Taxable Talk

…But the Tax Court does.

In a case released today, a man thinks he has some additional 1099s. He has not received copies of his statements on these accounts (they are education accounts for his children). He calls and writes his bank, and asks for copies. He calls and write his ex-spouse, asking for copies. His bank acknowledges the request, but never sends any 1099s (or statements). His ex won’t give him the time of day. He assumes there aren’t any additional 1099s and files his return.

However, the IRS examines his return and finds the “missing” 1099s. He immediately pays the additional tax, but he’s also assessed an accuracy-related penalty because the amounts were large. He goes to Tax Court and challenges the penalty.

I don’t think it’s a close case. As the Court notes,

We note at the outset that we found petitioner to be a very conscientious taxpayer. In preparing to file his 2000 return, petitioner made concerted efforts to obtain any statements and Forms 1099 pertaining to the education accounts….Moreover, petitioner specifically requested that First Albany mail him copies of the Forms 1099 pertaining to the education accounts….Petitioner never received any Forms 1099 for 2000 from First Albany pertaining to the education accounts. It was not unreasonable for petitioner to assume that there were no Forms 1099 issued….

Upon a review of the record, we find that petitioner had reasonable cause to believe that there were no Forms 1099 pertaining to him, and that he acted in good faith with respect to the understatement attributable to the income reported on those forms.

One should note, though, that the Court notes, “Although this is a close case….” The taxpayer does all that he can do and it’s close? Just a reminder of where the bar is in Tax Court.

Cite: Monte v. Commissioner, 7388-04S

Let’s assume you (erroneously) believe that the US has no write to levy an income tax on you. You are a believer in one of the many frivolous or groundless schemes that say, in short, that the US can’t levy an income tax. (For a good rejoinder on most of these, take a look at the Tax Protester FAQ.)

The Tax Court doesn’t appreciate such arguments. They’ve heard them all (or almost all) and have said,

“…arguments that this Court has repeatedly found to be frivolous and/or groundless, see, e.g., Copeland v. Commissioner, T.C. Memo. 2003-46; Smith v. Commissioner, T.C. Memo. 2003-45, and we find this also to be true in this case. See also Holliday v. Commissioner, T.C. Memo. 2002-67, affd. 57 Fed. Appx. 774 (9th Cir. 2003).”

In this case, the petitioner filed returns with $0 income and $0 tax. The IRS filed substitute returns and then started action to place tax liens on various assets.

The conclusion? The Tax Court put it well,

“Petitioner’s meritless arguments support the conclusion that remanding this matter to respondent’s Appeals Office for recording would be neither necessary nor productive, and we so hold.

“We have considered all of petitioner’s contentions and arguments that we have not discussed, and we find them to be without merit and irrelevant.

“Further, we hold that respondent correctly determined that
collection efforts should proceed.”

Yesterday, the Tax Court decided Slojewski v. Commissioner. In this case, the respondent (Slojewski) and the IRS settled before a scheduled trial in Tax Court. A hearing to finalize the matter was scheduled a month later. All seems well.

Then Slojewski’s counsel decides that the deal is no longer good, and petitions the court to have it overturned. Once you enter into a settlement, it takes extraordinary events to have it overturned. As the court stated, “[P]etitioner has not shown that there was a lack of formal consent, mistake, fraud, or some similar ground for vacating the stipulation of settlement, nor has he cited any ground or precedent that would support his motion to vacate our order and decision.”

Moral: Once you settle, it’s hard to get out.

Our thanks to Roth & Company’s Tax Updates for this article to a Tax Court decision on a frivolous appeal, or, as the Tax Court put it:

Petitioner filed a timely petition in which he sets out a farrago of nonsense as to why the notice of deficiency is invalid and he does not owe the tax determined.

>From Special Trial Judge Powell of the Tax Court, in Currier vs. Commissioner, T.C Memo 2005-21.

Farrago, according to www.dictionary.com, means “an assortment or medley; a conglomeration.”

Oh, Currier lost the case.