Well, Sort Of

 Ashley Jeffrey Ponticello, Docket No. 15483-13S, filed 4/21/14, wasn’t doing so great. Judge Gale had warned Ashley last October to show up for trial or have her petition tossed. Ashley didn’t show, and she hadn’t responded to IRS’ attempts to get hold of Ashley by mail and by phone to get information about adjustments to the SNOD. Ashley stood mute throughout.

Judge Gale: “The Court may dismiss a case at any time and enter a decision against the taxpayer for failure properly to prosecute his case, failure to comply with the Rules of this Court or any order of the Court, or for any cause which the Court deems sufficient. In addition, the Court may dismiss a case for lack of prosecution if the taxpayer inexcusably fails to appear for trial and does not otherwise participate in the resolution of his claim.” Order, at p. 1 (Citations and footnote omitted).

So bye bye, Ashley. You never asked to shift the burden of proof, so you have the burden; and as you never showed up for trial, SNOD sustained.

So far run-of-the-mill. But not quite.

IRS hits Ashley with a Section 6662(a) 5-and-10 accuracy penalty, the substantial understatement variety. Now when IRS asserts a penalty, it has a burden of production of some evidence to sustain the imposition. Except here, of course, Ashley never expressly contested the penalty in her petition, or showed up to contest it on the trial.

So generally (I love that word) IRS isn’t required to produce anything, “at least where nothing in the record suggests the addition or penalty has been incorrectly computed.” Order, at p. 2.

But here it wasn’t correctly computed, because IRS did their numbers pre-Rand. Remember Yitz Rand and Shul Klugman? No? Then see my blogpost “The Rebate Debate – Part Deux”, 11/18/13.

This was the lead case in the child rebate series, when the rebates reduce taxes due below zero, so the deficiency was more than the tax shown on the return pre-rebate. But Tax Court, construing “underpayment” by the rule of lenity (penalties are strictly construed against the penalizer and in favor of the penalized), said the “underpayment” for penalty purposes was only so much of the deficiency that took the tax stated to zero, not below zero.

And that number in Ashley’s case is less than the greater of $5K or 10% of the tax due, so no Section 6662(a) understatement penalty, and IRS didn’t ask for negligence.

So Judge Gale doesn’t have to decide if the petition, alleging identity theft, somehow implicated a reasonable cause defense.

And even though Ashley never played show-and-tell, or showed up for the trial, still gets part of a win.