The Internal Revenue Service has issued guidance identifying frivolous positions that taxpayers should avoid when filing their tax returns. The guidance lists 40 positions which have no basis for validity in existing law or which have been deemed frivolous by the United States Tax Court or other federal court.

In 2006, Congress increased the amount of the penalty for frivolous tax returns from $500 to $5,000, in addition to the tax and interest due. The increased penalty amount applies when a person submits a tax return, or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

Taxpayers who file frivolous income tax returns may also be subject to civil penalties of 20% or 75% of the underpaid tax. Those who pursue frivolous tax cases in court may face an additional penalty of up to $25,000.

Among the positions listed are the following payroll-related arguments:

• an employer is not legally obligated to withhold income or employment taxes on employees' wages
  
  
• tax withholding is a "taking" of property without due process of law or just compensation in violation of the Fifth Amendment
  
  
• only certain types of taxpayers are subject to income and employment taxes, such as employees of the Federal government, corporations, non-resident aliens, or residents of the District of Columbia or the Federal territories Link Link

...US Tax News - Latest

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