IRS Overstepping Its Authority in Assessing “Frivolous Filing” Penalties

Tax resisters resist from many motives, sometimes more than one at once. For instance, some war tax resisters resist as a form of conscientious objection — they’re unwilling to participate in war financing. Others resist as a form of protest — they want to resist taxes as a way of emphasizing their opposition to the government’s policies or to call their opposition to the attention of the powers that be through civil disobedience. Many war tax resisters share both of these motives.

For those that have protest as a motive, simply refusing to write a check to the IRS when they file their returns in April often doesn’t seem enough. How will the government distinguish their refusal to pay as a protest from someone else’s refusal to pay for other motives? For this reason, such war tax resisters will often include a letter of explanation along with their tax filing that explains their motives.

But lately, the IRS has been interpreting these letters of explanation as part of the tax filing itself, and has been threatening resisters with a $5,000 penalty for “asserting a frivolous position” in their filing.

, Mike Palecek at Pacific Free Press shares his experience with one of these “frivolous filing penalty” threats. The last two years, he has accompanied “crossed-out” tax returns with letters of explanation of the following sort:

Hello. Enclosed is my tax form for this year.

It is crossed-out because I do not wish to cooperate with the government of George W. Bush.

President Bush has chosen to spend our tax dollars on war and killing while cutting spending on social programs.

As a Christian, I cannot go along with this.

I must protest.

Note that the letter is not taking any legal positions whatsoever — frivolous or not. Palecek is merely saying that he is not paying because he does not want to cooperate with the government, and indicating how the government has lost his support.

Is that enough to trigger a frivolous filing penalty? Or, legally, should it simply be a failure-to-file or failure-to-pay penalty? The IRS sent Palecek a letter saying they considered his filing to be frivolous, and threatening him with a $5,000 penalty if he doesn’t refile properly.

The law that covers this is Subtitle F, chapter 68, Subchapter B, part Ⅰ, section 6702 of the U.S. Tax Code (the fine has been raised from $500 to $5,000 and some of the wording has changed since the version of law that’s posted at the link above). It says that the frivolous filing penalty can be assessed on someone who “files what purports to be a [tax] return … but which — (A) does not contain information on which the substantial correctness of the self-assessment may be judged, or (B) contains information that on its face indicates that the self-assessment is substantially incorrect; and [this]… — (A) is based on a position which [is] frivolous…, or (B) reflects a desire to delay or impede the administration of Federal income tax laws.”

In support of this section, the IRS periodically publishes a list of positions it considers frivolous. Conscientious tax resistance is one such position:

Taxpayers may not refuse to file tax returns and may not claim deductions or credits on their tax returns based on their opposition to government programs or policies. Any claim that individuals may reduce their federal tax liability based on objections to the use of the taxes to support government programs or policies is frivolous and has no merit.

The question then is whether a letter like Palecek’s can be reasonably interpreted as a “claim that [he] may reduce [his] federal tax liability based on [his] objections” or whether it is best understood simply as an explanation of his decision to disobey the law without any intention of making legal claims as to what he believes he may or may not do within the law.

Practically a question like this one will be answered by some level of the government bureaucracy, and so the rules of logic and language and such are at best an imperfect guide. I could see it going either way.

Of note, the IRS policy states that people “who file a purported return of tax… based on one or more of these [frivolous] positions are subject to a penalty… if the purported return of tax does not contain information on which the substantial correctness of the self-assessed determination of tax may be judged or contains information that on its face indicates the self-assessed determination of tax is substantially incorrect [emphasis mine]. It seems to me that this means if you file a correct and accurate return, only refusing to enclose a check, the IRS policy is to not consider this a frivolous filing even if you accompany your filing with a letter explaining your conscientious objection. (Palecek’s letter accompanied a “crossed-out” return, which probably did not “contain information on which the substantial correctness” of the return could be determined.)

There is, however, another section of this preamble that says “The penalty may also be applied if the purported return… reflects a desire to delay or impede the administration of Federal tax laws” — perhaps this would apply.

Myself, I think the best policy here is to simply refrain from poking the hornets’ nest. If you resist your taxes and you feel the need to make some noise about it, don’t make your noise in the direction of the IRS, but start a blog, or send a letter-to-the-editor, or write your congressperson, or send an email to your friends and family.

If you do get a “frivolous filing” warning letter, don’t panic — according to the letter, if you re-file in a non-frivolous fashion within 30 days of getting the letter, they say they’ll forget all about it.

NWTRCC has also prepared a “What to do if you receive a ‘Frivolous’ warning letter” guide.