Ask Phil: Can the IRS Charge You $5,000 for a Frivolous Tax Return?

Today, Optima Tax Relief’s Chief Tax Officer and Lead Tax Attorney, Phil, shares an important warning for taxpayers: filing a frivolous tax return can result in a $5,000 civil penalty. Under IRC Section 6702, the IRS has identified dozens of arguments, listed in Notice 2010-33, that it considers frivolous. Here are some examples and what you should know before submitting anything to the IRS. 

What Is a Frivolous Tax Return? 

The IRS can charge a $5,000 penalty if you file something that looks like a tax return but is missing key information or clearly shows the wrong tax amount. But that alone is not enough. The filing must also use an argument the IRS considers frivolous or appear to be submitted just to delay or interfere with the tax process. A separate $5,000 penalty can also apply to certain IRS requests, including a collection due process hearing request, installment agreement request, Offer in Compromise, or taxpayer assistance order request, if the submission is based on a frivolous position or appears intended to delay the IRS. 

Examples of Frivolous Positions 

Some examples include: 

• Claiming federal income tax is unconstitutional: Using this argument as a reason to refuse to pay taxes. 

• Making false or unsupported fuel tax credit claims: Claiming credits without a valid basis.  

• Submitting an Offer in Compromise to delay collections: Filing an offer based on a frivolous position or with the apparent purpose of delaying IRS collection efforts. 

You’re Responsible for What You File 

Even if you rely on a tax preparer to file your return, you are responsible for reviewing what you submit to the IRS. Relying on someone else to prepare your return doesn’t automatically protect you from penalties. 

Avoid Costly Penalties 

Before submitting a tax return or other document to the IRS, make sure your claims are accurate and supported by tax law. Frivolous filings can waste taxpayer resources and lead to a $5,000 civil penalty. In certain circumstances, the IRS may reduce an unpaid penalty if the taxpayer meets specific requirements. 

The bottom line: Don’t use frivolous arguments or claims to avoid your tax obligations. Review what you file carefully to help protect yourself from costly penalties. 

If you need tax help, contact us today for a Free Consultation