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IRS warns against frivolous tax arguments; Part of ‘Dirty Dozen’ scams list

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IR-2018-58, March 16, 2018

WASHINGTON — The Internal Revenue Service today continued releasing the 2018 list of “Dirty Dozen” tax scams with a warning to taxpayers about using frivolous tax arguments to avoid paying taxes.

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish legal claims to avoid paying their taxes. Time and again, these arguments have been thrown out of court.

The “Dirty Dozen” is an annual list compiled by the IRS. It describes a variety of common scams that taxpayers may encounter. Many of these schemes peak during filing season as people prepare their returns or hire others to help with their taxes.

A recurring Dirty Dozen theme through the years involves claims about "secret" schemes to avoid people paying taxes.

In “The Truth about Frivolous Tax Arguments,” the IRS outlines some of the more common frivolous arguments, explains why they’re wrong and cites relevant court decisions. Examples include:

  • The First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds;

  • The only “employees” subject to federal income tax are those who work for the federal government;

  • Only foreign-source income is taxable.

Perpetrators of illegal scams, as well as those who make use of them, may face possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Don’t Get Talked into Using a Frivolous Argument

Taxpayers have the right to contest their tax liabilities using IRS administrative appeals procedures or in court, but they are still obligated to follow the law.

Besides risking criminal prosecution, taxpayers can also face a variety of civil penalties. Key among them is the $5,000 penalty for filing a frivolous tax return. The penalty applies to anyone who submits a frivolous tax return or other specified submissions, such as a request for a collection due process hearing, installment agreement, offer-in-compromise or taxpayer assistance order if any part of these submissions are based on a frivolous position. A list of more than 40 such positions can be found in Notice 2010-33, 2010-17 I.R.B.609. The list is not all inclusive, and the IRS and the courts may add to it at any time.

The IRS reminds taxpayers these schemes also can bring other civil penalties including:

  • Accuracy-related penalty—20 percent of the underpaid tax;

  • Civil fraud penalty—75 percent of the underpayment attributable to fraud;

  • Erroneous refund claim penalty—20 percent of the excessive amount.

Late-filing and late-payment penalties may also apply. The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.

Further details, including a list of the Dirty Dozen and information about other tax scams, can be found on IRS.gov.