SOHO Finance -- IRS Counters False Arguments for Tax Noncompliance

IRS Counters False Arguments for Tax Noncompliance
By Paul N. Gada, CCH Business Owner's Toolkit Staff Writer

Hopefully, you have once again earned the right to breathe a long sigh of relief by filing your tax return before this year's April 16, 2001, deadline. If not, perhaps you let out at least a brief sigh when filing for an extension.

The IRS, however, is concerned that some taxpayers might be misled by frivolous suggestions telling them they are not required to file returns or pay taxes. In a recently released fact sheet, the IRS thoughtfully reminds us that filing tax returns and paying taxes is not just a yearly ritual; it is the law.

Since shortly after the federal income tax was enacted in 1913, tax evasion scheme promoters have been selling gullible taxpayers on the idea that they are not subject to taxation. Even after courts have consistently rejected their arguments, these schemers still persist in taking merit less positions despite being held liable for penalties for bringing frivolous cases into court or for filing frivolous returns.

Much to the chagrin of the IRS, these tax cheaters continue to do business, often charging hefty fees or commissions in the process. Promoters frequently present their arguments in a pseudo-legal format that lures unsuspecting citizens into participating in their tax evasion schemes. The greed of the taxpayer may also play a small part in the success of selling such schemes.

There are several arguments promoters use to encourage noncompliance with the tax laws. Other than being amusing and inventive, the arguments share the distinction of having been repeatedly rejected by courts and offer no help to the taxpayer. Some of the most common arguments can be grouped as follows:

Constitutional arguments -- These include First Amendment arguments focusing on the use of the Freedom of Religion Clause to reduce tax liability; Fourth and Fifth Amendment arguments claiming that filing returns violates the right to privacy or the privilege against self-incrimination; and arguments that the Sixteenth Amendment was never ratified and that there is no basis for taxing income.
Internal Revenue Code arguments -- These frivolous claims question the imposition of tax against individuals, the validity of the Internal Revenue Code and the government's ability to assess taxes.
"Wages are not income" arguments -- These arguments involve such flawed logical constructions as: If labor worth a certain amount is exchanged for money worth the same amount, then there is no income to be taxed. Unfortunately, the Internal Revenue Code provides that all income is taxable unless specifically excluded.
Trust-formation arguments -- Many abusive trust schemes have been used in attempts to eliminate or reduce individual tax liability. One example: forming a business trust to hold your income and assets will avoid taxes.

If you read the list above and said "uh-oh," don't panic. The IRS's efforts in countering noncompliance involve aiding otherwise innocent taxpayers who have been misled by others to not participate in the U.S. tax system. The price of re-admission to the tax system, however, can be costly and may involve fines, taxes, interest, civil penalties and, frequently, court costs.

For those of you that weren't described on the list, don't get too comfortable. . .and always remember the adage that if it sounds too good to be true, it probably is.

To keep up-to-date regarding all the tax law changes affecting your taxes and your business, be sure to pick up a copy of CCH Business Owner's Toolkit Tax Guide 2001. This easy-to-use tax reference--and accompanying FREE offer for online tax return preparation and filing at CompleteTax.com--is available at major booksellers nationwide or by calling 1-800-248-3248.

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