Walk Into a Blog

No, I’m not auditioning for a late-night comedy slot. This afternoon the hard-laboring clerks and flailing datestampers at the Glasshouse on Second Street, NW,  have favored me with two T. C. Memos. The subject is dodging.

First up is Francis Steffan Hayes, 2019 T. C. Memo. 147, filed 10/30/19, who gets Wnuck’d by Judge Patrick J. (“Scholar Pat”) Urda. It doesn’t take excessive scholarship by Judge Scholar Pat to conclude that, instead of taking on IRS’ extensive reconstruction of five (count ‘em, five) of Francis Steffan’s tax years, Francis Steffan “…reserves his energy for laying out assorted tax-defier chestnuts about the scope of the Sixteenth Amendment, the purportedly unworkable definition of income under the Internal Revenue Code, and the effect of regulations relating to the Alcohol and Tobacco Tax and Trade Bureau on the administration of the income tax regime.  The shopworn arguments he offers in support of his position are incomplete, misleading, and misguided, and have been rejected more times than we care to count.” 2019 T. C. Memo. 147, at p. 11. (Citations omitted, but ya gotta know Wnuck is in there).

IRS does more reconstruction than a plastic surgeon, and after conceding around $10K, establishes deficiencies and chops for the years at issue. But IRS left out the $400 Making Work Pay credit they originally allowed, so Judge Scholar Pat tells IRS to include it in the Rule 155 beancount or tell him why.

Taishoff says if anyone deserves credit for making work pay, it’s the RA who went through the “reams of bank account statements, checks, and money orders showing that in the years in issue Mr. Hayes received income both directly and through the media ventures he alone controlled.” 2019 T. C. Memo. 147, at p. 10. And testified in extenso about the same.

Next case is Bertram Russell, 2019 T. C. Memo. 146, filed 10/30/19. That’s Dr. Bertram Russell, although maybe after he went down for Section 7201 tax evasion in USDCEDPA and did 66 months, he stopped practicing medicine.

Anyway, Doc Bert’s game was the phony corporation. Doc Bert claimed he was an IC working for said corporation, but he never got a W-2, a 1099-MISC, or anything but sole signatory power over the corporation’s checking account, into which the IC payments for Doc Bert’s services were funneled, and from which he paid his personal expenses.

Supposedly an attorney and another doctor set up this dodge; they really could have done a better job.

Now of course an individual can incorporate his or her trade or business or occupation. And our beneficent tax system allows each of us to roll our own. But the corporation has to be real.

I’ll let Judge Ruwe explain.

“Taxpayers have the right to shape business transactions to minimize the incidence of taxation, including the right to use corporate entities.  Furthering this pursuit, a ‘corporate entity is deemed to exist as a separate taxpayer if it is organized to carry on a business activity or if, in fact, it has carried on such activity.’ (‘[S]o long as * * * [the corporate purpose] is the equivalent of business activity or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity.’).  However, in ‘matters relating to the revenue, the corporate form may be disregarded where it is a sham or unreal.’” 2019 T. C. Memo. 146, at pp. 9-10. (Citations omitted.)

Judge Ruwe finds Doc Bert’s corporation activities “reek of a sham corporate entity.” 2019 T. C. Memo. 146, at p. 10.

“[Corp] filed no corporate income tax return for any year, including [year at issue].  The entity had no employees and no proper physical location, and it appears to have respected no corporate formalities.  There is no evidence that it ever paid any dividends.  The 13 payments … to [Corp] were deposited into a checking account that petitioner, and only petitioner, exercised control over.  Funds in this checking account were later used to pay petitioner’s personal expenses, such as private school tuition for his children.  Petitioner observed no meaningful distinction between his personal funds and the funds of [Corp].  We therefore find that [Corp] is a sham corporate entity which is disregarded for Federal income tax purposes.“  2019 T. C. Memo., 146, at p. 10-11.

Now we all know that conviction for tax evasion with an order for restitution does not determine actual tax liability, unless the judgment of conviction so states. Nor does conviction estop IRS from going after the taxpayer for actual tax. But the conviction does establish fraud, to the extent of the Section 6663 75% chop, if for the same year as evasion is determined.

Oh, and Doc Bert owes a late filing chop.