The High Cost of Tax Protest: One Man's $200,000 Lesson

In yet another case where a taxpayer attempted to use tax-protester arguments to avoid paying taxes, the court dismissed the case as frivolous and left the taxpayer liable for $200,000 of unpaid taxes for the four-year period.

Tax protestor in Saccato v. Commissioner, T.C. Memo 2023-96.

The owner of an Oregon storage business, Lawrence Saccato, did not file federal income tax returns for at least 14 years. He used fictitious trusts and tax-protester arguments to hide more than $750,000 in income from the IRS.

Saccato claimed the Internal Revenue Service lacks jurisdiction over him because he is a resident of the state of Oregon and not a federal citizen, according to the opinion. Saccato also insisted that his notice was invalid because it was not signed by an IRS revenue officer "under penalty of perjury."

The U.S. Tax Court said that Saccato owes taxes on $756,000 he failed to report for 2013 to 2016, plus penalties. The court ruled that the IRS has jurisdiction over Saccato. Saccato created a "panoply of assets" starting in the 1990s that he called trusts to hold his assets. However, he produced no evidence of the trusts' legality, and he spent the money from the accounts on personal expenses, including a trip to Mexico. Judge Lauber said a requirement for an IRS revenue officer to sign the notice of deficiency “under penalty of perjury” does not exist.

"His persistent filing of frivolous papers has wasted the government's time and ours," Judge Lauber said.

Who is a tax protestor?

A tax protester is someone who refuses to pay a tax claiming that the tax laws are unconstitutional or otherwise invalid. Tax protesters often cite pseudo-legal arguments to support their claims, such as the notion that income taxes apply only to corporations, not individuals, or that the Sixteenth Amendment, which authorized the federal income tax, was never lawfully ratified.

However, the courts have consistently dismissed these arguments, and taxpayers who bring them are almost certain to lose.

In fact, the IRS has a specific penalty for taxpayers who make frivolous tax arguments, which can be as high as $5,000.

So, if you're thinking about becoming a tax protester, be warned: you're likely to lose, and you could end up paying a hefty fine.

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