Double-Check Creative, Risky Tax Arguments

Anyone who has ever felt used and abused by the government because they have to fork over hard-earned wages will recognize the protests listed on the IRS document, The Truth about Frivolous Tax Arguments. Just in case you were thinking of challenging Uncle Sam’s authority to impose taxes, you may want to check the results for the many individuals and groups who’ve gone before you in attempting to avoid compliance with federal tax laws, recommends the National Association of Enrolled Agents.

This lengthy article, which can be found at www.irs.gov, details the dashed hopes and dreams of scores of tax opponents. One popular contention is that taxpaying is voluntary – in fact, the Form 1040 instruction book states flat out that the tax system is voluntary. So, why can’t you just volunteer to sit this tax season out?

“The word ‘voluntary’…refers to our system of allowing taxpayers to determine the correct amount of tax and complete the appropriate returns, as opposed to having the government determine tax for them,” explains the IRS.

Another imaginative contention is that the United States consists only of the District of Columbia, federal territories (e.g., Puerto Rico, Guam, etc.) and federal enclaves such as American Indian reservations and military bases. Therefore, the argument goes, residents of the “sovereign states” are not subject to U.S. tax laws. Even farther out on a limb is the assertion that the taxpayer in question is not a “person” as defined by the Internal Revenue Code and is not subject to federal income tax laws. This argument has been used surprisingly often and generally winds up with a court imposing a penalty for maintaining a “frivolous and groundless position.” Some have even tried the argument that preparing a tax return amounts to “involuntary servitude.”

The report is full of instances in which tax preparers are barred from preparing federal tax returns because of a history of filing illegal returns, using tactics such as filing a “zero return” (a tax return that reports no income and no liability, even though there is income) and advising clients that they must only report wages as income if they invest those wages to earn income. One tax preparer wound up with a four-year prison term for, among other things, falsely advising clients that the tax laws only apply to individuals residing in the Virgin Islands, Guam and Puerto Rico. In April 2006, two tax preparers understated the income on their clients’ returns because they contended, among other things, that the Internal Revenue Service is an illegal organization.

This kind of risky business from tax preparers entrusted by their clients to keep them out of trouble is one of the reasons the National Association of Enrolled Agents (NAEA) supports mandatory licensing of all tax preparers. Enrolled agents must complete a three-part examination, fulfill continuing educations requirements and submit to a background check in order to earn and maintain a license from the U.S. Department of the Treasury.

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