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Franchise Tax Board Advises Against Frivolous Tax Arguments

Released: August 17, 2009

Sacramento –The Franchise Tax Board (FTB) outlined several arguments that are widely established as frivolous, and advised that using those arguments to avoid paying taxes could result in a penalty.

The baseless arguments include contending that paying taxes or filing a return is “voluntary,” that tax returns can ignore all taxable income, or that filing a tax return violates constitutional protections against self-incrimination. FTB has adopted the IRS’ list of frivolous tax arguments, explained in IRS Notice 2008-14 and IRS Publication The Truth About Frivolous Tax Arguments.

Unpaid taxes and false tax returns both contribute to the annual $6.5 billion tax gap facing California. The State of California also spends considerable resources responding to frivolous tax arguments, putting a strain on other public services.

FTB does not expect to issue many penalties. However, it can assess a $5,000 frivolous submission penalty on a specific submission that includes material that:

  • Is based on a position FTB identifies as frivolous.
  • Reflects a desire to delay or impede the administration of federal income tax laws determined by the IRS or California income or franchise tax laws determined by FTB.

A “specified submission” can be one or more of the following documents:

  • A protest filed with the FTB.
  • A request for an oral protest hearing.
  • A request for an installment agreement or offer in compromise.
  • A complaint submitted through the Taxpayer Advocates Office.

FTB will notify the person in writing before issuing the penalty. Taxpayers can avoid the penalty by withdrawing their frivolous submission, in writing, within 30 days after the notice is sent. Otherwise, there are two ways to contest the penalty:

  • Request relief by sending FTB 626, Request for Chief Counsel to Relieve Penalties.
  • After paying the penalty in full, file a claim for refund within the statute of limitations.

For more information, visit ftb.ca.gov, and search for “frivolous submissions,” or call FTB at 916.845.7790, Monday through Friday, from 8 a.m. to 5 p.m.