On October 4, 2021, the Tax Court issued a Memorandum Opinion in the case of Crim v. Commissioner (T.C. Memo. 2021-117). The primary issue presented in Crim v. Commissioner was whether the penalties assessed against the petitioner for promotion of abusive tax shelters under IRC § 6700(a) were assessed the period of limitations on assessment had expired.
Author’s Note: If you read nothing else, I beg you to read the Post Script, where I describe the esteemed (and in-no-way-ironical) authorship of John Michael Crim…
Initial Observation in Crim v. Commissioner
Although not addressed directly in the Tax Court’s opinion of Crim v. Commissioner, one has to wonder if the petitioner’s last name (Crim) was short for what he was (a convicted tax criminal). We’re just saying… For that matter, given Mr. Crim’s weighty literary provenance, it is, perhaps, the most fortunate given nom-de-plume in history.
Background to Petitioners’ Misdeeds
During 1999-2003, John Michael Crim (his LinkedIn profile offering “Remote Paralegal Services” in Malta. Seriously.) promoted a tax shelter scheme involving domestic and offshore trusts. He did so by marketing, selling, and servicing “trust packages.” These packages instructed clients to engage in sham paper transactions and falsely represented that these transactions would enable clients to eliminate their Federal income tax liabilities.
The petitioner was indicted for conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and for a corrupt endeavor to interfere with the administration of the internal revenue laws, in violation of IRC § 7212(a). In 2008 he was convicted of these crimes and sentenced to prison, where he remained until his release in 2014. See United States v. Crim, 451 F. App’x 196 (3d Cir. 2011).
Background to the Assessment of Promoter Penalties
By letter dated June 16, 2010, the IRS notified petitioner that it proposed to assess preparer penalties under IRC § 6700(a) for the activities in which he had engaged. Your fearless editors at Briefly Taxing wrote a comprehensive article on preparer penalties, and there have been a fair share of penalized preparers throughout our cases, too. IRC § 6700(a)(1) lists, as activities subject to penalty, organizing or assisting in the organization of an entity, investment plan, or arrangement, and participating (directly or indirectly) in the sale of any interest in such an entity, plan, or arrangement. The IRS determined that the petitioner, in promoting his tax shelter scheme to multiple clients, had engaged in numerous “activities” within the scope of IRC § 6700(a)(1).
Receipt and Response and No Response
The IRS mailed the June 16, 2010, letter to the petitioner at the prison in which he was incarcerated. The letter was addressed to “John Michael Crim, Inmate #04554-063, CI Taft Correctional Institution, P.O. Box 7001, Taft, CA 93268.” The petitioner received the letter and responded to it 12 days later, showing as his return address the address to which the IRS had sent its letter.
He denied that he “ever promoted any kind of tax shelters or tax related schemes” and denied liability for the IRC § 6700 penalties. Not persuaded (even a little bit), on July 26, 2010, the IRS assessed the penalties it had proposed.
In November 2011, in an effort to collect the penalties, the IRS filed a notice of Federal tax lien (NFTL) with the county recorder in Bakersfield, California. Shortly thereafter, the IRS mailed the petitioner a Letter 3172 (Notice of Federal Tax Lien Filing and Your Right to a Hearing). The IRS addressed this letter to the petitioner at the same address at which it had previously communicated with him successfully. The petitioner did not respond to the lien notice and did not request a CDP hearing with respect to it.
After filing the NFTL the IRS paused further collection action due to the petitioner’s incarceration, placing his account temporarily into “currently not collectible” status. His account was reactivated after his 2014 release from prison. In March 2017, the IRS sent him, at his then address in California, a Letter 1058 (Notice of Intent to Levy and Your Right to a Hearing), covering the IRC § 6700 penalties. The petitioner’s representative timely requested a CDP hearing on his behalf, representing that the petitioner had since moved to the island of Malta. In the hearing request petitioner checked the box, “I Cannot Pay Balance,” and expressed interest in an installment agreement or offer-in-compromise.
Challenging the Underlying Liabilities in a Roundabout Way
At no point during the CDP proceeding did the petitioner’s attorney, Joseph A. DiRuzzo, III, dispute that the petitioner had engaged in activities penalizable under IRC § 6700. First, he argued that no prior supervisory approval had been obtained under IRC § 6751(b)(1). (We’ve written at length about prior supervisory approval of penalties, including in this article and in these cases). This did not pan out, as proof of approval was provided by the IRS.
Next he argued that the penalties had been assessed and/or collected after the relevant period of limitations had expired.
The IRS countered that the petitioner could not challenge his underlying liability for the penalties because he had a prior opportunity to do so—when the lien notice was issued to him in 2011—but neglected to take advantage of that opportunity. In response the petitioner’s asserted that “[his] client did not receive the lien notice in November 2011 because [his[ client was incarcerated.” The SO subsequently confirmed that (1) the lien notice had indeed been addressed to petitioner at his place of incarceration, and (2) the address to which the notice had been mailed was the correct address for the Taft Correctional Institution.
Mr. Crim’s Attorney Takes a Sharp Left into to Crazytown
Finally, the petitioner’s attorney “demanded confirmation that the appeals officer that will be making the determination in this case has been appointed in a manner consistent with the Appointments Clause of the U.S. Constitution.”
Understandably, Appeals questioned how the Appointments Clause affects a CDP hearing and asked the petitioner’s atty “to explain this issue,” because it “sounded” like crazy talk. The petitioner’s attorney, confident as always, replied that an IRS official “cannot hear [his] client’s CDP” unless that person was appointed “in a manner that is consistent with the Appointments Clause.”
On July 25, 2017, the IRS issued the petitioner a notice of determination sustaining the collection action. Petitioner timely petitioned this Court on August 4, 2017.
Now Things Go (Even More) Sideways
Three days after filing his client’s petition, the petitioner’s attorney “filed a motion to disqualify all Tax Court Judges and to declare unconstitutional IRC § 7443(f), which permits the President to remove a Judge of this Court ‘for inefficiency, neglect of duty, or malfeasance in office.’”
The Tax Court denied the motion.
The petitioner’s attorney filed a motion to remand, “contending that the SO who conducted the CDP hearing was an improperly appointed ‘Officer of the United States’ and further demanding that the case be sent back to the Appeals Office ‘for a hearing before an IRS employee appointed in a manner consistent with the Constitution.’”
The Tax Court denied this motion, too.
Holding in Crim v. Commissioner, in Sum
The Tax Court held that notice was proper, that the petitioner had a prior opportunity to dispute his underlying tax liabilities, that the limitations period had not run on assessment or collection, and that Appeals did not abuse its discretion.
The opinion was conspicuously silent on the Constitutional claim on account of, you know, it’s patent absurdity.
(T.C. Memo. 2021-117) Crim v. Commissioner
Post Script
Let it not be said that your fearless editors do not perform their due diligence. Not only is Mr. Krim offering quasi-legal services on LinkedIn (from Malta), Mr. Crim also appears to be quite the author, having written
- A memoir, From Here to Malta, which received one five star review on Goodreads.com (thanks, Mama Crim);
- The practical tome I’ve Been Arrested, Now What? A Simple Look at What to Expect; and (lest we forget)
- The ever popular How-To Guide Just What the Court Ordered: A Research Tool for the Aggressive Litigant, Prisoner Style
Given Mr. Crim’s track record with “success” in the Courts, this last Tax Court case being yet another stepping stone on his journey from U.S. criminal to international tax cheat, I am a bit skeptical of his advice.
If nothing else, Mr. Crim is proof that you can take the jailhouse lawyer out of jail, but you can’t make him leave the crazy behind (or the shiv he fashioned from an old toothbrush).
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