Do you really have to pay income taxes to the IRS? Some people think not. In fact, there is a substantial tax protester movement claiming that Americans have no legal obligation to pay income taxes.
There is a great deal of misinformation about this on the Internet. Here are two simple facts:
- everybody is legally obligated to pay income taxes if they have taxable income, and
- sooner or later, almost all tax protesters end up in trouble with the IRS and sometimes go to jail.
You can find dozens of websites and books touting the tax protesters' claims. Some protesters even sell kits or guides on how to get away with paying no taxes. Unfortunately, many naive (or greedy) individuals are misled by these materials into refusing to pay their taxes. The IRS estimates that every year it receives 20,000 to 30,000 frivolous tax returns--that is, returns in which the taxpayer refuses to pay taxes on invalid grounds.
The IRS has issued a list of positions it considers to be legally frivolous. These frivolous tax arguments include claims that:
- the tax system is voluntary
- taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment
- the only “employees” subject to federal income tax are employees of the federal government
- only foreign-source income is taxable
- the Sixteenth Amendment (providing for federal income taxes) was never properly ratified and therefore is not legally binding
- the Sixteenth Amendment does not authorize a direct non-apportioned federal income tax on U.S. citizens
- the income tax violates the Takings Clause of the Fifth Amendment
- filing a tax return violates the privilege against self-incrimination guaranteed by the Fifth Amendment
- being legally compelled to file income taxes constitutes servitude in violation of the Thirteenth Amendment, adopted in 1865 to abolish slavery
- Federal Reserve notes do not constitute cash or income, or wages are not income and therefore are not subject to federal income tax laws,
- you can legally avoid having to pay income taxes by forming a "corporation sole" (sometimes called a "ministerial trust") for yourself (a type of entity usually reserved for the head of a church.
All of these arguments and others have been refuted time and again by the courts and IRS. The IRS has created a detailed explanation of why these arguments are untrue. You can find the IRS Publication The Truth About Frivolous Tax Arguments on the IRS website.
Anyone who files a return or other submission to the IRS based on one or more of these frivolous tax arguments is subject to an IRS penalty of $5,000. In addition, if you take a position the IRS deems frivolous, the IRS will not only require that you pay your taxes due, but can also impose a 20% accuracy-related penalty and a whopping 75% civil fraud penalty.
If substantial fines and penalties aren't bad enough, you can also be criminally prosecuted for tax fraud. This is what happened to actor Wesley Snipes. The U.S. Justice Department prosecuted him for tax fraud when he failed to file tax returns and filed false tax refund claims for over $10 million. He based his claims on the tax protestor argument that the domestic income of U.S. citizens and residents is not taxable. Snipes was found guilty of the misdemeanor of willfully failing to file federal income tax returns and sentenced to three years in prison.