Sam Brotman, JD, LLM, MBA December 16, 2013 3 min read

IRS Penalties - Part Four

Tax Fraud Penalties

The Internal Revenue Service considers the filing of a false tax return to be fraud, which is a criminal offense. Taxpayers convicted of fraud or aiding another taxpayer in committing tax fraud will be “subject to forfeiture of property and/or jail time” (, “IRS Penalties,” 9/11/2013). Taxpayers are convicted and sentenced through the court system and it is the Department of Justice that prosecutes cases within this context. The IRS does not prosecute tax fraud cases. Once convicted the taxpayer may incur tax fraud penalties based upon the type of tax case.

In other respects, tax protesters frequently argue that the current income tax laws are not valid. In response to this argument, they tend to file frivolous terms as well as frivolous court petitions. The IRS assesses a civil penalty for frivolous tax submissions.[1] A person who files a frivolous return based upon the policy presented in Part 4. Examining Process, Chapter 10. Examination of Returns, Section 12. Frivolous Return Program of the Internal Revenue Manual can expect to pay a penalty of $5,000. However, the Secretary provides for the person to withdraw his or her submission. If the taxpayer responds to the Secretary’s notice of a specified frivolous submission by withdrawing it within 30 days, “after such notice, the penalty imposed . . . shall not apply with respect to such submission” (, “26 USC – Frivolous tax submissions,” 9/12/2013). In essence, taxpayers that subsequently withdraw their frivolous tax submission will not incur a penalty.

Tax Adviser Penalties

Tax adviser penalties are the last types of penalties on this list. If a tax adviser promotes tax shelters, he or she can expect to incur a penalty. In addition, tax advisers that “fail to maintain and disclose lists of reportable transactions of their customers or clients for those transactions” will be responsible for paying a penalty. The penalty assessed is based upon the type of case and location—whether domestic or foreign.

Taxpayer and tax adviser penalties may be eligible for a first-time abatement depending upon the case.

[1] 26 USC 6702 – Frivolous Tax Submissions

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