|Please Take Note:
This site is very technical with respect
to references to Internal Revenue Code and certain court cases referencing
tax protester issues and Internal Revenue Code Section (IRC) 6702-Filing
a Frivolous Return. Any comments can be sent
to : email@example.com via your email provider.
If you have not been a victim of Internal Revenue Service (IRS)
abuse by being assessed a penalty under IRC 6702, you may not want
to continue with what will be a boring read.
On the other
hand, reading on will only provide you with valuable taxpayer information
and a plausible explanation for the quandary taxpayers are placed
in when the IRS assesses a penalty under Internal Revenue Code (IRC)
If you are still interested, the following
issues will be discussed:
• IRC 6702 does not apply to Taxpayers!
• IRC 6702 only applies to Non-taxpayers!
• IRC 6702 only applies
to individuals (nontaxpayers) who file a return of tax on behalf
of a tax entity (taxpayer) registered as a tax shelter!
• A violation
of IRC 6700 and IRC 6701 must be purported on the Return of Tax
assessed a filer penalty under IRC 6702!
• The Return of Tax
referred to in IRC 6702 can not, by law, be filed by a taxpayer!
• A nontaxpayer is not a person who believes they are not liable
for income taxes.
• A nontaxpayer is a person with a duty to
file a return of tax for another person(s).
• The filing status
of a person, when filing or preparing required IRS documents, determines
whether a person is a taxpayer or a nontaxpayer.
• A taxpayer
is a person declaring on a return of tax or statement the tax shown
on the return of tax is liable and payable by the signer of the
document. There are certain IRS forms such as Form 1040, and variations,
that, if signed by a person, is a lawful declaration of being a
taxpayer notwithstanding arguments to the contrary regardless of
form or context.
• A person’s status can be taxpayer when a nontaxpayer
files a return of tax declaring income and/or tax liability is transferred
to the person named on the return of tax. (e.g. Form W-4 is issued,
as a contract, to an employer by an employee to withhold certain
amounts of income tax and deductions from income owed the employee/taxpayer).
Form W-4 is held by an employer unless IRS demands a copy. The employer
is a filer of a return of tax as a nontaxpayer by retaining copies
of employee Form W-4’s as required under Internal Revenue Code.
Here is the beauty of this scenario. The acceptance of a Form W-4
(not required under Internal Revenue Code but allowed) by the employer
creates the employer as a nontaxpayer with respect to this document
and the employee as a taxpayer liable for any items shown an a subsequent
Form W-2, Form 1099, Schedule K-1, etc.
is intended to stimulate discussion on penalty assessments authorized
under the Internal Revenue Code (IRC) referenced as Title 26 of
the United States Code, in particular, Title 26, Subtitle F, Chapter
68, Subchapter B, Part I, Sections 6700, 6701, 6702, and 6703.
The information expressed on this site has been researched by
persons not affiliated with the United States government but is
based on legislation of the U.S. Congress and administration of
its tax laws by the Executive branch of government. Any information
on this site should be thoroughly researched before being relied
on by any person.
Send comments to: firstname.lastname@example.org.
PREMISES (Presented for Argument Purposes Only)
• All income
generated by United States citizens or residents (legal or illegal)
from whatever source is taxable.
• Tax liability on income can
be reduced by lawful deductions and credits and further reduced
by transference of generated income to other persons in the form
of expense deductions or contractual agreements where such persons
may then be liable for income taxes on such net income less their
lawful deductions, credits, and expenses.
• The sections of code
included in Title 26, Subtitle F, Chapter 68, Subchapter A apply
to taxpayers (Def: persons stating on a return of tax their liability
for tax due and promise to pay or claim for a refund of overpayment
• The sections of code included in Title 26, Subtitle
F, Chapter 68, Subchapter B apply to nontaxpayers. This Subchapter
contains sections of code pertaining to persons preparing or filing
returns of tax, affidavits, tax documents on behalf of another person(s)
to include nontaxpayers and taxpayers. This Subchapter also contains
penalties for preparers of tax shelter returns, statements, affidavits,
claims, etc. listed as Sections 6700 (preparation of overvaluation
docs.), 6701 (preparation of understatement docs.), 6702 (filer
of tax shelter docs.), and 6703 (rules to determine liability for
penalties assessed under IRC Sections 6700, 6701, and 6702).
Internal Revenue Code (IRC) 6702 penalty is assessed
on a filer of a return of tax premised on liability of the filer
or another person for a violation of IRC 6700 (overstatement of
deductions) and IRC 6701(understatement of tax liability).
Liability for a penalty assessed under IRC 6702 depends on whether
the filer of a return of tax has knowledge or consented to the desire
of a person assessed a penalty under IRC 6700 and IRC 6701 and this
desire is purported on the filed return of tax (on behalf of the
tax entity). The person assessed a penalty under IRC 6702 could
be the same person assessed a penalty under IRC 6700 OR 6701 (but
must be an individual who has a duty to act on behalf of the tax
shelter entity that must be a partnership or corporation).
1. IRC 6700, 6701, 6702, and 6703 do not apply
2. IRC 6700, 6701, 6702, and 6703 apply only to
nontaxpayers (return preparers).
3. IRC 6700, 6701, 6702, and
6703 apply only to persons/ individuals who are nontaxpayers with
respect to the return of tax being filed and act in a professional
capacity or have a duty to act on behalf of tax entities that are
registered as partnerships or corporations under applicable state
laws and registered with IRS as tax shelters (IRC 6111).
return of tax, statements, affidavits, claims, and documents referred
to in IRC 6700, 6701, AND 6702 are an inclusive or separate return
of tax for tax shelter entities.
5. The “person” mentioned in
IRC 6700 is the organizer/ promoter required to register the tax
shelter entity under IRC 6111. (See: IRC 6707-Penalty for Failure
6. The “person” mentioned in IRC 6700 is the organizer/promoter
or seller of any interest in the tax shelter entity who is required
to keep a list of investors due to a duty to act. (See: IRC 6112,
IRC 6708-Penalty for Failure to Keep a List of Investors.)
The “person” mentioned in IRC 6700 also makes or furnishes or causes
another person to make or furnish a statement knowing it to be false
or fraudulent as to any material matter or a gross valuation overstatement
(of the value of a deduction) as to any material matter regarding
the tax shelter entity (note: there could be more than one person
liable for this penalty; courts have also ruled a material matter
should be determined by a jury and gross valuation overstatement
refers to more than a two to one actual valuation of claimed deductions).
8. The “person” mentioned in IRC 6701 is a tax return preparer,
appraiser, or employee or tax shelter entity officer who has a duty
to act and who aids, assists in, procures, or advises the preparation
or presentation of any portion of a return, affidavit, claim, or
other document who knows a portion would result in an understatement
of the liability for tax of another person who is a taxpayer/investor/plan
participant. (note: there could be more than one person liable for
9. The “individual” mentioned in IRC 6702 is a
officer/ member of a corporation or an officer/ member of a partnership
or an officer/ employee of the tax entity who has a duty to act
with respect to the filing of a return of tax on behalf of the tax
shelter entity or can also be the person/ individual registered
as the tax shelter promoter/organizer . (Note: there is only one
individual/person liable for this penalty for any particular frivolous
return of tax but there may be more than one person liable for a
penalty under IRC 6701.)
10. A tax shelter is designed to avoid
or evade income tax and, as a tax entity, is a nontaxpayer when
filing returns of tax declaring deductions and income for other
persons. However, a tax shelter entity remains a taxpayer when filing
returns of tax declaring deductions and income (if any) for itself.
11. A tax shelter is merely a tax entity disclosing the names of
investors (IRC 6112) who may be liable for taxes or be eligible
for income deductions or tax/income credits as a result of being
an investor in the tax shelter. If the investor in a tax shelter
is unable to defer to other taxpayers or deduct allocated individual
income as an income deduction or credit from the tax shelter (not
likely given the purpose of a tax shelter) then the income could
be taxable on the investor’s (taxpayer) individual income tax return,
partnership income tax return, or corporate income tax return.
12. IRC 6702 penalty assessment for an individual who files a return
of tax is dependent on whether a person is liable for a penalty
under IRC 6700 and IRC 6701. The person liable for a penalty under
IRC 6700 and IRC 6701 may be the individual who files a return of
tax for the tax shelter entity and would also be liable for a penalty
under IRC 6702.
13. IRC 6703 waives the “notice of deficiency”
requirement because “deficiency’ is a term applicable to taxpayers
who may owe tax not paid and not to nontaxpayers who merely declare
income or deductions of other persons on IRS forms.
14. IRC 6703
allows a bond of 15% to be paid for penalties assessed under IRC
6700 or IRC 6701. There is no allowance for a bond to be posted
for an assessed penalty under IRC 6702 because IRC 6702 is not assessable
on an individual without a person also being assessed a penalty
under IRC 6700 or IRC 6701. A bond for IRC 6702 would be redundant
to an allowed bond for IRC 6700 or IRC 6701.
15. Notice and Demand
is not required for IRC 6702 as it is for IRC 6700 or IRC 6701 because
the individual assessed a penalty under IRC 6702 is probably the
same person assessed a penalty under IRC 6700 or IRC 6702. If not
the same person, then liability for a penalty assessed under IRC
6702 would depend on whether the individual who files the return
of tax on behalf of the tax shelter entity had knowledge or consented
to the desire of the person liable for a penalty under IRC 6700
and IRC 6701 as purported on the filed return. So, the assessment
of penalty under IRC 6702 is not lawful without an accompanying
penalty on a person(s) under IRC 6700 or 6701.
1. IRC 6700 > 6703 apply to any person/individual who files a return
Establish intrinsic connection
between assessable penalties as described in Internal Revenue Code
(IRC) 6700, 6701, 6702, and 6703 for persons who are abusive tax
shelter organizers/ promoters, return, affidavit, claim, or other
document preparers, and individuals who are return of tax filers
with a duty to act on behalf of a tax entity registered as a tax
shelter and rules to apply these penalties as expressed in IRC 6703.
IRC Sections 6700, 6701, 6702,
and 6703 of the Internal Revenue Code are assessable penalties on
any person who is a tax shelter organizer/promoter (6700), any person
who is a preparer of a tax shelter return , affidavit, claim, or
other document (6701), any individual who has a duty to file a tax
shelter return of tax (6702), and rules for any person/individual
and the IRS to address the issue of liability for such penalties
in a proceeding in Federal District Court with burden of proof of
a person’s/individual’s liability for such penalties on the Internal
Revenue Service (IRS).
Before and since 1982, a number of
sections were added and subsequently amended to the IRC which provide
further support for the connection between 6700 through 6703 as
assessable penalties on tax shelter officers or employees, advisors,
and preparers and not meant for any other person/individual not
connected to the organization of a tax shelter, preparation of tax
documents for the tax shelter, and the duty to file a return of
tax for the tax shelter under review. Sections of IRC to review
are: IRC 6111, 6112, 6662, 6694, 6695, 6696, 6700, 6701, 6702, 6703,
There is a question of whether the IRS can declare
any person a tax shelter without the provision for establishing
a tax shelter in state law. Some states may not have any provisions
for a tax entity organizing itself as a tax shelter. This discussion
does not address this situation. However, this discussion does address
how IRS determines whether an entity is a tax shelter or not. Bear
in mind, tax entities are formed under state law.
us address the key IRC section: 6702 - Frivolous Income Tax Return.
IRC 6702 is not a stand alone penalty to be applied at the whim
of any IRS computer puncher who woke up on the wrong side of the
bed or who relishes in the power conferred by position or abusive
IRS policies meant to “collect any tax by any means.” IRC 6702 is
meant to penalize an individual who files a return of tax for a
tax entity registered tax shelter knowing what is purported on the
return of tax is not accurate which respect to a material matter.
If the Congress intended 6702 to stand alone and be assessable
on any return of tax the IRS deems a frivolous return then would
not this situation open wide the door of potential taxpayer abuse?
Of course it would! And, is not the IRS doing exactly what the Congress
did not intend? That is, redefining IRC to whimsically punish outspoken
taxpayers when in fact there is no section of the IRC authorizing
the IRS to punish taxpayers except within the scope of the Internal
Revenue Code. There are no provisions in the IRC for the assessment,
by the IRS, of a “frivolous return” penalty for a taxpayer. There
is, however, a section of code that authorizes the courts to assess
penalties for a frivolous or groundless taxpayer and attorney arguments
It is an infringement on freedom of speech for
the IRS to suppress non threatening taxpayer statements by intentionally
assessing a penalty that is not within the intent of statutory law
passed by the Congress and signed by the President of the United
States. It seems the intent of United States law does not apply
to the Internal Revenue Service. Here lies another discussion, for
the future, of why the United States Congress,in particular, the
Senate Finance Committee, the House Ways and Means Committee, and
the Joint Finance Committee, allows the IRS to run amuck levying
erroneous penalties and practice nefarious collection schemes using
unlawfully assessed penalties and denial of due process against
taxpayers. The Frivolous Fraud Return scheme may be one of many
schemes the IRS uses to implement its policy to “collect by any
means” and like any other scheme is apparently business-as-usual
to Presidential Appointees and Federal officers of the Treasury
RETURN OF TAX-ORGANIZER, PREPARER, AND FILER
In order to understand how 6702 fits into a tax shelter
situation, it is necessary to discuss 6703, the Rules applicable
for assessed penalties under 6700, 6701, and 6702.
6703 leads off by stating the issue of whether or not any person/individual
is liable for a penalty under 6700, 6701, or 6702, the burden of
proof shall be on the IRS. The next subsection states “Deficiency
procedures shall not apply.” Deficiency procedures are applicable
to taxpayers only. It must be noted at this time there appear to
be to fundamental categories of persons/individuals who file returns
of tax. There are taxpayers and nontaxpayers. The term nontaxpayer
is used in this discussion to differentiate between a person/individual
who files a return of tax on behalf of a tax entity to declare its
tax liability and a person/individual who files an income tax return
to declare their personal tax liability and are, therefore, subject
to internal revenue tax, i.e. “taxpayer.”
A taxpayer is any
person subject to any Internal Revenue tax. How does a person become
subject to Internal Revenue tax.
Well, it is fairly simple
to become a taxpayer. All a person has to do is sign a return of
tax that states a person or in the case of a joint return, married
persons, is liable for tax due based on information the taxpayer
provides or the IRS has access to through information returns (of
tax) filed by others (nontaxpayers with respect to the taxpayer’s
return of tax) such as W-2 forms, 1099 forms, partnership, and corporation
returns, and other information returns, statements, affidavits,
claim for deductions or other documents. So, if a taxpayer is a
person who is subject to any Internal Revenue tax then how does
one become a nontaxpayer?
To answer the question of how does
one become a nontaxpayer, it is imperative to look at the Sixteenth
Amendment of the Constitution. It states in part, “The Congress
shall have power to lay and collect taxes on incomes, from whatever
source derived . . .” Without arguing the validity of the Sixteenth
Amendment, for purposes of this discussion, the Congress can make
law to lay and collect taxes on incomes. The Congress did and does
Now, if it is assumed all income is generated
by businesses and a business is allowed to deduct business expenses
and claim business credits allowed under revenue law then any purchases
of materials, labor costs, facility rents/ leases, or any other
business expense is a deduction from generated income leaving a
net profit for tax purposes.
Here is the gist of this situation.
All business income, even as deductions, remain income for tax purposes.
So, when a business purchases materials with income then the supplier
of those materials is now liable for income tax on that income less
any business expenses of the supplier. In other words, a business
passes on tax liability through business expenses and business deductions
to include wages, salaries, tips, interest, dividends, etc.
To expand this idea, an employee then is the recipient of taxable
income that has been deducted by the employer as a business expense
or as income generated as a result of the existence of the business
and legally fobs all income tax liability for wages, salaries, tips,
etc. to employees, the cost of goods to suppliers, and other expenses
to other suppliers of services.
Employees are not the only
possible taxpayers. An entity can be organized to be a “person”
who will be subject to any Internal Revenue tax the entity would
be liable for. An entity could be a partnership, corporation, association,
estate, real estate investment company, Limited Liability Company,
Limited Liability Partnership, etc. and the entity would then be
the person subject to internal revenue taxes and is therefore a
A sole proprietorship is not an entity organized
for tax purposes because all the assets and income are owned by
a person who is the individual liable for all taxes due. So, a sole
proprietorship is a taxpayer with respect to its income tax return
but still can pass on tax liability for business income to its suppliers,
vendors, employees, etc. and is therefore a nontaxpayer with respect
to filing forms for other persons such as Form W-2 and Form 1099.
It follows, a sole proprietorship cannot be a tax shelter where
it is assumed the main purpose of a sole proprietorship is to attempt
to generate business income and not intentionally generate a business
Further, a tax shelter is required to register the
purpose of its entity with the IRS to intentionally evade or avoid
income tax. A sole proprietorship, without employees, is not required
to register its purpose with the IRS because of the assumption of
intent to be profitable and not to intentionally evade or avoid
income tax. A sole proprietorship would, however, be required to
register with the IRS if the sole proprietorship will have employees
or independent contractors doing work for the business to be able
to pass on taxable income (profit) as wages or salaries to employees
or independent contractors who would then be potential taxpayers
for their wages or salaries.
Therefore, with respect to the
applicability of IRC 6702, a sole proprietorship would not qualify
for a frivolous penalty assessment for filing a return of tax declaring
income or for any other IRS requirement.
However, a tax entity
can sell an interest in itself and is commonly done in the form
of partnerships and corporate shares known as “stocks.” Here, the
partnership is a nontaxpayer when advising, preparing, or filing
forms, documents, etc. on behalf of a taxpayer (partner(s) or stockholder).
Of course, the tax entity must file an income tax return for itself
as a taxpayer claiming deductions from income passed to other taxpayers
identified in its return of tax.
Taxing authority (Congress)
has delegated administration of tax laws (Title 26) to the Secretary
of the Treasury and the Secretary has delegated collection administration
to the Internal Revenue Service also referred to as the “Secretary”
in Internal Revenue Code.
Code (USC), Title 26, IRC 6700, 6701, 6702, and 6703 find their
authority in House of Representatives Bill HR-4961 that added Public
Law 97-248 and relevant Statutes on September 3, 1982.
prevalent appeals case to attempt to address the issue of whether
IRC 6702 is assessable on a taxpayer is the Miller case in 1984.
Here we find the source of IRS skullduggery or incompetence. It’s
not clear which technique the IRS utilized to accomplish the most
flagrant and nefarious taxpayer abuse scheme to quash free speech
appearing on the record. Of course, all done with the complete and
willing assistance of the federal courts then and continuing to
the present some twenty-three years at recent count.
Tengoku dojo, 2006