We constantly hear "if you don't succeed at first, try, try again." Of course, if you're a Bozo taxpayer, that should be changed to, "If you fail once, and you fail again, you're probably going to fail a third time."
Take the case of John Green. Mr. Green is in Tax Court for the third time. Back in 1993, he attempted (without success) to escape paying taxes on money he embezzled because he's a Native American. As I've written before, illegal income is just as taxable as legal income. And Native Americans must pay taxes, too. Next, he fought a deficiency on his 2001 tax return claiming it wasn't based on his 2001 return. Well, he never filed a 2001 tax return; the deficiency and the penalties were sustained. Today he reappears: "In this case, he challenges with hydraheaded interpretations of settled law the deficiencies which the Commissioner determined for his 1997, 1999, and 2000 tax years."
I'll start with Mr. Green's arguments:
"Green now admits that his status as a tribal Potawatomi doesn’t relieve him of the obligation to pay income taxes. He does, however, argue that his “treaty-based return position disclosures” (we’ll call them the “disclosure” documents) were tax returns and so triggered the running of the statute of limitations. If that doesn’t work, he argues that the Commissioner is collaterally estopped from raising the issue of whether his disability-retirement pay is taxable. If that fails, he claims that his disability-retirement pay is nontaxable income under sections 104 and 105. If it isn’t, then he claims that the Commissioner should have included the lump-sum payments in his 1998 deficiency, not his 1997 deficiency. And, finally, he argues against the imposition of any penalties for any of the years at issue."
The first issue is whether or not Mr. Green filed returns. The IRS contended that he didn't file anything; however, Mr. Green had certified mail receipts. "Of course, this establishes only that Green filed his “disclosure” documents with the IRS Service Centers, and not that the documents were sufficient as tax returns to begin the running of the statute of limitations."
However, the Court finds that Mr. Green's documents weren't returns, that they weren't signed under the full penalty of perjury (Mr. Green modified the language), and he didn't provide enough data for the IRS to calculate his tax liability. There's a fourth test, but the Court notes, "We are leery of finding ourselves in this titanomachy. And we can scurry away from the dispute till another day. Green submitted self-made documents that did not objectively permit the assessment of his tax liability...Enough--Green wasn’t being honest or reasonable" The Court found that there is no statute of limitations because the returns weren't filed.
Next, Mr. Green uses a collateral estoppel argument. "We’re not biting--the test remains whether the issue was actually litigated and necessary to the judgment. And whether tagged “abandonment” or “concession”, the Commissioner’s decision for the 1993 tax year doesn’t estop him from contesting the exclusion of Green’s disability-retirement pay from his taxable income in this case."
Next, Mr. Green argues that his disability pay is exempt from tax. He argues that sections 104 or 105 exempt his disability pay. You'll have to read the case to see that each of his arguments is demolished by the Court—his disability income is taxable.
Finally, Mr. Green argues that the doctrine of "Constructive Receipt" means that the income is not taxable to him in the years in dispute. Mr. Green was to receive $1 of $93,905 of disability pay; the other $93,904 was sent to pay child support and back taxes. The question the Court had to decide was when does constructive receipt occur?
"That occurred no later than December 16, 1997 in the OPM records--by that time, Green had filed the required paperwork and OPM recognized him as entitled to the money and reinstated him as eligible for future payments. It was Green himself who sent the court-ordered garnishment instructions to OPM, informing the agency that it should withhold part of his retroactive disability-retirement pay to satisfy his child support obligations."
There is one last issue for the Court to decide:
"We therefore hold in this case that the Commissioner is right to allocate $93,304 to Green’s 1997 income. That leaves a bit of a puzzle as to the remaining $1...That suggests there might be another $1 check left over from the lumpsum payment. If such a check had also been sent to Green in January 1998, its taxability would be governed by the general rule that a check is treated as income when received. Kahler v. Commissioner, 18 T.C. 31, 34-35 (1952). But because we have no clear evidence as to when he received that possible $1 payment, we find that Green fails to meet his burden of proof that the $1 should be taxed in 1998, so he is taxable on $93,305 and not just $93,304, in 1997."
So the third time definitely wasn't the charm for Mr. Green. The Court ruled that he owes the taxes and penalties assessed.
Case: Green v. Commissioner, T.C. Memo 2008-130
