IRS Identifies 40 Frivolous Income Tax Positions

In 2006, the penalty for frivolous tax returns was increased from $500 to $5,000. The new penalty amount applies when a person submits a tax return, any portion of which is based on a position the IRS identifies as frivolous.

Four revenue rulings issued along with with the notice address particular frivolous claims frequently made to the IRS. The revenue rulings deal with:

False arguments that wages do not constitute taxable income.

Filing returns and paying taxes are voluntary.

The IRS must furnish taxpayers with a summary record of assessment made on a Form 23C,   “Assessment Certificate-Summary Record of Assessments”, before overdue taxes may be collected.

Income is not taxable when the taxpayer declares that he is not a United States citizen because he is a citizen of an individual State or claims he is not a person as defined by the Internal Revenue Code.

The rulings emphasize the adverse consequences to taxpayers who fail to file returns or fail to pay taxes based on any of these frivolous arguments.

The courts have not only rejected these arguments numerous times, but also have imposed thousands of dollars in fines on taxpayers or their representatives for pursuing frivolous cases.

“Our rulings on frivolous arguments emphasize that the IRS and the courts reject these arguments about the validity of the income tax and ‘too good to be true’ schemes to eliminate tax liability,” said IRS Chief Counsel Donald L. Korb.

The IRS continues to investigate promoters of frivolous arguments and to refer cases to the Department of Justice for criminal prosecution. In addition to tax and interest, the $5,000 penalty, taxpayers who file based on a frivolous position may be subject to civil penalties of 20 or 75 percent of the underpaid tax. Persons who bring frivolous tax cases in court may face an additional penalty of up to $25,000.