The United States Tax Court recently issued a definitive ruling run regarding unreported income because of frivolous tax arguments (T.C. Memo. 2025-93), solidifying established tax law and imposing a significant penalty on the petitioner for advancing tax frivolous, recycled arguments.
This case serves as a sharp warning against adopting discredited tax protester positions, especially when previously warned by the Court. The Tax Court sustained the IRS’s deficiency determination, upheld an addition to tax for failure to file a valid return, and imposed a $10,000 penalty under Section 6673.
The Unreported Income and Deficiency
The core of the dispute concerned petitioner’s 2018 tax year.
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The Facts: During 2018, the taxpayer was employed by Frontier Communications Corp. (or a related entity) as a customer service technician, receiving wages of $102,533, as reported on an amended Form W-2.
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The Petitioner’s Return: The taxpayer filed a Form 1040 “zero return,” reporting zero income on all lines except for a reported federal income tax withholding of $7,844, for which he claimed a full refund.
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The Court’s Finding: The Tax Court, citing established law that “compensation for services” (wages) is gross income under Section 61(a)(1), found that the petitioner failed to report the $102,533 in wages. The Court sustained the IRS’s resulting deficiency of $16,016.
The Rejection of Frivolous Tax Arguments
Throughout the proceeding, the petitioner raised a long list of arguments commonly associated with tax protesters. In addition he had previously raised these arguments before and he had been warned about in two earlier Tax Court cases (for his 2017 and 2019 tax years).
These frivolous tax arguments included:
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Wages Are Not Income: Arguing that there was no “taxable activity” or that the income tax is an excise tax that doesn’t apply to him.
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Lack of Contract: Asserting there is no “contract” between him and the IRS to pay a tax.
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Citizenship Defense: The primary argument he pressed at trial was that he is “not a U.S. citizen” and therefore not taxable, relying on a letter from the Department of Homeland Security (DHS) that stated no records responsive to his FOIA request regarding his citizenship were located.
The Court summarily rejected the citizenship argument as frivolous, refusing to “refute petitioner’s frivolous argument with somber reasoning and copious citation of precedent” to avoid suggesting it has any merit (Crain v. Commissioner).
Penalty for Invalid Return: Addition to Tax Sustained
The IRS determined two potential penalties: an accuracy-related penalty under Section 6662(a) and, alternatively, an addition to tax for failure to file a timely return under Section 6651(a)(1).
1. Accuracy-Related Penalty (Section 6662(a)): NOT Sustained
The Court first had to determine if the “zero return” filed by the taxpayer was a valid return. Using the Beard v. Commissioner test, the Court found the return was invalid because:
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It lacked sufficient data to calculate tax liability (it contained only zero income entries).
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It did not represent an honest and reasonable attempt to satisfy the requirements of the tax law.
Because a valid return is required to impose the Section 6662(a) accuracy-related penalty, the Court held that the petitioner was not liable for this penalty.
2. Failure to File Addition to Tax (Section 6651(a)(1)): SUSTAINED
Since the zero return was not a valid return, the petitioner was deemed to have failed to file a required income tax return for the year. The Court found that the petitioner failed to show that his failure was due to reasonable cause and not willful neglect.
The Tax Court therefore sustained the Section 6651(a)(1) addition to tax for failure to timely file, as asserted by the Commissioner.
Section 6673 Penalty Imposed: $10,000 Sanction
The most severe consequence was the imposition of a Section 6673 penalty. The government can impose this penalty when a taxpayer institutes a proceeding primarily for delay or when their position is frivolous or groundless.
The Court took judicial notice of the petitioner’s prior history, which included:
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Two previous Tax Court cases involving similar zero returns and frivolous arguments.
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A previous $5,000 Section 6673 penalty imposed in the 2017 tax year case.
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An explicit promise in a later 2019 tax year case to “cease any further frivolous tax arguments” before the Court.
Despite these warnings and a previous sanction, the taxpayer persisted with the frivolous citizenship argument in this case. The Court found his actions represented a pattern of behavior primarily intended to delay the collection of federal income tax.
Given the fact that the petitioner wasted judicial resources and he disregard for prior warnings, the Court granted the Commissioner’s motion and imposed a substantial $10,000 penalty on the taxpayer.
Key Takeaways
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Wages Are Income: Compensation for services is unequivocally taxable gross income under Section 61. “Zero returns” are invalid and subject taxpayers to penalties.
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Frivolous Tax Arguments Are Costly: The Tax Court has no patience for tax protester arguments that have been repeatedly rejected under settled law. The Court will sanction these repeated arguments with penalties up to $25,000 under Section 6673.
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Invalid Returns = Failure to File: The IRS does not consider a “zero return” that does not provide sufficient data to calculate tax liability to be a valid return and can subject you to the Section 6651(a)(1) addition to tax.
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Please note that this blog post is for informational purposes only and does not constitute tax, legal or accounting advice and that new changes in rules and regulations may render this content out of date.