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Frivolous Tax Questions

In the United States there are a couple of different meanings to frivolous tax, there are frivolous tax arguments and frivolous tax returns. These two things are very different and have different legalities behind them. Below are questions that people have asked the Experts in regards to frivolous tax.

What is a frivolous tax argument?

The most common frivolous tax argument is that citizens of the United States do not really have to pay taxes. The argument made is that the 16th Amendment to the Constitution of the United States was never ratified properly or if it was that does not permit taxation of an individual’s income or certain types of an individual’s income. Another argument that has been made is that enforcement of paying taxes is a violation of the 5th Amendment of the Constitution of the United States; with the argument being that the 5th Amendment gives individuals protection from having to file a income tax return. All of these arguments have been debunked with several Supreme Court trials, such as United States v. Sullivan. If individuals do not file an income tax return based upon these frivolous tax arguments they may face civil or criminal penalties.

What are some reasons for the IRS to label a tax return as a frivolous tax return?

In the Internal Revenue Code under code 6702 is where an individual would find what the IRS considers to be frivolous tax returns. In particular Paragraph C discusses the frivolous tax argument in which individuals have taken the position that they do not have to pay taxes on the basis that there is no law that states that they must. Also found there is when a taxpayer has reported that they have zero taxable income, even though they have reported income for the year filed.

What are the Internal Revenue Codes that deal with frivolous tax returns?

In the Internal Revenue Code, Sections 6702 and 6703 deal with frivolous tax returns. Code 6702 mainly deals with the penalties an individual may face for filing a frivolous tax return. Code 6703 deals with what the burden of proof the individual may have in regards to a Code 6702 penalty.

Can filing a tax return off a paystub be considered a frivolous tax return?

Often, when filing a tax return this can be considered a frivolous tax return and may be penalized as such. The individual may also have to re-file the tax return with a W-2. The IRS has a requirement of the W-2 being mailed with the return if it is mailed; if it is e-filed then it must go with Form 8453. If an individual has not received their W-2 by February 15th they are also able to make use of Form 4852 as a substitute W-2.

Frivolous tax arguments are arguments that are made against having to pay taxes. There are individuals in the United States that argue that there are no laws that mandate the paying of taxes. There are several court cases and laws in place that have debunked these theories. There are several ways for the IRS to determine that a tax return is a frivolous tax return. These can be found in Code 6702 of the Internal Revenue Code. Also included in Code 6702 are the penalties that can be doled out for frivolous tax returns, while Code 6703 provides an individual with what the burden of proof will be with those penalties found in Code 6702. Any questions regarding frivolous tax can be directed to the Experts.
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Recent Frivolous Questions

  • Unreimbursed Business Expenses - MBA Tuition

    I am preparing client's tax return for 2013. Here are the facts:

    • May 2010 - Graduated with BBA - Finance
    • June 2010 - Took 6-digit job with a big bank as an Underwriter
    • Aug 2013 - Quit her awesome job to attend grad school
    • Sep 2013 - Started grad school to pursue dual MBA in Marketing & Finance

     

    2013 Form W-2: $100,000 wages

    2013 Form 1098-T: $39,000 amount billed

     

    Thus, she would be ineligible for the Lifetime Learning Credit

    She is also ineligible for Tuition &Fees Deduction

     

    Her goal is to get an MBA and return to Finance, probably with another big bank.

     

    She can produce an email conversation with her former boss discussing how her current studies will enable her to excel with a big bank as an underwriter and possibly engage in the sale (marketing) of financial services.

     

    I advised her that

    • taking the deduction is your call to make, but must advise against it
    • I said the position is not frivolous or negligent
    • I expressed my opinion that it has a 40% chance of being sustained under audit
    • Thus, there appears to be "substantial authority" in support of the position
    • I computed the estimated interest over the next 3 years
    • I computed the failure-to-pay penalty over the next 3 years.
    • I said an accuracy-related penalty of 20% is unlikely because there appears to be a substantial authority supporting this position.

     

    Here are my questions:

    1. I know this is a gray area and totally subjective, but do you think there is substantial authority or would this only meet the "reasonable basis" criteria?
    2. Should I report this on Form 8275? I know that Form 8275 disclosure is an accuracy-related penalty defense (along with the "Substantial Authority" defense), but doesn't it also scream "come audit me" and suggest a lack of confidence on our part for taking this position?
    3. I am currently leaning against disclosure on Form 8275, is this bad?
    4. Does the deduction get reported on Form 2106 or directly on Sch. A?
    5. When reporting, should I call it "Training expense", "Education expense" or simply "Tuition"?
    6. Would you have handled this matter any differently?
    7. Is there anything further I can do to protect my client and myself

     

    Thanks so much,

     

    Matt

     

    Research in support:

    • Allemeier v. Commissioner, T.D. Memo 2006-28
    • Lori Singleton-Clarke v. Commissioner, T.C. Summary Opinion 2009-182
    • http://www.generationtax.com/mbataxdeduction.html
  • In Sept, I received a penaty for late filing of 1099 misc (they

    In Sept, I received a penaty for late filing of 1099 misc (they said they received them on 3/19/12) and for an incorrect TIN for the the tax year 2011, with a code 500 on the penalty letter. I paid the penalty. About every couple months I get a letter Form: CIV PEN, saying they need additional time to respond to my inquiry, I have received 3 of these letters, I have called and have not been able to get any answers. If I paid the penalty what else are they looking for?
  • A taxpayer owes delinquent income taxes to the IRS for the

    A taxpayer owes delinquent income taxes to the IRS for the past 3 years. If he files for bankruptcy protection, is he still obligated to pay 100% of the principal, interest & penalties?
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