CPA Discusses Form 1099-OID and other Frivolous Tax Claims | Original Issue Discount

Tax returns based on frivolous claims come into the IRS often enough that they publish a 78 page document on them. They’re fun to read about, as the grouped list below shows. The IRS imposes penalties on taxpayers who use frivolous tax claims, probably because of the administrative expense and subsequent delays in obtaining a true tax return.“Tax returns based on these frivolous claims reflect an intrinsic American dislike of taxes, part of the very reason the USA exists today.”
- Gary Bode, Form 1099-OID CPA

My Personal Favorite - Form 1099-OID

My favorite frivolous tax claim is filing a Form 1099-OID with Form 1040. Somehow, folks think the government has a secret bank fund for every citizen and filing 1099-OID will force the IRS to distribute it back to them. Original issue discount, OID, is actually the excess of the redemption value of an obligation over its issue price.

Form 1099-OID is commonly associated with fraud. Folks report OID adjustments for interest they never paid taxes on originally.

Fraudulent Tax Preparers

Sadly the motivation behind a frivolous claim tax return sometimes extends beyond mere taxes. There are tax preparers and accountants who prey on folks by appealing to certain core issues that transcend just money. For example an accountant got popped for filing returns for African-Americans claiming reparations secondary to slavery. Probably a lot of claims. For large fees. Taxes are bad enough without fraudulent preparers fleecing folks.

The Grouped List

The Voluntary Nature of the Federal Income Tax System

• Tax preparation is voluntary. Wishful thinking. But remember, some folks don’t have to file.
• Payment of tax is voluntary. Now I’m wishing.
• Taxpayers can reduce their federal income tax liability by filing a “zero return.” This wasn’t covered on the CPA exam!
• The IRS must prepare federal tax returns for a person who fails to file. They actually will calculate the tax due, based on their collected info, but fail to take any consideration of deductions or tax credits. This is a tactic designed to interest you in preparing an actual return, which always results in taxes due that are less than the IRS demands in their Notice.
• Compliance with an administrative summons issued by the IRS is voluntary.

The Meaning of Income: Taxable Income and Gross Income

• Wages, tips, and other compensation received for personal services are not income. Hey, what about CPA accounting fees? That’s not income is it?
• Only foreign-source income is taxable. Logical.
• Federal Reserve Notes are not income. Go figure.

The Meaning of Certain Terms Used in the Internal Revenue Code

• The “United States” consists only of the District of Columbia, federal territories, and federal enclaves.
• Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws.
• The only “employees” subject to federal income tax are employees of the federal government. Like IRS employees?

Constitutional Amendment Claims

• Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment. Sign me up.
• Federal income taxes constitute a “taking” of property without due process of law, violating the Fifth Amendment. I refuse to incriminate myself.
• Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment. But I saw it on TV.
• Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment. Tax preparation does seem like servitude sometimes.
• The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional. Sadly, the History Channel doesn’t agree.
• The Sixteenth Amendment does not authorize a direct non-apportioned federal income tax on United States citizens.

Fictional Legal Basis

• The Internal Revenue Service is not an agency of the United States. The Infernal Revenue Service?
• Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act. And they say CPAs and accountants are anal retentive?
• African-Americans can claim a special tax credit as reparations for slavery and other oppressive treatment.
• Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime. Maybe not even SS benefits?
• An “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes.
• A “corporation sole” can be established and used for the purpose of avoiding federal income taxes.
• Taxpayers who did not purchase and use fuel for an off-highway business can claim the fuels tax credit. I have to actually buy the item before Harris Teeter lets me use a coupon?

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