TAX COURT OPINION

Case: Anna M. Riezinger-Von Reitz & James C. Belcher
Docket Number: 1984-12
Judge: Goeke
Opinion Type: bench
Filed: 06/28/2013
Pages: 14

UNITED STATES TAX COURT WASHINGTON, DC 20217 ANNA M. RIEZINGER-VON REITZ AND ) ) JAMES C. BELCHER, ) ) ) Docket No. 1984-12. ) ) ) ) COMMISSIONER OF INTERNAL REVENUE, Petitioner v. Respondent ORDE R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at Anchorage, Alaska, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, respondent's Motion for Summary Judgment and Motion for Imposition of Sanctions will be granted and an order and decision will be entered for respondent. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. June 28, 2013 SERVED JUL - 2 2013 Capital Reporting Company 3 Bench Opinion by Judge Joseph R. Goeke June 5, 2013 Anna M. Riezinger-Von Reitz and James C. Belcher v. Commissioner Docket No. 1984-12 THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. This opinion is rendered pursuant to the authority provided in section 7459(b) and Rule 152 of the Tax Court Rules of Practice and Procedure. The section reference is to the Internal Revenue Code and hereinafter section references will be to the Internal Revenue Code and Rule references will be to the Tax Court Rules of Practice and Procedure. This is a deficiency case and the court has jurisdiction over this case under section 6213(a). Respondent issued two Notices of Deficiency on November 17th, 2011. A Notice was issued to each of the petitioners in this case. The Notices of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Deficiency determined deficiencies in income tax for 25 the years 2002 through 2009 and additions to tax 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 under section 6651(f), 6651(a) (2) and 6654. The petitioners were residents of Alaska when the petition was filed. This case is before the court on respondent's motion for summary judgment under Rule 121. Petitioners have consistently not cooperated in the litigation of this case as a deficiency case. They have maintained throughout that they are not subject to federal income tax for various convoluted and disjointed reasons. In a previous order in this case Judge Armen characterized the petitioners' arguments as, "pseudo legal babble indicative of a tax protestor agenda." Judge Armen's order was issued on May 24th, 2012, and addressed respondent's motion to dismiss for failure to state a claim upon which relief can be granted and to impose a penalty under IRC section 6673. Respo dent filed this motion on February 24th, 2012. Reptn%eet denied the motion because Respondent bore the burden of proof regarding the fraud penalty and he deemed the petitioner to dispute the deficiencies in income tax and the additions to tax, despite his recognition that petitioners' positions as maintained the court were incoherent. In his order Judge Armen also provided that respondent should submit an answer to the petition by 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 July 23rd, 2012. Respondent filed this answer in a timely manner, but before the answer was filed petitioner filed a motion compelling permanent estoppel. Judge Armen addressed that motion in an order dated June 8th, 2012. He denied the motion as frivolous and groundless and further stated as follows. "The court takes this opportunity to repeat the warning to petitioners regarding conduct which, if pursued, may lead to the imposition of a substantial penalty on them pursuant to IRC section 6673. As stated in the court's order dated May 24th, 2012, IRC section 6673(a) (1) authorizes this court to impose on a taxpayer a penalty in an amount as great as $25,000.00 whenever it appears that the proceeding has been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in the proceeding is frivolous or groundless." As stated, respondent timely filed an answer to the petition. Respondent's answer included affirmative allegations in support of respondent's determination that petitioners were liable for additions to tax for fraudulent failure to file their income tax returns for the years in issue in this case. Respondent filed a motion for entry of order that undenied allegations in answer be deemed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 admitted. This motion was granted on October 12th, 2012. Petitioners were served with a notice of filing a motion for order under Rule 37 on September 14th, 2012. This notice informed petitioners that unless they replied to respondent's answer, as required by Rule 37, respondent's allegations would be deemed to be admitted. Petitioners did not specifically reply to respondent's answer, but rather filed a motion to vacate order granting respondent's motion for entry of order that undenied allegations in answer be deemed admitted. This motion contained more of the incoherent tax protestor statements previously referred to by Judge Armen. As an example, the 15 motion state's as follows in paragraph two. Any 16 17 18 19 20 21 22 23 presumption of a res judicata "established interest of the United States government in our private property, including our labor and any accrual thereof, has been overturned in international venue for breach of trust and fraud by the British high court chancellery division and remedy has been implemented by the trustee for the United States operating on the land, the postmaster general of 24 North America." Given petitioners' failure to 25 properly respond to respondent's affirmative 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 allegations in a reply their motion to vacate was denied. On November 16th, 2012, respondent filed a 4 motion to impose penalty pursuant to IRC section 6673 5 6 7 8 9 10 11 12 13 and also filed a motion for summary judgment which is presently before the court. In the motion for summary judgment respondent relies upon the matters alleged in respondent's answer as affirmative allegations which were deemed admitted and other admissions filed in this case pursuant to Rule 90 to which the petitioner failed to respond which were therefore deemed admitted pursuant to Rule 90. Rule 121 provides that a party may with or 14 without supporting affidavits or declarations file 15 16 17 18 19 20 21 22 23 24 25 for summary adjudication. In subsection B of the Rule it provides that, "a decision shall thereafter be rendered if the pleadings, answers to interrogatories, depositions, admissions and any other acceptable materials, together with the affidavits or_declarations, if any, show that there is no general dispute as to any material fact and that a decision may be rendered as a matter of law." In subsection D of Rule 121 it further provides as follows. "When a motion for summary judgment is made and supported as provided in this Rule an adverse 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 party may not rest upon the mere allegations or denials of such party's pleadings, but such party's response by affidavits or declarations or as otherwise provided in this Rule must set forth facts showing that there is a genuine dispute for trial." Petitioners offered no specific facts which would rebut respondent's determinations of a deficiency and the determinations of additions to tax under sections 6651(a) (2) and 6654(a). Nor did petitioners offer any evidence which would rebut respondent's determinations of the addition to tax for fraudulent failure to file under section 6651(f). Section 6651 and the addition to tax there under in dispute in this case requires additional discussion because, unlike the deficiency determination and the other additions to tax, respondent bears the ultimate burden of proof with respect to determinations of fraudulent failure to file under section 6651(f). Section 6651(a) imposes additions to tax upon taxpayers who fail to file federal income tax returns without reasonable cause according to the net amount of tax due. Section 6651(f) provides for an increase to addition to tax when the failure to file is fraudulent·. The amount of each addition to tax respondent seeks pursuant to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 section 6651(f) is 75 percent of the tax required to be shown on the unfiled returns. Respondent has the burden of proving by clear and convincing evidence that there is an understatement of tax and that petitioner intended to evade taxes known or believed to be owing by conduct intended to conceal, mislead or otherwise prevent a collection of taxes. See, section 7454 (a) and Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). Fraud is not to be imputed or presumed, but rather must be established by some independent evidence of fraudulent intent. Beaver v. Commissioner, 55 T.C. 85 (1970). Fraud may be established by surveying the taxpayer's entire course of conduct and drawing reasonable inferences therefrom. Spies v. United States, 317 U.S. 492, 499 (1943), and Stephenson v. Commissioner, 79 T.C. 995, 1006 (1992), affirmed 748 F.2d 331 (6th Cir. 1984). Although fraud may not be found under circumstances which at the most create only suspicion, the intent to defraud may be inferred from any conduct the likely effect of which would be to conceal, mislead or otherwise prevent the collection of taxes believed to be owing. Spies v. United States, supra, at 499. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Courts have relied upon a number of indicacy or badges of fraud in deciding whether to sustain the Commissioner's determinations with regard to the addition to tax for fraud. Although no single factor may be necessarily sufficient to establish fraud, the existence of several badges of fraud may be persuasive circumstantial evidence of fraud. The factors considered by courts include the understatement of income, inadequate records, a pattern of failure to file income tax returns, awareness of the obligation to file returns and report income and pay taxes and implausible or inconsistent explanations of behavior. These factors are not exclusive. Where badges of fraud may be present courts have recognized that taxpayers may still have a good faith understanding of the law that may negate respondent's allegations of fraud. See, Rainey v. Commissioner, T.C. Memo. 2000-277. In Rainey the taxpayer received wages and pension income and then reported zero income on his tax returns on the 22 meritless claim that the income represented 23 24 25 nontaxable receipts. The court rejected the position to impose a fraud penalty in that case under section 6651(f) because the court determined the taxpayer had 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 a good faith misunderstanding of the applications of law. In Niedringhaus v. Commissioner, 99 T.C. 2002 (1992), we held that a taxpayer who acts willfully cannot avail himself of the good faith 5 misunderstanding defense discussed in Rainey and 6 7 8 explained in Cheek v. United States, 498 U.S. 192 (1991). In Niedringhaus at page 217 we stated, "There is a difference between a good faith 9 misunderstanding of the laws and a good faith belief 10 that the law is invalid or a good faith disagreement 11 with the law". 12 13 14 15 16 17 18 19 20 21 22 23 24 25 In the present case as support for petitioners' position that they are not liable for federal income tax petitioners have submitted a copy of a statement characterized as an affidavit of revocation of election. Petitioner wife represented that this document was submitted to the Internal Revenue Service in 1998 and was the third revocation of election submitted by the petitioners whereby they revoked their election to pay federal income tax. In this document the petitioners acknowledge we did for a time elect to pay federal income tax, thus recognizing that prior to the years in issue they realized they were responsible for federal income tax. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company As previously stated, this revocation end i 12 petitioners' other arguments that their tax is not due because their income is subject to a trust and other specious arguments. e do not find any of the assertions by petitioner for why they do not owe federal income tax to be maintained in good faith. At the hearing on respondent's motion for summary judgment petitioner wife was given numerous opportunities to offer evidence relevant to the 1 2 3 4 5 6 7 8 9 10 substantive determinations in respondent's Notice of 11 Deficiency and the positions taken by respondent in 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the motion for summary judgment, including respondent's reliance upon petitioners' failure to respond to respondent's admissions and petitioners' failure to file a proper reply to respondent's affirmative allegations of fraud. Petitioner wife repeatedly declined to submit any substantive information, but rather fell back on the shop worn protestor type arguments which petitioners consistently made in this case, even after being admonished twice by Judge Armen that such assertions could result in sanctions against the petitioner. We believe that the petitioners' consistent refusal to act reasonably and address the merits of the case evidences a deliberate disregard for any 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 reasonable interpretation of the Internal Revenue laws and not a good faith misinterpretation of the law. Rather, petitioner wife evidenced that she simply refuses to accept the obligation of the petitioners to file income tax returns and pay federal income tax, which the documents submitted by petitioners acknowledge at one time petitioners realized was in fact their obligation. Given these circumstances we believe this case is very analogous to a situation previously tried by Court involving a taxpayer who relied upon a similar trust argument to avoid filing federal income tax returns in which the court sustained the addition to tax for fraudulent failure to file. DiMercurio v. Commissioner, T.C. Memo. 2009-225. Similar to our determination in that case, we found that the petitioners' consistent arguments of a specious tax shelter nature were not made in good faith and were simply a shield for an intent to evade and avoid federal income tax. Given the record in this case, which through petitioners' failure to respond to admissions and their failure to properly respond to respondent's affirmative allegations, established that petitioners have a pattern of failure to file, owed significant amounts of income 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 tax and declined to keep appropriate records and cooperate with the Internal Revenue Service we believe the addition to tax for fraudulent failure to file has been established by clear and convincing evidence which petitioners have failed to dispute and failed to provide any evidence generating a genuine dispute as required by Rule 121(d). Therefore, we grant respondent's motion for summary judgment and sustain all of the determinations respondent has made relative to the petitioners in the two Notices of Deficiency issued to the petitioners which underlie this docket. Given these determinations, a decision will be entered for respondent in this case. One final point which the court needs to address is the motion by respondent for sanctions because this case was maintained for delay and that petitioners consistently failed to heed warnings that sanctions would be imposed had they failed to address the merits of the case and abandon tax protestor type arguments. As previously stated, the Court has authority pursuant to section 6673 to impose sanctions up to the amount of $25,000.00. Given the fact that the petitioners had been twice previously warned about such sanctions by this Court over the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 course of the proceedings in this case and have consistently failed to heed those warnings or pay any attention to admonitions by the Court during the hearing on respondent's motion for summary judgment we believe sanctions are appropriate in the present case and we impose sanctions in the amount of $15,000.00 pursuant to section 6673. This concludes the Court's oral findings of fact and opinion in this case. THE CLERK: All rise. (Whereupon, at 3:05 p.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com