Hamlet C. Bennett - Architect of his own fate
Posted: Mon Dec 22, 2014 9:25 pm
Protestor gets both 75% fraudulent failure to file penalty, and a $25,000 section 6673 penalty.
Hamlet C. Bennett v. Comm'r, T C. Memo. 2014-256
http://www.ustaxcourt.gov/InOpTodays/Be ... CM.WPD.pdf
Excerpt:
In applying section 6651(f) to determine whether petitioner’s failure to file
tax returns was fraudulent, we consider the same elements considered in cases
involving former section 6653(b) and present section 6663. See Clayton v.
Commissioner, 102 T.C. 632, 653 (1994); Niedringhaus v. Commissioner, 99 T.C.
202, 211-213 (1992). Fraud may be proved by circumstantial evidence, and the
taxpayer’s entire course of conduct may establish the requisite fraudulent intent.
Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). Circumstantial evidence of [*11] 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, e.g., Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir.
1986), aff’g T.C. Memo. 1984-601; Powell v. Granquist, 252 F.2d 56, 60 (9th Cir.
1958); Grosshandler v. Commissioner, 75 T.C. 1, 19-20 (1980); Gajewski v.
Commissioner, 67 T.C. 181, 199-200 (1976), aff’d without published opinion, 578
F.2d 1383 (8th Cir. 1978).
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 Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason v. Commissioner, 64 T.C.
651, 656-657 (1975), aff’d, 566 F.2d 2 (6th Cir. 1977). 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 secs. 1, 6011, 6012.
[*12] 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 1995, stopping only after he
faced large tax liabilities for 1993 and 1994. 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 Miller
v. Commissioner, 94 T.C. 316, 332-336 (1990); Chase v. Commissioner, T.C.
Memo. 2004-142; Tonitis v. Commissioner, T.C. Memo. 2004-60; Madge v.
Commissioner, T.C. Memo. 2000-370, aff’d, 23 Fed. Appx. 604 (8th Cir. 2001);
Greenwood v. Commissioner, T.C. Memo. 1990-362.
Petitioner was warned of the possibility of a penalty under section 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 [*13] circumstances, section 6673(a)(1) provides for a penalty not in excess of
$25,000 when proceedings have been instituted or maintained by the taxpayer
primarily for delay or the taxpayer’s position is frivolous or groundless. It mayseem that an additional $25,000 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 Coleman v. Commissioner, 791
F.2d 68, 71-72 (7th Cir. 1986); Takaba v. Commissioner, 119 T.C. at 295. An
award of $25,000 to the United States will be included in the decision to be
entered here.
Hamlet C. Bennett v. Comm'r, T C. Memo. 2014-256
http://www.ustaxcourt.gov/InOpTodays/Be ... CM.WPD.pdf
Excerpt:
In applying section 6651(f) to determine whether petitioner’s failure to file
tax returns was fraudulent, we consider the same elements considered in cases
involving former section 6653(b) and present section 6663. See Clayton v.
Commissioner, 102 T.C. 632, 653 (1994); Niedringhaus v. Commissioner, 99 T.C.
202, 211-213 (1992). Fraud may be proved by circumstantial evidence, and the
taxpayer’s entire course of conduct may establish the requisite fraudulent intent.
Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983). Circumstantial evidence of [*11] 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, e.g., Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir.
1986), aff’g T.C. Memo. 1984-601; Powell v. Granquist, 252 F.2d 56, 60 (9th Cir.
1958); Grosshandler v. Commissioner, 75 T.C. 1, 19-20 (1980); Gajewski v.
Commissioner, 67 T.C. 181, 199-200 (1976), aff’d without published opinion, 578
F.2d 1383 (8th Cir. 1978).
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 Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason v. Commissioner, 64 T.C.
651, 656-657 (1975), aff’d, 566 F.2d 2 (6th Cir. 1977). 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 secs. 1, 6011, 6012.
[*12] 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 1995, stopping only after he
faced large tax liabilities for 1993 and 1994. 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 Miller
v. Commissioner, 94 T.C. 316, 332-336 (1990); Chase v. Commissioner, T.C.
Memo. 2004-142; Tonitis v. Commissioner, T.C. Memo. 2004-60; Madge v.
Commissioner, T.C. Memo. 2000-370, aff’d, 23 Fed. Appx. 604 (8th Cir. 2001);
Greenwood v. Commissioner, T.C. Memo. 1990-362.
Petitioner was warned of the possibility of a penalty under section 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 [*13] circumstances, section 6673(a)(1) provides for a penalty not in excess of
$25,000 when proceedings have been instituted or maintained by the taxpayer
primarily for delay or the taxpayer’s position is frivolous or groundless. It mayseem that an additional $25,000 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 Coleman v. Commissioner, 791
F.2d 68, 71-72 (7th Cir. 1986); Takaba v. Commissioner, 119 T.C. at 295. An
award of $25,000 to the United States will be included in the decision to be
entered here.