'Frivolous' Tax Appeals Will Be Penalised Says IRS

by Mike Godfrey, Tax-News.com, New York

13 March 2003

In a statement issued on Tuesday, the US Internal Revenue Service warns that the Tax Court may impose severe financial penalties on those who misuse their right to a court review of IRS collection procedures merely to stall their tax payments.

"Taxpayers have rights that they should invoke when appropriate," said IRS Chief Counsel B. John Williams. "But those who would abuse those rights to stall tax collections should realize that they may incur substantial penalties. The courts have repeatedly and consistently rejected claims for non-payment of taxes under illegal avoidance schemes, and are imposing substantial penalties for taking frivolous positions."

The IRS Restructuring and Reform Act of 1998 set out various taxpayer rights related to tax liens or levies, including the right to seek judicial review. While an appeal is pending, the IRS usually may not enforce collection.

In December 2000, the Tax Court warned taxpayers that it would impose penalties against those who "institute or maintain a lien or levy action primarily for delay or whose position in such a proceeding is frivolous or groundless" Such positions contend that the income tax is not valid, that the person or type of income is not subject to the tax, or espouse other arguments that the Court has previously rejected as baseless.

Taxpayers who file 'frivolous' tax returns face a minimum $500 penalty, and may be subject additionally to civil penalties of 20 to 75 per cent of underpaid tax. Those who choose to pursue their case in the courts may face a penalty of up to $25,000 in addition to the taxes, interest and civil penalties that they may owe.

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