Originally published on Passive Activities and Other Oxymorons on July 1st, 2011.
____________________________________________________________________________
Scott F. Wnuck v. Commissioner, 136 T.C. No. 24
Mr. Wnuck didn't think the Tax Court explained itself well enough when it ruled against him. So the Court gave him a fairly elaborate explanation as to why it sometimes doesn't explain. Here are some excerpts:
R determined a deficiency in P's 2007 income tax on the basis of wages that P did not report. At trial P admitted, “I exchanged my skilled labor and knowledge for pay”. In a bench opinion the Court held for R, ruled that P's arguments were frivolous, imposed on P a penalty of $1,000 pursuant to I.R.C. sec. 6673(a), and warned P that if he repeated his frivolous positions he faced the risk of a steeper penalty. After the Court entered decision, P moved for reconsideration on the grounds that the Court had not adequately addressed his arguments.
R is "Respondent" i.e. the IRS. P is "Petitioner" i.e. Mr. Wnuck.
Courts confronting frivolous arguments against the constitutionality, validity, applicability, and mandatory character of the income tax often aptly quote Crain v. Commissioner, 737 F.2d 1417, 1417 [54 AFTR 2d 84-5698] (5th Cir. 1984), which stated, “We perceive no need to refute these arguments with somber reasoning and copious citation of precedent”. We take this occasion to explain why it is usually not expedient to discuss and refute in detail the frivolous arguments that some litigants attempt to press in the Tax Court, and why litigants who press such arguments are not entitled to and should not expect to receive opinions rebutting their frivolous arguments.
At trial the only issue was whether Mr. Wnuck received taxable income in 2007; and he frankly stated, “I do not dispute that I exchanged my skilled labor and knowledge for pay” . However, he explained, “I have come to believe that the— my earnings from the companies that I worked for did not constitute taxable income.”Mr. Wnuck did admit, however, that he is not trained in the law.
The Court both sustained the deficiency as determined by the IRS and imposed on Mr. Wnuck, pursuant to section 6673(a), a penalty of $1,000 for taking frivolous positions. The Court stated:
We take no pleasure in doing so, and we there[fore] impose a relatively modest penalty, given that we have the discretion to impose a penalty as high as $25,000. Mr. Wnuck should be aware, however, that if he should ever repeat his maintenance of frivolous tax litigation, he would stand in peril of a much steeper penalty. Undeterred, Mr. Wnuck has now filed a motion for reconsideration, in which he reasserts (1) his argument that his earnings are not taxable “wages”; (2) his argument based on provisions in title 27 of the Code of Federal Regulations; and (3) his argument about supposed errors in his “Individual Master File” maintained by the IRS—all three of which he had asserted at trial. Mr. Wnuck complains about the Court's characterization of his arguments as “frivolous”, especially since the Court did not separately discuss each argument:
So why does the Court not always thoroughly explain why it is rejecting frivolous arguments ?
A.The number of potential frivolous anti-tax arguments is unlimited.
If one is genuinely seeking the truth, if he focuses on what is relevant, and if he confines himself to good sense and logic, then the number of serious arguments he can make on a given point is limited. However, if one is already committed to a position regardless of its truth, if he is willing to say anything, if he is willing to ignore relevance, good sense, and logic, and if he is simply looking for subjects and predicates to put together into sentences in ostensible support of a given point, then the number of frivolous arguments that he can make on that point is effectively limitless.
B. A frivolous anti-tax argument may be unimportant even to its proponent.
Experience shows that a given frivolous argument may have little actual importance to the person making it. Frivolous anti-tax arguments are often obviously downloaded from the Internet; and by cut-and-paste word processing functions, these arguments are easily plunked into a party's filing. In other instances a promoter of frivolous anti-tax arguments is feeding those arguments to a litigant who adopts them uncritically and submits them to the Court.
The frivolous argument, made from this position of witting and willful ignorance, seems to be merely an incidental ornament that adorns an article of faith—namely, the belief that I don't owe taxes. The tax defier firmly holds that postulate above and apart from any arguments. Anything in favor of that postulate may be advanced, no matter how silly; anything against it can be ignored. If a given frivolous argument is decisively rebutted, then it may or may not be retired; but even if the individual argument is retired, the cause is not abandoned. Thus, the specific argument hardly matters even to the litigant.
C. Many frivolous anti-tax arguments have already been answered.
This Court and other courts have addressed and rejected many of the recurring frivolous anti-tax arguments, including (as is especially pertinent here) the general argument that wages are not subject to the income tax 4 and the particular argument that (1978), affd. 614 F.2d 159 [45 AFTR 2d 80-591] (8th Cir. 1980), this Court explained the fallacy of the argument that wages are not taxable income.
D. The litigant who presses the frivolous anti-tax argument often fails to hear its refutation.
E. Many frivolous anti-tax arguments are patently so. The fallacies of some frivolous arguments are gross and palpable
Held : P was not entitled to a Court opinion addressing his frivolous arguments, and his motion for reconsideration will be denied.
Here is an example of one of his arguments:
To resist paying income tax on his wages, Mr. Wnuck makes this frivolous argument: He points out that “wages” are remuneration for “employment”, see sec. 3121(a), that “employment” means service performed “within the United States”, see sec. 3121(b), and that "[t]he term `United States' when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa”, sec. 3121(e)(2) (emphasis added). Mr. Wnuck contends that the term “United States” therefore excludes everything else (such as the 50 States) and that his services performed in Pennsylvania (not in Puerto Rico, etc.) were not performed in the “United States” and therefore did not yield taxable wages. His argument fails for obvious reasons: a. “Includes” does not mean “includes only”.
Section 7701(c) provides that “includes” “shall not be deemed to exclude other things”. Anyone fluent in English knows that the word “includes” cannot be assumed to mean “includes only”—especially when such a meaning would have the ludicrous result of excluding from “United States” all 50 States. No tax research at all is necessary to conclude that Mr. Wnuck's position is frivolous. b. The cited statute does not apply.
So Mr. Wnuck has gotten the satisfaction of hearing the Tax Court explain why Pennsylvania is included as part of the United States. something we all know (I have to admit to having doubts about North Dakota, but that's a different story). You need Pennsylvania though - Liberty Bell, Constitutional Convention, Philadelphia Cheese Steak Sandwiches.
I hope it was worth it to him. It cost him 4 grand.
Mr. Wnuck then submitted a motion for leave to file a motion for reconsideration (which we treat as a motion to vacate the decision) and a separate motion for reconsideration. The motion to vacate will be granted, but the motion for reconsideration will be denied, and decision will again be entered in favor of the IRS and against Mr. Wnuck, but this time with an increased penalty of $5,000.
Showing posts with label protesters. Show all posts
Showing posts with label protesters. Show all posts
Tuesday, July 15, 2014
Saturday, June 28, 2014
Some Stubborn People
Originally published on Passive Activities and Other Oxymorons on April 29th, 2011.
____________________________________________________________________________
Patrick M. Mooney v. Commissioner, TC Memo 2011-35
John A. Raeber v. Commissioner, TC Memo 2011-39
U.S. v. Mostler, 107 AFTR 2d 2011-847
In a fiduciary capacity I once found myself between a tax protester and the IRS. The result was me and the rest of his family being tortured in probate court for over a decade. Thanks to that experience and a tendency to accumulate generally useless information that I find entertaining, I tend to follow protester type cases. I have an admiration for stubborn independent thinkers. There is a limit, though and these folks go well beyond it.
Patrick M. Mooney v. Commissioner, TC Memo 2011-35
Mr. Mooney did some independent study on the Income Tax Code. He came up with something extraordinary which he shared with the world:
Petitioner operates his own Web site unlearning.org, on which he has published, among other things, an editorial entitled “Unlearning Pays! Hendrickson, Mooney and Others Bring IRS to (Code) in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. Heel.” In that editorial, he wrote: "[A] private sector worker's earnings are not legally subject to the federal tax on income. They never have been, and as long as we still have a Constitution, they never will be.” In that editorial, he also described his plans to request refunds for taxes withheld from his earnings in previous years and to assert that he is not subject to withholding in the current year. He wrote that his strategy is a “get out of income taxes free' Monopoly card” for life.
The website is still there although I didn't find the tax advice or any commentary on how it worked out for him. It was one of those really brilliant plans:
In accordance with the plan described on his Web site, petitioner submitted a Form 1040, U.S. Individual Income Tax Return, for his 2005 tax year with zeros in all boxes for reporting income. He claimed a refund of $2,647.48, which was the amount of Social Security and Medicare taxes that had been withheld from his paychecks. He attached to the Form 1040 two Forms 4852, Substitute for Form W-2, Wage and Tax Statement. In his testimony at trial, petitioner stated that his contention that he had zero income in 2005 is based on his belief that he did not participate in any taxable activity since he lives in the Commonwealth of Virginia and works for private corporations. During 2005, petitioner received $32,207 for services performed for Interstate Industries, Inc. (Interstate Industries), and $2,400 for services performed for the Centre, Inc. (the Centre). Petitioner submitted to both entities Forms W-4 on which he claimed to be exempt from income tax withholding because he expected to have no Federal tax liability. In consequence, the payors withheld no income tax from his compensation.
Despite its fearsome reputation in some circles, the IRS actually has a lot of patience with this type of nonsense:
Respondent also referred petitioner to documents on the Internal Revenue Service Web site titled “Why do I Have to Pay Taxes?” and “The Truth about Frivolous Tax Arguments”, which provided petitioner with specific legal citations explaining why frivolous tax-protester arguments similar to his own have been rejected. Petitioner read both documents.
My mother used to say "Patience is a virtue". I agree and also note that it doesn't always work:
Petitioner dismissed those warnings and respondent's letter, writing that respondent's position has “no merit in the law”, and he protested respondent's disallowance of his refund claim in a letter dated June 15, 2006.
The court found that his behaviour was fraudulent.
Despite petitioner's being fully informed by respondent about the frivolous nature of his arguments, petitioner's correspondence with respondent has been filled with tax-protester arguments and has not addressed the factual accuracy of respondent's determination. Petitioner has also previously attempted to use similar arguments to dispute his tax liability before this Court, and he is aware that we consider such arguments frivolous and groundless. Petitioner was unsuccessful in his prior litigation before this Court. Yet petitioner has persisted in claiming that he is not subject to Federal income tax or income tax withholding.
I always think of fraud as requiring a little more cleverness than this mishegas. On the other hand I think the Tax Court cut him a break on the penalty for wasting the Tax Court's time:
We have already imposed a $1,000 penalty pursuant to section 6673(a)(1) on petitioner in petitioner's prior case, during which he raised substantially the same arguments that he has now raised in the instant case. Apparently, the $1,000 penalty did not deter petitioner from making frivolous and groundless arguments before this Court. Accordingly, we shall impose a $2,000 penalty on petitioner pursuant to section 6673. If petitioner persists in raising frivolous arguments before this Court, wasting time and resources that should be devoted to taxpayers with genuine controversies, and continues to refuse to shoulder his fair share of the tax burden, we will not hesitate in the future to impose a significantly higher penalty. Petitioner should think carefully before he files another frivolous or groundless petition with this Court.
The maximum penalty is $25,000.
John A. Raeber v. Commissioner, TC Memo 2011-39
Mr. Raeber was not quite as wacky as Mr. Mooney. He is probably not a "tax protester" in the classic sense.
In 2006 and 2007 petitioner worked as a self-employed consultant to various architects throughout the world. He operated his consulting business as a sole proprietorship and reported his income and expenses from the business on a Schedule C. Petitioner timely filed Forms 1040, U.S. Individual Income Tax Return, for 2006 and 2007, and attached Schedules C on which he reported gross income of $336,475 and $334,860, respectively, and business expenses of $252,013 and $253,490, respectively.
Respondent audited petitioner's 2006 and 2007 returns and requested that petitioner substantiate all of his Schedule C business expenses. Petitioner refused to substantiate any of his claimed business expenses, arguing that the substantiation requirement violates his Fifth Amendment rights under the U.S. Constitution. Respondent then issued petitioner a notice of deficiency disallowing petitioner's deductions for business expenses claimed on his Schedules C.
I have some level of sympathy with his argument:
Petitioner argues that reporting his expenses on his 2006 and 2007 Schedules C and signing his returns under penalty of perjury constitute sufficient substantiation.
The Court does not:
We have long held that signing a return under penalty of perjury is not sufficient to substantiate its accuracy.
I think I get the Court's point much as I would like to live in a world where a man's word is his bond.
This is where I start losing sympathy for Mr. Raeber:
At trial the Court warned petitioner that his Fifth Amendment claim would not excuse him from his burden to substantiate his claimed business expenses and offered petitioner an additional opportunity to introduce evidence to satisfy his burden. However, petitioner continued to assert his Fifth Amendment privilege and offered no further evidence to substantiate his claimed business expenses. Accordingly, we sustain respondent's disallowance of petitioner's deductions for business expenses claimed on his Schedules C for 2006 and 2007.
So there you are in a court and the judge is explaining to you that the privilege against self-incrimination, one of the two things that you can learn are in the Constitution by watching television regularly, doesn't apply to tax returns. (The other thing you learn is "separation of church and state", which actually isn't there). Do you really think that you are the first person since 1913 to make this argument and that the system is going to see the error of its ways ?
U.S. v. Mostler, Cite as 107 AFTR 2d 2011-847
From a young age, Mostler claims to have held the belief that the payment of federal income taxes was voluntary. Despite this belief, Mostler paid his income taxes from 1982 through 2000. Following some additional research, largely conducted on the Internet, Mostler decided not to pay his taxes from the years 2000 through 2005. Although he was contacted by IRS agents, their refusal to respond to his letters with an affidavit of authority to collect taxes led him to conclude that he still did not have to pay. When an IRS agent arrived at his home, however, it caused some familial strife, and Mostler agreed to pay his back taxes and to continue to pay his taxes going forward. Despite this agreement, he still maintains his belief that the payment of federal income taxes is entirely voluntary.
In a recent post about abusive tax shelters, I observed that if you start talking about whether a six year statute of limitations applies, it is a sign that you have a really bad plan on your hands. What could be worse ? What is worse is when you start arguing about jury instructions.
Mostler first argues that the District Court's jury instruction on the issue of willfulness was confusing as a whole, although he concedes that no single statement by the District Court was incorrect. The District Court stated as follows:
The third element the Government must prove beyond a reasonable doubt is that the defendant acted willfully. Willfully means a voluntary and intentional violation of a known legal duty.... Defendant's conduct was not willful if he acted through negligence or a mistake or accident or due to a good faith misunderstanding of the requirements of the law. A good faith belief is one that is honestly and genuinely held. A good faith misunderstanding of the law or a good faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable. A defendant's views about the validity of the tax statutes are irrelevant to the issue of willfulness and need not be considered by the jury. However, mere disagreement with the law or belief that the tax laws are unconstitutional or otherwise invalid does not constitute a good faith misunderstanding of the requirements of law. All persons have a duty to obey the law whether or not they agree with it. Any claim that the tax laws are invalid, unconstitutional, or inapplicable is incorrect as a matter of law.
Mostler asserts that this instruction left the jury confused because although the issue of whether the tax laws actually did apply to him is irrelevant for the jury, the issue of whether he believed that the tax laws applied to him is at the heart of his defense. He argues that a reasonable juror easily could have concluded from this instruction that she was required to convict even if Mostler had a good faith misunderstanding of the mandatory nature of the tax laws.
Sadly the majority of us deluded people who believe that taxes are mandatory will be paying for Mr. Mostler to be closely supervised for 18 months.
Conclusion
As long as we continue to have a self-assessment system and a free country, there are going to be
cases like this. Weak enforcement and the multiplication of procedural safeguards sometimes make me think that taxes are effectively voluntary for a lot of people.
____________________________________________________________________________
Patrick M. Mooney v. Commissioner, TC Memo 2011-35
John A. Raeber v. Commissioner, TC Memo 2011-39
U.S. v. Mostler, 107 AFTR 2d 2011-847
In a fiduciary capacity I once found myself between a tax protester and the IRS. The result was me and the rest of his family being tortured in probate court for over a decade. Thanks to that experience and a tendency to accumulate generally useless information that I find entertaining, I tend to follow protester type cases. I have an admiration for stubborn independent thinkers. There is a limit, though and these folks go well beyond it.
Patrick M. Mooney v. Commissioner, TC Memo 2011-35
Mr. Mooney did some independent study on the Income Tax Code. He came up with something extraordinary which he shared with the world:
Petitioner operates his own Web site unlearning.org, on which he has published, among other things, an editorial entitled “Unlearning Pays! Hendrickson, Mooney and Others Bring IRS to (Code) in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. Heel.” In that editorial, he wrote: "[A] private sector worker's earnings are not legally subject to the federal tax on income. They never have been, and as long as we still have a Constitution, they never will be.” In that editorial, he also described his plans to request refunds for taxes withheld from his earnings in previous years and to assert that he is not subject to withholding in the current year. He wrote that his strategy is a “get out of income taxes free' Monopoly card” for life.
The website is still there although I didn't find the tax advice or any commentary on how it worked out for him. It was one of those really brilliant plans:
In accordance with the plan described on his Web site, petitioner submitted a Form 1040, U.S. Individual Income Tax Return, for his 2005 tax year with zeros in all boxes for reporting income. He claimed a refund of $2,647.48, which was the amount of Social Security and Medicare taxes that had been withheld from his paychecks. He attached to the Form 1040 two Forms 4852, Substitute for Form W-2, Wage and Tax Statement. In his testimony at trial, petitioner stated that his contention that he had zero income in 2005 is based on his belief that he did not participate in any taxable activity since he lives in the Commonwealth of Virginia and works for private corporations. During 2005, petitioner received $32,207 for services performed for Interstate Industries, Inc. (Interstate Industries), and $2,400 for services performed for the Centre, Inc. (the Centre). Petitioner submitted to both entities Forms W-4 on which he claimed to be exempt from income tax withholding because he expected to have no Federal tax liability. In consequence, the payors withheld no income tax from his compensation.
Despite its fearsome reputation in some circles, the IRS actually has a lot of patience with this type of nonsense:
Respondent also referred petitioner to documents on the Internal Revenue Service Web site titled “Why do I Have to Pay Taxes?” and “The Truth about Frivolous Tax Arguments”, which provided petitioner with specific legal citations explaining why frivolous tax-protester arguments similar to his own have been rejected. Petitioner read both documents.
My mother used to say "Patience is a virtue". I agree and also note that it doesn't always work:
Petitioner dismissed those warnings and respondent's letter, writing that respondent's position has “no merit in the law”, and he protested respondent's disallowance of his refund claim in a letter dated June 15, 2006.
The court found that his behaviour was fraudulent.
Despite petitioner's being fully informed by respondent about the frivolous nature of his arguments, petitioner's correspondence with respondent has been filled with tax-protester arguments and has not addressed the factual accuracy of respondent's determination. Petitioner has also previously attempted to use similar arguments to dispute his tax liability before this Court, and he is aware that we consider such arguments frivolous and groundless. Petitioner was unsuccessful in his prior litigation before this Court. Yet petitioner has persisted in claiming that he is not subject to Federal income tax or income tax withholding.
I always think of fraud as requiring a little more cleverness than this mishegas. On the other hand I think the Tax Court cut him a break on the penalty for wasting the Tax Court's time:
We have already imposed a $1,000 penalty pursuant to section 6673(a)(1) on petitioner in petitioner's prior case, during which he raised substantially the same arguments that he has now raised in the instant case. Apparently, the $1,000 penalty did not deter petitioner from making frivolous and groundless arguments before this Court. Accordingly, we shall impose a $2,000 penalty on petitioner pursuant to section 6673. If petitioner persists in raising frivolous arguments before this Court, wasting time and resources that should be devoted to taxpayers with genuine controversies, and continues to refuse to shoulder his fair share of the tax burden, we will not hesitate in the future to impose a significantly higher penalty. Petitioner should think carefully before he files another frivolous or groundless petition with this Court.
The maximum penalty is $25,000.
John A. Raeber v. Commissioner, TC Memo 2011-39
Mr. Raeber was not quite as wacky as Mr. Mooney. He is probably not a "tax protester" in the classic sense.
In 2006 and 2007 petitioner worked as a self-employed consultant to various architects throughout the world. He operated his consulting business as a sole proprietorship and reported his income and expenses from the business on a Schedule C. Petitioner timely filed Forms 1040, U.S. Individual Income Tax Return, for 2006 and 2007, and attached Schedules C on which he reported gross income of $336,475 and $334,860, respectively, and business expenses of $252,013 and $253,490, respectively.
Respondent audited petitioner's 2006 and 2007 returns and requested that petitioner substantiate all of his Schedule C business expenses. Petitioner refused to substantiate any of his claimed business expenses, arguing that the substantiation requirement violates his Fifth Amendment rights under the U.S. Constitution. Respondent then issued petitioner a notice of deficiency disallowing petitioner's deductions for business expenses claimed on his Schedules C.
I have some level of sympathy with his argument:
Petitioner argues that reporting his expenses on his 2006 and 2007 Schedules C and signing his returns under penalty of perjury constitute sufficient substantiation.
The Court does not:
We have long held that signing a return under penalty of perjury is not sufficient to substantiate its accuracy.
I think I get the Court's point much as I would like to live in a world where a man's word is his bond.
This is where I start losing sympathy for Mr. Raeber:
At trial the Court warned petitioner that his Fifth Amendment claim would not excuse him from his burden to substantiate his claimed business expenses and offered petitioner an additional opportunity to introduce evidence to satisfy his burden. However, petitioner continued to assert his Fifth Amendment privilege and offered no further evidence to substantiate his claimed business expenses. Accordingly, we sustain respondent's disallowance of petitioner's deductions for business expenses claimed on his Schedules C for 2006 and 2007.
So there you are in a court and the judge is explaining to you that the privilege against self-incrimination, one of the two things that you can learn are in the Constitution by watching television regularly, doesn't apply to tax returns. (The other thing you learn is "separation of church and state", which actually isn't there). Do you really think that you are the first person since 1913 to make this argument and that the system is going to see the error of its ways ?
U.S. v. Mostler, Cite as 107 AFTR 2d 2011-847
From a young age, Mostler claims to have held the belief that the payment of federal income taxes was voluntary. Despite this belief, Mostler paid his income taxes from 1982 through 2000. Following some additional research, largely conducted on the Internet, Mostler decided not to pay his taxes from the years 2000 through 2005. Although he was contacted by IRS agents, their refusal to respond to his letters with an affidavit of authority to collect taxes led him to conclude that he still did not have to pay. When an IRS agent arrived at his home, however, it caused some familial strife, and Mostler agreed to pay his back taxes and to continue to pay his taxes going forward. Despite this agreement, he still maintains his belief that the payment of federal income taxes is entirely voluntary.
In a recent post about abusive tax shelters, I observed that if you start talking about whether a six year statute of limitations applies, it is a sign that you have a really bad plan on your hands. What could be worse ? What is worse is when you start arguing about jury instructions.
Mostler first argues that the District Court's jury instruction on the issue of willfulness was confusing as a whole, although he concedes that no single statement by the District Court was incorrect. The District Court stated as follows:
The third element the Government must prove beyond a reasonable doubt is that the defendant acted willfully. Willfully means a voluntary and intentional violation of a known legal duty.... Defendant's conduct was not willful if he acted through negligence or a mistake or accident or due to a good faith misunderstanding of the requirements of the law. A good faith belief is one that is honestly and genuinely held. A good faith misunderstanding of the law or a good faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable. A defendant's views about the validity of the tax statutes are irrelevant to the issue of willfulness and need not be considered by the jury. However, mere disagreement with the law or belief that the tax laws are unconstitutional or otherwise invalid does not constitute a good faith misunderstanding of the requirements of law. All persons have a duty to obey the law whether or not they agree with it. Any claim that the tax laws are invalid, unconstitutional, or inapplicable is incorrect as a matter of law.
Mostler asserts that this instruction left the jury confused because although the issue of whether the tax laws actually did apply to him is irrelevant for the jury, the issue of whether he believed that the tax laws applied to him is at the heart of his defense. He argues that a reasonable juror easily could have concluded from this instruction that she was required to convict even if Mostler had a good faith misunderstanding of the mandatory nature of the tax laws.
Sadly the majority of us deluded people who believe that taxes are mandatory will be paying for Mr. Mostler to be closely supervised for 18 months.
Conclusion
As long as we continue to have a self-assessment system and a free country, there are going to be
cases like this. Weak enforcement and the multiplication of procedural safeguards sometimes make me think that taxes are effectively voluntary for a lot of people.
Friday, June 13, 2014
Try Try Again
Originally published on Passive Activities and Other Oxymorons on February 2nd, 2011.
____________________________________________________________________________
HENRY v. U.S., Cite as 106 AFTR 2d 2010-7426, 12/21/2010
Tax protestors. God bless them. Reviewing tax decisions would be so much more boring without them. The IRS and judges have a harder time having patience and seeing the lighter side of the movement. This one is pretty short so I am reproducing it almost in full with a little bit of emphasis here and there.
Judge: KURT D. ENGELHARDT UNITED STATES DISTRICT JUDGE
Presently before the Court are several additional motions filed by Plaintiff. See Rec. Docs. 390, 398, 400, and 402–406. Having carefully considered the motions, and any Government response thereto, the Court rules as stated herein.
(1) Plaintiff's “Motion for Production of Records Pursuant to 26 U.S.C. §§ 6203 and 6303” and “Motion to Compel Payment of Judgment Based on Newly Discovered Evidence that the IRS Failed to Comply with 26 U.S.C. §6303 and Create or Deliver a Demand for Payment” (Rec. Docs. 390 and 398) address the 2004 additional tax assessment for the 1999 tax year, and the related IRS offset. On the showing made, it is not apparent that Plaintiff is entitled to any additional relief from this Court. Accordingly, IT IS ORDERED that these motions are DENIED.
(2) To the extent that Plaintiff's “Motion for Leave to File Response to Government's Answer” (Rec. Doc. 402) seeks only to file a reply to the Government's July 6, 2010 response (Rec. Doc. 401), IT IS ORDERED that the motion is GRANTED.
(3) Plaintiff's “Motion for Sanctions,” “Motion to Compel,” and “Motion for Judicial Notice” also address the 2004 additional tax assessment for the 1999 tax year, and the related IRS offset. IT IS ORDERED that the motion seeking judicial notice is GRANTED to the extent that the Court takes notice of the December 9, 2010 opinion rendered by the Seventh Circuit Court of Appeals in Henry v. Commission of Internal Revenue Service, No. 10-2165 (7th Cir. 2010. In all other respects, however, IT IS ORDERED that these three motions likewise are DENIED.
(4) Plaintiff's “Motion for Clarification that the Court has Either Instructed Henry to File False Tax Returns for 2006, 2007, 2008, 2009 and 2010 or That the Court Has Determined that Plaintiff is no Longer Responsible for Filing any Tax Returns at any Time in the Future” (Rec. Doc. 400) is frivolous and nonsensical. Accordingly, IT IS ORDERED that the motion is DENIED.
(4) Plaintiff's “Motion for Declaratory Judgment and for Court Ordered Determination” (Rec. Doc. 403) addresses Plaintiff's 2002 carryback claims. The Court addressed these claims in its June 21, 2010 Order and Reasons (Rec. Doc. 395). Accordingly, IT IS ORDERED that the motion is DENIED.
The Court once again emphasizes that final judgment has been rendered in this refund lawsuit following the completion of a jury trial and resolution of all matters then presented for the Court's determination. Furthermore, the Court's judgment has been appealed and affirmed. Thus, this action is closed and is not available for consideration of new or renewed claims. And, as previously noted, by this Court and others, Plaintiff's multitude of repetitive and duplicative submissions have demanded an unwarranted expenditure of resources by the federal court system and the Government. Accordingly, IT IS FURTHER ORDERED that Plaintiff shall not file any additional motions in this action without first seeking leave of court to do so and certifying, in writing, that the proposed submission is not repetitive or duplicative and does not contain any inappropriate, irrelevant, malicious, frivolous, and/or insulting comments. Failure to comply with this order may result in filings being stricken from the record and/or the imposition of significant financial and/or other sanctions, including, but not limited to, payment of excess costs, expenses, and any attorney's fees reasonably incurred by the Government because of Plaintiff's unreasonable and vexatious conduct. See 28 U.S.C. §1927.
Come on Judge. Tell us how you really feel.
____________________________________________________________________________
HENRY v. U.S., Cite as 106 AFTR 2d 2010-7426, 12/21/2010
Tax protestors. God bless them. Reviewing tax decisions would be so much more boring without them. The IRS and judges have a harder time having patience and seeing the lighter side of the movement. This one is pretty short so I am reproducing it almost in full with a little bit of emphasis here and there.
Judge: KURT D. ENGELHARDT UNITED STATES DISTRICT JUDGE
Presently before the Court are several additional motions filed by Plaintiff. See Rec. Docs. 390, 398, 400, and 402–406. Having carefully considered the motions, and any Government response thereto, the Court rules as stated herein.
(1) Plaintiff's “Motion for Production of Records Pursuant to 26 U.S.C. §§ 6203 and 6303” and “Motion to Compel Payment of Judgment Based on Newly Discovered Evidence that the IRS Failed to Comply with 26 U.S.C. §6303 and Create or Deliver a Demand for Payment” (Rec. Docs. 390 and 398) address the 2004 additional tax assessment for the 1999 tax year, and the related IRS offset. On the showing made, it is not apparent that Plaintiff is entitled to any additional relief from this Court. Accordingly, IT IS ORDERED that these motions are DENIED.
(2) To the extent that Plaintiff's “Motion for Leave to File Response to Government's Answer” (Rec. Doc. 402) seeks only to file a reply to the Government's July 6, 2010 response (Rec. Doc. 401), IT IS ORDERED that the motion is GRANTED.
(3) Plaintiff's “Motion for Sanctions,” “Motion to Compel,” and “Motion for Judicial Notice” also address the 2004 additional tax assessment for the 1999 tax year, and the related IRS offset. IT IS ORDERED that the motion seeking judicial notice is GRANTED to the extent that the Court takes notice of the December 9, 2010 opinion rendered by the Seventh Circuit Court of Appeals in Henry v. Commission of Internal Revenue Service, No. 10-2165 (7th Cir. 2010. In all other respects, however, IT IS ORDERED that these three motions likewise are DENIED.
(4) Plaintiff's “Motion for Clarification that the Court has Either Instructed Henry to File False Tax Returns for 2006, 2007, 2008, 2009 and 2010 or That the Court Has Determined that Plaintiff is no Longer Responsible for Filing any Tax Returns at any Time in the Future” (Rec. Doc. 400) is frivolous and nonsensical. Accordingly, IT IS ORDERED that the motion is DENIED.
(4) Plaintiff's “Motion for Declaratory Judgment and for Court Ordered Determination” (Rec. Doc. 403) addresses Plaintiff's 2002 carryback claims. The Court addressed these claims in its June 21, 2010 Order and Reasons (Rec. Doc. 395). Accordingly, IT IS ORDERED that the motion is DENIED.
The Court once again emphasizes that final judgment has been rendered in this refund lawsuit following the completion of a jury trial and resolution of all matters then presented for the Court's determination. Furthermore, the Court's judgment has been appealed and affirmed. Thus, this action is closed and is not available for consideration of new or renewed claims. And, as previously noted, by this Court and others, Plaintiff's multitude of repetitive and duplicative submissions have demanded an unwarranted expenditure of resources by the federal court system and the Government. Accordingly, IT IS FURTHER ORDERED that Plaintiff shall not file any additional motions in this action without first seeking leave of court to do so and certifying, in writing, that the proposed submission is not repetitive or duplicative and does not contain any inappropriate, irrelevant, malicious, frivolous, and/or insulting comments. Failure to comply with this order may result in filings being stricken from the record and/or the imposition of significant financial and/or other sanctions, including, but not limited to, payment of excess costs, expenses, and any attorney's fees reasonably incurred by the Government because of Plaintiff's unreasonable and vexatious conduct. See 28 U.S.C. §1927.
Come on Judge. Tell us how you really feel.
Wednesday, May 28, 2014
Some Items of Interest
Originally published on Passive Activities and Other Oxymorons on December 22, 2010.
______________________________________________________________________________
I've got quite a few developments that I'd like to share that I can't seem to work into a full length treatment. In rough chronological order they are :
NEW PHOENIX SUNRISE CORP. v. COMM., Cite as 106 AFTR 2d 2010-7116, 11/18/2010
Tentative title was "How Sweet it Is ?". This was similar to the currency swap I wrote about in October. This deal had a business purpose fig leaf. Even though the transaction on which millions of dollars of losses were claimed was almost guaranteed to have a loss of around $100,000 there was a chance of an enormous return :
The fourth possible outcome would occur if the spot rate for one of the option pairs “hit the sweet spot,” meaning that the long option and the short option comprising one of the option pairs expired in the money and out of the money, respectively. This would happen if the spot rate on December 12 were 127.75 or 127.76 yen per dollar, or if the spot rate on December 18 were 128.75 or 128.76 yen per dollar. Then, Capital would earn a profit of $73,500,000 on its net investment of $131,250 because it would have an additional receipt of $73,631,250 on either December 14 or December 20. The final possible outcome would occur if both option pairs hit the sweet spot. Then, Capital would earn a profit of $147,131,250 on its net investment of $131,250 because it would have additional receipts or $73,631,250 on both December 14 and December 20.
According to the IRS expert that the Court accepted there actually was no chance of the sweet spot being hit since the counter party had enough discretion and market clout to prevent it.
CC 2011-004
The following steps should be taken when a taxpayer is alleging, in an appeal to the Tax Court from a notice of determination sustaining a levy action, that the levy should not proceed because it would cause economic hardship: 1) the administrative record should be reviewed to determine whether the taxpayer raised economic hardship and whether the facts support the assertion that the levy would prevent the taxpayer from meeting necessary living expenses; and 2) if a credible argument of economic hardship was raised, but the settlement or appeals officer did not address the issue, a motion should be filed requesting that the case be remanded to Appeals so that the settlement or appeals officer can consider properly whether the levy action is inappropriate because the taxpayer would suffer an economic hardship if a levy is served.
This is a change in IRS policy regarding levies where taxpayers are not in current compliance. Regardless of the current compliance, the appeals officer must consider hardship. A study of collection cases sometimes makes me think that the income tax really is voluntary.
Hardy Ray Murphy, et ux. v. Commissioner, TC Memo 2010-264
Tentative title was "Brother Can You Spare a Deductible Dime". This was a substantiation case. Taxpayer was taking a deduction for lunches that he bought for some homeless men that he befriended. For a period of time he and his wife were regular churchgoers
Mr. Murphy claims he contributed between $100 and $200 each time he went to church for a total of $300 to $500 each week. While Lake Avenue Church did provide envelopes for contributions, petitioners did not use them. In addition to contributions to Lake Avenue Church, petitioners contend they made small contributions to San Gabriel Union Church and St. Mark's Episcopal School. Both Mr. Murphy and his daughter attended St. Mark's Episcopal School. Mr. Murphy asserted that the total amount of tithing to the two churches and the school was approximately $20,000.
The Tax Court pointed Mr. Murphy to the substantiation rules for charitable contribution. I'd like to believe Mr. Murphy, but I don't recall any news reports of church ushers dying from shock when they found portraits of Benjamin Franklin in the collection plate so I'm a little skeptical.
U.S. v. BOWDEN, Cite as 106 AFTR 2d 2010-7195, 11/30/2010
Tentative title for this one was "King David Headed for the Clink".
Wesley David Bowden appeals his conviction on six counts of attempted tax evasion and his six concurrent prison terms of 24 months each. The Government has moved to dismiss the appeal as frivolous or for summary affirmance or, alternatively, for an extension of time.
Bowden asserts that the only issue on appeal is whether the district court had jurisdiction to convict him. He contends that it did not because he is a sovereign and not subject to the laws of the United States.
The Court found his appeal to be frivolous. So maybe he should try jester rather sovereign.
NEVADA PARTNERS FUND, LLC v. U.S, Cite as 105 AFTR 2d 2010-2133, 04/30/2010
At the October 2, 2001, meeting, Williams and his attorneys met with KPMG agent Donna Bruce, who understood that the purpose of the meeting was to alleviate large gains arising from the B.C. Rogers note exchange, having been informed that the gain would amount to nearly $20,000,000.00. She told Williams that KPMG had been recommending to its clients facing the imminent prospect of large ordinary and capital gains a new strategy to be pursued through an investment advisor experienced in financial structure, hedge funds and more exotic forms of investment designed to provide tax benefits. Bruce named several investment advisors to be considered by Williams, including a hedge fund called Bricolage, LLC, in New York City, an entity owned and managed by one Andrew Beer.
Another convoluted KPMG deal that didn't work out as intended. I think I'm going to stop studying these things as I might get confused by them.
CCA 201048043
Tentative title was "Say What ?" I really don't know what they are talking about here. I suppose if I ran down the references I would have a clue, but I don't think I'll bother. Hope it is nothing important.
UIL No. 6227.00-00
Release Date: 12/03/2010
ID: CCA_2010102109152937
Release Date: 12/3/2010 Office: —————
UILC: 6227.00-00
From: —————————- Sent: Thursday, October 21, 2010 9:15:31 AM To: —————————— Cc: —————- Subject: RE: TEFRA question ————-
Correct. If an NBAP has been issued, then any AAR issues would be resolved in the FPAA and no separate petition of the AARs could be filed. I.R.C. 6228(a)(2)(B). In addition, we cannot issue any affected item notices of deficiency until after the partnership proceeding is complete. GAF v. Commissioner.
EMMANUEL OWENS v. COMMISSIONER OF INTERNAL REVENUE, TC Memo 2010-265
Mr. Owens is a corrections officer in a state system. The way the judge in this decision kept emphasizing that he had signed one return under pains and penalties or perjury and then an amended return with a significantly different position also under such pains and penalties, I was thinking the judge was hinting that he could end up in a federal facility in a capacity other than as corrections officer. His original return had $22,921 in unsubstantiated schedule A job related deductions. The amended return moved them to Schedule C. They remained unsubstantiated and thus non-deductible. Fairly typical tax court case, but I found it a little amusing.
Well, I'm back to studying the tax bill. You won't be learning about it here unless there is something quirky that is not being heavily noticed.
______________________________________________________________________________
I've got quite a few developments that I'd like to share that I can't seem to work into a full length treatment. In rough chronological order they are :
NEW PHOENIX SUNRISE CORP. v. COMM., Cite as 106 AFTR 2d 2010-7116, 11/18/2010
Tentative title was "How Sweet it Is ?". This was similar to the currency swap I wrote about in October. This deal had a business purpose fig leaf. Even though the transaction on which millions of dollars of losses were claimed was almost guaranteed to have a loss of around $100,000 there was a chance of an enormous return :
The fourth possible outcome would occur if the spot rate for one of the option pairs “hit the sweet spot,” meaning that the long option and the short option comprising one of the option pairs expired in the money and out of the money, respectively. This would happen if the spot rate on December 12 were 127.75 or 127.76 yen per dollar, or if the spot rate on December 18 were 128.75 or 128.76 yen per dollar. Then, Capital would earn a profit of $73,500,000 on its net investment of $131,250 because it would have an additional receipt of $73,631,250 on either December 14 or December 20. The final possible outcome would occur if both option pairs hit the sweet spot. Then, Capital would earn a profit of $147,131,250 on its net investment of $131,250 because it would have additional receipts or $73,631,250 on both December 14 and December 20.
According to the IRS expert that the Court accepted there actually was no chance of the sweet spot being hit since the counter party had enough discretion and market clout to prevent it.
CC 2011-004
The following steps should be taken when a taxpayer is alleging, in an appeal to the Tax Court from a notice of determination sustaining a levy action, that the levy should not proceed because it would cause economic hardship: 1) the administrative record should be reviewed to determine whether the taxpayer raised economic hardship and whether the facts support the assertion that the levy would prevent the taxpayer from meeting necessary living expenses; and 2) if a credible argument of economic hardship was raised, but the settlement or appeals officer did not address the issue, a motion should be filed requesting that the case be remanded to Appeals so that the settlement or appeals officer can consider properly whether the levy action is inappropriate because the taxpayer would suffer an economic hardship if a levy is served.
This is a change in IRS policy regarding levies where taxpayers are not in current compliance. Regardless of the current compliance, the appeals officer must consider hardship. A study of collection cases sometimes makes me think that the income tax really is voluntary.
Hardy Ray Murphy, et ux. v. Commissioner, TC Memo 2010-264
Tentative title was "Brother Can You Spare a Deductible Dime". This was a substantiation case. Taxpayer was taking a deduction for lunches that he bought for some homeless men that he befriended. For a period of time he and his wife were regular churchgoers
Mr. Murphy claims he contributed between $100 and $200 each time he went to church for a total of $300 to $500 each week. While Lake Avenue Church did provide envelopes for contributions, petitioners did not use them. In addition to contributions to Lake Avenue Church, petitioners contend they made small contributions to San Gabriel Union Church and St. Mark's Episcopal School. Both Mr. Murphy and his daughter attended St. Mark's Episcopal School. Mr. Murphy asserted that the total amount of tithing to the two churches and the school was approximately $20,000.
The Tax Court pointed Mr. Murphy to the substantiation rules for charitable contribution. I'd like to believe Mr. Murphy, but I don't recall any news reports of church ushers dying from shock when they found portraits of Benjamin Franklin in the collection plate so I'm a little skeptical.
U.S. v. BOWDEN, Cite as 106 AFTR 2d 2010-7195, 11/30/2010
Tentative title for this one was "King David Headed for the Clink".
Wesley David Bowden appeals his conviction on six counts of attempted tax evasion and his six concurrent prison terms of 24 months each. The Government has moved to dismiss the appeal as frivolous or for summary affirmance or, alternatively, for an extension of time.
Bowden asserts that the only issue on appeal is whether the district court had jurisdiction to convict him. He contends that it did not because he is a sovereign and not subject to the laws of the United States.
The Court found his appeal to be frivolous. So maybe he should try jester rather sovereign.
NEVADA PARTNERS FUND, LLC v. U.S, Cite as 105 AFTR 2d 2010-2133, 04/30/2010
At the October 2, 2001, meeting, Williams and his attorneys met with KPMG agent Donna Bruce, who understood that the purpose of the meeting was to alleviate large gains arising from the B.C. Rogers note exchange, having been informed that the gain would amount to nearly $20,000,000.00. She told Williams that KPMG had been recommending to its clients facing the imminent prospect of large ordinary and capital gains a new strategy to be pursued through an investment advisor experienced in financial structure, hedge funds and more exotic forms of investment designed to provide tax benefits. Bruce named several investment advisors to be considered by Williams, including a hedge fund called Bricolage, LLC, in New York City, an entity owned and managed by one Andrew Beer.
Another convoluted KPMG deal that didn't work out as intended. I think I'm going to stop studying these things as I might get confused by them.
CCA 201048043
Tentative title was "Say What ?" I really don't know what they are talking about here. I suppose if I ran down the references I would have a clue, but I don't think I'll bother. Hope it is nothing important.
UIL No. 6227.00-00
Release Date: 12/03/2010
ID: CCA_2010102109152937
Release Date: 12/3/2010 Office: —————
UILC: 6227.00-00
From: —————————- Sent: Thursday, October 21, 2010 9:15:31 AM To: —————————— Cc: —————- Subject: RE: TEFRA question ————-
Correct. If an NBAP has been issued, then any AAR issues would be resolved in the FPAA and no separate petition of the AARs could be filed. I.R.C. 6228(a)(2)(B). In addition, we cannot issue any affected item notices of deficiency until after the partnership proceeding is complete. GAF v. Commissioner.
EMMANUEL OWENS v. COMMISSIONER OF INTERNAL REVENUE, TC Memo 2010-265
Mr. Owens is a corrections officer in a state system. The way the judge in this decision kept emphasizing that he had signed one return under pains and penalties or perjury and then an amended return with a significantly different position also under such pains and penalties, I was thinking the judge was hinting that he could end up in a federal facility in a capacity other than as corrections officer. His original return had $22,921 in unsubstantiated schedule A job related deductions. The amended return moved them to Schedule C. They remained unsubstantiated and thus non-deductible. Fairly typical tax court case, but I found it a little amusing.
Well, I'm back to studying the tax bill. You won't be learning about it here unless there is something quirky that is not being heavily noticed.
Thursday, May 22, 2014
Making Room For The New
This was originally published on Passive Activities and Other Oxymorons on December 17, 2010.
__________________________________________________________________________
I explained my blogging method in a recent post and that wasn't even the first time. One of the byproducts of the method is a host of items that deserve mention, but not perhaps an entire post. Things had been pretty quiet on the fronts that I observe. Yesterday and today though produced a flurry of interesting items. Before I get to them though I will pass on the developments that are starting to get stale and will not get a lengthy treatment.
Private Letter Ruling 201044019, 11/05/2010
This ruling is an adverse determination on exempt status. They were seeking to be recognized as a church. The church had one minister, its founder:
She was ordained by B. B is not a tax-exempt organization under section 501(c)(3). You operate out of your founder's personal residence.
As of yet it did not have a lot going on :
You state that your regularly scheduled religious services will consist of a weekly online discussion centered on a topic that will be posted by your minister. Visitors to your website will be able to discuss the topic by posting comments. To date, you have not posted any topics or engaged in activities using your website. Based on your representations, your only activity thus far, except for establishing your website, has been to distribute funds to individuals
With respect to your program of distributing funds to the needy, neither your application nor your subsequent submissions describe this program, specify the criteria you will use to determine whether an individual is needy or indicate how individuals are referred to you.
With respect to the operation of a church, you describe your creed or statement of faith as follows, "We are all sons and daughters of the same universe. Our doors are open to all. We make no demands of our members. We offer freedom of faith. We seek to unite and instill the truth that everyone is equal." You describe your formal code of doctrine and discipline as follows, "Do unto others as you would have them do unto you." You indicate that your form of worship consists of meditation and communication.
It is troubling that we have the IRS saying what is or is not a church. It seems to be problematic with the establishment clause of the First Amendment. You need however to look at the whole sentence:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof;
In order to not interfere with "free exercise", you have to define when it is that people are exercising religion. It is still disturbing. As I mentioned in a previous post on The Foundation for Human Understanding, Jesus and his apostles would not easily fit into the IRS definition of a church.
FlextronicsAmerica, LLC v. Commissioner, TC Memo 2010-245
I did a few posts on Fidelity International Currency, one of which, is one of my all time greatest hits. That was a partnership designed by KPMG which went spectacularly bad. In this one a KPMG design that the IRS did not like was blessed by the Tax Court. It was fiendishly complicated and due to legislative changes probably doesn't work anymore so I won't go into it. There was, however, a significant quote in it:
Respondent emphasizes KPMG's role with respect to the inventory transactions. Certainly Canadian Parent and KPMG contemplated different ways to bolster the appearance of a business purpose relating to the inventory transactions. There is no doubt KPMG fervently encouraged the use of the planning technique. Receiving KPMG's advice did not, however, nullify petitioner's bona fide business purposes for the transactions. KPMG was simply advising a client on different ways to minimize the tax consequences of a proposed transaction—precisely what tax accountants are paid to do.
The difference between this case and Fidelity International is the KPMG was figuring out the most tax efficient way to execute a legitimate business transaction rather than creating entities to engage in transactions to shelter unrelated income.
Gregory Q. Teeters v. Commissioner, TC Memo 2010-244
This was pretty much a run of the mill protester case. I've studied this topic quite a bit, having once found myself between a protester and the IRS, resulting in 12 years of torture in the probate court. Some of the arguments are fairly well crafted in that all the citations will check out (You just have to ignore that they are taken wildly out of context). I have trouble believing that the people who craft them think that they are valid.
To support his objection to the deficiencies and additions to tax, petitioner relies predominantly on a single frivolous legal argument; viz, that he did not receive wages under section 3401(a). Petitioner is wrong. The companies that issued him Forms W-2 were his employers under section 3401(d) and he was their employee under section 3401(c). Thus, the remuneration those companies paid him for his services was wages under section 3401(a). Those provisions are clear on their face. See, e.g., United States v. Latham, 754 F.2d 747, 750 [55 AFTR 2d 85-846] (7th Cir. 1985) (the argument that “under 26 U.S.C. § 3401(c) the category of `employee' does not include privately employed wage earners is a preposterous reading of the statute”). Moreover, petitioner received several letters from respondent explaining that his position was frivolous and suggesting that he seek advice. At trial, although petitioner acknowledged that seeking advice would have been reasonable, he conceded that he did not do so. Instead, petitioner persisted in advancing the same frivolous argument. We find that petitioner did not have a good faith misunderstanding of the law. Petitioner timely filed Federal income tax returns for 1990, 1991, 1992, 1993, 1994, 1995, 1997, and 1998. Petitioner knew of his legal duty and sought to avoid it.
DORAN v. METROPOLITAN LIFE INSURANCE COMPANY, Cite as 106 AFTR 2d 2010-6999
This was a case of someone suing an insurance company because they had unexpected income when they cashed in an annuity. They thought they had basis in it, but it turned out there had been a previous roll overs that confused matters. The insurance agents advising them had not been aware of it. The insurance company was granted summary judgement.
CCA 201045023
Individual wrongfully convicted and incarcerated for crime who served several years in prison before being exonerated, may exclude from gross income, under IRC Sec(s). 104(a)(2) , compensation received as result of state-enacted legislation for wrongful conviction and physical injuries and sickness suffered while unjustly incarcerated. But, if individual receives title to/constructive or economic receipt of corpus or assets used to fund future periodic payments, then some portion of future periodic payments may not be excludable. And, punitive damages and interest are included in gross income.
I had once looked at this issue for somebody and had concluded that incarceration, in and of itself, is not a physical injury under 104 (Don't yell at me that that doesn't make sense. It's not a requirement). The facts here are just a little different. Human rights attorneys should pay attention to this.
Gail P. Drayer v. Commissioner, TC Memo 2010-257
I write a lot about taxpayers not being able to prevail on innocent spouse status. There are two reasons for this. One is that there seem to be more cases in Tax Court where the taxpayer loses. The other is that those cases reinforce my advice to be cautious in signing joint returns. Don't just think about the tax savings. Consider the implications of joint and several liability. This does not mean that seeking innocent spouse relief is not worth doing. I'm sure it is frequently granted by the IRS, which is not going to show up in Tax Court. Also sometimes taxpayers do win in Tax Court.
Mrs. Drayer had 5 of the eight factors in her favor, one against and two neutral as determined by the Tax Court. Mrs. Drayer was under the mistaken assumption that she was legally required to file a joint return, which is not one of the factors. Most dramatic was the abuse factor:
Times were tough for the Drayers, and their marriage became increasingly rocky. Mr. Drayer would often get very angry and had frequent outbursts, particularly in the context of discussions about finances and taxes. Petitioner worried about unpaid tax liabilities, but Mr. Drayer would furiously insist that he would handle the problem and would submit another offer- in-compromise to the Internal Revenue Service. Petitioner provided specific examples of angry outbursts, including a time when Mr. Drayer threatened to hit her and broke specific items. He also, after one such incident, told petitioner that he had intended to commit suicide. Mr. Drayer called petitioner derogatory names and publicly humiliated her. He also regularly drank a lot of alcohol and often smoked marijuana.
Realistically I know that I will probably never run out of material. It feels good to have a backlog, although I may feel obligated to do some bonus posts for the sake of timeliness.
__________________________________________________________________________
I explained my blogging method in a recent post and that wasn't even the first time. One of the byproducts of the method is a host of items that deserve mention, but not perhaps an entire post. Things had been pretty quiet on the fronts that I observe. Yesterday and today though produced a flurry of interesting items. Before I get to them though I will pass on the developments that are starting to get stale and will not get a lengthy treatment.
Private Letter Ruling 201044019, 11/05/2010
This ruling is an adverse determination on exempt status. They were seeking to be recognized as a church. The church had one minister, its founder:
She was ordained by B. B is not a tax-exempt organization under section 501(c)(3). You operate out of your founder's personal residence.
As of yet it did not have a lot going on :
You state that your regularly scheduled religious services will consist of a weekly online discussion centered on a topic that will be posted by your minister. Visitors to your website will be able to discuss the topic by posting comments. To date, you have not posted any topics or engaged in activities using your website. Based on your representations, your only activity thus far, except for establishing your website, has been to distribute funds to individuals
With respect to your program of distributing funds to the needy, neither your application nor your subsequent submissions describe this program, specify the criteria you will use to determine whether an individual is needy or indicate how individuals are referred to you.
With respect to the operation of a church, you describe your creed or statement of faith as follows, "We are all sons and daughters of the same universe. Our doors are open to all. We make no demands of our members. We offer freedom of faith. We seek to unite and instill the truth that everyone is equal." You describe your formal code of doctrine and discipline as follows, "Do unto others as you would have them do unto you." You indicate that your form of worship consists of meditation and communication.
It is troubling that we have the IRS saying what is or is not a church. It seems to be problematic with the establishment clause of the First Amendment. You need however to look at the whole sentence:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof;
In order to not interfere with "free exercise", you have to define when it is that people are exercising religion. It is still disturbing. As I mentioned in a previous post on The Foundation for Human Understanding, Jesus and his apostles would not easily fit into the IRS definition of a church.
FlextronicsAmerica, LLC v. Commissioner, TC Memo 2010-245
I did a few posts on Fidelity International Currency, one of which, is one of my all time greatest hits. That was a partnership designed by KPMG which went spectacularly bad. In this one a KPMG design that the IRS did not like was blessed by the Tax Court. It was fiendishly complicated and due to legislative changes probably doesn't work anymore so I won't go into it. There was, however, a significant quote in it:
Respondent emphasizes KPMG's role with respect to the inventory transactions. Certainly Canadian Parent and KPMG contemplated different ways to bolster the appearance of a business purpose relating to the inventory transactions. There is no doubt KPMG fervently encouraged the use of the planning technique. Receiving KPMG's advice did not, however, nullify petitioner's bona fide business purposes for the transactions. KPMG was simply advising a client on different ways to minimize the tax consequences of a proposed transaction—precisely what tax accountants are paid to do.
The difference between this case and Fidelity International is the KPMG was figuring out the most tax efficient way to execute a legitimate business transaction rather than creating entities to engage in transactions to shelter unrelated income.
Gregory Q. Teeters v. Commissioner, TC Memo 2010-244
This was pretty much a run of the mill protester case. I've studied this topic quite a bit, having once found myself between a protester and the IRS, resulting in 12 years of torture in the probate court. Some of the arguments are fairly well crafted in that all the citations will check out (You just have to ignore that they are taken wildly out of context). I have trouble believing that the people who craft them think that they are valid.
To support his objection to the deficiencies and additions to tax, petitioner relies predominantly on a single frivolous legal argument; viz, that he did not receive wages under section 3401(a). Petitioner is wrong. The companies that issued him Forms W-2 were his employers under section 3401(d) and he was their employee under section 3401(c). Thus, the remuneration those companies paid him for his services was wages under section 3401(a). Those provisions are clear on their face. See, e.g., United States v. Latham, 754 F.2d 747, 750 [55 AFTR 2d 85-846] (7th Cir. 1985) (the argument that “under 26 U.S.C. § 3401(c) the category of `employee' does not include privately employed wage earners is a preposterous reading of the statute”). Moreover, petitioner received several letters from respondent explaining that his position was frivolous and suggesting that he seek advice. At trial, although petitioner acknowledged that seeking advice would have been reasonable, he conceded that he did not do so. Instead, petitioner persisted in advancing the same frivolous argument. We find that petitioner did not have a good faith misunderstanding of the law. Petitioner timely filed Federal income tax returns for 1990, 1991, 1992, 1993, 1994, 1995, 1997, and 1998. Petitioner knew of his legal duty and sought to avoid it.
DORAN v. METROPOLITAN LIFE INSURANCE COMPANY, Cite as 106 AFTR 2d 2010-6999
This was a case of someone suing an insurance company because they had unexpected income when they cashed in an annuity. They thought they had basis in it, but it turned out there had been a previous roll overs that confused matters. The insurance agents advising them had not been aware of it. The insurance company was granted summary judgement.
CCA 201045023
Individual wrongfully convicted and incarcerated for crime who served several years in prison before being exonerated, may exclude from gross income, under IRC Sec(s). 104(a)(2) , compensation received as result of state-enacted legislation for wrongful conviction and physical injuries and sickness suffered while unjustly incarcerated. But, if individual receives title to/constructive or economic receipt of corpus or assets used to fund future periodic payments, then some portion of future periodic payments may not be excludable. And, punitive damages and interest are included in gross income.
I had once looked at this issue for somebody and had concluded that incarceration, in and of itself, is not a physical injury under 104 (Don't yell at me that that doesn't make sense. It's not a requirement). The facts here are just a little different. Human rights attorneys should pay attention to this.
Gail P. Drayer v. Commissioner, TC Memo 2010-257
I write a lot about taxpayers not being able to prevail on innocent spouse status. There are two reasons for this. One is that there seem to be more cases in Tax Court where the taxpayer loses. The other is that those cases reinforce my advice to be cautious in signing joint returns. Don't just think about the tax savings. Consider the implications of joint and several liability. This does not mean that seeking innocent spouse relief is not worth doing. I'm sure it is frequently granted by the IRS, which is not going to show up in Tax Court. Also sometimes taxpayers do win in Tax Court.
Mrs. Drayer had 5 of the eight factors in her favor, one against and two neutral as determined by the Tax Court. Mrs. Drayer was under the mistaken assumption that she was legally required to file a joint return, which is not one of the factors. Most dramatic was the abuse factor:
Times were tough for the Drayers, and their marriage became increasingly rocky. Mr. Drayer would often get very angry and had frequent outbursts, particularly in the context of discussions about finances and taxes. Petitioner worried about unpaid tax liabilities, but Mr. Drayer would furiously insist that he would handle the problem and would submit another offer- in-compromise to the Internal Revenue Service. Petitioner provided specific examples of angry outbursts, including a time when Mr. Drayer threatened to hit her and broke specific items. He also, after one such incident, told petitioner that he had intended to commit suicide. Mr. Drayer called petitioner derogatory names and publicly humiliated her. He also regularly drank a lot of alcohol and often smoked marijuana.
Realistically I know that I will probably never run out of material. It feels good to have a backlog, although I may feel obligated to do some bonus posts for the sake of timeliness.
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