On June 15, 2020, the Tax Court issued a Memorandum Opinion in the case of Schwager v. Commissioner (T.C. Memo. 2020-83). The issue before the court in Schwager was whether the IRS abused its discretion in dismissing as frivolous the petitioner’s arguments made during the CPD hearing and sustaining the proposed levy action.
The petitioner, Fritz Schwager, failed to file his income tax returns from 2009 through 2012. The IRS prepared substitutes for returns (SFRs) pursuant to its authority under IRC § 6020(b), and it sent Fritz a notice of deficiency for each year, consistent with the SFRs. Fritz weinte schlecht (cried foul) and filed a petitioner filed a petitioner with regard to 2012 but failed to prosecute. The case as dismissed, and the IRS assessed the deficiencies and additions to tax under IRC § 6651(a)(1) (failure to file); IRC § 6651(a)(2) (failure to pay); and IRC § 6654 (failure to pay estimated tax). The IRS issued Fritz a Notice of Intent to Levy and Notice of Right to Hearing.
Fritz was angefressen (pissed-off) at the IRS and responded to the notice with a letter that “questioned the validity” of the levy notice. As the Tax Court notes, in support of his validity argument, Fritz “referenced a panoply of statutes and cases addressing issues including the Paperwork Reduction Act, the proper recording of tax assessments, the IRS’ supposed burden of proof, fraud, the ultra vires doctrine, and delegation of authority.” Judge Urda then simply states in the next breath that “the IRS treated this [batshit craziness] as a timely request for a CDP appeal.”*
*Author’s Note: I have not read enough of Judge Urda’s opinions yet to know for sure whether he was purposefully being funny here, but the juxtaposition between the absolute passion and anger of Fritz and the emotionless IRS reaction made me laugh. I should note that Judge Urda is a self-avowed (or avowed-enough to be listed on Wikipedia) classicist, having received his B.A. in classics from Notre Dame, summa cum laude; consequently, it should come as no surprise that I obviously assume that he has the utmost in discretion, having chosen such a noble field of study. After all, there are so few of us (Latin nerds) left, that we must stick together.
Not to be outdone by himself, Fritz (or one of his personalities) sent another letter to the IRS questioning the need for a CDP hearing, at all, because, after all, Fritz was not a “taxable person” under the Code, Appeals had no jurisdiction over him, and Fritz could support these “positions” with discovery and “reference to ‘Positive Laws.’” Fritz, having now found a willing pen-pal with Appeals, “invited further communication by letter,” although he advised Appeals to “comply with Paperwork Reduction Act with appropriate OMB number to explicitly express that I am that statutory person to legally comply therewith.” Don’t worry, it didn’t make any sense to Appeals or the Tax Court either.
God bless her, but the SO took the bait and continued to correspond with Fritz, who, throughout the course of additional letters “repeated the arguments that he had made in his previous missives” but also now “accused the settlement officer of prejudging the case” before Fritz had the ability to obtain documents that would “identify his true natural status as opposed to statutory person.” Something happened, perhaps medication, but Fritz went radio silent for a month, and Appeals took the opportunity to close Fritz’s case. Upon receiving the notice of determination, Fritz was struck with an extreme wave of weltschmerz (and something tells me that Appeals felt its share of schadenfreude).
Fritz Raises His Issues at Trial
Apparently, what Fritz was trying to convey in his letters, was that, inter alia, as a citizen of the State of Michigan he is not a “taxpayer” for purposes of the Code and that the IRS violated the Paperwork Reduction Act. The Tax Court calmly, ever so calmly, points out that these (likely?) “arguments” go to Fritz’s underlying liability, which was not at issue, having not been raised in the CDP hearing. But even if they weren’t, the Tax Court continues, take your crazy and go home, Fritz.
The Hammer of Urda Comes Down on the Crazy German
What makes me so happy about Judge Urda’s opinion is not that he calls out Fritz’s “arguments” for what they are, frivolousness at its apogee, but that he doesn’t stop there. He could have summarily struck the arguments, cited to a single case, the general holding of which was “the tax court won’t entertain frivolous arguments,” and moved on, no one the wiser. Buy would Demosthenes have just cited a single case? Would Cicero have just “moved on?” Surely not, and neither, dear reader, does Judge Urda, the classicist.
With respect to Fritz’s argument that, as a citizen of the State of Michigan, he was not a taxpayer subject to the Code, Judge Urda dug up a Sixth Circuit case from 1994, in which the taxpayer – a citizen of the State of Michigan – claimed that because of such state citizenship, he was not subject to federal income tax laws. United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994) (holding that Michigan-citizen-argument was “completely without merit and patently frivolous”). You can’t get much more on the nose than that. See also Wagenknecht v. Commissioner, T.C. Memo. 2008-288, *1-*2 (cataloging a list of “frivolous and groundless” arguments, including narrow readings of the statutory terms “person,” “individual,” and “taxpayer”).
With regard to Fritz’s argument that a violation of the Paperwork Reduction Act somehow created an actionable right in a taxpayer to contest, or even avoid, a deficiency, Judge Urda delivers a stinging, tactical, direct hit. The Ninth Circuit, in United States v. Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991), held that Congress enacted the Paperwork Reduction Act to keep agencies, including the IRS, from “deluging the public with needless paperwork;” however, the court was quick to explain that Congress in no way intended, nor did the Act in any way create “a loophole in the tax code” whereby a taxpayer could avoid taxes. See also Wheeler v. Commissioner, 127 T.C. 200, 213 (2006) (deeming a similar argument under the Paperwork Reduction Act frivolous), aff’d, 521 F.3d 1289 (10th Cir. 2008).
Judge Urda Closes the Library on Fritz
Having found cases directly on point with every single detail of Fritz’s arguments, but not being argumentative of contentious, Judge Urda ends with a brief paragraph that might have well asked “When, O Catiline, do you mean to cease abusing our patience?” See Marcus Tullius Cicero, First Catilinarian Oration (In Catalinam). Instead, the Tax Court opinion ends in beautiful preterition.* The Tax Court declares that it “will not painstakingly document every groundless argument” advanced by Fritz, nor will the Tax Court “dignify them with reasoned analysis.” Why, not, you may ask? Because, according to the Tax Court, “doing so might be misinterpreted as suggesting that they have some colorable merit. They do not.” See Wnuck v. Commissioner, 136 T.C. 498, 510-513 (2011) (explaining that addressing frivolous arguments wastes time and resources and delays the assessment of tax); Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); Grunsted v. Commissioner, 136 T.C. 455, 460 (2011).
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*Author’s Note: The rhetorical device of preterition (also known as paralipsis, cataphasis, antihrasis, and parasiopesis) is a personal favorite of mine, and it is displayed in the Tax Court’s rather passive aggressive language here. “If I weren’t more of a gentleman, I would call you a lying, two-faced, wolf-whelped, son-of-a-whore, but I won’t, because, as I said, I am a gentleman.” That’s right, dear readers, there are fancy Latin and Greek words for being passive aggressive.