Friday, November 25, 2011

Sauce for the Goose

Donald J. Byk v. Commissioner, TC Summary Opinion 2010-137

This was originally published on October 11th, 2010.

Some things are disturbing.  Other things are heartening.  Occasionally I encounter something that is both.  Such is the case of Donald J. Byk.  Tax court summary opinions are the reality TV of the system.  Taxpayers who prepare their own returns according to their own notions get a chance to tell it to the judge.  Frequently they end up seeming - well kind of lame.  I'll point these cases out from time to time, like the fellow who claimed 96,000 business miles in his part time activities. "Anytime you're moving, you're in business."  There is nothing particularly disturbing about them or heartening either of course.

What I do find disturbing is when the IRS is really lame.  Byk v Com. is an appeal from a collection due process hearing.  Here is how it came about.  Sometime in 2007, Dr. Byk,  a dentist, received a notice that his June 30, 2000 Form 941 payroll return had not been filed.  His accountant, as luck and foresight would have it, had a copy of the return.  Said copy was sent to the IRS to show that the Form had in fact been filed.  The IRS treated the copy as an initial filing and assessed the reported tax and interest and penalties.  They sent Dr. Byk a notice of federal tax lien.

Dr. Byk responded with Form 12153.  Form 12153, you may discern from the large number is a relatively recent addition to the pantheon of tax forms.  It is the result of the IRS Restructuring and Reform Act of 1998.  The title of the form is Request for  A Collection Due Process or Equivalent  Hearing.  I'm tempted to say that there are two types of tax practitioners.  One is not familiar with Form 12153.  The other isn't familiar with any of the other forms except Form 656 (Offer in Compromise).  The point is that the IRS has a system for determining what your tax is, in which you cooperate to a greater or lesser extent.  Once that determination is made, there is a fairly distinct system for actually collecting that amount.  The latter group, collections, can be sensitive to the fact that you can't get blood from a stone, at least not quickly, but they are generally not well attuned to the notion that you might not actually owe the money

So Dr. Byk's collection due process hearing, conducted by telephone was fairly perfunctory.  The resulting notice stated :

Collection followed all legal and procedural requirements and the actions taken or proposed were appropriate under the circumstances

The 1998 Act not only created the right to a hearing, it also provided that the hearing decision could be appealed to tax court.  That was Dr. Byk's next step.  I'm going to be quoting from the case some so its important that you keep track of the players.  Dr. Byk is the petitioner.  The IRS is the respondent. 

The parties' confusion is understandable; the relevant timeline and tax amounts have been reconstructed using photocopied forms, computer screen printouts, and dot-matrix printouts of tax account balances. Many of these records have no supporting explanation (and therefore are inscrutable to any non-employee of the IRS)

Respondent apparently relied upon transcripts for petitioner's general dentistry business and his corporation that respondent was unable to fully explain to either petitioner or the Court. The Court questioned respondent about entries in the transcripts, specifically asking about entries concerning nonfiling of returns.Respondent agreed with the Court that the Internal Revenue Service routinely offers a transcript documenting the nonfiling of a return or a Form 3050, Certification of Lack of Record. No such documentation was provided.  No explanation, other than for two codes, was given to decipher the numerous symbols and codes in respondent's transcripts. Petitioner testified that he did not understand the letters and numbers that make up the code in respondent's transcripts.  To complicate matters, respondent's witness could not explain to the Court many of the codes and acronyms referenced in the transcript.  Respondent simply asserted, on the basis of the incomplete testimony of his witness, that petitioner's Form 941 for that tax period was not filed until 2008

Petitioner supplied an apparent copy of a Form 941 from his accountant that respondent had requested. Petitioner asserts that the original return was properly filed and the reported tax liability timely paid. The issue of petitioner's filing a Form 941 raises questions about the validity of respondent's determination and an irregularity in the assessment procedure.

The court did not bother to remand the case back to appeals given the amount of time that had passed.   The IRS behaviour in this case is rather disturbing.  My bet would be that Dr. Byk did in fact file his second quarter 941 near the dawn of the millennium.  Either way the IRS looks really lame, though, not being able to explain the codes on documents that they introduce as evidence.  On the other hand it is heartening to know that the tax court is there for us in this situation.

I'm sure there must be somebody working on a financial MMORPG.  The government monsters will have liens and levies and all sorts of other nasty stuff to cast.  If you are playing a dentist or any other such tax paying character you'll be sure to have some 12153's in your potion stash. 


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