In an effort to reduce the states monstrous budget shortfall, revenue officials in California have begun slapping stiff new fines on income tax scofflaws who use frivolous tax arguments to avoid paying their share.
The new penalties announced by the states Franchise Tax Board include a fine of $5,000 per offense for Californians who file a frivolous submission in an effort to delay or impede the administration of state or federal income tax laws.
Although the fines themselves are not likely to make a dent in Californias record-shattering budget deficit, discouraging taxpayers from delaying collections through the use of frivolous arguments could have a measurable effect.
Unpaid taxes and false tax returns both contribute to the annual $6.5 billion tax gap facing California, FTB said. The State of California also spends considerable resources responding to frivolous tax arguments, putting a strain on other public services.
Under the boards new rules, frivolous tax arguments subject to the fines include contentions that the filing of a tax return or payment of income taxes is voluntary, that taxpayers can reduce their tax liability by filing a zero return, that only foreign source income is taxable, or that Federal Reserve notes are not income.
Such frivolous arguments are gaining traction in Hollywood where a number of celebrities have been accused of using crackpot theories to escape income taxes on their box office earnings.
Just last year movie actor Wesley Snipes was hauled into court on tax fraud charges after claiming that the IRS was an illegitimate government agency a position he attributed to bad information from his tax advisors. Other celebs, including Burt Reynolds, Dionne Warwick, and O.J. Simpson, recently made FTBs A-list of Californias biggest tax evaders.
The states new penalties apply to frivolous tax arguments made as part of a tax return, as well as those submitted in a protest filed with the FTB, in a request for an oral hearing before the board, and in a complaint submitted through Californias Taxpayer Advocates Office.
FTB will notify the person in writing before issuing the penalty, and taxpayers can avoid the fine by withdrawing their frivolous submission, in writing, within 30 days after the notice is sent.
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