SCOTUS Reports

Tag: 26 U.S.C. § 6673

  • Goff v. Commissioner, 135 T.C. 231 (2010): Validity of Payment Methods for Tax Liabilities

    Goff v. Commissioner, 135 T. C. 231 (U. S. Tax Court 2010)

    In Goff v. Commissioner, the U. S. Tax Court ruled that a ‘Bonded Promissory Note’ submitted by the taxpayer’s husband did not constitute payment of federal income tax and civil penalties. The court upheld the IRS’s right to proceed with collection and imposed a $15,000 penalty on the taxpayer for advancing frivolous arguments, highlighting the importance of legal tender in tax payment obligations and the court’s stance against delaying tactics.

    Parties

    Lisa S. Goff, as the Petitioner, filed the case pro se. The Respondent was the Commissioner of Internal Revenue, represented by Richard W. Kennedy.

    Facts

    Lisa S. Goff sought to challenge the IRS’s determination to collect her unpaid federal income taxes for the years 1996 through 2006, and civil penalties for filing frivolous returns for the years 1997, 1999, 2000, 2003, and 2004. Goff claimed that her liabilities were paid by a ‘Bonded Promissory Note’ issued by her husband, Harvey D. Goff, Jr. , in the amount of $5 million, sent to the IRS. The IRS rejected the note as payment, and Goff proceeded to the U. S. Tax Court for review of the IRS’s determination.

    Procedural History

    Goff received a notice of intent to levy from the IRS and requested a pre-levy hearing under section 6330 of the Internal Revenue Code. The IRS Appeals Office rejected Goff’s claim that the liabilities had been paid by the note. Goff then timely filed a petition in the U. S. Tax Court, which conducted a de novo review of the IRS’s determinations. The court sustained the IRS’s determinations and imposed a penalty under section 6673(a)(1) of the Internal Revenue Code.

    Issue(s)

    Whether a ‘Bonded Promissory Note’ submitted by Goff’s husband constituted payment of her tax liabilities and penalties under the Internal Revenue Code?

    Whether the court should impose an additional penalty on Goff pursuant to section 6673 of the Internal Revenue Code for instituting the proceeding primarily for delay or advancing a frivolous or groundless position?

    Rule(s) of Law

    The Internal Revenue Code specifies that ‘coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. ‘ (31 U. S. C. § 5103). Section 6311 of the Internal Revenue Code authorizes the Secretary to receive for taxes any commercially acceptable means prescribed by regulations, which do not include private bonds or notes. Section 6673(a)(1) allows the court to impose a penalty not exceeding $25,000 if a taxpayer institutes or maintains a proceeding primarily for delay or if the taxpayer’s position is frivolous or groundless.

    Holding

    The court held that the ‘Bonded Promissory Note’ did not constitute payment of Goff’s tax liabilities and penalties because it was not recognized as legal tender under the relevant statutes and regulations. The court further held that Goff was subject to a $15,000 penalty under section 6673(a)(1) for instituting the proceeding primarily for delay and advancing a frivolous position.

    Reasoning

    The court’s reasoning focused on the legal definitions of payment under the Internal Revenue Code, emphasizing that only legal tender or commercially acceptable means prescribed by regulations can be used for payment of taxes. The court cited 31 U. S. C. § 5103 and section 6311 of the Internal Revenue Code to support its conclusion that the note did not meet these criteria. The court also considered the frivolous nature of Goff’s argument, her refusal to comply with court orders, and her husband’s nonsensical claims, which suggested the case was instituted primarily for delay. The court referenced prior case law, such as Boyd v. Commissioner and Landry v. Commissioner, to justify its de novo review and the imposition of the penalty under section 6673(a)(1). The court noted that Goff’s position was contrary to established law and lacked any reasoned argument for change, thus warranting the penalty.

    Disposition

    The court sustained the IRS’s determinations and ordered Goff to pay a penalty of $15,000 under section 6673(a)(1) of the Internal Revenue Code.

    Significance/Impact

    This case reinforces the principle that only legal tender or commercially acceptable means prescribed by regulations can be used to pay tax liabilities. It also serves as a warning to taxpayers against using frivolous arguments and delaying tactics in tax disputes, as such actions can result in significant penalties. The ruling underscores the court’s commitment to maintaining the integrity of the tax system and the importance of adhering to established legal procedures in tax litigation.

  • Cabirac v. Comm’r, 120 T.C. 163 (2003): Validity of Tax Returns and Additions to Tax

    Cabirac v. Commissioner of Internal Revenue, 120 T. C. 163 (U. S. Tax Ct. 2003)

    In Cabirac v. Commissioner, the U. S. Tax Court ruled that Michael A. Cabirac’s tax forms with zero entries for 1997 and 1998 were not valid returns, leading to upheld deficiencies and additions to tax. The court found his arguments frivolous, affirming that wages, interest, and distributions are taxable, and imposed a penalty for maintaining a groundless position. This decision underscores the necessity for honest and reasonable attempts at tax compliance.

    Parties

    Michael A. Cabirac, the petitioner, represented himself pro se throughout the proceedings. The respondent, the Commissioner of Internal Revenue, was represented by James N. Beyer. The case was heard by the United States Tax Court.

    Facts

    Michael A. Cabirac received wages, interest, and distributions from a pension fund and individual retirement accounts (IRAs) in 1997 and 1998. He filed Forms 1040 and 1040A for those years, respectively, but entered zeros on the relevant lines for computing his tax liability. Cabirac argued that the income tax is an excise tax and that he was not engaged in taxable excise activities. The Commissioner did not accept these forms as valid returns because they contained no information upon which Cabirac’s tax liability could be determined. The Commissioner prepared substitutes for return (SFRs) for Cabirac for 1997 and 1998, which also contained zeros on the relevant lines. Subsequently, the Commissioner mailed a notice of proposed tax adjustments to Cabirac, with an attached revenue agent’s report.

    Procedural History

    The Commissioner determined deficiencies in Cabirac’s Federal income taxes and additions to tax for the years 1997 and 1998. After Cabirac filed his returns with zero entries, the Commissioner rejected them and prepared SFRs. A notice of proposed adjustments, including a revenue agent’s report, was sent to Cabirac. After Cabirac did not agree to the proposed adjustments, the Commissioner issued a notice of deficiency on September 28, 2001. Cabirac then petitioned the United States Tax Court, which conducted a trial and rendered its decision on April 22, 2003.

    Issue(s)

    Whether Cabirac received taxable income in the amounts determined by the Commissioner for the years 1997 and 1998?

    Whether Cabirac is liable for a 10-percent additional tax on the taxable amounts of his pension and IRA distributions?

    Whether Cabirac is liable for additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654 of the Internal Revenue Code?

    Whether a penalty under section 6673(a)(1) of the Internal Revenue Code should be imposed on Cabirac?

    Rule(s) of Law

    Gross income includes all income from whatever source derived, including wages, interest, and pension and IRA distributions. See 26 U. S. C. § 61(a). A valid tax return must contain sufficient data to calculate tax liability, purport to be a return, represent an honest and reasonable attempt to satisfy tax law requirements, and be executed under penalties of perjury. See Beard v. Commissioner, 82 T. C. 766 (1984), aff’d, 793 F. 2d 139 (6th Cir. 1986). Additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654 are applicable for failure to file, failure to pay, and failure to pay estimated taxes, respectively. A penalty under section 6673(a)(1) can be imposed for maintaining frivolous or groundless positions in proceedings.

    Holding

    The court held that Cabirac received taxable income in the amounts determined by the Commissioner for 1997 and 1998. Cabirac is liable for a 10-percent additional tax on the taxable amounts of his pension and IRA distributions. Cabirac is liable for additions to tax under sections 6651(a)(1) and 6654 for failure to file and failure to pay estimated taxes, respectively. The additions to tax under section 6651(a)(2) do not apply because there was no tax shown on any returns attributable to Cabirac, and the SFRs prepared by the Commissioner did not meet the requirements for a return under section 6020(b). A penalty of $2,000 was imposed under section 6673(a)(1) for maintaining a frivolous position.

    Reasoning

    The court reasoned that Cabirac’s argument that income tax is an excise tax and he was not engaged in taxable excise activities was frivolous and had been rejected in previous cases. The court affirmed that wages, interest, and distributions constitute taxable income under sections 61(a), 61(a)(4), 61(a)(11), and 408(d)(1). The court found that the forms Cabirac filed, with zero entries, did not constitute valid returns because they did not contain sufficient data to calculate tax liability and did not represent an honest and reasonable attempt to satisfy tax law requirements. The court rejected the Commissioner’s argument that the SFRs, when considered with the subsequent notice of proposed adjustments and revenue agent’s report, constituted valid returns under section 6020(b), as these documents were not attached to the SFRs and were not subscribed as required. The court held that the Commissioner did not meet the burden of production with respect to the appropriateness of imposing the section 6651(a)(2) addition to tax. Finally, the court imposed a penalty under section 6673(a)(1) due to Cabirac’s frivolous position, which was maintained primarily for delay.

    Disposition

    The court entered judgment for the Commissioner except for the additions to tax under section 6651(a)(2), which do not apply.

    Significance/Impact

    This case reaffirms the principle that a tax return must contain sufficient data to calculate tax liability and represent an honest and reasonable attempt to comply with tax laws. It also highlights the court’s willingness to impose penalties for maintaining frivolous positions. The decision provides clarity on the treatment of SFRs and the requirements for valid returns under section 6020(b). It has implications for taxpayers who attempt to avoid tax liability by filing forms with zero entries and for the Commissioner’s procedures in preparing SFRs. Subsequent cases have cited Cabirac for its holdings on the validity of returns and the application of penalties under section 6673(a)(1).