Small Business Taxes & ManagementTM--Copyright 2007, A/N Group, Inc.
Introduction
Not all penalties are created equal. Some hurt more than others. Forgot to file that estimated tax payment of $500 in September? The penalty may be about $25. Fail to file several 1099s and you could face a penalty of $50 for each of them. In recent years the Congress and the IRS have gotten tougher on taxpayers who file a frivolous tax return. That penalty can be $5,000. In Notice 2007-30 (IRB 2007-14) the IRS provided a list of 40 frivolous positions.
Positions that are the same as or similar to the positions listed in this Notice are identified as frivolous for purposes of the penalty for a "frivolous tax return" under Section 6702(a) and the penalty for a "specified frivolous submission" under Section 6702(b). Persons who file a purported return of tax, including an original or amended return, based on one or more of these positions are subject to a penalty of $5,000 if the purported return of tax does not contain information on which the substantial correctness of the self-assessed determination of tax may be judged or contains information that on its face indicates the self-assessed determination of tax is substantially incorrect. Likewise, persons who submit a "specified submission" (namely, a request for a collection due process hearing or an application for an installment agreement, offer-in-compromise, or Taxpayer Assistance Order) based on one or more of the positions listed in this Notice are subject to a penalty of $5,000. The penalty may also be applied if the purported return or any portion of the specified submission is not based on a position set forth in this Notice, yet reflects a desire to delay or impede the administration of Federal tax laws for purposes of Section 6702(a)(2)(B) or 6702(b)(2)(A)(ii).
Section 407 of Tax Relief and Health Care Act of 2006 amended Section 6702 to increase the amount of the penalty for frivolous tax returns from $500 to $5,000 and to impose a penalty of $5,000 on any person who submits a "specified frivolous submission." A submission is a "specified frivolous submission" if it is a "specified submission" (defined in Section 6702(b)(2)(B) as a request for a hearing under Section 6320 or 6330 or an application under Section 6159, 7122 or 7811) and any portion of the submission (i) is based on a position identified by the Secretary as frivolous or (ii) reflects a desire to delay or impede administration of the Federal tax laws. Section 6702 was further amended to add a new subsection (c) requiring the Secretary to prescribe a list of positions identified as frivolous. This Notice contains the prescribed list.
Frivolous Positions
Positions that are the same as or similar to the following are frivolous.
a. Filing a Federal tax or information return or paying tax is purely voluntary under the law, or similar arguments described as frivolous in Rev. Rul. 2007-20, IRB 2007-14b. Nothing in the Internal Revenue Code imposes a requirement to file a return or pay tax, or that a person is not required to file a tax return or pay a tax unless the Internal Revenue Service responds to the person's questions, correspondence, or a request to identify a provision in the Code requiring the filing of a return or the payment of tax.
c. There is no legal requirement to file a Federal income tax return because the instructions to Forms 1040, 1040A, or 1040EZ or the Treasury regulations associated with the filing of the forms do not display an OMB control number as required by the Paperwork Reduction Act of 1980, 44 U.S.C. Sec. 3501 et seq., or similar arguments described as frivolous in Rev. Rul. 2006-21.
d. Because filing a tax return is not required by law, the Service must prepare a return for a taxpayer who does not file one in order to assess and collect tax.
e. A taxpayer has an option under the law to file a document or set of documents in lieu of a return or elect to file a tax return reporting zero taxable income and zero tax liability even if the taxpayer received taxable income during the taxable period for which the return is filed, or similar arguments described as frivolous in Rev. Rul. 2004-34.
f. An employer is not legally obligated to withhold income or employment taxes on employees' wages.
g. A taxpayer may "untax" himself or herself at any time or revoke the consent to be taxed and thereafter not be subject to internal revenue taxes.
h. Only persons who have contracted with the government by applying for a governmental privilege or benefit, such as holding a Social Security number, are subject to tax, and those who have contracted with the government may choose to revoke the contract at will.
i. A taxpayer may lawfully decline to pay taxes if the taxpayer disagrees with the government's use of tax revenues, or similar arguments described as frivolous in Rev. Rul. 2005-20.
j. An administrative summons issued by the Service is per se invalid and compliance with a summons is not legally required.
a. The First Amendment permits a taxpayer to refuse to pay taxes based on religious or moral beliefs.b. A taxpayer may withhold payment of taxes or the filing of a tax return until the Service or other government entity responds to a First Amendment petition for redress of grievances.
c. Mandatory compliance with, or enforcement of, the tax laws invades a taxpayer's right to privacy under the Fourth Amendment.
d. The requirement to file a tax return is an unreasonable search and seizure contrary to the Fourth Amendment.
e. Income taxation, tax withholding, or the assessment or collection of tax is a "taking" of property without due process of law or just compensation in violation of the Fifth Amendment.
f. The Fifth Amendment privilege against self-incrimination grants taxpayers the right not to file returns or the right to withhold all financial information from the Service.
g. Mandatory or compelled compliance with the internal revenue laws is a form of involuntary servitude prohibited by the Thirteenth Amendment.
h. Individuals may not be taxed unless they are "citizens" within the meaning of the Fourteenth Amendment.
i. The Sixteenth Amendment was not ratified, has no effect, contradicts the Constitution as originally ratified, lacks an enabling clause, or does not authorize a non- apportioned, direct income tax.
j. Taxation of income attributed to a trust, which is a form of contract, violates the constitutional prohibition against impairment of contracts.
k. Similar constitutional arguments described as frivolous in Rev. Rul. 2005-19.
Returns or submissions that contain positions not listed above, which on their face have no basis for validity in existing law, or which have been deemed frivolous in a published opinion of the United States Tax Court or other court of competent jurisdiction, may be determined to reflect a desire to delay or impede the administration of Federal tax laws and thereby subject to the $5,000 penalty.
The list of frivolous positions above will be periodically revised as required by Section 6702(c).
Copyright 2007 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject.--ISSN 1089-1536
--Last Update 06/08/07