Or, How He Outsmarted Himself
There’s the old story of the two sailors on a life raft in World War II, after their ship had been torpedoed. One says to the other, “Could have saved ourselves a lot of trouble if we’d jumped overboard the first night out.”
That’s one of two lessons for Michael Craig Worsham, taught by Judge Goeke, in T. C. Memo. 2012-219, filed 7/31/12.
The second is that if a little learning is a dangerous thing, too much learning is even more dangerous. Mike’s got academic credentials by the bushelbasketful–“ a bachelor of science in chemistry, a master of science in civil engineering and a juris doctor from the University of Baltimore School of Law.” T. C. Memo. 2012-219, at pp. 3.
Before entering law school, “(H)e moved to Maryland in 1993 to work for the U.S. Army Environmental Center at Aberdeen Proving Ground. Over the next several years he attended law school at night, was sworn in as a member of the Maryland bar in 1998, and left the army in 2001 to start a solo law practice from his home. Petitioner’s practice was not in the area of tax, and he did not take any tax courses in law school.” T. C. Memo. 2012-219, at p. 3. Too bad, Mike, you should have done. If you think education is expensive, try ignorance. But you did that.
Mike filed income tax returns and paid tax when due for every tax year from 1989 through and including 2004, but skipped every year thereafter, claiming he found, “without looking for it”, reasons why he didn’t owe tax. Needless to say, his “reasons” were the good old tax-protester jive. Judge Goeke wasn’t buying.
IRS prepared a SFR for Mike for 2006, a year when his law practice brought in $193K gross and paid him $118K net. But the SFR only showed about $6K in tax and about a grand in additions to tax (non-filing and non-paying).
Mike petitions Tax Court. Bad mistake, dude, because IRS subpoenas his bank accounts, find much loot, and amends its answer to Mike’s petition to allege a deficiency ten times greater than earlier deficiency, plus fraud penalties.
Mike moves to dismiss his case, and writes to his bank, stating “(B)ecause I am dismissing this case, the Subpoena issued by the IRS to M&T Bank should no longer be valid, and M&T Bank should not be required to respond by producing copies of my account records.” T. C. Memo. 2012-219, at p. 7.
Judge Goeke finds this maneuver less than funny. “Shortly after he mailed this letter to M&T Bank, we denied petitioner’s motion to dismiss.” T. C. Memo. 2012-219, at p. 7.
I’ll spare you the next eighteen pages of Judge Goeke’s deconstruction of Mike and his unsought brilliant discovery. It’s our old friend Crain revisited for the hundredth time. “Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984), which stated: ‘We perceive no need to refute these arguments with somber reasoning and copious citation of precedent’. T. C. Memo. 2012-219, at p. 11.
And our other old chum, Scott F. Wnuck, in 136 T.C. 24, filed 5/31/11. “Addressing frivolous tax-protester arguments: (1) wastes the limited resources of the Court; (2) delays the assessment of tax; and (3) risks dignifying such arguments or suggesting that they have some colorable merit.” T. C. Memo. 2012-219, at p. 10. (Citation omitted.) See my blogpost “One’ll Get You Five”, 5/31/11.
So Mike’s intelligence and education, with or without income tax courses, and his prior history of taxpaying, establish he knew he had to file. So now to establish fraud: besides other matters discussed in the opinion, Mike’s attempt at cleverness by seeking to dismiss his petition when he hears that IRS is looking for his bank records backfires big time. Judge Goeke “…we also note that after learning of the subpoenas duces tecum issued to his banks petitioner filed a motion to dismiss, seeking to have his case dismissed without prejudice. After filing the motion to dismiss, petitioner mailed a letter to one bank in which he stated: ‘Because I am dismissing this case, the Subpoena issued by the IRS to M&T Bank should no longer be valid, and M&T Bank should not be required to respond by producing copies of my account records.’ Essentially, once petitioner knew respondent was about to discover the true amount of income he received during 2006 he sought to avoid the consequences by paying only the smaller deficiency and additions to tax originally determined by respondent. We believe these facts are evidence that petitioner was more concerned with trying to conceal the true amount of income he received than with presenting good-faith (but misguided) arguments regarding his Federal tax liability and duty to file a Federal tax return.” T. C. Memo. 2012-219, at p. 20.
Clear and convincing, so Mike gets the fraud penalty.
But Mike gets a first-timer’s bye on the Section 6673 frivolity penalties.
Mike, you should have taken the income tax course. Or better still, just paid the man the seven grand.