Tax Minute

FRIVOLOUS TAX ARGUMENTS

Over the years I've gotten some advice from people who do not prepare tax returns for a living when it comes to filing tax returns. This advice includes things such as the filing a tax return is voluntary. Payment of federal income tax is also voluntary. Taxpayers can reduce their federal income tax liability by filing a "zero return". The IRS must prepare a federal income tax return for a person who fails to file. Also, compliance with an administrative summons issued by the IRS is voluntary. Other advice I received was that wages, tips, and other compensation for personal services are not Income. Only foreign source income is taxable. Military retirement pay does not constitute income either. You can feel free to make any of these arguments with the IRS. However, the courts have decided over and over again that all of these arguments are "frivolous tax arguments". In addition to being subject to late filing and late payment penalties on a return that is filed or not filed based on these frivolous tax arguments, the IRS can also hit you with a $5,000 non-appealable penalty for making a frivolous tax argument. If you file for a hearing with the IRS office of appeals for a tax return for which you took a frivolous position the IRS can hit you with a $25,000 penalty. In extremely egregious cases, you can be prosecuted for a criminal felony for which the penalty is up to $100,000. So if you were thinking about taking any of these positions you might want to think again.

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