Frivolous Tax Arguments and Yellow Perch
Tax season is officially underway. In this edition of the Flying Point Update we'll discuss legitimate tax planning versus internet tax myths, how to spot bad advice, and yellow perch.
Top of Mind
Every January, my phone starts ringing. It's tax season, and people are thinking about their finances, gathering documents, and inevitably reconsidering everything they've heard about taxes over the past year.
Most of the questions are great: "Should I contribute more to my IRA?" "Does this expense qualify as a deduction?" "I heard about this new tax credit, does it apply to me?" These conversations are exactly why I love what I do. People are engaged, asking smart questions, and trying to make informed decisions.
But January also brings... let's call them "creative interpretations" of tax law. Someone heard from their uncle's friend's cousin that wages aren't actually income. Or they watched a TikTok explaining why filing taxes is technically voluntary. Or they found a Facebook group dedicated to a "constitutional strategy" the IRS doesn't want you to know about.
Here's the thing: I don't judge these questions. Tax law is genuinely confusing, and when you're facing a big tax bill, the appeal of a simple solution is completely understandable. The internet is full of confident people making bold claims, and it's not always obvious what's legitimate tax planning versus what will land you in serious trouble.
This is where having a trusted advisor matters. My job isn't to mock people for asking questions—it's to help you navigate the difference between smart tax planning and strategies that will cost you far more than you'd ever save. There's a huge spectrum between "clearly legitimate" and "obviously fraudulent," and most people just want to know where the line is.
The good news? Legitimate tax planning offers plenty of opportunities without needing to resort to fringe theories. The bad news? If something sounds too good to be true, it almost certainly is. And the IRS has heard all of these arguments before.
Worth Knowing
Let's talk about the spectrum of tax strategies, from completely legitimate to downright dangerous:
Legitimate Tax Planning (Do this!) This is the stuff we work on together: maximizing retirement contributions, timing income and expenses strategically, choosing the right business structure, taking advantage of credits and deductions you're entitled to. It's grounded in actual tax law, well-documented, and defensible if questioned. There's nothing secret about it—it's just knowing the rules and applying them to your situation.
Aggressive but Defensible Positions (Proceed carefully) These are strategies where there's genuine ambiguity in tax law or where you're taking a position that might be questioned but has reasonable support. Think: home office deductions for hybrid workers, or certain business expense classifications. You might need to defend your position, but you have a reasonable basis for it. This is where good documentation and professional guidance become critical.
Questionable Strategies (Yellow flag territory) This is where things start getting dicey. Strategies that rely on technicalities, creative interpretations, or positions that "technically" might work but clearly violate the spirit of the law. The promoter might say "the IRS hasn't specifically ruled on this" or "this is a gray area." If your tax strategy requires you to hope the IRS doesn't look too closely, that's a problem. We'll probably tell you this is a bad idea and let you handle it on your own.
Frivolous Arguments (Don't do this) These are the positions that have been thoroughly debunked, repeatedly rejected by courts, and explicitly listed by the IRS as frivolous. People still try them every year, and they never work. We'll explicitly tell you not to do this and refuse to prepare the return. Here are the greatest hits:
"Wages aren't income" - They are. This has been settled law for over a century.
"Filing is voluntary" - The tax system is voluntary compliance (you calculate your own taxes), but filing is absolutely mandatory if you meet the income thresholds.
"I'm a sovereign citizen / the 16th Amendment wasn't properly ratified" - These constitutional arguments fail every single time in court.
"I'm exempt for religious/moral/political reasons" - Disagreeing with how tax money is spent doesn't make you exempt from paying taxes.
The Math on Being Wrong: Even if you somehow convinced yourself one of these arguments might work, let's look at what happens when it doesn't:
Frivolous filing penalty: $5,000 (automatic)
Accuracy-related penalty: 20% of the underpayment
Fraud penalty: 75% of the underpayment (if they determine it was intentional)
Interest on all unpaid taxes, compounding daily
Legal fees defending your position
Potential criminal prosecution for tax evasion
Let's say you tried to avoid paying $15,000 in taxes with a frivolous argument. You could end up paying the $15,000 plus $5,000 frivolous penalty plus $3,000 accuracy penalty plus interest plus thousands in legal fees. Its a very expensive way to try to save money.
How to Spot Bad Tax Advice:
Claims of "secrets the IRS doesn't want you to know"
Promises of eliminating all tax liability through simple tricks
References to being a "sovereign citizen" or constitutional loopholes
Advice that requires you to file false documents or make false claims
Strategies sold through high-pressure sales tactics
Anyone who says "I've been doing this for years and never had a problem" (until they do)
The Right Approach: If you hear about a tax strategy that sounds appealing, bring it to me. We'll look at it together, figure out if there's a legitimate version of what you're trying to accomplish, and make sure you're on solid ground. There are plenty of legal ways to minimize your tax bill without wandering into dangerous territory.
The goal isn't to pay more tax than you owe. It's to pay exactly what you owe, no more and no less, using strategies that will hold up under scrutiny. That's not boring or overly conservative—it's just smart.
Mark Your Calendar
January 31st: Deadline for businesses to issue W-2s and 1099s to employees and contractors. If you haven't finished this yet, you're officially running late. Penalties for late filing start accruing February 1st.
March 15th: S-corp and partnership tax returns are due (or extensions must be filed). This is also the deadline to file Form 2553 if you want to elect S-corp status for 2026. We discussed this in detail in our last newsletter.
April 15th: Tax filing deadline for individual returns. Also the deadline for IRA contributions and Q1 2026 estimated tax payments (but remember, 401(k) contributions and Roth conversions had to be completed by December 31st, 2025).
Maine Wildlife Facts
The ice fishing bug has fully taken hold at our house. Last weekend, Will, Frank, and I headed back out and had our best outing yet: five yellow perch and two pickerel! We brought three perch home, and the boys were absolutely thrilled to eat fish they'd caught themselves.
Yellow perch are one of Maine's most popular ice fishing targets for good reason. They travel in schools, so when you find one, you've usually found many. They remain quite active under the ice, feeding aggressively throughout winter, particularly during the last hour of sunlight. The boys described them as "tiger fish" because of their distinctive vertical dark stripes along golden-yellow sides.
What really got their attention when we cleaned the fish were the egg sacs inside some of the perch we caught. Yellow perch spawn in early spring right after ice-out, and a single female can lay 10,000 to 40,000 eggs in those distinctive ribbon-like strands. Seeing the eggs firsthand sparked a whole conversation about the fish life cycle and why we only kept what we'd actually eat.
Yellow perch are excellent eating: sweet, mild, flaky white meat that even fish-skeptical kids will devour. Pan-fried with a little butter and lemon is the way to go, according to Will and Frank's expert review.
These Maine wildlife facts have been brought to you by Will (7) and Frank (3), Flying Point Advisors' on-staff naturalists.
Questions about any of this? Just reach out - I read every email and love hearing from you. Thanks for reading. You'll hear from me again in about two weeks.
-Mike
Disclaimer
The Flying Point Update is provided for general educational and informational purposes only. The content in this newsletter reflects my thoughts and observations on tax, accounting, and financial planning topics, but should not be considered personalized tax, accounting, or investment advice for your specific situation.
Tax laws are complex and change frequently. The information presented here is based on current tax law as of the publication date and represents general concepts that may not apply to your circumstances. Every individual and business has unique factors that affect their optimal tax and financial planning strategies.
Before making any financial decisions or implementing any tax strategies discussed in this newsletter, please consult with a qualified tax professional, CPA, or financial advisor who can evaluate your specific situation. If you'd like to discuss how any of these topics might apply to your circumstances, I'm always happy to chat.