Tax season isn’t far away, and as Americans put gifts under their trees this year, the Internal Revenue Service released a gift of its own: the newly updated tax-scheme debunked.
Happy New Year, taxpayers!
If you’re reading this column, the fun has likely begun to wear off. You’re beginning to see something else came with the 2008: an all-new tax season.
As Americans were exchanging gifts, the Internal Revenue Service released a newly updated, 74-page ‘The Truth about Frivolous Tax Arguments.’
If you’re like most Americans, you’re looking for ways to save here and there on your tax returns. But around this time of year, it’s all too easy to fall prey to an unscrupulous company or salesman pitching tax schemes that just aren’t legal.
‘Too good to be true schemes are exactly that – too good to be true,’ said IRS Chief Counsel Donald L. Korb. ‘Taxpayers should be careful in making frivolous arguments since courts have routinely rejected them.’
In 2006, U.S. Congress increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.
Among those positions:
|The filing of a tax return is voluntary: Courts have consistently struck down this argument, and in fact, one businessman who sold a tax scheme based on the argument received 156 months in prison.||Payment of tax is voluntary: Just like the above argument, this argument too has been consistently rejected by the courts.||Taxpayers can reduce their federal income tax liability by filing a ‘zero return’: Simply, though this is becoming a more common scheme, no current law allows for it.||The IRS must prepare federal tax returns for a person who fails to file: Wrong. The IRS is not obligated by law to do this, and as such, the taxpayer’s responsibility to file still exists.||Compliance with an administrative summons issued by the IRS is voluntary: The IRS is authorized by law to inquire about any person who may be liable to pay any tax and to call witnesses to testify or to produce books, papers, records or other data that may be relevant or material to an investigation.|
Keep this in mind when trying to find creative ways to avoid paying taxes: If you’ve thought of it, chances are someone else has already and the IRS has seen it and dealt with it.
Living under the shadow of IRS debt or tax charges is no way to spend your time.
Instead of handing your taxes over to a street-corner tax huckster, the best thing you can do in 2008 is consult a qualified tax professional.