Cracking the Code reviewed by Judge Buch

[LaVidaRoja]

The memo decisions normally cite full T.C. or appellate decisions. They can easily be used as a guide to the thoughts of the full Court on the issues. The case that broke down the barriers on 280A (home office deduction) (Solomon? I don't recall) was a memo decision, but it changed the way the issue was handled by the IRS and the preparer community.

[Jeffrey]

Hendrickson is going to be digging for an excuse to ignore Buch, so while discussion about the differences between types of TC decisions is enlightening, I fear we should refrain from that discussion lest it fuel Hendrickson's denial of reality.

[.]

Not likely anything said here or anywhere else is going to affect his now over-20-year-old denial of reality.

His problem is that his steaming pile of a book has now been taken apart piece by piece in great detail by a Tax Court judge, that devastating written opinion is now and forever available for free to be read by anyone who cares to and there's absolutely nothing he can do about it.

[wserra]

there's absolutely nothing he can do about it.

"Denial" is not only a river in Egypt.

[Famspear]

there's absolutely nothing he can do about it.

"Denial" is not only a river in Egypt.

I think it would have been interesting over the past few years to have been able to hear the many kitchen table conversations among members of Pete and Doreen's extended family and friends. I have to believe that many of their family members, etc., have never fallen for the scam. Thinking about Preposterous, Prevaricatin' Pete has to be painful for them.

[Judge Roy Bean]

Not likely anything said here or anywhere else is going to affect his now over-20-year-old denial of reality. ...

Exactly. "I was wrong" is not in his phraseology, but I'll bet "He's a tax court judge, what else can he say?" is.

[The Observer]

Thinking about Preposterous, Prevaricatin' Pete has to be painful for them.

Just a guess on my part, but I bet many have written off Pete and, to a lesser degree, Doreen so they don't have to think about them. It is awful hard to be a moral supporter and good friend/relative when you watch a person continually insist on harming themselves - especially if they ignore your reasonable advice.

Exactly. "I was wrong" is not in his phraseology, but I'll bet "He's a tax court judge, what else can he say?" is.

And it only goes downhill from there with more lies, rationalizations and excuses so his ego does not get deflated. This is why we see so many of the TPs and sovruns buying into whacko conspiracy theories by the end of their destination.

[Gregg]

100% gold by Buch, would read again.

I'm giddy to see how losthorizons etc will react.

That forum has mostly devolved into Harvester, under his alias's having rather pointless arguments with a very few others, including his other alias in at least one thread.

He's not any more popular there than he is here, its just that moderation is lax because even Pete doesn't seem like he can be bothered with it lately.

[Gregg]

A side note on Harvester's immense cast of characters:

Sock Puppet "Noah" is having a multi thread flame war with LH poster "BrainySmurf76", who is among the biggest "attatboy" buddies with Sock Puppet "Patriot1"

I'm sorry, but that's just flat out funny....

[Quixote]

It would be great if Judge Buch could review CTC on Amazon. He may not consider that appropriate. A review citing to Buch's opinion would be a good second best.

[Dr. Caligari]

A review citing to Buch's opinion would be a good second best.

It's already been mentioned in the comment thread on one of those Amazon reviews.

[Cpt Banjo]

It's also appeared on TaxProf Blog.

http://taxprof.typepad.com/taxprof_blog ... ssues.html

[Dr. Caligari]

A week later, and still no mention of this case on the Lost Horizons Forum. We do, however, have this gem from "brburnette":

It would be nice if we could get back on track concerning the original purpose of this thread. That would be the question:

How does one qualify for a mortgage when most (if not all) mortgage companies use your IRS returns for income verification and your returns show no income (as per CtC)?

Since the 2008 housing crash, the regulations and rules have gotten tighter. I tried to refinance my home and my 2011 IRS transcripts show income (I filed CtC so I'm assuming they changed it) but my 2012 IRS transcripts showed none (probably because they haven't gotten around to changing it yet) and the refinance could not continue because of that single issue. They had work income verification: pay stubs, W-2s, everything you would need to verify income. Yet they keep telling me the "regulations" require what I give them to match the IRS transcripts. CtC-related returns would seem to always create a discrepancy there.

Has anyone else run into this and, of so, how did you handle it?

[webhick]

What brburnette fails to realize that it's pretty easy to produce fake pay stubs and W2s, which is why the bank wouldn't accept it over something official.

[Judge Roy Bean]

A week later, and still no mention of this case on the Lost Horizons Forum. We do, however, have this gem from "brburnette":

It would be nice if we could get back on track concerning the original purpose of this thread. That would be the question:

How does one qualify for a mortgage when most (if not all) mortgage companies use your IRS returns for income verification and your returns show no income (as per CtC)?

Since the 2008 housing crash, the regulations and rules have gotten tighter. I tried to refinance my home and my 2011 IRS transcripts show income (I filed CtC so I'm assuming they changed it) but my 2012 IRS transcripts showed none (probably because they haven't gotten around to changing it yet) and the refinance could not continue because of that single issue. They had work income verification: pay stubs, W-2s, everything you would need to verify income. Yet they keep telling me the "regulations" require what I give them to match the IRS transcripts. CtC-related returns would seem to always create a discrepancy there.

Has anyone else run into this and, of so, how did you handle it?

Today, no originator will try and push through a loan where there are income tax discrepancies such as those the poster describes. The good old days of no-doc "liar loans" are over and in these circumstances, Pete's acolytes are essentially shut out of the mortgage market.

[JamesVincent]

I have a buddy of mine fighting to get his house refinanced and has been for 3 years now. You know what's holding it up? His community has a "homeowners association" but won't admit it. He has to pay $150/ year as part of that "association" maintaining the beach and docks but no one will admit that there is such a thing. It is not listed on his deed but was in the original mortgage. Since he cannot confirm or deny that fee, and no one else will, he has been fighting for 3 years now. He makes more then enough to cover his payments and has reasonably good credit.

So to even think that you could fly through the process with very hinky numbers is quite asinine.

[downfall]

Here's the reaction:

http://losthorizons.com/MidEditionUpdate.htm#1

Key part:

I'M TOLD THAT A FEDERAL TAX COURT JUDGE issued a "memorandum" just last week in which he spends 31 pages attacking me and railing against CtC! I'm just guessing, but I'll bet that's about 5 times as much writing as the average entire judicial output in the disposition of a case.

We can all be heartened by this extraordinary effort. Like others of its kind, this sweaty exercise is indicative of just how profoundly dangerous to its "ignorance-tax" gravy-train the state recognizes CtC to be-- because of how right the state actually recognizes CtC to be (as is proven for the [a X 10,000th] time by this week's Real American Heroes honored further down this page). Eventually, even the sleeping media is going to wake up and start reading between these lines.

Interestingly, CtC wasn't even in evidence in the case in which this remarkable judicial agitation displays itself. The verbose judge apparently just decided to use his ruling in the case as an occasion to make a name for himself within his little special-interest world, like a 17th Century priest including a screed against Copernicus in his Sunday sermon.

I probably don't need to mention where this guy's salary comes from...

No link to the opinion, of course.

[Pottapaug1938]

Here's the reaction:

http://losthorizons.com/MidEditionUpdate.htm#1

Key part:

I'M TOLD THAT A FEDERAL TAX COURT JUDGE issued a "memorandum" just last week in which he spends 31 pages attacking me and railing against CtC! I'm just guessing, but I'll bet that's about 5 times as much writing as the average entire judicial output in the disposition of a case.

We can all be heartened by this extraordinary effort. Like others of its kind, this sweaty exercise is indicative of just how profoundly dangerous to its "ignorance-tax" gravy-train the state recognizes CtC to be-- because of how right the state actually recognizes CtC to be (as is proven for the [a X 10,000th] time by this week's Real American Heroes honored further down this page). Eventually, even the sleeping media is going to wake up and start reading between these lines.

Interestingly, CtC wasn't even in evidence in the case in which this remarkable judicial agitation displays itself. The verbose judge apparently just decided to use his ruling in the case as an occasion to make a name for himself within his little special-interest world, like a 17th Century priest including a screed against Copernicus in his Sunday sermon.

I probably don't need to mention where this guy's salary comes from...

This Loserhead screed speaks directly to one of the points made in the famous Wnuck decision. The judge mentioned, among other things, the likelihood of people rationalizing that, if the TDer's position required this much attention, there must be something to it.


No link to the opinion, of course.

This speaks directly to one of the points raised in the Wnuck decision:

H. Addressing frivolous anti-tax arguments risks dignifying them.

The oft-cited opinion in Crain v. Commissioner, 737 F.2d at 1417, observes that one reason not to refute frivolous arguments is that “to do so might suggest that these arguments have some colorable merit.” The observation is certainly valid. It is this Court’s experience that taxpayers who take frivolous positions often have learned those positions from self-appointed anti-tax gurus with prepackaged pseudo-legal arguments that include inapposite citations from such sources as the Federal Register, inapplicable State and Federal statutes, court opinions taken out of context, and the Internal Revenue Manual (IRM).

Some taxpayers seem to understand their frivolous arguments 12See secs. 6321 (lien arises upon demand), 6331(a) (levy follows notice and demand), 6303 (notice and demand follows
assessment) imperfectly, if at all, and seem not to understand the nature of
the authorities they cite.13 If, as it seems, such a taxpayer has been persuaded of these positions by the mere presence of legalese, then it is entirely possible (as Crain anticipated) that a serious discussion of a frivolous position will seem to
him to confer respectability on that position.

For example, when we take five paragraphs (in part I.E.2above) to explain why 27 C.F.R. section 70.42(b)(1) has no effect on the validity of an income tax SFR, we incur a risk: A legally unsophisticated taxpayer may wrongly infer that, if it took that much reasoning and writing to defeat the argument, then the argument must have had something going for it. The inference would be wrong, of course. Mr. Wnuck’s 27 C.F.R. argument is hardly a legal argument at all; and all that is there is manifestly wrong for multiple reasons. But since the actual substance of the frivolous anti-tax issue often seems to elude the litigant, and since all that affects him is the superficial
appearance of legal matter, an explanation of why his argument is wrong may even be counter-productive. Perversely, the seriousness of the refutation becomes, in his mind, imputed to the frivolous argument itself. This is sometimes a good reason
not to address frivolous arguments.

There is thus little advantage to be gained by addressing frivolous arguments, and there are disadvantages that may accrue from doing so. For that reason, litigants who present frivolous arguments should not expect to see them answered in opinions of
this Court.

[downfall]

I see the point that quote is making, but ultimately I disagree. CtC is apparently very popular and anybody who wants to take these positions is on notice, should they care to do the research. If anybody makes any of these arguments, give them one warning and refer to this opinion. If they still make them, then sanction to the maximum allowable amount. Nobody can say they weren't warned.

Something I don't understand about the opinion itself: The judge seems to have allowed an awful lot of discovery, which is strange because the issues in question were almost pure law. Unless there is a compelling reason I am missing, then that also needs to stop. Discovery was worthless in this case and there's no point in pretending otherwise. There's a provision in the FRCP to just resolve a case on the basis of the papers, does that not work in tax court?

[Lawyer, but not a tax lawyer].

[fortinbras]

Actually something like this already was done.

Public Law 109-432, the Tax Relief and Health Care Act of 2006, enacted on Dec. 20, 2006, contained, at 120 Stat.L. 2960, a new 26 USC sec 6702, raising the penalties for frivolous returns and positions, and instructing the IRS to draw up and publish a list of frivolous positions so that taxpayers are suitably warned to not to try to use those arguments. The 2008 edition of this list, titled The Truth About Frivolous Tax Arguments, was IRS Notice 2008-14, which appears several places on the internet (sometimes with updating) (one place in 2010 was http://www.irs.gov/pub/irs-utl/friv_tax.pdf ). The previous version of sec. 6702 had been upheld as Constitutional. Herndon v. Egger (SDNY 2/13/87) 59 AFTR2d 732, 87 USTC 9193. The IRS provides people making such arguments with a copy of this compilation. Barry v. CIR, TC Memo 2011-127; Mooney v. CIR, TC Memo 2011-35; In re Verschoot (Bankr., D.Mont 4/4/05); or it will refer them to the internet link for it. Meyer v. CIR (D.Minn 9/27/10); Battle v. CIR, TC Memo 2009-171; Little v US (MDNC 11/7/05) 96 AFTR2d 7086 affd 178 Fed.Appx 230; and might even decline discussing issues that are dealt with in that list. Marcinek v. CIR (3d Cir 3/16/12) 467 Fed.Appx 153, 109 AFTR2d 1413, 2012 USTC 50248 cert.den (10/1/12) _US_, 133 S.Ct 199. Once the tax-dodger has been alerted to this compilation, he cannot claim a good faith defense in persisting in any of the arguments listed therein. US v. Beiter (11th Cir 10/11/11) 448 Fed.Appx 900, 108 AFTR2d 6747; Barry v. CIR, TC Memo 2011-127; Powell v CIR, TCM 2009-174, penalty against counsel affirmed as Barrington v. US District Court (DC Cir 12/2/10) 408 Fed.Appx 381, 108 AFTR2d 5368. Several courts have favorably mentioned The Truth About Frivolous Tax Arguments, primarily because its ubiquitous availability shows that the tax scofflaw knew or should have known with little effort that his schemes were bogus; e.g., Marcinek v. CIR (3d Cir 3/5/12) 467 Fed.Appx 153, 109 AFTR2d 1413, 2012 USTC 50248; US v. Beiter (11th Cir 10/11/11) 448 Fed.Appx 900, 108 AFTR2d 6747; US v. Hendrickson (ED Mich 2009) 664 F.Supp.2d 793; etc.