Wayne Robert Risley and Nanette Risley v. Commissioner, T. C . Summary Opinion 2009-172,
Docket No. 10857-05S (11/23/2009), appeal dismissed for lack of jurisdiction, No. 10-70656 (9th Cir. 3/22/2012).
Excerpts from the opinion granting summary judgment to the Commissioner:
Tax Court wrote:Petitioners participated in a fraudulent tax shelter (tax shelter) promoted and sold by the National Audit Defense Network (NADN). The NADN advertised itself as a conglomerate of former Internal Revenue Service agents, enrolled agents, certified public accountants, and tax attorneys who could help U.S. taxpayers pay no Federal income tax. The NADN informed petitioners that they could qualify for significant tax benefits by forming a Web site and then paying the NADN to modify the Web site to comply with the Americans with Disabilities Act of 1990....
Petitioners make no claim that sections 44 and 162 actually allow them to deduct or credit the items that they reported as to the tax shelter. Cf. Good v. Commissioner, T .C . Memo. 2008-24 (holding on the merits that the taxpayers were not entitled to the section 162 expenses and disabled business credits reported as to the tax shelter). Petitioners' primary argument in challenging respondent's determination of the deficiencies is that respondent is equitably estopped from assessing against them any amount relating to the tax shelter. We disagree. Equitable estoppel is a judicial doctrine that precludes a party from denying his or her acts or representations which induced another to act to his or her detriment. See Hofstetter v. Commissioner, 98 T.C. 695, 700 (1992). The following requirements must be satisfied where, as here, equitable estoppel is asserted against the Commissioner: (1) A false representation by the Commissioner or his wrongful, misleading silence; (2) an error in a statement of fact and not in an opinion or statement of law; (3) ignorance of the true facts; (4) a taxpayer's reasonable reliance on the Commissioner's acts or statements; and (5) adverse effects of the Commissioner's acts or statement. See Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 59-60 (1995), affd. 140 F .3d 240 (4th Cir. 1998). Petitioners' failure to establish any one of these five requirements means that their claim of equitable estoppel must fail as well.
Petitioners have failed to establish on the part of respondent either a false representation or a wrongful, misleading silence as to the tax shelter. [Footnote omitted.] To that end, we are unable to find as to the tax shelter that respondent made any representation (let alone any misrepresentation) to petitioners or otherwise wrongfully concealed from petitioners any material fact. Instead, the record demonstrates (and we so find) that respondent had no contact with petitioners as to the tax shelter before his audit of the subject returns and that petitioners invested in the tax shelter separate and apart from any action taken by respondent.
Petitioners argue that the statements of the the NADN's workforce are imputed to respondent to the extent that those workers were registered with the Internal Revenue Service as enrolled agents or tax preparers. Petitioners also argue that the tax shelter is imputed to respondent because the NADN advertised that it employed those workers as well as former Internal Revenue Service employees. We disagree on both counts. The record does not establish, nor do petitioners claim, that any of the NADN's workers also were working for the Internal Revenue Service at the same time. Moreover, the mere fact that a former employee of the Internal Revenue Service, or an individual registered with the Internal Revenue Service as an enrolled agent or a tax preparer, may have been affiliated with the NADN (and/or the tax shelter) does not estop respondent from challenging the legitimacy of the tax shelter. [Citations omitted.] Nor do we believe, as petitioners argued, that respondent was sufficiently aware of the impropriety of the tax shelter through petitioners' filing of their 2001 return so that he is estopped from challenging any of the amounts that petitioners later claimed as to the tax shelters for 2002 and 2003.
Petitioners also argue that the Government should bear the loss of any Federal income taxes owed by them as to the tax shelter because respondent failed to inform petitioners that the
tax shelter was a "fraud" and is in abetter position than they to recover the $7,485 that they paid to the NADN. We disagree. While petitioners consider it inequitable that they have to pay taxes as to the tax shelter when they have paid $7,485 to the NADN for what they now consider to be a worthless investment, we know of no reason the Government should act as an insurer of that investment. Nor do we agree with petitioners that they are entitled for the subject years to deduct the $7,485 as a theft loss under section 165. While section 165 lets an individual deduct a theft loss in the year during which the individual discovers the loss, see sec. 1.65(a), (c)(3), (e), the record does not establish that petitioners discovered any such theft loss during the subject years.
We hold that respondent is not estopped from disallowing the claimed amounts. Accordingly, we sustain respondent's determination of the deficiencies.