tax news — June 04, 2012

IRS: Anti-Tax Arguments Don't Work

by Bob Williams

anti-tax argumentsAs American taxpayers, we have the right to contest our tax liability in court. What we don't have, however, is the right to willingly violate or disobey federal tax law. There are those who have advocated willful disregard for the tax laws, and they have used a variety of false or misleading arguments for not filing or paying taxes. As an illustration, the IRS has released a few of the worst offenders:

Constitutional Myths

The Premise: Filing a Form 1040 supposedly violates the Fifth Amendment right against self-incrimination, or the Fourth Amendment right to privacy. Proponents also claim filing violates the Thirteenth Amendment right against involuntary servitude and First Amendment rights based on moral or religious beliefs.
The Bottom Line: Courts have consistently held that the type of routine financial information required on a tax return does not incriminate an individual or violate one's right to privacy. The courts have also consistently ruled that the First and Thirteenth amendments do not give citizens the right to refuse compliance with tax laws.

Internal Revenue Code Myths

The Premise: Promoters of this scheme claim filing and paying of tax is voluntary, or the code doesn't apply to them because they are neither a government employee nor a resident of a sovereign state.
The Bottom Line: The term "voluntary compliance" means each of us is responsible for filing a tax return when required and paying the correct amount of tax. The IRS says the tax law is found in Title 26 of the United States Code. Section 6012 of that Code makes it clear that only individuals whose income falls below a specific level do not have to file returns. While the U.S. tax system is based on self-assessment and reporting, compliance with the tax laws is mandatory. The IRS adds that state citizenship does not mean the Code doesn't apply to individuals living and working in the United States.

Frivolous Credit Myths

The Premise: This scheme alleges African-Americans and Native Americans can claim a special tax credit as reparation for slavery and other oppressive treatment.
The Bottom Line: There is no such provision in the tax code that allows taxpayers to claim reparation credits. If it's not specifically provided for in the Code, there's no credit.

Compensation Myths

The Premise: This makes the assumption that there's no taxable gain when a person "exchanges" labor for money, therefore wages, tips and other compensation for personal services are not income.
The Bottom Line: This one has been consistently dismissed by the courts. Section 61 of the Code, Gross Income Defined, identifies sources of taxable income, but it's not all-inclusive. Congress, in fact, has determined that all income is taxable, unless specifically excluded by some part of the Code.

Fictional Legal Basis Myths

The Premise: Proponents claim that taxpayers are not required to file a federal income tax return because the instructions and regulations associated with the Form 1040 don't show an OMB (Office of Management and Budget) control number as required by the Paperwork Reduction Act.
The Bottom Line: While the grounds have varied, courts have consistently rejected this premise. Some courts have simply said that the Paperwork Reduction Act applies to the forms themselves, not to the instruction booklets. Because the Form 1040 does have a control number, there is no PRA violation.

Trust Myths

The Premise: Promoters claim that taxpayers can form a business trust to hold their income and assets to avoid taxes. They also say a family estate trust will allow taxpayers to reduce or eliminate their tax liability.
The Bottom Line: Truth is, establishing a trust, whether foreign or domestic, for the purpose of hiding your income and assets from taxation is illegal. The IRS stresses that such trusts will not absolve you of your tax liability.

The IRS also issues this reminder to those who would use these and other arguments to avoid paying taxes: "Section 6702 of the Internal Revenue Code authorizes the Internal Revenue Service to impose a $5,000 penalty against persons who submit frivolous tax returns or other documents."

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