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THE TRUTH ABOUT FRIVOLOUS TAX ARGUMENTS
NOVEMBER 30, 2006
This responds to some of the more common frivolous “legal arguments” made by
individuals and groups who oppose compliance with the federal tax laws. The
first section groups these arguments under six general categories, with variations
within each category. Each contention is briefly explained, followed by a
discussion of the legal authority that rejects the contention. The second section
responds to some of the more common frivolous arguments made in collection
due process cases brought pursuant to sections 6320 or 6330. These
arguments are grouped under ten general categories and contain a brief
description of each contention followed by a discussion of the correct legal
authority. A final section explains the penalties that the courts may impose on
those who pursue tax cases on frivolous grounds.
I. FRIVOLOUS TAX ARGUMENTS IN GENERAL
A. The Voluntary Nature of the Federal Income Tax System
1. Contention: The filing of a tax return is voluntary.
Some assert that they are not required to file federal tax returns because
the filing of a tax return is voluntary. Proponents point to the fact that the
IRS itself tells taxpayers in the Form 1040 instruction book that the tax
system is voluntary. Additionally, the Supreme Court’s opinion in Flora v.
United States, 362 U.S. 145, 176 (1960), is often quoted for the
proposition that "[o]ur system of taxation is based upon voluntary
assessment and payment, not upon distraint."
The Law: The word “voluntary,” as used in Flora and in IRS publications,
refers to our system of allowing taxpayers to determine the correct amount
of tax and complete the appropriate returns, rather than have the
government determine tax for them. The requirement to file an income tax
return is not voluntary and is clearly set forth in sections 6011(a), 6012(a),
et seq., and 6072(a). See also Treas. Reg. § 1.6011-1(a).
Any taxpayer who has received more than a statutorily determined amount
of gross income is obligated to file a return. Failure to file a tax return
could subject the noncomplying individual to criminal penalties, including
fines and imprisonment, as well as civil penalties. In United States v.
Tedder, 787 F.2d 540, 542 (10th Cir. 1986), the court clearly states,
“although Treasury regulations establish voluntary compliance as the
general method of income tax collection, Congress gave the Secretary of
the Treasury the power to enforce the income tax laws through involuntary
collection . . . . The IRS’ efforts to obtain compliance with the tax laws are
entirely proper.”
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In August 2005, the Justice Department announced that Royal Lamarr
Hardy was sentenced to a 156-month prison term for, among other things,
selling a tax evasion scheme called the “Reliance Defense” that incorrectly
asserted the income tax laws were voluntary (i.e., the laws imposed no
legal obligation to pay tax or file a return). Hardy was also ordered to pay
a fine of $59,267.88, costs of prosecution in the amount of $59,267.88,
and restitution to the IRS for $197,555. See 2005 TNT 169-12 (Aug. 31,
2005).
Relevant Case Law:
Helvering v. Mitchell, 303 U.S. 391, 399 (1938) – the U.S. Supreme Court
stated that “n assessing income taxes, the Government relies primarily
upon the disclosure by the taxpayer of the relevant facts . . . in his annual
return. To ensure full and honest disclosure, to discourage fraudulent
attempts to evade the tax, Congress imposes [either criminal or civil]
sanctions.”
United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993) – the court
held that “[a]ny assertion that the payment of income taxes is voluntary is
without merit.”
United States v. Tedder, 787 F.2d 540, 542 (10th Cir. 1986) – the court
upheld a conviction for willfully failing to file a return, stating that the
premise “that the tax system is somehow ‘voluntary’ . . . is incorrect.”
United States v. Richards, 723 F.2d 646, 648 (8th Cir. 1983) – the court
upheld conviction and fines imposed for willfully failing to file tax returns,
stating that the claim that filing a tax return is voluntary “was rejected in
United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983), wherein the
court described appellant’s argument as ‘an imaginative argument, but
totally without arguable merit.’”
Woods v. Commissioner, 91 T.C. 88, 90 (1988) – the court rejected the
claim that reporting income taxes is strictly voluntary, referring to it as a
“‘tax protester’ type” argument, and found Woods liable for the penalty for
failure to file a return.
Johnson v. Commissioner, T.C. Memo. 1999-312, 78 T.C.M. (CCH) 468,
471 (1999) – the court found Johnson liable for the failure to file penalty
and rejected his argument “that the tax system is voluntary so that he
cannot be forced to comply” as “frivolous.”
2. Contention: Payment of tax is voluntary.
In a similar vein, some argue that they are not required to pay federal
taxes because the payment of federal taxes is voluntary. Proponents of
this position argue that our system of taxation is based upon voluntary
assessment and payment.
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The Law: The requirement to pay taxes is not voluntary and is clearly set
forth in section 1 of the Internal Revenue Code, which imposes a tax on
the taxable income of individuals, estates, and trusts as determined by the
tables set forth in that section. (Section 11 imposes a tax on the taxable
income of corporations.)
Furthermore, the obligation to pay tax is described in section 6151, which
requires taxpayers to submit payment with their tax returns. Failure to pay
taxes could subject the noncomplying individual to criminal penalties,
including fines and imprisonment, as well as civil penalties.
In discussing section 6151, the Eighth Circuit Court of Appeals stated that
“when a tax return is required to be filed, the person so required ‘shall’ pay
such taxes to the internal revenue officer with whom the return is filed at
the fixed time and place. The sections of the Internal Revenue Code
imposed a duty on Drefke to file tax returns and pay the . . . tax, a duty
which he chose to ignore.” United States v. Drefke, 707 F.2d 978, 981
(8th Cir. 1983).
In United States v. Kuglin, No. 03-20111 (W.D. Tenn. Aug. 8, 2003),
Vernice B. Kuglin faced criminal charges for falsifying Forms W-4 and
failing to pay taxes on $920,000 of income between 1996 and 2001, but
was acquitted by a federal jury. According to newspaper accounts of the
trial, jurors found persuasive the defendant’s argument that she attempted
to obtain an explanation of the Service’s authority to collect taxes from her
but her correspondence went unanswered. Government officials issued
press releases making it clear that the outcome in Kuglin should be
treated as an “aberration” and noting that persons acquitted of criminal tax
violations are not relieved of their obligation to pay taxes due. See 2003
TNT 155-12 (Aug. 11, 2003); 2003 TNT 155-13 (Aug. 11, 2003); 2003
TNT 158-2 (Aug. 14, 2003).
The defendant in United States v. Brunet, No. 03-00057 (M.D. Tenn.
March 12, 2004), argued he could not find any information that would lead
him to conclude the Internal Revenue Code made him liable to file income
tax returns or pay taxes. In stark contrast to Kuglin, the jury returned
guilty verdicts against Brunet on four counts of tax evasion and the court
sentenced him to serve 27 months in prison. See 2004 TNT 51-33 (March
12, 2004).
There have been no civil cases where the Service’s lack of response to a
taxpayer’s inquiry has relieved the taxpayer of the duty to pay tax due
under the law. Courts have in rare instances waived civil penalties
because they have found that a taxpayer relied on a Service misstatement
or wrongful misleading silence with respect to a factual matter. Such an
estoppel argument does not, however, apply to a legal matter such as
whether there is legal authority to collect taxes. See, e.g., McKay v.
Commissioner, 102 T.C. 465 (1994), rev’d as to other issues, 84 F.3d 433
