Foryan Gets de minimus Treatment From Tax Court

[The Observer]

STEPHAN P. FORYAN,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

Release Date: JUNE 25, 2012

UNITED STATES TAX COURT

Filed June 25, 2012

Stephan P. Foryan, pro se.

Robert Vernon Boeshaar and Julie L. Payne, for respondent.

MEMORANDUM OPINION

SWIFT, Judge: This matter is before us on respondent's motion to dismiss for failure to properly prosecute.

At the time of filing his petition, petitioner resided in the State of Washington.

For 2007 petitioner failed to file a Federal income tax return and to pay tax due.

On the basis of third-party information used to calculate petitioner's unreported income, under authority of section 6020(b) 1 respondent prepared for petitioner a substitute for return for 2007 and charged petitioner with the following income: $ 197,107 from Unruh Hay Co. LLC; $ 2,979 from Herring Farms, Inc.; and $ 928 from Billingsley Ranch. Against this income respondent allowed petitioner a standard deduction of $ 5,350 and exemptions of $ 2,720.

On May 17, 2010, respondent mailed to petitioner a notice of deficiency relating to petitioner's 2007 Federal income tax. Respondent determined an income tax deficiency (including self-employment tax), plus additions to tax, as follows:

Additions to tax
______________________________________________________

Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
_____________________________________________________________________

$ 64,330 $ 14,474 $ 7,398/1/ $ 2,928
_____________________________________________________________________

/1/ fails to pay, not exceeding 25% in the aggregate.

On August 16, 2010, petitioner timely filed a petition in this Court challenging respondent's determinations primarily on the basis that the income tax is unconstitutional.

On July 12, 2011, respondent sent petitioner a Branerton letter 2 proposing a telephone conference on July 26, 2011. Respondent's letter also explained the Court's expectation that litigants make informal discovery efforts before resorting to formal discovery. See Rule 70(a)(1).

On July 24, 2011, petitioner made extensive formal discovery requests of respondent.

On September 26, 2011, in response to petitioner's discovery requests, respondent sent petitioner a letter explaining his basis for not responding to petitioner's discovery requests -- namely, formal discovery was premature given petitioner's failure to participate in informal conferences with respondent. See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).

Enclosed with respondent's letter was a proposed stipulation of facts with exhibits, to which petitioner refused to agree.

At the time of trial on October 31, 2011, petitioner appeared and acknowledged receipt of the income respondent charged to him. Petitioner, however, claimed that the income tax was unconstitutional.

Petitioner's arguments are characteristic of tax-protester rhetoric that has been rejected by this and other courts and merit no discussion. See, e.g., Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988), aff'g T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006 (9th Cir. 1986); Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984); Knelman v. Commissioner, T.C. Memo. 2000-268, aff'd, 33 Fed. Appx. 346 (9th Cir. 2002).

We conclude that respondent has met his burden of production with respect to the additions to tax for petitioner's failure to timely file a tax return under section 6651(a)(1), failure to timely pay tax due under section 6651(a)(2), 3 and failure to pay estimated tax under section 6654. 4

For the reasons stated, respondent's motion to dismiss will be granted.

An appropriate order of dismissal and decision will be entered.

FOOTNOTES:

/1/ All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

/2/ Branerton letters are the common method of initiating informal discovery. See Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974).

/3/ Attached as an exhibit to respondent's motion to dismiss for failure to properly prosecute is Form 13496, IRC Section 6020(b) Certification, for petitioner's 2007 tax year, which satisfies respondent's burden of production for the sec. 6651(a)(2) addition to tax. See Wheeler v. Commissioner, 127 T.C. 200, 209 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008); Oman v. Commissioner, T.C. Memo. 2010-276.

/4/ Because petitioner failed to file a Federal income tax return for 2006, petitioner has failed to show that he falls within the sec. 6654(e)(2) exception to the addition to tax for failure to pay estimated tax. See Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980).

[Kestrel]

Just curious, not that I'd ever expect an idjut like this one to try it...

When the IRS prepares a substitute return and uses that to file a formal assessment of taxes, interest and penalties, can our hero get his tax bill reduced by filing a real return? That is, file a real return which is compliant with all the real tax code provisions, like the rest of us file every year?

[Cathulhu]

Just curious, not that I'd ever expect an idjut like this one to try it...

When the IRS prepares a substitute return and uses that to file a formal assessment of taxes, interest and penalties, can our hero get his tax bill reduced by filing a real return? That is, file a real return which is compliant with all the real tax code provisions, like the rest of us file every year?

Off top of my head--the answer is yes, they can, but it'll be examined before it gets accepted and actually changes their balance due. I think there's something in the IRS manual about the return being examined after the assessment process.

[The Observer]

When the IRS prepares a substitute return and uses that to file a formal assessment of taxes, interest and penalties, can our hero get his tax bill reduced by filing a real return? That is, file a real return which is compliant with all the real tax code provisions, like the rest of us file every year?

Yes, in fact the IRS has a mandate from Congress to ensure that taxpayers are paying the correct amount of tax. Many taxpayers end up getting a substitute return created for them when they fail to file returns. Due to the fact that the IRS has no ability or obligation to claim the exemptions and deductions available to the taxpayer, nearly every SFR is in accurate and requires that the taxpayer file an original, signed 1040 to correct the tax. It will take a while, but the IRS will adjust it. Of course, if a notice lien got recorded in the meantime while the taxpayer was procrastinating, the taxpayer is going to have deal with the ramifications of such recordation.

[fortinbras]

The IRS keeps an enormous collection of data of what it generally costs to run certain businesses or participate in certain occupations and what the usual revenue is. That way it can detect inflated business expenses or understated income, at least in an approximate way. When someone stonewalls the IRS completely or provides tax returns that are clearly works of fiction, the IRS trots out this data and uses it in working up a substitute tax return for the scofflaw and from that calculates his tax obligation. In some instances, the IRS will also do some specific investigation, checking this guy's spending habits, bank records, etc., to work up its substitute return. Since the IRS has expertise in this sort of thing, the courts regard the IRS's calculation as prima facie correct. At that point, the scofflaw's only effective recourse is to put his financial cards on the table, revealing his actual financial records for both expenses and revenue and to substantiate any deductions or exemptions, to justify a smaller tax obligation.

As you can see from the multitude of court cases, a great many tax scofflaws clearly don't want to be candid about their finances and think they can bluff the IRS without revealing their own cards. This never works but somehow each scofflaw insists on learning this lesson the hard way.

[KickahaOta]

Stephan P. Foryan has made at least one previous appearance on this site; see "TP Gets de minimus Treatment From Tax Court". But in light of a rather typical yet strikingly sad order from the Tax Court, it seems worth giving him the dubious honor of a thread with his name on it.

UNITED STATES TAX COURT WASHINGTON, DC 20217
STEPHAN P. FORYAN, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14909-14.

ORDER AND DECISION
This case was commenced in response to a statutory notice of deficiency determining petitioner's liability for income taxes and additions to tax for 2010. It was later consolidated and set for trial with Docket No. 848-15 relating to petitioner's liability for income taxes and additions to tax for 2011. By notice served February 8, 2016, the two cases were consolidated and set for trial in Spokane, Washington, on May 23, 2016. The Court's Standing Pretrial Order was served with the notices setting the cases for trial.

In the petition, and in other documents sent to the Court, petitioner asserted only frivolous arguments denying his obligation to file tax returns and pay taxes. Petitioner pursued a similar course in two prior cases in this Court. In a case involving his liability for 2007, decided in T.C. Memo. 2012-177 filed June 25, 2012, the petition was dismissed and the deficiency and additions to tax determined in the notice of deficiency were sustained because of petitioner's pursuit of long discredited tax protester rhetoric. In a case involving his liability for 2009, decided in T.C. Memo. 2015-114 filed June 22, 2015, decision was entered sustaining the deficiency and additions to tax and imposing a penalty of $1,000 under Internal Revenue Code Section 6673. The Court warned petitioner that "if he does not abandon his misguided positions, e.g., that his payments received for services are not taxable income, and file timely and proper tax returns in the future and pay his taxes when due, it is very likely that in future case before this Court a greater penalty will be imposed." [slip opin. P. 11] Another warning to petitioner about the consequences of his frivolous arguments was set forth in respondent's pretrial memorandum in this case.

On April 8, 2016, respondent filed a motion under Rule 91(f), Tax Court Rules of Practice and Procedure, and on April 11, 2016, petitioner was ordered to show cause why the matters set forth in the stipulation attached to respondent's motion should not be deemed stipulated for purposes of the consolidated cases. Petitioner filed a response in which he admitted the facts relating to his income from hay loading and related income producing activities (which are the same as those involved in his prior cases), cancellation of indebtedness income, and failure to file returns for 2009, 2010, and 2011. He refused to agree to the stipulation, however, raising erroneous and frivolous arguments and attaching documents demonstrating his long history of noncompliance with his tax obligations. Thus the Court ordered that petitioner's legal arguments would be disregarded and the factual matters that petitioner admitted would be deemed stipulated. See Rule 91(f)(3).

When the cases were called and recalled for trial, the Court inquired about petitioner's intentions with respect to the pending cases and reminded him that, by pursuing his course of frivolous conduct, he was abandoning business deductions to which he might otherwise be entitled, joint return rates, itemized deductions and any tax credits to which he might be entitled, as well as credit toward Social Security benefits to which he might become entitled. Petitioner indicated that his situation was already causing consequences to his wife and minor child, apparently as a result of collection proceedings on the liabilities determined in the prior cases and existing for many years before. Respondent's counsel indicated that respondent had offered to consider ways of reducing petitioner's liability if he would cooperate and file returns, but respondent's efforts were to no avail. Petitioner continued to decline to cooperate or to present evidence of the amount of his tax liability. Thus respondent made an oral motion to dismiss the cases for failure properly to prosecute.

Petitioner's failure to comply with the Court's Orders and Rules and failure to present evidence on issues on which he has the burden of proof justify dismissal under Rules 123 and 149(b), Tax Court Rules of Practice and Procedure. Petitioner's admissions of failure to file returns and the transcripts of account presented at trial fully support the additions to tax/penalties in each case. We must decide, however, whether to award a penalty to the United States under section 6673 because petitioner's arguments are frivolous and groundless and the proceedings were instituted primarily for delay.

Petitioner claims that there has been no determination of his tax liability, citing a section of the Internal Revenue Code (section 6065) that applies to his obligations to file tax returns and not to any document existing in this case. Neither a return nor a substitute for return is a prerequisite to a notice of deficiency. Roat v. Commissioner, 847 F.2d 1379, 1381-1382 (9th Cir. 1988); Hartman v. Commissioner, 65 T.C. 542, 546 (1975). Courts have long and consistently held, in various contexts, that a signature is not required on a notice of deficiency. See, e.g., Selgas v. Commissioner, 475 F.3d 697, 699-700 (5th Cir. 2007); Tavano v. Commissioner, 986 F.2d 1389, 1390 (11th Cir. 1993) (per curiam), afg T.C. Memo. 1991-237; Urban v. Commissioner, 964 F.2d 888, 889 (9th Cir. 1992) (per curiam), aff'g T.C. Memo. 1991-220; Ball v. Commissioner, T.C. Memo. 2006-141, slip op. at 7. Arguments concerning delegation of authority to sign statutory notices have been characterized as frivolous and rejected. See, e.g., Winslow v. Commissioner, 139 T.C. 270, 274, 276 (2012); Roye v. Commissioner, T.C. Memo. 2012-246, at *15, *16 n.6; see also Grunsted v. Commissioner, 136 T.C. 455, 460-461 (2011). Petitioner has not raised a single reasonable objection to the determinations in the notices in the consolidated cases. Petitioner submitted in each case voluminous repetitive and frivolous materials. His pro se status does not excuse his attempt to litter the docket of this Court with ridiculous allegations. See Parker v. Commissioner, 117 F.3d 785, 787 (5th Cir. 1997). Although he has shifted in emphasis from constitutional arguments in his 2007 case to procedural arguments in these cases, the hodgepodge of long discredited arguments compel the conclusion that he has chosen to rely on poor advice from some unidentified source and to reject the conclusions of competent professionals and of every court that has considered the same or similar
arguments.

Petitioner's intransigence has already resulted in adverse consequences to himself. He has rejected the efforts of respondent and the Court encouraging him to abandon his course of tax defiance and, instead, to seek appropriate deductions and credits that might reduce his tax liabilities. He is also advised here that his frivolous contentions should be abandoned before he pursues alternatives to enforced collection by pursuing relief under Internal Revenue Code Section 6330. Upon due consideration and for cause, it is hereby

ORDERED that respondent's oral motion to dismiss is granted, and this case is dismissed by reason of petitioner's failure to comply with the Court's Orders and Rules, failure to present evidence, and failure otherwise properly to prosecute. It is
further

ORDERED AND DECIDED that there is a deficiency in income tax due from petitioner for the taxable year 2010 in the amount of $43,220;

That there is an addition to tax due from petitioner for the taxable year 2010 under the provisions of Internal Revenue Code section 6651(a)(1) in the amount of $9,724.50;

That there is an addition to tax due from petitioner for the taxable year 2010 under the provisions of Internal Revenue Code section 6651(a)(2) in the amount of $7,131.30;

That there is an addition to tax due from petitioner for the taxable year 2010 under the provisions of Internal Revenue Code section 6654 in the amount of $926.87; and

That petitioner shall pay to the United States a penalty under Internal Revenue Code section 6673 in the amount of $10,000.

(Signed) L. Paige Marvel
Chief Judge
ENTERED: JUL 1 2016

[The Observer]

Merged topics and changed header in the interest of keeping the subject matter intact in one thread.