fall into a handful of major categories, with variations within each category. Several representative examples are presented for your education and entertainment. The arguments range from claims that the government, or the IRS, has no right to collect taxes at all, to claims that a person or group is not subject to the tax laws, to frivolous arguments encountered in collection cases.
Finally, just in case some of these arguments seem tempting, and you start getting any ideas, we’ve included a section highlighting the penalties imposed on taxpayers—and their misguided advisers—who pursue these frivolous claims.
Fictional legal bases
Among the arguments cited, one that continues to be promoted by the unscrupulous, is the so-called “Black Tax Credit.” This argument asserts that African Americans can claim a special tax credit on the federal income tax returns, as reparations for slavery and other oppressive treatment suffered by African Americans. A similar frivolous argument has been made that Native Americans are entitled to a credit on their federal income tax returns as a form of reparations for past oppressive treatment.
There are no such provisions in the Internal Revenue Code. Moreover, the IRS has recently indicated that it will crack down on promoters of “slavery reparation tax credit” and “Native American reparations” scams. The IRS has announced that it will label these as frivolous tax returns, which could subject the claimants to penalties.
More frivolous claims
Well, you get the idea. Suffice it to say that there are a whole host of these frivolous claims and lawsuits out there. Enumerating each one—or even just one from each category—could fill our whole newsletter, and then some. If these have piqued your interest, and you’d like to read more, you can download the Truth about Frivolous Tax Arguments, a 54-page book from the IRS, at http://www.irs.gov/pub/irs-utl/friv_tax.pdf.
Penalties for pursuing frivolous tax arguments
As we cautioned earlier, lest any of these arguments tickle your fancy, please note that those who act on frivolous positions risk a variety of civil and criminal penalties. Moreover, misinformed tax preparers who submit returns maintaining groundless positions may be subject to penalties in addition to those imposed on their clients. IRC Section 6673 allows the courts to impose a penalty of up to $25,000 in certain situations. And they have done just that in many of these cases!
If you have any questions regarding frivolous tax arguments or any other tax matter, please feel free to give me a call at (562) 698-9891.
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