Judge Holmes Examines the Fifth

I’ll leave out the honorifics for Judge Mark V. Holmes, as today he has issued a blockbuster designated hitter.

Can asserting Fifth Amendment self-incrimination protection get you a Section 6702(a)(1) frivolity chop? Don’t say “of course” too fast, practitioner.

Check out Youssef Youssefzadeh, Docket No. 14868-14L, filed 11/6/15. I know you can’t cite orders, but check out Judge Holmes’ reasoning and the cases cited.

Yous’ return had all the financial info, except that the Schedule B interest and dividends had a payor redacted and apparently the item 7 magic foreign account or trust boxes unchecked. The totals were there, though. Yous wrote that spelling out the omitted info might subject him to criminal penalties.

IRS said “come clean or we’ll hit you with a frivolity chop.” Yous said no. IRS hit Yous with a NITL, and Yous petitioned. Since the Section 6702 chops aren’t assessable, Yous gets de novo as he never had a chance to contest, but however you slice it, Judge Holmes is finding for Yous.

And Yous makes a safe three-point landing to avoid the chop.

One, the return purports to be a return. Even IRS agrees it does.

Two, although it’s close, the return does contain enough information for IRS to see that Yous’ self-assessment is “substantially correct.” Note the magic adjective “substantially.” The return doesn’t have to be perfect. Yous didn’t file a blank return or put in all zeros, like the usual rounder-protester.

Judge Holmes: “He did black out the source and amount of some interest on Schedule B, but importantly, he included the total amount of interest on line 4. There don’t appear to be any other irregularities.

“The Commissioner argues that he needs the missing information to determine if Youssefzadeh’s return is accurate, but he fails to give any reasons why. And it’s important that the standard isn’t ‘Is the return completely correct?’ but ‘Is the return substantially correct?’ We hold that this return on these undisputed facts is — considering that the face of the return appears to include the total amount of interest while only redacting the source of one payer.” Order, at p. 3. I think you mean the name of the payer or the source of the payment, Judge.

Three, IRS plays the Notice 2010-33, 2010-17 I.R.B. 609 gambit. Citing the Fifth Amendment is frivolous on its face.

Here’s the Wet-Blanket Defense to the Notice 2010-33 gambit. “But Notice 2010-33 doesn’t say omitting some information because of fear of self-incrimination is frivolous; it says that omitting “all financial information” is frivolous. Id. (emphasis added). This distinction is important and appears elsewhere. The Internal Revenue Manual says it’s frivolous when an ‘individual makes an improper blanket assertion of the Fifth Amendment right against self-incrimination as a basis for not providing any financial information.’ I.R.M. 4.10.12.1.l (10) (emphasis added). The Manual goes on to say that ‘judicial precedents clearly establish that failure to comply with the filing and reporting requirements of the federal income tax laws will not be excused based upon blanket assertions of’ the Fifth Amendment. I.R.M. 4.10.12.1.2(6) (emphasis added). A review of Youssefzadeh’s return reveals that it contains plenty of financial information and isn’t covered by any blanket assertions.” Order, at p. 4.

Of course the IRM isn’t binding upon IRS nor does it confer any rights on taxpayers, but it’s surely a good argument.

But what about those judicial precedents the IRM talks about?

Judge Holmes will tell you. “The Supreme Court held a long time ago that the Fifth Amendment doesn’t excuse a complete failure to file a tax return. United States v. Sullivan, 274 U.S. 259, 263 (1927). But the Court went on to say in the same opinion that if the form ‘called for answers that the defendant was privileged from making he could have raised the objection in the return.’ Id. It later specifically held the privilege does apply to tax returns, provided the taxpayer affirmatively claims the privilege on the return and does so before he files it. Garner v. United States, 424 U.S. 648, 656 (1976). The Commissioner’s assertion without further analysis that a claim of the Fifth Amendment privilege on a return must in all cases be frivolous is simply wrong.” Order, at p. 4.

But just claiming the Fifth at random for one item doesn’t work. Yous has to show he has reasonable cause to fear a real and substantial hazard of incriminating himself. And the Courts look at the nature of the item on the return to which Yous has demurred. If the Court can’t think Yous has a real and substantial hazard looking at the item, Yous has to prove he does, without spilling so many clichés that he sends himself to the slammer.

Yous pulls it off. Yous has got FBAR troubles, offshore account(s) he maybe hasn’t OVDI’d out of.

“Youssefzadeh correctly tells us here that 31 U.S.C. § 5314 and 31 U.S.C. § 5322 make it a crime to willfully fail to file an FBAR. The questions asked on Section B of the Form 1040 elicit information that can easily be used to determine if the taxpayer has filed an FBAR. And, as the Sixth Circuit pointed out, ‘this section of the return refers taxpayers to a booklet that further outlines their responsibilities for reporting foreign bank transactions. This booklet discusses the duty to file [the FBAR].’ United States v. Sturman, 951 F.2d 1466, 1477 (6th Cir. 1991). Because the lines that Youssefzadeh redacted ask for information that triggers the duty to file an FBAR, and because willful failure to file an FBAR is a crime, we hold that Youssefzadeh has shown us a real and appreciable danger of self-incrimination by being compelled to answer the questions on Section B. In other words, Youssefzadeh’s return wasn’t frivolous by reason of invoking the Fifth Amendment privilege. Because the Commissioner raised no other grounds for imposing the penalty, we hold that Youssefzadeh’s return wasn’t frivolous or made with an intent to impede the administration of the code.” Order, at p. 5. (Footnotes omitted).

Note that IRS blew yet another gambit, by failing to raise intent to impede administration. That would make an interesting coda.

A Taishoff “good job, first class” to Yous’ trusty attorney, Edward M. Robbins Jr., Esq., of Beverly Hills, CA.

No, not me, STJ Lewis (“The Name Correctly Spelled”) Carluzzo, in a designated hitter on a day when good blogfodder is in short supply. Not much of a big noise on Guy Fawkes’ Day, for my UK readers.

The designated hitter is Wayne D. Ramsey, Docket No. 15959-14, filed 11/5/15.

Wayne D. wants STJ Lew to take judicial notice of his two Forms 1040X for the year in dispute, and he attaches these to his motion papers.

No can do, says STJ Lew.

“Although the parties may ultimately agree upon petitioner’s… Federal income tax liability and deficiency, if any, establishing those amounts by judicial notice as requested in petitioner’s motion is not appropriate. Only facts that are not subject to reasonable dispute may be judicially noticed. See Rule 201(b), Federal Rules of Evidence; I.R.C. §7453.” Order, at p. 1.

But there is a dispute. The petition and answer show the parties dispute Wayne D.’s liability, and nothing since the time for pleadings or amendments thereto has closed shows the parties resolved the dispute.

So go fight it out, guys. Or settle.

Although his/her name is not mentioned in Eric Edward Chandler, 2015 T. C. Memo. 215, filed 11/4/15, and EE is pro se in this one, EE’s now-or-former attorney is my kind of lawyer.

EE offered an OIC of $2938 against tax liabilities exceeding $600K, claiming collectability. But EE is a long-time rounder.

Judge Lauber: “Petitioner has been a frequent visitor to this Court. This case involves his Federal income tax liabilities for 1988, 1989, 1990, 1991, 2005, and 2008.” 2015 T. C. Memo. 215, at p. 2 (Footnote omitted, but it details EE’s prior interfaces with Tax Court, all of which he lost).

EE now claims he was diagnosed with cancer, and his medical expenses went from $144 to $310 per month.

But during three of the years at issue, EE drew $400K from his retirement accounts, and was evasive about what he did with it when speaking to the SO (who rejected EE’s OIC and EE rejected the SO’s short-term deferred payment offer). But he sure didn’t pay his income taxes with any of it.

Looks like dissipation of assets, no? It did to the SO and Judge Lauber. And dissipated assets get hauled back into RCP.

So Judge Lauber sustains the rejection of the OIC and sustains the NFTL.

But the good part is EE’s trial testimony. It must have endeared EE to Judge Lauber.

“When questioned at trial about his retirement account withdrawals, petitioner testified that his lawyer had advised him to withdraw the money and ‘just go spend it.’ He testified that he spent this money ‘on anything and everything’; that he had no records of what he spent the money on; and that he simply ‘had a good time.’” 2015 T. C. Memo. 215, at p. 6.

With pardonable restraint, Judge Lauber repeats EE’s jolly admission.

“The SO gave petitioner multiple opportunities to explain how he disposed of the funds he withdrew from his retirement accounts…, but he made no effort to do so. His testimony at trial that he ‘had a good time’ spending the funds on ‘anything and everything’ would not support the conclusion that the assets in question were expended for essential living expenses. We find that the SO did not abuse her discretion by treating petitioner’s retirement account withdrawals as ‘dissipated assets’ and rejecting his OIC for that reason.” 2015 T. C. Memo. 215, at pp. 9-10.

Gotta love EE’s attorney. I wish I could give my clients that kind of advice.

Trudging through Tax Court orders seeking the odd gem to blog is wearisome, but sometimes one feels a wave of pity for those entrapped by the IRC and the Tax Court’s Rules.

Here’s that horsey litigant (and winner) Denise Celeste McMillan, Docket No. 3720-12, filed 11/3/15. You’ll remember Denise won back in June. You don’t? Then re-read my blogpost “Who Would These Burdens Bear,” 6/12/15.

So Prevailing (or Prevalent?) Denise wants her legals and admins per Section 7430.

She doesn’t get them, and Judge Halpern is here to tell you why.

“Rule 231(a)(2)(A), Tax Court Rules of Practice and Procedure, provides that a taxpayer claiming litigation and administrative costs, where no agreement as to taxpayer’s entitlement to such costs exists, must file a motion with the United States Tax Court within 30 days after the service of a written opinion determining the issues in the case. T.C. Rule 231(a)(2)(A). Petitioner filed the motion more than 30 days from the date the written opinion was issued in this case. We issued our memorandum opinion in this case on June 11, 2015. Petitioner had until July 11, 2015, to file her motion. Petitioner filed the motion on September 25, 2015, which is 106 days from when we issued our memorandum opinion. Accordingly, the motion is not timely. Petitioner’s citation to 28 U.S.C. section 2412(d)(1)(B) is inapposite, in that 28 U.S.C. section 2412(e) expressly excludes from its coverage ‘any costs, fees, and other expenses in connection with any proceeding to which section 7430 of the Internal Revenue Code of 1986 applies’.” Order, at pp. 1-2.

And here’s an even sadder tale, Wayne Robert Wilson, 22626-14SL, filed 11/3/15. The Judge With a Heart, STJ Armen, tried to help Wayne Robert, who is in dire straits, but the Judge’s helping hand didn’t satisfy Wayne Robert.

Back in August, STJ Armen remanded Wayne Robert back to Appeals. Appeals gave Wayne Robert a CNC NOD. Wayne Robert is not thrilled, however, even though IRS’s hand is stayed. He writes to STJ Armen.

“Judging from petitioner’s letter…, it is hard to know whether petitioner regards currently-not-collectible (CNC) status satisfactory. Clearly the import of the petition and other filings by petitioner is that he is in dire financial straits and is unable to pay his assessed liabilities for the years in issue. One might therefore think that he would be pleased to know that levy action is suspended while his account is in CNC status and that he ‘would not be required to make periodic payments, other than refund offsets from Federal and State Tax Returns, while the account is classed as such.’ After all, petitioner implies that he would pay his liabilities if his financial situation were to change dramatically for the better. In any event, petitioner’s concern that CNC status ‘does not resolve anything, plus it adds a lien against me’ would appear to be inaccurate in that the instant case involves a proposed levy and, as far as the record reveals, no notice of Federal tax lien has been filed to date. Further, petitioner’s hope for tax relief in the form of income averaging is unavailing in view of the fact that income averaging was repealed from the Internal Revenue Code many years ago and, in any event, was designed to ameliorate rapidly increasing income and not the converse (which seems to have been petitioner’s situation).” Order, at pp. 1-2.

I lamented the end of income averaging, as for many years before and after my income varied widely from year to year. But income averaging died with advent of the celebrated Internal Revenue Code of 1986.

So STJ Armen has no further means of facilitating a “quick and simpler path to resolution” of Wayne Robert’s problem. Back to the trial docket goes Wayne Robert.

That Obliging Jurist and true friend of the hard-laboring blogger, Judge David Gustafson, may or may not find that Holman M. Fulbright, Docket No. 379-15L, filed 11/2/15, though not currently compliant with all filings, may yet attain the limbo of CNC. And, praise be, he does so in a designated hitter.

Holman is out of luck in his quest for an installment agreement. Ya gotta have filed all returns and paid any 1040-ES, 941 and suchlike, before you can pay as you go.

IRS wants summary J that Holman is out on CNC as well. And thereby hangs the cliché.

IRS claims Holman never came clean on the diñero. Holman’s trusty attorney claims he faxed fifty-plus pages of Holman’s monetary life and miracles, and got a fax receipt therefor. IRS ripostes that trusty attorney’s averments are a wee bit dubious, to be charitable.

Judge Gustafson sorts it out. “But in the current summary judgment context, we decline to weigh the evidence or do any more than identify the presence or absence of a genuine dispute of material fact. See Rule 121(b).

“However, Rule 121(d) does require that ‘certified copies of all papers or parts thereof referred to in … a declaration shall be attached thereto or filed therewith.’ This rule would seem to require that the ‘financials’ referred to in counsel’s statement be filed with petitioner’s response, but they were not. We will allow petitioner to cure this defect in a supplemental filing.” Order, at p. 2.

In short, trusty attorney, produce documents and receipt.

Yet another complication arises, but Judge Gustafson is ahead of the problem.

“Petitioner’s counsel’s declaration states that he has changed law firms since the events [in question]. The Court therefore points out that, to the extent (if any) that petitioner needs documents that require the cooperation of that former firm but the firm is not cooperating, petitioner’s remedy would be to compel production of documents by the issuance of a subpoena duces tecum under Rule 147(b), requiring the firm to appear at the calendar call and produce the documents. Failure to employ that remedy would presumably redound to petitioner’s detriment in any dispute about whether petitioner had met his burden of proof (and in any dispute about the appropriateness of a continuance).” Order, at pp. 2-3.

And of course, if the facts are still at issue, get ready for trial.