No, bozo, that's not the meaning of "deficiency." Pete, why don't you quote the statute instead? Show us how Congress puts it.Over the last few weeks, we've parsed out the fictions and the realities involved in "Frivolous Return" notices and penalties. This week we'll take a look at another custom-defined concept: "tax deficiency". As with the "frivolous" stuff, the IRS loves to exploit ignorance and confusion about "tax deficiencies"-- to the state's benefit, and to the harm of its unwitting victim.
As discussed at the end of part II in CtC, a "deficiency" is a statutorily-defined term, with a very limited meaning. The term refers to the difference between the tax shown on a filed return and what the tax should be if the proper rate of tax is accurately applied to net "income" which has been properly calculated by the accurate and appropriate application of any claimed and legitimately-available deductions and other adjustments to the amount of gross "income" reported on the return, and after factoring in amounts previously assessed and/or "rebated".
Pete continues:
Yes, a cynical person might feel that way. But more to the point, a person with Paranoid Personality Disorder might feel that way.Here's how Congress puts it:
I know. You're saying, "What the h***?!"26 USC § 6211 - Definition of a deficiency
(a) In general
For purposes of this title in the case of income, estate, and gift taxes imposed by subtitles A and B and excise taxes imposed by chapters 41, 42, 43, and 44 the term “deficiency” means the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of—
(1) the sum of
(A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus
(B) the amounts previously assessed (or collected without assessment) as a deficiency, over—
(2) the amount of rebates, as defined in subsection (b)(2), made.
(b) Rules for application of subsection (a)
For purposes of this section—
(1) The tax imposed by subtitle A and the tax shown on the return shall both be determined without regard to payments on account of estimated tax, without regard to the credit under section 31, without regard to the credit under section 33, and without regard to any credits resulting from the collection of amounts assessed under section 6851 or 6852 (relating to termination assessments).
(2) The term “rebate” means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by subtitle A or B or chapter 41, 42, 43, or 44 was less than the excess of the amount specified in subsection (a)(1) over the rebates previously made.
(3) The computation by the Secretary, pursuant to section 6014, of the tax imposed by chapter 1 shall be considered as having been made by the taxpayer and the tax so computed considered as shown by the taxpayer upon his return.
(4) For purposes of subsection (a)—
(A) any excess of the sum of the credits allowable under sections 24 (d), 25A by reason of subsection (i)(6) thereof, 32, 34, 35, 36, 36A, 36B, 53(e), 168(k)(4), 6428, and 6431 over the tax imposed by subtitle A (determined without regard to such credits), and
(B) any excess of the sum of such credits as shown by the taxpayer on his return over the amount shown as the tax by the taxpayer on such return (determined without regard to such credits),
shall be taken into account as negative amounts of tax.
(c) Coordination with subchapters C and D
In determining the amount of any deficiency for purposes of this subchapter, adjustments to partnership items shall be made only as provided in subchapters C and D.
As well you might. This statute is a mare's nest of near-gibberish, which a cynical person might imagine to have been specifically designed to confuse the unwary, create clients for tax attorneys and CPAs, and represent so much choking undergrowth as to allow corrupt tax agencies and judges to exceed their jurisdiction by exploiting the ignorance of their prey, while still retaining plausible deniability of chargeable malfeasance.
Prevaricating Pete plods onward:
In fact, this is a classic example of the difference between what must be dealt with by those within the ambit of the tax law, and those without (and why it's so important to know which you are at any given time).
Happily, breaking it down makes it easy (assuming a return has been properly completed and filed):
1. A return shows an amount of gross "income" (which might be $0).
2. That amount of "income" has been reduced by the application of deductions, adjustments, credits, exemptions, and so forth (if any are claimed, and if reduction is even possible).
3. The resulting net ("adjusted gross") "income" (aka "taxable income")-- which might be $0-- has been multiplied by a given rate of tax, which resulted in an amount showing as "tax due" (which might be $0).
Well, no Pete. Adjusted gross income and taxable income are two different concepts under the Code. Adjusted gross income is determined before considering itemized deductions (or, alternatively, the standard deduction), and the deduction for personal exemptions. Taxable income is adjusted gross income minus those deductions. Why oh why didn't you stick to video arcade management, Pete?
At any rate, Pete struggles onward:
No, Pete. Go back and read the definition.4. A "deficiency" is the difference between the amount shown as "tax due", and what that amount should be if everything in steps 2 and 3 was properly done (minus amounts previously assessed and "rebate" adjustments, if any).
No, Pete. Section 6211 does not limit the "jurisdiction" of the Court in the way you described. Pete, what is it about you people and the word "jurisdiction"? Why can't you get it right?So, the jurisdiction of Tax Court regarding "deficiencies" is over everything in steps 2 and 3. Significantly, it has nothing to do with step 1.
Pete continues:
Completely false. Nothing in section 6211 limits the authority (the "competency" as Pete puts it) of the Tax Court to determine what Pete calls "step 1" - to determine whether a given item is or is not includible in the gross income of the petitioner. And, by the way, nothing in section 6211 limits the scope of the evidence that the Tax Court may consider to "the data already in consideration" (a phrase which appears to be Hendrickson's code language for "whatever I or one of my crackhead followers stated was 'income' on the tax return itself").As said in the statutory definition (consolidated for easier intake, but feel free to check my parsing...):
“[D]eficiency” means the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the sum of the amount shown on the return plus amounts previously assessed (or collected without assessment as a deficiency) minus the amount of rebates (as defined in subsection (b)(2)) which have been made.
Nothing in this definition purports to involve debate, challenge or determinations concerning the amount of "income" that is the starting point for all "tax due" calculations. And how could it, after all? Neither the "deficiency" alleger [i.e., the IRS] nor the tax court judge has any personal competency concerning that subject; further, don't lose sight of the fact that tax agencies and "tax courts" are really nothing more than accounting and collection operations. In any event, "income" is not the issue addressed by "deficiency" proceedings. The only thing addressed is the difference between the amount of tax shown and the amount properly calculated in light of the data already in consideration.
Yes, Pete, there's a reason why lawyers and CPAs get paid the big bucks to interpret the tax law and represent clients. And yes, Pete, there's a reason why a narcissistic former video arcade manager with no legal, tax, or accounting expertise -- who pretends to be an expert on tax law -- spends nearly two years in federal prison for using his own goofy tax theories on his own fraudulent tax returns.
Pontificating Pete continues:
http://losthorizons.com/MidEditionUpdate.htmOf course, we all know that the tax agencies like to pretend that a deficiency is the difference between the amount shown on a return and what they would rather see the filer end up paying as tax-- even if that means pretending that their authority extends to deciding that the filer didn't start with a big enough gross "income" figure.
This is a re-hash of Hendrickson's frivolous argument that the IRS and the courts do not have the authority to question the taxpayer's (oh, excuse me, the "non-taxpayer's) sworn statement on the tax return regarding what is or is not the taxpayer's "income".
No, bozo, your ability to parse the intricacies of the Internal Revenue Code is no better than your ability to stay out of federal prison.
