The IRS recently warned taxpayers about using some common “frivolous arguments” to avoid taxes. The agency published a list of 40 such arguments that it has rejected and will continue to reject despite any taxpayer claims to the contrary.

By “frivolous” the IRS does not necessarily believe that the taxpayer is insincere about a particular claim to avoid tax, although it knows that some are. Rather, whatever superficial merit that an argument may have had when first made has been proven groundless by the IRS and the courts to the point where taxpayers should now “know better” and will be held accountable.

Taxpayers making these baseless arguments risk tough sanctions. The maximum frivolous tax return penalties have increased from $500 to $5,000. The penalties also apply to "specified frivolous submissions," such as disingenuous requests for lien and levy hearings or applications for installment or compromise agreements.

In the spotlight

There are 40 different tax positions the agency considers frivolous (the so-called “frivolous forty”), but it singled out four recent frivolous positions through four new rulings:

Voluntary compliance: Compliance with federal income tax laws or filing of a tax return is not voluntary/optional. Voluntary compliance only means that the system allows taxpayers themselves to calculate the correct amount of their tax and report their liability on returns versus having the government make the determinations for them.

Renouncing U.S. citizenship: The 14th Amendment actually grants taxpayers simultaneous state and federal citizenship, thus taxpayers owe both types of tax.

Personal service compensation: Tax on wages earned from performing a personal service is not a direct tax under Article I, Section 2, Clause 3 of the Constitution, requiring them to be apportioned among the states by population, nor are they part of an equal nontaxable exchange of property, nor subject to netting by personal expenses.

Record of assessment: Finally, the IRS is not required to provide Form 23C, Assessment Certificate-Summary Record of Assessments, with the Treasury Secretary’s signature before starting collection.

Many of these bogus arguments are peddled by scam artists masquerading as tax professionals. Ultimately, the taxpayer, and not the scam artist, is responsible for the accuracy of his or her return.

(Notice 2007-30)