Fraud Tip of the Day - April 9

Be wary of outlandish tax avoidance schemes

You don't have to be an expert to ass yourself whether some of these tax avoidance schemes are too good to be true.

There are some bad tax ideas floating around. Some have turned the peddling of these ideas into businesses. These businesses make their money designed by tricking taxpayers into signing up for a program or purchasing materials related to these "bad" ideas. The IRS calls many of these bad ideas frivolous tax arguments. They could also be called myths or urban legends. These arguments are listed and refuted on the IRS website.

On this site you'll see IRS arguments against old time favorites like:

Voluntary Nature of the IRS Claims

The filing of a tax return is voluntary
Payment of tax is voluntary
Taxpayers can reduce their federal income tax liability by filing a "zero return."
The IRS must prepare federal tax returns for a person who fails to file
Compliance with an administrative summons issued by the IRS is voluntary

Wouldn't you have to question these? If you're wrong the penalties will be quite severe. Trying your luck with any of these involves enormous risk. I'd see what the IRS and court rulings have to say about it before you do.

The Meaning of Income: Taxable Income and Gross Income

Wages, tips, and other compensation received for personal services are not income
Only foreign-source income is taxable
Federal Reserve Notes are not income

The Meaning of Certain Terms Used in the Internal Revenue Code

Taxpayer is not a "citizen" of the United States, thus not subject to the federal income tax laws
The "United States" consists only of the District of Columbia, federal territories, and federal enclaves
Taxpayer is not a "person" as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws
The only "employees" subject to federal income tax are employees of the federal government

Taxpayers aren't allowed to unilaterally define terms as it suits them. Take this to court if you'd like. You might want to find out how the courts have ruled in the past first.

Constitutional Amendment Claims

Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment
Federal income taxes constitute a "taking" of property without due process of law, violating the Fifth Amendment
Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment
Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment
The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional
The Sixteenth Amendment does not authorize a direct non-apportioned federal income tax on United States citizens

Wouldn't it be great if all of the above were true? It would mean that no one ever has to pay taxes. How could we all be such idiots not to have noticed it before? I would recommend doing some research first to find out what happened to the last person to make these claims in a courtroom.

Fictional Legal Bases

The Internal Revenue Service is not an agency of the United States
Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act
African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment
Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime
An "untaxing" package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes
A corporation sole can be established and used for the purpose of avoiding federal income taxes

These are only a few. Some of them are classics. One of these tax avoidance schemes may be new to you but the IRS has heard them all before. Any time you hear a new plan to cut your taxes refer to the following website for the complete list and full text.

Read about all of them and discover The Truth About Frivolous Tax Arguments on the IRS website.