Attorney-at-Law

STATUTE OF LIMITATIONS – UNLIMITED?

In Uncategorized on 11/27/2012 at 18:56

Judge Marvel gets a chance to decide what the SOL is for Section 6702 frivolity, but passes by the return-vs-activity test, with a sidetrip to Congressional intent, because Elizabeth O’Brien claims the statute began to run even before she got frivolous, in the eponymous 2012 T. C. Memo. 326, filed 11/27/12.

Originally Liz filed a 1040 with husband Danny Boy and got it right, but later filed a 1040X that claimed compensation for services wasn’t income and sought a refund. Judge Marvel heard this frivolous old song before. So she’s ready to sustain the Section 6702(a) $5K hit to Liz (Danny Boy being out of the case because his determination letter wasn’t a NOD).

Judge Marvel must also bypass an interesting question. IRS wants to impose a separate 6702(a) hit on Danny Boy and on Liz. “Because the case with respect to Mr. O’Brien has been dismissed, we need not decide, in the case of a frivolous return document that is a purported joint Federal income tax return, whether respondent is entitled to impose a sec. 6702(a) penalty on both filers, or whether respondent is limited to imposing one sec. 6702(a) penalty per frivolous return document.” 2012 T. C. Memo. 326, at p. 14, footnote 11.

Now to Liz’s claim that SOL ran, per Section 6501(a), the 3SOL, before the Section 6702(a) hit was imposed. Liz claims the 1040X relates back to the tax year for which she timely filed her original (nonfrivolous) 1040. “Neither party addressed the issue of whether petitioner’s liability for the sec. 6702(a) penalty is properly considered to be a part of her Federal income tax liability for 2004. Although the notice of determination shows that respondent assessed the sec. 6702(a) penalty with respect to petitioner’s 2004 tax period, the harm targeted by sec. 6702(a) is the same as that targeted by sec. 6700, the conduct of the taxpayer. Sec. 6702(a) specifically targets the conduct of a taxpayer in filing a frivolous return document and, like the sec. 6700 penalty, applies to specific acts and transactions and not to a specific time period.” 2012 T. C. Memo. 326, at p.16, footnote 12.

“This Court has not decided whether a statute of limitations applies for the assessment of a section 6702(a) penalty. In fact, it appears that no court has. While it may be appropriate to decide this issue in the future, we need not do so in order to resolve this case. We need examine only when a period of limitations, assuming one is applicable for the assessment of the section 6702 penalty, would begin to run under accepted limitations analysis.” 2012 T. C. Memo. 326, at p. 19.

The general rule is that, as against the United States, if there is no clear SOL, then there’s no limit. And Liz’s relation-back argument is ridiculous, since the SOL (if there is a SOL) would have started running before she did anything frivolous.

So the SOL for frivolity, if there is one, starts when the party acts frivolously, not when the tax return is due.

Stay tuned. We may yet find out when the SOL for Section 6702(a) frivolity ends.

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