Taxation: US IRS clamps down on "frilolous" tax arguments

The USA's IRS is coming down hard on all kinds of tax avoidance schemes including dubious advice from tax return preparation companies.

But special attention is being paid, this year, to what the IRS calls "Frivolous Tax Arguments" - complete with capital letters so, one assumes, that it's about to be granted its own TLA.*

But at least one of the grounds for argument is due to the IRS's own contorted use of language.

The IRS says that payment of tax is "voluntary" - that appears in the instruction book for Tax Form 1040. That is compounded by a Supreme Court decision in 1960 which says "[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint."

The IRS says that this means nothing more than that the individual is responsible for preparing and filing his own honest tax return and paying the tax properly due rather than have this activity undertaken by the state.

There's a simple remedy: change the wording. But the IRS would rather allow the confusion to continue than to admit its fault.

Incidentally, several court decisions have established that the IRS's interpretation of "voluntary" is that which applies in tax law. So, regardless of the wording, the filing of an accurate tax return and the payment of tax properly due is not voluntary.

Other contentions that are debunked in an 86 page report published by the IRS are that

- federal income tax can be reduced to nil by the filing of a zero tax return

- that the IRS must prepare a return if a taxpayer does not do it himself

- the remuneration for personal services is not taxable (because it is an exchange of time / skills for something - in this case money - and not a "gain")

- that only foreign-source income is taxable. The contention is that income derived within the USA by US citizens and corporations is not taxable but that offshore income is; similarly onshore income by resident foreigners and corporations is taxable.

- that a US citizen can reject federal citizenship in favour of citizenship of an individual state and therefore are no longer liable to federal taxes.

- that the "United States" consists only of the District of Colombia and federal territories and enclaves.

- that taxpayers can refuse to pay income tax on religious or moral grounds, citing the First Amendment. While this may be seriously attractive and, arguably a highly effective demonstration of democracy, it's illegal in the USA and in most other countries.

- that the provision against self-incrimination in the Fifth Amendment excuses the filing of a tax return.

- Income Tax laws are unconstitutional because the Sixteenth Amendment was not, or was not properly, ratified. An entire industry of false advice, books, websites and tax preparation schemes has grown up around this myth which relies on a presumption that less than the required 75% of states have ratified the Amendment. True, at the date it was done, there was some argument but later ratifications have lifted the matter out of all doubt.

For much more, see http://www.irs.gov/taxpros/article/0,,id=159853,00.html

The IRS is increasing penalties for including any of the schemes described as frivolous in a tax return to USD500 per instance.

*TLA: three letter acronym.