Considering Going It Alone for an IRS Audit in California? The IRS Can Impose Additional Penalties for “Frivolous Tax Arguments”
Taxpayers who receive a letter from the IRS are often distressed and anxious about the possibility of having to pay additional taxes, interest, and penalties on that unreported or unpaid tax. Thus, as most people in today’s world frequently do when they are seeking information, the taxpayer may decide to Google the issue identified by the IRS. Providing the right information to a Sacramento tax lawyer can be a helpful first step in assessing the situation you face.
However, taxpayers should be careful when straying too far from official tax resources. There is a cottage industry that promotes what the IRS describes as “frivolous tax arguments.” While these arguments may have some superficial appeal, this appeal is ultimately specious. Taxpayers who rely on frivolous tax arguments already debunked by the IRS risk facing additional civil or criminal penalties, as well as tax penalties assessed for mistakes and other forms of noncompliance. Googling the IRS letter is a good first step in understanding the specific issue the taxpayer faces, but individuals should be sure to consult with the IRS notice or letter look-up tool.
What Are Common Frivolous Tax Arguments?
One of the most common variations of a frivolous tax argument is stated along the lines of the filing or payment of federal income taxes being “voluntary.” This common frivolous tax argument is often premised on the misinterpretation of language on the 1040 Tax Return form. When the IRS says that we have a voluntary tax system, they mean that the initial filing is voluntarily completed by the taxpayer, versus having the government calculate and impose a tax. Alternatively, taxpayers may claim that there is no law compelling the payment of taxes despite ample evidence to the contrary, including the language of §6151 of the U.S. Tax Code.
Other common frivolous tax arguments may cite various parts of the Constitution and its amendments. For instance, some taxpayers have unsuccessfully attempted to argue that the First Amendment provides a basis to assert religious or free speech objections to paying taxes. Unfortunately for taxpayers who assert this type of argument, there is an array of case law across the circuits and in the tax courts holding that “[t]he legal duty to file a return exists independent of a taxpayer’s personal political, economic, social, or religious convictions.” Salzer v. Commissioner, T.C. Memo. 2014-188, 108 T.C.M. (CCH) 284 (September 15, 2014).
What Consequences Will I Face if I Use a Frivolous Tax Argument in Court?
Taxpayers who fall under the influence of frivolous tax argument promoters are often shocked and surprised when their arguments exacerbate the situation they face. To start, taxpayers who assert debunked, frivolous tax arguments may face an additional penalty under § 6651(a)(1) for failing to file a return. If the frivolous tax argument also involved failing to pay tax, additional tax penalties can be imposed. Furthermore, the IRS may decide to also impose accuracy-related penalties. An accuracy penalty under §6662 can equal up to 20 percent of the underpayment attributable to negligence or disregard of rules or regulations. If the act or omission rises to the level of tax fraud, a civil fraud penalty under section 6663 of 75 percent of the underpayment can be imposed.
Additional grounds for penalties include when the IRS believes that a taxpayer has advanced frivolous tax arguments or has advanced filings and positions merely for the sake of delay. In these circumstances, §6673 authorizes a tax court to impose an additional penalty of up to $25,000. Generally, these penalties apply to taxpayers whom initially raise a frivolous tax argument or who raise a frivolous or another suspect argument in a tax appeal.
Work with a Sacramento Tax Lawyer When You Disagree with the IRS
If you disagree with the IRS’s assessment of your tax liability, there are numerous avenues of appeal that a taxpayer can explore. However, certain appeals can limit your options should you disagree with the determination. In addition, taxpayers who are tax laypeople can fall under the influence of those who would promote frivolous tax arguments which are not only ineffective, but will make the situation worse.
A Sacramento tax attorney at NewPoint Law Group can fight to protect you from IRS tax assessments and audits that increase your tax liability. If you disagree with the IRS’s determination, we can fight in a strategic and professional manner. To schedule a confidential consultation, call our tax law offices in Roseville and Folsom at 1-800-358-0305 today.