Too-Good-to-Be-True Tax Myths

By Benny L. Kass
Saturday, January 5, 2008

First in a series of columns

"The income tax created more criminals than any other single act of government."

-- Barry Goldwater

Every year at this time, I write a series of tax-related columns. The goal is to provide guidance for homeowners preparing to file income tax returns.

Normally, millions of Americans try to file well before the April 15 deadline. Either they want an early refund or they want to get the burden off their back as soon as possible.

However, Congress in late December complicated things by enacting a "patch" affecting the alternative minimum tax. According to the Internal Revenue Service, "as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax . . . legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law."

The five forms, which the IRS says will not be available until Feb. 11, are for education credits (Form 8863); residential energy credits (5695); child and dependent care expenses (Schedule 2, Form 1040A); mortgage interest credit (8396), and the D.C. first-time-home-buyer credit (8859).

Despite the delay, you're still going to have to pay taxes, assuming you have sufficient income.

The IRS recently issued an interesting report, "The Truth About Frivolous Tax Arguments." Here is a summary of what that 67-page report has to say about some of the arguments made by people who claim they don't have to pay income tax -- and the IRS's responses.

  • "The filing of a tax return is voluntary." This argument stems from the IRS Form 1040 instruction book, which states that the tax system is voluntary. Proponents also cite a 1960 Supreme Court case ( Flora v. U.S.) in which the high court wrote, "Our system of taxation is based upon voluntary assessment and payment, not upon distraint."

But the word "voluntary" does not mean that income earners do not have to pay tax. Rather, it means that taxpayers are initially allowed to voluntarily determine the amount of tax they owe without having the government make that determination.

Perhaps the IRS should drop the use of the word "voluntary" because that definition is a bit of a stretch. However, in 2005, Royal LaMarr Hardy was sentenced to a 156-month prison term for selling a tax-evasion scheme called the "reliance defense" that claimed that the income tax was voluntary. The IRS report lists several more cases involving the "voluntary" argument.

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