Tax protesters, the IRS is not amused

The purveyors of these often costly services say you must file a Freedom of Information Act request to get this information about your own account. But generally, you can get practically everything you need by filing a Form 4506-T (.pdf file) for all transcripts of tax returns, payment and assessment history, even W-2s and 1099s, related to a particular tax year.

Not only is it not adversarial, it's free. You should get most transcripts within two to six weeks. Transcripts of more recent years will arrive within about a week, depending on the IRS' workload.

So why did Kassel's client, the one who paid to decode the master file, seek Kassel's services? Ah, there's the hook. Once you've been scared into believing there's something sinister and illegal about the whole tax system, it's not hard to believe, say, that setting up a trust will make your income tax-free and safe from both the IRS and creditors.

That's where the promoters make their real money: selling these trusts. The fact is, you cannot hide your wages or business income in a trust without paying taxes on them. Legitimate trusts either pass the income through the trustees, or the trusts pay rather high tax rates.

Getting serious about frivolity

The IRS is focusing on these types of frivolous arguments. In November, the tax agency issued a detailed document explaining what it means by frivolous arguments. In it, you'll find information about the voluntary tax system, taxable income, an explanation of Internal Revenue Code terminology, the constitutional argument and fictional legal arguments.

The document also deals with another practice that's been eating up IRS time and resources, as well as those of the tax court. Once the frivolous statements are made on tax returns or frivolous arguments are advanced with regard to not filing at all, individuals who reject the tax code then use the very same law to file appeals and request due process hearings, requiring IRS collections and appeals staff members to appear and hear their cases.

Until the Tax Relief and Health Care Act passed in December 2006, the IRS was required to hear these cases, but the law contains a provision that allows the agency to disregard all hearing requests based on frivolous arguments filed after March 15, 2007.

The tax court benefits from this provision of the 2006 law because once a decision is reached in a collections-due-process hearing, the taxpayer may file a tax court petition within 30 days of the date of the letter. With no hearing, there's no opportunity for tax court, Kassel said.

To help reduce the incidence of frivolous arguments, the law also contains a provision increasing the penalties for frivolous tax returns to $5,000, up from $500.

Truth or fiction?

So the IRS issues all these notices, pronouncements, explanations. Big deal. Are they right? After all, with all these protesters out there fighting so hard, citing so many cases, even going to prison certain that they are in the right, they can't all possibly be wrong, can they?

The question so intrigued Pennsylvania estate attorney Dan Evans that he started listening to the arguments and reading the discussions on the topic. Whenever someone cited a case, he'd look it up. Evans learned that most of the cases cited either had nothing to do with the issue in question or were cases lost by a protester.

Evans saved his research on a segment of his Web site devoted to tax protester matters. Pretty soon, he'd built up the definitive file on a case-by-case basis. Evans analyzes the court cases and points out the flaws in each argument.

This is just a passion for him, not a vocation, so don't look to him for legal advice in frivolous filings.

Do tax protesters lose every single case? Have they no victories whatsoever? Well, there is one. Tommy K. Cryer was acquitted of tax evasion in U.S. District Court in Louisiana on July 1, 2007. This was a monumental public-relations victory for the tax protester movement. Until you read further -- and learn that he was acquitted only of misdemeanor charges for willfully failing to file his 2000 and 2001 tax returns. Cryer was not relieved of any tax debt. He still has to pay IRS all taxes, penalties and interest.

Once again, a court case didn't touch on the constitutionality of income taxes. All it did was settle a civil matter of willfulness. Close, but no cigar.

This article was reported and written by Eva Rosenberg for MarketWatch.

Updated Feb. 1, 2008

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