Although the famous law school maxim, which baffled me in my salad days On The Hill Far Above, was a primordial estate tax dodge, today I pick up on a frivolite, Shelley Tempelman, Docket No. 32737-21L, filed 9/23/22.

Shelley tries the Form 4852 renege on her W-2s via an amended return. This earns her a warning of an impending Section 6702 $5K chop, to which she replies with a photocopy of the amended return, earning a second Section 6702. IRS drops the second after the CDP hearing, per Kestin; see my blogpost “From the Serious to the Frivolous,” 8/29/19.

Judge Courtney D (“CD”) Jones spends a lot of time on the lead-in to Shelley’s CDP, but finds that IRS satisfied the Section 6751(b) Boss Hossery before telling Shelley she was under the gun for the Section 6702 chops. There’s discussion of the short-circuitry by and among 2 Cir, 9 Cir, and 11 Cir.

“We recognize that there is a split between the circuits as to whether written supervisory approval must be obtained before the IRS issues a formal communication of the penalty such as a notice of deficiency, Chai v. Commissioner, 851 F. 3d 190, 221 (2nd Cir. 2017), or merely before the assessment, Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1071 (9th Cir.  2022); Kroner v. Commissioner, No. 20-13902, 2020 WL 414034, at *12-13 (11th Cir. Sep. 13, 2022),  rev’g and remanding T.C. Memo. 2020-73. The Third Circuit does not appear to have taken a position on the issue. See United States v. Komlo, 802. Fed. Appx. 676 (3d. Cir. Jan. 29, 2020); But Cf. United States v. Weiner, No. 18CV16034, 2020 WL 4596926 (D. N.J. Aug. 11, 2020). Accordingly, we follow this Court’s approach in the instant case. See, e.g., Graev v. Commissioner, 149 T.C. 485 (2017), supplementing 147 T.C. 460 (2016).” Order, at p. 9, footnote 13.

Taishoff says 2 Cir got it right, and 9 Cir and 11 Cir misunderstand what “assessment” means in this context.

Judge CD Jones sorts out Shelley’s conflation of item 44 in Notice 2020-33 with item 44 in IRS’ electronic TXMODA system. “Mrs. Tempelman argues at length that Form 8278 and her TXMODA data shows that the frivolous return penalty was assessed against her using civil penalty argument 44, as listed in Notice 2010-33. Supra, p. 3. However, the internal Form 8278 and the internal electronic data (e.g., TXMODA data) used by the IRS do not reference public Notice 2010-33, rather they reference Internal Revenue Manual (IRM) Exhibit 25.25.10-1, which is the IRS’ own internal listing of the same designated frivolous positions found in Notice 2010-33. IRM argument code 44 applies when a taxpayer files “zero wages on a substitute form.” Mrs. Tempelman attached substitute Form 4852 to her amended return, and the form shows $0 of wages. IRM argument code 44 provides for the same substantive basis as listed frivolous position 1(e) in Notice 2010-33, and how the IRS chooses to internally refer to the designation is of no consequence.” Order, at p. 8 (Footnotes and citation omitted).

But at close of play, Judge CD Jones has the rule in this Shelley’s case. Play games, get chopped.

“…we have considerable latitude in determining when, and in what amount, to impose a penalty under section 6673 because these penalties serve to punish and deter the abuse of judicial resources. “The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate.’ Takaba v. Commissioner, 119 T.C. 285, 295 (2002).

“Though we will not impose a penalty under section 6673 upon Mrs. Tempelman in the instant case, we take this opportunity to sternly warn her that penalties, up to a maximum of $25,000, are very likely to be imposed upon her in any future cases before this Court if she advances similarly frivolous arguments again.” Order, at p. 10. (Citation omitted.)