T.C. Mem o. 2 01 4- 13 3

UNITED STAT ES TAX COURT

STEVEN T . WALTNER AND SARAH V. W ALTNER, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 17 29 -1 3. Fi le d J ul y 3, 2 01 4.

Don al d W. W al li s, fo r pe ti ti on ers . Mat th ew A. Hou ts m a an d M ic ha el W . Llo y d, fo r res po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION MARVEL, Ju dg e: Res po nd en t d et erm in eda de fic ie nc y inpe ti ti on ers ’ 20 08 Fed eral in co m e ta x o f $8 ,80 1 a ndanaccu racy-rela te d p en al ty und er s ect io n- 2 -

[* 2] 66 62 (a) o f $1 ,76 0. Afterth e p art ie s ra is edad di ti on al is su es inth e p le ad in gs , 1 th e is su es forde ci si on are: (1) whet he r res po nd en t i ss ue d t he no ti ce o f de fic ie nc y be fo re the pe rio d o f li m it at io ns on ass es sm en t ex pi red ; (2 ) if so , whet he r pe ti ti on ers fai le d t o re po rt wa ge in co m e fo r 20 08 ; (3 ) whe th er p et it io ne rs fai le d t o rep ort i nc om e fro m

th e sa le or e xc ha ng e o f pr op erty for20 08 ; (4 ) whe th er pe ti ti on ers are l iabl e fo r anaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o r, al te rn at iv el y , an a dd it io n t o t ax un de r se ct io n 6 65 1( a)(1 ) fo r 20 08 ; (5 ) whe th er pe ti ti on ers are l iabl e fo r a p en al ty und er s ect io n 6 67 3( a)(1 ) fo r m ai nt ai ni ng fri vo lo us or g ro un dl es s p os it io ns inth is Co urt; an d (6 ) whe th er p et it io ne rs ’
co un se l s ho ul d b e requi redto pa y res po nd en t’s ex ces si ve li ti ga ti on co st s u nd er se ct io n 6 67 3( a)(2 ) orbe san ct io ne d u nd er Ru le 33 (b ). FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s i s i nc or

po rat edhe rei n b y

th is refer en ce. Whenth ey pe ti ti on edth is Co urt, St ev enT. W al tn er re si de d i n C al ifo rn iaan d S arah V. W al tn er re si de d i n Ari zo na .

Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de (Co de ), as am en de d a ndineffe ctfor th e y ear i n i ss ue , andall Ru le refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e. So m e m on et ary am ount s h av e b eenrou nd edto th e n eare stdo ll ar.- 3 -

[* 3] I. Mr. Waltne r’s 20 08 Em pl oym en t In co m e Dur in g 2 00 8 M r. W al tn er was anem pl oyee of TEKsy st em s, In c. (TEKsy st em s) , Sph eri on Atl an ti c Ent erp ris es , LLC (Sph eri on Atl an ti c), an d P ero t Sy st em s C or

p. (P ero t Syste m s) . Duri ng th aty ear TEKs y st em s, Sp he rio n At lant ic , an d P ero t Syste m s p ai d t o M r. W al tn er $ 33 ,55 9, $ 21 0, an d $ 41 ,95 7, re sp ect iv el y . II. Mr. Waltne r’s Ci ti gr oup Acc ou nt Dur in g 2 00 8 M r. W al tn er h adanin ve st m en t ac co un t wi th Cit ig ro up Glo ba l Marke ts , Inc . (Ci ti gr oup) . On May 16 , 20 08 , Mr. W al tn er s ol d s ha res ina m utua l fundth athe own edth ro ug h h is Cit ig ro up acco un t fo r $5 ,90 5, an d o n M ay 21 , 20 08 , he wi th dr ew th atam ou ntfro m hi s C it ig ro up acco un t. III. Pet it io ne rs ’ Purp orte d R eturn On Au gu st11 , 20 09 , pet it io ne rs fil eda pu rp orte d jo in t Fo rm 10 40 , U.S. In di vi du al Inc om e Tax Return, fo r 20 08 (20 08 return) . On th ei r 20 08 return pe ti ti on ers rep orte d IRA di st rib ut io ns of $ 22 ,66 1 a ndzero wage s o r ot he r in co m e. The y cla im eda stud en t l oa n i nt eres t d educ ti on of $ 73 8, l eav in g t he m with ad jus te d g ro ss in co m e o f $2 1,9 23 . After c la im in g i te m iz edde du ct io ns of $ 26 ,62 4
an d e xe m pt io ns of $ 7,0 00 , th ey

rep orte d t ax ab le in co m e an d t ot al tax of z ero . The y als o re po rte d i nc om e ta x wi th he ld , to ta l p aym en ts , andanov erp aym en t o f $1 0,6 79
.- 4 -

[* 4] Pet it io ne rs att ach edto th ei r 20 08 return t hr ee Fo rm s 4 85 2, Subs ti tu te for Fo rm W -2 , W ag e an d Tax Sta te m en t, o r Fo rm 10 99 -R, Dis tri bu ti on s Fr om Pen si on s, Annu it ie s, Re ti rem en t o r Pro fit -Sh ari ng Pla ns , IRAs, In su ran ce Co nt ract s, et c., co rres po nd in g t o F orm s W-2, Wage an d Tax Sta te m en t, tha t M r. W al tn er re cei ve d fr om

hi s emplo y ers in20 08 . On th e Fo rm 48 52 rel at in g t o h is
em pl oym en t wi th TEKsy st em s M r. W al tn er re po rte d wag es , ti ps , andot he r co m pe ns at io n o f zer o, Fe de ral in co m e ta x wi th he ldof $ 2,0 69 , Soc ia l Se cu rit y tax withh el d o f $2 ,08 1, an d M ed ic are t ax withh el d o f $4 87 . On th e Fo rm 48 52 rel at in g t o h is em

pl oym en t wi th Sp he rio n At lant ic Mr. Waltn er re po rte d wag es , ti ps , andot he r co m

pe ns at io n o f zer o, St at e in co m e ta x wi th he ldof $ 2, So ci al Secu rit y tax withh el d o f $1 3, an d M ed ic are t ax withh el d o f $3 . On th e Fo rm 48 52 rel at in g t o h is em

pl oym en t wi th Pero t Syste m s M r. W al tn er re po rte d wag es , ti ps , an d o th er co m

pe ns at io n o f zer o, Fe de ral in co m e ta x wi th he ldof $ 2,6 73 , Sta te in co m e ta x wi th he ldof $ 48 6, So ci al Secu rit y tax withh el d o f $2 ,60 1, an d Med ic are t ax withh el d o f $6 08 . On al l thr ee Fo rm s 4 85 2 M r. W al tn er s ta te d t ha t he de te rm in edth es e am ou nt s fr om “ [p ]erso na l kno wled ge an d re co rd s p ro vi de d b y th e co m pany lis te d a s ‘payer’” andth athe ha d m ad e n o e ffo rts to ob ta in co rrec t Fo rm s W-2 fro m

hi s emplo y ers .- 5 -

[* 5] Pet it io ne rs als o att ach edto th ei r 20 08 return ado cum en t p ur po rti ng to be a

“ co rrec ti ng Fo rm

10 99 -B” r el at in g t o the di st rib ut io ns Mr. Waltn er re cei ve d fr om hi s C it ig ro up acco un t i n 2 00 8. Onth e “ co rrec ti ng Fo rm 10 99 -B” h e rep orte d tha t he ha d re cei ve d g ro ss pro ceed s l es s co m m is si on s fr om

Cit ig ro up of z ero an d st at edth at“ [t]hi s co rrec ti ng Fo rm 10 99 -B i s s ub m it te d t o re bu t a d oc um en t kno wn to ha ve be ensubm it te d b y th e p arty id en ti fie d abo ve as ‘Pay er’ and‘ Bro ke r’ whi cherro ne ou sl y

all eg eda pa ym en t t o t he pa rty ide nt ifi edab ov e as ‘ St ev e T. W al tn er’ of ‘gro ss pro ceed s’ inco nn ect io n wi th a ‘trad e o r bu si ne ss .’ ” IV. Pet it io ne rs ’ Refu ndSu it Pet it io ne rs fil eda su itinth e U.S. Co urt o f Fed eral Cla im s, s eek in g t o reco ve r refu nd s o f al le ge dl y ov erp ai d F ed eral in co m e ta x fo r 20 03 -0 8. Se e W al tn er v . Uni te d S ta te s, 9 8 F ed . Cl. 7 37 , 73 9 (2 01 1) , aff’d, 6 79 F.3d13 29 (Fed
. Ci r. 20 12 ). The C ou rt o f Fed eral Cla im s d is m is se d p et it io ne rs ’ refu ndsu itwith
res pe ctto 20 04 -0 8 b ecau se ithe ldth atitlac ke d juris di ct io n. Se e id . at 7 61 . It
ex pl ai ne d a s fo ll ows : [P]lai nt iff s i n t hi s ca se di d n otsubm itsu ffi ci en t i nf orm at io n fo r ta x y ears 20 04 , 20 05 , 20 06 , 20 07 , and20 08 foran y of t he pl ai nt iff

s’ returns to be co ns id eredva li d t ax returns . For e achof t he tax y ears , th e p la in ti ffs cla im

zero intax li ab il ity , all eg e th atno wage s wer e rece iv edby pla in ti ffs , andall eg e th atth e am ou ntof d iv id en ds rece iv edeach y ear was zero . The p la in ti ffs di d n otpro vi de th e IRS with s uf fic ie ntin fo rm at io n fo r th e ta x years a t i ss ue , su chth atth e IRS- 6 -

[* 6] co ul d c al cu la te th ei r ta x l iabi li ty, an d t he refo re, the returns fil ed by the pl ai nt iff

s wer e n ei th er p ro pe r returns or p ro pe r cl ai m s fo r refu nd . As th e p la in ti ffs fai le d t o fi le pro pe rly com pl et ed , ti m el y returns foreach of t he tax y ears at i ss ue , th e co urt l ack s juris di ct io n fo r th e p la in ti ffs ’ cl ai m s fo r refu ndtax y ears 20 04 , 20 05 , 20 06 , 20 07 , an d 2 00 8. Id
. The U.S. Cou rt o f App eal s fo r th e Fed eral Cir cu itaffi rm edth e d is m is sa l o f pe ti ti on ers ’ refundsu it . See Waltn er, 6 79 F.3dat 1 33 4. Th e Co urt o f App eal s ex pl ai ne d a s fo ll ows :

W e ag ree * * * th ata fo rm th atco nt ai ns zero s i n p la ce o f any rep ortabl e in co m e d oe s n otco ns ti tu te a va li d t ax return; itis no t “pr op erl y ex ecu te d” forpu rp os es of § 30 1.6 40 2- 3( a)(5 )[, Pro ced . & Adm in . Reg s.,] anddo es no t m eetth e sp eci fic ity requi rem en ts im po se d b y § 3 01 .64 02 -2 (b )(1 )[, Pro ced . & Adm in . Reg s]. Here, ta xp ay ers subm it te d am en de d re tu rn s fo r 20 04 , 20 05 , and20 06 in whi chth ey

rep la cedth e in co m e th ey pre vi ou sl y

rep orte d, wh ic h was co ns is te ntwith t hi rd -p arty in fo rm at io n p ro vi de d t o t he IRS, wi th zero s an d i ns ert eda st rin g o f zero s i n t he ir 2 00 7 and20 08 tax returns th atdi rect ly con tra di ct edW -2 s an d o th er fo rm s s ub m it te d b y th ird pa rti es to th e IRS . The t ax pa y ers adm it te dl y to okno act io n t o o bt ai n “ co rrec te d” th irdpa rty form s tha t wo ul d c orro bo rat e th ei r cl ai m s o f zero tax ab le in co m e. Thu s, the tax pa y ers ’ am en de d re turn s fo r 20 04 , 20 05 , and20 06 , as wel l as th ei r returns for20 07 an d 2 00 8 d o n ot im pl ic at e an“ ho ne stan d re as on ab le in te ntto supp ly info rm at io n requi redby the tax co de ” o r ri se to th e le ve l o f sp eci fic ity requi redby reg ul at io n. No ne of the form s s ub m it te d b y th e ta xp ay ers co ns ti tu te “pr op erl y ex ecu te d” returns th atcanserve as c la im s fo r refu ndov er whi chth e Co urt o f Fed eral Cla im s h as juri sd ic ti on . W e aff irm th e di sm is sa l o f th e ta xp ay ers ’ cl ai m s fo r ta x re fundforlac k o f juri sd ic ti on .- 7 -

[* 7] Id. (f n. re f. om it te d) . On Oct ob er 1 , 20 12 , th e Supr em e Co urt o f th e Uni te d St at es de ni edth e p et it io n fo r certi or ari inpe ti ti on ers ’ refundsu it . See Waltn er v . Uni te d S tate s, 1 33 S. Ct. 3 19 (20 12 ). V. Not ic e o f Defi ci en cy an d t he Ple ad in gs inThi s C as e On Oct ob er 1 7, 2 01 2, re sp on de ntm ai le d t o p et it io ne rs th e n ot ic e o f de fic ie nc y

inth is cas e. Inth e n ot ic e res po nd en t d et erm in edth atpe ti ti on ers are li ab le fortax onMr. Waltn er’s wag e in co m e fo r 20 08 an d fo r anaccu racy-rela te d pe na lty un de r se ct io n 6 66 2( a). Pet it io ne rs ti m el y

pe ti ti on edth is Co urt, as se rti ng on ly friv ol ou s o r irr el ev an t o bjec ti on s t o t he ad jus tm en ts inth e n ot ic e o f de fic ie nc y . Alth ou gh
res po nd en t i ni ti al ly pro ces se d p et it io ne rs ’ 20 08 pu rp orte d re turnan d i ss ue d t he afo rem en ti on edno ti ce o f de fic ie nc y as i f pe ti ti on ers ha d fi le d a20 08 return, i n h is
an swe r res po nd en t as se rte d t ha t (1 ) pe ti ti on ers are p recl ud edby the do ctrin e o f
co ll at eral est op pe l fr om

arg ui ng th atth ei r 20 08 return was a va li d re tu rn , and(2) pe ti ti on ers are the refo re l iabl e fo r anad di ti on to tax un de r se ct io n 6 65 1( a)(1 ) fo r fai li ng to ti m el y

fil e a requi redreturn fo r 20 08
. Inanam en dm en t t o p et it io n, p et it io ne rs ass ert edth atth e st atut e o f li mit at io ns onass es sm en t b ars res po nd en t fr om ass es si ng or c ol le ct in g t he
am ount s d et erm in edinth e n ot ic e o f de fic ie nc y . In an an swe r to am en dm en t t o- 8 -

[* 8] pe ti ti on res po nd en t as se rte d t ha t the st atut e o f li m it at io ns on ass es sm en t d oe s
no t ap pl y be cau se pe ti ti on ers are p recl ud edfro m arg ui ng th atth e 2 00 8 re tu rnwas va li d. On the da y

of t ria l re sp on de ntfil edanam en dm en t t o a ns wer t o a m en dm en t to pe ti ti on . In the am en dm en t t o a ns wer t o a m en dm en t t o p et it io n re sp on de nt
as se rte d tha t p et it io ne rs are l iabl e fo r ta x o n t he di strib ut io ns fro m Mr. Waltn er’s Ci ti gr oup a cco un t. VI. Pret ria l an d Tri al Pro ceed in gs inThi s C as e On Au gu st13 , 20 13 , we setth is cas e fo r tr ia l o n t he Co urt’s J anua ry 13 , 20 14 , tri al ses si on inPh oe ni x, Ari zo na . On Nov em be r 14 , 20 13 , pet it io ne rs ’
co un se l en te redanap pe aran ce. On No ve m be r 15 , 20 13 , pet it io ne rs m ov edto ch an ge th e p la ce o f tr ia l t o J ack so nv il le , Flo rid a. W e d en ie d p et it io ne rs ’ m ot io n. On Dec em

be r 30 , 20 13 , pet it io ne rs fil eda pr etria l m em or an du m . It was si gn edby pet it io ne rs ’ co un se l an d c on ta in edarg um en ts th atare m eri tl es s an d of te n fr iv ol ou s. W e subs eque nt ly chan ge d t he tri al da te to Marc h 3 , 20 14 , andwe he lda tri al on th atda te . Neithe r pe ti ti on ers ’ co un se l n orMr. Waltn er ap pe aredat t ria l. In st ead , Mrs . W al tn er ap pe aredon be ha lf o f pe ti ti on ers . She in tro du cedno ev id en ce t o s up po rt t he po si ti on s tha t p et it io ne rs to okon th ei r 20 08 return, an d- 9 -

[* 9] sh e d ecl in edto m ak e a cl os in g arg um en t af te r tr ia l. She di d, h owe ve r, in si st

2 th atth e p os it io ns pe ti ti on ers to okon th ei r 20 08 return wer e co rrec t. VII. Fri vo lo us Subm is si on Pen al ty Und er Se ct io n 6 70 2 (Do ck etNo. 2 19 53 -1 2L) InMarc h 2 01 0 re sp on de ntsen t t o p et it io ne rs a le tt er i nf orm in g t he m

th at th ei r 20 08 return was fri vo lo us an d o ffer in g t he m a ch an ce t o s ub m ita co rrec te d return. Waltne r v. C omm is si on er, T.C. Mem o. 2 01 4- 35 , at * 4. Pe ti ti on ers fai le d to do so , andres po nd en t as se ss eda $5 ,00 0 p en al ty und er s ect io n 6 70 2 a ndis su ed to Mr. Waltn er a n ot ic e o f pe na lty ch arg e, in fo rm in g h im

of t he ass es se d p en al ty. See i d. Re sp on de ntis su eda no ti ce o f in te ntto lev y to Mr. Waltn er t o c ol le ctth e se ct io n 6 70 2 p en al ty. See i d. Mr . W al tn er re qu es te d ahe ari ng , andres po nd en t
subs eque nt ly iss ue d aNot ic e o f Det erm in at io n C on cern in g C ol le ct io n Act io n( s) Und er Se ct io n 6 32 0 a nd/o r 63 30 , su st ai ni ng th e p ro po se d l ev y . See i d. at*4 -* 6. Mr. Waltne r pe ti ti on edth is Co urt atdo ck etNo. 2 19 53 -1 2L. Aft er l en gt hy
an d c on te nt io us pre tri al pro ceed in gs Mr. Waltn er p ai d t he sec ti on 67 02 pe na lty
an d s ou gh t t o h av e th e cas e d is m is se d a s m oo t. See id . at * 20 -* 21 . By th en ,

Mrs . W al tn er as ke d t o s ub m itpo st tri al bri efs , bu t we d et erm in ed , inou r 2 di sc ret io n- -in pa rt o n t he ba si s o f th e arg um en ts adva nc edinpe ti ti on ers ’ pr etria l m em or an du m --tha t an y

po st tri al bri efi ng by pet it io ne rs wou ldno t as si stus in de ci di ng th is cas e. See R ul e 1 51 (a).- 10 -

[* 10 ] ho wev er, res po nd en t h adfil eda m ot io n t o i m po se a pe na lty

un de r se ct io n 66 73 (a)( 1) onMr. Waltn er. See id . at * 21 -* 22
. On Fe brua ry

27 , 20 14 , les s tha n aweekbe fo re tria l i n t hi s ca se , we gra nt ed
res po nd en t’s m ot io n andim po se d asec ti on 66 73 (a)( 1) pe na lty of $ 2,5 00 on Mr. W al tn er. See id . at * 62 -* 63 . Add it io na ll y , we exp la in edat g reatlen gt h wh y th e po si ti on s tha t p et it io ne rs to okon th ei r 20 08 return- -an d thr ou gh ou t the li ti ga ti on in th atcas e--a re fri vo lo us an d wi th ou t m eri t. See id . at * 24 -* 62
. OPINION I. Bu rd enof P ro of Gen eral ly, th e Co m

m is si on er’s d et erm in at io n o f a d efi ci en cy is pre su m ed
co rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tha t the de te rm in at io n i s im pr op er. Ru le 14 2( a)(1 ); Welc h v . Helv eri ng , 29 0 U.S. 1 11 , 11 5 (1 93 3)
. Howev er, i f th e Co m

m is si on er ra is es a ne w m atte r, se ek s an in crea se ina de fic ie nc y , or a ss ert s an affi rm at iv e d efen se , th e Co m m is si on er h as th e b ur de n o f pr oo f as to th e n ew m at te r, in crea se d d efi ci en cy , or a ffi rm at iv e d efen se . Rul e 14 2( a)(1 ). Add it io na ll y , un de r se ct io n 7 49 1( a)(1 ), if atax pa y er p ro du ces cred ib le
ev id en ce wi th res pe ctto an y factua l i ss ue rel ev an t t o a sc ert ai ni ng th e ta xp ay er's li ab il ity for an y tax im po se d b y subt it le A or B o f th e Co de an d s at is fie s the- 11 -

[* 11 ] requi rem en ts of s ect io n 7 49 1( a)(2 ), th e b ur de n o f pr oo f on an y su chis su e sh ift s t o the Co m

m is si on er. Becaus e p et it io ne rs ha ve fai le d t o i nt ro du ce an y

3 cred ib le ev id en ce wi th res pe ctto an y factua l i ss ue inth is cas e, th e b ur de n o f pr oo f
rem ai ns on th em . The U.S. Cou rt o f App eal s fo r th e Nin th Cir cu it , to whi chanap pe al inth is
cas e ap pe ars to li e ab se nta st ip ul at io n t o t he co nt rary, see s ec. 7 48 2( b) (1 )(A), (2 ), ha s h el d tha t fo r th e p res um pt io n o f co rrec tn es s t o a tt ach to th e n ot ic e o f de fic ie nc y

inun rep orte d i nc om e cas es , th e Co m mis si on er m

us t es tabl is h s om e ev id en ti ary fo un da ti on co nn ect in g t he tax pa y er wi th th e in co m e-p ro du ci ng act iv ity , see W ei m ers ki rch v. Co m m is si on er, 5 96 F.2d35 8, 3 61 -3 62 (9t h C ir. 19 79 ), rev ’g 67 T.C. 67 2 (1 97 7) , or d em on st rat in g t ha t the tax pa y er ac tu al ly
rece iv edun rep orte d i nc om e, se e Edward s v . Comm is si on er, 6 80 F.2d12 68 , 12 70 -1 27 1 (9 th Cir . 19 82 ). If th e Co m m is si on er i nt ro du ces so m e ev id en ce tha t th e ta xp ay er re cei ve d u nr ep orte d i nc om e, th e b ur de n s hi fts to th e ta xp ay er. See Hardy v. Co m m is si on er, 1 81 F.3d10 02 , 10 04 (9t h C ir. 1 99 9) , aff’g T.C. Mem o. 19 97 -9 7.

“ ‘Credi bl e ev id en ce i s the qu al ity of e vi de nc e whi ch , aft er cr it ic al an al y si s, 3 th e co urt wo ul d fi ndsu ffi ci en t upo n wh ic h t o b as e a d eci si on on th e is su e if no co nt rary evi de nc e were s ub m it te d (wi th ou t re ga rdto th e jud ic ia l p res um pt io n o f IRS c orrect ne ss ).’” Higb ee v . Commis si on er, 1 16 T.C. 43 8, 4 42 (20 01 ) (quo ti ng H.R. Co nf

. Rep t. No . 10 5- 59 9, at24 0- 24 1 (1 99 8) , 19 98 -3 C.B. 7 47 , 99 4- 99 5)
.- 12 -

[* 12 ] The pa rti es st ip ul at edth atMr. Waltn er wo rk edforTEKsy st em s, Sp he rio n Atl an ti c, an d P ero t Syste m s i n 2 00 8 a ndth athe was p ai d b y th es e em pl oyers
am ount s t ot al in g $ 75 ,72 6 i n 2 00 8. Re sp on de ntha s the refo re m ethi s b ur de n o f sh owi ng th atpe ti ti on ers were co nn ect edto anin co m e-p ro du ci ng act iv ity an d
rece iv edun rep orte d i nc om e. See Edward s v . Comm is si on er, 6 80 F.2dat 12 70 -1 27 1; W ei m ers ki rch v. Co m m is si on er, 5 96 F.2dat 3 61 -3 62 . Accor di ng ly, th e b ur de n o f pr oo f on th is is su e rem ai ns on pe ti ti on ers . Res po nd en t fi rs t as se rte d t ha t p et it io ne rs are l iabl e fo r ta x i n c on ne ct io n with t he sal e o r ex ch an ge of p ro pe rty in M r. W al tn er’s Ci ti gr oup a cco un t i n a n
am en dm en t t o a ns wer t o a m en dm en t t o p et it io n. Acco rd in gl y , th e b ur de n o f pr oo f
on th is is su e is on res po nd en t. See Ru le 14 2( a)(1 ). The st atut e o f li m it at io ns is anaffi rm at iv e d efen se , andth e p arty ass ert in g i t
m us t s pe ci fic al ly ple aditan d c arry the burd enof s ho win g i ts ap pl ic ab il ity . See Ru le s 3 9, 1 42 (a); Ro bi ns on v. Co m m is si on er, 1 17 T.C. 30 8, 3 12 (20 01 ); Ad le r v. Co m m is si on er, 8 5 T.C. 5 35 , 54 0 (1 98 5) . Peti ti on ers pro pe rly ple ad edth e st atut e of li m it at io ns as ade fen se inanam en dm en t t o p et it io n. Acco rd in gl y , th e b ur de n of pro of on th is is su e is onpe ti ti on ers . Howev er, res po nd en t b ears th e b ur de n o f pr ov in g t ha t an ex cep ti on to th e g en eral th ree- y ear p eri odof l im it at io ns ap pl ie s. See Har lan v . Commis si on er, 1 16 T.C. 31 , 39 (20 01 ) (ci ti ng Rei s v .- 13 -

[* 13 ] Co m

m is si on er, 1 42 F.2d90 0 (6 th Cir . 19 44 ), aff’g 1 T.C. 9 (1 94 2) ); Bard well v. Co m

mis si on er, 3 8 T.C. 8 4, 9 2 (1 96 2) , aff’d, 3 18 F.2d78 6 (1 0t h C ir. 19 63 ). Add it io na ll y , to th e ex te ntth atres po nd en t re li es on th e d oc tri ne of
co ll at eral est op pe l t o p recl ud e p et it io ne rs fro m arg ui ng th atth ei r 20 08 return was va li d, the bu rd enof p ro of is on res po nd en t. See Ru le s 3 9, 1 42 (a). II. St atut e o f Lim it at io ns A. Gen eral ly Gen eral ly, anass es sm en t o f ta x m us t b e m ad e withi n t hr ee years af te r a ta xp ay er fi le s a r eturn. Se e se c. 65 01 (a). Ho wev er, i f th e ta xp ay er d idno t fi le a return, anass es sm en t o f ta x m ay be m ad e atan y

ti m e. See s ec. 6 50 1( c)(3 ). To b e co ns id eredas h av in g fi le d areturn, a t ax pa y er m us t h av e fi le d ava li d re tu rn . See Beardv. Co m

mis si on er, 8 2 T.C. 7 66 , 77 7 (1 98 4) , aff’d, 7 93 F.2d13 9 (6 th Cir
. 19 86 ). Und er Be ard , a va li d re tu rnis on e th at(1) co nt ai ns su ffi ci en t d at a to cal cu la te a ta x l iabi li ty, (2 ) pu rp orts to be a return, (3 ) rep res en ts anho ne stan d
reas on ab le att em

ptto sat is fy

th e requi rem en ts of the tax law, an d (4 ) is ex ecu te d by the tax pa y er u nd er p en al ti es of p erjury . See i d.; see als o Ap pl et on v. Co m m is si on er, 1 40 T.C. 27 3, 2 84 -2 85 (20 13 ). A tax pa y er wh o fi le s a d oc um en t th atpu rp orts to be a Fed eral in co m e ta x re tu rnbu t wh ic h c on ta in s o nl y zero s o n th e rel ev an t l in es ha s n otfil eda va li d re turnbe cau se itdo es no t co nt ai n s uf fic ie nt- 14 -

[* 14 ] in fo rm at io n fo r th e Co m m is si on er t o c al cu la te an d a ss es s a t ax li ab il ity . See Cab ira c v . Comm is si on er, 1 20 T.C. 16 3, 1 69 (20 03 ). Add it io na ll y , th e th ree- y ear l im it at io ns pe rio d i s ex te nd edto si x years “ [i]f th e ta xp ay er o mit s fr om

gro ss in co m e anam ou ntpro pe rly inc lu di bl e th erei n” , sec . 4 65 01 (e)( 1) (A), su cham ount“ is inex ces s o f 25 pe rcen t o f th e am ountof g ro ss in co m e st at edinth e return” , id ., andth atam ou ntis no t “ di sc lo se d i n t he return, o r in a st at em en t at ta ch edto th e return, i n am an ne r ad equa te to ap pr is e th e Sec ret ary of th e n atur e an d am ou ntof s uc h i te m ”, se c. 65 01 (e)( 1) (A)(i i). Inap pl y in g s ect io n 6 50 1( e)(1 )(A)(i i), we m us t co ns id er wh ethe r an ad jus tm en t t o t he tax pa y er’s g ro ss in co m e m ig htbe ap pa ren t fr om th e fac e o f th e return t o the “ reas on ab le m an ”. Uni v. Co un try Club, In c. v. Co m m is si on er, 6 4 T.C. 46 0, 4 71 (19 75 ). Altho ug h s ect io n 6 50 1( e)(1 )(A)(i i) d oe s n otrequi re tha t the return d is cl os e th e ex actam ou ntof t he om it te d i nc om e, “ [t]he di sc lo su re m us t b e
m or e subs tant ia l tha n p ro vi di ng a cl ue th atwou ldin tri gu e th e li ke s o f Sh erl oc k Hol m es bu t n eedno t re ci te ev ery un de rlyin g fa ct .” Hig hwo odPartne rs v. Co m m is si on er, 1 33 T.C. 1, 2 1 (2 00 9) (ci ti ng Qui ckTrus t v . Comm is si on er, 5 4 T.C. 13 36 , 13 47 (19 70 ), aff’d, 4 44 F.2d90 (8th C ir. 1 97 1) ). Fo r pu rp os es of s ec. 6 50 1( e)(1 )(A), g ro ss in co m e in cl ud es th os e it em s 4 li st edinsec . 61 (a). See Dani el s v . Comm is si on er, T.C. Mem o. 2 01 2- 35 5, at*6 -* 7 (ci ti ng Carrv. Co m

m is si on er, T.C. Mem o. 1 97 8- 40 8)
.- 15 -

[* 15 ] B. Co ll at eral Est op pe l Gen eral ly Und er the do ctrin e o f co ll at eral est op pe l, o nc e anis su e o f fac t o r law is

“ actua ll y an d n eces sa ril y

de te rm in edby a cou rt o f co m pe te ntjuri sd ic ti on , th at de te rm in at io n i s co nc lu si ve insubs eque ntsu it s b as edon a di ffer en t caus e o f act io n i nv ol vi ng a pa rty to t he pri orli ti ga ti on .” Mo nt an a v . Uni te d S ta te s, 4 40 U.S. 14 7, 1 53 (19 79 ). Co ll at eral est op pe l i s a ju di ci al ly creat edequi tabl e pr in ci pl e th e p ur

po se s o f whi chare t o p ro te ctth e p art ie s fr om un ne ces sa ry

an d redun da ntli ti ga ti on , to co ns erv e jud ic ia l re so ur ces , andto fos te r certa in ty in an d rel ianc e o n ju di ci al act io n. Id . at 1 53 -1 54
. Befo re we m ay

ap pl y co ll at eral est op pe l the fol lo win g fi ve co nd it io ns m us t be sat is fie d: (1) th e is su e in th e se co ndsu itm us t b e id en ti cal inall res pe ct s wi th th e is su e d eci de d i n t he fir stsu it ; (2 ) th e is su e inth e fi rs t s ui t m us t h av e b eenth e subjec t o f a fi na l ju dg m en t en te redby a cou rt o f co m pe te ntjuri sd ic ti on ; (3 ) th e pe rs on ag ai ns t wh om

co ll at eral est op pe l i s as se rte d m us t h av e b eena pa rty or i n pr iv ity with apa rty in t he fir stsu it ; (4 ) th e p art ie s m us t ac tu al ly hav e li ti ga te d the is su e in th e fi rs t s ui t an d re so lu ti on of t he is su e m us t h av e b eeness en ti al to th e pr io r de ci si on ; an d (5 ) th e co nt ro ll in g fa ct s an d app li cab le leg al pri nc ip le s m us t
rem ai n u nc ha ng edfro m

th os e inth e fi rs t s ui t. See Bu ss el l v . Comm is si on er, 1 30- 16 -

[* 16 ] T.C. 22 2, 2 39 -2 40 (20 08 ); P eckv. Co m mis si on er, 9 0 T.C. 1 62 , 16 6- 16 7 (1 98 8) , aff’d, 9 04 F.2d52 5 (9 th Cir . 19 90 ). C. Ana lysis Res po nd en t co nt en ds th atth e th ree- y ear s ta tu te of l im it at io ns on ass es sm en t do es no t ap pl y

he re b ecau se (1) th e d oc tri ne of c ol la te ral est op pe l b ars pe ti ti on ers fro m arg ui ng th atth ei r 20 08 return was va li d; (2) th ei r 20 08 return was inan y ev en t i nv al idun de r Bea rdv. Co m m is si on er, 8 2 T.C. at77 7; an d (3 ) pe ti ti on ers om itte d fr om

gro ss in co m e anam ou ntth atis gre at er tha n 2 5% o f th e am ou nt sh own on th ei r 20 08 return andth ey fai le d t o p ro pe rly dis cl os e th e o mis si on . W e ag ree wi th res po nd en t’s p rimary co nt en ti on th atth e d oc tri ne of
co ll at eral est op pe l b ars pe ti ti on ers fro m arg ui ng th atth ei r 20 08 return was va li d. InW al tn er, 9 8 F ed . Cl. at76 1, the Co urt o f Fed eral Cla im s d is m is se d p et it io ne rs ’ refu ndsu itbe cau se a va li d re tu rnis a pr erequi si te form ai nt ai ni ng a refu ndsu itin th atco urt an d t he co urt co nc lu de d t ha t p et it io ne rs ’ 20 08 return was in va li d. Th e Co urt o f App eal s af

firm edth e d is mis sa l o f pe ti ti on ers ’ refu ndsu iton th atba si s. See Waltne r, 67 9 F .3dat 1 33 4. All fiv e co nd it io ns forap pl y in g c ol la te ral est op pe l ar e m ethe re. Fi rs t, the is su e o f whe th er p et it io ne rs ’ 20 08 return was va li d i s i de nt ic al to th e is su e d eci de d ag ai ns t p et it io ne rs by the Co urt o f Fed eral Cla im s. Sec on d, al th ou gh th e d is m is sa l- 17 -

[* 17 ] inth atcas e was no t a ju dg m en t o n t he m eri ts , th e is su e o f whe th er the 20 08 return was va li d was ne ces sa ril y de ci de d b y

th atco urt wh enitdi sm is se d t he cas e fo r la ck of ju ris di ct io n, an d t ha t d eci si onis en ti tl edto pre cl us iv e eff ect . See Mat os an to s C omm erci al Co rp . v. Ap pl eb ee’s In t’l, In c., 24 5 F .3d12 03 , 12 09 (1 0t h C ir. 2 00 1) (“ ‘A ltho ug h adi sm is sa l fo r la ckof ju ris di ct io n d oe s n otbar a se co ndact io n a s a m at te r of cla im pre cl us io n, i t d oe s p recl ud e rel it ig at io n o f th e is su es de te rm in edinrul in g o n the juri sd ic ti on qu es ti on .’ ” (quo ti ng 18 Ch arl es Alan Wrig htet a l., Fed eral Prac ti ce an d P ro cedur e, se c. 44 36 (19 81 ))); Oko ro v. Bo hm an , 16 4 F .3d10 59 , 10 63 (7t h C ir. 1 99 9) (“ It m ay see m pa rad ox ic al to
su gg es t tha t a c ou rt c anren de r a p recl us iv e jud gm en t wh endi sm is si ng a su iton th e g ro un d t ha t the su itdo es no t en ga ge th e juri sd ic ti on of t he co urt. Bu t the pa rad ox is supe rfi ci al . A cou rt h as juri sd ic ti on to de te rm in e it s o wn juris di ct io n.” (ci ti ng U.S. Cath ol ic Co nf eren ce v . Abo rti on Rig ht s M ob il iz at io n, In c., 48 7 U.S. 72 , 79 (19 88 ), an d Un it edSta te s v . Shi pp , 20 3 U.S. 5 63 , 57 3 (1 90 6) )). Thi rd , th e pa rti es inth is cas e are id en ti cal to th e p art ie s i n t ha t ca se . Fourth , th e is su e o f whe th er the 20 08 return was va li d was ful ly lit ig at edinth atcas e. Fif th , th e co nt ro ll in g fa ct s an d app li cab le leg al pri nc ip le s re m ai n u nc ha ng edfro m th os e in th atcas e.- 18 -

[* 18 ] Pet it io ne rs are the refo re p recl ud edby the do ctrin e o f co ll at eral est op pe l fro m arg ui ng th atth ei r 20 08 return was va li d. Acco rd in gl y , th e st atut e o f 5 li mit at io ns onass es sm en t d oe s n otba r res po nd en t fr om ass es si ng th e ta x a t i ss ue be cau se pe ti ti on ers fai le d t o fi le a va li d re tu rnforth aty ear. See s ec. 6 50 1( c)(3 ); 6 App le to n v . Comm is si on er, 1 40 T.C. at 2 84 -2 85 ; Be ardv. Co m m is si on er, 8 2 T.C. at77 7. III. Unr ep orte d Wage Inc om e Gro ss in co m e in cl ud es “ al l i nc om e fro m what ev er s ou rce d eri ve d” . Sec. 61 (a). Th is in cl ud es co m pe ns at io n fo r se rv ic es . See s ec. 6 1( a)(1 ). Pet it io ne rs be ar the bu rd enof p ro of

on th is is su e. See s up ra p artI. Peti ti on ers fai le d t o in tro du ce an y

ev id en ce t o s up po rt t he Fo rm s 4 85 2 t ha t the y att ach edto th ei r 20 08 return. Acco rd in gl y , we su st ai n re sp on de nt ’s det erm in at io n t ha t p et it io ne rs are li ab le fortax onMr. Waltn er’s unr ep orte d wag es . Alt ern at iv el y , eve n i f pe ti ti on ers were n otpre cl ud edfro m arg ui ng th atth ei r 5 20 08 return was va li d, we wo ul d s ti ll co nc lu de th atpe ti ti on ers ’ 20 08 return was in va li d fo r th e sam e rea so ns as t ho se pro vi de d b y th e Co urt o f Fed eral Cla im s an d th e Co urt o f App eal s i n p et it io ne rs ’ refu ndsu it . See Be ardv. Co m m is si on er, 8 2 T.C. 76 6, 7 77 (19 84 ), aff’d, 7 93 F.2d13 9 (6 th Cir . 19 86 ); s ee al so Om anv. Co m m is si on er, T.C. Mem o. 2 01 0- 27 6, 1 00 T.C.M. (CCH) 5 48 , 55 2- 55 5 (2 01 0) (ap pl y in g t he Bear d t es t i n acas e ap pe al ab le to th e U.S. Co urt o f App eal s fo r th e Nin thCir cu it ). Acco rd in gl y , we nee d n otad dr es s re sp on de nt ’s alt ern at iv e co nt en ti onth at 6 th e si x- y ear s ta tu te of l im it at io ns un de r se c. 65 01 (e)( 1) (A) ap pl ie s.- 19 -

[* 19 ] IV. Dis tri bu ti on s Fr om Mr. Waltn er’s Ci ti gr oup Acc ou nt Gro ss in co m e al so in cl ud es ga in s d eri ve d fr om de al in gs inpro pe rty. See
se c. 61 (a)( 3) . Gainfro m

th e sa le or e xc hang e o f pr op erty m us t b e rec og ni zed , un le ss th e Co de pro vi de s o th erwi se . Sec. 1 00 1( c). Sec ti on10 01 (a) d efi ne s g ai n fro m th e sa le or e xc ha ng e o f pr op erty as t he ex ces s o f th e am ou ntreal iz edon th e sa le of t he pro pe rty ov er the ad jus te d b as is of t he pro pe rty so ldor e xc ha ng ed . See al so sec . 1.6 1- 6( a), In co m e Tax Reg s. Re sp on de ntbe ars th e b ur de n o f pr oo f on th is is su e. See s up ra p artI. Res po nd en t fa il edto in tro du ce an y ev id en ce wi th
res pe ctto Mr. Waltn er’s b as is inth e m utua l fu ndsh ares th athe so ldth ro ug h h is Ci ti gr oup a cco un t. Acco rd in gl y , res po nd en t h as fai le d t o p ro ve th atpe ti ti on ers are l iabl e fo r ta x o n t he am ou ntreal iz edfro m th atsal e. V. Add it io n t o Tax an d P en al ti es A. Bu rd enof P ro of The Co m m is si on er b ears th e b ur de n o f pr oduc ti on with re sp ectto a ta xp ay er’s l iabi li ty for ad di ti on s t o t ax an d m us t p ro du ce s uf

fic ie ntev id en ce in di cat in g tha t i t i s ap pr op ria te to im po se th e ad di ti on s t o t ax . See s ec. 7 49 1( c); Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 (20 01 ). Once th e Co m m is si on er carr ie s the bu rd enof p ro du ct io n, the tax pa y er m us t co m e fo rwardwith p ers ua si ve ev id en ce tha t the Co m

m is si on er’s d et erm in at io n i s i nc orrector tha t the tax pa y er- 20 -

[* 20 ] ha d re as on ab le cau se or s ub st an ti al au th or ity forth e p os it io n. Se e Hig be e v . Co m m is si on er, 1 16 T.C. at 4 46 -4 47 . Howev er, i f th e Co m mis si on er fi rs t as se rts pe na lt ie s i n t he an swe r, th e Co m m is si on er h as th e b ur de n o f pr oo f as to th e n ew
m at te r. See Ru le 14 2( a)(1 ); De rb y v. Co m mis si on er, T.C. Mem o. 2 00 8- 45 , 95 T.C.M. (CC H) 11 77 , 11 94 (20 08 ). Res po nd en t fi rs t as se rte d a n a dd it io n t o t ax un de r se ct io n 6 65 1( a)(1 ) in th e
an swe r. Acco rd in gl y , res po nd en t h as th e b ur de n o f pr ov in g t ha t p et it io ne rs are li ab le forth e ad di ti on to tax un de r se ct io n 6 65 1( a)(1 ). See Ru le 14 2( a)(1 ); De rb y v. Co m m is si on er, 9 5 T.C.M . (CCH) at11 94
. B. Add it io n t o Tax Und er Se ct io n 6 65 1( a)(1 ) Sect io n 6 65 1( a)(1 ) au th or iz es th e im po si ti on of a n a dd it io n t o t ax for fai lu re to ti m el y fil e a return, u nl es s i t i s s ho wn tha t s uc h fa il ur e is du e to reas on ab le
cau se an d n otdu e to wil lfu l n eg le ct . See Un it edSta te s v . Boyle, 4 69 U.S. 24 1, 24 5 (1 98 5) ; Un it edSta te s v . Nordbr oc k, 3 8 F .3d44 0, 4 44 (9t h C ir. 1 99 4) . A fai lu re t o t im el y

fil e a Fed eral in co m e ta x re turnis du e to reas on ab le cau se if the ta xp ay er ex erci se d o rd in ary bu si ne ss care an d p ru de nc e b utne ve rth el es s was un ab le to fil e th e return wi th in th e p res cri be d t im e. See s ec. 3 01 .66 51 -1 (c)( 1) , Pro ced . & Adm in . Reg s. Ci rcu m st an ces th atare co ns id eredto co ns ti tu te
reas on ab le cau se forfai lu re t o t im el y fil e a return a re ty

pi cal ly tho se ou ts id e o f th e- 21 -

[* 21 ] ta xp ay er’s co nt ro l, i nc lu di ng , forex am pl e: (1) un av oi dabl e p os ta l d el ay s; (2 ) th e ti m el y

fil in g o f a return wi th th e wro ng off ic e; (3) th e d eath o r se rio us il ln es s o f th e ta xp ay er o r a m em be r of th e ta xp ay er’s i m

m ed iate fam il y ; (4 ) a ta xp ay er’s una vo id ab le ab se nc e fro m th e Uni te d S tate s; (5) de st ru ct io n b y cas ua lty of a ta xp ay er’s rec or ds or p la ce o f bu si ne ss ; an d (6 ) rel ianc e o n the erro ne ou s advi ce o f anIRS o ffi cer o r em pl oyee. See Mc Mah anv. Co m m is si on er, 1 14 F.3d 36 6, 3 69 (2dCir . 19 97 ), aff’g T.C. Me m o. 1 99 5- 54 7. Re sp on de ntbe ars th e bu rd enof p ro of

on th is is su e. See s up ra p artV.A. W e h av e h el d t ha t re sp on de ntha s es tabl is he d t hr ou gh ap pl ic at io n o f
co ll at eral est op pe l tha t p et it io ne rs ’ 20 08 return was in va li d. Se e supr a p artII.C. The reco rdsh ows th atpe ti ti on ers ’ fai lu re t o fi le a va li d 2 00 8 re tu rnwas n otdu e to
reas on ab le cau se an d was du e to wil lfu l n eg le ct . Accor di ng ly, pe ti ti on ers are li ab le foranad di ti on to tax un de r se ct io n 6 65 1( a)(1 ) fo r 20 08
. C. Accu racy-Rel at edPen al ty Und er Se ct io n 6 66 2( a) Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) au th or iz es th e Co m mis si on er t o i m

po se a 20 % pe na lty

on anun de rp aym en t o f ta x t ha t i s at tri bu tabl e to , am on g o th er thi ng s, (1 ) ne gl ig en ce o r di sr eg ardof rul es or r eg ul at io ns or ( 2) an y subs tant ia l
un de rs ta te m en t o f in co m e ta x. Th e p en al ty und er s ect io n 6 66 2( a) ap pl ie s o nl y whe re a v al idreturn h as be enfil ed . See s ec. 6 66 4( b) . Becau se pe ti ti on ers ’ 20 08- 22 -

[* 22 ] return was in va li d, s ee s up ra p artII.C, p et it io ne rs are n otli ab le foran
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a). D. Pen al ty Und er Se ct io n 6 67 3( a)(1 ) Und er s ect io n 6 67 3( a)(1 ) we m ay requi re a t ax pa y er t o p ay a pe na lty no t i n ex ces s o f $2 5,0 00 if i t ap pe ars th at : (1 ) th e ta xp ay er i ns ti tu te d o r m ai nt ai ne d pr oc eed in gs inth is Co urt p rimaril y forde lay ; (2 ) th e ta xp ay er as se rts fri vo lo us or gr ou nd le ss po si ti on s i n t hi s C ou rt; or ( 3) th e ta xp ay er u nr eas on ab ly fail edto pu rs ue av ai labl e admin is tra ti ve rem ed ie s. A ta xp ay er’s p os it io n i s fr iv ol ou s o r gr ou nd le ss if i t i s “ ‘con trary to est ab li sh edlaw an d u ns up po rte d b y a reas on ed , co lo rab le arg um en t fo r ch an ge inth e law.’ ” W il li am s v . Comm is si on er, 1 14 T.C. 13 6, 1 44 (20 00 ) (quo ti ng Co le m anv. Co m m is si on er, 7 91 F.2d68 , 71 (7t h C ir. 19 86 )). Des pi te our effo rts inW al tn er v . Comm is si on er, T.C. Mem o. 2 01 4- 35 , to
ex pl ai n t o p et it io ne rs th atth e p os it io ns th atth ey to okonth ei r 20 08 return a nd be fo re thi s C ou rt a re fri vo lo us , th ey refu se d t o wi th dr aw th ei r fri vo lo us po si ti on s in th is cas e. At tria l re sp on de nt ’s cou ns el su gg es te d t ha t a p en al ty und er s ect io n 66 73 (a)( 1) of $ 5,0 00 with re sp ectto each pe ti ti on er was ne ces sary to pre ve nt pe ti ti on ers fro m

ag ai n a ss ert in g fr iv ol ou s p os it io ns be fo re thi s C ou rt. We agr ee with re sp on de nt ’s su gg es ti on th ata subs tant ia l p en al ty is warr an te d, b utwe- 23 -

[* 23 ] be li ev e th atbo th pe ti ti on ers sh ou ldbe li ab le forth e fu ll am ou ntof t he pe na lty im po se d. Acco rd in gl y , we im po se on pe ti ti on ers a pe na lty un de r se ct io n 66 73 (a)( 1) of $ 10 ,00 0. E. Co st s Un de r Sec ti on 66 73 (a)( 2) an d S an ct io ns Und er Ru le 33 (b ) Und er s ect io n 6 67 3( a)(2 ) we m ay im po se on an y

pe rs on adm it te d t o p ract ic e be fo re thi s C ou rt wh o unr eas on ab ly andve xa ti ou sl y m ul ti pl ie s the pro ceed in gs in
an y cas e th e ex ces si ve co st s re as on ab ly inc urredon acco un t o f su chco nduc t. Thi s Co urt m ay

su a sp on te im

po se su chco st s. See Bes t v . Comm is si on er, T.C. Mem o. 20 14 -7 2, at*2 2- *2 3 (c it in g Edward s v . Commis si on er, T.C. Mem o. 2 00 2- 16 9, aff’d, 1 19 Fed . App x. 2 93 (D.C. Cir . 20 05 ), an d Lea chv. Co m m is si on er, T.C. Mem o. 1 99 3- 21 5) . Rul e 3 3( b) set s s tand ard s i n c on ne ct io n wi th co un se l’s si gn atur e o n apl ead in g a ndpro vi de s tha t upo n o urownm ot io n we m ay san ct io n co un se l fo r fai lu re t o m eetth os e st an da rd s. Alt ho ug h we h av e fo un d p et it io ne rs de se rv in g o f a s ect io n 6 67 3( a)(1 ) pe na lty , we bel ie ve th atpe ti ti on ers ’ co un se l m ay al so be de se rv in g o f a s an ct io n fo r un reas on ab ly andve xa ti ou sl y pro lo ng in g t he se pr oc eed in gs . W e wil l the refo re o rd er p et it io ne rs ’ co un se l t o s ho w cau se why we sh ou ldno t i m

po se on hi m

ex ces si ve co st s p ur su an t t o s ect io n 6 67 3( a)(2 ) or
sa nc ti on hi m

purs ua ntto Ru le 33 (b ). W e wil l al so ord er re sp on de ntto ex pr es s h is po si ti onon th es e is su es an d t o p ro vi de us with h is co m pu tati on s o f th e ex ces s- 24 -

[* 24 ] co st s, ex pe ns es , andatt orne y ’s fees reas on ab ly inc urredon acco un t o f pe ti ti on ers ’ co un se l’s co nduc t i n t hi s ca se . 7 W e h av e co ns id eredth e p art ie s’ rem ai ni ng arg um en ts , andto th e ex te ntno t di sc us se d abo ve , con cl ud e th os e arg um en ts are i rrel ev an t, m oo t, o r witho utm eri t. To re fle ctth e fo reg oi ng , App ro pr ia te ord ers wil l b e is su ed , an d d eci si on wil l b e en te redun de r Ru le 15 5.

Inco m pu ti ng th e ex ces si ve co st s re sp on de ntsh ou ldno t i nc lu de co st s 7 in cu rredbe fo re p et it io ne rs ’ co un se l en te redanap pe aran ce i n t hi s ca se or c os ts at tri bu tabl e to th e is su es of ( 1) whet he r th e st atut e o f li m it at io ns on ass es sm en t an d c ol le ct io n app li es inth is cas e; (2) whet he r pe ti ti on ers ha d unr ep orte d i nc om e fro m th e sa le of a ss et s i n M r. W al tn er’s Ci ti gr oup a cco un t; (3) whet he r pe ti ti on ers are l iabl e fo r anaccu racy-rela te d p en al ty und er s ec. 6 66 2( a); an d (4 ) whe th er pe ti ti on ers are l iabl e fo r anad di ti on to tax un de r se c. 66 51 (a)( 1)
.