Taxpayer Advocate Want IRS To Identify Friv Arguments To Taxpayer

[The Observer]

Nina Olson, on the Taxpayer Advocate Office's website blog, is pushing for the IRS to identify to taxpayers exactly what kind of frivolous argument that the taxpayer appears to be adopting in their filings. In addition she believes such situations would be best served by giving the taxpayer due process by providing time for them to withdraw or amend the filing to remove whatever is causing the IRS to see it as a frivolous position.

[Hyrion]

The salary paid to me by company X is not taxable because I believe the tax laws do not exist

That is a frivolous argument

I guess that's not specific/clear enough for Nina.

[fortinbras]

The IRS has been very helpful on this issue, providing a list (with legal citations) of positions already determined to be frivolous:

https://www.irs.gov/privacy-disclosure/ ... troduction

As you may notice, this gets to be a lengthy list and includes several positions that we've encountered on threads on this website. In any case, it seems to me that this 'Advocate' could have, with just the tiniest amount of research, found that the IRS already gratified her demand.

[Pottapaug1938]

The IRS has been very helpful on this issue, providing a list (with legal citations) of positions already determined to be frivolous:

https://www.irs.gov/privacy-disclosure/ ... troduction

As you may notice, this gets to be a lengthy list and includes several positions that we've encountered on threads on this website. In any case, it seems to me that this 'Advocate' could have, with just the tiniest amount of research, found that the IRS already gratified her demand.

The problem is that the Frivvers always manage to tweak their positions just enough to be able to proclaim "but my position isn't on the list." If it appears on the list, subsequently, they will move the goalposts again and repeat their assertion.

[The Observer]

But Olson is arguing this situation:

To illustrate the distinction, TAS has seen cases in which an unrepresented taxpayer accidentally transposed two lines from a Form W-2 when completing the taxpayer’s return. This innocent error results in an overreporting of withholding that generates a refund and, based on the standards of the IRS, triggers the IRC § 6702 penalty. Nevertheless, this tax position, albeit certainly incorrect, was adopted in good faith and was completely free of any motive to pursue a position previously identified by the IRS as frivolous or to delay or impede the administration of Federal tax laws.

The question in my mind at this point is do we really need to set up a convoluted due process that would have to include the frivvers as well? Obviously the situation above is a problem with the IRS misinterpreting the reason that the taxpayer had switched numbers on a W-2. But it would seem to me that a simple letter going out with the assertion of the friv penalty could tell the taxpayer simply that if the taxpayer had made an error on the return in relation to the W-2, to contact the campus with the corrected figures and they could remove the penalty at that time.

[Quixote]

The IRS already has such a due process procedure in place, or at least it did two years ago when I last checked. The only problem I have noticed with the procedure when innocent taxpayers are involved is the longstanding one of miscommunication, either between the IRS and the taxpayer or within the IRS. If a return is identified as frivolous by any human who happens to encounter it during processing, a letter would be sent to the taxpayer telling him that IRS had determined that he had taken a frivolous position on his return and give him the opportunity to file a corrected return. If he does, no problem. If he doesn't, for any reason whatsoever, including that his return was actually perfect as filed, he will be assessed a frivolous return penalty.

The NTA's suggestion will not help. Telling someone who has not adopted a frivolous position exactly what frivolous position some random IRS employee has decided he has adopted is not going to tell the taxpayer what he needs to do to resolve the situation. Telling him exactly which entry on the return looks funny might.

Dear [taxpayer],

On your 2016 Form 1040, you put the same amount on Line 64, Federal income tax withheld, as you did on Line 7, Wages. That seems unlikely to be correct. If it is not, please complete the enclosed Form 1040 with the correct amounts. Sign it and mail it back to us by December 15, 2017. If you have already filed a corrected return, please send us a signed copy.

If the two amounts are correct, please send us a copy of your Forms W-2. In addition, provide a name and contact number for each of your employers.

Failure to respond to this letter will result in the imposition of a $5000 penalty for filing a frivolous return.

The IRS.


It is unlikely that the IRS will ever send detailed explanations such as the one above. IRS lacks a sufficient number of employees with the requisite skill set.

[Arthur Rubin]

The IRS already has such a due process procedure in place, or at least it did two years ago when I last checked. The only problem I have noticed with the procedure when innocent taxpayers are involved is the longstanding one of miscommunication, either between the IRS and the taxpayer or within the IRS. If a return is identified as frivolous by any human who happens to encounter it during processing, a letter would be sent to the taxpayer telling him that IRS had determined that he had taken a frivolous position on his return and give him the opportunity to file a corrected return. If he does, no problem. If he doesn't, for any reason whatsoever, including that his return was actually perfect as filed, he will be assessed a frivolous return penalty.

The NTA's suggestion will not help. Telling someone who has not adopted a frivolous position exactly what frivolous position some random IRS employee has decided he has adopted is not going to tell the taxpayer what he needs to do to resolve the situation. Telling him exactly which entry on the return looks funny might.

Dear [taxpayer],

On your 2016 Form 1040, you put the same amount on Line 64, Federal income tax withheld, as you did on Line 7, Wages. That seems unlikely to be correct. If it is not, please complete the enclosed Form 1040 with the correct amounts. Sign it and mail it back to us by December 15, 2017. If you have already filed a corrected return, please send us a signed copy.

If the two amounts are correct, please send us a copy of your Forms W-2. In addition, provide a name and contact number for each of your employers.

Failure to respond to this letter will result in the imposition of a $5000 penalty for filing a frivolous return.

The IRS.


It is unlikely that the IRS will ever send detailed explanations such as the one above. IRS lacks a sufficient number of employees with the requisite skill set.

Sorry about the excessive quotation.

It's not likely that the IRS would want to give the taxpayer the precise parameters which cause the return to be recognized as frivolous. One would hope that a correction of a return recognized as frivolous would be given more careful scrutiny by the IRS, but otherwise such letters would allow an unscrupulous taxpayer to determine the boundaries of an acceptable return, whether or not accurate.

[The Observer]

But more to the point, it would be giving in to the deniers' tactics to overwhelm the IRS with an endless process of paper.

[fortinbras]

The tax dodgers always claim to have thoroughly studied the tax laws, but they are always blindsided by an onslaught of numerous cases (some very well known to lawyers and tax professionals) in which various lame excuses for non-payment were declared to be lame. In short, their "exhaustive study", was always extremely superficial and much fogged over with wishful thinking.

The IRS's published list of frivolous positions was encouraged by an Act of Congress, with the intention of having the IRS thus discouraging people from repeating other peoples' mistakes, but the list is not (and cannot be) truly exhaustive. Everytime the list seems to be so complete as to be foolproof, the IRS encounters another fool.

[operabuff]

Nina's solution may not be practical, but her concern is legitimate. If a taxpayer makes a mistake that gets identified as frivolous, he is likely to receive a lot of very confusing correspondence from the IRS. You might not agree with her, but do not underestimate her or think she doesn't understand what she's talking about. She is well aware of the "Truth About Frivolous Tax Arguments."

Just for historical accuracy, there are two different documents. "The Truth About Frivolous Tax Arguments" was developed by the IRS in reaction to the Kuglin case.

Congress required the IRS to publish a list of frivolous positions in 2006 when it increased the amount of the section 6702 penalty. The list of frivolous positions was published in the IRB as Notice 2007-30. "The Truth" predates that list.

[Number Six]

It's interesting she is still at a position of advocate that she has had for so many years. I agree that clarification would be helpful for a certain percentage of frivolous filers. In the last 50 of so years every tax avoidance method has been tried, what we are seeing now are mere variations. So set up a system and method analysis and have it tailor make responses based on what has worked previously. With all those on the gravy train, not too many of those are going to jeopardize their government checks, I'm not sure what group the latest crop of tax avoidance is coming from? Self-employed, company workers, people with inheritances that have grudges for one reason or other? Probably artificial intelligence will kick in at some point identifying justifiable hard core anarchists with substantial income, leaving the harmless nuts and numbskulls alone.

[fortinbras]

Identifying for taxpayers (or, perhaps more precisely, people who submit returns with frivolous tax dodges) exactly where/how their tax returns made frivolous assertions would be uncommonly labor intensive (and therefore prohibitively expensive). It seems enough for the IRS to send these people a preprinted statement, "You have submitted a bogus argument. It's mentioned in this list along with plenty of other bogus arguments."; and enclosing a copy of the IRS's booklet of frivolous arguments.

At that point they can go to H&R Block and get their tax returns done properly.

[operabuff]

Probably about 10-15 years ago, Nina expressed concern with the IRS policy of warehousing refund claims that it thought were potentially fraudulent. The refund claim would figuratively disappear into a black hole - there would be no notice of claim disallowance sent. She was concerned that the taxpayer deserved some notice that their claim was being rejected. It was quite possible that taxpayers with legitimate claims were swept up in this practice. The IRS expressed similar concerns about workload, but eventually gave in and began issuing notices of claim disallowance.

Nina's concern, then and now, is that a broad brush IRS policy that may be effective in dealing with fraudulent or frivolous taxpayers, affects some innocent ones as well. In part, Nina's office is intended to be a safety valve for taxpayers caught up in the system. But not everyone knows to contact the local advocate. (The example she gives makes me wonder whether her employees are sometimes having trouble identifying what about a return caused it to fall into the frivolous category.) So if there's some way to fine tune the system to give these folks more of a chance, she'd be for it. I don't think that either the Truth or the IRB notice are going to provide any real help to a confused taxpayer. In some ways, they're more a defensive mechanism aimed at the frivolous taxpayer complaint that "you never told me what was wrong with my position."

I agree that what Nina suggests would be labor intensive but perhaps not uncommonly so. After all, some IRS employee has to look at the return to decide that it's frivolous in the first place - this is not a penalty that's imposed automatically in return processing. And it would only be prohibitively expensive because the IRS is already strapped for funds.