When taxpayers disagree with the IRS, they sometimes provide arguments that are unsubstantiated by law and/or IRS rules. Offering such arguments to the IRS can lead to a variety of civil and criminal penalties. The IRS considers these types of disputes as ‘frivolous arguments’. Below are some common frivolous arguments:
- Filing a tax return is voluntary
- Paying of taxes is voluntary
- Compliance with tax laws and the IRS’ demands is voluntary
- You can file a “zero return” to reduce your tax liability
- Only income from foreign sources is taxable
- Federal Reserve Notes are not income
- Wages received for personal service is not income
- The IRS is not an agency of the United States
- You can refuse to pay taxes on religious or moral grounds by invoking the First Amendment
- You are entitled to a refund of the Social Security taxes paid during your lifetime
For the entire list of frivolous arguments, click here.
Taxpayers that use frivolous arguments in court or when communicating with the IRS to avoid filing tax returns may be subject to a penalty under section 6651(a)(1). Those taxpayers that filed their return late and used frivolous arguments may need to pay a penalty three times the standard failure-to-file penalty under section 6651(a)(1).
Taxpayers filing returns with frivolous positions may trigger the following penalties:
- The accuracy-related penalty under section 6662, which is 20% of the underpayment of taxes due to negligence or disregard of rules or regulations.
- The civil fraud penalty under section 6663, which is 75% of the underpayment of taxes due to fraud, and
- The erroneous claim for refund penalty under section 6676, which is 20% of the excessive amount.
Taxpayers that use frivolous arguments to avoid paying taxes may also need to pay a penalty under sections 6651(a)(2) and 6654.
The Tax Court can impose a penalty of up to $25,000 under section 6673(a) when it appears that:
- A taxpayer instituted or maintained a proceeding primarily for delay,
- A taxpayer’s position in such proceeding is frivolous or groundless, or
- A taxpayer unreasonably failed to pursue administrative remedies.
To avoid weakening your case against the IRS, it is preferable to use sound arguments that have a backing in law. Seeking counsel from a tax professional can help you to determine the right path to resolution.