Taxable Talk

One of my favorite sayings at the poker table is, “Math is hard.” Yesterday, the Tax Court explained some basic math to a petitioner who almost completely struck out.

Eugene Kernan didn’t file tax returns since sometime before 2000. Eventually the IRS caught up to him and issued notices of deficiency for 2001 through 2006. The IRS wanted the tax due, interest, and penalties for fraudulent nonfiling (or late filing if that wasn’t upheld) and the late payment penalty. Mr. Kernan though he didn’t have to file at all.

When the findings of fact include the words “tax avoidance,” things aren’t looking up for the petitioner.

During the years at issue Mr. Kernan had income from at least two sources: he sold various tax avoidance products, and he performed various paralegal functions, including advising people in matters before the Internal Revenue Service (IRS). Deposits into Mr. Kernan’s personal checking account from those business activities exceeded $79,000 per year.

The Tax Court decision notes that Mr. Kernan “…owned a Web site titled ‘The American Republic.'” I don’t know if he still owns it, but the website is still up and still advertising his CD-ROM titled “How to STOP the IRS.” A helpful hint to anyone who buys the cd: Yes, you must pay your taxes. But I digress….

A trial was held and the Court asked both parties (the IRS and the petitioner) to file briefs. The Court limited the size (in pages) of the briefs. Math is hard, but 88 is greater than both 75 and 30. The Court asked for a 75-page brief and a 30-page answer (those were the maximum lengths). I remember a commercial from when I was growing up: “When E.F. Hutton talks, people listen.” Well, when a judge tells you to limit something to x, you had better listen.

Mr. Kernan avoided the Court’s page limits in perhaps the least creative way of all; he just ignored them…

The generous page limit for the opening brief was to accommodate proposed findings of fact, yet Mr. Kernan’s proposed findings of fact were only two pages and consisted of argument, not findings of fact. Counting pages in the manner instructed by the Court, Mr. Kernan’s opening brief came in at 88 pages. The Court did not need to go to great effort to discover Mr. Kernan’s excess pages; he numbered them as instructed. His page 1 begins after his table of authorities, and his signature appears on page 88. Perhaps Mr. Kernan is fond of the number 88; his answering brief also came in at a whopping 88 pages, not counting attachments.

The petitioner’s briefs were stricken.

Indeed, Mr. Kernan acknowledged in his objection to respondent’s motion to strike that “there is no doubt that the Tax Court ‘has the right to set limit[s] as to brief length and has discretion as to whether to accept and/or not consider deficient briefs’.” Accordingly, we will deem Mr. Kernan’s opening and answering briefs stricken in a separate order.

As for the case itself, Mr. Kernan may want to read the Tax Protester FAQ or the IRS’s webpage on frivolous tax arguments. Either would have explained that you have to file a return.

However, Mr. Kernan did win one argument: He honestly believed (in the view of the Court) that he didn’t have to file a return, so the fraudulent failure to file penalty was not upheld. However, he does owe the failure to file and failure to pay penalties (and the estimated tax penalty). And the Court warned Mr. Kernan that if he keeps making frivolous arguments, he’ll likely have to pay a penalty in Tax Court for making frivolous arguments.

Case: Kernan v. Commissioner, T.C. Memo 2014-228

This entry was posted on Monday, November 3rd, 2014 at 10:21 pm and is filed under Tax Court. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.