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Don’t be ‘frivolous’: Take your tax return seriously

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in Small Business Tax,Small Business Tax Deduction Strategies

Uncle Sam means business when it comes to filing federal income tax returns.

Strategy: Don’t take an unrealistic position on your return or fail to file one based on some flimsy reason. The IRS annually targets tax positions and arguments it considers “frivolous.”

The downside to being frivolous is more than just a mere slap on the wrist. You could be hit with a hefty $5,000 penalty (increased from $500 by tax legislation in 2006).

The frivolous positions and arguments specified by the IRS differ slightly from year to year. Its list for the ’08 tax filing season (IRS Notice 2008-14) contains four new entries:

  1. Misinterpreting the Ninth Amendment regarding objections to military spending
  2. Claiming that only persons with a fiduciary relationship to the United States or the IRS owe taxes
  3. Claiming a “Mariner’s Tax Deduction” relating to deductions for meals
  4. Misusing or excessive use of Sec. 6421 fuels credit (gasoline used for off-highway business).

The latest list also covers some long-time favorites, including:

  • The Internal Revenue Code is not law or that its provisions are ineffective or inoperative.
  • Compliance with the internal revenue laws is voluntary or optional and is not required by law.
  • A taxpayer’s income is excluded from taxation when the taxpayer rejects or renounces his or her U.S. citizenship because the taxpayer is a citizen of another country.
  • Wages, tips and other compensation received for the performance of personal services are not taxable income.
  • U.S. citizens and residents are not subject to tax on their wages or other income derived from sources within the United States, as only foreign based income received by nonresident aliens and foreign corporations from sources within the United States is taxable.
  • A taxpayer has been untaxed, detaxed, removed or redeemed from the federal tax system although the taxpayer remains a U.S. citizen.
  • Only certain types of taxpayers (e.g., government employees) are subject to income and employment taxes.
  • Only certain types of income (e.g., income resulting from the sale of alcohol, tobacco or firearms) are taxable.
  • Federal income taxes are unconstitutional or a taxpayer has a constitutional right not to comply with the federal tax laws.
  • A taxpayer is not a “person” within the meaning of the Internal Revenue Code.


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