An idiot ("akseeker") over at Lost Horizons has had the Internal Revenue Service propose the $5,000 penalty for a frivolous position based on a Form 843 refund claim that he filed.
The $5,000 penalty under section 6702 basically applies to frivolous positions in tax returns or "specified frivolous submissions" after March 15, 2007 that have been identified by the IRS on or after that date as being frivolous.
Question: Does this guy have a valid non-frivolous technical defense to the imposition of this penalty, based on a loophole in this statute? Here's the statute:
Sec. 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.
(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUBMISSIONS. --
(1) IMPOSITION OF PENALTY. --Except as provided in paragraph (3), any person who submits a specified frivolous submission shall pay a penalty of $5,000.
(2) SPECIFIED FRIVOLOUS SUBMISSION. --For purposes of this section --
(A) SPECIFIED FRIVOLOUS SUBMISSION. --The term "specified frivolous submission" means a specified submission if any portion of such submission --
(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or
(ii) reflects a desire to delay or impede the administration of Federal tax laws.
(B) SPECIFIED SUBMISSION. --The term "specified submission" means --
(i) a request for a hearing under --
(I) section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or
(II) section 6330 (relating to notice and opportunity for hearing before levy), and
(ii) an application under --
(I) section 6159 (relating to agreements for payment of tax liability in installments),
(II) section 7122 (relating to compromises), or
(III) section 7811 (relating to taxpayer assistance orders).
(3) OPPORTUNITY TO WITHDRAW SUBMISSION. --If the Secretary provides a person with notice that a submission is a specified frivolous submission and such person withdraws such submission within 30 days after such notice, the penalty imposed under paragraph (1) shall not apply with respect to such submission.
(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. The Secretary shall not include in such list any position that the Secretary determines meets the requirement of section 6662(d)(2)(B)(ii)(II).
(d) REDUCTION OF PENALTY. --The Secretary may reduce the amount of any penalty imposed under this section if the Secretary determines that such reduction would promote compliance with and administration of the Federal tax laws.
(e) PENALTIES IN ADDITION TO OTHER PENALTIES. --The penalties imposed by this section shall be in addition to any other penalty provided by law.
Good point-- he filed his refund claim on a form 843, not a 1040X.
He won't make that argument, though. It's not frivolous.
Bingo. A Form 843 is technically not a "tax return" (or a specified submission) at all. A very technical but possibly valid defense.
But I wonder if the IRS could prevail anyway, under some sort of theory that the idiot filed the 843 "purporting" it to be a tax return, even if it's not one.
Also, if the $5,000 penalty does not apply, does the old $500 penalty (per the statute as worded prior to amendment) apply? I haven't checked.
Good point-- he filed his refund claim on a form 843, not a 1040X.
He won't make that argument, though. It's not frivolous.
Bingo. A Form 843 is technically not a "tax return" (or a specified submission) at all. A very technical but possibly valid defense.
But I wonder if the IRS could prevail anyway, under some sort of theory that the idiot filed the 843 "purporting" it to be a tax return, even if it's not one.
Also, if the $5,000 penalty does not apply, does the old $500 penalty (per the statute as worded prior to amendment) apply? I haven't checked.
On the top of the 843:
Use Form 843 only if your claim involves (a) one of the taxes shown on line 3a or (b) a refund or abatement of interest, penalties, or additions to tax on line 4a.
Do not use Form 843 if your claim is for—
● An overpayment of income taxes;
● A refund for nontaxable use (or sales) of fuel; or
● An overpayment of excise taxes reported on Form(s) 11-C, 720, 730, or 2290.
How much do you want to bet he tried to claim an overpayment of income taxes on the 843, thus subjecting his 843 to the frivolous penalty?
Or, he tried to get a frivolous penalty from a 1040 abated using the 843. By doing so, he probably opened up the 843 to a frivolous penalty, if that's even possible.
When chosen for jury duty, tell the judge "fortune cookie says guilty" - A fortune cookie
Use Form 843 only if your claim involves (a) one of the taxes shown on line 3a or (b) a refund or abatement of interest, penalties, or additions to tax on line 4a.
Do not use Form 843 if your claim is for—
● An overpayment of income taxes;
● A refund for nontaxable use (or sales) of fuel; or
● An overpayment of excise taxes reported on Form(s) 11-C, 720, 730, or 2290.
I sometimes advise clients to file refund claims for income taxes on Form 843, not 1040X, for a variety of reasons (e.g., not reopening the statute of limitations on the entire return).
Notwithstanding the instructions on the Form 843 itself, nearly all Circuits follow the "informal claim" doctrine, under which any written request for a refund can be valid, notwithstanding the failure to use the correct form.
The interesting question is whether a frivolous Form 843 would be considered an income tax return if it seeks a refund of income taxes.
Unless the Form 843 merely contained the equivalent of "give me my money", it was probably a return. Any valid claim must contain a self assessment of the tax liability in order to show that the tax was overpaid.
Unless akseeker can pony up $750 (15% of $5,000), he'll have to wait until the IRS files a lien or threatens a levy to contest the penalty. Once they do, he can file for a CDP hearing and contest the penalty. (He filed a CDP hearing request in September, but that can't have anything to do with the penalty, which has only been proposed at this point.)
If akseeker were not a TP, I would suggest he contact the Taxpayer Advocate. The absence of any way to oppose imposition of the penalty raises a due process question. Having to pay $75 (15% of $500) in order to contest the old penalty in court was not a great hurdle. Having to pay $750 in order to contest the new one looks like the sort of taxpayer burden that the Advocate is supposed to be opposed to.
"Here is a fundamental question to ask yourself- what is the goal of the income tax scam? I think it is a means to extract wealth from the masses and give it to a parasite class." Skankbeat
Under penalties of perjury, I declare that I have examined this claim, including accompanying schedules and statements, and, to the best of my knowledge and belief, it is true, correct, and complete.
Use Form 843 only if your claim involves (a) one of the taxes shown on line 3a or (b) a refund or abatement of interest, penalties, or additions to tax on line 4a.
Do not use Form 843 if your claim is for—
● An overpayment of income taxes;
● A refund for nontaxable use (or sales) of fuel; or
● An overpayment of excise taxes reported on Form(s) 11-C, 720, 730, or 2290.
I sometimes advise clients to file refund claims for income taxes on Form 843, not 1040X, for a variety of reasons (e.g., not reopening the statute of limitations on the entire return).
Notwithstanding the instructions on the Form 843 itself, nearly all Circuits follow the "informal claim" doctrine, under which any written request for a refund can be valid, notwithstanding the failure to use the correct form.
The interesting question is whether a frivolous Form 843 would be considered an income tax return if it seeks a refund of income taxes.
You advise clients to file form 843 for a refund of income taxes?
Instructions from the form 843, page 1, left column, bottom:
in bold: Do not use Form 843 when you should use a different form.
Examples provided, the first bullet:
a refund or abatement of your income tax.
So, if a person is supposed to use the form 1040X and uses the form 843 deliberately in lieu of form 1040x, are they, in a sense, using the form 843 as a 1040x form and thereby the 1040x is filed it just happens to have the number 843 on it when figuratively, it looks like 1040x?
So, if a person is supposed to use the form 1040X and uses the form 843 deliberately in lieu of form 1040x, are they, in a sense, using the form 843 as a 1040x form and thereby the 1040x is filed it just happens to have the number 843 on it when figuratively, it looks like 1040x?
I think so. That ought to negate the benefits the doctor uses a Form 843 to obtain, but as a practical matter it probably does not. Seeing that the 843 is a valid informal claim pushes the out-of-the-box thinking of most IRS employees. Most will never make the leap to treating it as a funny looking 1040X.
A greater danger is that they won't recognize an income tax claim on a Form 843 as an informal claim. I am aware of a case in which a woman filed a timely, but incomplete carryback claim on Form 1045 in November. The form was returned to her due to some undotted i. She sent it back in January, perfected. It was treated as a late filed tentative claim and, iirc, ignored. When she got around to looking into it, the refund statute had blown. I was involved only as an advisor. I suggested she argue that the 1045 sent in January was not a late tentative claim, but rather a timely informal one. The Advocate got involved, but the caseworker in Austin couldn't see the 1045 as anything but a 1045.
"Here is a fundamental question to ask yourself- what is the goal of the income tax scam? I think it is a means to extract wealth from the masses and give it to a parasite class." Skankbeat
It appears to me if 'akseeker' filed an original, normal return on form 1040, then filed form 843 as a claim for refund of income taxes, no matter the argument, that qualifies as a frivolous submission.
I don't understand how the Doctor uses it for a refund of income taxes. He appears to be saying, "It's an informal claim and whether the taxpayer used the correct form or not is immaterial."
I wonder if being able to read and understand is immaterial.
However, if 'akseeker' filed form 843 as a refund of penalty, no matter what the argument, that would seem not to be a frivolous submission. Or, if he filed it as a claim for refund of one of the other taxes listed, it would seem not to be a frivolous submission.
If it was filed as an initial return, as 'Quixote' suggested, then it doesn't meet the requirements for a return under Beard and would seem to be a frivolous submission.
Letter 3176C comes with remedy. File proper returns or withdraw the frivolous submission within thirty days and the proposed penalty is withdrawn. 'akseeker' would be better served withdrawing the claim made by form 843 and make his argument another way, or forget it altogether.
Of course, he won't think of that. Just my opinion.
If it was filed as an initial return, as 'Quixote' suggested, then it doesn't meet the requirements for a return under Beard and would seem to be a frivolous submission.
It never occurred to me that he might have filed it as his initial return. I agree that filing an initial return on a Form 843 would seem not to be an "honest and reasonable attempt to satisfy the requirements of the tax law". If it purported to be a return, the filer could face penalties for filing a frivolous return and for failing to file a return.
Letter 3176C comes with remedy. File proper returns or withdraw the frivolous submission within thirty days and the proposed penalty is withdrawn. 'akseeker' would be better served withdrawing the claim made by form 843 and make his argument another way, or forget it altogether.
Of course, he won't think of that. Just my opinion.
Tax deniers never retreat. If they show weakness, the pack will devour them.
"Here is a fundamental question to ask yourself- what is the goal of the income tax scam? I think it is a means to extract wealth from the masses and give it to a parasite class." Skankbeat
