Sometimes people with ideas that are shocking and revolutionary are ahead of their time. And sometimes they are just wrong.
“Tax Honesty” figure Joe Banister has been in the second category for some time, as far as the Tax Court is concerned. The former KPMG accountant and IRS criminal division agent made an unusual career change, becoming a guru for those who insist there is no federal income tax. His biggest success may have been winning an acquittal on criminal tax charges in 2005. His courtroom ventures have been less rewarding since.
In 2008, the Tax Court ruled that he owed tax on about $24,000 in unreported income from 2002. Yesterday they hit him harder.
This case picked up Mr. Banister’s unfiled return string in 2003. From the Tax Court’s opinion (emphasis mine):
During 2003, 2004, 2005, and 2006, petitioner earned income from his tax consultation services, speeches, book sales, and other business activities promulgating his views of the Federal income tax system. In 2006 he received $71,497 in nonemployee compensation. He deposited his income into six bank accounts over which he maintained control. He earned interest income on some of them. Deposits into those accounts totaled $280,270.01, $522,418.98, $247,666.61, and $118,608.72 for 2003, 2004, 2005, and 2006, respectively. Petitioner did not file Federal income tax returns or pay taxes for any of those years.
The IRS commenced an audit for petitioner’s 2003 through 2006 tax years. Petitioner failed to submit for examination complete and adequate books and accounts for the years under audit. He resisted IRS efforts to obtain bank records through the use of summonses. The IRS ultimately prepared substitutes for returns under section 6020(b), determining petitioner’s correct adjusted gross income for each year by the bank deposits analysis method. The IRS determined that taxable deposits into the six bank accounts were $143,607.46, $177,402.24, $130,502.24, and $87,389.49 for 2003, 2004, 2005, and 2006, respectively. Those amounts were used in the statutory notice sent to petitioner.
It appears that giving odd tax advice is at least as lucrative as being a criminal agent. But maybe not after tax and penalties, as we will see.
During the course of this case, petitioner did not deny receipt of the income determined in the statutory notice and did not identify deductions that had not been allowed. His arguments, his motions, his attempts to conduct discovery, and his cross-examination of respondent’s witnesses at trial have been directed to his claim that the statutory notice was invalid because it was not signed by an authorized person and that, as a result, this Court lacks jurisdiction over his case. In his pretrial memorandum he also asserted that his U.S. income was not subject to tax and that he had no obligation to file tax returns, repeating or restating the arguments that had led to his disqualification to practice before the IRS and his loss of his certified public accountant’s license. Petitioner refused to testify at trial, citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a “motion for offer of proof” that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.
It didn’t work, and the Tax Court upheld deficiencies of $176,786. They tacked on 25% failure to file penalties and 75% fraud penalties, and estimated tax underpayment penalties, about doubling the bill. Then for good measure they penalized him $25,000 for making “frivolous” arguments in Tax Court.
Assuming the IRS accurately assessed Mr. Banister’s income, he netted $152,801 after tax for four years — though California will surely want some of that. Assuming conservatively that 20% of what’s left after taxes and penalties goes to the Golden State coffers, Mr. Banister nets about $122,000 after tax and penalties for four year’s work — an amount that probably compares poorly to what he would have pocketed with less trouble had he stuck it out at IRS. Of course, there might be other cash income out there that never hit the IRS bank account computation.
The funny thing is, Mr. Banister could have filed his tax returns and cut his tax bill in half — and nobody would have been the wiser, except for the IRS. It may have been foolish consistency for him to take his own advice, but consistency it was.
I doubt Mr Banister is done in court. It’s not typical of hard-core “tax honesty” adherents to just pay assessments. The IRS is likely to have to slog through the dreary process of levy and asset seizure now. For those who think that Mr. Banister actually understands the tax law, this dismal record of assessment and collection litigation should be instructional. Unfortunately, anybody who still buys tax protest thinking is by definition a slow learner.
Russ Fox has more: The Second Time Wasn’t the Charm
Busy day, so just some quick links.
Robert D. Flach has fresh Tuesday Buzz, with links to Jason Dinesen and thoughts on national franchise tax prep firm marketing.
Kay Bell, Senate Finance Democratic duo introduces bill that would give IRS regulatory authority over paid tax preparers. Fine, if the Senators require themselves and their House colleagues to do their own returns on a live webcast, by hand, with a rolling comment screen so their regulated preparers can chime in with all kinds of helpful advice.
Kyle Pomerleau, The Earned Income Tax Credit Still Faces High Error Rate (Tax Policy Blog).
Jeremy Scott, Nunes Plan Ignores Base Erosion Concerns:
Republican House taxwriter Devin Nunes released a business tax reform plan last week that would gradually lower tax rates to 25 percent and move to full expensing. Nunes’s plan shifts U.S. international tax rules toward territoriality and imposes a 5 percent tax on a company’s undistributed earnings. He says that when it is scored, it will be revenue neutral. Sounds great, right? Well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, saying when pressed that those concerns are “irrelevant” because he is creating a new tax code.
Tax reform in this Congress seems unlikely, but if 2016 adds a Republican President to a GOP Senate and House, things they’re talking about now could turn into law in a hurry.
Martin Sullivan, Would Congress Dare Pass the Nunes Plan? (Tax Analysts Blog):
TaxProf, The IRS Scandal, Day 614
Career Corner. So You Passed the CPA Exam; What Do You Want, a Cookie? (Adrienne Gonzalez, Going Concern)