About · Press · Contact · Write For Us · Top Personal Finance Blogs
Featured In:

Frivolous Tax Arguments and Cases of IRS Tax Fraud

By Kira Botkin

money handcuffsOver the years, many people have conjured up incredible arguments about why they shouldn’t have to pay taxes. Using convoluted arguments or ultra-specific, twisted-around readings of tax codes, they convince themselves that the tax laws are there to be ignored.

There’s a reason the United States Tax Court officially refers to these claims as “frivolous tax arguments.” They have rules about people who try these moves, and they’ve thrown thousands of people in jail for wasting their time with these attempts to get out of their fair share of taxes.

If you earned income in the U.S., you are subject to American tax law. The IRS lists dozens of cases in which individuals challenged the Court and lost. Unfortunately, many of these people were professional tax preparers and charged their clients, who in turn suffered the consequences and lost a lot of money for access to “secret” tax loopholes.

Don’t fall victim to any of these faulty tax arguments:

These Laws Don’t Apply to Me Because…

Tax payments are voluntary.
No, they’re not. Sorry. Elected representatives voted, and the tax laws are official. The IRS got a little leeway in terms of exactly how they’d collect taxes, but your requirement to pay them is a legal mandate. Similarly, filing a tax return is not voluntary, and can’t choose to ignore a letter from the IRS. Simply put: Income tax evasion is a federal crime.

I waive my right to Social Security, so I should get my Social Security taxes back.
Social Security isn’t a personal savings account. Even if you’re against Social Security and you want to see the whole system dismantled, you have to pay into it. You also might prefer to call it a handout, but legally, Social Security isn’t a charity and you can’t claim your Social Security taxes as a deduction.

Legally, only “persons” get taxed, and I’m not a “person.” Or, the only “employees” who can get taxed work for the federal government.
Believe it or not, the courts have had a lot of debate on the definition of “person.” Still, the IRS clearly defines the term, and they don’t think your interpretation is amusing at all. Just because the IRS tax code doesn’t actually have your name in the definition of “person” doesn’t mean you aren’t one. And they’re not interested in your personal philosophy about your role in the universe. Further, the section of the tax code that lays out these definitions also specifies that the word “employees” includes people who work for the federal government, but it doesn’t limit the taxable population to only government workers.

All of my income actually goes to a nonprofit “corporation sole” (or another setup), and I’m the only member.
Apparently, under American tax law, the Pope can become his own corporation, but he’s pretty much the only one in the world with permission to do so. You’re not allowed. Registering as a corporation sole allows religious leaders to guarantee that property and income they receive will stay with the religious group after they die, and so they don’t pay taxes on them. Unless you’re ready to be the Holy Father, you can’t use this to rule to get out of paying taxes.

Wages and Wishes

My wages are an even exchange for my labor, so I have no taxable gain.
The “theory” here is that your labor has a “cost basis,” the way stock shares do. Thus, when you “sell” your labor, you’re merely recouping the amount you “invested” in your labor, by, I guess, existing. Again, false. The IRS specifically defines your gross income as including income that comes from any source whatsoever, including trading your labor for it.

I make my money in the United States, and people only have to pay taxes on foreign income.
This claim is based on a terrible misreading of a certain section of excise tax law, and proponents believe that only foreign citizens should pay tax here, and we should only pay tax on money brought in from other countries. Again, the IRS includes all income from any source in its definition of gross income. It does include money you received from outside the country, but in most cases the IRS lets you take it off your tax return if you already paid foreign tax on that money. Just because the IRS doesn’t want to double-tax you doesn’t mean it doesn’t want to single-tax you!

Individual State Arguments

I don’t have to pay federal taxes because I’m a citizen of my state, not of the United States.
Sorry, but according to the Fourteenth Amendment, if you were born here or are a naturalized citizen, you get to be both a United States citizen and a citizen of the state where you live. You can’t reject one without rejecting the other. If you want to stop paying United States taxes, you should probably stop living in the United States.

My state is a sovereign state, so it’s not part of this “United States” tax business.
The Sixteenth Amendment (the one that specifically says the federal government can collect income taxes) has been upheld by the courts multiple times. Judges have consistently ruled that the federal government has power to collect income taxes in all of the states, not just federal territories.

Making Up IRS Rules

Sometimes the frivolous argument isn’t even rooted in a factual law. Just because it sounds like a law doesn’t mean it is one!

The IRS is a private corporation, so it doesn’t have federal power to collect tax.
Incorrect. There are many, many laws that explicitly outline the creation and power of the IRS and designate it as a federal agency with federal powers.

I don’t have to file a tax return because the 1040 instructions don’t have a Paperwork Reduction Act number.
The Paperwork Reduction Act stipulates that all IRS documents must be numbered and have a figure determining how long it should take an average person to complete it. The validity of this claim stops there. If you find a particular form that doesn’t abide by this act, it doesn’t negate your obligation to file. Although the 1040 instructions, for example, don’t have a Paperwork Reduction Act number, the 1040 tax form itself does indeed have one.

African Americans can claim a special tax credit as reparations for slavery.
There is no “Black Tax Credit,” nor is there any similar credit for Native Americans. If the IRS ever came up with a rule like this, you can bet your bottom dollar that the IRS would have produced reams of incredibly dry instructions about it, and they wouldn’t have given it so simple of a name!

knife taxes

Top 5 Constitutional Arguments

5. The First Amendment protects religion, and my religion prevents me from giving money to the government, because they will use it for things my religion is against.
All the First Amendment says about religion is that the government won’t meddle in it. It does not say that your religion gets to refuse to participate in the government. While you can withdraw from military service as a conscientious objector, you can’t be a conscientious objector to taxes. Fun fact: The courts have also found that the First Amendment is not protection against speech that “aids or incites taxpayers to unlawfully refuse to pay federal income taxes, including speech that promotes abusive tax avoidance schemes.” So if you are hauled into court for spreading these ideas, the First Amendment is of no use to you, sorry.

4. Collecting income taxes is like taking my property without due process of law, which is against the Fifth Amendment.
If the IRS broke into your house and stole your waffle iron to settle a tax debt, you might have a case here. Unfortunately, you do in fact have ample opportunity to settle any tax grievances in a court with large heaps of due process of law. It’s called the United States Tax Court. You can either pay the tax they say you owe, and then sue to attempt to get it back, or refuse to pay the contested tax until after your case is settled. If you have a genuine grievance, I recommend the first method, so you can avoid fees and penalties. If you have a frivolous grievance, Tax Court is not the place to test it out.

3. Telling the IRS my tax information is self-incrimination, so I can “take the Fifth” and not tell them anything.
People tried this in the case of United States v. Sullivan, way back in 1927. The U.S. Supreme Court decision stated that taxpayers “could not draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.” Basically, in order to “plead the Fifth,” you have to be in danger of causing further problems for yourself. The Supreme Court does not consider having to pay your taxes an enough of a problem.

2. The Thirteenth Amendment outlaws slavery, and paying taxes is a kind of indentured servitude.
Well, you pay taxes because you make money. No one is forcing you to make money. If you would like to stop making money, the government will not force you to go back out and make some. If you would like to stop having money in order to stop paying taxes, that is your right.

1. The Sixteenth Amendment wasn’t properly ratified, so the entire legal basis for the existence of the IRS is unconstitutional.
The Sixteenth Amendment states that “Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” Previously, Congress could only tax states, and only in proportion to their population, so the amendment gives Congress the authority to create laws that tax individuals. To ratify a new Constitutional amendment, three-fourths of the states vote in favor of it, and there are several different arguments concerning the ratification of the Sixteenth Amendment.

Here are two of the most popular arguments:

  • The Ohio Problem. In 1913, the count of states that ratified the amendment included Ohio, which technically never got around to producing paperwork and officially proclaiming itself a state until 1953. Though most states eventually ratified the amendment, the original passage met the three-fourths requirement even though three states rejected it, and three never even bothered to vote on it at all. Objectors argue that because Ohio wasn’t a state, but its vote was included, the amendment isn’t valid. The problems here are that: One, Ohio’s vote wasn’t even necessary since enough other states would eventually vote to approve it; and two, in 1953, Congress gave Ohio statehood retroactive to 1803. The courts have thrown this argument out multiple times.
  • Spelling Errors. The other popular argument, made famous by a man who then served four years in prison and five on probation, says that during ratification, each state passed a version of the amendment with the same wording but different punctuation, so there was no three-fourths consensus on the precise, exact same amendment. It’s true, some states had different commas, changed a few words, and even misspelled some words. Still, these discrepancies come up during many votes, and it’s never enough to keep an amendment from getting ratified.

    Unfortunately for this guy, who probably should have become a copy editor instead, the Supreme Court followed the “enrolled bill doctrine,” which states that once a bill is formally passed by a legislative body and signed into law, the procedural rules in the enactment process were considered to have been followed correctly and are no longer a source of issue. If the legislative body saw issues, they should have been brought up before the vote. This means that since the Sixteenth Amendment is already in place, it’s too late to wrangle over procedural issues. Perhaps if he had been a congressman in 1913, it might have gone differently.

Final Word

Take me very literally when I say don’t try this at home. Because of the sheer number of people who try to pull off these shenanigans, there is a special fee for people who knowingly file frivolous tax returns: $5,000. You’ll probably also face a fee of up to 75% of your unpaid tax (plus, of course, the tax itself and any underpayment or late payment fees that may apply).

If you contest it in court and lose, you’ll face additional civil fines of up to $25,000, plus any jail time that may apply if you haven’t filed or paid at all. These aren’t minor fees that add up. These are major expenses that can reach astronomical sums.

Frequently, businesspeople promoting some tax scheme, or accountants who are instructing people to use a tax avoidance scheme, can face penalties even beyond these, as well as revocation of any licenses and an injunction against preparing any tax returns in the future. Even if you agree with some of these claims, or if you just get a good laugh out of them, you need to resist the temptation to put any of these plans into action. It’s simply not worth it.

Everyone’s trying to save money on taxes. To do it the right way and stay out of trouble, stick to credits and tax deductions that you can be reasonably sure you deserve. If someone recommends that you use any of these arguments to reduce your taxable income or to get out of paying taxes, don’t bite. You could be on the hook instead.

Do you know anyone who has tried to get out of taxes using one of these reasons? What other schemes have you heard of?

(photo credit: Shutterstock)

Kira Botkin
Kira is a longtime blogger and serial entrepreneur who enjoys gardening, garage sales, and finding stray animals. She lives in Columbus, Ohio, where football is a distinct season, and by day runs a research study for people with multiple sclerosis. She hopes that the MoneyCrashers team can help you achieve your goals and live a great life.

Related Articles

The content on MoneyCrashers.com is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors.

Advertiser Disclosure: The credit card offers that appear on this site are from credit card companies from which MoneyCrashers.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. MoneyCrashers.com does not include all credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, U.S. Bank, and Barclaycard, among others.
Close