10 Bizarre Claims People Make to Avoid Paying Taxes

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Resistance to taxes is baked into Americans’ DNA. After all, it was cries of “taxation without representation” that spurred the American Revolution. Tax protests have continued on and off ever since, from the Whiskey Rebellion to Vietnam War-era tax resisters to the “sovereign citizen” movement.

People object to paying taxes for all kinds of reasons, from opposition to certain policies to not recognizing the government’s authority to collect taxes in the first place, but the IRS isn’t having it. No matter what you read on the internet or your weird Uncle Bob says, you can’t get out of paying taxes without suffering consequences.

“The IRS and the courts hear many outlandish arguments from people trying to avoid their legal filing and tax obligations,” IRS Commissioner John Koskinen said in a statement. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law.”

Now, that doesn’t mean there aren’t things you can do to legally avoid taxes. Taking all your deductions or moving money into tax-sheltered accounts like a 401K are perfectly acceptable ways to lower your tax bill. It’s when you get into weirder tax avoidance strategies that you run into problems. (Note: Not paying your taxes can have serious implications for your credit. Check out our quick guide for keeping your taxes from messing with your credit. While you’re at it, you can also get your two free credit scores, updated every 14 days.)

Trying to claim that filing a tax return is optional, that you aren’t really a citizen of the U.S., or that only certain types of income are taxable will backfire. When you submit a frivolous return or slam the IRS with other off-the-wall requests the result may be a fine of $5,000 to $25,000. Plus, you could also be prosecuted for tax evasion, a felony punishable by prison time and penalties of up to $250,000.

The IRS spends a lot of time and energy debunking various convoluted anti-tax arguments, and it’s collected dozens of them in a document titled “The Truth About Frivolous Tax Arguments.”

Below, we’ve highlighted 10 of the more bizarre reasons why people say they shouldn’t have to pay taxes.

1. Filing a Return & Paying Taxes Is Voluntary

The first and perhaps most direct argument against the U.S. tax system is the idea that filing a return and paying taxes is voluntary. Primary points include court cases like Flora v. United States, in which the term “voluntary” is used to describe how the tax system is based on “voluntary assessment and payment, not upon distraint.”

But when the IRS says filing a return or paying taxes is “voluntary” what it really means is that a taxpayer has the right to determine his or her tax liability by completing the appropriate forms, as opposed to having the government complete the forms and determine the bill. It doesn’t mean you have the option to opt out of the system entirely.

2. The Money They Earned Isn’t Really Income

According to this anti-tax argument, the money you receive for working isn’t technically income. Rather, you’re engaged in an equal exchange of your labor for fair market wages, and thus there’s no “gain” to be taxed. In this view, the government only has the right to tax gains or profit, not wages.

In reality, the IRS is allowed to tax virtually all your income, whether it’s dividend income from stocks or wages you receive from your employer. Exceptions include gifts and inheritances (though large estates may have to pay an estate tax), child support, life insurance benefits, and welfare payments.

3. Taxes Are Against Their Religion

You may not believe in paying taxes, but the IRS isn’t buying it. Though churches and other religious institutions are exempt from taxes, the same does not apply to individual taxpayers.

Allowing people to opt out of taxes on religious grounds would cripple the tax system. In the United States v. Lee, the U.S. Supreme Court ruled that “[t]he tax system could not function if denominations were allowed to challenge the tax system because tax payments were spent in a manner that violates their religious belief.”

4. Paying Taxes Violates the Fifth Amendment

Some argue that including financial information on a return may bring unlawful or illegal activity to light, thereby forcing a taxpayer to forego their Fifth Amendment protections.

The IRS calls this a “blanket assertion” of constitutional privilege. The agency asserts that there are no constitutional grounds for the refusal to file a tax return based on the Fifth Amendment. In cases like the United States v. Sullivan and the United States v. Neff, the courts back the IRS’s position.

5. Paying Taxes Is a Form of Slavery

The U.S. has prohibited involuntary servitude (except as punishment for a crime) since 1865, when the 13th Amendment was ratified. Since then, some anti-tax protestors have tried to equate paying taxes to slavery, arguing that having to send some of their money to the IRS is a constitutional violation. Even prominent politicians have evoked this absurd anti-tax argument. “If we tax you at 50% you are half slave, half free,” Rand Paul said in 2015. But the IRS and the courts have declared the “taxes equals slavery” claim bogus.

On the flip side, arguments that African-Americans and Native Americans can claim a tax credit as reparations for slavery and other forms of oppression are invalid. While there have been serious arguments that the U.S. should pay reparations to the descendants of former slaves, the government has not taken any such action.

6. The 16th Amendment Doesn’t Count

The 16th Amendment to the Constitution is short and to the point: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Yet some tax protestors argue the 16th Amendment is invalid because it was not properly ratified or that Ohio was not properly a state at the time it voted for the amendment. (Ohio has been a state since 1803; the amendment was ratified in 1913.) “Proponents mistakenly believe that courts have refused to address this issue,” the IRS noted. “There were enough states ratifying the Sixteenth Amendment even without Ohio to complete the number needed for ratification. Furthermore, after the Sixteenth Amendment was ratified, the Supreme Court upheld the constitutionality of the income tax laws.”

7. Their State Isn’t Part of the United States

Among the goofier anti-tax arguments is the assertion that only people who live in the District of Columbia, in federal territories, or on Indian reservations or military bases have to pay federal income tax. Everyone else is supposedly a citizen of a “sovereign” state, not the U.S., which means they’re exempt from federal income tax. Not so, says the IRS.

“The Internal Revenue Code imposes a federal income tax upon all United States citizens and residents, not just those who reside in the District of Columbia, federal territories, and federal enclaves,” the IRS explained.

8. The IRS Is Secretly a Private Corporation

Some conspiracy theorists are convinced the IRS isn’t actually part of the federal government at all. Supposedly, it’s a private corporation masquerading as a government agency, and it actually has no authority to enforce the tax code. In the 2002 case Edwards v. Commissioner, the court dismissed the claim as “tax protestor gibberish.”

9. They’ve Rejected Their Citizenship

You can’t reject your U.S. citizenship or claim to be a “free born citizen” of a particular state in order to get out of paying taxes. “Claims that individuals are not citizens of the United States but are solely citizens of a sovereign state and not subject to federal taxation have been uniformly rejected by the courts,” according to the IRS.

Even if you were to formally renounce your U.S. citizenship (which involves appearing in person at a U.S. embassy or consulate in another country), you still may not be able to escape your tax bill. “Persons who wish to renounce U.S. citizenship should be aware of the fact that renunciation of U.S. citizenship may have no effect on their U.S. tax or military service obligations,” the State Department explained.

10. They Aren’t Technically a Person

In various court cases, this argument has been declared “meritless” and “frivolous and requir[ing] no discussion.” Here’s a tip: If the government is willing to consider a corporation a person, they’re definitely going to consider a person a person.

Erika Rawes contributed to this article.

This article originally appeared on The Cheat Sheet.

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Can’t Find a Tax Preparer Because You Procrastinated? Here’s What to Do

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For whatever reason this year, you haven’t filed your personal tax return and now you’re pushing up against the deadline. And all the tax preparers you’ve reached out to are booked solid. If you can’t or don’t want to do your taxes yourself, you’re running out of options … or are you?

Here are four ways to get your 2015 taxes filed on time.

1. Cast a Wider Net

Even if you think you’ve contacted every tax preparer in town, you might’ve missed one or two or 10. Widen your search using the IRS’s public directory of tax return preparers. You can use this tool to help you select a tax return preparer with the credentials and qualifications that you prefer, and hopefully the availability you need.

The American Institute of Certified Public Accountants also offers a list of all the state CPA member organizations, which often can connect you with a local CPA who might be able to help you file.

2. Use a Tax Preparation Software

The IRS offers free software to help you file your taxes, but that requires you to actually know how to file your taxes yourself. Some of the same companies that work with the IRS to provide free tax software also offer inexpensive paid online filing for those who don’t qualify for free filing.

3. File for an Extension

If you’ve waited this long, why not just push that filing deadline back to October? This year, you can if you file Form 4868 before April 18 (you can file your extension electronically right on the IRS website). Just keep in mind that an extension to file is not an extension to pay, so if you think you owe taxes, you’ll need to estimate and pay those by April 18.

4. Seek Free Guidance

As harrowing as it might seem, you really can do your own taxes, and the whole process of doing them could take you only a handful of hours, so it might just be time to bite the bullet and get them done. If you’re new to doing your own taxes, or have a more complicated return this year and need some guidance, you can often find resources at your local library and even at universities and colleges. Give them a call and see if they can help.

And if you make less than $54,000 annually or are aged 65 or older, you can qualify for free tax preparation assistance from the IRS.

Remember, owing the IRS a big tax bill doesn’t automatically affect your credit, but how, when and if you choose to pay your taxes does. When considering how to pay your taxes, you may want to give your credit scores a look. You can see two credit scores for free each month on Credit.com, and the information may help you determine whether you can afford adding to your debt load or if you can qualify for a personal loan to help you pay your taxes.

More on Income Tax:

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Can’t Find a Tax Preparer Because You Procrastinated? Here’s What to Do

find-tax-preparer

For whatever reason this year, you haven’t filed your personal tax return and now you’re pushing up against the deadline. And all the tax preparers you’ve reached out to are booked solid. If you can’t or don’t want to do your taxes yourself, you’re running out of options … or are you?

Here are four ways to get your 2015 taxes filed on time.

1. Cast a Wider Net

Even if you think you’ve contacted every tax preparer in town, you might’ve missed one or two or 10. Widen your search using the IRS’s public directory of tax return preparers. You can use this tool to help you select a tax return preparer with the credentials and qualifications that you prefer, and hopefully the availability you need.

The American Institute of Certified Public Accountants also offers a list of all the state CPA member organizations, which often can connect you with a local CPA who might be able to help you file.

2. Use a Tax Preparation Software

The IRS offers free software to help you file your taxes, but that requires you to actually know how to file your taxes yourself. Some of the same companies that work with the IRS to provide free tax software also offer inexpensive paid online filing for those who don’t qualify for free filing.

3. File for an Extension

If you’ve waited this long, why not just push that filing deadline back to October? This year, you can if you file Form 4868 before April 18 (you can file your extension electronically right on the IRS website). Just keep in mind that an extension to file is not an extension to pay, so if you think you owe taxes, you’ll need to estimate and pay those by April 18.

4. Seek Free Guidance

As harrowing as it might seem, you really can do your own taxes, and the whole process of doing them could take you only a handful of hours, so it might just be time to bite the bullet and get them done. If you’re new to doing your own taxes, or have a more complicated return this year and need some guidance, you can often find resources at your local library and even at universities and colleges. Give them a call and see if they can help.

And if you make less than $54,000 annually or are aged 65 or older, you can qualify for free tax preparation assistance from the IRS.

Remember, owing the IRS a big tax bill doesn’t automatically affect your credit, but how, when and if you choose to pay your taxes does. When considering how to pay your taxes, you may want to give your credit scores a look. You can see two credit scores for free each month on Credit.com, and the information may help you determine whether you can afford adding to your debt load or if you can qualify for a personal loan to help you pay your taxes.

More on Income Tax:

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4 Smart Things to Do With Your Tax Refund

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There’s a good chance you’re probably getting a refund from the federal government sometime soon, if you haven’t already (and if you aren’t among the thousands of people who experience delays because of taxpayer identity theft).

There are a few ways to look at that deposit. For one, you might be a little bitter when you realize how much you let the government borrow from you in the last year, interest-free. You might also be excited: No matter what the amount is, you can really improve your financial situation if you think carefully about how to use that money and execute your plan accordingly.

If you’re wondering what to do with your tax refund, here are some things to consider.

1. Boost Your Savings

Having an emergency fund is crucial to your long-term financial well-being. When an unexpected expense pops up, like a medical bill or urgent car repair, having an emergency fund can help you avoid going into credit card debt or ending up with a collection account on your credit report. Both those things can really drag down your credit scores. (You can see two of your credit scores for free every 30 days on Credit.com.)

Many financial experts recommend you keep 3 to 6 months’ worth of income in an emergency fund, but no matter where you’re at with that, it’s really important to have some money stashed away. A tax refund is a great way to get started.

2. Adjust Your Withholding

One of the smartest things you could do with your refund is use it as a piece of information to improve your financial strategy going forward. If you have a massive refund, you might want to adjust your withholding for next year so you have more income at your disposal on a regular basis. Conversely, if you just barely got a refund or think your tax liability might go up next year, you might want to think about how you could maximize your refund in the future. Once tax season has died down, you could consult a tax professional about what you might want to change for next year, based on this year’s refund.

3. Get What You Need

Everyone puts off important purchases because they’re expensive, and it never feels like a good time to spend a lot of money. If your savings are in good shape and you don’t have a lot of debt, your tax refund might be the opportunity you need to get some of those need- or nice-to-haves on your list. You could also put it toward buying a home or a car, if that’s something you’re working toward.

4. Pay Off Debt

The longer you have debt, the more it costs you. Your tax refund could help you save money by reducing the balances on your credit cards or tackling that student loan debt you want so badly to get rid of. You can either target your largest debts, the ones with the highest interest rates or an account you can entirely pay off with your refund — whatever motivates you most to continue working on paying down what you owe. (You can go here to calculate the lifetime cost of your debt.)

There’s no one “right” thing to do with your tax refund, but no matter what you decide, try not to rush into spending that money. This opportunity only comes around once a year — though you don’t have to spend it all at once — and you can make significant progress toward your financial goals when you use your tax refund.

More Money-Saving Reads:

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Can I Pay My Taxes Late?

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Q. If I know I will owe taxes, is there an advantage to filing later? Or even doing an extension?
— Gonna owe

A. Let’s start with the rules that affect the timing of paying your taxes.

If the tax you owe is more than $1,000, the federal government will not allow you to pay your income taxes in one single payment — unless that payment was made in the first quarter of the year, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown, N.J.

“You must pay your taxes in through payroll withholding or quarterly estimated payments or a combination of the two,” Kiely said. “The amount you must pay in is the lesser of 100% of the prior’s year’s taxes or 90% of the current year’s taxes.”

If your adjusted gross income last year is $150,000 or more, you must pay in 110% of the prior year’s tax or 90% of this year’s tax, Kiely said.

These quarterly payments are due April 15 — the day your tax return is due — June 15, Sept. 15 and Jan. 15 of the next year.

Kiely said there is an exception to the four quarterly payments rule.

“Let’s assume you earn 100% of your annual income in a short period of time, say from Aug. 1 to Oct. 15,” he said. “That’s over two estimated tax quarters. You wouldn’t want to be required to make a payment in April or June — you had no income.”

Kiely said there Form 2210 is used to calculate underpayment penalties. Then there’s Form 2210 AI (Annualized Income), which would be used to show how much you earned each quarter and the resulting required payment. There is also form 2210 F, which is used for farmers.

“So if you owe more than $1,000, the interest and penalty clock is already running,” Kiely said. “Unless you meet one of the exceptions, the longer you wait to pay, the more you will owe.”

Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield, N.J., said you have the option of filing for an extension, and if you do so prior to April 15, you will not incur a late filing penalty as long as all your tax liability has been paid on a timely basis.

“However the extension only gives you extra time to actually file your return,” he said. “It does not give extra time to pay the taxes due.”

He said the interest rates assessed by the IRS are extremely high especially in light of the current low interest rates in the market. Interest rates on state taxes will vary by state, and you can check with your state’s tax authority to find out more details.

“There is absolutely no benefit to delaying the payment of your tax balance since neither the IRS nor the State of New Jersey want to be in the business of lending money, and therefore they purposely make it cost prohibitive to owe them money,” he said.

Good luck!

[Editor’s Note: Remember, a tax lien can hurt your credit score. You can see where your credit currently stands by viewing your two free credit scores each month on Credit.com.]

More on Income Tax:

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Can We Pay Off Debt to Qualify for More Financial Aid?

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Q. My daughter goes to college in one year. We’ve saved a lot in 529 plans and retirement accounts, and we only have about $45,000 in a brokerage account that would count against us for financial aid purposes. I also have $20,000 in credit card debt. Should I sell the stocks and pay off debt so we appear to have less cash for financial aid purposes? The brokerage money has no real goal.

A. Paying off debt can be a great thing, but let’s first talk about financial aid and how your assets will be considered.

The first step in the financial aid process is completing a form called the Free Application for Federal Student Aid, better known as FAFSA, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette, NJ. Roughly 300 schools also require another form known as the CSS Profile, which is short for the College Scholarship Service Profile.

We’ll focus on the more common FAFSA form and how it treats various assets for financial aid purposes.

“On a macro level, the FAFSA formula treats income/assets as follows: 20% of student’s assets (excluding 529s), 50% of student’s income after some allowances, 2.6% to 5.6% of parental assets based on sliding income and allowances, and 22% to 47% of a parent’s income based on sliding income and allowances,” Maye said.

These percentages are all important for the starting point for need-based financial aid — the calculation of the Expected Family Contribution (EFC) — which considers income as well as assets of both the parent and student, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge, N.J.

“Neither mortgage debt nor consumer debt such as auto loans and credit card balances can be used to offset the value of investment assets in calculating the net worth, which is entered into the formula,” Mott said.

Now with your situation, Maye said, the 529 plans as a parental asset may reduce financial aid by a maximum of 5.64%, depending on your circumstances.


“In terms of the retirement accounts, it is good news as the calculation excludes retirement assets such as 401(k)s, IRAs and Roth IRAs,” Maye said. “However, if you tap a retirement asset to pay college bills — including a Roth IRA — that is considered income on the following year’s FAFSA.”

Maye said your brokerage account receives the same treatment as a 529.

Using your assets to pay debt can reap multiple rewards, Mott said.

“It may reduce the EFC, your cash flow should improve without the monthly payments and you will save the interest expense as well,” she said.

Assuming you have an adequate emergency fund, it likely makes sense for you to use the taxable brokerage account to pay off credit cards, Maye said.

“The primary reason it makes sense to the pay off the credit card debt is it eliminates a non-tax-deductible, high interest rate liability,” Maye said. “The fact that it might be helpful from a financial aid perspective is a secondary benefit.”

But, before you use your brokerage account to reduce the outstanding balance on your credit cards, be sure you understand the tax consequences of the decision, Mott said.

“The addition of possible capital gains to your adjusted gross income that aren’t fully offset by taxes might actually increase your calculated EFC,” she said. “You also don’t want to end up with a tax bill you hadn’t anticipated come next April.”

She recommends you speak with a tax professional to determine what, if any, capital gains might result from the sale and how that would affect your 2015 income tax profile.

More on Student Loans:

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