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Tax Protestor Dummies 2 > Cases
("Damn, We Lost Again!
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SHIRLEY L. JOHNSON,
COMMISSIONER OF INTERNAL REVENUE,
NJSJ ASSET MANAGEMENT TRUST, SHIRLEY L. JOHNSON, TRUSTEE,
COMMISSIONER OF INTERNAL REVENUE,
UNITED STATES TAX COURT
Filed February 27, 2001
HELD: Petitions by J, individually and as trustee, are dismissed for lack of
prosecution. Attorney's fees are awarded under I.R.C. sec. 6673(a)(2) against
petitioners' counsel, who multiplied the proceedings unreasonably and vexatiously.
Joe Alfred Izen, Jr., and Jane Afton Izen, for petitioners.
Christina D. Moss, Elizabeth Girafalco Chirich, and Marion S. Friedman, for
 COHEN, JUDGE: In the case at docket No. 6452-99, respondent
determined deficiencies of $12,476 and $15,260 and accuracy-related
penalties under section 6662(a) of $2,495.20 and $3,052,
with respect to Federal income taxes of petitioner Shirley
L. Johnson (Johnson) for 1996 and 1997, respectively. The
deficiencies and penalties were attributable to adjustments
related to Johnson's receipt of income from NJSJ Asset Management
Trust (NJSJ Trust).
 In the case at docket No. 6453-99, respondent determined
deficiencies of $14,056 and $17,593 and accuracy-related
penalties under section 6662(a) of $2,811 and $3,519 with
respect to petitioner NJSJ Trust's tax liability for 1996
and 1997, respectively. Those deficiencies were attributable
to respondent's disallowance of Schedule C, Profit or Loss
From Business, expenses, charitable contributions, and an
income distribution deduction claimed by NJSJ Trust.
 The primary issue in these consolidated cases is whether
income reported by NJSJ Trust is taxable to Johnson on alternative
grounds of lack of economic substance, assignment of income,
or grantor trust principles. The cases are now before the
Court, however, on respondent's motions to dismiss each of
the cases for lack of prosecution and for the Court to determine
the penalty to be awarded to the United States against petitioners'
counsel, Joe Alfred Izen, Jr. (Izen), under section 6673(a)(2)(A).
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
 The petitions in these cases were filed by Johnson,
individually and as trustee of the NJSJ Trust, on April 5,
1999. In each case, Houston, Texas, was designated by petitioners
as the place of trial, although Johnson resided in Indiana
at the time. The cases were first set for trial at a session
set for Houston on October 25, 1999. Izen entered his appearances
in these cases on August 4, 1999, and October 18, 1999, respectively.
Izen is a resident of Texas.
 On or about 75 days before the October 25, 1999, trial
date, the last day for serving formal discovery in accordance
with Rule 70(a)(2), respondent served first sets of interrogatories
and requests for production of documents on petitioners.
Thirty days later, on the last day for filing motions to
compel discovery, respondent filed motions to compel responses
to the first sets of interrogatories and requests for production
of documents, requesting sanctions in the event that petitioners
failed to comply with Court- ordered discovery. Respondent's
motions to compel discovery were granted.
 Although petitioners served responses to the interrogatories
and requests for production, the response to most of the
interrogatories and requests consisted of the words "Fifth
Amendment" in lieu of the requested information. Thereafter,
in replying to respondent's status report questioning the
good faith of petitioners' responses, petitioners filed Motions
for In Camera Review of Discovery Responses and Entry of
Order Abating Case. Petitioners asserted that an ongoing
criminal investigation of abusive trusts justified petitioners'
assertion of the Fifth Amendment privilege.
 Petitioners' motions for in camera review and for "abatement" and
respondent's subsequent motions to impose sanctions were
heard in Houston on October 25, 1999. Petitioners' motions
were denied. Petitioners were ordered to turn over to respondent
certain documents, and respondent's motions for sanctions
were denied. The cases were continued, and the parties were
ordered to file status reports describing the status of discovery
and proposing mutually acceptable dates for trial in Washington,
D.C. After the reports were filed, the cases were calendared
for trial in Washington, D.C., on May 3, 2000.
 As anticipated by the Court's order setting the cases
for trial in Washington, D.C., further discovery requests
were served by respondent on petitioners. The Court was involved
in attempts to encourage informal exchange of information
and informal discovery, through conference telephone calls
and status reports from the parties. Petitioners failed to
comply, and respondent filed motions to compel responses.
Respondent's motions were granted, and petitioners were ordered
to provide responses on or before April 7, 2000. The Court's
order included the following:
ORDERED that in the event petitioners do not fully comply
with the provisions of this Order, this Court may impose
sanctions pursuant to Tax Court Rule 104, which may include
dismissal of these cases and entry of a decision against
 Petitioners failed to comply, and a Motion to Impose Sanctions was filed
by respondent. Johnson filed a Notice of Petitioner's Temporary Incapacity,
claiming that Johnson's physical condition precluded her participation in the
trial set in Washington, D.C. The Court continued the cases for trial to the
December 4, 2000, regular trial session previously set in Houston, but the
cases remained calendared for hearing on respondent's Motion to Impose Sanctions
on May 3, 2000, in Washington, D.C.
 At the May 3, 2000, hearing, Izen's associate, Jane
Afton Izen, appeared for petitioners. Petitioners were directed
to provide further answers to interrogatories and to produce
certain documents. Specifically, with respect to interrogatory
No. 38 of the second set of interrogatories, the following
THE COURT: The respondent has asked for universities and
colleges attended. Have you been able to provide that information?
MS. IZEN: I suppose that we could supplement that with the names of the universities.
THE COURT: Respondent has asked for that information, the areas of study and
degrees awarded. Have you provided that information?
MS. IZEN: I don't see the specific names of the university. It says she had
two years of college, and it does say colleges attended. So we could get the
name of that.
THE COURT: I would direct that within two weeks you provide that supplemental
information to respondent.
Are there other specific aspects of Interrogatory No. 38 that you feel have
not been satisfied, Ms. Chirich?
MS. CHIRICH: No. We were just curious about whether she had training in accounting.
She either does or doesn't. It's not specific enough on her resume to let us
know what kind of training she has had to do the job she is doing for this
company that we think is selling the trusts. We don't know whether she is a
sales person in that company. That is why we are looking to see what her duties
are. Or whether she merely just types letters and envelopes or whether she
actually promotes and gives seminars herself on these trusts.
MS. IZEN: Your Honor, I respectfully submit that that really doesn't get to
the basics of this lady's tax stuff. The types of questions that they are asking
appear to be for other reasons. What they did was took her information and
they disallowed all of her business expenses. The issue of whether or not she
should have gone into a trust is totally separate from substantiating her business
deductions. The way they phrased that, that they want to know whether she had
accountingexperience, doesn't have anything to do with the issue.
THE COURT: I cannot say that it's not likely to lead to discovery of admissible
evidence, Ms. Izen. So I do not view the interrogatory as seeking irrelevant
information. The information, it seems to me, ought to be readily at her disposal.
I would direct that you provide respondent a complete answer to Interrogatory
No. 38, including areas of study and universities and colleges attended, within
MS. IZEN: We'll do that, Your Honor.
 In an Order dated May 30, 2000, the Court stated, among other things:
At the hearing on May 3, 2000, the Court questioned petitioners'
good faith in complying with the Court's Orders. Those doubts
are reinforced by petitioners' May 22, 2000, motion [requesting
a 14-day extension of the May 17, 2000, due date]. The allegedly
heavy workload of petitioners' counsel is not a valid ground
for failing to comply with the Court's Orders. If petitioners'
counsel is too busy to prosecute * * * [these cases] properly,
then petitioners' counsel should consider withdrawing. Upon
due consideration, it is
ORDERED that petitioners' motion for enlargement of time within which to respond
to respondent's second set of interrogatories is granted, in that petitioners
are ordered no later than June 1, 2000, to serve on respondent's counsel, and
provide to the Court, full, complete, and responsive answers, made under oath
and in good faith, to interrogatories numbered 37, 38, and 39, as set forth
in respondent's second interrogatories to petitioners.
If petitioners fail to comply with this Order, the Court shall impose sanctions,
which may include, without limitation, sanctions under I.R.C. section 6673(a)
and Tax Court Rule 202, and precluding petitioners from introducing evidence
with regard to respondent's determination that petitioners are liable for additions
to tax under I.R.C. section 6662(a).
Despite further extensions and delays, petitioners have never answered interrogatory
 In an Order and Order to Show Cause dated July 20,
2000, the Court ordered that respondent supplement his Motion
to Impose Sanctions with a detailed statement of any responses
not yet provided by petitioners and the manner in which petitioners'
failure to provide such responses prejudices respondent in
preparation of these cases for trial. The Court further ordered
that petitioners show cause in writing why sanctions should
not be imposed upon petitioners in accordance with the Court's
Order dated May 30, 2000.
 In respondent's Supplement to Motion to Impose Sanctions,
respondent contended that petitioners' failure to provide
a response to interrogatory No. 38 interferes with respondent's
preparation of the negligence penalties issues in these cases.
In response to the order to show cause, petitioners persisted
in the unpersuasive contention that Johnson's health problems
prevented compliance with the Court's orders. Petitioners'
counsel, Izen, asserted that he inadvertently failed to comply
with the order with respect to interrogatory No. 38.
 By Order dated August 21, 2000, the Court's Order and
Order to Show Cause was made absolute. Respondent's motion
for sanctions as supplemented was granted in that petitioners
were precluded at trial from introducing evidence with regard
to penalties under section 6662(a). The Court Order provided:
as a further sanction, because it appears to the Court that
petitioners' counsel, Joe Alfred Izen, Jr., has multiplied
the proceedings in these cases unreasonably and vexatiously,
Joe Alfred Izen, Jr., shall pay personally the excess costs,
expenses, and attorney's fees reasonably incurred because
of his conduct in these cases. * * *
The Order also provided that, at the time of trial in Houston on December 4,
2000, respondent would present evidence as to the excess costs, expenses, and
attorney's fees reasonably incurred because of the conduct of Izen by which
he multiplied the proceedings unreasonably and vexatiously.
 Although, in seeking various delays throughout these
cases, Izen has represented that he had trial commitments
in Seattle, Washington; San Diego, California; Portland,
Oregon; Denver, Colorado; Cleveland, Ohio; Salt Lake City,
Utah; Chicago, Illinois; Phoenix, Arizona; and various places
in Texas, and notwithstanding Johnson's claims that she could
not appear at trial because of illness, Johnson never sought
to change the place of trial to Indianapolis, closer to her
home in Indiana. Instead, on or about November 17, 2000,
Izen sent to the Court and to respondent a motion for leave
to take Johnson's deposition "under Rule 75". The
motion was returned unfiled because it was untimely and improper
under the Court's Rules. (There was no attempt to comply
with Rule 81, dealing with depositions to perpetuate testimony.)
Respondent served a notice of objection on Johnson, pointing
out noncompliance with the Tax Court Rules and inadequate
notice to respondent.
 Nonetheless, Izen proceeded to take Johnson's ex parte
statement in the form of a deposition and sought to use it
as evidence in these cases. Petitioners' trial memorandum,
due November 17, 2000, and mailed November 27, 2000, with
a false certificate of service representing that it was mailed
on November 22, 2000, indicated that Johnson would testify "through
deposition testimony" concerning the NJSJ Trust, discovery,
ill health, and an ongoing criminal investigation. (The dates
are mentioned because they are consistent with Izen's chronic
delinquency in filings and misrepresentations in these cases
and in the other cases mentioned below.) In attempting to
justify his noticing of a deposition of his own client, a
party, contrary to the Rules of the Court, Izen claims that
the pendency of a sanctions order against him makes Johnson "not
a party" to a "proceeding within a proceeding".
The statement that he secured from Johnson dealt solely with
her health, her efforts to secure certain bank checks in
response to discovery requests, her assertion of the Fifth
Amendment privilege, and her desire to withdraw the petition
and instruction to Izen not to pursue the case. No testimony
was attempted with respect to the merits of the within cases.
 At the time of trial, petitioners were not ready and
did not intend to proceed. Izen objected to the attorney's
fees claimed by respondent to the extent that they included
fees incurred in relation to the rejected Fifth Amendment
claims by Johnson. He again admitted fault in failing to
answer interrogatory No. 38. He stated:
I'd like it established how much of this work has to do
with the Fifth Amendment and other impermissible concerns,
and how much of it has to do with the Washington, D.C., hearing.
If I pay for the Washington, D.C., hearing, that's 4-, $5,000.
If I'm at fault for that, I'll pay that. I mean, that's the
position that I'm taking.
* * * * * * *
* * * I think I have made a mistake, based on what you have said, and I always
believe somebody should own up and pay for their mistakes, whatever they are,
whether it's paying interest or whatever.
Although respondent's counsel conceded amounts of fees incurred on dates prior
to October 25, 1999, the parties were unable to reach agreement as to the amount
of fees to be ordered.
 Petitioners never fully complied with the outstanding
discovery orders, were not prepared for trial, and Johnson
indicated through Izen that she wanted to withdraw her petition.
The petitions cannot be "withdrawn" without decisions
against petitioners. See sec. 7459(d); Estate of Ming v.
Commissioner, 62 T.C. 519 (1974). Dismissal for failure to
prosecute, as sought by respondent's motions, is appropriate.
See Rules 104(c)(3), 123(b), 149. Respondent's motion with
respect to Johnson seeks determination of deficiencies in
amounts that have been adjusted downward from the notice
of deficiency due to concessions by respondent. Respondent
has agreed that, inasmuch as the deficiencies determined
against the NJSJ Trust are in the alternative as a means
of protecting respondent against whipsaw, entry of a decision
that there are no deficiencies against the NJSJ Trust may
await either an appeal by Johnson or finality of the decision
in Johnson's case without an appeal.
 We have no doubt that dismissal of the petitions and
entry of decisions against petitioners is not an unjust result
in these cases. The record supports the inference that petitioners
never intended to try these cases on the merits. Petitioners
have brought into the record indications of criminal investigations
of trusts similar to the one involved here, and petitioners'
counsel has, in effect, represented that these cases are
indistinguishable from Muhich v. Commissioner, T.C. Memo.
1999-192, affd. ___ F.3d ___ (7th Cir., Jan. 25, 2001). In
that case, the Court held, among other things, that certain
trusts should be disregarded for tax purposes because they
lacked economic substance and that the taxpayers were liable
for accuracy-related penalties under section 6662(a). This
Court declined to impose a penalty under section 6673(a),
We decline to impose a penalty under section 6673. Although
the Muhichs' position that the trusts had economic substance
was frivolous, we have rejected respondent's position [that]
the "consulting fees" were dividends, holding instead
the "fees" were compensation. The Muhichs' position
in this proceeding was somewhat meritorious to the extent
they were defending against respondent's determination of
constructive dividends. We admonish the Muhichs that we shall
not be inclined to exercise our discretion under section
6673 so favorably in the future if presented with similar
arguments by them, and we may impose a penalty.
Also in the record in these cases is a transcript and a copy of a stipulated
decision in Crockett v. Commissioner, docket No. 20759-97, which also involved
a sham or abusive trust. In that case, the decision entered pursuant to stipulation
of the parties included a penalty under section 6673 against Izen's client.
 In these cases, in view of Izen's express admissions
that he was responsible for the failure to comply with discovery
orders, we believe that the penalty should be imposed on
him. Although he conceded at the time of hearing that he
was wrong and that he would pay, he has argued in written
documents that "mere negligence" was not enough
to justify a sanction. There may be some question as to whether,
before we impose costs, we must find that Izen acted in bad
faith. See The Nis Family Trust v. Commissioner, 115 T.C.
523 (2000). We have no trouble finding that, in these cases,
 Izen has a long history of involvement with sham trusts,
both as counsel of record and as counsel rendering an opinion
on which taxpayers unfortunately relied. See, e.g., United
States v. Buttorff, 761 F.2d 1056 (5th Cir. 1985), affg.
563 F. Supp. 450 (N.D. Tex. 1983); Watson v. Commissioner,
690 F.2d 429 (5th Cir. 1982); Lund v. Commissioner, T.C.
Memo. 2000-334; Para Techs. Trust v. Commissioner, T.C. Memo.
1994-366, affd. without published opinion sub nom. Anderson
v. Commissioner, 106 F.3d 406 (9th Cir. 1997); Ripley v.
Commissioner, T.C. Memo. 1987-114. In Trenerry v. Commissioner,
T.C. Memo. 1994-500, the taxpayer appeared pro se in a case
in which the Court held that a trust was to be disregarded
for tax purposes. The Court stated:
Petitioner relies on two legal opinion letters of Joe Alfred
Izen, Jr. (hereinafter sometimes referred to as Izen) which
she had obtained from Century. Izen's opinion letters, addressed
to Century, dated September 25, 1986, discuss the legal status
and tax status of contractual trust companies. Although Izen's
opinion letters are dated almost 4 years after our published
opinion in Zmuda [v. Commissioner, 79 T.C. 714 (1982), affd.
731 F.2d 1417 (9th Cir. 1984)] (and more than 2 years after
the published Court of Appeals affirmance), neither of his
opinion letters refers to Zmuda. We note the August 15, 1984,
changes to the Trenerry Trust, in which petitioner (as grantor)
warned herself (as trustee) "to beware of attorneys
and to avoid them whenever at all possible." Perhaps
this was one instance in which petitioner should have followed
her own advice. The Izen opinion letters do not help petitioner
on the evidence in the instant case. [Fn. ref. omitted.]
See also Para Techs. Trust v. Commissioner, T.C. Memo. 1992-575.
 Cases in which Izen was counsel also reflect chronic
failure to comply with discovery orders or Court Rules. In
Oelze v. Commissioner, 723 F.2d 1162 (5th Cir. 1983), the
Court of Appeals affirmed dismissal of petitions where, in
response to the Tax Court's repeated orders to comply with
the Commissioner's discovery requests and admonishments that
failure to comply would result in dismissal, the taxpayer
only partially complied with the orders. The Court of Appeals
Numerous delays caused by the Oelzes, including their repeated
failure to provide the requested information based on their
unsupported fifth amendment claim, required the tax court
to issue at different times three more discovery orders.
None of these ever resulted in the Commissioner's obtaining
the information he needed. [Id. at 1163.]
In response to a petition for rehearing filed by Izen in Oelze, the Court of
The taxpayer's continued failure to cooperate with theCommissioner, the necessity
for four orders to comply with theCommissioner's discovery requests, the taxpayer's
continuousreliance on a baseless fifth amendment claim, and the taxpayer'slast-minute
attempt to comply with the discovery order alldemonstrate that Oelze acted
wilfully. Additionally, the TaxCourt issued four separate discovery orders,
some explicitlywarning the taxpayer that failure to comply would result indismissal
of the case. Though the taxpayer finally did partiallycomply with one of the
orders, he did so only after repeated andtotal failure to supply the Commissioner
with the information herequested. Such partial compliance under these circumstancescannot
serve to exonerate the taxpayer from willful failure tocomply with the orders
of the Court. [Oelze v. Commissioner, 726F.2d 165, 166 (5th Cir. 1983).]Similarly,
see Watson v. Commissioner, supra; Ripley v. Commissioner, supra.
 Izen's persistence in unproductive tactics sometimes
has the unfortunate effect of reducing the quality of practice
before this Court on both sides. In Tumlinson v. Commissioner,
T.C. Memo. 1983-92, the Court faced various procedural questions
as a result of the taxpayers' failure to respond to requests
for admissions or to comply with other Rules. The Court stated:
We have not found this case to be particularly satisfying.The
record before us is sketchy. The case appears to revolvearound
a family trust but we have been told very little aboutit.
In addition, the various returns filed by petitioners areconfusing
because of the inconsistent treatment of the itemsreported
therein. All of this is compounded by the seeminglycontradictory
positions taken by petitioners before this Courtand by respondent's
failure to be more precise in his requestsfor admissions.
Be this as it may, we have tried our best toreach a just
See also Ripley v. Commissioner, T.C. Memo. 1985-555. Izen's tactics demean
the process and those involved in it and accomplish nothing. In the language
of section 6673(a)(2), it appears to the Court that Izen "has multiplied
the proceedings in * * * [these cases] unreasonably and vexatiously".
He has persisted in these tactics despite warnings and sanctions imposed on
his clients in similar cases. He has pursued claims that have been rejected
so frequently that they are "entirely without colorable pretext or basis
and are taken for reasons of harassment or delay or for other improper purposes." The
Nis Family Trust v. Commissioner, supra at 548; see Harper v. Commissioner,
99 T.C. 533, 546-549 (1992). An award under section 6673 is fully justified.
 Although the Court rejected Johnson's Fifth Amendment
claims, we exclude from the award the fees that are attributable
to those and to the first round of discovery motions. Our
calculations begin with March 15, 2000, when respondent's
counsel was required to draft motions to compel responses
to the second sets of interrogatories and requests for production
of documents, and after the Court had engaged in several
attempts to secure Johnson's cooperation in informal discovery.
Izen has conceded that he would pay the expenses relating
to respondent's counsel's trip to Washington, D.C., for the
sanctions hearing in May 2000. He has not challenged respondent's
submitted time records nor the $150 hourly rate requested.
In addition, respondent should be compensated for time spent
subsequent to the May 3, 2000, hearing as a consequence of
petitioners' continued failure to comply with the Court's
order issued at the conclusion of that hearing. In that regard,
the records reflect a total of 31.5 hours by Christina D.
Moss and 25.75 hours by Elizabeth Girafalco Chirich. We believe
that the fees requested for these services are reasonable.
The amount to be awarded is, therefore, a total of 57.25
hours at $150 per hour, or $8,587.50, plus $807.06 in travel
expenses for respondent's counsels' trip to Washington.
 To reflect the foregoing,
 Appropriate orders of dismissal and decision will be
Return to Tax Protestor Exhibit