| January 1, 2011 |
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FRIVOLOUS ARGUMENTS IN COLLECTION DUE PROCESS CASESUnder sections 6320 (pertaining to liens) and 6330 (pertaining to levies), the IRS must provide taxpayers notice and an opportunity for an administrative appeals hearing upon the filing of a notice of federal tax lien (section 6320) and prior to levy (section 6330). Taxpayers have the right to seek judicial review of the IRS’s determination in these proceedings. Section 6330(d). These reviews can extend to the merits of the underlying tax liability, if the taxpayer has not previously received the opportunity for review of the merits, e.g., did not receive a notice of deficiency. Section 6330(c)(2)(B). A face-to-face administrative hearing concerning a taxpayer’s underlying liability will not be granted if the hearing request raises solely frivolous arguments. Treas. Reg. §§ 301.6320-1(d)(2) Q&A D8; 301.6330-1(d)(2) Q&A D8. The Tax Court will impose sanctions pursuant to section 6673 against taxpayers who seek judicial relief based upon frivolous or groundless positions.
On December 6, 2006, Congress passed the Tax Relief and Health Care Act of 2006 (TRHCA), Pub.L. 109-432, 120 Stat. 2922 (2006). Section 407 of TRHCA made revisions to sections 6320 and 6330. The TRHCA amended section 6330 by adding new subsection (g) to provide that the IRS may disregard any portion of a section 6320 or 6330 hearing request that is based upon a position identified as frivolous by the IRS in a published list or that reflects a desire to delay or impede tax administration. Such portion shall not be subject to any further administrative or judicial review. If the entire hearing request meets one or both of these criteria, the hearing request will be denied. The TRHCA also amended section 6702 to allow imposition of a $5,000 penalty for specified frivolous submissions, including section 6320 or 6330 hearing requests, where any portion of the submission meets one or both of these criteria. See section III below. These amendments are effective for hearing requests made after March 15, 2007, the release date of Notice 2007-30, 2007-1 C.B. 883, identifying the list of frivolous positions (which list was updated by Notice 2008-14, 2008-4 I.R.B. 310). Accordingly, in cases where the TRHCA amendments are applicable, a taxpayer raising only frivolous issues may not only be ineligible for a face-to-face hearing but may be denied any section 6320 or 6330 hearing.
Discussed below are some of the more common frivolous tax arguments raised in collection due process cases.
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ContentsA. Invalidity of the Assessment - Contention: A tax assessment is invalid because the taxpayer did not get a copy of the Form 23C, the Form 23C was not personally signed by the Secretary of the Treasury, or Form 23C is not a valid record of assessment
- Contention: A tax assessment is invalid because the assessment was made from a substitute for return prepared pursuant to section 6020(b), which is not a valid return
B. Invalidity of the Statutory Notice of Deficiency - Contention: A statutory notice of deficiency is invalid because it was not signed by the Secretary of the Treasury or by someone with delegated authority
- Contention: A statutory notice of deficiency is invalid because the taxpayer did not file an income tax return
C. Invalidity of Notice of Federal Tax Lien - Contention: A notice of federal tax lien is invalid because it is unsigned or not signed by the Secretary of the Treasury, or because it was filed by someone without delegated authority
- Contention: The form or content of a notice of federal tax lien is controlled by or subject to a state or local law, and a notice of federal tax lien that does not comply in form or content with a state or local law is invalid
D. Invalidity of Collection Due Process Notice - Contention: A collection due process notice (Letter 1058, LT-11 or Letter 3172) is invalid because it is not signed by the Secretary or his delegate
- Contention: A collection due process notice is invalid because no certificate of assessment is attached
E. Verification Given as Required by I.R.C. § 6330(c)(1)65 - Contention: Verification requires the production of certain documents
F. Invalidity of Statutory Notice and Demand - Contention: No notice and demand, as required by I.R.C. § 6303, was ever received by taxpayer
- Contention: A notice and demand is invalid because it is not signed, it is not on the correct form (such as Form 17), or because no certificate of assessment is attached
G. Tax Court Authority - Contention: The Tax Court does not have the authority to decide legal issues
H. Challenges to the Authority of IRS Employees - Contention: Revenue Officers are not authorized to seize property in satisfaction of unpaid taxes
- Contention: IRS employees lack credentials. For example, they have no pocket commission or the wrong color identification badge
I. Use of Unauthorized Representatives - Contention: Taxpayers are entitled to be represented at hearings, such as collection due process hearings, and in court, by persons without valid powers of attorney
J. No Authorization Under I.R.C. § 7401 to Bring Action - Contention: The Secretary has not authorized an action for the collection of taxes and penalties or the Attorney General has not directed an action be commenced for the collection of taxes and penalties
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The Law: Tax assessments are formally recorded on a record of assessment. Section 6203. The assessment is made by an assessment officer signing the summary record of assessment. Treas. Reg. § 301.6203-1. The summary record of assessment must “provide identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment.” Id. The date of the assessment is the date the summary record is signed. Id. There is no requirement in the statute or regulation that the assessment be recorded on a specific form, that the Secretary of the Treasury personally sign it, or that the taxpayer be provided with a copy of the record of assessment before the IRS takes collection action. The IRS issued Revenue Ruling 2007-21, 2007-1 C.B. 865, refuting the frivolous argument that before the IRS may collect overdue taxes, the IRS must provide taxpayers with a summary record of assessment made on a Form 23-C, Assessment Certificate – Summary Record of Assessments, or on another particular form.
Relevant Case Law:March v. IRS, 335 F.3d 1186, 1188 (10th Cir. 2003), cert. denied, 541 U.S. 1031 (2004) – the court held that the computer-generated certificate of assessment and payment form utilized by the IRS to make assessment against the taxpayers satisfied the regulatory requirements, where this computer-generated form contained the same information as the non-computer-generated form previously used and was signed by the assessment officer.
Powell v. Commissioner, T.C. Memo. 2009-174, 98 T.C.M. (CCH) 56 (2009) – the court awarded a $25,000 section 6673 penalty against the petitioner for asserting, among other frivolous arguments, that respondent was obligated to produce a Form 23C even though petitioner received notices of deficiency.
Chang v. Commissioner, T.C. Memo. 2007-100, 93 T.C.M. (CCH) 1143 (2007) – in this collection due process case the court held that Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters, establish that the IRS “properly assessed liabilities and that those liabilities remain unpaid.” It was not necessary for the IRS to produce Form 23C to demonstrate the assessment in question was valid.
Williams v. Commissioner, T.C. Memo. 2005-94, 89 T.C.M. (CCH) 114 (2005) – in this collection due process case the court held that it was not an abuse of discretion for the appeals officer to provide copies of the transcripts of account (so-called MFTRA-X transcripts) to the taxpayer, in lieu of the copies of the assessment documents that the taxpayer had requested.
Roberts v. Commissioner, 118 T.C. 365 (2002), aff’d, 329 F.3d 1224 (11th Cir. 2004) – the petitioner in this collection due process case argued that an assessment was invalid because respondent did not use Form 23C, Assessment CertificateBSummary Record of Assessments, but instead used Revenue Accounting Control System (RACS) Report 006. The Tax Court held that there was nothing in the law to show that the use of the RACS report was not in compliance with the statute and regulation. The RACS report and the Form 23C are both signed by an assessment officer.
Nestor v. Commissioner, 118 T.C. 162 (2002) – the petitioner in this collection due process case requested production of certain documents at the hearing, including the Form 23C. The court held that the petitioner was not entitled to production of documents and that it was not an abuse of discretion for the appeals officer to use Form 4340, Certificate of Assessments and Payments to verify the assessment, for purposes of section 6330(c)(1). The Form 23C was not required to verify the assessment.
Perez v. Commissioner, T.C. Memo. 2002-274, 84 T.C.M. (CCH) 501 (2002) – the court held that it was not an abuse of discretion for an appeals officer to rely on a MFTRA-X transcript, rather than producing or relying upon a Form 23C, for purposes of section 6330(c)(1).
The Law: Section 6020(b)(1) provides that “[i]f any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefore, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.” Section 6020(b)(2) further provides that any return prepared pursuant to section 6020(b)(1) shall be prima facie good and sufficient for all legal purposes. See also Treas. Reg. § 301.6020-1.
Relevant Case Law:Douglas v. United States, 324 Fed. Appx. 320 (5th Cir. 2009) – the court rejected the taxpayer’s claim that “the IRS committed a fraud” by completing a section 6020(b) return and held that the IRS properly issued notices of levy.
United States v. Updegrave, 97-1 U.S.T.C. ¶ 50,465 (E.D. Pa. 1997) – the taxpayer argued that tax assessments may only be calculated from tax returns filed by the taxpayer and that an inferior agent of the IRS may not file substitute returns for the taxpayer. The court rejected this argument as “utterly meritless.” The court recognized that section 6020(b) authorizes the IRS to file substitute returns on behalf of taxpayers who fail to voluntarily file returns and that the substitute return “shall be prima facie good for all legal purposes.” Section 6020(b)(1) and (2). The court stated that a taxpayer may not “stymie” the IRS’s collection of taxes by refusing to file a tax return. The court also held that, while section 6020 authorizes the Secretary of the Treasury to prepare substitute returns, such authority has been delegated down to the District Director or any authorized IRS officer or employee. Accordingly, the substitute return and the assessments in this case were properly made by an employee of the IRS in accordance with the Internal Revenue Code.
Holland v. La. Secretary of Revenue and Taxation, 97-1 U.S.T.C. ¶ 50,403 (W.D. La. 1997) – the court rejected the taxpayer’s argument that section 6020 does not apply to income taxes. The court further found that section 6065, requiring that a return be verified by a declaration under penalty of perjury, does not apply to section 6020(b) returns.
Nicklaus v. Commissioner, T.C. Memo. 2005-156, 89 T.C.M. (CCH) 1499 (2005), aff’d, 202 Fed. Appx. 171 (9th Cir. 2006) - in this collection due process case petitioners argued that the IRS could not prepare substitutes for returns for them because part 5.1.11.6.10 of the Internal Revenue Manual (IRM) (May 27, 1999) lists seven returns that may be prepared under the authority of section 6020(b) and does not mention Form 1040. The court disagreed. Under section 6020(b)(1) the IRS may prepare substitute returns for taxpayers who fail to do so themselves. IRM provisions not cited by petitioners state that the IRS may prepare substitutes for Forms 1040 under section 6020(b).
The Law: Section 6212(a) provides the authority for the Secretary to send notices of deficiency to taxpayers. Section 7701(a)(11)(B) defines “Secretary” to include the Secretary of the Treasury or his delegate. Section 7701(a)(12)(A)(i) defines the term Adelegate,” as used with respect to the Secretary of the Treasury, to mean any officer, employee, or agency of the Treasury Department duly authorized by the Secretary directly, or indirectly by redelegation of authority, to perform a certain function. There is no statutory requirement that the notice of deficiency be signed.
Relevant Case Law:Tavano v. Commissioner, 986 F.2d 1389 (11th Cir. 1993), aff’d, 986 F.2d 1389 (11th Cir. 1993) – the court rejected petitioner’s argument that the notice of deficiency was invalid because it was unsigned.
Green v. Commissioner, T.C. Memo. 2007-262, 94 T.C.M. (CCH) 249 (2007) - in this collection due process case petitioner claimed that he received invalid notices of deficiency because they were signed by the Field Director, Compliance Services, Brookhaven Service Center instead of the Secretary. The court held that the Field Director was a proper delegate of the Secretary and “it is well settled that the Secretary or his delegates may issue notices of deficiency.” Additionally the court emphasized that “there is no requirement that a notice of deficiency be signed.”
Reynolds v. Commissioner, T.C. Memo. 2006-192, 92 T.C.M. (CCH) 260 (2006) – in this collection due process case petitioner claimed that he received invalid notices of deficiency because they were signed by the compliance center director of the Ogden Service Center instead of the Secretary. According to the court, it is well established that the Secretary or his delegates may issue notices of deficiency.
Ball v. Commissioner, T.C. Memo. 2006-141, 92 T.C.M. (CCH) 7 (2006) – in this collection due process case, petitioners argued that they received no valid notice of deficiency because the notice that they received was not signed by the Secretary of the Treasury. The court rejected this argument as frivolous, and further noted that this argument has been “universally rejected” by the Tax Court and other courts.
Wheeler v. Commissioner, T.C. Memo. 2006-109, 91 T.C.M. (CCH) 1194 (2006), aff’d, 528 F.3d 773 (10th Cir. 2008) - the court held that a valid notice of deficiency need not be signed at all.
Michael v. Commissioner, T.C. Memo. 2003-26, 85 T.C.M. (CCH) 803 (2003) – the petitioner contested the validity of a notice of deficiency signed by a service center director. The court rejected this argument as frivolous.
Nestor v. Commissioner, 118 T.C. 162 (2002) – in this collection due process case, the Tax Court held that the Secretary’s authority to issue statutory notices of deficiency has been delegated to district directors and service center directors.
The Law: Section 6211(a) defines “deficiency” as the amount by which the tax imposed by subtitle A or B – (including income, estate, and gift taxes), or chapter 41, 42, 43, 44 (excise taxes) exceeds the excess of the sum of the amount shown as the tax by the taxpayer upon his return (if return made and amount shown thereon) plus any amounts previously assessed (or collected without assessment) as a deficiency, over the amount of rebates, as defined in section 6211(b)(2), made. In accordance with this definition, a taxpayer’s failure to report tax on a return does not prevent the Service from determining a deficiency in his federal income tax and issuing a notice of deficiency, pursuant to section 6212(a).
Relevant Case Law:Brennan v. Commissioner, T.C. Memo. 2009-77, 97 T.C.M. (CCH) 1379 (2009) – the court upheld the deficiencies determined by respondent when the taxpayer made only frivolous arguments, including that the “respondent lacked the authority to issue a notice of deficiency and that no statute required him to pay income tax.”
Johnston v. Commissioner, T.C. Memo. 2004-107, 87 T.C.M. (CCH) 1256 (2004) – the court stated that “[p]etitioner’s contention that the Commissioner cannot determine a deficiency for a year for which a taxpayer did not file a return is frivolous.” The court further emphasized that the “petitioner’s contention that failure to file a return shields the nonfiler from income tax liability is also frivolous.” Due to the petitioner’s frivolous arguments, the court imposed a penalty under section 6673.
Robinson v. Commissioner, T.C. Memo. 2002-316, 84 T.C.M. (CCH) 694 (2002), aff’d, 73 Fed. Appx. 624 (4th Cir. 2003) – the court found the petitioner liable for the section 6673(a) penalty in this case where petitioner argued, among other frivolous arguments, that the Service was not authorized to determine a deficiency for a taxpayer who has not filed a return.
The Law: The form and content of the notice of federal tax lien is controlled by federal law. Section 6323(f)(3) provides that the form and content of the notice of federal tax lien shall be prescribed by the Secretary and shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien. Treas. Reg. ' 301.6323(f)-1(d) further provides that the notice of federal tax lien is filed on a Form 668, which must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose.
Section 6323(a) provides that “[t]he lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic’s lien holder, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.” Section 7701(a)(11)(B) defines “Secretary” to include the Secretary of the Treasury or his delegate. Section 7701(a)(12)(A)(i) defines the term “delegate”, as used with respect to the Secretary of the Treasury, to mean any officer, employee, or agency of the Treasury Department duly authorized by the Secretary directly, or indirectly by redelegation of authority, to perform a certain function. See, e.g., Delegation Order 5-4, Rev. 1 (delegating authority to sign notices of federal tax lien). There is no requirement in the statute or regulation that the notice of federal tax lien must be signed when filed.
Relevant Case Law:Uveges v. United States, 2002-2 U.S.T.C. ¶ 50,740 (D. Nev. 2002) – the court noted that with respect to section 6323, among other Code sections, which use the term “Secretary,” “Secretary” refers to the Secretary of the Treasury and any delegates. See section 7701(a)(11)(B).
In re Kroll, 74 A.F.T.R.2d 94-6161 (W.D. Mich. 1994) – in this bankruptcy case the taxpayer-debtors challenged the notice of federal tax lien on the ground that it was not signed. The court found that neither the statute nor regulations relating to such lien require that the notice be signed, nor had the debtors provided any explicit authority requiring that the notice be signed to be valid.
Hult v. Commissioner, T.C. Memo. 2007-302, 94 T.C.M. (CCH) 359 (2007) – in a collection due process case the court, in a footnote, dismissed petitioner’s argument that the notice of federal tax lien was invalid because it was not signed, stating it is not necessary for a notice of federal tax lien to be signed.
Thompson v. Commissioner, T.C. Memo. 2004-204, 88 T.C.M. (CCH) 219 (2004) – in a collections due process case the court rejected petitioner’s arguments as frivolous and groundless, including petitioner’s contention that the notice of federal tax lien that he received was invalid because it was not signed by the Secretary. The Secretary had delegated the authority to issue notices of lien to certain IRS employees.
The Law:
The form and content of the notice of federal tax lien is controlled by federal law. Section 6323(f)(3) provides that the form and content of the notice of federal tax lien shall be prescribed by the Secretary and shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien. Treas. Reg. § 301.6323(f)-1(d) further provides that the notice of federal tax lien is filed on a Form 668, which must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose
Relevant Case Law:United States v. Union Cent. Life Ins. Co., 368 U.S. 291, 294 (1961) - the Supreme Court held that the form used for filing a federal tax lien does not have to comply with an additional state law requirement that it describe the property affected, although the lien did have to be filed in a designated state office.
Tolotti v. Commissioner, T.C. Memo. 2002-86, 83 T.C.M. (CCH) 1436 (2002), aff’d, 70 Fed. Appx. 971 (9th Cir. 2003) - in this collection due process case, the court upheld the validity of a notice of federal tax lien filed on Form 668(Y) and bearing a facsimile signature, although the lien was not certified as required by Nevada statute. The court noted that it is “well-settled” that the form and content of the notice of federal tax lien is controlled by federal, not state, law.
The Law: Section 6320(a)(1) provides that the Secretary shall notify a taxpayer in writing of the filing of a notice of federal tax lien, pursuant to section 6323, advising the taxpayer of the right to request a collection due process hearing. Section 6330(a)(1) provides that no levy may be made on any property or rights to property of any person unless the Secretary has notified such person of his or her right to a collection due process hearing before levy. There is no requirement for a signature on the collection due process notice in the statute or regulations.
Section 7701(a)(11)(B) defines “Secretary” to include the Secretary of the Treasury or his delegate. Section 7701(a)(12)(A)(i) defines the term “delegate”, as used with respect to the Secretary of the Treasury, to mean any officer, employee, or agency of the Treasury Department duly authorized by the Secretary directly, or indirectly by redelegation of authority, to perform a certain function. Section 7803(a)(2) provides general authority for the Commissioner of Internal Revenue, as prescribed by the Secretary. Treas. Reg. '' 301.6320-1(a)(1) and 301.6330-1(a)(1) further provide that the Commissioner, or his or her delegate, will prescribe procedures to provide notice of the right to request a collection due process hearing. See, e.g., Delegation Order 5-3 (formerly D.O. 191 Rev. 3) (redelegation of authority with respect to levy notices).
Relevant Case Law:Oropeza v. Commissioner, T.C. Memo. 2008-94, 95 T.C.M. (CCH) 1367 (2008) - in this collection due process case, the taxpayer raised the issue that the Final Notice of Intent to Levy and Notice of Your Right to a Hearing that was issued to him was unsigned. The court reaffirmed that there is “no statutory requirement” that the Final Notice of Intent to Levy and Notice of Your Right to a Hearing be signed.
Thompson v. Commissioner, T.C. Memo. 2004-204, 88 T.C.M. (CCH) 219 (2004) – in this collection due process case, the petitioner asserts that the Final Notice of Intent to Levy was invalid because it was not signed by the Secretary. The Tax Court disagreed, stating that “the Secretary delegated the authority to issue notices of levy or lien to certain IRS employees.” This authority has been delegated to the Automated Collection Branch Chiefs. Accordingly, the court found that petitioner’s Final Notice of Intent to Levy executed by the Chief of the Automated Collection Branch in Kansas City, Missouri was clearly valid.
Hodgson v. Commissioner, T.C. Memo. 2003-122, 85 T.C.M. (CCH) 1232 (2003) – taxpayer alleged that respondent’s determination was lawless and erroneous for numerous reasons, including the fact that the section 6320 lien notice was not signed by the Secretary or his delegate. The court held that the allegations were frivolous and without any merit, and declined to address them. The court found the taxpayer liable for a section 6673(a) penalty.
Craig v. Commissioner, 119 T.C. 252 (2002) – the court held that for purposes of section 6330(a), either the Secretary or his delegate (e.g., the Commissioner) may issue a final notice of intent to levy. In this case, the authority to levy was delegated to the Automated Collection Branch Chiefs pursuant to Delegation Order No. 191 (Rev. 2), effective October 1, 1999. Accordingly, the notice of intent to levy was valid.
The Law: Sections 6320(a)(3) and 6330(a)(3) list the information required to be included with the collection due process notice, such as the amount of unpaid tax, the right of the person to request a collection due process hearing, administrative appeals available, and the provisions of the Internal Revenue Code and procedures pertaining to the notice of federal tax lien or levy. See also Treas. Reg. '' 301.6320-1(a)(2), Q&A A10 and 301.6330-1(a)(3), Q&A A6. There is no requirement in the statute or regulations that a certificate of assessment be attached to the collection due process notice.
The Law: Pursuant to sections 6320(c) and 6330(c)(1), at a collection due process hearing, the appeals officer is required to obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Section 6330(c)(1) does not require the appeals officer to rely upon a particular document (e.g., the summary record of assessment) to satisfy the verification requirement. Section 6330(c)(1) also does not require the appeals officer to give the taxpayer a copy of the verification upon which the appeals officer relied. See also Treas. Reg. '' 301.6320-1(e)(1) and 301.6330-1(e)(1). There is no requirement in the statute or regulations that the taxpayer be provided with any documents as a part of the verification process. As a matter of practice, however, the taxpayer will be provided with a transcript of account such as a Form 4340 or MFTRA-X computer transcript. Transcripts such as the Form 4340 or MFTRA-X, which identify the taxpayer, the character of the liability assessed, the taxable period and the amount of the assessment, are sufficient to show the validity of an assessment, absent a showing of irregularity.
Relevant Case Law:Standifird v. Commissioner, T.C. Memo. 2002-245, 84 T.C.M. (CCH) 371 (2002), aff’d, 72 Fed. Appx. 729 (9th Cir. 2003) – MFTRA-X transcript may be used for verification.
Schroeder v. Commissioner, T.C. Memo. 2002-190, 84 T.C.M. (CCH) 141 (2002) – TXMOD-A transcript is sufficient for verification.
Wagner v. Commissioner, T.C. Memo. 2002-180, 84 T.C.M. (CCH) 96 (2002) – Individual Master FileBMartinsburg Computing Center Transcript is sufficient for verification.
Craig v. Commissioner, 119 T.C. 252 (2002) – the court held that section 6330(c)(1) does not require the appeals officer to rely upon a particular document, such as the summary record of assessment, in order to satisfy the verification requirement of section 6330(c)(1). Nor does it mandate that the appeals officer actually provide the taxpayer with a copy of the verification upon which the appeals officer relied. Taxpayer was provided with Forms 4340, and did not demonstrate the invalidity of the assessment or any of the information contained in the Forms 4340.
Nestor v.Commissioner, 118 T.C. 162 (2002) – appeals officer’s review of Forms 4340 is sufficient to meet the verification requirement in section 6330(c)(1). Actual production of documents is not required.
Davis v. Commissioner, 115 T.C. 35 (2000) – appeals officer did not abuse his discretion in relying on a Form 4340 to verify the validity of an assessment, where the taxpayer can point to no evidence of irregularity in the assessment process.
The Law: Section 6303(a) provides that the Secretary shall, as soon as practicable, and within 60 days, after the making of an assessment pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. This notice is to be left at the dwelling or usual place of business of such person, or shall be mailed to such person’s last known address. See also Treas. Reg. § 301.6303-1(a) (failure to give notice within 60 days does not invalidate notice). Nothing in the statute or regulation requires the Service to establish receipt of the notice and demand, as long as it is mailed to the taxpayer’s last known address.
At a collection due process hearing, an appeals officer may rely upon a computer transcript to verify that notice and demand for payment has been sent to a taxpayer in accordance with section 6303. For example, the entry in a Form 4340 showing “notice of balance due” is a section 6303 notice and demand. On a TXMOD-A transcript, “status 21” indicated in the notice section indicates a section 6303 notice and demand.
Relevant Case Law:United States v. Chila, 871 F.2d 1015, 1019 (11th Cir. 1989), cert. denied, 493 U.S. 975 (1985) – the Eleventh Circuit held that the notice and demand requirements of section 6303 were only applicable to summary enforcement procedures, not as a prerequisite to filing a civil action. The court further noted that, even if notice was not required under section 6303, proper notice was given as established by the Form 4340. Taxpayer did not deny on the record that the notice was sent. He denied only that he had received it.
United States v. Lisle, 92-1 U.S.T.C. ¶ 50,286 (N.D. Cal.) (citing Thomas v. United States, 755 F.2d 728 (9th Cir. 1985)), aff’d, 5 F.3d 542 (9th Cir. 1993) – Taxpayer claimed that liens were invalid because the government failed to give her proper notice and demand for payment as required by sections 6303(a) and 6321. The Service submitted documentation establishing that it sent the taxpayer notice. Proof that notice was sent is sufficient; the government need not prove receipt.
Williams v. Commissioner, T.C. Memo. 2008-173, 96 T.C.M. (CCH) 25 (2008) – in this collection due process case, petitioner argued that he is entitled to see proof that he received the Notice and Demand Letter, although he did not deny that he received the notices of balance due for the taxable years at issue. The court rejected petitioner’s argument that he is entitled to see proof that the Notice and Demand Letter was received, and asserted Forms 4340 sufficiently showed that the Service issued notices of balance due (which constitute notice and demand for payment under section 6303(a)) on the same day that the Service assessed petitioner’s tax.
Reynolds v. Commissioner, T.C. Memo. 2006-192, 92 T.C.M. (CCH) 260 (2006) – in this collection due process case petitioner alleged he did not receive a notice and demand for payment. According to the court, a notice of balance due constitutes a notice and demand for payment for purposes of section 6303(a). The Forms 4340 showed that the IRS had promptly sent petitioner notices of balance due.
Craig v. Commissioner, 119 T.C. 252, 262-63 (2002) – Forms 4340 showed that petitioner was sent notices of balance due on the same dates as assessments were made. The court held that a notice of balance due on a Form 4340 constitutes notice and demand for purposes of section 6303(a). The court further noted that the form on which a notice of assessment and demand for payment is made is irrelevant as long as it provides the taxpayer with all the information required under section 6303(a).
The Law: Section 6303(a) provides that the Secretary shall, as soon as practicable, and within 60 days, after the making of an assessment pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. This notice is to be left at the dwelling or usual place of business of such person, or shall be mailed to such person’s last known address. See also Treas. Reg. § 301.6303-1(a) (failure to give notice within 60 days does not invalidate notice). Notice and demand is sufficient for purposes of section 6303 as long as it states the amount due and makes demand for payment. There is no requirement in the statute or regulation that the notice and demand be made on a specific form, have a signature, or include any specific attachments.
Relevant Case Law:Flathers v. Commissioner, T.C. Memo. 2003-60, 85 T.C.M. (CCH) 969 (2003) – court rejected as frivolous and/or groundless petitioner’s argument that she did not receive proper notice and demand under section 6303(a) because, according to petitioner, the IRS must use Form 17 in issuing such notice and demand.
Craig v. Commissioner, 119 T.C. 252 (2002) – numerous notices received by petitioner, such as notices of intent to levy and notices of deficiency, were sufficient to meet the requirements of section 6303(a). The form on which notice of assessment and demand for payment is made is irrelevant, as long as it provides the taxpayer with the information specified in section 6303(a).
Keene v. Commissioner, T.C. Memo. 2002-277, 84 T.C.M. (CCH) 514 (2002) – notices such as final notice of intent to levy and Forms 4340 are sufficient to constitute notice and demand within the meaning of section 6303(a) because they informed petitioner of the amount owed and requested payment. The court rejected petitioner’s argument as frivolous and groundless that a notice and demand for payment was not in accord with a Treasury decision issued in 1914 that required a Form 17 be used for such purpose.
The Law: The United States Tax Court is a federal court of record established by Congress under Article I of the United States Constitution. Congress created the Tax Court to provide a judicial forum in which affected persons could dispute tax deficiencies prior to payment of the disputed amount. The jurisdiction of the Tax Court includes the authority to hear tax disputes concerning notices of deficiency, notices of transferee liability, certain types of declaratory judgment, readjustment and adjustment of partnership items, review of the failure to abate interest, administrative costs, worker classification, relief from joint and severable liability on a joint return, and review of collection due process actions.
Section 7441 provides that “[t]here is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court.” Section 7442 provides the “[t]he Tax Court and its divisions shall have such jurisdiction as is conferred on them by this title, by Chapters 1, 2, 3, and 4 of the Internal Revenue Code of 1939, by title II and title III of the Revenue Act of 1926 (44 Stat. 10-87), or by laws enacted subsequent to February 26, 1926.” See also sections 7443-7448.
Relevant Case Law:Freytag v. Commissioner, 501 U.S. 868 (1991) – petitioners alleged that the adjudication of their case by a special trial judge was not authorized by section 7443A, and that the reassignment violated the appointments clause of U.S. Const. art. II, § 2, cl. 2. The court of appeals rejected petitioners' claims and affirmed. The Supreme Court granted certiorari and affirmed, holding that section 7443A(b)(4) authorized the chief judge's assignment of petitioners' cases to the special trial judge. The Court further concluded that the special trial judge's appointment did not violate the Appointments Clause because the Tax Court's role in the federal judicial scheme closely resembled that of Article I courts, which were given appointment power by the United States Constitution.
Knighten v. Commissioner, 705 F.2d 777 (5th Cir. 1983), cert. denied, 464 U.S. 897 (1983) – petitioner argued that, as a court created under Article I of the Constitution, the Tax Court could not hear any cases that could be heard by Article III courts. The court held that this contention was frivolous and that the argument that the Tax Court violates Article III has been repeatedly rejected.
Martin v. Commissioner, 358 F.2d 63 (7th Cir. 1966), cert. denied, 385 U.S. 920 (1966) – petitioners’ contention that the Tax Court is without a valid constitutional existence lacks substance and merit.
Burns, Stix Friedman & Co., Inc. v. Commissioner, 57 T.C. 392 (1971) – petitioner sought review of income tax deficiencies, prior to the effective date of the Tax Reform Act of 1969 (the Act), Pub. L. 91-172. The petitioner contended that Congress exceeded its authority in creating the court as a court of record under U.S. Const. art I without regard to the sanctions of art. III. The court held that the provisions in the Act that removed the court from the executive branch, made the court a court of record, gave the court the power to punish for contempt, made review of the court's decisions by appeal rather than by petition for review, and simply recognized the court as a "court," was within Congress’ authority without reliance upon U.S. Const. art. III.
The Law: Section 6331(a) provides that “[i]f any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax ... by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.” Section 6331(b) provides that the term “levy” includes the power of distraint and seizure by any means. In any case in which the Secretary may levy upon property or property rights, he may also seize and sell such property or property rights. Section 6331(b).
Section 7701(a)(11)(B) defines “Secretary” to include the Secretary of the Treasury or his delegate. Section 7701(a)(12)(A)(i) defines the term Adelegate,” as used with respect to the Secretary of the Treasury, to mean any officer, employee, or agency of the Treasury Department duly authorized by the Secretary directly, or indirectly by redelegation of authority, to perform a certain function. See Treas. Reg. § 301.6331-1(a)(1) (district director is authorized to levy); see, e.g., Delegation Order 5-3 (formerly D.O. 191 Rev. 3) (redelegation of authority with respect to levies to revenue officers and other Service employees).
Relevant Case Law:Gibbs v. Commissioner, 673 F. Supp. 1088, 1092 (N.D. Ala. 1987), aff’d, 846 F.2d 754 (11th Cir. 1988) – holding that revenue officers “are specifically delegated and charged with the responsibility for collection of taxes.“
Craig v. Commissioner; 119 T.C. 252 (2002) – the authority to levy on petitioner’s property was delegated to Automated Collection Branch Chiefs pursuant to Delegation Order No. 191 (Rev. 2), effective October 1, 1999.
The Law: The authority of IRS employees is derived from Internal Code provisions, Treasury Regulations, and other redelegations of authority (such as delegation orders). See the previous discussion on the authority of revenue officers to seize property. The authority of IRS employees is not contingent upon such criteria as possession of a pocket commission or a specific type of identification badge.
Relevant Case Law:Oropeza v. Commissioner, T.C. Memo. 2008-94, 95 T.C.M. (CCH) 1367 (2008)- in this collection due process case, the taxpayer was ordered to pay a fine of $10,000 for arguing only frivolous and groundless arguments, including the argument that he never received the pocket commissions of the IRS agents, which is one of the “patently spurious” issues petitioner raised.
Gunselman v. Commissioner, T.C. Memo. 2003-11, 85 T.C.M. (CCH) 756 (2003) – appeals officer at collection due process hearing does not have to produce enforcement pocket commission for himself or for the Service employee who signed the notice of lien filing.
The Law: Section 330 of Title 31 of the United States Code authorizes the Secretary of the Treasury to regulate the practice of representatives before the Treasury Department and, after notice and an opportunity for a proceeding, to suspend or disbar from practice before the Treasury Department those representatives who are incompetent, disreputable, or who violate regulations prescribed under section 330. Pursuant to section 330, the Secretary, in Circular No. 230 (31 CFR part 10), published regulations that authorize the Director, Office of Professional Responsibility, to act upon applications for enrollment to practice before the Service, to make inquiries with respect to matters under the Director’s jurisdiction, and to perform such other duties as are necessary to carry out these functions. The regulations were most recently amended on July 26, 2002 (T.D. 9011, 2002-33 I.R.B. 356 [67 FR 48760] to clarify the general standards of practice before the Service. Pursuant to Circular No. 230, a representative must be an attorney in good standing, a certified public accountant, or an enrolled agent in good standing. Attorneys and non-attorneys are only entitled to practice before the United States Tax Court upon application and admission to practice, pursuant to Tax Court Rule of Practice and Procedure 200.
Relevant Case Law:Young v. Commissioner, T.C. Memo. 2003-6, 85 T.C.M. (CCH) 739 (2003) – third party was not entitled to represent taxpayer in a collection due process hearing because of non-compliance with Circular No. 230.
Katz v. Commissioner, 115 T.C. 329 (2000) – collection due process hearings are informal, with no right to summons witnesses.
The Law: Section 7401 provides that “[n]o civil action for the collection or recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced.” Treas. Reg. § 301.7401-1(a) further provides that such action must be authorized by the Commissioner (or the Director, Alcohol, Tobacco and Firearms Division, with respect to subtitle E of the Code), or Chief Counsel for the IRS or his delegate, and such action must be commenced by the Attorney General or his delegate.
Section 7701(a)(11)(B) defines “Secretary” to include the Secretary of the Treasury or his delegate. Section 7701(a)(12)(A)(i) defines the term Adelegate,” as used with respect to the Secretary of the Treasury, to mean any officer, employee, or agency of the Treasury Department duly authorized by the Secretary directly, or indirectly by redelegation of authority, to perform a certain function. Section 7803(a)(2) provides general authority for the Commissioner of Internal Revenue, as prescribed by the Secretary.
The Attorney General is the head of the Department of Justice, appointed by the President. 28 U.S.C. § 503. The Attorney General may from time to time make such provisions as he or she deems appropriate delegating authority to any other officer, employee, or agency of the Department of Justice. 28 U.S.C. § 510. See 28 U.S.C. '' 501-530D.
Relevant Case Law:Perez v. United States, 2001-2 U.S.T.C. ¶ 50,735 (W.D.Tex. 2001) – plaintiff requested the court to dismiss defendant’s counterclaim because defendant did not attach a certified copy of the document in which the Attorney General or a United States Attorney authorized a cause of action against plaintiff, pursuant to section 7401. The court held that section 7401 does not require production of such document. Courts may ordinarily presume that the United States complied with section 7401 and obtained proper authorization to commence an action for the collection of taxes. However, since the plaintiff contested such compliance, the United States had to show that the counterclaim was in fact authorized. The court held that the United States demonstrated compliance with section 7401 by producing a letter from the Office of Chief Counsel for the IRS to a United States Attorney and a declaration from the counsel of record for the United States.
United States v. Bodwell, 96-2 U.S.T.C. ¶ 50,592 (E.D. Cal. 1996) – the court noted that the defendant’s argument that this suit was not authorized because section 7401 is rooted in the Federal Regulations concerning the Bureau of Alcohol, Tobacco and Firearms has been “flatly rejected” by the Ninth Circuit.
United States v. Nuttall, 713 F. Supp. 132 (D. Del. 1989), aff’d, 893 F.2d 1332 (3d Cir. 1989) – affidavit from the Chief, Civil Trial Section, Central Region, Tax Division, United States Department of Justice attached to government’s summary judgment motion established authorization of the Secretary of the Treasury/Internal Revenue Service. Department of Justice Tax Division Memorandum No. 83‑19, dated May 5, 1983, also attached, established authorization by the Attorney General to commence the action.
PENALTIES FOR PURSUING FRIVOLOUS TAX ARGUMENTSThose who act on frivolous positions risk a variety of civil and criminal penalties. Those who adopt these positions may face harsher consequences than those who merely promote them. As the Seventh Circuit Court of Appeals noted in United States v. Sloan, 939 F.2d 499, 499-500 (7th Cir. 1991), cert. denied, 502 U.S. 1060 (1992), reh’g denied, 503 U.S. 953 (1992), “Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned.”
Taxpayers filing returns with frivolous positions may be subject to the accuracy-related penalty under section 6662 (twenty percent of the underpayment attributable to negligence or disregard of rules or regulations) or the civil fraud penalty under section 6663 (seventy-five percent of the underpayment attributable to fraud) or the erroneous claim for refund penalty under section 6676 (twenty percent of the excessive amount). Additionally, late filed returns setting forth frivolous positions may be subject to an addition to tax under section 6651(f) for fraudulent failure to timely file an income tax return (triple the amount of the standard failure to file addition to tax under section 6651(a)(1)). See Mason v. Commissioner, T.C. Memo. 2004-247, 88 T.C.M. (CCH) 398 (2004) (frivolous arguments may be indicative of fraud if made in conjunction with affirmative acts designed to evade paying federal income tax).
The Tax Relief Health Care Act of 2006 amended section 6702 to allow imposition of a $5,000 penalty for frivolous tax returns and for specified frivolous submissions other than returns, if the purported returns or specified submissions are either based upon a position identified as frivolous by the IRS in a published list or reflect a desire to delay or impede tax administration. Pub. L. No. 109-432, § 407(a), 120 Stat. 2922 (2006). The term specified submission means: a request for a hearing under section 6320 (relating to notice and opportunity for hearing on filing of a notice of lien), a request for hearing under section 6330 (relating to notice and opportunity for hearing before levy), an application under section 6159 (relating to agreements for payment of tax liability in installments), an application under section 7122 (relating to compromises), or an application under section 7811 (relating to taxpayer assistance orders). This amendment is effective for frivolous returns or specified frivolous submissions made after March 15, 2007, the release date of Notice 2007-30, 2007-1 C.B. 883, identifying the list of frivolous positions. Notice 2008-14, 2008-4, I.R.B. 310, updates the prior list with four additional frivolous positions: (1) the Ninth Amendment to the U.S. Constitution allows a taxpayer to not pay taxes because of objections to military spending; (2) only fiduciaries are taxpayers, or only persons with a fiduciary relationship to the government must pay taxes; (3) a supposed “Mariner’s Tax Deduction” (or the like) allows a taxpayer employed on a ship to deduct the cost of meals provided by the employer at no cost to the taxpayer; and (4) the section 6421 fuels credit may be claimed in patently unallowable amounts without meeting the requirements for the credit.
In the 1980s, Congress showed its concern about taxpayers misusing the courts and obstructing the appeal rights of others when it enacted tougher sanctions for bringing frivolous cases before the courts. Section 6673 allows the courts to impose a penalty of up to $25,000 when they come to any of three conclusions:
- a taxpayer instituted a proceeding primarily for delay,
- a position is frivolous or groundless, or
- a taxpayer unreasonably failed to pursue administrative remedies.
An appeals court explained the rationale for the sanctions in Coleman v. Commissioner, 791 F.2d 68, 72 (7th Cir. 1986): “The purpose of § 6673 . . . is to induce litigants to conform their behavior to the governing rules regardless of their subjective beliefs. Groundless litigation diverts the time and energies of judges from more serious claims; it imposes needless costs on other litigants. Once the legal system has resolved a claim, judges and lawyers must move on to other things. They cannot endlessly rehear stale arguments . . . . [T]here is no constitutional right to bring frivolous suits . . . . People who wish to express displeasure with taxes must choose other forums, and there are many available.”
Taxpayers who rely on frivolous arguments may also face criminal prosecution for: (1) attempting to evade or defeat tax under section 7201, a felony, for which the penalty is a fine of up to $250,000 and imprisonment for up to 5 years; or (2) making false statements on a return under section 7206(1), a felony, for which the penalty is a fine of up to $250,000 and imprisonment for up to 3 years.
Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on such arguments may also face various penalties such as: (1) a $250 penalty under section 6694 for each return prepared by an income tax return preparer who knew or should have known that the taxpayer’s argument was frivolous (or $1,000 for each return where the return preparer’s actions were willful, intentional or reckless); (2) a $1,000 penalty under section 6701 for aiding and abetting an understatement of tax; and (3) criminal felony prosecution under section 7206(2) for which the penalty is up to $250,000 and imprisonment for up to 3 years for assisting or advising about the preparation of a false return or other document under the internal revenue laws.
Further, promoters who fail to comply with court orders run the risk of incarceration for contempt of court. A tax scam promoter named James A. Mattatall was arrested for failing to provide list of the names, addresses, phone numbers, and Social Security numbers of his customers to the Justice Department per the court’s order. See http://www.usdoj.gov/tax/txdv04699.htm. Also, a taxpayer named Charles D. Saunders was held in civil contempt, incarcerated and fined $250 a day until he complied with the court’s order directing him to fully comply with a summons from the IRS. See 2006 TNT 164-16 (August 18, 2006).
Relevant Case Law:Deyo v. United States, 102 A.F.T.R.2d (RIA) 6664 (2d Cir. 2008) – the Second Circuit affirmed a district court decision (98 A.F.T.R.2d (RIA) 6864 (D. Conn. 2006)) that upheld an IRS Appeals determination that enforced collection could go forward of penalties assessed against a married couple for filing frivolous income tax returns. The penalties were imposed on the Deyos after they filed Forms 1040X for tax refunds and on which the taxpayers claimed zero adjusted gross income based on the frivolous position that they did not receive any income from sources listed in the regulations under section 861. The taxpayers argued that the penalty assessments were invalid because they were not managerially approved in writing as required by section 6751. The court of appeals rejected the argument and held that the penalty assessments were properly approved irrespective of whether they might also be within the exemption in section 6751(b)(2)(B) for penalties “automatically calculated through electronic means.”
Szopa v. United States, 460 F.3d 884 (7th Cir. 2006) – the court found that a frivolous tax appeal warrants a presumptive sanction of $4,000, but that the court would impose an $8,000 sanction against taxpayers who make repeated frivolous appeals as Szopa did.
Gass v. United States, 2001-1 U.S.T.C. (CCH) ¶ 50,220 (10th Cir. 2001) – the court imposed an $8,000 penalty for contending that taxes on income from real property are unconstitutional. The court had earlier penalized the taxpayers $2,000 for advancing the same arguments in another case.
Brashier v. Commissioner, 2001-1 U.S.T.C. (CCH) ¶ 50,356 (10th Cir. 2001) – the court imposed $1,000 penalties on taxpayers who argued that filing sworn income tax returns violated their Fifth Amendment privilege against self-incrimination, after the Tax Court had warned them that their argument – rejected consistently for more than seventy years – was frivolous.
Baskin v. United States, 738 F.2d 975 (8th Cir. 1984) – the court found that the IRS’s assessment of a frivolous return penalty without a judicial hearing was not a denial of due process, since there was an adequate opportunity for a later judicial determination of legal rights.
Holker v. United States, 737 F.2d 751, 752-53 (8th Cir. 1984) – the court upheld the frivolous return penalty even though the taxpayer claimed the documents he filed to claim a refund did not constitute a tax return. Noting that “[t]axpayers may not obtain refunds without first filing returns,” the court then found that A[h]is unexplained designation of his W-2 forms as ‘INCORRECT’ and his attempt to deduct his wages as the cost of labor on Schedule C also establish the frivolousness and incorrectness of his position.”
Jones v. Commissioner, 688 F.2d 17 (6th Cir. 1982) – the court found the taxpayer’s claim that his wages were paid in “depreciated bank notes” as clearly without merit and affirmed the Tax Court’s imposition of an addition to tax for negligence or intentional disregard of rules and regulations.
McAfee v. United States, 2001-1 U.S.T.C. (CCH) ¶ 50,433 (N.D. Ga. 2001) – after losing the argument that his wages were not income and receiving a $500 penalty, the taxpayer returned to court to try to stop the government from collecting that penalty by garnishing his wages. The court stated that “bringing this ill-considered, nonsensical litigation before this court for yet a second time is nothing but contumacious foolishness which wastes the time and energy of the court system,” and imposed a $1,000 penalty.
United States v. Rempel, 87 A.F.T.R.2d (RIA) 1810 (D. Ark. 2001) – the court warned the taxpayers of sanctions and stated: “It is apparent to the court from some of the papers filed by the Rempels that they have at least had access to some of the publications of tax protester organizations. The publications of these organizations have a bad habit of giving lots of advice without explaining the consequences which can flow from the assertion of totally discredited legal positions and/or meritless factual positions.”
Rowe v. United States, 583 F. Supp. 1516, 1520 (D. Del. 1984), aff’d, 749 F.2d 27 (3d Cir. 1984) – the court upheld the viability of section 6702 against various objections, including that it was unconstitutionally vague because it does not define a “frivolous” return. AFrivolous is commonly understood to mean having no basis in law or fact,” the court stated.
Sanctions Imposed Generally in Tax Court Cases:Thomason v. Commissioner, No. 10-60200, 2010 WL 4608783, (5th Cir. Nov. 15, 2010) – court affirmed the Tax Court’s imposition of a $2,000 penalty against petitioner under section 6673 because petitioner made numerous frivolous arguments, including that the section 6020(b) substitute tax return prepared by the IRS was invalid and that United States citizens are exempt from paying income tax on income earned in the United States.
Tinnerman v. Commissioner, T.C. Memo. 2010-150 – court imposed a $25,000 penalty under section 6673 in a CDP case for delaying the proceedings by making “stale and recycled” frivolous arguments. Although the court declined to also penalize the petitioner’s counsel, the court noted that the pleadings demonstrated “reckless disregard” of facts and law and so lacked merit as to be “frivolous, dilatory, and subject to sanctions.” Referencing professional conduct rules, the court issued a “warning for the future to present counsel and to those similarly situated.”
Precourt v. Commissioner, T.C. Memo. 2010-24 – against a background of eleven separate actions in which the taxpayer advanced frivolous arguments in both Tax Court and district court, as well as previous sanctions against the taxpayer of over $22,000, the Tax Court dismissed the taxpayer’s case and imposed the maximum penalty of $25,000 for failing to appear for court proceedings and for failing to comply with court orders. In addition to petitioner’s dilatory conduct, his petition was plagued with frivolous constitutional and other claims.
Rodriguez v. Commissioner, T.C. Memo. 2009-92, 97 T.C.M. (CCH) 1482 (2009) – after having imposed a section 6673 penalty against the petitioner in four prior cases, the court imposed another $25,000 penalty against the petitioner in each of two consolidated cases.
Ioane v. Commissioner, T.C. Memo.2009-68, 97 T.C.M. (CCH) 1344 (2009) – the court imposed a $10,000 penalty against the petitioner for asserting “frivolous and groundless” arguments.
Pugh v. Commissioner, T.C. Memo. 2009-138, 97 T.C.M. (CCH) 1791 (2009) – the court stated that the petitioner “maintained this proceeding primarily for delay and to advance his frivolous and groundless arguments” and imposed a $15,000 penalty against the petitioners.
Rhodes v. Commissioner, T.C. Memo. 2008-225, 96 T.C.M. (CCH) 215 (2008) – the Tax Court sua sponte imposed sanctions against the taxpayer in the total amount of $25,000: $15,000 for one docketed case, and $10,000 for a second case that was consolidated with the first. The court sanctioned the taxpayer after repeatedly warning him that his frivolous arguments could subject him to a penalty. In 2003 and 2007, the court had previously imposed sanctions of $15,000 and $2,000, respectively, against the taxpayer for maintaining frivolous arguments.
McCammon v. Commissioner, T.C. Memo. 2008-114, 95 T.C.M. (CCH) 1421 (2008) – the court imposed a $25,000 sanction against a taxpayer who argued that she “did not have any income ‘in a constitutional sense,’” despite almost $200,000 paid to the taxpayer in her medical practice. In a prior Tax Court case, the taxpayer had advocated the same argument and been warned against instituting meritless proceedings.
Missall v. Commisioner, T.C. Memo. 2008-258, 96 T.C.M. (CCH) 344 (2008) – the court imposed a $5,000 penalty against a taxpayer who advanced arguments that were well established as being frivolous, including a purported exemption from tax as a “Utah Sole Corporation.”
Hanloh v. Commissioner, T.C. Memo. 2006-194, 92 T.C.M. (CCH) 266 (2006) – the court imposed sanctions of $25,000 where the taxpayer continued to advance frivolous and groundless arguments after having been warned that making those arguments would result in sanctions.
Stallard v. Commissioner, T.C. Memo. 2006-42, 91 T.C.M. (CCH) 881 (2006) – the court imposed sanctions of $25,000 where the taxpayer raised only frivolous and groundless arguments noting that the taxpayer had been warned in the current proceeding, and sanctioned in a prior proceeding, for raising frivolous arguments.
Silver v. Commissioner, T.C. Memo. 2005-281, 90 T.C.M. (CCH) 559 (2005) – the court imposed sanctions of $25,000 against the taxpayer for filing a frivolous suit challenging his tax liability and making only groundless arguments.
Stearman v. Commissioner, T.C. Memo. 2005-39, 89 T.C.M. (CCH) 823 (2005), aff’d, 436 F.3d 533 (5th Cir. 2006), cert. denied, 547 U.S. 1207 (2006) – the court imposed sanctions totaling $25,000 against the taxpayer for advancing arguments characteristic of tax-protester rhetoric that has been universally rejected by the courts, including arguments regarding the Sixteenth Amendment. In affirming the Tax Court’s holding, the Fifth Circuit granted the government’s request for further sanctions of $6,000 against the taxpayer for maintaining frivolous arguments on appeal, and the Fifth Circuit imposed an additional $6,000 sanctions on its own, for total additional sanctions of $12,000.
Howard v. Commissioner, T.C. Memo. 2005-144, 89 T.C.M. (CCH) 1449 (2005) – the court imposed a $12,500 penalty against the taxpayer, who had been sanctioned previously, for making frivolous arguments and instituting the court proceedings primarily for delay.
Brenner v. Commissioner, T.C. Memo. 2004-202, 88 T.C.M. (CCH) 212 (2004), aff’d, 164 Fed. Appx. 848 (11th Cir. 2006) – the court imposed sanctions of $15,000 against the taxpayer where he continued making frivolous arguments despite being specifically warned by the court against doing so.
Chase v. Commissioner, T.C. Memo 2004-142, 87 T.C.M. (CCH) 1414 (2004) – the court imposed sanctions of $20,000 against the taxpayer for continuing to make frivolous arguments even though the court warned him that he would likely be penalized if he persisted.
Trowbridge v. Commissioner, T.C. Memo. 2003-164, 85 T.C.M. (CCH) 1450 (2003), aff’d, 378 F.3d 432 (5th Cir. 2004) – the court imposed sanctions against former husband and wife, $25,000 for Mr. Trowbridge and $15,000 for Ms. Martin, where the taxpayers failed to raise a single plausible argument.
Hill v. Commissioner, T.C. Memo. 2003-144, 85 T.C.M. (CCH) 1328, 1331 (2003) – the court imposed a $15,000 penalty against the taxpayer because he disregarded warnings from the court that his position was without merit. Furthermore, the taxpayer had been previously sanctioned by the court in another proceeding for raising frivolous arguments.
Nunn v. Commissioner, T.C. Memo. 2002-250, 84 T.C.M. (CCH) 403, 410 (2002) – the court, on its own motion, imposed sanctions against the taxpayers in the amount of $7,500 after warning taxpayers repeatedly that their frivolous arguments could subject them to a penalty, stating “[w]here pro se litigants are warned that their claims are frivolous . . . and where they are aware of the ample legal authority holding squarely against them, a penalty is appropriate.”
Sawukaytis v. Commissioner, T.C. Memo. 2002-156, 83 T.C.M. (CCH) 1886, 1888 (2002), aff’d, 102 Fed. Appx. 29 (6th Cir. 2004), cert. denied, 543 U.S. 1022 (2004) – the court imposed a $12,500 penalty against the taxpayer for arguing the income tax is an excise tax and that he did not engage in excise taxable activities. The court found the taxpayer’s “position, based on stale and meritless contentions, is manifestly frivolous and groundless.”
Ward v. Commissioner, T.C. Memo. 2002-147, 83 T.C.M. (CCH) 1820, 1824 (2002) – the court imposed sanctions against the Wards in the amount of $25,000 stating that “[t]heir insistence on making frivolous protester type arguments indicates an unwillingness to respect the tax laws of the United States.”
Gill v. Commissioner, T.C. Memo. 2002-146, 83 T.C.M. (CCH) 1816, 1819 (2002) – the court imposed a $7,500 penalty against the taxpayer stating the taxpayer’s “insistence on making frivolous protester type arguments indicates an unwillingness to respect the tax laws of the United States.”
Monaghan v. Commissioner, T.C. Memo. 2002-16, 83 T.C.M. (CCH) 1102, 1104 (2002) – the court rejected the taxpayer’s frivolous arguments and imposed sanctions in the amount of $1,500, stating that “[h]e has caused this Court to waste its limited resources on his erroneous views of the tax law which he should have known are completely without merit.”
Hart v. Commissioner, T.C. Memo. 2001-306, 82 T.C.M. (CCH) 934 (2001) – the court imposed sanctions in the amount of $15,000 against the taxpayer, because his delaying actions caused the Service and the court to needlessly spend time preparing for the trial and writing the opinion.
Sigerseth v. Commissioner, T.C. Memo.2001-148, 81 T.C.M. (CCH) 1792, 1794 (2001) – pointing out that this case involving the use of trusts to avoid taxes was “a waste of limited judicial and administrative resources that could have been devoted to resolving bona fide claims of other taxpayers,” the court imposed a $15,000 penalty.
MatrixInfoSys Trust v. Commissioner, T.C. Memo. 2001-133, 81 T.C.M. (CCH) 1726, 1729 (2001), aff’d, Hromiko v. Commissioner, 56 Fed. Appx. 359 (9th Cir. 2003) – in claiming that his income belonged to his trust, the court stated that the taxpayer had made “shopworn arguments characteristic of the tax-protester rhetoric that has been universally rejected by this and other courts,” and imposed a $12,500 penalty.
Madge v. Commissioner, T.C. Memo. 2000-370, 80 T.C.M. (CCH) 804 (2000), aff’d, 23 Fed. Appx. 604 (9th Cir. 2003), cert. denied, 537 U.S. 825 (2002) – after having warned the taxpayer that continuing with his frivolous arguments – that he was not a taxpayer, that his income was not taxable, and that only foreign income was taxable – would likely result in a penalty, the court imposed the maximum $25,000 penalty.
Haines v. Commissioner, T.C. Memo. 2000-126, 79 T.C.M. (CCH) 1844, 1846 (2000) – stating, “[p]etitioner knew or should have known that his position was groundless and frivolous, yet he persisted in maintaining this proceeding primarily to impede the proper workings of our judicial system and to delay the payment of his Federal income tax liabilities,” the court imposed a $25,000 penalty.
Sanctions Imposed in Collection Due Process Cases:Oropeza v. Commissioner, No. 08-73127, 2010 WL 4323268 (9th Cir. Oct. 29, 2010) – affirming the Tax Court’s imposition in a CDP case of a $10,000 penalty on the taxpayer for raising frivolous and groundless arguments that the Appeals Officer abused his discretion. The taxpayer claimed before the Tax Court that he was wrongly denied the opportunity to have a CDP hearing that was face-to-face (and that he could tape record) to raise such “patently spurious” contentions as never having been provided the Code provision rendering him liable for tax and that the notices of intent to levy and right to a hearing issued to him were unsigned (T.C. Memo. 2008-94).
Goff v. Commissioner, 135 T.C. No. 11, 2010 WL 3341855 (2010) – in a CDP case, Tax Court held that the IRS may proceed with collection of taxpayer’s unpaid taxes and penalties because the bonded promissory note she presented to the IRS did not constitute payment of her liabilities. The court held that her position was groundless and her arguments in support of the position were frivolous, and it imposed a $15,000 penalty against her under section 6673.
Battle v. Commissioner, T.C. Memo. 2009-171, 98 T.C.M. (CCH) 45 (2009) – In a prior case, the taxpayer was warned by the court that if he continued to advance frivolous arguments a section 6673 penalty could be imposed. Because the taxpayer advanced the same arguments, the court imposed a $20,000 penalty.
Cobin v. Commissioner, T.C. Memo. 2009-88 (2009) – despite a warning that a section 6673 penalty could be imposed if the taxpayer continued to raise ”frivolous tax-protester arguments,” the taxpayer persisted and the court imposed a $15,000 penalty.
Oropeza v. Commissioner, T.C. Memo. 2008-94, 95 T.C.M. (CCH) 1367 (2008) – the court imposed a $10,000 penalty against the taxpayer after repeated frivolous arguments and repeated warnings from the court. The petitioner’s assertions were ones commonly raised in collection due process cases, such as that the Service did not provide him with certain documents as supposedly mandated by section 6330.
Schneller v. Commissioner, T.C. Memo. 2008-196, 96 T.C.M. (CCH) 101 (2008) – the court imposed another $10,000 penalty against a taxpayer who persisted in advancing frivolous arguments, ignoring the court’s warnings during other proceedings.
Hassell v. Commissioner, T.C. Memo. 2006-196, 92 T.C.M. (CCH) 273 (2006) – the court imposed sanctions against the taxpayer in the amount of $10,000 for continuing to assert frivolous arguments.
Forbes v. Commissioner, T.C. Memo. 2006-10, 91 T.C.M. (CCH) 672 (2006) – the court imposed a $20,000 sanction against the taxpayer holding the he failed to assert any coherent claims and only raised frivolous arguments
Burke v. Commissioner, 124 T.C. 189 (2005) – the court imposed a $2,500 penalty against Burke for wasting judicial resources with his frivolous arguments even though Burke abandoned several frivolous arguments at trial.
Carrillo v. Commissioner, T.C. Memo. 2005-290, 90 T.C.M. (CCH) 608 (2005) – the court imposed a $5,000 sanction against the taxpayers for making frivolous arguments despite being alerted to the potential use of sanctions against them.
Wetzel v. Commissioner, T.C. Memo. 2005-211, 90 T.C.M. (CCH) 266 (2005) – the court imposed a $15,000 penalty against Wetzel, a professional tax return preparer, for making frivolous arguments because he knew or should have known the arguments were frivolous.
Hamzik v. Commissioner, T.C. Memo. 2004-223, 88 T.C.M. (CCH) 316 (2004) – the court imposed sanctions of $15,000 against the taxpayer for his insistence in making frivolous arguments subsequent to the court warning him of the likelihood of penalties being imposed.
Aston v. Commissioner, T.C. Memo. 2003-128, 85 T.C.M. (CCH) 1260 – the court imposed a $25,000 penalty against the taxpayer for continuing to maintain frivolous arguments, despite having been warned in a previous proceeding before the court that those arguments were without merit.
Fink v. Commissioner, T.C. Memo. 2003-61, 85 T.C.M. (CCH) 976, 980 – the court imposed a $2,000 penalty against the taxpayer for raising “primarily for delay, frivolous arguments and/or groundless contentions, arguments, and requests, thereby causing the Court to waste its limited resources.”
Eiselstein v. Commissioner, T.C. Memo. 2003-22, 85 T.C.M. (CCH) 794, 796 (2002) – the court imposed a penalty of $5,000 against the taxpayer for raising “frivolous tax-protester arguments” and referred to the “unequivocal warning” issued by the court in Pierson v. Commissioner concerning the imposition of sanctions against taxpayers abusing the protections provided for in sections 6320 and 6330.
Haines v. Commissioner, T.C. Memo. 2003-16, 85 T.C.M. (CCH) 771, 773 (2003), aff’d, 72 Fed. Appx. 730 (9thCir. 2003) – the court imposed a penalty of $2,000 against the taxpayers for making “protester arguments which have, on numerous occasions, been rejected by the courts.”
Gunselman v. Commissioner, T.C. Memo. 2003-11, 85 T.C.M. (CCH) 756, 759 (2003) – the court imposed a penalty of $1,000 against the taxpayer who argued “that there is no Internal Revenue Code section that makes him liable for taxes.” The court characterized the taxpayer’s argument as a “frivolous, tax-protester argument.”
Young v. Commissioner, T.C. Memo. 2003-6, 85 T.C.M. (CCH) 739, 742 (2003) – the court imposed a penalty of $500 against the taxpayer for “raising the same arguments that [the court has] previously and consistently rejected as frivolous and groundless.”
Roberts v. Commissioner, 118 T.C. 365, 372-73 (2002), aff’d, 329 F.3d 1224 (11th Cir. 2003) - the court imposed a $10,000 penalty against Roberts for making frivolous arguments stating “[i]n Pierson v. Commissioner . . . we issued an unequivocal warning to taxpayers concerning the imposition of a penalty under section 6673(a) on those taxpayers who abuse the protections afforded by sections 6320 and 6330 by instituting or maintaining actions under those sections primarily for delay or by taking frivolous or groundless positions in such actions.”
Rennie v. Commissioner, T.C. Memo. 2002-296, 84 T.C.M. (CCH) 611, 614 (2002) – the court imposed a $1,500 penalty against the taxpayer for making frivolous arguments and choosing “to ignore and/or not follow case precedent and interpretation of the statutory law.”
Tornichio v. Commissioner, T.C. Memo. 2002-291, 84 T.C.M. (CCH) 578, 582 (2002) – the court imposed a $12,500 penalty against the taxpayer for making frivolous arguments, stating “[f]ederal courts have unequivocally rejected his protester arguments and sanctioned him for raising them.”
Davich v. Commissioner, T.C. Memo. 2002-255, 84 T.C.M. (CCH) 429, 435 (2002) – the court imposed a $5,000 penalty against the taxpayer case, stating “it is clear that [the taxpayer] regards this proceeding as nothing but a vehicle to protest the tax laws of this country and to espouse his own misguided views, which we regard as frivolous and groundless.”
Davidson v. Commissioner, T.C. Memo. 2002-194, 84 T.C.M. (CCH) 156, 160-61 (2002) – the court imposed a $4,000 penalty for raising groundless arguments noting that “[d]uring the administrative hearing, petitioner was provided with a copy of the Court’s opinion in Pierson v. Commissioner [115 T.C. 576, 581 (2000)]. . . and was warned that his arguments were frivolous.”
Davis v. Commissioner, T.C. Memo. 2001-87, 81 T.C.M. (CCH) 1503 (2001) – after warning that the taxpayer could be penalized for presenting frivolous and groundless arguments, the court imposed a $4,000 penalty.
Pierson v. Commissioner, 115 T.C. 576, 581 (2000) – the court considered imposing sanctions against the taxpayer, but decided against doing so, stating, “we regard this case as fair warning to those taxpayers who, in the future, institute or maintain a lien or levy action primarily for delay or whose position in such a proceeding is frivolous or groundless.”
Sanctions Imposed Against Taxpayer’s Counsel:Powell v. Commissioner, T.C. Memo. 2009-174, 98 T.C.M. (CCH) 56 (2009) – the court imposed sanctions against the taxpayer in the amount of $25,000 and against the taxpayer’s attorney in the amount of $4,725 for making frivolous arguments and delaying the proceedings.
Takaba v. Commissioner, 119 T.C. 285, 295 (2002) – the court rejected the taxpayer’s argument that income received from sources within the United States is not taxable income stating that “[t]he 861 argument is contrary to established law and, for that reason, frivolous.” The court imposed sanctions against the taxpayer in the amount of $15,000, as well as sanctions against the taxpayer’s attorney in the amount of $10,500, for making such groundless arguments.
The Nis Family Trust v. Commissioner, 115 T.C. 523, 545-46 (2000) – concluding that the petitioners chose “to pursue a strategy of noncooperation and delay, undertaken behind a smokescreen of frivolous tax-protester arguments,” the court imposed a $25,000 penalty against them, and also imposed sanctions of more than $10,600 against their attorney for arguing frivolous positions in bad faith.
Edwards v. Commissioner, T.C. Memo. 2002-169, 84 T.C.M. (CCH) 24, 42 (2002), aff’d, 119 Fed. Appx. 293 (D.C. Cir. 2005) – the court found that sanctions were appropriate against both the taxpayer and the taxpayer’s attorney for making groundless arguments. The court stated that “[a]n attorney cannot advance frivolous arguments to this Court with impunity, even if those arguments were initially developed by the client.” In a supplemental opinion, the court imposed sanctions against the taxpayer in the amount of $24,000 and against the taxpayer’s attorney in the amount of $13,050. Edwards v. Commissioner, T.C. Memo. 2003-149, 85 T.C.M. (CCH) 1357. |
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