Bulletin No. 2005-14 April 4, 2005

Rev. Rul. 2005–20, page 821. Frivolous tax returns; protesting government programs or policies. This ruling emphasizes to taxpayers and to promoters and return preparers that liability for federal taxes does not depend on whether the taxpayer agrees with the government programs or policies that are funded with tax receipts. Any argument that taxpayers may refuse to report income or claim deductions because they oppose particular government programs or policies is frivolous and has no merit.

Rev. Rul. 2005–21, page 822. Frivolous tax returns; use of “straw man” to avoid tax. This ruling emphasizes to taxpayers and to promoters and return preparers that a taxpayer cannot avoid income tax on the erroneous theory that the government has created a separate and distinct entity or “straw man,” in place of the taxpayer and that the taxpayer is not responsible for the tax obligations of the “straw man”. This argument has no merit and is frivolous.

REG–163314–03, page 835. Proposed regulations provide that a transaction will qualify for nonrecognition treatment under sections 332, 351, or 368 of the Code only if there is a transfer and a receipt of net value. The proposed regulations also provide guidance on the circumstances in which and the extent to which a creditor of an insolvent corporation may be treated as owning a proprietary interest in the target corporation for the purpose of satisfying the continuity of interest requirement. With respect to section 332, the regulations clarify that this section applies only to those cases in which the recipient corporation receives at least partial payment with respect to each class of stock which it owns in the liquidating corporation.

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Notice 2005–30, page 827. This notice sets out some of the most common frivolous arguments and schemes that taxpayers use to avoid their tax obligations. It also identifies civil and criminal penalties that the Service may impose against taxpayers who engage in abusive tax-avoidance schemes. Notice 2004–22 modified and superseded.

Notice 2005–31, page 830. State and local general sales tax deduction. This notice provides guidance to taxpayers who elect to deduct state and local general sales taxes in lieu of state and local income taxes under section 164(b)(5) of the Code.