Tax Information: What Is IRS Section 61?

Even though the definition of gross income is clearly defined in Section 61 of the IRS tax code many citizens attempt to evade payment of their tax by filing a zero income tax return.

Tax law has been tossed around for personal interpretation for many years. It is constantly being challenged in the court system by anyone who dares to face the IRS and their cadre of lawyers. Some people are successful, many more are not. The largest bone of contention? The federal income tax.

All arguments aside, the income tax is based on earned income. According to tax code, you must report all income that you earn in order to pay your tax correctly. You cannot, however, be taxed on income that you never earned. Schemes to avoid paying income tax have been around from the beginning and most deal with how to lower your taxable income or remove it all together.


Section 61 of the U.S. tax code addresses the issue of identifying gross income. The section defines gross income as follows. "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: Compensation for services, including fees, commissions, fringe benefits, and similar items; Gross income derived from business; Gains derived from dealings in property; Interest; Rents; Royalties; Dividends; Alimony and separate maintenance payments; Annuities; Income from life insurance and endowment contracts; Pensions; Income from discharge of indebtedness; Distributive share of partnership gross income; Income in respect of a decedent; and Income from an interest in an estate or trust."

Section 61 of the code is often used to specifically address anyone who is contemplating using a zero total for earned income and ultimately attempting to erase their tax liability. This stance is considered frivolous and without merit by the IRS.

The IRS takes the position that anyone claiming zero income will be identified and action taken against them, the return preparers and promoters of such schemes. It would seem a fairly simple thing for the IRS to determine who these people are by simply identifying all tax returns with zero income. The IRS reports that typical abusers of this type of return will usually attach the W-2 forms listing wages earned and taxes withheld, list a zero for income earned and then request a full refund of the total tax paid. This is done despite the fact that they have earned income. It follows that if tax is due for refund there must have been earned income from which it was deducted.


If you think you are going to get away with a zero income tax return think again. Not only will the IRS figure the tax you owe plus penalty and interest, you may also face criminal and civil penalties for any frivolous returns filed.

The potential civil penalties faced include: the section 6662 accuracy related penalty which equals twenty percent of the amount of taxes the taxpayer should have paid; the section 6663 penalty for civil fraud, which is equal to seventy-five percent of the tax the taxpayer should have paid; the section 6702 penalty for filing a frivolous return which is a five hundred dollar fine; and section 6673 which requires a fine of up to twenty-five thousand dollars if the taxpayer makes frivolous arguments in U.S. Tax Court.

Taxpayers may also find themselves faced with criminal charges under section 7201 if it is determined that they have attempted to evade or defeat paying tax. This charge carries the penalty of up to a one hundred thousand dollar fine and imprisonment of up to five years. A taxpayer, filing a zero income return, may also find himself facing the charge of making false statements, which will earn them a fine of up to one hundred thousand dollars and up to three years in prison.

Others involved in promoting such a scheme or the person preparing the return, other than the taxpayer, are in for a spin with the IRS as well. Potential penalties start with a two hundred and fifty dollar penalty assigned under section 6694 for each return filed by someone who knew or should have known that a zero income return is frivolous. This penalty can be raised to a thousand dollars per return filed where it is found that the promoter or preparer was willful, intentional, or reckless in their actions. Further, under section 6701 a penalty of a thousand dollars can be accessed against anyone aiding and abetting an understatement of tax. Under section 7206 advising or assisting in the preparation of a false return or other documents under IRS laws brings a penalty of up to one hundred thousand dollars and imprisonment of up to three years.


It is fairly safe to say that the IRS does not tolerate the under reporting of income by anyone. The penalties and repercussions are stiff and costly. Requesting a tax refund under false information and pretenses, such as declaring a zero income amount, are not tolerated. Choosing to file frivolous lawsuits to regain your refund carries stiff penalties as well. If you choose to follow through on such a scheme consider, carefully what you are attempting to do and the consequences that will follow. Always refer to Section 61 when discerning what your gross income should be.

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