Some taxpayers who object to the existence of the U.S. income tax system may refuse to report annuity income when they're refusing to report other forms of income.
Paul H. Christiansen, a Utah resident, took that approach when he filed his income taxes for 2020, according to a U.S. Tax Court opinion posted in June.
Christiansen's employer reported on a Form W-2 that it paid him $55,142 in wages. A bank reported on a Form 1099-R that it paid him $2,223 in annuity income.
When Christiansen filed his tax return for 2020, he reported no wages and no taxable income. He sought a $2,917 federal income tax withholding refund and a COVID-19 recovery rebate credit.
Christiansen "does not dispute he received the wages and annuity payments," Judge Cary Douglas Pugh wrote in the opinion.
But Christiansen argued that "the federal income tax system is one of 'voluntary self-assessment,'" that "no federal statute exists that makes individuals liable for the income tax," and that the Internal Revenue Service failed to get the required approval from the federal Office of Management and Budget before requiring him to report wage and annuity information on his tax return, the judge wrote.
The court rejected nearly identical arguments from Christiansen in another case, the judge said.
"'We perceive no need to refute these arguments with somber reasoning and copious citation of precedent,'" the judge wrote, citing a 1984 Tax Court opinion. "'To do so might suggest that these arguments have some colorable merit.'"
The judge agreed with the IRS that Christiansen owed $5,685 in unpaid taxes and a $1,137 accuracy penalty.
The judge also imposed an extra $1,000 penalty on Christiansen based on Internal Revenue Code section 6673, which allows penalties of up to $25,000 for taxpayers who take frivolous positions.
"If he does not abandon these misguided positions in future filings before this court, a greater penalty may be imposed," the judge wrote.
Credit: Allison Bell/ThinkAdvisor
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