IRS report: Don't try these top 5 tax-dodging schemes
You think you've got a novel way to avoid taxes this year? The IRS is not amused.
Wrangle over the paperwork. Pull out your pocket Constitution and begin reading aloud. Complain. Bitterly.
But before you take on the Internal Revenue Service's legal right to collect your taxes, read its 83-page(!) report on the tax-avoidance tomfoolery that's already been tried – and failed. Here are our Top 5 frivolous claims for why people don't owe federal taxes:
5. The stickler
Contention: Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with Form 1040 do not display an Office of Management and Budget control number as required by the Paperwork Reduction Act.
The legal reasoning here is splitting hairs and didn't fly. In one case, this complaint earned a $4,000 fine for a frivolous suit from the Sixth Circuit Court of Appeals in 2008.
4. The sloth
Contention: The IRS must prepare federal tax returns for a person who fails to file.
The sloth argues that section 6020(b) of the tax code means that the IRS should file taxes for all Americans. The relevant part of the law "merely provides the IRS with a mechanism for determining the tax liability of a taxpayer who has failed to file a return," according to the IRS report. In other words, it's there for you, slacker, but you'll still owe the fines for nonpayment or late payment.
3. The abolitionist
Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment.
The only route to involuntary servitude is as punishment for a crime, the Thirteenth Amendment says. Like, say, stamping license plates at the state lockup after you don't pay your taxes for a decade or so. Those who claim taxes constitute a sort of slavery have been routinely routed in the courts, the report points out.
2. The conscientious objector
Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment.
Here's looking at you, Indianapolis Baptist Temple. No matter how repugnant the war in Iraq or Afghanistan may be, no matter how pious your religious objection to taxes, the current statutes just don't back you up. Indeed, the tax code will nix your moral objection and get you a hectoring if you try to get others behind your tax-avoidance scheme.
1. The nonperson
Contention: Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws.
Apparently, cousins of the paperwork stickler decided they didn't really qualify as persons in specific instances under several sections of the tax code. Unfortunately, the broader definition – that is, including all the world's diversity of human beings – still stands, the IRS has ruled.
What do you risk trying out some old arguments?
First, you get an explicit $5,000 penalty for raising an issue the IRS has dealt with explicitly as a frivolous tax claim. (There's a reason they put the book out, after all.) Second, charges can total between 25 to 75 percent of the underpayment, depending on the statute used to prosecute the accused party. Lastly, if tax filers take their case to court, legal statutes permit between a $25,000 fine and a felony charge for attempting to evade their taxes.
Even nonpeople could feel that pinch.