NEW YORK – Dear Friends —
You’ve got less than a month to get your act together in order to file your income tax return by April 15. And you [do] plan on filing, n’est-ce pas? Please don’t tell me you’ve fallen for one of those wacky schemes someone invariably cooks up around this time of year. You know, the kind that (for a fee, of course) advises you on how to avoid paying any income tax on the basis of (pick as many as you’d like):
1. It’s illegal for the government to impose such a tax, there’s no law that says you have to file an income tax return, yadda, yadda, yadda.
2. You’re not really a “citizen” of the United States. Or, how about a related approach that really pushes the envelope by arguing that residents of the District of Columbia, California, New York, or any other state are actually residents of a foreign country and, therefore, not required to pay U.S. income tax!
3. You can declare yourself a minister and register as a “corporation sole.” (If that sounds fishy, you’re on the right track.) Forget it unless you’re a bishop or other legitimate member of the clergy and meet certain requirements.
4. Your assets are held by a foreign bank or brokerage firm or you use a credit card issued by an offshore bank to transfer money. (Gee, I wonder the Bahamian term for “handcuffs” is?)
5. Filing a return using a special set of documents instead of using the IRS-provided tax return forms. (“Which we’ll be happy to draw up for you at the ridiculously low price of…”)
6. You can (no joke) buy or sell the right to claim someone else’s child as a dependent in order to qualify for the “earned income credit.”
7. You can deduct the amount of Social Security tax you paid.
8. Ours is a "voluntary" tax system, so you’re not required to pay unless, of course, you’re feeling particularly patriotic. (The only thing "voluntary" about our tax system is that each taxpayer is allowed to voluntarily tell the government how much tax he/she owes instead of the other way around. Payment itself is not voluntary.)
9. Any other hair-brained, cockamamie strategy, artifice, device, contrivance, ruse, subterfuge, machination, maneuver, circumvention, dodge, or concept that purports to provide a means to avoid paying income tax. (By the way, I can personally attest that pouring snake oil on your 1040 will not make it disappear.)
The I.R.S. has a special category for those gullible or stupid enough to try one of these "tax-avoidance" schemes: Frivolous Returns. There’s even a special team of Frivolous Returns Examiners that reviews them. In fact, if your return has the decidedly bad fortune of landing on their desk, they go back and review the returns you submitted in previous years to see if you tried to pull a fast one in the past. So you could end up with a nice multi-year audit.
DO NOT TRY THIS!
While "avoid-the-income-tax" schemes have surely been around ever since the 16th Amendment was passed back in 1913, the incidence and variety of these schemes seems to have picked up since the advent of the internet, which has provided a ready mechanism for charlatans to peddle their wares. Don Korb, chief counsel for the I.R.S., says some of the more “bizarre” theories/claims that have been circulating include the following:
— I.R.S. and court notices addressed to "TAXPAYER" (all capital letters) can be ignored.
— Courts that display U.S. flags with gold fringe or eagles have no jurisdiction.
— Income tax laws only apply to federal employees.
— The only valid I.R.S. is located in Puerto Rico.
Again (in case this needs clarification), all of the above are completely false. And all of this would be pretty funny if these weren’t real excuses people have used to justify not filing their income taxes!
Korb, an Ohio native, says his personal favorite is one that’s been around for about 30 years. It claims the 16th Amendment was never properly ratified back in 1913 because, due to a technicality, Ohio wasn’t "officially" a state at the time. Thus, there is no federal income tax! This conveniently ignores the fact that Ohio’s vote wasn’t needed to adopt the amendment because there were more than enough states to meet the Constitutional requirement for ratification, but, hey, it sounds good.
And don’t think you can blame it all on your tax preparer if you get caught. Remember: you are the one signing your return and attesting that the information is correct. So at the very least, if caught you’ll have to come up with the taxes you should have paid, plus interest. If your approach is especially "creative" you could also end up in a federal prison on tax evasion charges. Historically, the courts have not been particularly lenient with folks convicted of tax evasion — and that’s before we had a record federal deficit.
So here’s the dice: anyone who receives income in excess of a certain amount must report it. As I said in my March 4 column, only people whose 2004 income is below the following thresholds* are legally excused from filing a federal tax return:
Filing Status Gross Income Exceeds
Married filing jointly $15,900
Married, filing separately $3,100
Head of Household $10,250
*These are the income thresholds for taxpayers under age 65. There are different income thresholds for those age 65 or older.
As for the rest of us, Korb has this sobering piece of advice: "There’s no magic formula that will make your tax disappear. Courts have historically held there are no constitutional or legal grounds for failure to file a return or pay taxes."
In other words, file and smile. Stop wasting time and money thinking you’ve found a way around this.
Next week: Since you’ve got to file a tax return, you might as well take advantage of as many tax breaks as you can. Tax "credits" are especially desirable because they provide a dollar-for-dollar reduction of your tax bill. I’ll highlight some you don’t want to miss.
Hope this helps,
P.S. For a more complete list of what the I.R.S. considers "Frivolous Returns" — or if you just need a good laugh — click here: http://www.irs.gov/pub/irs-drop/n-05-30.pdf
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