Back in 2007, Peter Hendrickson wrote a book titled Cracking the Code: The Fascinating Truth About Taxation in America. I haven’t read it, nor would I advise you to. Today, Judge Buch of the Tax Court demolished each and every argument in the book.
But I’m starting with the decision rather than the case itself. Steven Waltner challenged the IRS’s collection of a frivolous tax submissions penalty in Tax Court. He paid the IRS so that issue was moot. However, each side asked for sanctions on the other side (that being Mr. Waltner and the IRS) alleging misconduct.
Judge Buch notes,
This case has occupied an inordinate amount of the Court’s time. The Court could have disposed of the entire matter summarily by reference to Crain v. Commissioner or any number of other cases that stand for the proposition that we need not address frivolous arguments. [footnotes omitted]
Well, why does the decision go on for another 40 pages?
The Court has taken the time, however, to address those arguments because Mr. Waltner appears to be perpetuating frivolous positions that have been promoted and encouraged by Peter Hendrickson’s book Cracking the Code: The Fascinating Truth About Taxation in America (2007). Indeed, it appears not merely that Mr. Waltner’s positions are predicated on that book but that his returns and return information have been used to promote the frivolous arguments contained in that book. Consequently, a written opinion is warranted.
It’s not that the IRS didn’t err; they did. It’s what the IRS counsel did after making mistakes that contrasts with what the petitioner (Mr. Waltner) did. I’ll let Judge Buch take it:
Respondent’s counsel sought discovery that went beyond the scope ofthis case, and the Court issued orders excusing Mr. Waltner from responding to those requests. Likewise, respondent’s counsel was evasive in answering some of Mr. Waltner’s discovery requests, and the Court ordered respondent to supplement those responses. In each instance, once the Court ruled, respondent’s counsel cured the defect, through either supplementing his responses or accepting the Court’s determinations that his requests were improper.
Mr. Waltner sought to avoid answering every discovery request.
There’s more, though, a lot more. It appears that the petitioner’s aided a Web site used to market Cracking the Code. The Court then takes 30 pages to demolish the arguments in the book. Here are some additional excerpts of Judge Buch’s opinion:
Cracking the Code is written by Peter Eric Hendrickson. Nowhere in his book does Mr. Hendrickson set forth his credentials, other than on the back cover where he vaguely identifies himself as “researcher, analyst and scholar”. Add to that felon and serial tax evader.
Well, you have a lot of free time to research when you’re at ClubFed.
It is this passage that is quoted at the beginning of Cracking the Code. It is fitting because the book is largely an exercise in twisting the meaning of words into what the author wants them to mean, even if statutes, regulations, and case law define those words otherwise…
Having spent the immediately preceding chapter misinterpreting the word “including”, the author turns to the same Latin phrase discussed above and then proceeds to misinterpret it…
This chapter provides an example of how one illogical conclusion can be used to bolster another…
Turning to the subject of withholding, the author sets forth one of his fundamental, and fundamentally incorrect, positions regarding tax reporting. Having erroneously concluded that the term “employee” includes only government employees (and a few selected others), the author concludes that “this kind of withholding only applies to the pay of federal government workers”…
The positions advocated in Cracking the Code have routinely been rejected, with its author being criminally convicted and its adherents being sanctioned.
I could go on, but I think you get the point; I’m certain Mr. Waltner gets the point. While he only received a $2,500 sanction, he has other Tax Court cases in the pipeline. I also suspect that others are using arguments in Cracking the Code. They may want to rethink that. As Judge Buch stated, “And future litigants are on notice that the positions advanced in Cracking the Code are frivolous and relying on those positions may result in sanctions.”