I do not indulge in schadenfreude; I find such stuff unworthy of discussion in a high-minded blog like mine. So today’s blogpost is not a gloat over others’ difficulties, but to point the way for my readers, or their respective counsel, to avoid the pitfalls hereinbelow set forth, as my already-on-their-second-bottle-of-2003-Château-Léoville-Poyferré colleagues say.

Welcome Steven T. Waltner back to my blog. Don’t remember Steven T. (s/a/k/a Steve)? See my blogpost “Cracking Up”, 2/27/14, wherein Judge Buch threw the book at Steve, in 62 pages full of well-chosen words.

Steve’s fighting over an $8800 deficiency and a $1760 penalty. But as you’ll see from my blogpost abovecited, Steve’s an old-time protester and frivolity merchant.

One must admit that Steve is a persistent type. His latest puts him before Judge Marvel in Steven T. Waltner and Sarah V. Waltner, 2014 T. C. Memo. 133, filed 7/3/14. Sarah lives in another State, but shows up when the case finally comes up for trial, which neither Steve nor their lawyer bothers to do. Her contribution at the trial is to recite frivolities.

Steve filed the usual zero-for-wages returns. IRS doesn’t give him the refund he claims; so he goes to Ct. Cl., gets tossed on the grounds he can’t claim anything because he never filed a return (his filing being a non-return as a matter of law), and therefore no Ct. Cl. jurisdiction; goes up to Fed Circuit, who boots him on the same grounds; and climaxes his campaign with a petition for certiorari to the Supremes.

Now when it comes to grants of such petition to taxpayers, one can’t say the petitioners have much success, even those with some dim chance. As for Steve, in a match race, my money is on the proverbial snowball in you-know-where.

The Supremes don’t bite, of course, so IRS gives Steve a deficiency, which he of course petitions.

Steve is toast on collateral estoppel (claim preclusion for you recent law school grads). Ct. Cl. and Fed Circuit had to decide whether Steve had filed a valid return to establish whether either of them had jurisdiction. Steve had a chance to claim he did, and lost; no second swing at the baseball.

But IRS claimed Steve had sold some stock and didn’t report the income therefrom. No dice, says Judge Marvel.

First of all, IRS raised the stock sale in an amended answer to an amended petition, so Rule 142(a)(1) puts the burden of proof on IRS.

Second (and here’s where IRS’ two lawyers fall down): “Gain from the sale or exchange of property must be recognized, unless the Code provides otherwise. Sec. 1001(c). Section 1001(a) defines gain from the sale or exchange of property as the excess of the amount realized on the sale of the property over the adjusted basis of the property sold or exchanged. See also sec. 1.61-6(a), Income Tax Regs. Respondent bears the burden of proof on this issue…. Respondent failed to introduce any evidence with respect to Mr. Waltner’s basis in the mutual fund shares that he sold through his Citigroup account. Accordingly, respondent has failed to prove that petitioners are liable for tax on the amount realized from that sale.” 2014 T. C. Memo. 133, at p. 19.

The gain-equals-sales-price-minus-basis is Tax 101, guys. Someone was seriously asleep at the whatever. If you found the item from Steve’s broker’s 1099-B, why not ask the broker for the basis information? If it came from elsewhere, still ask the broker.

And the Section 6662(a) accuracy penalty IRS seeks only applies when a valid return is filed. But here there was none.

So one side’s lawyers blew it. But lest Steve and Sarah feel neglected, Judge Marvel hands them a $10K Section 6673(a)(1) frivolity penalty.

Now for Steve’s side.

Steve is represented by counsel we’ll call Donny. Judge Marvel is not amused by what she considers Donny’s shenanigans.

“Under section 6673(a)(2) we may impose on any person admitted to practice before this Court who unreasonably and vexatiously multiplies the proceedings in any case the excessive costs reasonably incurred on account of such conduct. This Court may sua sponte impose such costs. Rule 33(b) sets standards in connection with counsel’s signature on a pleading and provides that upon our own motion we may sanction counsel for failure to meet those standards. Although we have found petitioners deserving of a section 6673(a)(1) penalty, we believe that petitioners’ counsel may also be deserving of a sanction for unreasonably and vexatiously prolonging these proceedings. We will therefore order petitioners’ counsel to show cause why we should not impose on him excessive costs pursuant to section 6673(a)(2) or sanction him pursuant to Rule 33(b). We will also order respondent to express his position on these issues and to provide us with his computations of the excess costs, expenses, and attorney’s fees reasonably incurred on account of petitioners’ counsel’s conduct in this case.” 2014 T. C. Memo. 133, at pp. 23-24. (Citations and footnote omitted).

Because it’s important, here’s the omitted footnote: “In computing the excessive costs respondent should not include costs incurred before petitioners’ counsel entered an appearance in this case or costs attributable to the issues of (1) whether the statute of limitations on assessment and collection applies in this case; (2) whether petitioners had unreported income from the sale of assets in Mr. Waltner’s Citigroup account; (3) whether petitioners are liable for an accuracy-related penalty under sec. 6662(a); and (4) whether petitioners are liable for an addition to tax under sec. 6651(a)(1).” 2014 T. C. Memo. 133, at p. 24, footnote 7.

So Donny and IRS’ lawyers, each of whom has his own problems, now has some homework to do.