- Review common frivolous tax arguments.
- Beware of frivolous tax arguments, no matter how convincing they sound.
- Understand the consequences of making frivolous tax arguments on your tax return.
Do I Have to Pay Income Tax?
The only two sure things in life, it is said, are death and taxes. However, there are some people who don’t accept that as reality when it comes to paying federal income tax.
Tax protesters offer a wide variety of arguments that claim we are not required to pay income tax. Some may sound quite convincing, as they are phrased in pseudo-legal language and make use of case law citations or information the IRS provides.
While the arguments may look reasonable on the surface, the information they cite actually does not back up protesters’ claims. These arguments are often a smoke screen, put out by scammers who charge a fee for materials that ‘explain’ why you don’t have to pay taxes. Don’t fall for any claim you are not obligated to pay taxes.
Every year, the IRS updates a bulletin about The Truth About Frivolous Tax Arguments. The goal is to inform taxpayers about arguments that will NOT be accepted, so they do not fall prey to these bogus schemes. The IRS document Truth About Frivolous Tax Arguments is presented in an 87-page PDF available at the IRS Web site.
The IRS breaks down the issues surrounding frivolous arguments into three categories:
- Frivolous Tax Arguments in General: This section lists various frivolous arguments about the taxpayer not needing to file or pay taxes. The IRS disproves each argument, providing a citation of case law that shows that the argument has been found invalid in court and has no legal standing.
- Frivolous Tax Arguments in Collection Due Process Cases: This section focuses on some of the more common frivolous arguments made regarding the IRS’ and U.S. Government’s right to collect taxes. Again, the IRS provides extensive legal proof to invalidate the frivolous arguments.
- Penalties for Pursuing Frivolous Tax Arguments: This section outlines the penalties taxpayers and those who promote and promulgate frivolous tax arguments face.
Examples of Frivolous Tax Arguments
- Income tax is voluntary, therefore it is not required: A false argument is offered based on a misreading of the word "voluntary." It is true that both the IRS’ 1040 instruction book and the Supreme Court of the United States (Flora v. United States, 362 U.S. 145, 176 (1960) use(d) the term "voluntary" in referring to the U.S. income tax system. But, they both also make clear that this refers to the fact the income tax system allows taxpayers initially to determine the correct amount of taxes they owe and to complete the appropriate returns on their own, instead of having the government rather than have the government determine tax for them for them in advance. As the IRS states, "the requirement to file an income tax return is not voluntary and is clearly set forth in sections 6011(a), 6012(a), et seq., and 6072(a)," as long as the taxpayer earned enough money to be required to file. The IRS cites the case of Royal Lamarr Hardy who was sentenced in 2005 to 13 years in prison for, "among other things, selling a tax evasion scheme called the ‘Reliance Defense’ that incorrectly asserted the income tax laws were voluntary (i.e., the laws imposed no legal obligation to pay tax or file a return). Hardy was also ordered to pay costs of prosecution in the amount of $59,267.88, and restitution to the IRS for $197,555."
- Taxpayers can reduce their federal income tax entirely, by submitting a "zero return": Some taxpayers have tried to avoid paying taxes by filing a tax return that shows no income earned and no tax liability owed, even when they have received taxable income. This is called a "zero return." Often, taxpayers who try this method also request a refund for any taxes that were withheld by their employer. Zero returns are often coupled with frivolous tax arguments, to "justify" paying no taxes. Both the IRS regulations and U.S. case law make it clear that this approach is invalid. "There is no authority that permits a taxpayer that has taxable income to avoid income tax by filing a zero return…Courts have repeatedly penalized taxpayers for making the frivolous argument that the filing of a zero return can allow a taxpayer to avoid income tax liability or permit a refund of tax withheld by an employer. Courts have also imposed the frivolous return and failure to file penalties because such forms do not evidence an honest and reasonable attempt to satisfy the tax laws or contain sufficient data to calculate the tax liability." The IRS cites numerous cases to prove its point.
- Wages, tips, and other compensation received for personal services are not income: One variation of this frivolous argument makes the assertion that wages, tips, and other compensation that a taxpayer receives for personal services are not income, because "there is allegedly no taxable gain when a person ‘exchanges’ labor for money. Under this theory, wages are not taxable income because people have basis in their labor equal to the fair market value of the wages they receive; thus, there is no gain to be taxed." Another variation of this argument asserts that wages are not subject to taxation where a person has obtained funds in exchange for their time. "Under this theory, wages are not taxable because the (tax) Code does not specifically tax these so-called ‘time reimbursement’ transactions." Yet another variation on this them argues that the "Sixteenth Amendment to the United States Constitution did not authorize a tax on wages and salaries, but only on gain or profit." All of these arguments are bogus. The Tax Code makes clear that for "federal tax purposes, ‘gross income’ means all income from whatever source derived and includes compensation for services." The courts are equally clear, "an abiding principle of federal tax law is that, absent an enumerated exception, gross income means all income from whatever source derived." Regarding the Sixteenth Amendment argument, it authorized Congress "to lay and collect taxes on income, from whatever source derived."
- A taxpayer is not a "citizen" of the United States, therefore is not subject to the jurisdiction of federal income tax laws: Some have argued that they have rejected their US citizenship in favor of state citizenship, so that they are relieved of their obligation to abide by federal tax laws. A separate but similar frivolous argument asserts that an individual was never a citizen of the United States, but only a citizen of a particular state. Another variation states that the United States doesn’t really include all or a part of the physical territory of the 50 States and instead consists of only places such as "Washington DC, Territories or Commonwealths (e.g. Guam or Puerto Rico) (e.g., Native American reservations and military installations," so only people in those limited areas are subject to taxation. These arguments are clearly bogus. The Fourteenth Amendment to the United States Constitution clearly defines what constitutes citizenship. It states that "[a]ll persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside." There is extensive case law to prove that a person cannot simply wish away his or her citizenship and thereby avoid his or her tax obligations.
- Constitutional Amendment Claims: There are a wide variety of frivolous arguments that claim to be based on asserting legitimate constitutional rights. One argument claims that forcing a person to file and pay taxes violates the Fifth Amendment protection against self-incrimination. Some try to hide behind the due process clause in the Fifth Amendment, claiming that federal income taxes are an undue and unconstitutional "taking" of property. Another argument claims that the First Amendment’s religious protections allow a person to avoid taxes on religious grounds. Yet another argument claims that income taxes are tantamount to slavery, therefore a violation of the Thirteenth Amendment’s prohibition of slavery. All of these arguments are frivolous, bogus, and will not stand a legal test. As the IRS states, "The First Amendment does not provide a right to refuse to pay income taxes on religious or moral grounds, or because taxes are used to fund government programs opposed by the taxpayer. Nor does the First Amendment protect commercial speech or speech that aids or incites taxpayers to unlawfully refuse to pay federal income taxes, including speech that promotes abusive tax avoidance schemes." The Fifth Amendment protections for due process and against self-incrimination do not extend to a person’s requirement to pay income taxes. As distasteful as some may find paying taxes, it is not slavery; the attempt to use the Thirteenth Amendment to avoid paying taxes will fail.
- Income Tax was Never Made Legal: Perhaps the granddaddy of all constitutional amendment claims are ones that attempt to attack the Sixteenth Amendment, which instituted the federal income tax. A common frivolous argument states that federal income tax is illegal, because the Sixteenth Amendment was not properly ratified. Some claim it was not ratified because it was improperly set in place by then Secretary of State Philander Knox, before the required number of states ratified it. Another claim is that Ohio was not really a state at the time of ratification, due to a technicality (Ohio became a state in 1801). Another argument claims that the amendment does not actually create the power to tax. Yet another argument makes the claim the word "income" as it is used in the Sixteenth Amendment cannot be applied to wages. ALL of these arguments have been clearly refuted. Taxpayers who try to stand behind these arguments will end up facing serious financial penalties.
Penalties for Frivolous Tax Arguments
If a tax protestor’s arguments convince a taxpayer to cease paying his or her taxes, it’s the taxpayer who is responsible for his or her own actions. The tax protestor may be pursued by the IRS, but it is the taxpayer who will pay the penalties, which can be severe. According to the IRS, "Civil and criminal penalties may apply to taxpayers who make frivolous arguments. Potentially applicable civil penalties include:
- the section 6651 additions to tax for failure to file a return, failure to pay the tax owed, and fraudulent failure to file a return;
- the section 6662 accuracy-related penalty, which is equal to 20 percent of the amount of taxes the taxpayer should have paid;
- the section 6663 penalty for civil fraud, which is equal to 75 percent of the amount of taxes the taxpayer should have paid;
- a $500 penalty under section 6702 for filing a frivolous income tax return; and (5) a penalty of up to $25,000 under section 6673 if the taxpayer makes frivolous arguments in the United States Tax Court.
Taxpayers who take frivolous positions also may face criminal prosecution for:
- attempting to evade or defeat tax under section 7201, for which the penalty is a significant fine and imprisonment for up to 5 years;
- willful failure to file a return under section 7203, for which the penalty is a fine of up to $25,000 and imprisonment for up to one year; and
- making false statements on a return, statement, or other document under section 7206, for which the penalty is a significant fine and imprisonment for up to 3 years."
Don’t be taken in by any claims that you don’t really have to pay federal income tax. Don’t pay any fee for educational materials or advice that claims to show you how to "legally" avoid paying taxes. No matter how cleverly the argument appears to be made, no matter what kind of legalese is used, the fact is that participating in the federal income tax system is not optional. Those who attempt to avoid their responsibilities will face serious consequences.