Top 5 Tax Controversy CPA Profiles

J. Frank Best a Tax Controversy CPA serving North and South Carolina with locations in Raleigh & Wilmington, NC  and North Myrtle Beach & Myrtle Beach, SC is rated in the Top 5 Tax Controversy CPA Profiles/Linkedin and as a United States Tax Court Litigator licensed in all States works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

J. Frank Best, Certified Public Accountant
Admitted to Practice before the
United States Tax Court

Telephone: 800.230.7090 | Email: bestcpa@bestirscpa.com
Copyright © 2019, J.Frank Best, Certified Public Accountant

Practice Areas

  • U.S. TAX COURT LITIGATION
  • TAX AUDITS
  • APPEALS & HEARINGS
  • IRS COLLECTION
  • LIEN OR LEVY ACTIONS
  • NON-FILERS AND DELINQUENT
  • PENALTY ABATEMENT
  • DIVORCE & IRS
  • INNOCENT SPOUSE
  • EMPLOYMENT CLASSIFICATIONS
  • IRS ABUSE OF DISCRETION
  • CIVIL FRAUD
  • CRIMINAL FRAUD-KOVEL

IRS controversies are truly complicated. There is no magic to a resolution. Experience and qualifications dictate. Many advertisements and promises are intentionally false and misleading. By all means, avoid meeting with and having telephone contact with marketing/salespersons that will not be representing you. These people are highly trained to take your money. Choosing a local representative just makes good business sense.

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Top 5 Tax Controversy CPA Profiles

J. Frank Best a Tax Controversy CPA serving North and South Carolina with locations in Raleigh & Wilmington, NC  and North Myrtle Beach & Myrtle Beach, SC is rated in the Top 5 Tax Controversy CPA Profiles/Linkedin and as a United States Tax Court Litigator licensed in all States works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

J. Frank Best, Certified Public Accountant
Admitted to Practice before the
United States Tax Court

Practice Areas

  • U.S. TAX COURT LITIGATION
  • TAX AUDITS
  • APPEALS & HEARINGS
  • IRS COLLECTION
  • LIEN OR LEVY ACTIONS
  • NON-FILERS AND DELINQUENT
  • PENALTY ABATEMENT
  • DIVORCE & IRS
  • INNOCENT SPOUSE
  • EMPLOYMENT CLASSIFICATIONS
  • IRS ABUSE OF DISCRETION
  • CIVIL FRAUD
  • CRIMINAL FRAUD-KOVEL

IRS controversies are truly complicated. There is no magic to a resolution. Experience and qualifications dictate. Many advertisements and promises are intentionally false and misleading. By all means, avoid meeting with and having telephone contact with marketing/salespersons that will not be representing you. These people are highly trained to take your money. Choosing a local representative just makes good business sense.

Telephone: 800.230.7090 | Email: bestcpa@bestirscpa.com
Copyright © 2019, J.Frank Best, Certified Public Accountant

Top 5 Tax Controversy CPA Profiles

J. Frank Best, Certified Public Accountant
Admitted to Practice before the
United States Tax Court

J. Frank Best is rated in the Top 5 Tax Controversies CPA Profiles/Linkedin

Practice Areas & Locations

TAX LITIGATION
TAX AUDITS
APPEALS & HEARINGS
COLLECTION
PENALTY ABATEMENT
NON-FILERS & DELINQUENT
CIVIL FRAUD
CRIMINAL FRAUD – KOVEL
IRS ABUSE OF DISCRETION
DIVORCE AND IRS

RALEIGH, NC
WILMINGTON, NC
NORTH MYRTLE BEACH, SC
MYRTLE BEACH, SC

IRS controversies are truly complicated. There is no magic to a resolution. Experience and qualifications dictate. Many advertisements and promises are intentionally false and misleading. By all means, avoid meeting with and having telephone contact with marketing/salespersons that will not be representing you. These people are highly trained to take your money. Choosing a local representative just makes good business sense.

Telephone: 800.230.7090 | Email: bestcpa@bestirscpa.com
Copyright © 2018, J.Frank Best, Certified Public Accountant

“Serious IRS Problem Resolution”/J. Frank Best, Tax Controversy CPA/U. S. Tax Court Litigator

Serious IRS Problem Resolutions

J. Frank Best is rated in the Top 5 Tax Controversy CPA Profiles/Linkedin and is a United States Tax Court Litigator licensed in all States and works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Telephone 800.230.7090   Email: bestcpa@bestirscpa.com  Web: bestirscpa.com

United States Decision for the Week-Interest and Penalties on Criminal Restitution Award

A recent Tax Court decision was reported potentially dealing with tax litigation and interest and penalties added to a Criminal Restitution Award. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

IRS Cannot Add Interest and Penalties to Criminal Restitution Award

The Tax Court, in a case of first impression, held that the IRS may not assess and collect interest and penalties on a restitution award in a criminal conviction for failure to pay tax. The Tax Court found that restitution is treated as if it were a tax, but only for the limited purpose of allowing the IRS to create an account receivable against which the restitution can be credited. Klein v. Comm’r, 149 T.C. (2017).

Zipora and Samuel Klein, a married couple, pleaded guilty to willfully filing a false federal income tax return for 2006. Each was sentenced to prison and the couple was jointly ordered to pay restitution to the IRS. Mr. Klein admitted in his plea agreement that he had underreported income on the couple’s joint returns for 2003-2006. For sentencing purposes, the government presented a tax loss calculation of approximately $560,000 based on a reconstruction of the Kleins’ income for 2003-2006. The sentencing court disregarded the Kleins’ objections that the calculation did not include any deductions other than those reported on the returns filed for those years. U.S. sentencing guidelines permit the tax loss amount to be uncertain, and the sentencing court may make a reasonable estimate based on the available facts.

Pursuant to their plea agreements, the Kleins signed an IRS closing agreement acknowledging that their overall tax liabilities for 2003-2006 remained indeterminate. The Kleins waived all defenses, including the statute of limitations, and agreed that the IRS could audit their 2003-2006 returns at any time. Six years later, the IRS had not completed or even begun a civil examination for the Kleins’ 2003-2006 tax years.

In 2014, Mrs. Klein was released from custody and paid to the IRS the restitution amount in full. The government then released a previously filed notice of lien against her, stating that she had satisfied her payment obligations with respect to the restitution, together with all statutory additions. Two months later, the IRS filed a notice of federal tax lien (NFTL) against the Kleins, seeking interest and penalties for failure to pay with respect to the restitution amount. The IRS treated the tax loss amount as the underpayment for each year and used the original due dates of the returns as the commencement date for calculating interest.

The Kleins requested a collection due process hearing seeking withdrawal of the NFTL because they had paid the restitution. A settlement officer noted that the restitution portion of the assessment had been paid but that the assessed interest and penalties had not. The Kleins did not propose a collection alternative and the IRS issued notices of determination sustaining the NFTL filings. The notice showed a total balance due of almost $360,000, consisting entirely of assessed interest and penalties calculated on the amount of the restitution. The Kleins challenged the notice in the Tax Court.

Interest applies to any unpaid tax under Code Sec. 6601, and a penalty applies under Code Sec. 6651(a)(3) for the failure to pay the tax required to be shown on a return. Under Code Sec. 6201(a)(4), the IRS may assess and collect a criminal restitution award for failure to pay any tax in the same manner “as if” the amount were such a tax. The IRS acknowledged that restitution is not literally a tax, but argued that there was no meaningful difference between an amount that is assessed and collected as if it were a tax and an amount that is assessed and collected as a tax.

According to the IRS, interest and penalties are an inevitable adjunct of the civil tax collection procedure authorized by Code Sec. 6201(a)(4). The IRS cited language in the Internal Revenue Manual (IRM) stating that, because criminal restitution is assessed and collected the same as any civil tax assessment, interest and failure to pay penalties would apply as they would for any other civil tax assessment. It also drew a negative inference from Code Sec. 6305(a), which authorizes the IRS to assess and collect delinquent spousal support as if it were a tax. The wording of Code Sec. 6305(a) is similar to Code Sec. 6201(a)(4), but explicitly provides that no interest or penalties can be assessed or collected. The IRS argued that Congress could have included the same limiting language in Code Sec.6201(a)(4) if it had intended such treatment to apply.

The Tax Court held that Code Sec. 6201(a)(4) does not authorize the IRS to add underpayment interest or failure-to-pay penalties to a title 18 restitution award, and the IRS cannot assess or collect from the Kleins underpayment interest or additions to tax without first determining their civil tax liabilities. The court reasoned that the purpose of the “as if” language in Code Sec. 6201(a)(4) is to treat restitution as a tax only for the limited purpose of enabling the IRS to assess the amount in order to create an account receivable against which the restitution payment can be credited. According to the Tax Court, the inclusion of the word “if” in Code Sec 6201 was significant and had to be given effect.

Reviewing the legislative history, the Tax Court determined that Congress’s intent was to address the IRS’s lack of a proper accounting mechanism to credit receipts of restitution payments by giving the IRS early assessment authority for such awards. The Tax Court noted that the IRS usually waits until after a criminal proceeding to begin an audit to determine the taxpayer’s civil liabilities, so the timing created a bookkeeping issue for the IRS. Although the legislative history included a legislator’s floor speech expressing the belief that the bill would permit the assessment and collection of restitution awards for victims of crime in the same manner as delinquent taxes are assessed and collected, the Tax Court found that contemporaneous remarks of a sponsor of legislation are not controlling in analyzing legislative history.

The Tax Court rejected the IRS’s reliance on the IRM, finding the relevant IRM provisions to be short on analysis. The Tax Court noted that IRM provisions do not bind the courts and reasoned that the deference due to an agency manual depends on its thoroughness, logic and expertness. According to the Tax Court, on a question of statutory construction, the IRM would have limited power to persuade in any event and especially given its lack of analysis on this issue.

The Tax Court also disagreed with the IRS’s conclusion that Code Sec. 6305(a) proved Congress knew how to draft limiting language and would have done so in Code Sec. 6201(a)(4) if it intended to limit assessments of interest and penalties on restitution awards. The Tax Court reasoned that such an inference is strongest when the provisions were considered simultaneously and that there was no reason to believe that the Congress that enacted Code Sec. 6201(a)(4)35 years after Code Sec. 6305(a)(4) considered, but decided against, providing such an exclusion in Code Sec. 6201(a)(4).

The Tax Court noted that the differences between a tax loss calculation in a criminal tax case and civil tax liability supported its conclusion. According to the Tax Court, restitution is designed to compensate the IRS for the loss caused by the wrongdoing, while civil tax liability is typically determined after the criminal proceeding. The civil tax liability may be higher or lower than the tax loss that formed the basis of the restitution award. To the Tax Court, this showed the basic flaw in the IRS’s argument that a restitution award should be equated with a tax. A tax loss calculation is a simplified calculation intended to avoid complex disputes over adjustments and deductions during sentencing, where the yardstick for measuring tax loss is typically not understated taxable income but underreported gross income. By contrast, unclaimed deductions for legitimate expenses are fully available to the taxpayer in determining civil tax liability in an IRS audit. To the Tax Court, the difference between a restitution award and civil tax liability showed why restitution could not be equated to a tax.

The Tax Court concluded that a restitution obligation is not a civil tax liability and that Congress did not change that fact when it authorized the IRS to assess and collect restitution in the same manner as if it were a tax. According to the Tax Court, the Kleins had waived all defenses so the IRS was free to begin an audit of their civil tax liabilities, to which interest and penalties could be imposed; in that event, the interest and penalties would be determined by reference not to the tax loss calculation but to the Kleins’ actual tax liabilities.

Top 5 Tax Controversy CPA Profiles/Linkedin

J. Frank Best is rated in the Top 5 Tax Controversy CPA Profiles/Linkedin and is a United States Tax Court Litigator licensed in all States and works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Telephone 800.230.7090   Email: bestcpa@bestirscpa.com

 

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Former IRS Agent and Wife Liable for $73,000 in Fraud Penalties:In Langer v. Comm’r, T.C. Memo. 2017-92, the Tax Court held that a couple’s repeated concealment of income by overstating deductions on their 2011-2013 tax returns exemplified a pattern of fraudulent behavior and the couple was thus liable for fraud penalties of approximately $73,000. The court noted that the husband had been an IRS agent for more than 29 years and that the couple’s explanations regarding the deductions taken on their returns were implausible and unpersuasive.

UNITED STATES TAX COURT

T.C. Memo. 2017-92-CIVIL FRAUD

May 30, 2017.

HENRY LANGER AND PATRICIA LANGER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22719-15.

Thomas Edward Brever , for petitioners.

Christina L. Cook and John Schmittdiel , for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

NEGA, Judge : Respondent issued a notice of deficiency to petitioners determining deficiencies in income tax and fraud penalties as follows:1

[*2]

                           Penalty

Year     Deficiency1     sec. 6663(a)

2011       $36,595        $27,446.25

2012        27,386         20,539.50

2013        33,689         25,266.75

__________

1The amounts referred to herein reflect an agreement by the parties to
revised deficiencies in Federal income tax as reflected on Form 5278,
Statement–Income Tax Changes, and are less than respondent’s initial
determinations in the notice of deficiency.

Petitioners conceded in full the deficiencies for tax years 2011-13. The only issue for decision is whether petitioners are liable for fraud penalties under section 6663 for tax years 2011-13.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners resided in Minnesota when the petition was timely filed.

Henry Langer was an Internal Revenue Service revenue agent for over 29 years and received training in determining allowable business expense deductions; he was also a certified forensic examiner. Petitioners have a history of claiming [*3] business expense deductions for obvious personal expenses and expenses they could not substantiate. See, e.g. , Langer v. Commissioner (Langer I ), T.C. Memo. 2008-255, 96 T.C.M. (CCH) 334, 339 (2008) (“[P]etitioners claimed as business expense deductions many obviously personal items . A former Internal Revenue Service agent should have known better .” (Emphasis added.)), aff’d without published opinion , 378 F. App’x 598 (8th Cir. 2010); Langer v. Commissioner (Langer II ), T.C. Memo. 1992-46, 63 T.C.M. (CCH) 1900 (1992), aff’d , 989 F.2d 294 (8th Cir. 1993); Langer v. Commissioner (Langer III ), T.C. Memo. 1990-268, 59 T.C.M. (CCH) 740, 746 (1990) (holding petitioners liable for an addition to tax under section 6653(a) for negligence because petitioners’ conduct suggested a “pattern of carelessness” and because petitioners used methods for determining deductions that had “no basis in the law”), aff’d , 980 F.2d 1198 (8th Cir. 1992).

Respondent disallowed $113,194, $67,186, and $84,087 of petitioners’ claimed deductions on Schedules C, Profit or Loss From Business, for 2011-13, respectively, as personal expenses; many of petitioners’ claimed and disallowed expense deductions were identical to those disallowed as personal expenses in Langer I and Langer II , including expenses for parties, gifts, flowers, vases, and holiday decorations, to name a few.

[*4] OPINION

The Commissioner must establish by clear and convincing evidence that, for each year at issue, an underpayment of tax exists and that some portion of the underpayment is due to fraud. Secs. 6663(a), 7454(a); Rule 142(b). The Commissioner must show that the taxpayer intended to conceal, mislead, or otherwise prevent the collection of taxes. Katz v. Commissioner , 90 T.C. 1130, 1143 (1988). The taxpayer’s entire course of conduct may establish the requisite fraudulent intent. Stone v. Commissioner , 56 T.C. 213, 223-224 (1971).

Petitioners conceded in full the deficiencies for 2011-13, and therefore respondent satisfied his burden of proving an underpayment of tax for each year at issue. Respondent established that, for each year at issue, petitioners’ underpayment of tax was fraudulent and that they intended to conceal taxable income and prevent the collection of tax by overstating deductions and claiming nondeductible and obvious personal expenditures as business expenses. See Rahall v. Commissioner , T.C. Memo. 2011-101, 101 T.C.M. (CCH) 1486, 1492 (2011) (“An additional badge of fraud includes a taxpayer disguising nondeductible personal expenditures as business expenses.”). Mr. Langer’s nearly 30 years of experience as a revenue agent and petitioners’ history before this Court for identical issues are relevant considerations in determining whether they had [*5] fraudulent intent. See Beaver v. Commissioner , 55 T.C. 85, 93-94 (1970) (stating that petitioner’s business experience is a relevant consideration in determining whether he had fraudulent intent). Petitioners’ repeated concealment of income by overstating deductions exemplifies a pattern of fraudulent behavior, and their explanations are implausible and unpersuasive. See McGraw v. Commissioner , 384 F.3d 965, 971 (8th Cir. 2004) (“[A] consistent pattern of sizeable underreporting of income * * * and unsatisfactory explanations for such underreporting also can establish fraud.”), aff’g Butler v. Commissioner , T.C. Memo. 2002-314; Sanchez v. Commissioner , T.C. Memo. 2014-174, at *17 (stating that “a pattern of conduct that evidences an intent to mislead” is one of the “badges of fraud” from which fraudulent intent can be inferred), aff’d , ___ F. App’x ___, 2016 WL 7336626 (9th Cir. Dec. 19, 2016); Bruce Goldberg, Inc. v. Commissioner , T.C. Memo. 1989-582, 58 T.C.M. (CCH) 519, 529 (1989) (“[F]raud may sometimes be inferred from a pattern of overstating deductions.”). Accordingly, petitioners are liable for the fraud penalties under section 6663 for all years at issue.

[*6] To reflect the foregoing,

Decision will be entered under Rule 155 .

Footnotes

1Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

[End of Document]

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Former IRS Agent and Wife Liable for $73,000 in Fraud Penalties:In Langer v. Comm’r, T.C. Memo. 2017-92, the Tax Court held that a couple’s repeated concealment of income by overstating deductions on their 2011-2013 tax returns exemplified a pattern of fraudulent behavior and the couple was thus liable for fraud penalties of approximately $73,000. The court noted that the husband had been an IRS agent for more than 29 years and that the couple’s explanations regarding the deductions taken on their returns were implausible and unpersuasive.

UNITED STATES TAX COURT

T.C. Memo. 2017-92-CIVIL FRAUD

May 30, 2017.

HENRY LANGER AND PATRICIA LANGER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22719-15.

Thomas Edward Brever , for petitioners.

Christina L. Cook and John Schmittdiel , for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

NEGA, Judge : Respondent issued a notice of deficiency to petitioners determining deficiencies in income tax and fraud penalties as follows:1

[*2]

                           Penalty

Year     Deficiency1     sec. 6663(a)

2011       $36,595        $27,446.25

2012        27,386         20,539.50

2013        33,689         25,266.75

__________

1The amounts referred to herein reflect an agreement by the parties to
revised deficiencies in Federal income tax as reflected on Form 5278,
Statement–Income Tax Changes, and are less than respondent’s initial
determinations in the notice of deficiency.

Petitioners conceded in full the deficiencies for tax years 2011-13. The only issue for decision is whether petitioners are liable for fraud penalties under section 6663 for tax years 2011-13.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners resided in Minnesota when the petition was timely filed.

Henry Langer was an Internal Revenue Service revenue agent for over 29 years and received training in determining allowable business expense deductions; he was also a certified forensic examiner. Petitioners have a history of claiming [*3] business expense deductions for obvious personal expenses and expenses they could not substantiate. See, e.g. , Langer v. Commissioner (Langer I ), T.C. Memo. 2008-255, 96 T.C.M. (CCH) 334, 339 (2008) (“[P]etitioners claimed as business expense deductions many obviously personal items . A former Internal Revenue Service agent should have known better .” (Emphasis added.)), aff’d without published opinion , 378 F. App’x 598 (8th Cir. 2010); Langer v. Commissioner (Langer II ), T.C. Memo. 1992-46, 63 T.C.M. (CCH) 1900 (1992), aff’d , 989 F.2d 294 (8th Cir. 1993); Langer v. Commissioner (Langer III ), T.C. Memo. 1990-268, 59 T.C.M. (CCH) 740, 746 (1990) (holding petitioners liable for an addition to tax under section 6653(a) for negligence because petitioners’ conduct suggested a “pattern of carelessness” and because petitioners used methods for determining deductions that had “no basis in the law”), aff’d , 980 F.2d 1198 (8th Cir. 1992).

Respondent disallowed $113,194, $67,186, and $84,087 of petitioners’ claimed deductions on Schedules C, Profit or Loss From Business, for 2011-13, respectively, as personal expenses; many of petitioners’ claimed and disallowed expense deductions were identical to those disallowed as personal expenses in Langer I and Langer II , including expenses for parties, gifts, flowers, vases, and holiday decorations, to name a few.

[*4] OPINION

The Commissioner must establish by clear and convincing evidence that, for each year at issue, an underpayment of tax exists and that some portion of the underpayment is due to fraud. Secs. 6663(a), 7454(a); Rule 142(b). The Commissioner must show that the taxpayer intended to conceal, mislead, or otherwise prevent the collection of taxes. Katz v. Commissioner , 90 T.C. 1130, 1143 (1988). The taxpayer’s entire course of conduct may establish the requisite fraudulent intent. Stone v. Commissioner , 56 T.C. 213, 223-224 (1971).

Petitioners conceded in full the deficiencies for 2011-13, and therefore respondent satisfied his burden of proving an underpayment of tax for each year at issue. Respondent established that, for each year at issue, petitioners’ underpayment of tax was fraudulent and that they intended to conceal taxable income and prevent the collection of tax by overstating deductions and claiming nondeductible and obvious personal expenditures as business expenses. See Rahall v. Commissioner , T.C. Memo. 2011-101, 101 T.C.M. (CCH) 1486, 1492 (2011) (“An additional badge of fraud includes a taxpayer disguising nondeductible personal expenditures as business expenses.”). Mr. Langer’s nearly 30 years of experience as a revenue agent and petitioners’ history before this Court for identical issues are relevant considerations in determining whether they had [*5] fraudulent intent. See Beaver v. Commissioner , 55 T.C. 85, 93-94 (1970) (stating that petitioner’s business experience is a relevant consideration in determining whether he had fraudulent intent). Petitioners’ repeated concealment of income by overstating deductions exemplifies a pattern of fraudulent behavior, and their explanations are implausible and unpersuasive. See McGraw v. Commissioner , 384 F.3d 965, 971 (8th Cir. 2004) (“[A] consistent pattern of sizeable underreporting of income * * * and unsatisfactory explanations for such underreporting also can establish fraud.”), aff’g Butler v. Commissioner , T.C. Memo. 2002-314; Sanchez v. Commissioner , T.C. Memo. 2014-174, at *17 (stating that “a pattern of conduct that evidences an intent to mislead” is one of the “badges of fraud” from which fraudulent intent can be inferred), aff’d , ___ F. App’x ___, 2016 WL 7336626 (9th Cir. Dec. 19, 2016); Bruce Goldberg, Inc. v. Commissioner , T.C. Memo. 1989-582, 58 T.C.M. (CCH) 519, 529 (1989) (“[F]raud may sometimes be inferred from a pattern of overstating deductions.”). Accordingly, petitioners are liable for the fraud penalties under section 6663 for all years at issue.

[*6] To reflect the foregoing,

Decision will be entered under Rule 155 .

Footnotes

1Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

[End of Document]

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Former IRS Agent and Wife Liable for $73,000 in Fraud Penalties:In Langer v. Comm’r, T.C. Memo. 2017-92, the Tax Court held that a couple’s repeated concealment of income by overstating deductions on their 2011-2013 tax returns exemplified a pattern of fraudulent behavior and the couple was thus liable for fraud penalties of approximately $73,000. The court noted that the husband had been an IRS agent for more than 29 years and that the couple’s explanations regarding the deductions taken on their returns were implausible and unpersuasive.

UNITED STATES TAX COURT

T.C. Memo. 2017-92-CIVIL FRAUD

May 30, 2017.

HENRY LANGER AND PATRICIA LANGER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22719-15.

Thomas Edward Brever , for petitioners.

Christina L. Cook and John Schmittdiel , for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

NEGA, Judge : Respondent issued a notice of deficiency to petitioners determining deficiencies in income tax and fraud penalties as follows:1

[*2]

                           Penalty

Year     Deficiency1     sec. 6663(a)

2011       $36,595        $27,446.25

2012        27,386         20,539.50

2013        33,689         25,266.75

__________

1The amounts referred to herein reflect an agreement by the parties to
revised deficiencies in Federal income tax as reflected on Form 5278,
Statement–Income Tax Changes, and are less than respondent’s initial
determinations in the notice of deficiency.

Petitioners conceded in full the deficiencies for tax years 2011-13. The only issue for decision is whether petitioners are liable for fraud penalties under section 6663 for tax years 2011-13.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners resided in Minnesota when the petition was timely filed.

Henry Langer was an Internal Revenue Service revenue agent for over 29 years and received training in determining allowable business expense deductions; he was also a certified forensic examiner. Petitioners have a history of claiming [*3] business expense deductions for obvious personal expenses and expenses they could not substantiate. See, e.g. , Langer v. Commissioner (Langer I ), T.C. Memo. 2008-255, 96 T.C.M. (CCH) 334, 339 (2008) (“[P]etitioners claimed as business expense deductions many obviously personal items . A former Internal Revenue Service agent should have known better .” (Emphasis added.)), aff’d without published opinion , 378 F. App’x 598 (8th Cir. 2010); Langer v. Commissioner (Langer II ), T.C. Memo. 1992-46, 63 T.C.M. (CCH) 1900 (1992), aff’d , 989 F.2d 294 (8th Cir. 1993); Langer v. Commissioner (Langer III ), T.C. Memo. 1990-268, 59 T.C.M. (CCH) 740, 746 (1990) (holding petitioners liable for an addition to tax under section 6653(a) for negligence because petitioners’ conduct suggested a “pattern of carelessness” and because petitioners used methods for determining deductions that had “no basis in the law”), aff’d , 980 F.2d 1198 (8th Cir. 1992).

Respondent disallowed $113,194, $67,186, and $84,087 of petitioners’ claimed deductions on Schedules C, Profit or Loss From Business, for 2011-13, respectively, as personal expenses; many of petitioners’ claimed and disallowed expense deductions were identical to those disallowed as personal expenses in Langer I and Langer II , including expenses for parties, gifts, flowers, vases, and holiday decorations, to name a few.

[*4] OPINION

The Commissioner must establish by clear and convincing evidence that, for each year at issue, an underpayment of tax exists and that some portion of the underpayment is due to fraud. Secs. 6663(a), 7454(a); Rule 142(b). The Commissioner must show that the taxpayer intended to conceal, mislead, or otherwise prevent the collection of taxes. Katz v. Commissioner , 90 T.C. 1130, 1143 (1988). The taxpayer’s entire course of conduct may establish the requisite fraudulent intent. Stone v. Commissioner , 56 T.C. 213, 223-224 (1971).

Petitioners conceded in full the deficiencies for 2011-13, and therefore respondent satisfied his burden of proving an underpayment of tax for each year at issue. Respondent established that, for each year at issue, petitioners’ underpayment of tax was fraudulent and that they intended to conceal taxable income and prevent the collection of tax by overstating deductions and claiming nondeductible and obvious personal expenditures as business expenses. See Rahall v. Commissioner , T.C. Memo. 2011-101, 101 T.C.M. (CCH) 1486, 1492 (2011) (“An additional badge of fraud includes a taxpayer disguising nondeductible personal expenditures as business expenses.”). Mr. Langer’s nearly 30 years of experience as a revenue agent and petitioners’ history before this Court for identical issues are relevant considerations in determining whether they had [*5] fraudulent intent. See Beaver v. Commissioner , 55 T.C. 85, 93-94 (1970) (stating that petitioner’s business experience is a relevant consideration in determining whether he had fraudulent intent). Petitioners’ repeated concealment of income by overstating deductions exemplifies a pattern of fraudulent behavior, and their explanations are implausible and unpersuasive. See McGraw v. Commissioner , 384 F.3d 965, 971 (8th Cir. 2004) (“[A] consistent pattern of sizeable underreporting of income * * * and unsatisfactory explanations for such underreporting also can establish fraud.”), aff’g Butler v. Commissioner , T.C. Memo. 2002-314; Sanchez v. Commissioner , T.C. Memo. 2014-174, at *17 (stating that “a pattern of conduct that evidences an intent to mislead” is one of the “badges of fraud” from which fraudulent intent can be inferred), aff’d , ___ F. App’x ___, 2016 WL 7336626 (9th Cir. Dec. 19, 2016); Bruce Goldberg, Inc. v. Commissioner , T.C. Memo. 1989-582, 58 T.C.M. (CCH) 519, 529 (1989) (“[F]raud may sometimes be inferred from a pattern of overstating deductions.”). Accordingly, petitioners are liable for the fraud penalties under section 6663 for all years at issue.

[*6] To reflect the foregoing,

Decision will be entered under Rule 155 .

Footnotes

1Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

[End of Document]

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Former IRS Agent and Wife Liable for $73,000 in Fraud Penalties:In Langer v. Comm’r, T.C. Memo. 2017-92, the Tax Court held that a couple’s repeated concealment of income by overstating deductions on their 2011-2013 tax returns exemplified a pattern of fraudulent behavior and the couple was thus liable for fraud penalties of approximately $73,000. The court noted that the husband had been an IRS agent for more than 29 years and that the couple’s explanations regarding the deductions taken on their returns were implausible and unpersuasive.

UNITED STATES TAX COURT

T.C. Memo. 2017-92-CIVIL FRAUD

May 30, 2017.

HENRY LANGER AND PATRICIA LANGER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22719-15.

Thomas Edward Brever , for petitioners.

Christina L. Cook and John Schmittdiel , for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

NEGA, Judge : Respondent issued a notice of deficiency to petitioners determining deficiencies in income tax and fraud penalties as follows:1

[*2]

                           Penalty

Year     Deficiency1     sec. 6663(a)

2011       $36,595        $27,446.25

2012        27,386         20,539.50

2013        33,689         25,266.75

__________

1The amounts referred to herein reflect an agreement by the parties to
revised deficiencies in Federal income tax as reflected on Form 5278,
Statement–Income Tax Changes, and are less than respondent’s initial
determinations in the notice of deficiency.

Petitioners conceded in full the deficiencies for tax years 2011-13. The only issue for decision is whether petitioners are liable for fraud penalties under section 6663 for tax years 2011-13.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners resided in Minnesota when the petition was timely filed.

Henry Langer was an Internal Revenue Service revenue agent for over 29 years and received training in determining allowable business expense deductions; he was also a certified forensic examiner. Petitioners have a history of claiming [*3] business expense deductions for obvious personal expenses and expenses they could not substantiate. See, e.g. , Langer v. Commissioner (Langer I ), T.C. Memo. 2008-255, 96 T.C.M. (CCH) 334, 339 (2008) (“[P]etitioners claimed as business expense deductions many obviously personal items . A former Internal Revenue Service agent should have known better .” (Emphasis added.)), aff’d without published opinion , 378 F. App’x 598 (8th Cir. 2010); Langer v. Commissioner (Langer II ), T.C. Memo. 1992-46, 63 T.C.M. (CCH) 1900 (1992), aff’d , 989 F.2d 294 (8th Cir. 1993); Langer v. Commissioner (Langer III ), T.C. Memo. 1990-268, 59 T.C.M. (CCH) 740, 746 (1990) (holding petitioners liable for an addition to tax under section 6653(a) for negligence because petitioners’ conduct suggested a “pattern of carelessness” and because petitioners used methods for determining deductions that had “no basis in the law”), aff’d , 980 F.2d 1198 (8th Cir. 1992).

Respondent disallowed $113,194, $67,186, and $84,087 of petitioners’ claimed deductions on Schedules C, Profit or Loss From Business, for 2011-13, respectively, as personal expenses; many of petitioners’ claimed and disallowed expense deductions were identical to those disallowed as personal expenses in Langer I and Langer II , including expenses for parties, gifts, flowers, vases, and holiday decorations, to name a few.

[*4] OPINION

The Commissioner must establish by clear and convincing evidence that, for each year at issue, an underpayment of tax exists and that some portion of the underpayment is due to fraud. Secs. 6663(a), 7454(a); Rule 142(b). The Commissioner must show that the taxpayer intended to conceal, mislead, or otherwise prevent the collection of taxes. Katz v. Commissioner , 90 T.C. 1130, 1143 (1988). The taxpayer’s entire course of conduct may establish the requisite fraudulent intent. Stone v. Commissioner , 56 T.C. 213, 223-224 (1971).

Petitioners conceded in full the deficiencies for 2011-13, and therefore respondent satisfied his burden of proving an underpayment of tax for each year at issue. Respondent established that, for each year at issue, petitioners’ underpayment of tax was fraudulent and that they intended to conceal taxable income and prevent the collection of tax by overstating deductions and claiming nondeductible and obvious personal expenditures as business expenses. See Rahall v. Commissioner , T.C. Memo. 2011-101, 101 T.C.M. (CCH) 1486, 1492 (2011) (“An additional badge of fraud includes a taxpayer disguising nondeductible personal expenditures as business expenses.”). Mr. Langer’s nearly 30 years of experience as a revenue agent and petitioners’ history before this Court for identical issues are relevant considerations in determining whether they had [*5] fraudulent intent. See Beaver v. Commissioner , 55 T.C. 85, 93-94 (1970) (stating that petitioner’s business experience is a relevant consideration in determining whether he had fraudulent intent). Petitioners’ repeated concealment of income by overstating deductions exemplifies a pattern of fraudulent behavior, and their explanations are implausible and unpersuasive. See McGraw v. Commissioner , 384 F.3d 965, 971 (8th Cir. 2004) (“[A] consistent pattern of sizeable underreporting of income * * * and unsatisfactory explanations for such underreporting also can establish fraud.”), aff’g Butler v. Commissioner , T.C. Memo. 2002-314; Sanchez v. Commissioner , T.C. Memo. 2014-174, at *17 (stating that “a pattern of conduct that evidences an intent to mislead” is one of the “badges of fraud” from which fraudulent intent can be inferred), aff’d , ___ F. App’x ___, 2016 WL 7336626 (9th Cir. Dec. 19, 2016); Bruce Goldberg, Inc. v. Commissioner , T.C. Memo. 1989-582, 58 T.C.M. (CCH) 519, 529 (1989) (“[F]raud may sometimes be inferred from a pattern of overstating deductions.”). Accordingly, petitioners are liable for the fraud penalties under section 6663 for all years at issue.

[*6] To reflect the foregoing,

Decision will be entered under Rule 155 .

Footnotes

1Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

[End of Document]