In baseball, when a team doesn’t show up, the umpire enters the score of 9 to 0 in favor of the non-defaulter, and everyone leaves the field. Not so in US Tax Court. IRS and Judge Albert G (“Scholar Al”) Lauber have to run around the bases for each and every one of the five (count ’em, five) years, in each of which IRS wants to tag Irvin Hannis Catlett, Jr., Deceased, 2021 T. C. Memo. 102, filed 8/16/21, for deficiencies, add-ons and chops.
Irv was not yet deceased when he petitioned, though he was in the slammer doing seventeen years six months for “…violation of 18 U.S.C. sec. 371, aiding and assisting in the preparation of false tax documents in violation of section 7206(2), and attempting to obstruct and impede the administration of the internal revenue laws in violation of section 7212(a).” 2021 T. C. Memo. 102, at p. 3.
Irv was a preparer, who concocted phony entities generating phony losses to offset real gains for his customers, with the assistance of a bent penny in the IRS. While enjoying (if that is the correct word) board and lodging at our expense, Irv failed to cooperate (surprise, surprise) with the audit of his personal taxes, thrice unsuccessfully sued to quash subpoenas to his various banks, and petitioned the SNODs IRS gave him. Before trial, Irv went before a much higher Judge than can be found at Second Street, NW.
Irv’s next of kin repeatedly state they have no interest in participating in any trial, and no will, nor ex’r or adm’r can be found.
So why a T. C. Memo.? Well, although dismissal for want of prosecution is a no-brainer, IRS wants to enter decision for whatever reason. Maybe Irv had a stash somewhere they can grab. So IRS needs to satisfy BoP and BProd to get a default. What we State courtiers would call an “inquest for a default judgment.”
So Judge Scholar Al must run the bases, 25 (count ’em, 25) pages’ worth, giving IRS their heart’s desire (assuming they have a heart, a fact not in evidence), save only one minuscule break for Irv’s non-estate.
“Section 6651(f) provides that, ‘[i]f any failure to file any return is fraudulent,’ the addition to tax imposed by section 6651(a)(1) shall accrue at a rate of 15% per month, not to exceed 75% in the aggregate. Respondent has the burden of proving fraud, and he must prove it by clear and convincing evidence. See sec. 7454(a); Rule 142(b). Where dismissal for lack of prosecution is appropriate, the Commissioner can satisfy his burden by presenting, ‘either in the pleadings or at trial, * * * sufficient facts to sustain a finding of fraud.'” 2021 T. C. Memo. 102, at p. 23. (Citations omitted).
But IRS needs clear and convincing proof of fraudulent intent, and they haven’t got it.
“The IRS determined an addition to tax under this provision for 2009. Petitioner’s return for 2009 was due on April 15, 2010, roughly one month after he was indicted for tax crimes. Under these circumstances, petitioner’s failure to file a 2009 return may have been attributable to various causes, e.g., distraction occasioned by the criminal prosecution, advice of counsel, or reluctance to take a position inconsistent with the positions taken on his prior returns. Considering the record as a whole (including the facts contained in respondent’s pleadings), we conclude that respondent has not carried his burden of proving that petitioner’s failure to file for 2009 was fraudulent. We will therefore not sustain the section 6651(f) addition to tax for 2009.” 2021 T. C. Memo. 102, at p. 24.
But before you rend your garments in mourning for IRS, Judge Scholar Al notes all is not lost.”However, the notice of deficiency stated that, ‘if the fraudulent failure to file penalty is determined not to apply, the failure to file penalty [sic] under * * * [section] 6651(a)(1) does apply.’” 2021 T. C. Memo. 102, at p. 24. And IRS Boss Hossed this case to a fare-thee-well. So the lesser add-on sticks.
Game forfeited, Rule 155 beancount to follow. It will be a trifle one-sided.
Edited to add, 10/12/21: Yup, a trifle one-sided. But the numbers here lead me to believe that the stash of cash is more than a mere possibility. Irvin Hannis Catlett Jr 13058-14 10 12 21
Taishoff Law 
Mr. Catlett departed this earthly plane, age 72, on January 1, 2020, surviving just long enough to qualify for an $1,800 refund of recovery rebate credits on his final 1040.
What’s interesting is that the Martinsburg Journal reported in its January 7 obituary that he was survived by two children; three grandchildren; a brother and three sisters.
Compare this to Judge Lauber’s explanation that “respondent represented that petitioner . . . was survived by his brother and two children, and that none of these individuals intended to participate in this case. . . .After an expansive search respondent located three members of petitioner’s family. Respondent’s counsel explained to each of them the posture of this litigation, but they indicated that they wanted nothing to do with the case.”
Expansive search? “The RA determined that petitioner understated income by $407,988 for 2006, by $98,943 for 2007, and by $115,661 for 2008.” How expansively will the IRS search for that cash?
LikeLike
Judge Scholar Al does not discuss the evidence, if any, which IRS’ counsel proffered as to their “expansive” search. The Martinsburg Journal obituary is hearsay, of course. If the grandchildrens’ parents are living, I would be surprised if WV law gave said grandchildren any rights in the grandfather’s estate. Any or all of the sisters could, I suppose, move to reopen the case and intervene, as they had no notice or opportunity to be heard. As to the search for the stash, I suggested that in my blogpost. It seems the obvious reason for this fandango. Of course, Irv’s survivors may have already followed Woody Allen’s advice–Take the Money and Run.
LikeLike
Further to the foregoing, while I am not licensed to practice law in WV, and therefore nothing herein is intended or should be construed as legal advice anent WV law, if the children are adults, they are the only ones with interests in the late Irv’s estate. Any of the sisters could, I suppose, apply simultaneously to reopen the Tax Court case in order to intervene, and for the WV version of letters of administration. But Section 6321 creates a lien on all estate property, so I doubt it would be worth their while.
LikeLike
Those were my thoughts also, but then why would IRS Counsel bother to track down just one sibling? And how did they know he died intestate? Could be, one of the sisters is holding the will until an appropriate time to commence probate.
I had a client who left West Virginia about 60 years earlier. Some lawyer there contacted her about the estate of a great-aunt she didn’t know. Apparently there were mineral royalties involved. She collected something like $60,000.
LikeLike
Not wishing to prolong this discussion unduly, as all this is pure speculation, I doubt either IRS or Judge Scholar Al has any interest in stirring up probate litigation in WV, or providing employment for WV attorneys. IRS need only use reasonable efforts to find the interested parties. If there is someone holding a will, it behooves them to come forward promptly, without an invitation from IRS or Tax Court. Again, I do not practice law in WV; but in some States concealing or suppressing a will is a felony. And there are services that locate heirs for a fee; though it’s been years since I did probate work (and not much of it; I prefer living clients), probate court judges are great sticklers for assuring that every heir or distributee has his or her day in court.
LikeLike