What To Do If You Receive a “Frivolous” Letter from the IRS
Congress enacted the Tax Equity and Fiscal Responsibility Act in 1982, which included section 6702 (below) and introduced the IRS’s “Frivolous Return Program” to deter tax protesters. Since about 2000, the Frivolous Return Program has been located in the IRS Service Center in Ogden, Utah. The penalty associated with frivolous returns was $500 until 2007 when Congress allowed an increase to $5,000.
In the 1980s some war tax resisters were slapped with the penalty for claiming war tax deductions or credits, or for writing other protest messages on their IRS 1040 or EZ returns. War tax resistance counselors began to encourage filers not to write such protests, deductions, or credits on their tax forms if they wanted to avoid the penalty.
Starting in about 2003, random war tax resisters around the country (by no means all) who enclosed a protest letter when they filed their taxes began to receive frivolous filing warning letters or the penalty itself. A “systemic issue” complaint was filed with the Taxpayer Advocate, which resulted in a 2013 memo from the IRS Office of Chief Counsel, “Application of Section 6702 Penalty to Taxpayer Who Files a Return with War Complaint,” which clarifies that a frivolous penalty does not apply when such a letter is enclosed with an accurate 1040 form filing — a small victory for taxpayers who protest war!
As of 2014, there seem to be two types of letters that the IRS sends in response to what they consider to be frivolous returns. These are explained in the following sections.
General Warning Letter
NWTRCC has heard from a few people who have received 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, but you can ignore them or call the 800 number to ask why you got this letter, and you should be reassured that it is merely a computer generated warning.
One war tax resister who received this letter in 2014 called the IRS number on the letter. She reported her conversation with the IRS in an email, which is quoted here:
If you get a letter saying “We have determined that the arguments you raised are frivolous… etc.” you “can disregard the letter”! The computer sends out that alarming sounding letter [inconsistently] when you enclose anything in the same envelope with your tax return, or perhaps even mail something to them later. They have no record of what you may have sent them. When I spoke to the person at the IRS address where I would mail my taxes, they don’t have any record that I am in the “frivolous” category either.
You don’t have to get alarmed until you receive a letter from Ogden, Utah phrased: “WE HAVE RECEIVED A RETURN and that return was considered Frivolous… you have thirty days to…”
As long as the financial info on the return is correct and you wrote nothing on the return about not having to pay, you are OK, unless you also wrote them a letter, in which case the computer will automatically send you a letter saying you are frivolous, but no action is taken. The return itself has to be considered frivolous, and you may eventually receive a letter specifically saying your return was frivolous.
“Threat” Letter — “Refile or else”
This IRS letter from the Ogden, Utah, office requires more attention if you do not want to be slapped with the $5,000 penalty. It starts off:
We may assess a $5,000 frivolous filing penalty against you
File a corrected [year] Form 1040 tax return immediately
You recently filed an unsubstantiated tax return claiming one or more frivolous positions. This means we found some of the information on your tax return to be frivolous and that your position has no basis in the law. (Internal Revenue Codes section 6702).
If you don’t correct these errors immediately, we’ll assess a $5,000 frivolous filing penalty against you. You can avoid this penalty if you file a corrected return within 30 days of this notice date to the address on the Return coupon below.
- If you receive this “threat” and want to avoid the penalty, some response is probably necessary. Call the 800 number on the letter to ask why you got it. If you sent a letter of protest and are confident your return was filed accurately, you should not have to refile. On the phone or in correspondence, refer to the 2013 memo mentioned above.
- If the penalty was applied erroneously, you can request a waiver authority to abate the penalty because the IRS made a mistake in applying the penalty. Base arguments on the language in the 2013 memo. If the money was paid or seized, you can 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.
- Contact the Taxpayer Advocate office in your area if you are not getting any response from the IRS. Contact your Congressperson to make them aware that the IRS is not following guidelines as regards the frivolous filing penalty (or to complain about the liberties they take in applying this penalty).
- If the $5,000 penalty was imposed, you can use IRS Form 14402 to request a reduction of the penalty to $500.
- It seems reasonable to deduce that the IRS has carried out the “frivolous” policy in a random and inconsistent way. Some IRS employees may have a limited understanding of the regulation, or perhaps they just don’t like seeing a letter sent with a return. The staff in the Frivolous Return Program was to be retrained as regards the 2013 memo, but time will tell if war tax resisters continue to have problems.
Background and Experiences
- In 1984 longtime war tax refuser Karl Meyer called for a “cabbage patch” response, filing a 1040 form every day for a year to defy the policy. He was assessed $140,000 in penalties during 1984, and in February 1985 the IRS seized his station wagon in an attempt to collect on the fines. It was sold for $1,020. Karl continues to refuse to pay for war.
- If you want to avoid a frivolous penalty, NWTRCC and war tax resistance counselors encourage filers not to write protests or deductions or credits directly on their tax forms.
- In 2010 a few war tax resisters received warning letters, and despite following steps that should have cleared the fine, the IRS went ahead and imposed the $5,000 penalty. The IRS then began to demand the fine be paid before it could be appealed.
- In 2011 a NWTRCC activist filed a complaint online to the Taxpayer Advocate Service Systemic Advocacy Management. The complaint questioned the application of the frivolous penalty when a filer has enclosed a letter of protest with their accurate form. In August 2013, the IRS legal office issued a memo, “Application of Section 6702 Penalty to Taxpayer Who Files a Return with War Complaint,” to clarify for their workers that the penalty does not apply in this situation.
- After the release of the 2013 memo (see above point) three war tax resisters who paid the penalty or had it seized received full refunds—with interest! Each had filed IRS Form 843 Request for Abatement. (See NWTRCC newsletter, Aug./Sept. 2013, p. 2; April/May 2014, p. 8)
- In November 2019, two resisters in the NWTRCC network were threatened with the more serious letter if they did not refile their 2018 tax forms. The threatening letter did not state what was frivolous about their 2018 returns, but the only thing the two resisters had in common was that they had both sent letters with their returns. In both instances the threatened fines were dropped after the resisters protested, but the IRS never admitted that the threats were issued because the resisters had sent letters with their tax forms.
- The situation with the resisters in 2019 made clear that if the IRS sends the more serious letter, one’s tax forms are not marked at received until the matter is resolved. This could cause problems for resisters who depend on the Obamacare Premium Tax Credits, which require that the recipient has filed their taxes. If your local state health care market place sends you notice that you are disqualified for the tax credits because you did not file, you will need to explain that you did file and that you are in a dispute with the IRS over a threatened frivolous fine.
- It’s important to argue wrongful imposition of the penalty. In 2008 a first-time resisting couple withheld $50 from their tax due and sent a letter with their 1040 explaining their war tax resistance protest. The IRS responded with a frivolous filing warning letter, and the couple complied with the IRS demand to refile and pay the tax. Despite that they were slapped with the $5,000 penalty—each. The couple did not pay the penalty but immediately called the IRS to complain, filed a complaint with the Taxpayer Advocate office, and contacted their Congressperson’s office. The fine was eventually lifted, but the stress was hard to get over.
- One thing that distinguishes war tax resisters regarding frivolous arguments is our protest against war taxes but not necessarily taxation. The IRS refers to “erroneous legal positions that taxpayers should refrain from using as an excuse to avoid paying their taxes.” Unlike some other tax protesters assessed with the frivolous penalty, most war tax resisters aren’t claiming exemption from taxes; they are objecting to how taxes are being spent. That claim of exemption is what really sets off IRS alarm bells. Many war tax resisters do pay taxes through redirection to groups who will not use their money for killing. Unfortunately there is no legal allowance for such redirection.
- Contact NWTRCC by phone at (800) 269‒7464 or by email so that we can keep track of what the IRS is up to on this issue and better understand the best actions to take in response to IRS actions in this area.
Note: Generally NWTRCC’s counseling information in this area applies only to war tax resisters. We are not able to track all the ways the IRS applies the fine to tax protests. We warn that writing protests on the 1040 form, filing blank or “zero” returns, applying for refunds based on questionable methods or “creative” uses of IRS forms, like the 1099 OID, can lead to frivolous penalties, as can continual correspondence sent to the IRS using arguments they consider frivolous. It may not be right, but the IRS has broad power to apply the fine.
As far as the $5,000 penalty goes, it is important to understand the dual requirement of Section 6702, which reads in part:
(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.
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 by calling the IRS office number on the letter.
More from the IRS on Frivolous Positions
Notice 2010-33 from the IRS indicates other circumstances under which the fine can be applied, with 46 types of frivolous positions listed and discretion for the IRS to define more at any time. The text allows for broad interpretation by IRS workers and, importantly, the penalty may be applied to correspondence to the IRS other than the filing of a tax return:
Positions that are the same as or similar to the positions listed in this notice are identified as frivolous for purposes of the penalty for a “frivolous tax return” under section 6702(a) of the Internal Revenue Code and the penalty for a “specified frivolous submission” under section 6702(b). Persons who file a purported return of tax, including an original or amended return, based on one or more of these positions are subject to a penalty of $5,000 if the purported return of tax does not contain information on which the substantial correctness of the self-assessed determination of tax may be judged or contains information that on its face indicates the self-assessed determination of tax is substantially incorrect.
Likewise, persons who submit a “specified submission” (namely, a request for a collection due process hearing or an application for an installment agreement, offer-in-compromise, or taxpayer assistance order) based on one or more of the positions listed in this notice are subject to a penalty of $5,000.
The penalty may also be applied if the purported return or any portion of the specified submission is not based on a position set forth in this notice, yet reflects a desire to delay or impede the administration of Federal tax laws for purposes of section 6702(a)(2)(B) or 6702(b)(2)(A)(ii). The penalty will be imposed only when the frivolous position or desire to delay or impede the administration of Federal tax laws appears on the face of the return, purported return, or specified submission, including any attachments to the return or submission.