Isn’t Losing Your Case

IRS loses summary J in Johnny H. Brown, Docket No. 14617-17, filed 12/20/21,* but that isn’t necessarily bad. True, IRS also gets a Rule 37(c) deemed admissions order tossed, which deprives them of useful ammo. But Judge James S (“Big Jim”) Halpern says that isn’t the end.

“While Rule 37(c) does not permit the withdrawal of affirmative allegations deemed admitted, see New v. Commissioner, 92 T.C. 1146, 1147-1148 (1989), we have looked to Rule 90(f), permitting the withdrawal of deemed admissions, in considering whether to vacate a Rule 37(c) order, see id. at 1148-1149. Petitioner has averred facts (as to the sales prices of vacuums and the nature of the bank deposits) tending to refute the relevant portions of the deemed admissions. We do not think that the prejudice to respondent would be significant were we to vacate our Rule 37(c) order.  Respondent is free during preparation for trial to ask petitioner for admissions, to which, if he cannot admit the matters for which his admissions are requested, we encourage petitioner to reply.” Order, at p. 9. And Judge Big Jim only tosses so much of the Rule 37(c) as pertains to numbers.

Johnny is a pro se who did a bunch years (hi, Judge Holmes) for tax evasion, but the indictment and the Second Amended Judgment are ambiguous as to whether Section 6651(f) fraudulent failure to file was pled and proven for all years at issue. Since Johnny is pro se, Judge Big Jim also gives him a bye on failure to assign error to the Section 6651(f)s, since he did amend to dispute numbers. If in fact he proves that he didn’t sell all the vacuum cleaners he sold at list price, that shows he made less, and if he can prove he’s entitled to greater COGS or deductions, then he might be OK.

Now it’s true IRS violated Taishoff’s Law of Bedrock Practice: Stipulate, Don’t Capitulate.

“Petitioner does not deny that he was convicted of tax evasion under section  7201 as alleged in count 14 of the indictment, nor does he deny that he failed to file tax returns for the audit years. And while a conviction under section 7201 for tax evasion for a particular year or years collaterally estops the convicted felon from denying fraudulent intent for purposes of section 6651(f) for those years…respondent concedes that there is no estoppel here. He relies principally on the particulars of the conviction and on the deemed admissions to make his case.” Order, at p. 1. (Citation omitted).

IRS’ strategy seems to be that, since maybe Johnny is entitled to more deductions and might show some income isn’t taxable, the Second Amended Judgment might be less than perfect to establish the amount of the chop. And if the numbers come up short on the trial, mox nix.

The good news? IRS has narrowed things down to a trial on numbers. And Johnny has BoP.

*Johnny H Brown Docket No 14617-17 12 20 21