The Dirty Dozen

Taxpayers have been warned over and over about using frivolous tax arguments to avoid paying taxes. This scheme involving outlandish legal claims is on the IRS’ top 12 list of tax scams.

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish legal claims to avoid paying their taxes. The IRS reminds people that time and again, these arguments have been thrown out of court.

The “Dirty Dozen” is compiled annually by the IRS as a consumer alert to warn people about common tax scams. The schemes occur throughout the year, but they frequently spike during tax filing season.

A recurring Dirty Dozen theme throughout the years involves claims peddled by promoters about “secret” schemes to help people avoid paying taxes.

Taxpayers–Be Warned!

“Don’t be fooled by people citing dubious legal schemes to avoid paying taxes,” said IRS Commissioner Chuck Rettig. “Despite what con artists may tell you, there is no secret way to avoid paying what you legally owe. Taxpayers should be on the lookout for these and other common tax scams.”

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 of these common myths 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 Justice Department 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 for engaging in these schemes. 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 is 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.

Taxpayers should be reminded that these schemes can also 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.

Remember, if it sounds too good to be true, it probably is. Always hire a reputable tax professional and avoid fly-by-night tax services that over promise and under deliver.

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