August 16, 2013: New memo, “Application of Section 6702 Penalty to Taxpayer Who Files a Return with War Complaint” released by the Office of Chief Counsel of the IRS clarifies that a frivolous penalty does not apply when a letter is enclosed with an accurate 1040 form filing — a small victory for taxpayers who protest war!
If you believe that you were improperly assessed the penalty, send in a request for an abatement (Form 843) to the frivolous penalty program: Internal Revenue Service, Attn: FRP M/S 4450, 1973 N. Rulon White Blvd., Ogden, UT 84404.
March 2013 — NWTRCC has heard from a few people who have recieved a letter from the IRS stating that their correspondence contains frivolous arguments. These letters contain a warning about the potential $5,000 filing penalty, so they are rather frightening to most recipients. Calling the 800 number to find out why the letter was sent is a good option.
One war tax resister who received the “general warning letter” called the 800 number. She reported in an email that the IRS person she spoke with told her this:
Like the one mentioned in the last couple points above, or it might say something like this:
“This letter serves to inform you of the potential consequences of the position you have taken and to offer you an opportunity to correct your submission within 30 days from the date of this letter. Internal Revenue Code Section 6702 imposes a $5,000 penalty for the filing of a frivolous tax return or purported tax return. We are proposing a $5,000 penalty per return based on your filing of a frivolous tax return(s) or purported tax return(s).”
From late summer 2010 to the present, a few war tax resisters have received this letter or a similar one and contacted NWTRCC. Each had filed a normal return by April 15 and enclosed a letter stating their reasons of conscience for refusing to pay some or all of the total shown to the IRS. In these cases there was nothing improper (per IRS standards) about the way the return was completed.
NWTRCC takes the position that the IRS’s “frivolous office” in Ogden, Utah, is improperly sending this letter to resisters who have filed their return with no extraneous deductions, credits, or messages written on the form. The regulation clearly refers to a “frivolous tax return.” An enclosed letter, just because it shows what the IRS considers a “frivolous” position, should not generate threats of the $5,000 penalty. We do wonder about freedom of speech and the IRS.
However, we know of two war tax resisters who filed and refused to pay and have been assessed the $5,000 penalty since the fall of 2010. They received the “problem” letter and either did not reply to it, called the 800 number on the letter, or sent a note explaining that the return as they filed it was correct but did not refile. Some months later each received a letter with the penalty notice. When they contacted the IRS to complain, they were told “pay the penalty and then you can appeal it.”
While we find this IRS procedure unacceptable, it seems that things have shifted at the IRS to the point where ignoring the “problem” letter could lead to assessment of the $5,000 penalty. NWTRCC’s legal advisor indicates in July 2011 that “this is a serious, recurring problem that is only getting worse.” The IRS appears to be enforcing rules set by Congress that the penalty must be paid before it can be challenged — a big problem for most conscientious war tax refusers.
The general letter (first section above) seems to be sent in response to letters to the IRS but not necessarily with your 1040. The “problem” letter is more likely to be in response to your 1040 and whatever you sent with it, and you may be asked to refile a corrected form. We see no valid reason for the IRS to be sending this letter to war tax protesters and resisters and ask that they stop doing so. However, we cannot guarantee that you will not be assessed the penalty of $5,000 at some point. How collectible you are may influence what you decide to do.
Note: We get many calls from people who have filed 1099 OID and ended up with a $5,000 frivolous penalty — or more. We do not know how to fight this, but we also do not recommend using this method. Check back with whoever suggested you file this form in the first place and tell them what happened to you. Search the web for other information on use of this form.
As far as the $5,000 penalty goes, it is important to understand the dual requirement of Section 6702, which reads:
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.
Note the “and” between parts (1) and (2) which we have highlighted.
Section 1 states that there must be something suspect about the return filed, and that you are showing what the IRS considers a frivolous argument in order for the fine to apply. If you have filled out your return in good faith and as accurately as possible (whether you paid any tax due or not), then a frivolous penalty should not be applied and should definitely be argued in any case by calling the IRS office number on the letter.
The IRS has lots of information about the categories they consider frivolous and the application of the penalty on their website. http://www.irs.gov/taxpros/article/0,,id=159853,00.html.
Please help us keep our information accurate and up-to-date. Let us know what happens if you receive a frivolous warning letter. Contact NWTRCC at (800) 269‒7464 or by Email.