There’s a time to be a protester and there’s a time not to be. In Tax Court, it’s imperative you have legitimate arguments; you can pay a very high price for frivolity. Today’s petitioner learned that…perhaps.
The petitioner neglected to file tax returns from 1999 through 2007. (I suspect this might continue to future years at it does take some time for a case to get to trial at Tax Court.) He faced the Failure to File Penalty, the Failure to Pay Penalty, the Underpayment of Estimated Tax Penalty, and the Fraudulent Failure to File Penalty. That’s the first time I’ve ever seen a Fraudulent Failure to File Penalty. He timely filed a Tax Court petition.
The petitioner didn’t show up for trial, and something else I hadn’t seen before:
We hold petitioner in default. He has failed to comply with the Rules of the Court. He has not cooperated in the preparation of these cases for trial, he has failed to comply with Court orders, and he did not appear for trial. His responses are filled with tax-protester rhetoric. Such conduct provides ample basis for holding him in default.
So what is the Fraudulent Failure to File Penalty?
Section 6651(f) imposes an addition to tax of up to 75% of the amount of tax required to be shown on the return where the failure to file a Federal income tax return is due to fraud. “[R]espondent must prove by clear and convincing evidence that petitioner underpaid his income tax and that some part of the underpayment was due to fraud.” There is no question that petitioner’s failure to file a return for each of the years in issue resulted in underpayments for each year. To establish fraudulent intent, the Commissioner must prove that a taxpayer intended to evade a tax known or believed to be owed by conduct intended to conceal, mislead, or otherwise prevent the collection of tax. Not only do respondent’s averments show such intent, but petitioner is deemed to have admitted that his failure to file returns for the years in issue “was not due to mistake” and “was due to * * * [his] fraudulent intent to evade taxes”. We have adequate grounds on which to sustain respondent’s section 6651(f) additions to tax for all years in issue. [Internal citations omitted.]
All of the other penalties were upheld, too. Rubbing salt into the wounds the IRS asked for a penalty for filing a frivolous tax court petition.
Among his frivolous arguments, petitioner claims that he is not subject to Federal income tax, that the only persons required to pay Federal income tax are those people working directly for the Federal Government or the U.S. military, and that the Internal Revenue Code does not establish any liability for the payment of Federal income tax. A position maintained by a taxpayer is frivolous where it is “contrary to established law and unsupported by a reasoned, colorable argument for change in the law.”
But the Tax Court didn’t give him a penalty. Rather, there were two Tax Court cases filed, so the Court assessed two penalties of $25,000 each–the maximum–for wasting the court’s time. That’s also the first time I’ve ever seen that done.
A helpful hint to anyone considering preparing a frivolous Tax Court case: Don’t! Other than making tax bloggers laugh, you will find that Tax Court judges will have a somewhat different reaction…a reaction that could separate substantial sums of money from your wallet.