t c memo united_states tax_court gary wright petitioner v commissioner of internal revenue respondent docket no 4311-04l filed date p filed a petition for judicial review pursuant to sec_6330 i r c in response to a determination by r that levy action was appropriate held because p has advanced groundless complaints in dispute of the notice_of_intent_to_levy r’s determination to proceed with collection action is sustained held further a penalty under sec_6673 i r c is due from p and is awarded to the united_states in the amount of dollar_figure gary wright pro_se alan j tomsic for respondent memorandum findings_of_fact and opinion wherry judge this case arises from a petition for judicial review filed in response to a notice_of_determination concerning collection action s under sec_6320 and or the issues for decision are whether respondent may proceed with collection action as so determined and whether the court sua sponte should impose a penalty under sec_6673 findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties are incorporated herein by this reference this case involves petitioner’s and income_tax liabilities petitioner did not file a federal_income_tax return for either the or the taxable_year on date respondent issued to petitioner a separate statutory_notice_of_deficiency for each of these years the notices were returned undelivered rather than received by petitioner and petitioner did not file a petition with this court in response thereto respondent assessed the determined deficiencies additions to tax and interest for and on date notice sec_1 unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules_of_practice and procedure of balance due were sent to petitioner with respect to each year on that date and on date on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing with respect to his unpaid liabilities for and petitioner timely submitted to respondent a form request for a collection_due_process_hearing with attachments setting forth his disagreement with the proposed levy he stated on the form don’t owe any money and listed on the attached sheets enumerated documents pertaining to among other things underlying tax_liability assessment notice_and_demand for payment and verification from the secretary that the requirements of any applicable law or procedure had been met that he requested be provided at the hearing before he would be persuaded that i am legally obligated to pay the taxes at issue he also asserted that he would be recording the hearing pursuant to sec_7521 by a letter dated date michael a freitag the settlement officer to whom petitioner’s case had been assigned explained that the internal_revenue_service irs office of appeals did not provide face-to-face hearings where the only items for discussion raised by the taxpayer were those deemed by the courts to be frivolous or groundless accordingly mr freitag scheduled a telephone conference for date but afforded petitioner an opportunity within days to submit relevant issues justifying an in-person interview petitioner did not respond with legitimate issues but apparently spoke with mr freitag on date continuing to insist on his right to a face-to-face hearing he was not afforded such an in- person interview instead a series of letters resulted in what was essentially a hearing by correspondence petitioner sent a letter dated date reiterating and expanding upon his demands for a face-to-face hearing and extensive documentation he further tendered various arguments about not having any income in the constitutional sense and not being taxable under the provisions of sec_861 mr freitag then sent two followup letters dated november and respectively in the first mr freitag discussed at length the substance of his review of petitioner’s case mr freitag again emphasized the need to raise relevant issues and petitioner’s failure to do so and he warned about the possibility of sanctions concerning liability the letter noted as you did not have a prior opportunity to dispute the assessments you were allowed to challenge the amount or existence of the underlying liability at a cdp hearing however sic you have neglected to point sic any irregularities in the making of the assessment instead you have continued with your non-filer arguments the letter similarly observed that because petitioner was not in filing compliance for through collection alternatives were unavailable mr freitag enclosed with the letter copies of forms certificate of assessments payments and other specified matters copies of the cases 115_tc_576 and 118_tc_162 and copies of various internal_revenue_code sections and irs publications addressing tax_liability and frivolous arguments in the second letter mr freitag dealt specifically with a statement in petitioner’s date letter that referenced referral of his case to the irs national_office for technical_advice to the extent that petitioner’s statement was construed as a request for such a referral mr freitag denied the request on grounds that no issue of sufficient complexity to meet the standards for national_office review had been presented petitioner was given days to respond with further information that might justify referral on date respondent issued to petitioner the aforementioned notice_of_determination concerning collection in contrast an explanatory attachment to the subsequent date notice_of_determination recites that petitioner had a prior opportunity to dispute assessment and could not challenge the underlying liability the earlier correspondence quoted above corroborated by the testimony of mr freitag at trial reflects that petitioner was not precluded from challenging his underlying liability during the collection hearing process action s under sec_6320 and or sustaining the proposed levy action an attachment to the notice addressed the verification of legal and procedural requirements the issues raised by the taxpayer and the balancing of efficient collection and intrusiveness according to the attachment petitioner raised no non-frivolous issues a document received by the court from petitioner was filed as a timely mailed petition disputing the notice_of_determination on date and an amended petition was filed on date both documents reflected an address in las vegas nevada in a statement attached to the amended petition petitioner complained principally about the failure of the irs to provide a face-to-face hearing and requested documentation he espoused a position that he was not liable for any taxes and prayed inter alia that we order the irs to stop all illegal attempts to extort money from him this case was called from the calendar of the trial session of the court in las vegas nevada on date and a trial was held on date at the trial petitioner filed two motions identical in substance one of which was titled a motion to restrain assessment or collection and the other of which was titled a motion to dismiss in these motions petitioner essentially rehashed his arguments regarding lack of a hearing and insufficient documentation the court took the motions under advisement and proceeded to hear petitioner’s case at the outset the court explained to petitioner as follows this is your chance to raise any issues that you wanted to raise had you gotten a face to face hearing with appeals if you want to raise any issues you need to raise them here today in this court and based on the evidence introduced and my review of any briefs and subject_to whatever action i might take on your motions and then i will decide whether you have been treated unfairly and if so what the appropriate remedy is but you need to bring out whatever issues you want to bring out today because i think that it is your last chance unless i take some other action petitioner’s comments during the ensuing trial however failed to raise any points not previously pressed or to identify any specific colorable issues for remand at the conclusion of the trial the parties were afforded an opportunity to submit posttrial briefs only respondent did so for all the reasons set forth infra in text petitioner’s above-referenced motions shall be denied in conjunction with issuance of this opinion without need for further separate discussion opinion i collection actions a general rules sec_6331 authorizes the commissioner to levy upon all property and rights to property of a taxpayer where there exists a failure to pay any_tax liability within days after notice_and_demand for payment sec_6331 and sec_6330 then set forth procedures generally applicable to afford protections for taxpayers in such levy situations sec_6331 establishes the requirement that a person be provided with at least days’ prior written notice of the commissioner’s intent to levy before collection may proceed sec_6331 also indicates that this notification should include a statement of available administrative appeals sec_6330 expands in several respects upon the premise of sec_6331 forbidding collection by levy until the taxpayer has received notice of the opportunity for administrative review of the matter in the form of a hearing before the irs office of appeals sec_6330 grants a taxpayer who so requests the right to a fair hearing before an impartial appeals officer sec_6330 addresses the matters to be considered at the hearing sec_6330 matters considered at hearing --in the case of any hearing conducted under this section-- requirement of investigation --the appeals officer shall at the hearing obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met issues at hearing -- a in general --the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy including-- i appropriate spousal defenses ii challenges to the appropriateness of collection actions and iii offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in-compromise b underlying liability --the person may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability once the appeals officer has issued a determination regarding the disputed collection action sec_6330 allows the taxpayer to seek judicial review in the tax_court or a u s district_court depending upon the type of tax in considering whether taxpayers are entitled to any relief from the commissioner’s determination this court has established the following standard of review where the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis however where the validity of the underlying tax_liability is not properly at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 b analysi sec_1 appeals hearing hearings conducted under sec_6330 are informal proceedings not formal adjudications 115_tc_329 115_tc_35 there exists no right to subpoena witnesses or documents in connection with sec_6330 hearings 118_tc_365 affd 329_f3d_1224 11th cir nestor v commissioner t c pincite davis v commissioner supra pincite taxpayers are entitled to be offered a face-to-face hearing at the appeals_office nearest their residence where the taxpayer declines to participate in a proffered face-to-face hearing hearings may also be conducted by telephone or correspondence katz v commissioner supra pincite- dorra v commissioner tcmemo_2004_16 sec_301 d q a-d6 and d7 proced admin regs furthermore once a taxpayer has been given a reasonable opportunity for a hearing but has failed to avail himself or herself of that opportunity we have approved the making of a determination to proceed with collection based on the appeals officer’s review of the case file see eg taylor v commissioner tcmemo_2004_25 affd 130_fedappx_934 9th cir leineweber v commissioner tcmemo_2004_17 armstrong v commissioner tcmemo_2002_224 gougler v commissioner tcmemo_2002_185 mann v commissioner tcmemo_2002_48 thus a face-to-face meeting is not invariably required regulations promulgated under sec_6330 likewise incorporate many of the foregoing concepts as follows q-d6 how are cdp hearings conducted a-d6 cdp hearings are informal in nature and do not require the appeals officer_or_employee and the taxpayer or the taxpayer’s representative to hold a face-to-face meeting a cdp hearing may but is not required to consist of a face- to-face meeting one or more written or oral communications between an appeals officer_or_employee and the taxpayer or the taxpayer’s representative or some combination thereof q-d7 if a taxpayer wants a face-to-face cdp hearing where will it be held a-d7 the taxpayer must be offered an opportunity for a hearing at the appeals_office closest to taxpayer’s residence or in the case of a business taxpayer the taxpayer’s principal_place_of_business if that is not satisfactory to the taxpayer the taxpayer will be given an opportunity for a hearing by correspondence or by telephone if that is not satisfactory to the taxpayer the appeals officer_or_employee will review the taxpayer’s request for a cdp hearing the case file any other written communications from the taxpayer including written communications if any submitted in connection with the cdp hearing and any notes of any oral communications with the taxpayer or the taxpayer’s representative under such circumstances review of those documents will constitute the cdp hearing for the purposes of sec_6330 sec_301_6330-1 q a-d6 and d7 proced admin regs this court has cited the above regulatory provisions and corresponding promulgations under sec_6320 with approval see eg taylor v commissioner supra leineweber v commissioner supra dorra v commissioner supra gougler v commissioner supra with respect to the instant matter the record reflects that petitioner was not afforded an opportunity for a face-to-face hearing when all of the issues he raised were deemed frivolous or groundless he had however stated an intent to record the collection hearing he requested in his form in 121_tc_8 this court held that taxpayers are entitled pursuant to sec_7521 to audio record a face-to-face sec_6330 hearing the taxpayer in that case had refused to proceed when denied the opportunity to record and we remanded the case to allow a recorded appeals hearing id in contrast we have distinguished and declined to remand cases where the taxpayer had participated in an appeals_office hearing albeit unrecorded and where all issues raised by the taxpayer could be properly decided from the existing record e g id pincite frey v commissioner tcmemo_2004_87 durrenberger v commissioner tcmemo_2004_44 brashear v commissioner tcmemo_2003_196 kemper v commissioner tcmemo_2003_195 stated otherwise cases will not be remanded to appeals nor determinations otherwise invalidated merely on account of the lack of a recorded face-to-face hearing when to do so is not necessary and would not be productive see eg frey v commissioner supra durrenberger v commissioner supra brashear v commissioner supra kemper v commissioner supra see also 117_tc_183 a principal scenario falling short of the necessary or productive standard exists where the taxpayers rely on frivolous or groundless arguments consistently rejected by this and other courts see eg frey v commissioner supra brashear v commissioner supra kemper v commissioner supra here although extensive correspondence had passed between petitioner and the appeals_office petitioner had continued throughout the process to insist on his right to an in-person interview accordingly because he viewed himself as never having been afforded the hearing he requested the record did not foreclose the possibility that petitioner might have raised valid this standard has been consistently applied at the judicial level in determining whether remand is warranted at the administrative level existing regulations on their face would seem generally to require that a face-to-face hearing be offered to all requesting taxpayers see sec_301_6330-1 q a-d7 proced admin regs the courts have not viewed failure to so offer a hearing as grounds for remand where only frivolous contentions are advanced by the taxpayer proposed_regulations parallel the judicial approach see sec_301 d q a-d7 and d8 proposed proced admin regs fed reg date arguments accordingly we provided petitioner an opportunity before the court at the trial session in las vegas to identify any legitimate issues he wished to raise that could warrant further consideration of the merits of his case by the appeals_office or this court petitioner however merely continued to focus on the denial of a hearing and offered no substantive issues of merit hence despite repeated warnings and opportunities the only contentions other than the face-to-face hearing advanced by petitioner are as will be further discussed below of a nature previously rejected by this and other courts the record therefore does not indicate that any purpose would be served by remand or additional proceedings the court concludes that all pertinent issues relating to the propriety of the collection determination can be decided through review of the materials before it review of underlying liabilities statutory notices of deficiency for and were issued to petitioner however the parties stipulated that petitioner did not receive those notices and respondent has agreed that petitioner was entitled to challenge his underlying liability under sec_6330 yet petitioner has at no time offered even a scintilla of evidence that would show error in respondent’s determinations his only contentions bearing on liability generally challenging the income_tax laws have been of a patently frivolous nature and warrant no further comment see 737_f2d_1417 5th cir we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit review for abuse_of_discretion petitioner has also made various arguments relating to aspects of the assessment and collection procedures that we review for abuse_of_discretion action constitutes an abuse_of_discretion under this standard where arbitrary capricious or without sound basis in fact or law 112_tc_19 federal tax assessments are formally recorded on a record of assessment in accordance with sec_6203 the commissioner is not required to use form 23c in making an assessment roberts v commissioner t c pincite furthermore sec_6330 mandates neither that the appeals officer rely on a particular document in satisfying the verification requirement nor that the appeals officer actually give the taxpayer a copy of the verification upon which he or she relied 119_tc_252 nestor v commissioner t c pincite a form_4340 for instance constitutes presumptive evidence that a tax has been validly assessed pursuant to sec_6203 davis v commissioner t c pincite and cases cited thereat consequently absent a showing by the taxpayer of some irregularity in the assessment procedure that would raise a question about the validity of the assessments a form_4340 reflecting that tax_liabilities were assessed and remain unpaid is sufficient to support collection action under sec_6330 id pincite we have specifically held that it is not an abuse_of_discretion for an appeals officer to rely on form_4340 nestor v commissioner supra pincite davis v commissioner supra pincite or a computer transcript of account schroeder v commissioner tcmemo_2002_190 mann v commissioner tcmemo_2002_48 to comply with sec_6330 here the record contains forms for and indicating that assessments were made for each of these years and that taxes remain unpaid petitioner has cited no irregularities that would cast doubt on the information recorded thereon in addition to the specific dictates of sec_6330 the secretary upon request is directed to furnish to the taxpayer a copy of pertinent parts of the record of assessment setting forth the taxpayer’s name the date of assessment the character of the liability assessed the taxable_period if applicable and the amounts assessed sec_6203 sec_301_6203-1 proced admin regs a taxpayer receiving a copy of form_4340 has been provided with all the documentation to which he or she is entitled under sec_6203 and sec_301_6203-1 proced admin regs roberts v commissioner supra pincite n this court likewise has upheld collection actions where taxpayers were provided with literal transcripts of account so-called mftrax see eg frank v commissioner tcmemo_2003_88 swann v commissioner tcmemo_2003_70 the date letter to petitioner from mr freitag enclosed copies of forms furthermore arguments similar to petitioner’s statements concerning copies of the tax returns from which assessments were made have been summarily rejected see eg bethea v commissioner tcmemo_2003_278 fink v commissioner tcmemo_2003_61 the court concludes that petitioner’s complaints regarding the assessments and verification are meritless petitioner has also raised the notice_and_demand for payment that sec_6303 establishes should be given within days of the making of an assessment however a notice of balance due constitutes a notice_and_demand for payment within the meaning of sec_6303 craig v commissioner supra pincite the forms indicate that petitioner was sent notices of balance due for each of the tax years involved thus with respect to those issues enumerated in sec_6330 and subject_to review in collection proceedings for abuse_of_discretion petitioner has not raised any spousal defenses valid challenges to the appropriateness of the collection action or collection alternatives as this court has noted in earlier cases rule b states that a petition for review of a collection action shall contain clear and concise assignments of each and every error alleged to have been committed in the notice_of_determination and that any issue not raised in the assignments of error shall be deemed conceded see lunsford v commissioner t c pincite 114_tc_176 for completeness we have addressed various points advanced by petitioner during the administrative process and this litigation but the items listed in sec_6330 were not pursued in any proceedings accordingly the court concludes that respondent’s determination to proceed with collection of petitioner’s tax_liabilities was not an abuse_of_discretion ii sec_6673 penalty sec_6673 authorizes the court to require the taxpayer to pay a penalty not in excess of dollar_figure when it appears to the court that inter alia proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceeding is frivolous or groundless in pierson v commissioner t c pincite we warned that taxpayers abusing the protections afforded by sec_6320 and sec_6330 through the bringing of dilatory or frivolous lien or levy actions will face sanctions under sec_6673 we have since repeatedly disposed of cases premised on arguments akin to those raised herein summarily and with imposition of the sec_6673 penalty see eg craig v commissioner t c pincite and cases cited thereat with respect to the instant matter we are convinced that petitioner instituted this proceeding primarily for delay throughout the administrative and trial process petitioner advanced contentions and demands previously and consistently rejected by this and other courts he submitted communications quoting citing using out of context and otherwise misapplying portions of the internal_revenue_code regulations supreme court decisions and other authorities he ignored the court’s explicit warning that any further proceedings would be justified only in the face of relevant and nonfrivolous issues moreover petitioner was on multiple occasions expressly alerted to the potential use of sanctions in his case even at the calendar call the court specifically warned petitioner about sec_6673 yet he appeared at the trial days later without any legitimate evidence or argument in support of his position he instead continued to espouse those views that had been explicitly addressed and rejected in other cases previously decided by the court the court sua sponte concludes that a penalty of dollar_figure should be awarded to the united_states in this case to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service number release date index numbers ------------------------------ ---------------------------------------- ------------------------- ----------------------- -------------------- department of the treasury washington dc person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-106102-17 date date legend x ---------------------------------------------------------- --------------------------------- fund ----------------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------- ------------------------------------------------------------------------- ---------------------------------------------------------- country d1 ---------------- ---------------------- dear ------------------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a partnership for federal tax purposes plr-106102-17 facts the information submitted discloses that x was formed on d1 under the laws of country the fund which holds x intends it to be classified as a partnership for federal tax purposes effective d1 however x failed to timely file form_8832 entity classification election to be classified as a partnership for federal tax purposes effective d1 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides plr-106102-17 that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a partnership effective d1 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-106102-17 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _ s ____________________________ richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court hamlet c bennett petitioner v commissioner of internal revenue respondent docket no filed date hamlet c bennett pro_se nhi t luu and kimberly t packer for respondent memorandum findings_of_fact and opinion cohen judge in two notices respondent determined deficiencies and additions to tax as follows year - - additions to tax penalties sec_6651 sec_6651 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure deficiency dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number the amount set forth above for the penalty under sec_6651 for each taxable_year is at the maximum rate of of the amount_required_to_be_shown_as_tax on the return these amounts will be reduced to if the court sustains the additions to tax under sec_6651 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure petitioner’s unreported income was determined using bank_deposits plus some specific income items from payments diverted to or for the benefit of petitioner the internal_revenue_service irs prepared substitutes for returns under sec_6020 but petitioner failed to pay the amounts shown on those returns in the answer respondent alleged increased amounts to reflect that petitioner’s status during through was married_filing_separately rather than single as used in the statutory notice before trial respondent reviewed additional bank records reduced gross_receipts for through and allowed business_expense deductions for through that had not been allowed in the notices of deficiency deductions had been allowed in the statutory notice for the later years the issue for decision is whether petitioner’s failure_to_file tax returns for the years in issue was fraudulent findings_of_fact some of the facts have been deemed stipulated pursuant to rule f the stipulated facts are incorporated in our findings by this reference petitioner alleged a residence in louisiana at the time he filed his petition petitioner was born in los angeles california he attended the art center school studied architecture and graduated with a bachelor of arts degree in date in he moved to hawaii he obtained jobs doing architectural illustrations of housing tracts that were being developed petitioner has been a licensed architect since petitioner married beverly bennett in they were married until her death in date from through petitioner resided in a house constructed on seven acres of land in holualoa hawaii that beverly bennett had obtained during a divorce from her prior husband petitioner designed office buildings and other commercial structures but most of his works were luxury residences designed for clients including celebrities he entered into contracts to design houses and in exchange for his services received gross_receipts during each of the years in issue from through petitioner filed income_tax returns reporting his earnings as an architect petitioner and beverly bennett bennetts filed joint returns from through on the jointly filed returns for and the bennetts owed approximately dollar_figure which they did not pay in full a return was prepared for but apparently was not filed no returns were filed for the years in issue in this case in the mid-1990s the bennetts attended a seminar presented by royal lamarr hardy who was a carpet cleaner when petitioner first met him hardy presented various means of avoiding tax_liabilities and the bennetts decided to try them after a proceeding was filed to enforce a summons for petitioner’s business records on date the bennetts filed a petition in bankruptcy the bankruptcy petition was filed the day that petitioner was supposed to appear in a summons enforcement case however the bennetts abandoned the bankruptcy strategy by failing to file required documents when they realized that bankruptcy would have adverse consequences to them petitioner established architects group trust agt in architects management llc aml in and divine wellness spiritual order dwso in attorney paul sulla assisted petitioner in establishing the entities petitioner directed that payments be made to these entities for his services including amount dollar_figure big_number big_number big_number entity agt agt aml aml year petitioner maintained control_over bank accounts and brokerage accounts into which he deposited gross_receipts from his architectural services some of the accounts were in the names of the entities he established deposits to those accounts exceeded dollar_figure in and dollar_figure in and and dollar_figure million in and neither petitioner nor the entities he established filed tax returns reporting petitioner’s income for his architectural services at times petitioner instructed his clients to purchase assets for him his family or his associates in lieu of paying him directly for his services for example during he agreed to perform architectural services for a car dealer in payment for the services the dealer purchased two automobiles worth a total of dollar_figure for women friends of petitioner at other times petitioner directed that payments for his services be made to a draftsman or others performing services for petitioner petitioner established nominee entities and adopted other devices in order to conceal income he received for his architectural services during the years in issue he did so even though his tax adviser and tax_return_preparer a certified_public_accountant tried to dissuade him when foreclosure proceedings were commenced regarding the mortgage on petitioner’s residence he provided funds to a nominee to repurchase the residence in order to conceal his continuing beneficial_ownership petitioner was contacted in by agents conducting a criminal investigation of hardy he initially provided oral statements to the agents but refused to sign and tore up the affidavit prepared consistent with those statements petitioner adopted a series of frivolous arguments and pursued them even after he was indicted and convicted and spent years in prison as described below the frivolous theories pursued by him from time to time included filing tax returns was voluntary he was not a person required to file returns sec_911 and regulations concerning withholding of income_tax exclude domestic income of u s citizens the irs did not follow proper procedures and actions were not properly delegated to irs employees on date petitioner was indicted on various federal counts including income_tax evasion in violation of sec_7201 for through he was found guilty by a jury and judgment was entered by the district_court for the district of hawaii on date petitioner was sentenced to months in prison in date his conviction was affirmed by the court_of_appeals for the ninth circuit which concluded among other things that the evidence during the criminal trial was sufficient as to willfulness petitioner served over five years of his sentence and was released in date opinion petitioner contends that compensation_for architectural services he performed in hawaii is not subject_to income_tax and that therefore he was not required to file returns for the years in issue before trial respondent filed a motion for partial summary_judgment that petitioner was collaterally estopped to deny fraudulent intent for through inclusive years for which petitioner had been convicted of tax_evasion under sec_7201 that motion was granted in the order granting summary_judgment the court stated that the amounts of the deficiencies and penalties for through would be determined on the evidence at trial as would petitioner’s liabilities if any for the other years in issue the court also warned petitioner that his position was frivolous and that continuation of groundless and frivolous positions might subject him to a penalty not to exceed dollar_figure under sec_6673 petitioner persisted in his position at trial that his earnings for architectural services rendered in hawaii are not taxable because he is a u s citizen and has no foreign_earned_income taxable under sec_911 and related regulations his argument is based on inapplicable statutes and circular reasoning he denies that worldwide income includes domestic income substituting his own reading of statutory and regulatory materials for those of every court that has spoken on the subject in innumerable cases decided over decades he takes items out of context treats includes as a term of limitation and contends that references to certain categories within a statute or regulation exclude all others he has not presented any reason to reject respondent’s recalculated deficiencies and additions to tax or penalties he has refused to produce evidence of nontaxable bank_deposits or deductible expenses petitioner’s interpretative arguments have been consistently rejected in strong terms even in judicial opinions sustaining criminal convictions see eg 833_f2d_1538 11th cir utterly without merit 754_f2d_747 7th cir inane and preposterous 659_f2d_524 5th cir frivolous non-sequitur in 119_tc_285 the taxpayer and his counsel paul sulla the attorney who assisted petitioner in establishing entities used to conceal income were sanctioned under sec_6673 and respectively for arguing among other things that a u s citizen residing in hawaii was not taxable on compensation earned in hawaii no further discussion of petitioner’s stale theories is warranted see 737_f2d_1417 5th cir petitioner has conceded all of the facts necessary to sustain the revised deficiencies including the bank_deposits and his marital status the sec_6651 additions to tax are sustained upon the basis of petitioner’s failure to pay the tax shown on the returns the irs prepared under sec_6020 see 120_tc_163 tinnerman v commissioner tcmemo_2006_250 slip op pincite we must decide however whether petitioner’s failure_to_file returns for through years for which collateral_estoppel does not apply was accompanied by an intent sufficient to sustain the sec_6651 penalty sec_6651 provides a penalty of of the amount_required_to_be_shown_as_tax on unfiled returns if the failure_to_file the returns is fraudulent the civil_fraud penalty is a sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer’s fraud 303_us_391 respondent has the burden of proving fraud by clear_and_convincing evidence see sec_7454 rule b in applying sec_6651 to determine whether petitioner’s failure_to_file tax returns was fraudulent we consider the same elements considered in cases involving former sec_6653 and present sec_6663 see 102_tc_632 99_tc_202 fraud may be proved by circumstantial evidence and the taxpayer’s entire course of conduct may establish the requisite fraudulent intent 80_tc_1111 circumstantial evidence of fraud includes badges_of_fraud such as those present here a longtime pattern of failure_to_file returns failure to report substantial amounts of income failure to cooperate with taxing authorities in determining the taxpayer’s correct liability implausible or inconsistent explanations of behavior and concealment of assets see eg 796_f2d_303 9th cir aff’g tcmemo_1984_601 252_f2d_56 9th cir 75_tc_1 67_tc_181 aff’d without published opinion 578_f2d_1383 8th cir petitioner admits that he received payments for architectural services performed during each of the years in issue and the specific items of diverted income and the bank_deposits have been deemed stipulated because he did not deny them bank_deposits are prima facie evidence of income see 87_tc_74 64_tc_651 aff’d 566_f2d_2 6th cir proof of gross_receipts in the amounts shown by the bank_deposits analysis for each of the years in issue in this case is sufficient to satisfy respondent’s burden of showing that petitioner had an obligation to file returns see sec_1 we reject any inference that petitioner’s persistence in his frivolous theories demonstrates sincerity or good_faith or is otherwise a defense to the charge of fraud petitioner filed tax returns for decades before stopping only after he faced large tax_liabilities for and he discovered his various frivolous arguments in alleged reliance on a carpet cleaner turned tax adviser while disregarding the cautionary advice of his certified_public_accountant he adopted various means of concealing income by diverting income to nominees or to entity accounts he rejects the judgments of the courts including a jury verdict a district_court judgment and an appellate court opinion that he was criminally responsible for his conduct a person with his education and skills could be expected to abandon unsuccessful arguments if acting in good_faith we conclude that petitioner’s failure_to_file for each year in issue was due to fraud see 94_tc_316 chase v commissioner tcmemo_2004_142 tonitis v commissioner tcmemo_2004_60 madge v commissioner tcmemo_2000_370 aff’d 23_fedappx_604 8th cir greenwood v commissioner tcmemo_1990_362 petitioner was warned of the possibility of a penalty under sec_6673 if he persisted in his contention that he was not required to file returns and pay tax on his income for architectural services performed in hawaii under these circumstances sec_6673 provides for a penalty not in excess of dollar_figure when proceedings have been instituted or maintained by the taxpayer primarily for delay or the taxpayer’s position is frivolous or groundless it may seem that an additional dollar_figure on top of the amounts petitioner already owes will not change his position however serious sanctions also serve to warn other taxpayers to avoid pursuing similar tactics see 791_f2d_68 7th cir takaba v commissioner t c pincite an award of dollar_figure to the united_states will be included in the decision to be entered here to reflect the change in petitioner’s filing_status for through and respondent’s revised bank_deposits analysis decision will be entered under rule


number release date uil criminal tax bulletin department of treasury internal_revenue_service office_of_chief_counsel criminal tax_division february this bulletin is for informational purposes it is not a directive supreme court cases warrantless search of probationer’s apartment the electric company’s property in united_states v knights 122_sct_587 knights was placed on probation for a drug offense the probation order included a condition requiring knights to submit to searches of his residence at anytime with or without a search warrant knights consenting to the probation condition signed the order three days after knights was placed on probation the local electric company’s property was set on fire knights’ court dates for theft of the electric company’s services coincided with other acts of vandalism to a detective investigating the arson and vandalism conducted surveillance on knights’ apartment and saw knights’ friend carry pipe bombs out of the apartment further a truck carrying explosives which knights had previously been seen in was parked in knights’ driveway looking at the truck the detective saw more explosive materials as well as brass padlocks belonging to the electric company based on these observations and suspicions as well as knowing about the probation condition the detective searched knights’ apartment when knights was indicted on arson explosives and ammunition charges he moved to suppress evidence obtained during the warrantless search of his apartment the district_court granted the motion on the grounds the search was for investigatory rather than probationary purposes the ninth circuit affirmed the supreme court reversed upholding the warrantless search first the court noted the probation order did not confine the search to probationary purposes nor did it limit the searching officers to probation officers the court then applied the reasonableness test stating the touchstone of the fourth_amendment is reasonableness which is determined by balancing the degree of intrusion on an individual’s privacy with the necessity of promoting legitimate government interests id the court found the search condition reasonable as it furthered the two primary goals of probation rehabilitation and the protection of society from future criminal violations furthermore the probation condition was clearly communicated to and accepted by knights which significantly diminished his reasonable expectation of privacy the warrantless search therefore was reasonable under the fourth_amendment because it was supported by reasonable suspicion and authorized by a condition of probation forfeiture notice to federal prisoners in united_states v dusenbery 122_sct_694 the supreme court held notice to a federal prisoner of the right to contest the administrative forfeiture of property requires the government’s effort to be reasonably calculated to apprise the party of the pendency of the action dusenbery was arrested for and convicted of cocaine distribution and was sentenced to a term of imprisonment while dusenbery was in prison the government initiated proceedings for administrative from dusenbery’s trailer on the day of his arrest pursuant to u s c sec_881 and u s c the government published a notice in the newspaper and sent notice by certified mail to dusenbery at three locations including to the correctional facility where he was incarcerated the agency received no response within the time allotted and declared the items administratively forfeited five years later dusenbery filed a motion seeking return of the property seized a mail room officer who worked where forfeiture of property seized dusenbery was incarcerated testified in detail as to the procedures for accepting and delivering certified mail addressed to inmates the district_court ruled the government’s notice sent to dusenbery at the correctional facility satisfied his due process rights even though there was no proof the mail actually reached him the court_of_appeals affirmed and the supreme court granted certiorari to resolve a circuit conflict concerning due process notice requirements in an administrative forfeiture_case involving an incarcerated interested_party in affirming the sixth circuit’s decision the supreme court applied the reasonably calculated test from an earlier decision 339_us_306 to determine the adequacy of the notice method used the court also noted the statute in this case indicated the government need only attempt to provide actual notice dusenbery misinterpreted the requirement of actual notice to mean actual receipt of notice and argued the government could have ensured delivery of the notice the court held such heroic efforts are not required short of allowing the prisoner to go to the post office himself the government had to depend on a system provided by the prison and staff and the government’s use of that system in this case was reasonably calculated to apprise dusenbery of the action title_26 and title_26 related cases tax_evasion deficiency element in 264_f3d_535 5th cir bishop iii bishop a sole_proprietor of a law firm was convicted of attempted tax_evasion and filing a false income_tax return bishop appealed his conviction and argued the indictment was defective because two counts omitted the tax_deficiency and knowledge elements of tax_evasion since it failed to acknowledge certain items that would offset any_tax deficiency bishop also contended the jury instructions were inadequate because they limited the jury's inquiry to the content of the returns he filed and prevented consideration of credits refunds and payments he made or qualified for but did not report on his returns finally bishop argued the court erred in allowing a revenue_agent to summarize the government’s evidence and erred in denying bishop’s motion for a new trial based on a juror’s dishonesty concerning her prior conviction the fifth circuit affirmed bishop’s conviction finding the indictment counts explicitly charged the three elements of tax_evasion the court noted the non-existence of credits refunds and other_payments may affect the extent of any deficiency but is not a specific element of tax_evasion there is no need to list each potentially offsetting item in the indictment id pincite in regard to bishop's jury instruction argument the court stated the instructions were adequate and the district_court did not prevent the jury from considering payments bishop may have made to the service in fact in their closing arguments bishop’s attorneys stressed to the jury that bishop made substantial payments to the service on several occasions finally even if bishop was entitled to all of the credits refunds or payments he claimed a substantial deficiency remained the jury properly and in accordance with the court's instructions found bishop had knowledge of the deficiency in addressing bishop’s remaining arguments the court held the district_court did not err in allowing summary testimony and the district court’s admittance of the agent’s notes into evidence was harmless error finally the district_court did not err in denying bishop’s motion for new trial since he failed to show how the juror who admittedly should have been disqualified affected the outcome of the case conspiracy in 277_f3d_339 3rd cir the third circuit held to sustain a conviction for conspiracy to defraud the united_states under u s c sec_371 the evidence must be sufficient to prove beyond a reasonable doubt that impeding the service was one of the conspiracy’s objectives and not merely a foreseeable consequence or collateral effect gricco and mccardell the defendants were convicted of conspiracy to defraud the united_states tax_evasion and making false tax returns all of the charges related to gricco and mccardell’s failure to report on their personal income_tax returns money stolen by cashiers working at airport parking facilities gricco and mccardell managed the parking facility and were responsible for devising the scheme and recruiting others to carry it out gricco and mccardell contended their convictions for conspiracy were not supported by sufficient evidence the government relied on three categories of circumstantial proof to meet their burden first the government relied on evidence the participants in the scheme did not report their illicit income the court held while this evidence of parallel conduct had some probative value it was not enough by itself to show an agreed upon object to impede the service second the government pointed to evidence that gricco and a real_estate broker who assisted in purchasing property with the illicit proceeds structured various financial transactions to avoid filing currency transaction reports the court again held the value of the evidence was limited because gricco an mccardell were not convicted of conspiring to violate the anti-structuring statutes but with conspiring to obstruct the service and structuring does not necessarily result in the evasion of taxes the government’s third category of evidence consisted of testimony that gricco told various participants not to deposit their illicit income in a bank but rather to purchase safes for their homes the individuals testified they followed this advice because they did not want to attract the attention of the service the court held a rational jury could infer not only that gricco foresaw the participants would pay no tax on their illicit income but actually intended it to occur viewing all the evidence together the third circuit held it was sufficient to support the conspiracy conviction merger of offenses in 277_f3d_339 3rd cir as factually set forth above the third circuit held even if the district_court erred in entering judgements of conviction and imposing sentences on both offenses of tax_evasion and subscribing false tax returns because both offenses merged such error did not affect gricco and mccardell’s substantial rights and would not warrant reversal the supreme court in blockberger v united_states 284_us_299 set forth a rule for determining whether two provisions proscribe the same offense the rule asks whether each offense requires proof of an element the other does not if each offense contains such an element it is presumed multiple punishment is allowed since gricco and mccardell failed to raise the merger argument in the district_court under fed r cr p b to reverse the decision of the trial_court the third circuit held the lower court’s error must be plain and affect the parties’ substantial rights the government argued the offenses of tax_evasion and making a false return each contain an element the other lacks the offense of tax_evasion requires proof of an attempt to evade the payment of a tax due and owing whereas the offense of making a false return does not require proof of this element similarly the offense of making a false return requires proof of a false statement on a return whereas a violation of sec_7201 may be shown even if the taxpayer failed to file a tax_return nevertheless gricco and mccardell argued the blockberger test merely raises a presumption congress meant to permit punishment under both provisions and many other circuits have held the offenses of tax_evasion and making a false return merge when they are based on the same act ultimately the third circuit found it unnecessary to decide whether the district_court erred by entering judgments of conviction and imposing sentences on both offenses the court noted assuming for the sake of argument the district_court erred the other prongs of the test under rule b were not met the sentences imposed on the defendants under u s c sec_7206 were concurrent to their sentences for tax_evasion and thus the former sentences did not increase the length of their incarceration but see 783_f2d_307 2nd cir court vacated sec_7206 convictions since the factual elements of the sec_7201 counts were substantially identical to those of the lessor included sec_7206 counts search and seizure search of password protected files in a shared computer in 275_f3d_391 4th cir the fourth circuit considered an appeal by trulock seeking review of a dismissed bivens suit brought against the former director of the fbi alleging an unconstitutional search of trulock’s home and seizure of a computer trulock had served as the united_states department of energy’s doe director of intelligence and counterintelligence after leaving doe trulock wrote an article criticizing the white house doe the fbi and the cia for ignoring security breaches and incompetence in their investigation of espionage at the los alamos nuclear laboratory trulock believed the fbi conducted its search in retaliation for trulock’s published criticism of the federal government trulock lived with his former executive assistant linda conrad after the fbi falsely claimed to possess a search warrant and threatened to break down the front door in the presence of the media a crying and shaken conrad reluctantly gave the fbi her consent for them to search the townhouse she shared with trulock during the search the fbi seized a personal computer shared by trulock and conrad each of whom used private passwords unknown to each other a fbi computer specialist searched the computer’s files looking at trulock’s password protected files on the shared computer’s hard drive the court first determined conrad’s consent to the search had been coerced and therefore was not voluntary moreover the court reasoned password protected files are analogous to a locked footlocker in a shared living situation since trulock kept his password secret from conrad the court concluded trulock had intended to exclude conrad as well as outsiders from his personal computer files consequently the court ruled trulock possessed a reasonable expectation of privacy in the password protected computer files and therefore conrad’s authority to consent to a search of the shared townhouse and shared personal computer did not extend to trulock’s computer files thus even if conrad had truly consented to a search without a warrant the fbi could not have searched trulock’s computer files accordingly the fourth circuit ruled the fbi’s search of trulock’s password protected computer files was unconstitutional since the search violated trulock’s fourth_amendment rights evidence suppressed because portions of pre-warrant search violated the fourth_amendment in 275_f3d_449 5th cir runyan had been convicted of sexual exploitation of children and of possession receipt and distribution of child pornography while searching for her belongings on runyan’s ranch runyan’s estranged wife judith discovered and removed pornographic pictures cds and computer discs belonging to runyan as well as her own computer after judith and some friends viewed a sampling she turned the computer and pornographic material over to law enforcement officers who unlike the private searchers examined all of the materials and computer files based on their examination of the materials and computer files the police obtained a search warrant for runyan’s ranch a search of the premises uncovered more pornography runyan appealed his conviction to the fifth circuit asserting the pornographic material found on his ranch should be suppressed because the private and police search of his belongings before the issuance of the search warrant violated his fourth_amendment rights the fifth circuit ruled portions of the pre-warrant search of runyan’s belongings were unlawful because the police examined all of the pornographic material and computer files turned over rather than just the selections viewed by the private searchers thus the police exceeded the scope of the private searchers the court determined the critical inquiry under the fourth_amendment was whether prior to the issuance of the search warrant the police gathered material with respect to which runyan’s expectation of privacy had not already been frustrated since the police exceeded the scope of the private search they viewed material in which runyan still enjoyed an expectation of privacy consequently all of the pornographic material and computer files as well as any evidence obtained as a result of the information was subject_to suppression accordingly the fifth circuit remanded the case to the district_court for further consideration whether the search warrant would have been sought and issued in the absence of the evidence obtained in violation of the fourth_amendment other constitutional issues no fifth_amendment privilege for failure_to_file federal_income_tax returns in 274_f3d_1053 6th cir sabino and co-defendants daniel and donna stewart were convicted of conspiracy to defraud the united_states by obstructing the functions of the service in violation of u s c sec_371 the stewarts were also convicted of tax_evasion under sec_7201 through the execution of a search warrant criminal investigation discovered the stewarts’ names on a list of people affiliated with the pilot connection society pcs an anti-tax organization the stewarts owned and operated danco inc a transmission business following pcs’ untax instructions the stewarts first closed their bank accounts and dissolved danco then created and funded a series of abusive trusts with the proceeds sabino served as the trustee for several of the trusts and his signature or signature stamp appeared on many of the documents underlying transactions undertaken by the trusts during the investigation a special_agent advised the stewarts of their miranda rights thereafter an attorney allegedly advised them not to file income_tax returns because filing returns would constitute making self- incriminating statements the stewarts contended their rights under the fifth_amendment were violated because their failure_to_file returns was charged as an over act and was introduced at trial as evidence of willfulness to evade taxes the sixth circuit noted a taxpayer raising the fifth_amendment as a privilege_against filing a tax_return must specifically claim the privilege in response to particular questions not merely in a blanket refusal to furnish any information 802_f2d_849 6th cir quoting 577_f2d_1304 5th cir further the court reasoned the requirement to file tax returns was not directed at the stewarts because they were suspected of criminal activities moreover the court observed the stewarts failed to file federal_income_tax returns and consequently did not raise any particular objections to filing the requested information accordingly the sixth circuit rejected the stewarts’ claim and ruled their fifth_amendment rights are not violated by the fact they are required to file returns grand jury disclosure from one assistant united_states attorney to another in 277_f3d_407 3rd cri an attorney appealed to the third circuit a district court’s decision denying the attorney’s motion for a protective_order under fed r crim p e to prevent an assistant united_states attorney ausa from disclosing grand jury information to another ausa without first obtaining a court order during a grand jury investigation involving the attorney as a subject one ausa disclosed information to an ausa in a different judicial district regarding a potential conflict of interest between the attorney and his client in a pending criminal case the third circuit reasoned the text of fed r crim p e a i authorizes an ausa to disclose grand_jury_material to another ausa for use in the performance of the ausa’s law enforcement duties without regard to geographic limitations in reaching its holding the third circuit noted subsection c iii reflects congressional intent to expedite and facilitate the use of one grand jury’s information by other grand juries investigating other crimes accordingly the third circuit upheld the district court’s order denying the attorney’s motion for a protective_order relating to the disclosure of grand jury information evidence summary witness testimony allowed with appropriate jury instructions in 274_f3d_1053 6th cir as factually set forth on page four of this bulletin the sixth circuit upheld the district court’s jury instructions regarding a summary witness during trial the government called a service employee to testify as a summary witness on appeal to the sixth circuit the stewarts contended the witness offered impermissible credibility determinations as well as legal conclusions and consequently the district_court committed plain error by allowing the witness’ testimony as evidence testimony summarizing evidence in income_tax prosecutions is admissible provided the judge properly instructs the jury 951_f2d_1466 6th cir quoting 512_f2d_352 6th cir moreover the testimony of a summary witness should be accompanied by a limiting instruction which informs the jury of the summary’s purpose and that the summary itself does not constitute evidence 935_f2d_739 6th cir the sixth circuit concluded in the instant case the jury instructions given by the district_court were proper complete and included the appropriate limitations such as the witness was appearing as an opinion witness and not as an expert witness further the court determined the use of the service employee as a summary witness was not improper because the defendants cross-examined her extensively accordingly the sixth circuit concluded the district_court had not committed error by allowing the testimony of the government’s summary witness and upheld the lower court’s ruling forfeiture use of seized assets to fund criminal defense in 274_f3d_800 4th cir united_states customs special agents executed search warrants at farmer’s residence seeking evidence farmer was engaged in the counterfeiting of trademarked clothing agents seized more than dollar_figure in currency and property when farmer was indicted two years later for trafficking in counterfeited clothing and for money laundering he filed a motion for a hearing to determine whether a portion of the seized funds should be released to fund his criminal defense farmer alleged the government seized essentially all of his assets including legitimate assets during the execution of the search warrant which put him out of business and prevented him from hiring counsel as a result farmer argued he had been deprived of his sixth amendment and due process rights to be heard on the use of his legitimate property to hire the attorney of his choice the district_court summarily denied farmer’s motion farmer appealed the denial of the motion asserting he had a right to demonstrate some of the seized assets were untainted and necessary to be released to him so he could hire counsel for his criminal defense the fourth circuit agreed concluding due process required holding a hearing for farmer for the limited purpose of determining how the civil seizures affected farmer’s right to select counsel of his choice in the related criminal case in so holding the court cited the three factors from 424_us_319 to be considered when identifying the specific dictates of due process addressing the three factors the court found farmer had advanced a private interest in obtaining a pretrial hearing there existed a risk of erroneous deprivation of farmer’s interest in the absence of a hearing and the government would not be unduly burdened by the hearing the fourth circuit remanded the case with an order to hold a hearing but noted farmer would have the burden of showing by a preponderance_of_the_evidence that the government seized untainted assets without probable cause and he farmer needs those same assets to hire counsel federal preemption over state homestead_exemption in 278_f3d_1091 10th cir the tenth circuit held oklahoma’s statutory and constitutional provisions protecting homesteads did not prevent the federal government from obtaining forfeiture of a home used to facilitate federal drug law violations under u s c sec_881 after arresting an individual on drug charges the police obtained a search warrant to search the residence where the drugs were purchased the search produced additional drugs and firearms the government then initiated a forfeiture action against the residence which the trial_court granted on appeal the homeowner contended the residence was not subject_to forfeiture because it was subject_to the state’s homestead_exemption and because the forfeiture was excessive given the property’s appraised value of dollar_figure the homeowner claimed as a resident of oklahoma and a native american indian her property may not be forfeited because it is protected by the general oklahoma homestead_exemption and by the oklahoma constitutional provision relating to indian homesteads the tenth circuit holding federal preemption of the state homestead_exemption was necessary noted congress has the power to preempt state law under article vi of the supremacy clause of the united_states constitution sec_881 provides for forfeiture of all real_property used to commit a federal drug violation thus the statute’s broad unambiguous language is in direct conflict with oklahoma law allowing forfeiture of all property except homestead property furthermore all the other federal circuits which have considered the conflict between sec_881 and state homestead protections have determined residential property is subject_to forfeiture despite state exemptions money laundering proof of proceeds in 278_f3d_486 5th cir rodriguez was convicted of illegal transportation of aliens and money laundering rodriguez was involved in an operation of smuggling undocumented aliens from mexico into north texas rodriguez charged each alien between dollar_figure and dollar_figure to illegally transport them into the united_states eventually rodriguez was stopped at a border checkpoint and seven undocumented aliens were found concealed beneath clothing in the rear of rodriguez’ van subsequently a search warrant was executed at rodriguez’ home where agents found cash and financial documents as well as multiple vehicles and personal luxury items the van in which rodriguez was stopped had been selected and purchased by rodriguez with cash and was the subject of the money laundering counts bank records revealed the van was purchased during a period in which rodriguez was depositing and withdrawing large sums of money into and out of his bank account which included an insurance settlement check for dollar_figure on appeal rodriguez argued there was insufficient evidence to prove the money he used to purchase the van involved proceeds of the specified unlawful activity of transporting and harboring aliens rodriguez further argued he had deposited the dollar_figure settlement check into his bank account withdrew nearly all of it three days later and could have used the money he withdrew to purchase a cashier’s check for dollar_figure which was ultimately used to purchase the van rodriguez claimed there was no proof the cashier’s check was purchased using proceeds from a specified unlawful activity in affirming rodriguez’ money laundering convictions the fifth circuit cited its previous decision in 57_f3d_1374 5th cir in which it held i t is not necessary to prove with regard to any single transaction that the defendant removed all trace of his involvement with the money or that the particular transaction charged is itself highly unusual the court further noted although rodriguez offered an alternate source for the funds used to purchase the van rodriguez ignored the fact the jury was free to discredit his theory the funds were from a legitimate source robber also convicted of money laundering in 272_f3d_1297 11th cir carcione was convicted under the hobbs act u s c based on his participation in the planning and execution of the violent robbery of expensive jewelry belonging to a wealthy elderly woman after the robbery carcione and a co-conspirator crossed state lines later selling a seven and one-half carat diamond stolen during the robbery and dividing the proceeds among all the co- conspirators carcione was also convicted of money laundering under u s c a a i because of his involvement in the sale of the diamond ring for cash carcione appealed his convictions to the eleventh circuit for carcione to be convicted of money laundering the government must prove the elements required under u s c a a i after reviewing carcione’s case the eleventh circuit was satisfied all of the requirements for conviction had been met carcione clearly conducted a financial transaction knowing the diamond ring to be the proceeds of a specified unlawful activity sua to promote the furtherance of the sua hobbs act in reaching its conclusion the court noted the sale of the diamond ring was simply one further step in the ongoing hobbs act conspiracy because by transforming stolen property into cash the financial transaction promoted the ultimate objective of the conspiracy accordingly the eleventh circuit affirmed carcione’s convictions investigative techniques statements of necessity in spin off wiretap applications in 273_f3d_1204 9th cir blackmon appealed his conviction for controlled substance- related offenses arguing the district_court erred in denying his motion to suppress wiretap evidence the blackmon wiretap application was a spin off application from the initial wiretap application which targeted an alleged drug dealer who lived in blackmon’s housing project blackmon argued the application was a duplicate of the initial wiretap and therefore the government's application_for the wiretap failed to make the statutorily required showing of necessity pertaining to him the ninth circuit agreed holding the wiretap evidence should have been suppressed because the application contained material misstatements and omissions and because the application did not otherwise make a particularized showing of necessity in reversing the conviction the ninth circuit found the statements of necessity in the wiretap application_for blackmon were a carbon copy of those in the application_for the initial suspect and therefore did not pertain to blackmon thus the statements of necessity in the wiretap application concerning the use of surveillance and informants in the investigation of the initial suspect were material misstatements when it came to the blackmon investigation furthermore the blackmon wiretap application failed to include any statement of investigative efforts expended on blackmon specifically other than trap and trace devices and pen registers as required by the necessity provision in u s c sec_2518 and c the court then purged the blackmon wiretap application of the material misstatements the remainder of the application contained only boilerplate assertions true of any drug investigation and failed to contain sufficiently specific the requirements of u s c sec_2518 id at to satisfy facts sentencing acceptance of responsibility in united_states v leal-mendoza no u s app lexis 5th cir date the court vacated the district court’s finding that leal-mendoza and galindo did not qualify for a three level reduction for acceptance of responsibility under u s s g sec_3e1 b leal-mendoza and galindo were convicted of transporting a large quantity of drugs in a nonjury trial at sentencing the district_court reluctantly granted a two level reduction for acceptance of responsibility under sec_3e1 a finding the policy of the court was to grant it the district_court however declined to grant an additional reduction of one level under u s s g sec_3e1 b because of its reluctance on whether even the two level decrease was justified on appeal the fifth circuit analyzed whether leal- mendoza and galindo qualified for a three level reduction under sec_3e1 b based on whether they qualified for a two level reduction under sec_3e1 a to qualify for a three level reduction under sec_3e1 b a defendant must meet three criteria he she must qualify for the two level reduction under sec_3e1 a the offense level prior to the operation of sec_3e1 a must be a level or higher and he she must either timely provide complete information to the government concerning his own involvement in the offense or timely enter a guilty plea here the court found once the district_court granted leal-mendoza and galindo a two level reduction under sec_3e1 a the district_court was not entitled to revisit whether they merited an acceptance of responsibility reduction under sec_3e1 b having found leal-mendoza and galindo met the first prong of sec_3e1 b the court limited its determination to whether leal-mendoza and galindo met the two remaining prongs under sec_3e1 b thus the court upon concluding leal-mendoza and galindo met the two remaining prongs under sec_3e1 b vacated their sentences and remanded for re-sentencing minor participant sophisticated concealment obstruction of justice and departure in 274_f3d_1053 6th cir as factually set forth on page four of this bulletin the sixth circuit held sabino was not entitled to a reduction in his offense level for serving as a minor participant in the conspiracy while sabino contributed no special knowledge or skills to the completion of the conspiracy the sixth circuit ruled sabino’s actions as trustee were indispensable to the conspiracy and thus the district court’s reduction in his offense level was clearly erroneous because of the complexity of the case coupled with the use of seven trusts and other sham financial transactions to complete the tax_evasion conspiracy and conceal the stewarts’ ownership interests the sixth circuit also ruled the district_court abused its discretion by failing to apply the sophisticated concealment enhancement to sabino and the stewarts the government contended the district_court erred in failing to enhance sabino’s and donna stewart’s sentences for obstruction of justice as a result of false testimony they gave in grand jury proceedings the sixth circuit however determined since the false statements were overt acts in furtherance of the conspiracy to impose an enhancement for obstruction of justice would constitute double- counting accordingly the sixth circuit upheld the district court’s failure to enhance sabino’s and donna stewart’s sentences for obstruction of justice finally the government contended the district_court erred in granting sabino a downward departure based on the recent death of sabino’s wife his age his poor health absence of any physical risk to others absence of a risk of flight and the court’s conclusion sabino played a minor role in the conspiracy because of the relatively small departure the sixth circuit opined the district_court did not abuse its discretion by departing downward three levels in sabino’s offense level government not compelled to seek downward departure in 274_f3d_420 6th cir hawkins pled guilty to two counts of aiding_and_abetting in two armed bank robberies as part of his plea agreement hawkins agreed to cooperate with authorities hawkins did everything expected of him giving federal agents helpful information regarding the involvement identity and whereabouts of other individuals involved in the bank robberies when hawkins was sentenced the government failed to move for a downward departure based on hawkins’s substantial assistance to the government pursuant to u s s g sec_5k1 consequently hawkins appealed to the sixth circuit claiming the district_court erred by failing to compel the government to file a motion for a downward departure the government responded by arguing filing a motion for a downward departure was within the government’s discretion absent unconstitutional motives the government could not be compelled to file the motion and hawkins was not entitled to a reduction because he had not been required to plead guilty to two associated firearms offenses as articulated in its decision in 225_f3d_637 6th cir the sixth circuit’s rule is the government’s refusal to move for a downward departure where a plea agreement gives complete discretion to the government in regard to a sec_5k1 departure is subject_to review by the court only to ascertain whether it was grounded on unconstitutional motives such as race or religion hawkins has made no allegation the government’s action was precipitated by unconstitutional motives rather hawkins claims the government’s refusal to request a downward departure in his sentencing violates his constitutional rights to due process and equal protection and was not rationally related to any legitimate government purpose accordingly the sixth circuit affirmed the decision of the district_court nevertheless the panel hearing hawkins’ case opined the rule followed by the sixth circuit may create an unduly restrictive interpretation of the supreme court’s decision in 504_us_181 and recommended an en_banc review of their decision in this case to possibly modify or clarify the circuit’s interpretation of wade especially when as here the government conceded a defendant had done everything expected of him government’s failure to adhere to terms of plea agreement violates a defendant’s substantial rights the case failed in 278_f3d_644 6th cir the sixth circuit vacated the district_court sentence and for re-sentencing because remanded the government to make an express sentence recommendation agreed to in the plea agreement barnes pleaded guilty to using a communication device to facilitate a drug felony as part of the plea agreement the government agreed to recommend the district_court impose a sentence at the low end of the guideline range even though the terms of the plea were read aloud by the court at the plea hearing including the government’s specific sentence recommendation the government failed to state on the record its recommendation at the sentencing hearing at the sentencing hearing the guideline range was determined to be to months and the court sentenced barnes to eighteen months’ imprisonment barnes appealed the sentence be said that there is nothing for the defendant to withdraw the seventh circuit ruled rule e is triggered only when the district_court completes the plea process by accepting the plea accordingly in shaker’s case the seventh circuit reversed the decision of the district_court holding the district_court should have permitted shaker to withdraw his plea at any time before the plea was accepted by the court furthermore the seventh circuit stated the district_court should have allowed shaker to withdraw his plea without any inquiry into his reasons for seeking to set the plea aside upon remand for re-sentencing a district_court is not limited to the existing record in 278_f3d_880 9th cir matthews was convicted in district_court of being a felon in possession of a firearm and sentenced as an armed career criminal to months of incarceration matthews appealed both the underlying conviction as well as his sentence a three judge panel of the ninth circuit affirmed matthews’ conviction reversed his sentence and remanded the case to the district_court for re-sentencing on the existing record the ninth circuit agreed to rehear matthews’ case en_banc to determine when remanding for re-sentencing whether it should limit the district court’s discretion to consider additional evidence the ninth circuit held if a district_court errs in sentencing and the case is remanded for re-sentencing without placing limitations on the evidence the district_court can consider all matters relevant to sentencing even though they may not have been raised at the first sentencing hearing see 515_us_389 however under certain circumstances the ninth circuit limits the discretion of the district_court to repentance de novo such cases involve circumstances in which either additional evidence would not have changed the outcome or where there was a failure of proof after a full inquiry into the factual question at issue 247_f3d_905 9th cir en_banc in matthews’ case the ninth circuit opined the circumstances of the case did not warrant a departure from its general practice of remanding without limiting the district court’s sentencing discretion and remanded accordingly on appeal the sixth circuit applied a plain error standard of review to barnes’ claim because he failed to object to the sentence at the sentencing hearing under this standard of review the court could only reverse if it found plain error had affected the barnes’ substantial rights and had seriously affected the fairness integrity or public reputation of the judicial proceedings the sixth circuit followed previous decisions in which it held it was irrelevant whether the sentencing judge would or would not have been influenced had the details of the negotiations for the plea been known thus even though the court may have read and had the barnes’ plea agreement before it that alone was insufficient to establish the government had upheld its part of the plea agreement by failing to expressly request that barnes be sentenced at the low end of the guideline range at the sentencing hearing the government breached the plea agreement this failure to adhere to the letter of the plea agreement affected barnes’ substantial rights as well as the integrity of the judicial proceeding the court vacated the sentence remanded the case and ordered barnes to be re- sentenced before a different district_court judge a guilty plea can be withdrawn at any time before the plea agreement is accepted by the court in 279_f3d_494 7th cir the seventh circuit considered an appeal by shaker who had pleaded guilty to a charge of possession of a firearm by a felon as a condition of a plea agreement before the district_court had accepted the plea however shaker changed his mind and sought to withdraw his plea the government argued federal rule_of criminal procedure e prevented the withdrawal of a plea without a fair and just reason and shaker had proffered no such reason the district_court sided with the government and denied shaker’s motion to withdraw his guilty plea on appeal the government maintained the district_court did not abuse its discretion by denying shaker’s motion to withdraw his guilty plea because shaker failed to comply with rule e the seventh circuit articulated its view that a guilty plea arrangement is a process involving both the defendant and the court culminating in the court’s acceptance of the plea a crucial component of the process is the court’s ultimate acceptance of the guilty plea see 520_us_670 indeed the seventh circuit opined until the plea is accepted it might criminal tax bulletin february table of cases supreme court cases united_states v knights 122_sct_587 united_states v dusenbery 122_sct_694 title_26 and title_26 related cases 264_f3d_535 5th cir 277_f3d_339 3rd cir 277_f3d_339 3rd cir search and seizure 275_f3d_391 4th cir 275_f3d_449 5th cir other constitutional issues 274_f3d_1053 6th cir grand jury 277_f3d_407 3rd cri evidence 274_f3d_1053 6th cir forfeiture 274_f3d_800 4th cir 278_f3d_1091 10th cir money laundering 278_f3d_486 5th cir 272_f3d_1297 11th cir investigative techniques 273_f3d_1204 9th cir sentencing united_states v leal-mendoza no u s app lexis 5th cir date 274_f3d_1053 6th cir 274_f3d_420 6th cir 278_f3d_644 6th cir 279_f3d_494 7th cir 278_f3d_880 9th cir department of the treasury internal_revenue_service document catalog number 24304b


internal_revenue_service number release date index number ------------------------------------ --------------------------------------- -------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-126794-13 date date legend x --------------------------------------- ----------------------------------------------------------- a ------------------------ ------------------------------------------------------------ state date year ---------------- ------------------- ------- dear --------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code facts based on the materials submitted on behalf of x we understand the relevant facts to be as follows x was formed as a limited_liability_company under the laws of state x is treated as a partnership for federal tax purposes a a member of x died on date x inadvertently failed to timely make an election under sec_754 for the year of a’s death plr-126794-13 x represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election x further represents that it has filed returns for year and all subsequent years consistent with the election law and analysis sec_754 provides that if a partnership files an election in accordance with regulations prescribed by the secretary the basis of partnership property shall be adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interest in the partnership during the taxable_year with respect to which the election was filed and all subsequent tax years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-126794-13 based solely upon the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days following the date of this letter to make an election under sec_754 effective for its year taxable_year and thereafter the election should be made in a written_statement filed with the appropriate service_center a copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose except as expressly set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts discussed above under any other provision of the code specifically we express no opinion as to whether or not x is a partnership for federal tax purposes this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc