Think You've Found a Way to Avoid Taxes? Think Again

The overall majority of Americans recognize their legal responsibility to properly report and pay their tax obligations to the IRS. At the same time, the IRS has identified common frivolous "legal arguments" made by individuals and groups who oppose compliance with the federal tax laws. Those who are attempting to circumvent tax believe that they have discovered ambiguous interpretations of the law that show that they are not subject to permissible taxation. If you are such an individual, then this article is for you.

At the outset, it's important to understand the distinction between similar terms. "Tax avoidance" is an expression that refers to the lawful method of structuring earnings and assets to reduce one's taxable income. This is generally accomplished by claiming allowable deductions and credits, and by establishing certain official entities, like trusts, to shelter funds against tax. "Tax evasion" on the other hand, is illegal, whether one knowingly participates in the practice, or has been duped by the myriads of tax disputers who scrupulously pore over the tax code to find seemingly convoluted loopholes. They're not loopholes, they're potholes, and if you aggressively jump into one, expect to be buried under a mountain of civil penalties.

Every year, the IRS detects popular schemes that are publicized by promoters of tax evasion. Undoubtedly, the motivation behind the bulk of these individuals is not to enlighten you out of a citizenly desire to share a tax benefit, but to make a quick buck, and then avoid paying taxes on that buck. That's why the majority of these types of un-taxing or de-taxing schemes and arguments are available in print, or online, along with an asking price. Remember, if it's too good to be true, it probably is; a colloquialism that is spot on in this example.

Candidly, very few of the numerous frivolous arguments are original. Almost all of them are derived from previous contentions that the IRS has already litigated on and dismissed. Prior to formally presenting any such arguments before the IRS, research IRS policy and seek expert advice before subscribing to any scheme that offers exemption from your obligation as a US citizen to pay taxes. Buying into a tax evasion scheme can be very costly.

As a resource, the IRS offers a publication entitled The Truth about Frivolous Tax Arguments, available to read or download off the IRS web site. It explains each common assertion, followed by a discussion of the legal authority rejecting the argument, and relevant case law and court decisions that support the position of the IRS. The publication deals with some of the extremely common urgings that are still naively being advocated today.

Examples of such schemes are that the filing and payment of taxes is voluntary, that wages, tips, and other compensation received for personal services are not considered income, and that the 16^th Amendment, which authorized tax collection, was not ratified properly. Other arguments are more obtuse, like taxpayers not being a "citizen" of the US or not a "person" as defined by the Internal Revenue Code, or that taxpayers can refuse to pay taxes on religious or moral grounds by invoking 1st Amendment rights.

If one of the above proposals or another like it has piqued your interest, then understand what you're up against. Despite any meticulously prepared documents that succinctly present your arguments, the policy of the IRS is not to respond point by point to such fraudulent reasoning. Many individuals submit volumes of this flippant and dizzying data, and expect a representative at the IRS to impartially scrutinize it. This type of correspondence is quickly recognizable, and just as quickly dismissed. Collection efforts will continue, along with enforcement actions, such as a levy on income or bank accounts, or the filing of a Notice of Federal Tax Lien on property, after the required due process notices have been served. Should you continue to elevate your position, the IRS will of course grant you your "day in court," but be prepared for the legal consequences of instigating legal proceedings on similar assertions that have already been debunked.

The IRS has multiple sources available to assist one in identifying a fraudulent scam. The Department of Justice has updated Press Releases on civil and criminal actions taken as a result of IRS investigations. The IRS has sections on their web site entitled Tax Scams- How to Recognize and Avoid Them, and Tax Fraud Alerts. Updated tax scams and Consumer Alerts are made available to taxpayers as well. If you've identified any fraudulent tax activity, you can anonymously Report Suspected Tax Fraud to the IRS. Your identity will be kept confidential, and you may even be in line for a monetary whistleblower award.