The Third Time Wasn’t the Charm

The cliche goes, if you don’t succeed at first, try, try again. Of course, where you and I would never go, the Bozo side of the tax world loves to venture. The Tax Court today got the chance to look at a two-time Tax Court loser. Would his third chance at Tax Court give a better result?

The first case was for the 1991 tax year. I’ll let the Tax Court describe the issue (the quote is from today’s ruling):

The principal issue arose from a dispute between petitioner and his brokerage house, which eventually liquidated his account by selling the securities in it. Petitioner failed to report on his 1991 tax return the capital gain realized on the sale of these securities, contending that his brokerage house had engaged in a “tortious conversion” of his account and that it, rather than he, was taxable on gains realized when the stock was sold. Golub I, 78 T.C.M. at 373. We determined that petitioner in effect was attempting to relitigate in this Court securities law claims that were subject to an arbitration proceeding in which he had refused to participate. See id. at 373, 378. We concluded that petitioner “received substantial amounts of income in 1991,” that he “failed to pay tax on those amounts,” and that “[h]is defense to that failure is frivolous and wholly without merit.” Id. at 378.

He lost, and also had to pay a $10,000 penalty for taking a frivolous position at Tax Court.

The second case involved an appeal of a Collections Due Process (CDP) hearing; the IRS was attempting to collect the tax debt from 1991.

The IRS Appeals Office sustained the tax lien, and we upheld that determination…We concluded that the IRS had followed all appropriate procedures in filing the notice of tax lien, and we specifically rejected petitioner’s argument that the IRS had “improperly offset his income tax refund for tax year 2004 against his outstanding tax liability for tax year 1991.” As we explained, section 6402 of the Code explicitly authorizes the IRS “to credit an overpayment to offset an outstanding income tax liability.”

On to the present. Here, the petitioner was having a problem with the IRS regarding 2008. He thought there was an overpayment of $24,627 (so he should receive a refund of that amount); the IRS thought he owed $17,373. The difference was $42,000 that allegedly was, “‘2008 estimated tax payments and amount applied from 2007 return.'” The matter went to another CDP hearing. I’ll let the Court describe that hearing:

Although petitioner’s position at the hearing was not entirely clear, he appeared to argue (once again) that the Tax Court decision sustaining deficiencies and penalties for 1991 was unconstitutional and should be vacated; that the IRS’ application to his 1991 tax liability of overpayments and credits from other tax years was thus erroneous; and that these overpayments and credits should have been applied instead to his tax liability for 2008. Petitioner failed to provide any evidence at the hearing that he had made quarterly estimated tax payments for 2008 or that the IRS had misapplied any overpayments or credits.

He lost at the CDP and appealed to Tax Court.

When you go to Tax Court, you need proof–evidence that the IRS erred. This could be arguing that the IRS is interpreting some part of the Tax Code or a regulation incorrectly. It could be that you have evidence showing payments made that the IRS refused to honor. It could be that the IRS’s position on a payment plan (installment agreement) or an offer in compromise is unreasonable. All those are good arguments at Tax Court. However:

We operate at a disadvantage in assessing petitioner’s arguments because the summary judgment papers he filed, some 90 pages in toto, are devoted almost exclusively to rehashing arguments about his 1991 tax liability and the legitimacy of this Court’s (long since final) decision sustaining the IRS determinations of deficiencies and penalties for that year. To discern from petitioner’s papers anything relevant to the actual controversy before us is to search for needles in a haystack. However, his position appears grounded on an assertion that the IRS improperly failed to credit his 2008 account with $42,000 in payments comprising “2008 estimated tax payments and amount applied from 2007 return,” as claimed on his 2008 Form 1040, line 63. Petitioner submitted no evidence, to the IRS or this Court, that he made any quarterly estimated tax payments toward his 2008 tax liability.

The Court goes on to note that the IRS is specifically authorized by both statute (the Tax Code) and regulations to offset overpayments and apply them to outstanding tax.

…[P]etitioner’s argument reduces to the contention that he has no 1991 tax liability because our decision sustaining the 1991 deficiencies and penalties was unconstitutional. This argument is frivolous. We accordingly grant summary judgment for respondent.

The Court then looked at whether the petitioner should get another penalty for being frivolous. Not only had he been sanctioned once previously by the Tax Court, “…[T]wo U.S. District Courts and the Court of Appeals for the Second Circuit had previously imposed sanctions against petitioner, prohibiting him from using their resources to advance frivolous attacks against his former brokerage house and other securities defendants.”

I think you know where this is headed:

Petitioner’s filings in this summary judgment proceeding consist mainly of incoherent verbiage that he has cut and pasted from previous filings in this and other courts…At the end of the day, petitioner’s position is that he has no tax liability for 1991 because the IRS and the judicial system have conspired to deprive him of his constitutional rights. That is a frivolous position that has been rejected repeatedly, and sanctions are once again appropriate.

We take petitioner at his word when he avers that he “will never cease” litigating his 1991 tax liability. He should understand, however, that this persistence will come at an ever-increasing price. We therefore impose a penalty in the amount of $15,000 under section 6673(a)(1).

I should point out (for the record) that not only did the IRS make a motion for summary judgment (which was granted), the petitioner had also done so. “We have also considered petitioner’s cross-motion for summary judgment. We find it wholly without merit and entirely frivolous….”

Case: Golub v. Commissioner, T.C. Memo 2013-196

5 Responses to “The Third Time Wasn’t the Charm”

  1. […] Russ Fox is interviewed.  “I needed to either add an employee or a partner, but the tax and regulatory climate in California made that unprofitable. So I moved—both myself and my business—to Nevada.”  He also posts on a three time Tax Court loser:  The Third Time Wasn’t the Charm […]

  2. John Sheridan says:

    I looked up this case, and found the following:

    “Despite repeated invitations by respondent and by the Court to prove his basis in the stock sold, petitioner has failed to do so.
    He has left the Court with no choice but to hold him liable on all the proceeds from the sale of the stock.
    Petitioner thus may end up paying more in capital gains taxes than he would have if he had provided evidence of basis. But if so, he has only himself to blame. (Golub v. Commissioner, 78″ TCM 367 [1999].)

    So… They taxed him on the entire amount of income from the sale, which amounts to assuming that he acquired all his stock at zero cost. I know that might be within the law, but nevertheless I don’t consider it acceptable. In fact, I consider it reprehensible.

    They could have, for each stock, taken its lowest price over the time interval that his brokerage account was active (and they easily could obtain this time interval from the brokerage) and used that as the basis price. But no, they won’t even do this minimal amount of work. Clearly, they are just interested in milking this guy for all the money they can. No wonder he’s upset. Most people would be.

    • Russ says:

      It is a fundamental principle of tax law that you need to have your evidence; it could be that the stock is a gift at zero basis (it does happen). While the decision seems poor (I do agree that there was most likely some basis), tax is the one area of law where the burden of proof is on you. You must show the evidence. He had none, and most live with that result.

  3. John Sheridan says:

    So… you decided that my last comment wasn’t worth allowing. That’s fine, it’s your blog, you can do what you like. I just find it a little funny that you allow comments, as if you are interested in discussion, then you disallow what few comments you get. What’s the point? You should just disallow comments altogether. At least I now know it’s not worth wasting my time posting here any more.

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