As part of the Tax Equity and Fiscal Responsibility Act of 1982,102 Congress enacted a penalty for filing a frivolous income tax return. This penalty is codified at IRC § 6702.

The penalty is $500.00. It may be imposed on any individual who files any document which purports to be a tax return but fails to contain information from which the substantial correctness of the amount of tax shown on the return can be judged, or contains information which on its face indicates that the amount of the tax shown on the return is substantially incorrect and such conduct arises from a frivolous position taken by the taxpayer or a desire of the taxpayer, which is apparent from the face of the return, to delay or impede the administration of the tax laws.103

The penalty is immediately assessable. The taxpayer need not be given any advance warning before assessment. To challenge this penalty, the taxpayer must pay 15% of the penalty and file for a refund with the IRS. If the refund is denied, the taxpayer may seek review in the Federal District Courts.104  The constitutionality of the frivolous return penalty has been upheld against challenge under the First Amendment105 and the Due Process Clause.106

It should also be mentioned that the Federal courts may impose penalties for frivolous claims brought before them. These claims range from those which have no basis in fact or law (for example, claiming that payment of income taxes is voluntary) to those which may have been legitimate questions when first raised, but have been so definitively decided by the courts that they are a waste of the courts time to bring them up again (for example, questioning the constitutionality of taxing wages). The Seventh Circuit Court of Appeals has stated:

The doors of this courthouse are, of course, open to good faith appeals of what are honestly thought to be errors of the lower courts. But we can no longer tolerate abuse of the judicial review process by irresponsible taxpayers who press stale and frivolous arguments, without hope of success on the merits, in order to delay or harass the collection of public revenues or for other non-worthy purposes... abusers of the tax system have no license to make irresponsible demands on

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the courts of appeals to consider fanciful arguments put forward in bad faith. In the future we will deal harshly with frivolous tax appeals and will not hesitate to Impose even greater sanctions under appropriate circumstances.!"107
 

The United States Tax Court has statutory power to assess a penalty of up to $5,000 on a taxpayer who brings a frivolous claim before it.108

The following is a list of some of the types of returns where IRC § 6702 has been invoked or arguments which have been found to be frivolous by the courts:

(1) Fifth Amendment returns--taking the Fifth Amendment on all or most of the lines of the return;109
 

(2) claims of a war tax deduction-reducing the tax due on ones taxable income by the percentage derived by dividing the budget of the Department of Defense by the total Federal budget;110

(3) claims that wages are not taxable;111

(4) gold standard returns--claiming no income because Federal reserve notes are not backed by gold or silver;112
 

(5) claims that the Federal income tax is a voluntary taxPrivacy Act defects, alleged lack of liability section in the
 
 
 

102  Pub. L. No. 97-248, 97 Stat. 369, 97th Cong., 2nd Sess. (1982).

103  IRC § 6702.

104  IRC § 6703.

105  Kahn v. United States, 753 F.2d 1203 (3rd Cir. 1985).

106 Baskin v. United States, 738 F.2d 975 (8th Cir. 1984).

107 Granzow v. Commr., 739 F.2d 265 at 268-269 (7th Cir. 1984).

108 IRC § 6673 which states:

Whenever it appears to the Tax Court that proceedings before it have been instituted or maintained by the taxpayer primarily for delay, that the taxpayer's position In such proceeding before the Court Is frivolous or groundless, or that the taxpayer unreasonably failed to pursue available administrative remedies, damages in an amount not in excess of $5,000 shall be awarded to the United States by the Tax Court in its decision.

109 See, question 5 and the cases cited therein. _ .

110 See, Wall v. United States, 756 F.2d 52 (3rd Cir. 1986), and
Hollingshead v. Commr., TC Memo 1984-158 (1984).

111   See, Wardell v. United States, 787 F.2d 203 (8th Cir. 1985), and question 7 and the cases cited therein.

112 Set, O'Brien v. Commr., 779 F.2d 50 (6th Cir. 1985).