Sodipo v. IRS, T.C. Memo 2015-31 (Jan. 5, 2015).
On Monday the Tax Court published a case in which the pro se litigant succeeded in convincing the judge that he was a completely unreliable witness when testifying about his own case: "We found Mr. Sodipo's testimony to be in certain material respects general, conclusory, vague, uncorroborated, self-serving, and/or not credible. We shall not rely on the testimony of Mr. Sodipo to establish his position with respect to each of the issues that remain for decision." Id. at p. 11. To make matters worse, the Court found the opposite to be true with respect to the IRS's agent: "We found the testimony of the revenue agent to be trustworthy. We shall rely on that testimony as we deem appropriate." Note, Mr. Sodipo was representing himself, so there was absolutely no one on his side of the case that the Court would believe. This is never a reaction from a Tax Court judge (or any judge for that matter) one hopes to evoke.
Cf. Mottahedeh v. IRS, T.C. Memo. 2014-258 (Dec. 29, 2014).
Yesterday’s Mottahedeh v. IRS, T.C. Memo. 2014-258 (Dec. 29, 2014) perfectly demonstrates the importance of finding a competent, ethical legal advisor. There, the litigants earned a decent living by selling questionable tax planning and reporting advice. That is, they advised dealing in cash, avoiding the paper trail, and refusing to deal with the IRS and California tax authorities. They even offered courses and packages through their “Freedom Law School” in which they taught such strategies.
This factual scenario (in which incompetent tax advisors are facing IRS scrutiny and losing before the Tax Court with their own advice) is actually rather common in Tax Court cases. They illustrate the importance of finding a competent, qualified, and ethical advisor to assist with a taxpayer’s planning and reporting needs. Common indicators include patience, extensive training, a license to practice, and (more than anything else) common sense. No degree certificate or badge of recognition can guarantee such quality, which is why good help is so hard to find. But be sure that if your tax professional’s advice sounds too good to be true, it probably is.
Filzer v. IRS, T.C. Memo. 2014-241 (Nov. 25, 2014).
The taxpayer in this case had a judgment entered against him last week after about 20 years of his failing to pay taxes or participate with the IRS as the Service attempted to collect on his tax debts. Although this is unethical behavior (Mr. Filzer was an attorney) that should never be seriously contemplated by a client, there are advantages when it is viewed as a strategy. That is, Filzer didn't pay taxes or penalties for nearly 20 years while he enjoyed hundreds of thousands of dollars of income a year. Based on his record of absenteeism, my guess is that he and his money are somewhere beyond the reach of federal prosecutors and the IRS. Despite the audacity of such behavior, one must admire the simplicity and effectiveness of his refusal to play the game while possibly escaping with the spoils.
Kernan v. IRS, T.C. Memo 2014-228 (Nov. 3, 2014).
Tax denier cases (i.e. the IRS has no authority over me, so I’m not paying taxes) are entertaining for attorneys because of the crazy antics such litigants (often pro-se) pull. Monday's Kernan v. IRS, T.C. Memo 2014-228 (Nov. 3, 2014) is one such case in which the petitioner refused to pay taxes, citing IRC Sec. 6001 language which, to his credit, makes it sound like the IRS needs to serve notice of annual 1040 filing requirements before taxes are due from taxpayers. But any case in which a litigant refuses to obey even the court’s word limit stipulations is probably not going to go well for him. Mr. Kernan’s briefs were struck because he obliterated the 75 page limit despite agreeing to it before the judge. He prevented his own “novel” arguments from even being before the court.
Also notable from this case:
"Judges impose page limits for a reason. They force parties to hone their arguments and to state those arguments succinctly. Page limits cause, or should cause, parties to dispense with arguments of little or no merit in favor of those arguments that have a better chance of carrying the day. They encourage parties to avoid redundancy. And repetition.
"Parties often are quite creative in their efforts to circumvent page limits. Among the most blatant methods is to put material into an appendix and to not count that appendix as falling within the page limits. Another is to incorporate another document by reference. . . . "
Caudle v. IRS, T.C. Memo. 2014-196 (Sept. 24, 2014).
The Tax Court clerks must have put in overtime last weekend because several opinions were released last week. One of these, Caudle v. IRS is a portrayal of what might happen if a taxpayer decides not to file a 1040 at all. There, the taxpayer (from Front Royal, Virginia) failed to file in both 2005 and 2006. Id. at p. 2. Consequently, the IRS calculated what it expected the taxpayer to have paid based on W-2s, 1099s, and other income reporting documents filed by her employers (a Substitute for Return). It then mailed the taxpayer this information via certified mail. She did not respond, so the IRS began the process of levying her tax debt against her property (Letter 1058). Id. at p. 3.
At that point, the taxpayer requested a Collection Due Process hearing, which is actually possible by phone. However, the hearing officer required the taxpayer to identify sources of income and wealth from which to pay what the IRS had determined to be her tax debt, 1040s from the four years surrounding the two tax years at issue (from 2004 to 2009) as well as estimated payments in 2010. The taxpayer was unable to comply prior to the phone hearing, at an in-person hearing, or by means of mail correspondence. Ultimately, the Settlement Officer sent the taxpayer a Notice of Determination Concerning Collection Action. Id. at p. 4.
The Tax Court has the power to review these collection determinations, which was invoked by the taxpayer in this case. However, the standard of review is highly deferential where the taxpayer has failed to properly place the underlying tax debt at issue. Id. at pp. 5-6. That is, the Court reviews the IRS administrative determination for an “abuse of discretion.” After reviewing the steps taken by the IRS for compliance with the procedural due process requirements of federal tax law, the taxpayer’s tax debt was affirmed. Id. at pp. 10-11.
This case is not very legally significant, but it is instructive for anyone who has ever wondered what could happen if one simply failed to file a 1040. Strategically, this case demonstrates one of the worst ways to get to the Tax Court.
Salzer v. IRS, T.C. Memo 2014-188 (Sept. 16, 2014).
Every once in a while, a taxpayer decides not to pay taxes because they do not agree with the current administration/government and they do not want to support it. In case there was any doubt, doing so and then deriding the government before the Tax Court (a part of the government) has yet again been established as a losing litigation strategy. Salzer v. IRS, T.C. Memo 2014-188 (Sept. 16, 2014). The Tax Court was kind enough to reproduce Mr. Salzer’s tirade at length:
“We are citizens of the United States of America. We have paid taxes to what we thought was the United States of America. Apparently through the years, socialism has taken control of this country without us being aware of it. In 2008, George W. Bush asked the American people to accept socialism and Barak [sic] Obama has plowed straight ahead with tons more. We resoundingly reject it which is shown in our not having submitted a tax form for 2008 or 2009 and will not be doing so for 2010. We support the United States of America, the republic, the Christian nation; we do not support this socialist government that has hijacked Washington DC. God has said “Blessed is that country whose God is the Lord.” (Psalm 33:12) This government has shown nothing but malice toward the American people, has attacked our soldiers and veterans in various ways, has attacked our children at the public schools by trying to push wrong beliefs-- contrary to the Bible-- to them, has sexually assaulted our people at the airports in the name of security, is killing the unborn, has taken over car companies, have taken control of the banks, taking over our health care and sold us to China. We know what socialism is. Socialism is not “just another economic theory”. There is no good kind of socialism. It is an anti-Christian, anti-American and against the U.S. Constitution. It is about trying to control people and deprive them of what they need. Because of it, millions of people have died. We reject this whole heartedly. We do not want this happening to the people of this country or anywhere. This needs to stop now.
"We support the true United States of America. Once we get it back, we will submit our tax forms to it. In fact, we will be making every effort to be the first in line. It should be quite clear from our records that before these problems, we have always filed on time and correctly. But, until our government is returned, we will not submit your forms.”
Id. at pp. 4-5.
Irrespective of how you feel about the rhetoric, this is an example of what not to do before the Tax Court. Note, this is a "Memorandum" Opinion, which means the principles of law governing the outcome of this case were so well-established, the Court merely had to apply them as written to reach a conclusion. No new law or even an interpretation of old law was required to reach the conclusion in this case based on the arguments presented--not the litigating position one should aim for.
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