No one wants to pay taxes, but some taxpayers go to lengths to convince the Internal Revenue Service (IRS) that tax regulations do not apply to them. Though they are referred to as frivolous, these arguments are sometimes used to refute or even justify instances of tax fraud or tax evasion and the IRS takes them seriously.
There are five basic categories of reasons provided by taxpayers for failing to file taxes, for which an IRS investigation could be initiated. These categories include:
1. The tax system is voluntary: While the IRS Form 1040 instruction book contains a sentence on the voluntary nature of filing a tax return, this does not mean that filing and payment of due taxes is voluntary. Similarly, the IRS points to the case Flora v United States for backup of that contention as it notes the U.S. system is, “based on voluntary assessment and payment.”
The IRS responds to this flawed perception by noting that taxpayers have the opportunity to voluntarily determine the correct amount of tax that they owe and submit an appropriate tax return and taxes due. According to the Tax Code, filing and paying correct taxes is required of U.S. persons who wish to steer clear of the enforcement efforts of the IRS.
2. Wages, tips and compensation are not income: Proponents of this argument believe that there is “no taxable gain when a person ‘exchanges’ labor for money.” This would mean wages and compensation are not taxable. The IRS notes any income is presumed to be income, unless a taxpayer can legitimately prove it is exempt under federal tax law.
3. As a citizen of a state in the U.S., a taxpayer is not a citizen of the United States and therefore does not need to pay federal income tax: The IRS notes the 14th Amendment to the U.S. Constitution establishes that those who are born or naturalized in the United States, are “citizens of the United States and of the State where they reside.”
4. The First Amendment protects taxpayers who refuse to pay taxes based on moral or religious grounds: Perhaps confusing the First Amendment with the Religious Freedom Restoration Act (RFRA), taxpayers relying on this argument are encouraged to understand that there is nothing in either instrument that supports a refusal to pay federal taxes on these grounds. This category of taxpayer arguments centers on constitutional amendments.
5. The IRS is not an agency of the United States and does not have the authority to enforce tax laws: The final category encompasses arguments that are largely fictional. For example, some claim the IRS was not created by an act of Congress and therefore is a private entity that cannot pursue or collect taxes on behalf of the United States.
If you have some time to spend, it is interesting to review the wide-ranging reasons taxpayers provide to the IRS when invited to an IRS audit or more serious compliance action. While amusing at times, do not be mistaken, the IRS earnestly pursues and prosecutes taxpayers and businesses that rely on these types of arguments. If the IRS contacts you, contact an experienced tax attorney for strong representation.
Concerned about being charged with tax fraud?
If you are involved in tax evasion, your best defense is skilled legal representation, not a claim that the IRS lacks the authority to charge you with a tax crime. If you have filed questionable tax documents or failed to file regulatory reports, speak with a criminal tax attorney for straightforward information and options. Call us at 440-250-9709 or reach out to set up a consultation. We serve domestic and international clients from offices in Cleveland and Chicago.
Not sure what to expect if you are already under scrutiny? Download our free ebook, "Understanding Tax Fraud," for insights into warning signs and potential legal defenses.
