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Tax Tip: don't pay your income taxes with a pretend bond

August 25, 2010

When tax time came around, a Utah couple took an unusual route to tax payment. Rather than, say, mail a check, they sent the IRS "Private Discharging and Indemnity Bond No. RA819570054US-HDG" in the amount of $5 million, with the following instructions:

Upon receipt of this instrument, Payee shall charge account * * * via Pass-Through Account H DOUGLAS GOFF * * * for the purpose of terminating any past, present, or future liabilities express or implied attached or attributed to Account No. * * * and/or Lisa Stephens Goff * * *

Unfortunately for the Goffs, the IRS prefers their payments in more conventional form, like checks drafted on real bank accounts, or cash. The Tax Court sides with the IRS on this one:

Simply put, neither the note nor anything in connection with the note constitutes payment of petitioner's liabilities. The United States Code provides that "coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues." 31 U.S.C. sec. 5103 (2006). Section 6311 addresses alternative methods of payment and authorizes the Secretary to receive for taxes any commercially acceptable means that he deems appropriate as prescribed by regulations. Sec. 6311(a), (d). No regulation issued by the Secretary allows private bonds or notes such as the note to be considered payment by commercially acceptable means.

Bottom line: the couple has to come up with the taxes in a more conventional way, along with civil penalties for filing frivolous returns and a $15,000 penalty for pursuing a frivolous appeal. It seems like an expensive way to make a foredoomed and absurd tax return position.

Cite: Goff, 135 T.C. No. 11

Tags: frivoloty.tax court.tax protesters.

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