Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

The IRS Dirty Dozen 2015, #12: Frivolous Tax Arguments

The IRS concluded this year’s “Dirty Dozen” list with the shenanigans that drive the Tax Court literally up the wall.  The sheer number of frivolous tax arguments that have been made over the years has led the IRS to create a separate list solely dedicated to the many contentions that tax objectors have raised in the courts—and lost. 

The list is updated yearly and is currently 69 pages long.

A few examples of tax arguments that could cost you 

Filing a tax return is voluntary – When you read in the 1040 instruction book that the U.S. tax system is voluntary, that doesn’t mean that you can opt out of the entire process. Many cases have clarified that the term “voluntary” means that it is up to the taxpayers to initially determine the correct amount of tax to be paid rather than have the government determine it for them.

Compensation received for personal services is not income – Another failed argument is that there is no taxable gain where a person exchanges their time for money because the basis in their labor is equivalent to the fair market value of their wages.  This is wrong. All income, “from whatever source derived” is considered “gross income” and is taxable under I.R.C. § 61, unless the taxpayer can demonstrate that a specific exemption or exclusion applies. 

Refusal to pay income taxes on religious or moral grounds – It makes no difference if you object to the use of tax funds for certain government programs. There is no First Amendment or Religious Freedom Restoration Act (“RFRA”) protection from the refusal to pay income taxes or from the participation in any abusive tax avoidance scheme.

The IRS is not an agency of the United States – The IRS is not a private corporation, as is claimed by some tax objectors. It is in fact a body established by “positive law,” having been created through a legislative grant. The Secretary of the Treasury has full authority to enforce the internal revenue laws, and the consequences of refusal can be severe. 

Collection due process claims – All taxpayers are entitled to notice and an opportunity for an administrative appeal when a federal tax lien is filed, and both before and after a tax levy. However, a taxpayer may be denied a hearing if the IRS determines that the hearing request is based on a frivolous argument intended to delay or otherwise interfere with a tax investigation. 

Note that the IRS clearly states that its list of frivolous arguments isn’t conclusive. 

Penalties for making a frivolous tax argument

The penalty for filing a frivolous tax return or for making a frivolous tax argument on any submission other than a return is a $5,000 fine.  If you receive a notice from the IRS that you have made a frivolous submission, it is possible to avoid the penalty if you withdraw your submission within 30 days of receipt of that notice.

The tax court can impose a penalty of up to $25,000 for a frivolous or groundless case.  

Don’t let anyone convince you that you can get out of paying your taxes with these or other crazy arguments. The experienced, qualified tax professionals at Moskowitz LLP can assist you in getting up to date on your taxes and can make a good case with a valid legal claim as to the amount of your actual tax liability. 

The IRS Dirty Dozen 2015, #11: Excessive Claims for Fuel Tax Credits

Simply reviewing the permissible uses of the fuel tax credit demonstrates the absurdity of the average taxpayer claiming it, and why these claims have hit the IRS Dirty Dozen list for 2015. 

Permissible claims for fuel tax credits

The fuel tax credit is limited to fuel used for the following purposes:

  • On a farm for farming purposes
  • Off-highway business purposes in stationary machines such as generators, compressors and power saws; for cleaning purposes; and in forklift trucks, bulldozers and earthmovers
  • For export or in foreign trade
  • In a commercial fishing boat
  • In school buses, in a qualified local bus, and for certain intercity and local buses
  • For diesel fuel and kerosene not used for the propulsion engine of a train or diesel-powered highway vehicle 
  • In military aircraft, certain helicopter and fixed-wing aircrafts, and in aircrafts and vehicles owned by aircraft museums
  • For exclusive use by a qualified blood collector organization
  • In a U.S.-owned highway vehicle that is not used on a highway
  • By a nonprofit educational organization
  • By a state, political subdivision of a state, or the District of Columbia

This credit clearly is not applicable to most taxpayers.

Improper claims

The IRS has issued a warning to taxpayers to be wary of shady tax preparers who encourage them to claim the fuel tax credit in order to inflate their refunds. If discovered, the credit must be refunded to the IRS with interest, and a penalty of $5,000 will be imposed.  

The IRS is also aware that the fuel tax credit is being claimed on fraudulent returns filed in taxpayers’ names by identity thieves, and reminds us that participation in a tax scam may result in additional penalties, interest and criminal prosecution. 

Crackdown on fuel tax credit misuse and identity thieves

In 2013, the IRS implemented new compliance filters which identified $33 million in dubious credit claims before they were paid. The IRS has announced that additional, comprehensive measures are being undertaken in 2014 in its detection system to root out excessive or fraudulent fuel tax credits.

Choosing the right tax professional

To avoid IRS troubles, carefully select an experienced accountant who doesn’t engage in any of the questionable practices that we have been highlighting in this blog series. If you are being audited or are subject of a criminal investigation, consult with a tax attorney at Moskowitz LLP

Our final post on the IRS 2015 Dirty Dozen list will discuss the IRS’ response to Frivolous Tax Arguments.