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Assertion: CtC-educated filings qualify for "frivolous return" penalties


THE IRS HAS DEPLOYED A BRAZEN HOAX in an effort to discourage CtC-educated tax returns and refund claims through the occasional issuance of "frivolous return penalty" threats and "assertions" (such as those seen here, here and here). It's a seriously unscrupulous but also seriously telling scheme.

Here's how it works. Pursuant to 26 U.S.C. § 6702, only returns which manifest one of the "frivolous positions" appearing on an official list produced by the Secretary of the Treasury  can be subject to the "frivolous return" penalty. (Returns which overtly manifest a desire to impede or delay the administration of the tax laws alternatively qualify, but delay and impediment are the last things desired by educated filers. In any event such a desire would have to be expressed on the face of the return, which of course none ever is, and this qualifying element is never asserted as grounds for a penalty threat in regard to an educated filing.)

The "position" specs appear in the law as follows:

26 USC § 6702 - Frivolous tax submissions

(a) Civil penalty for frivolous tax returns

A person shall pay a penalty of $5,000 if—

(1) such person files what purports to be a return of a tax imposed by this title 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

(2) the conduct referred to in paragraph (1)—

(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or

(B) reflects a desire to delay or impede the administration of Federal tax laws.


(c) Listing of frivolous positions

The Secretary shall prescribe (and periodically revise) a list of positions which the Secretary has identified as being frivolous for purposes of this subsection.

Upon the addition of subsection (c) to the law in 2006, the Secretary promptly issued the required list, which has been revised twice since then. The current list can be seen here or here (applying to filings since April, 2010); its predecessor (applying to filings between January, 2008 and April, 2010) can be seen here; and the original (applying to filings between March, 2007 and January, 2008) can be seen here.

SO, HERE'S THE PROBLEM THIS LIST REPRESENTS FOR THE IRS: CtC-educated returns aren't even remotely "based on a position" on the Secretary's list.

However, the IRS is nothing if not shameless. Obviously the agency should respond to this official acknowledgement that CtC-educated returns don't qualify for the penalty by abandoning its sporadic "assertions" of frivolous return penalties in connection with CtC-educated returns in hope of scaring a few educated Americans into reversing themselves and climbing back into their old stall in the "ignorance tax" barn. But that wouldn't be in character, would it?

What the reality-thwarted agency has done instead is construct a 'work-around"-- a fake list, on which appears an entry meant to be taken as a CtC-relevant "position". This effort is a truly astonishing display of brass and unscrupulousness. It is also an astonishing display of stupidity, since nothing makes it easier to confirm or prove to others that CtC-relevant material DOESN'T appear on the real list than by this contrivance of a fake list...

But apparently the agency hopes people won't look at pages like this one, or figure things out for themselves. Despite the downside, the agency carries on regardless.

The fact is, the agency just can't let go of its one scary bug-a-boo by which its trolls throughout the tax-honesty community and elsewhere have managed to slow the spread of CtC-knowledge and activism. The falsehood that CtC-educated returns draw frivolous return penalties (and therefore must be flawed in some fashion) is all the IRS has. It won't easily walk away from this singular weapon and resign itself to life in the sunlight (which by now, after more than 75 years of dwelling in self-generated fog and darkness, is understandably painful).

Anyway, the list with the fake entry appears on the IRS website at this page (at 25.25.10-1 near the bottom of the page). Here is the text of the entry meant to be taken as an expression of the "CtC position": 

44. Zero Wages on a Substitute Form: Taxpayer generally attaches either a substitute Form W-2, Form 1099, or Form 4852 that shows "$0" wages or no wage information. A statement may be included indicating the taxpayer is rebutting information submitted to the IRS by the payer. Entries are usually for Federal Income Tax Withheld, Social Security Tax Withheld, and/or Medicare Tax Withheld. An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and IRC 3121", or may include some reference to the company refusing to issue a corrected Form W-2 for fear of IRS retaliation.

As noted, this entry is a complete fabrication. It doesn't appear in the actual official list at all, and never has.

In fact, because it simply appears as material in the Internal Revenue Manual (IRM) the entry has no legal effect or significance at all.

The procedures set forth in the IRM do not have the effect of a rule of law... The manual is not promulgated pursuant to any mandate or delegation of authority by Congress.

First Federal Savings and Loan Association of Pittsburgh v. Goldman’s and the United States of America Internal Revenue Service, 644 F.Supp 101(1986).

Amusingly, this entry also doesn't qualify as a "position" at all, even without consideration of its exclusion from the real list of officially-listed "frivolous positions" (and even while ignoring the careful deployment of the weasel-word "taxpayer"). This entry doesn't present a "position"; it's just a description of how forms are filled-out, with nothing whatever about WHY they are filled out that way.

(BTW, here is the actual, official and valid "frivolous Argument 44":

(44) A taxpayer’s income is not taxable if the taxpayer assigns or attributes the income to a religious organization (a “corporation sole” or ministerial trust) claimed to be tax-exempt under section 501(c)(3), or similar arguments described as frivolous in Rev. Rul. 2004-27, 2004-1 C.B. 625.

It is easy to see that the real "Argument 44" is not even remotely reflected in the fake one, and also that unlike the fake one, the real Argument 44 actually is a real "position"...)

Notwithstanding its illegitimacy on all these several fronts, the fabricated "position listing" is used by the IRS as a pretext for its occasional "assertions" of "frivolous return penalties" against CtC-educated filings, in support of the disinformation and scare campaigns by which it struggles to suppress CtC's liberation-wave. Here's an example of the fake entry being deployed in a transcript as part of this effort:

The shabbiness of this whole program of deception is breath-taking. It makes you want to take a shower and then march on Washington, doesn't it?

BUT WAIT, THERE'S MORE! Not only is the bogus entry on the fake list used to support the lies of government trolls and moles lies about CtC-educated returns qualifying for "frivolous" penalties, but it also serves another important purpose for the DCvers. Every eye that is drawn to the fake list (which is placed so as to draw the eyes of the unwary in lieu of the real "frivolous positions" list) misses seeing this highly-important (and emphasis added) statement which accompanies the real list but not the fake:

I. Purpose

Positions that are the same as or similar to the positions listed in this notice are identified as frivolous for purposes of the penalty for a “frivolous tax return” under section 6702(a) of the Internal Revenue Code and the penalty for a “specified frivolous submission” under section 6702(b). Persons who file a purported return of tax, including an original or amended return, based on one or more of these positions are subject to a penalty of $5,000 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. Likewise, persons who submit a “specified submission” (namely, a request for a collection due process hearing or an application for an installment agreement, offer-in-compromise, or taxpayer assistance order) based on one or more of the positions listed in this notice are subject to a penalty of $5,000. The penalty may also be applied if the purported return or any portion of the specified submission is not based on a position set forth in this notice, yet reflects a desire to delay or impede the administration of Federal tax laws for purposes of section 6702(a)(2)(B) or 6702(b)(2)(A)(ii). The penalty will be imposed only when the frivolous position or desire to delay or impede the administration of Federal tax laws appears on the face of the return, purported return, or specified submission, including any attachments to the return or submission.

Kind of clears the bogus "frivolous penalty" air some, doesn't it? "Based on one or more of these positions" makes clear all by itself that the fake entry 44 in the false list cannot be on the real list, or qualify as a "frivolous position". Again, what appears in that entry is plainly not a "position" (on which actions are "based") at all-- it is simply a description of some paperwork and the way it's filled-out. This no more qualifies as a "position" than does dotting the "i"s in your signature with little hearts, or stapling your schedules together. A "position" is not WHAT you do, or HOW you do it, it is WHY you did whatever you did.

But it's not possible to describe "the belief that one has a right to rebut what one believes to be erroneous assertions of payers regarding the legal character of one's earnings"; "Not every receipt is "income" as that term is meant in the context of the "income tax"; "It is possible for 'information returns' to be wrong"; and/or that "The specifications of the law provide that only earnings qualifying as "wages" under 3401(a) and 3121(a), or payments made in connection with a "trade or business", are to be listed on relevant "information returns"" as lacking a basis in law. Nor can this be said about the fact that the income tax is an excise, and a tax on privilege.

So, an "ignorance tax" cabal which is increasingly anxious in the face of CtC's revelations and the degree to which they irrevocably educate and activate more and more Americans who used to stand quietly for the shearing has found itself having to resort to frauds like this fake list.

Further, in the REAL list we see plainly the unequivocal acknowledgement that even if an actual "frivolous position" WERE the basis of someone's submission of a return which actually WAS lacking information by which the substantial correctness of the self-assessment can be judged, that "position" has to "appear on the face of the return" (or accompanying attachments). This doesn't mean it can be creatively inferred from the numbers on the return or from references to statutory authorities appearing as answers to questions on the forms used. It means APPEARS ON THE FACE OF THE RETURN, just as was said in the Congressional hearings concerning the adoption of the statute imposing this penalty:

"Section 6702 of the Code was enacted by the Tax Equity and Fiscal Responsibility Act of 1982, P.L. 97-248, 96 Stat. 324. According to the Senate Report, S. Rep. No. 97-494, Vol. 1, 97th Cong., 2d. Sess. 277 (1982), the penalty is intended to attack a variety of tax protest activities including: (1) irregular forms 1040 not in processible form because of altered or incorrect descriptions of line items or other provisions; (2) references to spurious constitutional arguments instead of required completion of a tax form; (3) forms on which there is incomplete information to calculate tax liability; (4) presentation of information which is clearly inconsistent, such as the listing of only a few dependents by a person who claims 99 exemptions; (5) “gold standard “ or “war tax” deductions; and (6) deliberate use of incorrect tax tables.


Virtually all of the authority for treating a signed Form 1040 as a nullity [that is, invalid -PH] relies upon the fact that the taxpayer refused to provide any information pertaining to his or her income, or provided de minimis income information and accompanied the purported return with tax protestor type arguments."

IRS Office of Chief Counsel Memorandum 200107035.

"[T]he legislative history of § 6702... ...indicates that the frivolous return penalty was meant to apply to returns “in which many or all of the line items are not filled in except for reference to spurious constitutional objections.” S.Rep. No. 494, 97th Cong., 2d Sess. 278, reprinted in 1982 U.S.Code Cong. & Ad.News 781, 1024."

Leogrande v. U.S. 811 F.2d 147 C.A.2 (N.Y.) (1987) (For more on this subject, see 'A Tax Tip Potpourri' in 'Was Grandpa Really a Moron?'.)

"We therefore hold that the honesty and genuineness of the filer's attempt to satisfy the tax laws should be determined from the face of the form itself... The filer's subjective intent is irrelevant."

In re: Colson, 446 F.3d 836 (8th Cir. 2006)

Thus, the empty "frivolous" allegations directed at educated returns which lack the expression of a "position" on the face of the return are manifestly bogus on that ground alone. Keeping that out of sight is another important reason for the posting of the fake list on the IRS website.

HERE'S ANOTHER EXPRESSION OF THE HOAX noticed recently (August, 2016) by sharp-eyed and properly-suspicious warrior Jeff Rische: Current versions of at least some "frivolous return penalty"-related scare-notices include the following in one place or another:

"the penalty applies when the underlying conduct in relation to filing such a return is based on a position that the Internal Revenue Service has identified as frivolous (see Notice 2007-30)..."

Here's an example, from the backside of a CP15:

SO,... NO.

As just observed above, what is said here is absolutely NOT what the law says. It is particularly and expressly not what is very carefully said in the law, which confines the penalty to returns based on "frivolous positions" explicitly identified and listed as such by the Secretary of the Treasury on his official list. But it is what an agency trying to "work-around" inconveniences in the law will resort to in the face of the existential threat to its mission represented by CtC.

ALL IN ALL, WHAT WE HAVE HERE is a shabby little scam-- but a very revealing one, at the same time (as they always are). One doesn't engage in frauds like this unless one has no alternative, and is in dire straits, as well. In fact, those straits are SO dire for those threatened by CtC that they have resorted to outright forgeries and perjuries in vain efforts to shield their lies from the cleansing light of the truth.

BTW: If you've been a victim of this hoax/fraud please take action to prepare for membership in a class-action lawsuit. CLICK HERE for details and information on steps which need to be taken.

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