Attorney-at-Law

“I SING THE PENALTY ELECTRONIC” – PART DEUX

In Uncategorized on 02/25/2019 at 17:03

You’ll remember back last May the question of dodging the Boss Hoss sign-off by calculating the penalty on the computer came up, and STJ Diana L (“The Taxpayer’s Friend”) Leyden suggested a reopener. See my blogpost “I Sing the Penalty Electronic,” 5/16/18.

Turns out the reopener was unnecessary, because on the trial (which I did not blog) the petitioner showed good faith, so the Section 6662 chops were off the table.

So we still didn’t know the answer on the electronic Section 6662 chops.

But today we have a clear-cut case and a full-dress T. C., Craig S. Walquist and Maria L. Walquist, 152 T. C. 3, filed 2/25/19.

Craig and Maria are frivols, who got ACEd (Automatic Correspondence Examination, via the Correspondence Examination Automated Support software, untouched by human hands) with substantially understated tax. The software sent a 30-day letter to Craig and Maria, which they ignored. The electrons then fired off a Letter 3219 SNOD.

It was only when Craig and Maria petitioned that human beings got involved, and Craig and Maria got inventive. “Petitioners appended various documents containing assertions commonly advanced by tax protesters, including assertions that U.S. currency is not ‘lawful money’ and that they ‘have no obligations or liability to even file a return’ because they ‘intend to only handle legal money.’  Petitioners also advanced the more novel (but equally frivolous) argument that this Court should garnish the wages of the Secretary of the Treasury for an amount equal to petitioners’ outstanding tax liability.” 152 T. C. 3, at pp. 5-6.

Craig and Maria were told to amend, and they did, but it was still frivolous and they were still after Steve Mnuchin’s paycheck.

Craig and Maria next went to USDCMN, who tossed them as frivols.

Then, when Judge Scholar Al told them to play nice or get tossed, they went on a tear.

“By way of response petitioners submitted…a document captioned ‘True Bill of Indictment–Testimony Inherent.’  In this document they again demanded garnishment of the wages of the Secretary of the Treasury, stating incoherently that ‘demand is made for redemption of central banking currency in Lawful Money in all transactions pursuant to * * * the Federal Reserve Act.’  They asserted that this Court lacks authority to decide this case, alleging that ‘the “Chief Justice” of the US Supreme Court is only pretending to be a judicial officer [and] there is no competence to be found in the US Tax Court.’

“Elaborating on the latter theme petitioners continued as follows:

“Any and all utterances by ‘Judge’ Lauber are Refused for Cause timely as expressed herein with the first pages of [this Court’s orders marked] ‘Refusal for Cause’ conspicuously across their face.  Mr. Lauber is no judicial officer and the US Tax Court * * * is not a court of record and therefore not a court of competent jurisdiction.  * * * [Petitioner husband] is excused from tax liability through law about his redemption and the redemption of lawful money.  All agents and Principal Steven Terner Mnuchin as US Governor of the International Monetary Fund are notified. * * *  Therefore the US Tax Court is notified there will be no trial.  Thank you for your testimony, everybody.’” 152 T. C. 3, at pp. 9-10.

There was no trial, of course; Craig and Maria got tossed, and Judge Scholar Al gives us the answer we’ve all been waiting for.

“For individual taxpayers, the substantial understatement penalty applies if the understatement of income tax for a particular year ‘exceeds the greater of- (i) 10 percent of the tax required to be shown on the return * * * , or (ii) $5,000.’ Sec. 6662(d)(1)(A).  The penalty (as relevant here) is calculated at a flat rate of 20% of the ‘underpayment of tax required to be shown on * * * [the] return.’  See sec. 6662(a).  This penalty is thus calculated mathematically, both in terms of whether it applies and the rate at which it is imposed.

“The IRS processed the examination of petitioners’ … return through its ACE system, employing its CEAS software program.  This software program ascertained through third-party document matching that petitioners had total income of $95,327. The program computed a tax liability of $13,832 and calculated a penalty equal to 20% of that sum ($13,832 × 20% = $2,766.40).  When petitioners failed to respond to the computer-generated 30-day letter, the CEAS program automatically generated a notice of deficiency setting forth a deficiency and penalty in these amounts.  Because the penalty was determined mathematically by a computer software program without the involvement of a human IRS examiner, we conclude that the penalty was ‘automatically calculated through electronic means,” sec. 6751(b)(2)(B), as the plain text of the statutory exception requires.” 152 T. C. 3, at pp. 14-15 (Footnote omitted, but it just explains that Craig and Maria made a rounding error on their return).

An automatic machine-generated chop is not the “bargaining chip” Section 6751(b) was designed to take from the hands of over-zealous examiners.

And there is no Boss Hoss for a computer running standardized software. If this needs a Boss Hoss sign-off, then there can’t be any exceptions, and that makes hash of the statute.

Judge Scholar Al gives Craig and Maria a $12,500 Section 6673 chop at no extra charge.

  1. […] Lew Taishoff weighed in with I Sing The Penalty Electronic – Part Deux […]

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  2. […] Lew Taishoff weighed in with I Sing The Penalty Electronic – Part Deux […]

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