WASHINGTON — The Internal Revenue Service
today issued updated guidance describing and rebutting frivolous
arguments taxpayers should avoid when filing their tax returns.
“Taxpayers need to avoid being taken in by groundless theories
suggesting that they don’t have to pay taxes or file returns,”
said IRS Commissioner Mark W. Everson. “The truth about these
frivolous arguments is simple: They don’t work.”
IRS Notice 2006-31 describes 26 frivolous arguments
that taxpayers should avoid when filing their returns. Five revenue
rulings issued in conjunction with the notice address specific
frivolous claims often made to the IRS. These include false arguments
that taxpayers can attribute income and expenses to a purported
trust to avoid federal income tax liability, that a general “Native
American treaty” exists allegedly providing tax-exempt status,
and that only federal employees and persons residing in Washington,
D.C. or federal territories and enclaves are subject to federal
tax. The revenue rulings emphasize the adverse consequences to
taxpayers who fail to file returns or fail to pay taxes based
on an erroneous belief in any of these frivolous arguments.
In addition, in the next few days, the IRS plans
to update “The Truth About Frivolous Arguments,” a 65-page
document addressing false arguments about the legality of not
paying taxes or filing returns. The updated document includes
citations from numerous cases decided by the courts in 2005 and
2006 and responds to 40 frivolous contentions. This past year,
the courts have not only rebuked 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, taxpayers
who file frivolous income tax returns face a $500 penalty, and
may be subject to civil penalties of 20 or 75 percent of the underpaid
tax. Those who pursue frivolous tax cases in court may face an
additional penalty of up to $25,000.
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