Each year thousands of taxpayers pursue meritless arguments that have been rejected by every court that has ever considered them. Examples include the following: (1) the Constitution prohibits the assessment of income taxes; (2) wages are a nontaxable exchange for services rendered rather than taxable income; (3) only foreign income is taxable; (4) the first amendment guaranty of religious freedom prevents the government from taxing income of persons who are opposed to paying taxes as a result of their religious beliefs. The IRS recently warned taxpayers that pursuing frivolous claims such as these in court can be expensive. The law allows the courts to impose a penalty of up to $25,000 when they come to any of three conclusions: (1) a taxpayer instituted a proceeding primarily for delay; (2) a position is frivolous or groundless; or (3) a taxpayer unreasonably failed to pursue administrative remedies. This penalty is in addition to the back taxes and interest that are owed. IRS News Release IR-2001-59.
This content originally appeared in Church Treasurer Alert, August 2001.