Want to be a tax protestor and avoid paying taxes? Beware of the penalties!
How many times have you read about a taxpayer who refused to pay income taxes to the IRS for various reasons? Such taxpayers are more commonly known as tax protestors. These stupid and always unsuccessful arguments include: it is not constitutional, or you can only tax on ”earned income,” or this income is not really income and not subject to tax, or the Notice of Deficiency was invalid, and so on and so on. One of my favorites is that “I am a citizen of the state of “insert name of a US state here” and therefore not subject to federal tax.
These types of protests have two legal and powerful words attached to them: frivolous and fraudulent. Frivolous will just get you into minimal trouble (penalties and interest); fraudulent will get you 6 months as a guest at the Rikers State Prison by Courtyard Marriott on Rikers Island in New York. Your luxurious stay on the island was preceded by a visit from two very large, and I mean large, gentlemen from the US Treasury Department, both wearing a badge and carrying a gun. Not a good way to start or end your day.
So, you want to be a tax protestor?
Tax protesters frequently use the justification that they never knowingly chose to be considered “taxpayers.” They argue they are protected through the doctrine of estoppel. Yeah, I know you have no idea what that means, but if you want a new hobby as a tax protestor, you will embrace this one. As always, Google it.
For all of those of you who have been to a restaurant for dinner, you accept and understand that right after dessert and coffee, the check inevitably arrives. This means it is time to pay up. With tax protestors, that check comes in the form of penalties. And not so little penalties, but big ones. One such penalty is §6673, which provides:
“Whenever it appears to the Tax Court that—(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay, (B) the taxpayer’s position in such proceeding is frivolous or groundless, or (C) the taxpayer unreasonably failed to pursue available administrative remedies, the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.”
Today and today only, if you order right now, we will double your order!
Wait, it gets better. After the Tax Court imposes its penalty, the IRS may impose its own penalties. See §6702 and §6751(b). Those penalties must comply with the supervisory approval requirements, unlike the §6673 penalty. The point of §6673(a)(1) was to let the Tax Court impose penalties for claims and petitions that “waste the time and resources of the Court.” Remember, tax protestors can tie up the IRS and the Tax Court for years. This costs us, the real taxpayers, a lot of tax dollars. You might smile and chuckle under your breath to praise the tax protestor for sticking it to the IRS, but if you are the one waiting in line with a real issue that needs to come before the Tax Court, tax protestors are annoying, stupid and a waste of everybody’s time and money.