PLEASE NOTE: The law firm of Jeffrey I. Fouts, Attorney, has NEVER had a single client threatened with criminal prosecution, indicted, or prosecuted by the U.S. government. Our clients understand the importance of having a real desire to re-enter the tax system. We will help you know your options to reduce your unpaid IRS tax liability.
Overview
In the eyes of the IRS, taxpayers who fail to file income tax returns and therefore stop paying income tax, pose a serious threat to tax administration and the American economy. Congress and the IRS believe that when taxpayers chose to not file their income tax returns that this undermines the public’s confidence in the IRS’s ability to administer the tax laws fairly and effectively.
In the early 1990′s, the IRS adopted a non-filer strategy to address this growing problem. Currently, the IRS efforts to address non-filers focus on the most egregious and high-risk segments of the population. This strategy was based on the realization that the traditional approach to solving such problems wasn’t enough. Instead, it would be necessary to adopt a multifaceted strategy that brings all of the IRS’s resources to bear on the problem.
- Re-engineered processes and work streams to improve efficiency and productivity.
- Identification and expedited assignment of the most egregious non-filers.
- Expanded and centralized automated enforcement.
- Outreach and education efforts.
The IRS’s Criminal Investigation section’s role in this strategy is that of outreach and education. The IRS understands that there are some non-filers who will not respond to outreach efforts and simply refuse to comply with the law. For individuals who deliberately fail to comply with their obligation to file and pay taxes, the Criminal Investigation section has devoted resources to identify these individuals and in the most egregious cases, criminal prosecution is recommended. The investigation and prosecution of flagrant cases and the resultant publicity relating to these prosecutions is an important compliance tool.
Who Must File
It is the opinion of the IRS, Congress, and the U.S. Courts, that all citizens must comply with the requirements of the tax law to file returns and pay taxes. Whether because of an inability to pay or severe procrastination, some citizens drop out of the tax system. Certain IRS programs have made it easier for persons to voluntarily comply with the tax laws and to bring themselves current on any outstanding filings or tax due. Our law firms provides assistance to clients who want to resolve the issues that caused them to drop out of the tax system and bring them back into compliance.
There are certain federal tax rules that dictate:
- Who must file a federal income tax return
- Who should file
- What filing status to use
- How many exemptions to claim
- The amount of the standard deduction
If you have little or no gross income, you may not have to file a return. Certain persons, even if they are not required to file a tax return should do so. It is also important to determine which filing status to use. Filing status is important in determining whether you must file a return, your standard deduction, and your tax rate. It also helps determine what tax credits you may be entitled to. It is also important to properly claim tax exemptions, as these reduce your taxable income. Other rules which can dramatically affect clients are:
- The social security number requirement for dependents,
- The rules for multiple support agreements, and
- The rules for divorced or separated parents.
Frivolous Nonfilers
When the 16th Amendment to the Constitution was ratified (February 3, 1913) giving Congress the power “to lay and collect taxes on incomes” citizens began arguing that it was not properly ratified and income taxes are illegal. The Courts have repeatedly rejected their argument as frivolous, but unfortunately, some citizens continue to raise arguments in spite of the fact that they have no basis in law. Unscrupulous promoters and their followers have long employed frivolous arguments concerning the legality of the income tax as pretexts to enrich themselves or evade their taxes. Their motivation is usually monetary, although a rare few of the promoters have what they feel to be a legitimate purpose or belief.
Anti-taxation groups have been around for a long time. Some using the frivolous argument mentioned here. These groups are small but vocal. In the past, organizations like Your Heritage Protection Society, The Save a Patriot Society, The Pilot Connection, and the Freeman all attracted followings. Though the leadership of these movements used different arguments to gain followers, they all share one thing in common; according to the IRS they received substantial sentences in a federal prison for their activities. Their followers also paid a steep price for following bad advice. According to the IRS, some were prosecuted, many more were involved in years of litigation and ultimately had to pay all taxes owed along with penalties and interest.
IRS and Treasury Warns of Frivolous Tax Arguments
The IRS and Treasury have issued notices warning taxpayers that if returns are filed under the theory that U.S. citizens and residents aren’t subject to tax on their wages and other income earned or derived within the United States , they may be subject to penalties. This argument is known as the “zero tax theory” and is possibly known by other names. Despite all the warnings about this and other frivolous arguments, some taxpayers insist on presenting frivolous arguments in court. The law allows the courts to impose a penalty of up to $25,000 when the court comes to any of three conclusions:
- a taxpayer instituted a proceeding primarily for delay,
- a position is frivolous or groundless, or
- a taxpayer unreasonably failed to pursue administrative remedies.
On March 11, 2003, a press release entitled, “Frivolous Appeals To Delay Collection Actions Bring Stiff Tax Court Penalties ” was issued. This release summarized how the IRS warns that the Tax Court may impose penalties on those who misuse their right to a court review of IRS collection procedures merely to stall their tax payments.
On February 12, 2003, the IRS issued a press release titled, “IRS Again Updates Web Item Debunking Frivolous Tax Arguments.” The release announces that the Internal Revenue Service has again updated its Web site item that addresses false arguments about the legality of not paying taxes or filing returns. The revisions add several cases cited by the courts in 2002 and respond to one additional argument, making a total of 21 frivolous contentions that are addressed “The Truth about Frivolous Tax Arguments”.
Department of Justice Issues Injunction
The Department of Justice has issued several injunctions against promoters of illegal tax plans or shelters that urge taxpayers to violate the tax laws. We have posted an article outlining the worst of the tax schemes, scams and cons located on our web site.
Criminal Investigation’s Nonfiler Initiative
IRS has implemented a multi-functional, comprehensive effort called the National Nonfiler Strategy. The overall goal of this strategy is to bring taxpayers back into compliance and keep them there. In addition to nonfilers, the IRS will reach out to individual taxpayers who are not legally required to file but are potentially entitled to refunds or credits.
Beware of Employment Tax Schemes
Currently, the same arguments concerning the legality of the tax system are being used in an attempt to convince employers they do not have to withhold employment taxes. Employment tax evasion schemes have serious consequences not only for the employers but the employees as well. Employers are subject to both criminal and civil sanctions but employees also suffer because as a result of their employer’s actions they may not qualify for social security, Medicare, or unemployment benefits (or they may qualify for reduced benefits only). It is the government attitude that the health of these programs depends on everyone paying their fair share – and they will use all available resources to collect the taxes.
Some Tax Protestor Arguments
Complicated arguments against the American tax system are built by stringing together unrelated ideas plucked from widely conflicting court rulings, dictionary definitions, government regulations and other sources. Some of the most popular anti-taxation arguments include the following:
- Constitutional Argument – Filing an IRS Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy.The Truth: The courts have consistently held that disclosure of the type of routine financial information required on a tax return does not incriminate an individual or violate the right to privacy.
- Compensation Argument – Wages, tips and other compensation received for personal services are not income because there is allegedly no taxable gain when a person “exchanges” labor for money.The Truth: The Internal Revenue Code defines gross income as income from whatever source derived and includes compensation for services.
- Sixteenth Amendment Argument – The Constitutional Amendment establishing the basis for income tax was never properly ratified.The Truth: The 16th Amendment was properly ratified in 1913, and it states “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
- Religious Arguments – Individuals invoke the Freedom of Religion clause of the First Amendment by taking a vow of poverty or by fraudulently claiming charitable contributions of 50% or more of their adjusted gross income.The Truth: Taking a purported vow of poverty or claiming fraudulent contributions to filter income through a church is not legal. Some fraudulent religious organizations use funds for personal expenses.
- Internal Revenue Code Arguments- There is no Internal Revenue Code that imposes taxes.
– Only “individuals” are required to pay taxes.
– IRS can only assess taxes against people who file returns; income taxes are voluntary.The Truth: The tax law is found in Title 26 of the United States Code. The requirement to file an income tax return is not voluntary and it is clearly set forth in the Internal Revenue Code (IRC) Sections 6011(a), 6012(a), et seq., and 6072(a). IRS was established July 1, 1862 by an act of Congress. Our system of taxation allows taxpayers to determine the correct amount of tax and complete the appropriate forms “voluntarily” rather than have the government do it for them. However, any taxpayer whose income falls below the statutory amount, does not have to file a return. - Forming a Trust Argument – Forming a business trust to hold your income and assets will avoid taxes. A family estate trust will allow you to reduce or eliminate your tax liability.The Truth: Although there are legitimate trusts and legitimate reasons why individuals establish trusts, establishing a trust, foreign or domestic, for the sole purpose of hiding your income and assets from taxation is illegal and will not absolve you of your tax liability. The underlying claims for many “untaxing” trust packages rely on other frivolous arguments that have subjected promoters, as well as willing participants, to criminal penalties.
Some American citizens use these and other arguments advocating non-compliance with the tax laws. Don’t be misled. Inspect promotional material carefully. Aside from being false and misleading, it often contains elaborate disclaimers such as “this report is offered as a vehicle for discussion and debate and for general informational purposes only. It does not constitute legal or professional advice and should not be relied on as a substitute for proper research and inquiries into original sources of authority.” Many of these “tax experts” don’t even follow their own advice but choose to file and pay their own taxes.
The IRS will:
- Assist taxpayers who have been misled to correct their returns.
- Vigorously pursue prosecution and prison sentences for individuals who continue to wilfully violate the tax laws.
PLEASE NOTE: The law firm of Jeffrey I. Fouts, Attorney, has NEVER had a single client threatened with criminal prosecution, indicted, or prosecuted by the U.S. government. Our clients understand the importance of having a real desire to re-enter the tax system. We will help you know your options to reduce your unpaid IRS tax liability.