Stephen R. Kelley and Isabelle Kelley, T. C. Memo. 2023-126, filed 10/23/23, have a bunch of additions to the defiers’ toolkit. Oil geologists by trade, they drill down through the AUR system to find want of Boss Hossery; they scoop out the Classification Act of 1923, ch. 265, 42 Stat. 1488, the Revenue Act of 1938, ch. 289, § 22(a), 52 Stat. 447, 457, and Individual Income Tax Collection Bill of 1943, H.R. 2218, 78th Cong. (an amended version of which was enacted as the Current Tax Payment Act of 1943, ch. 120, 57 Stat. 126), to escape tax on “compensation” and of course try the old FICA Title B “includes” argument.

I’ll leave it to you to follow Judge Elizabeth A. (“Tex”) Copeland as she brush hogs her way through this “significant amount of research into current and historical tax law.” T. C. Memo. 2023-126, at p. 17. Except of course Steve and Isabelle lose.

IRS miscues on the nonfiling chops, first asserting substantial understatement (Section 6662(b)(2)) in the SNOD, but withdrawing that in the answer because of want of Boss Hossery. But the answer asserted accuracy/negligence/disregard (Section 6662(a), b(1)), and was signed off by both examiner and immediate supervisor. Steve and Isabelle claim that wasn’t the first assertion of a penalty. All penalties, they say, are part of one overarching penalty; first in time covers all.

“The Kelleys’ interpretation would give carte blanche to IRS officials to assert additional causes under section 6662(b) after a supervisor approved a penalty under one or more other causes. For instance, an IRS revenue agent might get approval to penalize a taxpayer by reason of section 6662(b)(1) (negligence or disregard of rules or regulations) but, upon receiving convincing rebuttal from the taxpayer, assert a penalty by reason of section 6662(b)(3) (substantial valuation misstatement)—perhaps even enhanced to a 40% penalty for gross valuation misstatements under section 6662(h). If the Kelleys are correct, then the revenue agent would not need further supervisory approval for the second penalty assertion, because the second penalty would be the ‘same’ as the first (approved) penalty.” T. C. Memo. 2023-126, at p. 9. This would undercut Congress’ policy that penalties were not to be used as bargaining chips.

I expect we’ll see variations on these themes in future.