TAX COURT OPINION

Case: Dawson Craig & Victoria Louise Lane
Docket Number: 19611-07S
Judge: Colvin
Opinion Type: bench
Filed: 05/13/2008
Pages: 16

UNITED STATES TAX OURT WASHINGTON , DC 202 1 ADM , RECORD ED SERVIC E DAWSON CRAIG LANE AND VICTORIA LOUISE LANE, Petitioner s V . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Docket No . 19611-07S . GE Pursuant to Rule 152(b), Tax Court Rules of Practice an d Procedure, it is ORDERED that the Clerk of the Cour to petitioners and to respondent a copy transcript of the trial of the above cas Judge Robert N . Armen, Jr . at Winston-Sa April 16, 2008, containing his oral find rendered at the conclusion of the trial . shall transmit herewith of the pages of th e e before Special Trial lem, North Carolina on ings of fact and opinio n In accordance with the oral finding of fact and opinion, an Order and Decision will be entered for r spondent . (Signed ) Robert N . Armen, Jr. Special Trial Judg e Dated : Washington, D .C . May 13, 2008 SERVED MAY 1 4 2U(Jb 2 1 Bench Opinion by Special Trial Judge Robert N . Armen, Jr . 2 Docket Number 19611-07 S April 16, 200 8 3 I . 4 THE COURT : THE CO T HAS DECIDED TO RENDER 5 ORAL FINDINGS OF FACT AND OPI ION IN THIS CASE, AN D 6 THE FOLLOWING REPRESENTS THE OURT'S ORAL FINDINGS OF 7 FACT AND OPINION . THE ORAL F NDINGS OF FACT AND 8 OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN AN Y 9 OTHER CASE . 10 II . 11 This proceeding was heard as a Small Tax 12 Case, pursuant to the provisions of section 7463(f)(2) 13 of the Internal Revenue Code Of 1986, as amended, an d 14 Rules 170 through 175 of the ax Court Rules of 15 Practice and Procedure . See and compare Rules 330 16 through 334 of the Tax Court Rules of Practice and 17 Procedure . 18 III 19 This bench opinion is made pursuant to the 20 authority granted by section 7459(b) of the Internal 21 Revenue Code of 1986, as ame ded, and Rule 152 of the 22 Tax Court Rules of Practice and Procedure . 23 Hereinafter in thin bench opinion, an d 24 unless otherwise indicated, all section numbers refe r 25 to the Internal Revenue Code , as amended , and all Rul e Heritage Reportinj Corporation (202) 628-4888 1 numbers refer to the Tax Court Rules of Practice an d 3 2 Procedure . 3 IV . 4 Dawson Craig Lane a peared on his own 5 behalf . Victoria Louise Lane did not appear . J . 6 Craig Young appeared on behal of respondent . 7 V . 8 This case represent an appeal b y 9 petitioners from respondent's determinations to 10 proceed with the collection of petitioners ' 11 outstanding liabilities for t e years in issue by way 12 of notices of Federal tax liq"n . 13 vi . jIl 14 The issues for decision are as follows : 15 (1) Whether petitioners are entitled t o 16 dependency exemption deductilns and child tax credits 17 for the years in issue ; an d 18 (2) whether petit oners are liable for a 19 penalty under section 6673 . 20 VII . 21 Some of the facts have been stipulated, an d 22 they are so found . We inco orate by reference the 23 parties' stipulation of facts and accompanyin g 24 exhibits . 25 At the time that the petition was filed , Heritage Reporting Corporation (202) 628-4888 4 1 petitions resided in North Carolina . 2 Petitioners filed joint Federal income ta x 3 returns for 2001, 2003, and 2005 . Petitioner Dawso n 4 Craig Lane (hereinafter generally referred as petition 5 in the singular) filed separate Federal income ta x 6 returns for 2002 and 2004 as "head of household . " 7 It would appear that petitioner Victoria Louise Lane, 8 petitioner's spouse, was a ho emaker in 2002 and 200 4 9 and did not file a separate r turn for either of those 10 years . (Parenthetically, we ote that a taxpayer is 11 only entitled to elect head-o -household filing statu s 12 if the taxpayer is unmarried . See secs . 2 (b), 7703 .) 13 On each of the for e oing returns, dependency 14 exemption deductions were cla med for petitioners' two 15 sons, who were born in New York State in 1998 and 200 0 16 and who are, and have been at all times, U .S . citizen s 17 and residents . Indeed, petitioners' two sons hold 18 U .S . passports, which were is ued in November 2004 . 19 Child tax credits were also claimed in respect of 20 petitioners' two sons . 21 Although petitioners claimed dependenc y 22 exemption deductions for their two sons on the returns 23 for the years in issue , no Social Security number s 24 were listed on those returns ., Rather, in the colum n 25 denominated "Dependent's Social Security number," Heritage Reporting Corporatio n (202) 628-4888 5 1 petitioner wrote "none" or, on the 2005 return , 2 "pending ." 3 On their joint Feder 1 income tax return for 4 2001, petitioners reported to al tax of $2,704 and 5 total payments, consisting so ely of withheld tax, of 6 $652 . Petitioners did not re it any payment wit h 7 their return ; rather, they cl imed an overpayment in 8 the amount of $652 and demand d a refund in that same 9 amount based on an attached 1 tter . That letter , 10 signed by petitioner, provide , in part, as follows : 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 24 "Several years ago I became aware o f the immoral activities that our government was involved in with my tax dollars . At that time I adjusted my lifestyle so that I would not owe any taxes and therefore not be supporting this ac ivity . However, las t year I found it necessary to take a 'normal ' jo'D E .nd thus have had to file the enclosed return this year . 1' I have requested on the return that all mo ey collected through payroll deductions be returned . As long as one child is murde~ed in the womb with ta x dollars, or one yoliung person is being taught premarital sex is IPK in school or one famil y 25 is being broken up for easy welfare money o r Heritage Reportin Corporation (202) 628 4888 6 1 any of the other in propriate ways the 2 government is encou aging sin, then I'm 3 afraid that I canno contribute . " 4 In processing petitioners' 2001 return, 5 respondent recomputed petitio ers' tax liability , 6 disallowing the two dependenc exemption deductions 7 and allowing a $600 rate redu tion credit tha t 8 petitioners had not claimed . See sec . 6213(b)(1) and 9 (g)(2)(H) regarding summary o assessment procedures 10 regarding mathematical or cle~ical errors ; see sec . 11 6428 regarding the rate reduc~ion credit . 12 (Parenthetically, we note that petitioners did no t 1 13 claim a child tax credit on t heir original 200 1 14 return ; however, they did do so on an amended return . ) 15 In processing each~of the other returns fo r 16 the years in issue , responde t also disallowed th e 17 dependency exemption deductions, as well as the child 18 tax credit, and summarily as essed a tax liabilit y 19 pursuant to section 6213(b)( . ) and ( g) (2) (H) . 20 In June 2003, respondent sent petitioner a 21 final notice of intent to le~y in respect to the 22 outstanding liability for 20~ 1 . Ultimately, after 23 petitioner had field a requeI Ot for an administrative 24 hearing and respondent's Office of Appeals had issued 25 a notice of determination, petitioner commenced a Heritage Reporting Corporation (202) 628-4888 7 1 collection review action in t is Court at dkt . No . 2 17146-04L, which action culmi ated in a trial and a 3 memorandum opinion filed July 25, 2005, at T .C . Memo . 4 2005-182 . That opinion, whic was authored by Judge 5 Chiechi, held, inter alia, th t : (1) The summary 6 assessment of petitioner's li bility for 2001 was 7 proper pursuant to section 62 3(b)(1) and (g)(2)(H ) 8 because the assessment arose ut of a mathematical o r 9 clerical error relating to pe I titioner's failure t o 10 obtain and furnish Social Security numbers for his 11 sons ; (2) in order for petition to be entitled to a 12 dependency exemption deductioln under section 151 and a 13 child tax credit under section 24 for each of hi s 14 sons, "each of those sons munt have, and petitioner 15 must provide to the IRS, a S cial Security number" ; 16 (3) petitioner is not entitl d to a dependency 17 exemption deduction or a child tax credit for either 18 of his two sons ; and (4) "peitioner's refusal , 19 apparently on moral or relig ous grounds, to obtai n 20 from the Social Security Adm-nistration and to provide 21 to the IRS a Social Security number for each of hi s 22 sons does not excuse him from the requirements o f 23 sections 151(e ) and 24 ( e) for the taxable year 2001 ." 24 The Court then concluded that "respondent may procee d 25 with the collection action as determined in the notice Heritage Reportin Corporation (202) 628, 4888 8 1 of determination with respect to petitioner's unpaid 2 liability for 2001 . " 3 As a final matter i T .C . Memo . 2005-182 , 4 the Court addressed responden ' s motion for a penalty 5 under section 6673 . In that regard, the Court stated 6 as follows : 7 8 9 1 0 11 "Although we s all not impose a penalty under section 6673( )(1) on petitioner in the instant case, w caution him that he may be subject to such penalty if inAfuture he . ..' .1.'/ institutes or maint ins a proceeding in thi s 1 12 Court primarily foridelay and/or hi s 13 position in any suc proceeding is frivolous 14 or groundless . See Abrams v . Commissioner , 15 82 T . C . 403, 409-4 3 (1984 ) ; White v . 16 Commissioner , 72 T .C . 1126, 1135-1136 17 (1979) . " 18 On August n2005 , thl Court entered an Order 19 And Decision in dkt . No . 1716-04L . Petitioner di d 20 not file motion to vacate, n r did he appeal to th e 21 Court of Appeals . According y, in due course, th e 22 Court's Order And Decision in dkt . No . 17146-04L 23 became final . See secs . 748L( a)(1), 7483 . 24 On or about October 9, 2006 , responden t 25 filed two notices of Federal tax lien in the Office o f Heritage Reportin Corporation (202) 628+4888 rz /49 9 1 the Clerk of Superior Cour t Wake County, Raleigh, 2 North Carolina . The first n o ice of Federal tax lien 3 identified petitioner as th e axpayer and listed his 4 outstanding liabilities for 2 02 and 2004 in the 5 aggregate amount of approxima ely $4,200 . The second 6 notice of Federal tax lien i d ntified petitioners as 7 the taxpayers and listed the i outstanding liabilities 8 for 2001, 2003 and 2005 in t h aggregate amount o f 9 approximately $ 4,800 . 10 By two letters, eac dated October 10, 2006 , 11 respondent provided petitioner individually and 12 petitioners jointly with not ce of Federal tax lien 13 filings and notice of their ight to a hearing under 14 section 6320 . In response, etitioners timely filed a 1.5 single Form 12153, Request or a Collection Du e 16 Process Hearing . In their request, petitioner s 17 demanded that the liens be withdrawn ; otherwise, "i t 18 will be the cause of civil a tion . " 19 The administrativellprocess culminated in the 20 issuance of notices of dete ination dated July 31 , 21 2007, to petitioner in respe t of his individual 22 liabilities and to petitions s in respect of their 23 joint liabilities . 24 On August 29, 2007, petitioners filed a 25 petition for lien or levy action (collection action ) Heritage Reporting Corporation (202) 628H4888 1 0 1 with the Court in respect of t e July 31, 2007 , 2 notices of determination . Par graph 4 of the petition 3 states, in part, as follows : 4 "I am requesti g that this collection 5 activity be summari y dismissed and that the 6 IRS be barred from aking any furthe r 7 attempts at collections for these years . I 8 am also requesting hat the IRS and it' s 9 [sic] representativ s be penalized fo r 10 wasting the court's time with this frivolou s 11 activity, as well as for their blatan t 12 harassment of me . 13 "This case has already been trie d 14 before this court and no new facts o r 15 evidence have been presented . " 1 6 17 On October 3, 2007„ respondent filed an answer to the petition . SeejRule 36 . In the answer , 18 respondent expressly cited T ;C . Memo . 2005-182 and 19 quoted the cautionary langua e therein regarding the 20 penalty provisions of sectio 6673 . 21 This case was tried to the Court on April 22 14, 2008, in Winston-Salem, North Carolina . At that 23 time, counsel for respondent filed with the Court a 24 Motion For Penalty Under I .R,i.C . Section 6673 . Earlier 25 in the day, at calendar call the Court expressl y Heritage Reporting Corporation (202) 628+4888 1 1 1 cautioned petitioner about a penalty under tha t 2 section . 3 At trial, petitione r introduced evidence 4 that he had applied to the Soc ial Security 5 Administration for Social Sec rity numbers for his two 6 sons on April 3, 2008, barely ten days before trial . 7 Petitioner testified that h e ad not previousl y 8 obtained Social Security numb rs for his sons because 9 he was afraid that they would become victims o f 10 identity theft by "illegal al . ens ." 11 Petitioner's testimo ny was unconvincing, an d 12 we reject it . See Krupp v . Coommissioner , T .C . Memo . 13 2000- 148 (stating that "As a ~rier of fact , it is our 14 duty to listen to the testimo n y, observe the demeano r 15 of the witnesses, weight the evidence, and determine 16 what we believe .") ; Diaz v . Commissioner , 58 T .C . 560 , 17 564 (1972) (observing similarly that the process of 18 distilling truth from the testimony of witnesses , 19 whose demeanor we observe and whose credibility w e 20 evaluate, is the daily gris t of judicial life) . 21 At trial, petition r also testified that he 22 had previously sought to obtain Social Security 23 numbers for his two sons on the way home from th e 24 trial on May 23, 2005, in dkt . No . 17146-04L . 25 Petitioner further testified that he had never hear d Heritage Reporting Corporation (202) 62844888 12 1 from the Social Security Admi istration and that he 2 had been afraid to follow up ecause he had been told 3 by Administration personnel t at he would be punished 4 by having his applications pl ced at the bottom of the 5 pile if he inquired about the r status . Again, we 6 find petitioner's testimony u convincing, and w e 7 reject it . See Krupp v . Commissioner , supra ; Dia z V . 8 9 1 0 11 Commissioner , supra . VIII We turn now to the aw . Section 6321 impose is a lien in favor of th e 12 United States on all property) and rights to property 13 of a person when demand for payment of that person's 14 liability for taxes has been made and the person fails 15 to pay those taxes . The lie arises when the 16 assessment is made . Sec . 632 . Section 6323(a ) 17 requires the Secretary to fiAe notice of Federal tax 18 lien if such lien is to be valid against an y 19 purchaser, holder of a security interest, mechanic's 20 lienor, or judgment lien creditor . Behling v . 21 Commissioner , 118 T .C . 572, P75 (2002) . 22 Thus, a lien is a !security device that 23 assures the Government of its priority over othe r 24 possible creditors . Elliott, Federal Tax Collections , 25 Liens, and Levies , par . 9 .05 (2d ed . 2005) . Unlike a Heritage Reporting Corporation (202) 628?-4888 1 3 1 levy, a lien does not deprive a taxpayer of property . 2 Id . ; see .LLgo United States v . Whiting Pools, Inc . , 3 462 U .S . 198, 210-211 (1983) . 4 Section 6320 provid s that the Secretary 5 shall furnish the person desc ibed in section 632 1 6 with written notice of the fi ing of a notice of lien 7 under section 6323 . Section 320 further provide s 8 that the person may request a ministrative review of 9 the matter in the form of an ppeals office hearing . 10 Section 6320(c) provides that the Appeals Offic e 11 hearing generally shall be conducted consistent with i 12 the procedures set forth in section 6330(c), (d), and 13 (e) . 14 Section 6330(c) provides for review with 15 respect to collection issues,! the appropriateness o f 16 the Commissioner's intended d ollection action, and 17 possible alternative means of collection . Section 18 6330(c)(2)(B) provides that the existence or the 19 amount of the underlying tax liability can b e 20 contested at an Appeals Offi e hearing if the person 21 did not receive a notice of deficiency or did not I 22 otherwise have an earlier opportunity to dispute such 23 tax liability . Goza v . Commissioner , 114 T .C . 176, 24 180-181 (2000) ; see Sego v . commissioner , 114 T .C . 25 604, 609 (2000) . Section 63 ~ 0(d) provides fo r Heritage Reporting Corporation (202) 628-4888 14 1 judicial review of the adminis rative determination in 2 the Tax Court . 3 In the present case , petitioners seek onl y 4 to challenge the existence or mount of the underlying 5 liabilities for the years in issue . However, there i s i 6 no meaningful difference betw en petitioners' 7 arguments in the present case and petitioner's 8 arguments in dkt . No . 17146-0 L . Thus, withou t 9 invoking as to petitioner ei t er the bar of section 10 6330(c)(2)(B) or the doctrine of res judicata and 11 collateral estoppel, suffice t to say that section 12 151 (e) and section 24(e) prohibit any dependenc y 13 exemption deduction and chil tax credit , 14 respectively, in the absence of a child's Socia l 15 Security number "on the retu n" claiming the deduction 16 or credit . See Miller v . Commissioner, 114 T .C . 51 1 17 (2000) 1 8 19 IX Finally, we turn tb respondent's Motion fo r 20 Penalty Under I .R .C . Secti o 6673 . 21 As relevant herei section 6673(a)(1 ) 22 authorizes the Tax Court t o require a taxpayer to pay 23 to the United States a penalty not in excess o f 24 $25,000 whenever it appears ,' that proceedings have been 25 instituted or maintained by the taxpayer primarily for Heritage Reporti g Corporatio n (202) 62 -4888 1 5 1 delay or that the taxpayer's position in such 2 proceeding is frivolous or g oundless . 3 The purpose of sec ion 6673 is to induc e 4 litigants to think twice and to conform their behavior 5 to settled principles, regar less of the litigants ' 6 subjective beliefs . Takaba . Commissioner , 119 T .C . 7 285, 295 ( 2002) . In short, t he section serves as a 8 deterrent to the wasting of the Court's time and 9 resources , as well as the tine and resources of other 10 parties to the action . 11 In T .C . Memo . 2005-182, the Court made plain 12 that the behavior manifested in dkt . No . 17146-04L, if 13 perpetuated in the future, caI uld lead to th e 14 imposition of a penalty unde section 6673 . In the 15 present case, respondent quot d in his answer the 16 Court's warning about section, 6673 from T .C . Memo . 17 2005-182 . At calendar call, the Court again issued a 18 warning . Petitioner was undeterred and persisted . 19 It is clear that th time has come to impose 20 a penalty under section 6673 . Petitioner Dawson Craig 21 Lane is the party principally responsible for wasting 22 the Court' s time and resources , as well as those o f 23 respondent , and the greater penalty shall be imposed 24 on him . As for petitioner Victoria Louise Lane, she 25 hitched her wagon to her husb nd ' s, and she mus t Heritage Reporting Corporation (202) 628-4888 16 1 accept responsibility for that fact . She also had th e 2 benefit of the warning quoted in respondent's answer . 3 X . 4 In sum, we shall el ter an Order and Decision 5 deciding that respondent may proceed with collectio n 6 for the taxable years 2001 t rough 2005, as determined 7 in the several notices of de ermination dated July 31, 8 2007, upon which notices this case is based, and w e 9 shall grant respondent's Motion For Penalty Under 10 I .R .C . Section 6673, filed April 14, 2008, in that 11 petitioner Dawson Craig Lane shall be liable for a 12 penalty under section 6673(a)(1) in the amount of 13 $2,000 and petitioner VictoAla Louise Lane shall be 14 liable for a penalty under section 6673(a)(1) in the 15 amount of $500 . 16 XI :' 17 THIS CONCLUDES THE' COURT'S ORAL FINDINGS OF 18 FACT AND OPINION IN THIS CAS T 19 (Whereupon, at 1 :4L p .m ., the bench opinion 20 in the above-entitled matter was concluded . ) 21 22 23 2 4 25 Heritage Reporting) Corporation (202) 628-4888