Arguments that you don’t have to really pay federal income taxes never go away despite a long and dismal record of failure. They are typically advanced by self-educated folks, often claiming to have spent hundreds of hours researching the tax law to prove that it doesn’t exist. Non-lawyers tend to do poorly in advancing legal arguments. If a real lawyer tried these arguments, might it go better?
A Maryland Attorney stopped filing tax returns after 2004. The IRS eventually noticed. The result was assessment of additional tax and penalties for fraudulent failure to file. The attorney took the matter to Tax Court, where Judge Goeke sets the scene:
Petitioner testified that during 2006 “without looking for it” he discovered information which led him to conclude that he was not required to file Federal tax returns or pay Federal income taxes. As a result, petitioner has not filed a personal Federal tax return for any year since 2004.6 However, petitioner did make a $2,000 estimated tax payment to the U.S. Treasury for the 2005 tax year and also made a payment to the U.S. Treasury of $45,000 in April 2006, in connection with the filing of a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, for 2005. The $45,000 payment was credited to petitioner’s 2005 income tax account.7 Petitioner did not make any payments with respect to his 2006 tax.
So he discovered the secret to not paying tax but extended his 2005 return anyway? Old habits are hard to break, I suppose. The IRS started poking around, subpoenaing his bank records. He didn’t care for that:
After learning of the subpoenas duces tecum issued to his banks, petitioner filed a motion to dismiss seeking to have his case dismissed without prejudice. Petitioner mailed a letter to M&T Bank in which he stated: “Because I am dismissing this case, the Subpoena issued by the IRS to M&T Bank should no longer be valid, and M&T Bank should not be required to respond by producing copies of my account records.” Shortly after he mailed this letter to M&T Bank, we denied petitioner’s motion to dismiss.
I know attorneys are “officers of the court,” but I don’t think that lets them quash subpeonas.
So how did the arguments fare in Tax Court? Badly:
Petitioner repeatedly claims his arguments are not frivolous, but we disagree. Regarding petitioner’s constitutional arguments, courts have previously stated that “The constitutionality of our income tax system — including the role played within that system by the Internal Revenue Service and the Tax Court — has long been established.” Crain v. Commissioner, 737 F.2d at 1417-1418; see also Powers v. Commissioner, T.C. Memo. 2009-229; DiCarlo v. Commissioner, T.C. Memo. 1992-280. We therefore hold these constitutional arguments are frivolous.
The judge suggested that there might be more behind the arguments than an accidental discovery of the secret to tax-free lawyering:
Petitioner argues that he stopped filing tax returns only upon discovering information in 2006 which led him to conclude that he was not required to file tax returns or pay taxes. We believe it more likely that petitioner stopped filing tax returns because of his larger tax burden resulting from the increasing profitability of his law practice.
Rather than making the arguments more effective, it seems that being a lawyer made things worse for the taxpayer:
Petitioner is a highly intelligent individual with graduate degrees in both engineering and law. He is an accomplished businessman and attorney, having formed his own successful law practice which he incorporated as an S corporation for tax reasons after an accountant suggested doing so. Although he does not practice in the area of tax, nor did he take any tax courses in law school, petitioner has the intelligence and ability to recognize the frivolous, incorrect, and completely discredited nature of the arguments he has made in support of his failure to pay Federal taxes or file a Federal tax return. We find these facts are further evidence of fraud.
The judge upheld the assessed tax and the fraudulent failure to file penalties.
The Moral? Crackpot arguments don’t become legal scholarship in the hands of a trained lawyer. Garbage in, garbage out.
Cite: Worsham, T.C. Memo 2012-219.
UPDATE: The TaxProf has more.