Employers Are Obligated To Comply With Tax Law Despite Increase In Frivolous Tax Arguments

• Published date: 22 May 2025
• Subject Matter: Employment and HR, Tax, Employee Benefits & Compensation, Income Tax
• Law Firm: Littler Mendelson
• Author: William Weissman

At a Glance

• The U.S. Tax Court in O'Connor v. Commissioner of Internal Revenue sanctioned the petitioner for bringing frivolous claims that he was not subject to federal taxes.
• While not an employment case, O'Connor serves as a reminder to employers to be wary of individuals who ask their employers not to withhold taxes from their wages based on these or other similar frivolous arguments.

In the recent United States Tax Court case O'Connor v. Commissioner of Internal Revenue, Judge Arbeit sanctioned the petitioner for advancing frivolous arguments contesting the authority of the IRS to assess tax.¹

The case involved a tax lawyer who failed to file taxes from 2010 to 2017, resulting in a deficiency of $1.09 million in unpaid taxes. The petitioner proffered four primary assertions: that (1) the Sixteenth Amendment was not properly ratified and thus invalid; (2) section 1 of the Internal Revenue Code (IRC) does not plainly and clearly impose tax liability on the petitioner's income; (3) the income tax is an excise tax to which his income is not subject; and (4) the petitioner is a citizen of Nevada and therefore not subject to federal income tax. In support of his arguments the petitioner filed more than 1,000 pages of legislative documents from the 20th century and background on the Sixteenth Amendment. Although such frivolous arguments are rarely addressed by the tax court, Judge Arbeit chose to do so here solely because of the petitioner's status as a tax lawyer who "leverage[d] his professional training to willfully disregard the caselaw and any legitimate legal analysis." In short, all of the petitioner's arguments were swiftly rejected by the court.

The petitioner also attempted to avoid certain additions to tax under sections 6651(a)(1) and (2) (failure to file returns and failure to pay taxes when due) and 6654 (failure to pay estimated income taxes) unless reasonable cause is shown. The petitioner asserted that because the IRS failed to publish exemption amounts for the past 35 years, he had no obligation to file a federal income tax return. The court also rejected this argument as frivolous and concluded that the petitioner failed to show reasonable cause.

The court ordered the petitioner to pay his deficiencies, additions to tax, and a $2,000 penalty as a warning. Furthermore, Judge Arbeit hinted at imposing maximum penalties if the petitioner were to appear before the tax court again with frivolous arguments.

How This Affects Employers

The petitioner in O'Connor is not unique in the...