Frivolous Tax Arguments & Consequences – Cheating on Your Taxes

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It is not always easy to comply with the U.S. Tax System and although we all may disagree on many of its policies it’s the law that must be followed. Every year the IRS deals with hundreds of cases of frivolous tax arguments made by the taxpayers trying to avoid making contributions.

Although the taxpayers are allowed to question the IRS assessments of tax liabilities there are certain instances that the IRS labels as “frivolous” and hands off to the court system. There are several categories of frivolous arguments made by taxpayers trying to avoid making payments that are discarded by the IRS; some of the categories include:

  • Stating that filing taxes and payments of federal taxes is voluntary – taxpayers point to a language used in instructions of Form 1040 that mention the tax system being voluntary and lack of provisions in the Internal Revenue Code to pay taxes; these arguments have been discarded by the courts as well as the ones referring to reducing tax liability by filing “zero return” or the IRS having to file tax returns for taxpayers who do not file.
  • Interpretation of certain forms of income – this argument is made to spare tips, wages, and other payments for personal services from taxation; some groups of taxpayers say that only foreign income should be taxable, the Federal Reserve Notes aren’t taxable, or that military retirement payments should not be considered income.
  • Questioning of certain terms used in the Internal Revenue Code – some taxpayers argue that by rejecting American citizenship they are no longer subject to the U.S. tax payments or that by living abroad one is released from U.S. taxation; other arguments include statements that only those employed by the Federal government are subject to Federal taxes and that a taxpayer is not a person according to the Internal Revenue Code therefore not responsible to pay taxes

Filing a frivolous tax return may potentially bring negative consequences on those involved. The IRS punishes the taxpayers who file or promote frivolous tax returns in the following ways:

  • Fine of $5,000 for filing a frivolous tax return.
  • Potentially liable for penalties related to accuracy of tax returns, a civil fraud, erroneous/incorrect refund, or failure to file taxes.
  • Tax evasion due to frivolous arguments may result in criminal prosecution.
  • Promoting or assisting in filing frivolous returns may result in a criminal felony.

According to TurboTax, here are the most popular ways that people cheat on their taxes:

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