The IRS was nice enough to compile a list of arguments that will never work.  They are considered “frivolous”.  The courts tend to agree and both tend to look at these strategies as willful attempts to evade or defeat taxes, often leading to increased penalties and even jail time.

Here are 10 of the most common frivolous arguments:

  1. The filing of a tax return or payment of federal tax is voluntary
  2. Taxpayers can reduce their federal tax by filing a “zero” return that reports no income and no tax liability
  3. Compensation received for personal services isn’t income
  4. Military retirement pay isn’t income
  5. Only foreign source income is taxable
  6. The IRS isn’t a US agency
  7. The taxpayer isn’t a citizen and therefore isn’t subject to federal income taxes
  8. The taxpayer isn’t a “person” under the tax law and therefore isn’t subject to federal income taxes
  9. Various constitutional amendments permit the taxpayer to avoid taxes
  10. Form 1040 instructions and regulations don’t have an OMB control number as required by the Federal Paperwork Reduction Act

Normally, if you don’t file and don’t pay your taxes, the IRS eventually catches up to you and you will pay failure to file and failure to pay penalties plus interest.  The penalties at worst could be up to 47.5% of your unpaid taxes and the interest charged right now is less than 4%.

However, as stated above, the IRS considers the use of a frivolous argument, and the list here is a partial one, and frivolous arguments are frequently viewed as fraudulent.

The worst case is fines up to $100,000 and jail time of 5 years.

Short of that, there are other penalties that can be assessed.

  • An ‘accuracy-related’ penalty equal to 20% of your underpayment if your underpayment is due to negligence or disregard of the tax rules.
  • Penalties of up to 75% of the tax due for fraudulent failure to file an income tax return
  • Penalties of up to 75% for underpayment due to fraud
  • A $5000 penalty for frivolous returns or other submissions (for example, requests for hearings)
  • A penalty of 20% of the excessive amount in an erroneous claim for a refund or credit
  • A $25000 penalty for making frivolous arguments in tax court

Tax protestor arguments usually claim that you can ignore the plain language of the law.  They will say the IRS isn’t legitimate or you are somehow not subject to the rules.

Real tax strategies work within the law.  Deductions or strategies are used that the tax code or the IRS itself has blessed.

If you are faced with someone promising what seems too good to be true, ask for tax law citations that back up their case.

You know how it works.  If it is too good to be true, it isn’t.