Hertsel Shadian, Attorney at Law, LLC

IRS (Again) Debunks Frivolous Tax Arguments

25 February 2010

For most people, taxes simply are a part of life. Many even would say that taxes are the price for living in a free and democratic society. Nevertheless, some people argue that taxes are illegal or illegitimate, or that there are legal ways to avoid paying any taxes at all. Federal tax laws do provide numerous means to legitimately reduce or avoid taxes, and taxpayers are entitled to structure their affairs to legitimately maximize the reduction or avoidance of taxes within those laws. However, with the proliferation of illegitimate promoters selling illegal tax evasion schemes, as well as the increase of tax protesters advancing bogus or confusing arguments for the complete evasion of taxes, taxpayers do need to separate truth from fiction (or unsubstantiated opinion).

On February 5, 2010, the Internal Revenue Service released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws. The IRS advises anyone who contemplates arguing on legal grounds against paying their fair share of taxes to first read the 80-plus page document, The Truth About Frivolous Tax Arguments, available on the IRS website at IRS.gov.  The document explains many of the most common frivolous arguments made in recent years and it describes the legal responses that have refuted these claims. The IRS has compiled these arguments in one document because it believes this will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position which the IRS identifies or has identified as frivolous.  The IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.

If you have any questions about the legitimacy of a particular tax benefit or about a tax avoidance method you have heard promoted, consult a reputable tax professional for further information.