Self-Directed IRA owners tend to be a fiercely independent lot. Our clients tend to be entrepreneurially-minded, and of course have enough confidence in their own investment acumen to leave the Wall Street brokers behind and invest their retirement nest eggs in non-traditional assets and asset classes such as real estate properties, gold and precious metals, and their own LLCs, closely-held corporations and partnerships.
Occasionally, Self-Directed IRA owners find themselves in tax courts over a variety of disputes with the IRS. Most of these involve mistakes made by well-meaning but undereducated investors who did not full understand the rules prior to making ill-advised or questionable transactions. Others involve genuine disputes with the IRS over the proper application of the law.
The first instances are the regrettable consequences of failing to get expert advice prior to making aggressive transactions. The second instances are legitimate good-faith disagreements, though they aren’t always resolved in the Self-Directed IRA owner’s favor.
In each case, though, you can go through the legal process, pay the fines and penalties that normally apply to others who make the same transaction errors, and get on with life.
There are some arguments, however, that the IRS has long since decided are so obtuse, abusive or just plain stupid that they make the list of frivolous arguments. If you make these arguments in court, wasting both the court’s and the IRS’s time, you could be subject to further fines and penalties.
Among these frivolous arguments as defined by the IRS:
- The filing of a tax return is voluntary
- Paying federal income taxes is voluntary.
- You can reduce federal income tax liability by filing a ‘zero return.
- Only foreign-sourced income is taxable
- The term “United States” refers only to the District of Columbia and federal territories and enclaves
- The taxpayer is not a “person” as defined by the IRC
- Only federal employees are subject to income tax
- The First Amendment allows citizens to refuse to pay taxes on moral or religious grounds.
- Income taxes represent an unconstitutional taking under the 5th Amendment
- Compulsion to comply with income tax laws violates the 13th Amendment
- Federal income tax laws are unconstitutional because the 16th Amendment was never properly ratified.
- The IRS is not an agency of the United States
These are just twelve of the most common frivolous arguments fielded by taxpayers who find themselves subject to IRS enforcement, or who fall prey to a variety of conspiracy theorists and legal and financial snake oil salesmen.
This IRS publication will walk you through all the common frivolous arguments that IRS and tax court officials have heard and long since rejected. If your personal or tax lawyer or other financial or legal ‘guru’ is seriously advocating you go to court relying on any of these arguments, you probably need to find another advisor.
Otherwise, in addition to accuracy penalties, late fees, interest and ‘failure to file’ penalties, you could be subject to Tax Court imposed penalties of up to $25,000 under IRC Section 6673(a), among other sanctions.
For more information on the taxation of Self-Directed IRAs and other myths, mistakes and pratfalls in IRA and other retirement planning subjects, visit American IRA, LLC via the Web at www.americanira.com. Or if you are interested in pursuing Self-Directed IRA strategies within your own portfolio, or want to learn how to diversify into non-traditional asset classes within your retirement portfolio, call us today at 866-7500-IRA (472).
We look forward to working with you.