On February 7, 2022, the Tax Court issued a Memorandum Opinion in the case of Williams v. Commissioner (T.C. Memo. 2022-7). The primary issues presented in Williams were (i) whether the disallowance of the petitioner’s deductions was warranted; and (ii) whether frivolous position penalty was warranted.
A Brief Background of Williams v. Commissioner
The IRS issued a notice of deficiency, in which it disallowed certain deductions claimed by the petitioner (Larry) in connection with his business. As Judge Urda observes, “[r]ather than attempting to demonstrate errors by the IRS in its determination, [Larry] has chosen to focus his challenge on frivolous and groundless arguments.”
Larry appeared pro se.
The IRS was represented by Mike Foster and Dan Munce, two of the best General Counsel attorneys I have ever met.
Needless to say, this wasn’t a fair fight – even before the frivolity entered into the equation.
The Frivolity in Williams v. Commissioner
What arguments were raised, you might ask? Well, Judge Urda sort of buried the lede, but here you are:
Mr. Williams instead raises assorted frivolous or groundless arguments that have been oft rejected by this Court, including among other things, that the U.S. Government went bankrupt and no longer exists, that the Internal Revenue Code does not constitute “law,” and that he is not a U.S. citizen.
The Tax Court did not deign to “painstakingly address his assertions with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.”
Bummer. I was about to get out the popcorn.
The Penalties – Failure to File
IRC § 6651(a)(1) imposes an addition to tax for the failure to file a required return timely unless the taxpayer can establish that such failure was due to “reasonable cause and not due to willful neglect.” The IRS bears the initial burden of production to introduce evidence that the return was filed late. The taxpayer then bears the burden of proving that the late filing was due to reasonable cause and not willful neglect.
The facts before the Tax Court establish that Ol’ Larry was required to file a return for 2016. The IRS met its initial burden in this case by introducing Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for Larry’s 2016 tax year, which showed that he filed his 2016 tax return a skosh late (3-1/2 months after the extended deadline to do so, technically).
The burden thus shifted to Larry to prove that the untimely filing was due to reasonable cause and not willful neglect. Mr. Williams did not, technically, offer any “explanation” or “evidence” that would support such a conclusion. As Larry failed to meet his burden, the Tax Court held that he was liable for the failure to file penalty under IRC § 6651(a)(1).
The Penalties – Frivolity
The IRS further sought a penalty against Larry pursuant to IRC § 6673(a)(1)(B), which provides the Tax Court with the discretion to require a taxpayer to pay to the Government a penalty of up to $25,000, if and when he or she takes a “frivolous or groundless position” before the Tax Court. Although Larry repeatedly advanced frivolous and groundless positions in this case, Judge Urda (as most Tax Court judges would have, in his defense) declined to impose an IRC § 6673 penalty…at this time.
Admonishing, Larry, the Tax Court warned that it was “unlikely to be lenient going forward should he choose again to press frivolous or groundless arguments like the ones he relied upon in this case.”
Stated differently, you get a free pass to be a one-time loon in front of the Tax Court. The Tax Court judges are exceedingly forgiving of said loonage, but even their patience runs thin after a while.
(T.C. Memo. 2022-7) Williams v. Commissioner
- Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); see also Wnuck v. Commissioner, 136 T.C. 498, 512 (2011). ↑
- United States v. Boyle, 469 U.S. 241, 243 (1985). ↑
- See IRC § 7491(c). ↑
- Boyle, 469 U.S. at 245; Higbee v. Commissioner, 116 T.C. 438, 447 (2001). ↑
- See Murray v. Commissioner, T.C. Memo. 2017-67, at *11. ↑
- See Rule 142(a); Higbee, 116 T.C. at 446-47. ↑
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