Hendrickson acolyte Carmen D'Agostino convicted

[Gregg]

Is there somewhere working through the system some amount of money that Pete owes the government that will eventually result in his property being levied? Is the impending jail time Doreen is facing potentially the event that triggers his complete financial meltdown? It just seems to me that he's not earning like the salad years, and might have some bills piling up. The combination of the donations drying up and the wife's straight job income being disrupted ought to be a perfect storm on the Lost Horizon....

[Famspear]

Forty-five year old Carmen D'Agostino is now inmate # 20410-052 at the Metropolitan Detention Center in Brooklyn, New York. Scheduled release date is September 28, 2015.

[The Observer]

Wow, another Crackhead goes down. Should I hold my breath waiting for Hendrickson to explain what went wrong here?

[Famspear]

D'Agostino has been moved to the Federal Bureau of Prisons facility at Ray Brook, New York.

[LPC]

D'Agostino has been moved to the Federal Bureau of Prisons facility at Ray Brook, New York.

Ray Brook is a very nice part of the Adirondacks, between Saranac Lake and Lake Placid.

If he has a chance to do some sight-seeing or shopping while he's there, I could offer some suggestions.

[Famspear]

D'Agostino has been moved to the Federal Bureau of Prisons facility at Ray Brook, New York.

Ray Brook is a very nice part of the Adirondacks, between Saranac Lake and Lake Placid.

If he has a chance to do some sight-seeing or shopping while he's there, I could offer some suggestions.

Oh, this is great! He'll have a wonderful time there!

[jg]

Carmen D'Agostino, 44, of Geddes, was convicted of five counts of filing false income tax returns for the tax years 2006 through 2010.

The tax refund check was posted on the Lost Horizons web site was for the year 2004. So Carmen got away with that one?
Victory!

Indeed, he did get away with that one.
From the decision <incorrect link redacted>
"Further, the defendant’s tax returns for the years 2004 and 2005, returns that are
barred for prosecution by the statute of limitations, are relevant because in response to
correspondence the defendant filed with his 2005 return, the IRS sent a letter informing the
defendant that his position had no basis and law and that he was obligated to pay income tax,
thus providing evidence of the defendant’s knowledge and lack of mistake in filing similar
returns in 2006, 2007, 2008, 2009 and 2010."

So, he was not punished for 2004 or 2005.
Twofold Victory!

[webhick]

From the decision at file:///E:/John/TaxDeniers/CtC%20call/gov.uscourts.nynd.93513.16.0.pdf

I hope you understand that I'll now be hacking your computer so I can read the file. John.

[operabuff]

Indeed, he did get away with that one.
From the decision at file:///E:/John/TaxDeniers/CtC%20call/gov.uscourts.nynd.93513.16.0.pdf
"Further, the defendant’s tax returns for the years 2004 and 2005, returns that are
barred for prosecution by the statute of limitations, are relevant because in response to
correspondence the defendant filed with his 2005 return, the IRS sent a letter informing the
defendant that his position had no basis and law and that he was obligated to pay income tax,
thus providing evidence of the defendant’s knowledge and lack of mistake in filing similar
returns in 2006, 2007, 2008, 2009 and 2010."

So, he was not punished for 2004 or 2005.
Twofold Victory!

He only got away in the sense that the period of limitation on criminal prosecution expired. The assessment period of limitation remains open if the government can establish fraud.

[Famspear]

Indeed, he did get away with that one.
From the decision at file:///E:/John/TaxDeniers/CtC%20call/gov.uscourts.nynd.93513.16.0.pdf
"Further, the defendant’s tax returns for the years 2004 and 2005, returns that are
barred for prosecution by the statute of limitations, are relevant because in response to
correspondence the defendant filed with his 2005 return, the IRS sent a letter informing the
defendant that his position had no basis and law and that he was obligated to pay income tax,
thus providing evidence of the defendant’s knowledge and lack of mistake in filing similar
returns in 2006, 2007, 2008, 2009 and 2010."

So, he was not punished for 2004 or 2005.
Twofold Victory!

He only got away in the sense that the period of limitation on criminal prosecution expired. The assessment period of limitation remains open if the government can establish fraud.

Yeah, and it might be easy for the government.

Let's see...

Section 6501(c)(1): false or fraudulent return with intent to evade tax = no statute of limitations on assessment.

Section 6501(c)(3): No return filed = no statute of limitations on assessment. It might be easy to establish that a full-bore "Crack-a-dooster Edumacated Return" filed using the method (excuse me, the "non-method") described by Preposterous, Pontificatin', Prevaricatin' Peter E. ("Video Arcade Manager Man") Hendrickson in his Cracking the Code masterpiece is not valid as a "return" for purposes of section 6501(c)(3).

EDIT: See Edwards v. Commissioner, 680 F.2d 1268 (9th Cir. 1982) (per curiam) (tax protester "return" ruled to be not a valid tax return for purposes of the statutory period of limitations on assessment under section 6501(c)(3)).

[operabuff]

In evaluating whether a document is a return or not, the IRS and the Tax Court follow what's generally referred to as the "Beard" test, following Beard v. Commissioner, 82 T.C. 766 (1984). The test has four parts: "First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury."

I don't know what a Hendrickson return looks like, (or more particularly the D'Agostino returns) but they probably meet these pretty minimal standards. The third one "an honest and reasonable attempt to satisfy the requirements of the tax law" looks like it should knock it out, but generally that's interpreted to mean that from the face of the return it appears to be genuine. Since the intent of these returns is to appear legitimate enough to secure a refund, my guess is that they probably meet this standard. The Supreme Court has held that a fraudulent return is not a nullity, so long as it appears on its face to be an attempt to satisfy the tax law. Badaracco v Commissioner, 464 US 386 (1984).

[Famspear]

....I don't know what a Hendrickson return looks like, (or more particularly the D'Agostino returns) but they probably meet these pretty minimal standards. The third one "an honest and reasonable attempt to satisfy the requirements of the tax law" looks like it should knock it out, but generally that's interpreted to mean that from the face of the return it appears to be genuine.....

But, see Ulloa v. Commissioner, T.C. Memo. 2010-68 (2010), which I believe involved "Cracking the Code" tax returns. The Tax Court concluded that Ulloa's returns did not satisfy the "honest and reasonable attempt" element:

....The notices of deficiency also reflect the determination of additions to tax under section 6651(a)(1) for Mr. Ulloa's failure to file his income tax returns when due. Section 6651(a)(1) authorizes the imposition of an addition to tax for failure to file a timely return unless the taxpayer proves that such failure was due to reasonable cause and was not due to willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985). Respondent met his burden of production under section 7491(c) by showing that Mr. Ulloa's only "returns" were not returns at all but were lists of zeroes. To determine whether a taxpayer has filed a valid tax return, we follow the test enunciated in Beard v. Commissioner, 82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986), under which, "First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury." Mr. Ulloa's zero returns fail at least two of these tests: His zero returns do not have "sufficient data to calculate a tax liability", and they do not constitute "an honest and reasonable attempt to satisfy the requirements of the tax law". On the contrary, they omit his income entirely. His documents constitute some sort of a protest against the tax law, not an attempt to comply with it. See Cabirac v. Commissioner, 120 T.C. 163, 169 (2003) ("The majority of courts, including this Court, have held that, generally, a return that contains only zeros is not a valid return"). Mr. Ulloa did not file a valid return for any of the years in issue. Therefore, the failure-to-file additions to tax will be sustained.

As we all know, the problem for followers of Hendrickson is that because they stupidly treat income not connected to the exercise of a federal privilege as being "not income", the "tax returns" of these Crack-a-doosters end up being "only zero" returns, or pretty close to "only zero" returns. And, once the 'Dooster starts admitting to IRS personnel that he/she is just using the Cracking the Code arguments to support the "return", it can become obvious to the IRS personnel (and, if the case is litigated to the Court) that the "return" was not part of an honest and reasonable attempt at all.

Further, even if a given Crack-a-dooster includes a token amount of income on his/her "return" (perhaps thinking that the small amount income actually is connected to the exercise of a "federal privilege") but omits the bulk of the income actually received, I can see a court concluding that there is still not an honest and reasonable attempt.

EDIT: Here's some more from the text of the Court's opinion:

To each of the purported returns Mr. Ulloa attached one or two Forms 4852, Substitute for Form W-2, Wage and Tax Statement, on which he reported that he had received an "incorrect" Form W-2 from Candle Corporation in 2003, from IBM in 2005 and 2006, and from both payers in 2004. On the Forms 4852 he stated amounts of income tax, Social Security tax, and Medicare tax as having been withheld, and the amounts approximate those that the payers reported on Forms W-2. However, on the Forms 4852 Mr. Ulloa left blank lines 7a ("Wages, tips, and other compensation"), thus indicating his position that the correct wage amounts were zero, rather than the substantial amounts that the payers had reported.

This is an example of a typical Cracking the Code "tax return method", or "non-method," as Hendrickson would say.

[Famspear]

Harold X. O'Boyle is another documented follower of Hendrickson:

At some point between May 2006 and March 2008 petitioners [Harold and Sally O'Boyle] sent to respondent a Form 1040, U.S. Individual Income Tax Return, electing joint filing status for each of the tax years in issue. The only taxable income shown on petitioners' 2000 Form 1040 was $8 in ordinary dividends. The only taxable income shown on petitioners' 2001 Form 1040 was $16 in interest and $454 in ordinary dividends. The only taxable income shown on petitioners' 2002 Form 1040 was $601 in ordinary dividends and a capital gain of $250.

[ . . . ]

In order for a return to be valid, the following criteria must be met: (1) There must be sufficient data to calculate tax liability; (2) the document must purport to be a return; (3) there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and (4) the taxpayer must execute the return under penalties of perjury. Beard v. Commissioner, 82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986). The 2000, 2001, and 2002 Forms 1040 petitioners sent to respondent omitted most of petitioners' taxable income, as discussed above. We conclude that petitioners' 2000, 2001, and 2002 Forms 1040 did not contain sufficient data to calculate their tax liability and were not an honest and reasonable attempt to satisfy the requirements of the tax law. Accordingly, we conclude that petitioners did not file valid Federal income tax returns for the 2000, 2001, and 2002 tax years.....

--from O'Boyle v. Commissioner, T.C. Memo. 2010-149 (2010) (footnotes omitted).

[operabuff]

Until about 8 years ago, the Service treated "zero returns" as valid returns. There was a circuit conflict on the issue, with a ninth circuit opinion (Long) holding a zero return to be a valid return. The Service was taking a conservative approach. If there's doubt as to whether a document is a return, it's generally safer for the Service to act as though it is, so that it doesn't blow periods of limitation.

In any event, as reflected in this advice memo, the Service changed its tactics and began to treat zero returns as invalid, even in cases that would be appealable to the ninth circuit. http://www.irs.gov/pub/irs-wd/0651015.pdf

Like I said, I'm not familiar with what a CTC return looks like, so it might well fall into the zero return category.

[Famspear]

Got it.

By the way, here's another one. This is another documented follower of Hendrickson: David L. Nelson, a pilot for Northwest Airlines. This is from his Tax Court case:

Petitioner submitted for filing a Form 1040 for 2008 on May 12, 2009. On his Form 1040 he reported his occupation as "American Citizen". He reported zero taxable income and requested a refund of a claimed $25,778 overpayment. He attached to his 2008 return a self-prepared Form 4852 on behalf of Northwest [i.e., Northwest Airlines]. On the Form 4852 he reported that Northwest paid him zero wages and withheld Federal income tax of $17,214. Respondent did not accept petitioner's 2008 Form 1040 for filing.

[ . . . ]

At trial petitioner argued that the compensation amounts he received are not wages and that he was not engaged in any "employment" activity, as that term is defined in the Code. In his posttrial memorandum petitioner continues to advance these same arguments. Petitioner also argues that his compensation income is not subject to tax because he did not perform services within "the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, or American Samoa". Petitioner raised no other arguments regarding the accuracy of the information returns.

Petitioner has raised only frivolous and groundless arguments. The U.S. Court of Appeals for the Eleventh Circuit has held similar arguments to be frivolous and without merit.

[ . . . ]

Petitioner admitted that he provided services and received compensation income during the years at issue.

[ . . . ]

To be considered as having filed a return, a taxpayer must have filed a valid return. See Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986). Under Beard v. Commissioner, 82 T.C. at 777, a valid return is one that (1) contains sufficient data to calculate a tax liability, (2) purports to be a return, (3) represents an honest and reasonable attempt to satisfy the requirements of the tax law, and (4) is executed by the taxpayer under penalties of perjury.

To make a long story shorter, the Tax Court sustained the IRS determination that although Nelson had filed "returns" (albeit Cracking the Code "educated" returns), Nelson was liable for the penalty under section 6651(a)(1): the penalty for willful failure to timely file a valid return.

[Famspear]

Until about 8 years ago, the Service treated "zero returns" as valid returns. There was a circuit conflict on the issue, with a ninth circuit opinion (Long) holding a zero return to be a valid return....

Yeah, I think I remember reading the Long case.

Ironically, I prepare "zero" returns all the time -- but they're returns for taxpayers with literally no income. Thankfully, the IRS has never mistaken one of those returns for a tax protester-type return.

I've always thought that filing a return for a trust, probate estate, or section 1398 bankruptcy estate for a given year even where there is literally no income for that year is a good idea. Get that assessment statutory limitation period started!

[LPC]

In evaluating whether a document is a return or not, the IRS and the Tax Court follow what's generally referred to as the "Beard" test, following Beard v. Commissioner, 82 T.C. 766 (1984). The test has four parts: "First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury."

I don't know what a Hendrickson return looks like, (or more particularly the D'Agostino returns) but they probably meet these pretty minimal standards. The third one "an honest and reasonable attempt to satisfy the requirements of the tax law" looks like it should knock it out, but generally that's interpreted to mean that from the face of the return it appears to be genuine.

Internal Revenue Manual section 4.10.12.1.1 (2/23/2012), titled "Frivolous Arguments," describes a "CTC educated" return quite well in subsection 1.44:

Zero Wages on a Substitute Form: Taxpayer generally attaches either a substitute Form W-2, Form 1099, or Form 4852 that shows "$0" wages or no wage information. A statement may be included indicating the taxpayer is rebutting information submitted to the IRS by the payer. Entries are usually for Federal Income Tax Withheld, Social Security Tax Withheld, and/or Medicare Tax Withheld. An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and IRC 3121", or may include some reference to the company refusing to issue a corrected Form W-2 for fear of IRS retaliation.

So you can tell from the face of the return that it's frivolous.

And remember, these returns are all claiming refunds on taxes withheld while denying that any income was earned, and so they all face the problem of providing some evidence of taxes withheld while denying that there was anything from which to withhold. That's going to produce some obvious weirdness.

[Famspear]

.....That's going to produce some obvious weirdness.

"Obvious Weirdness" is the operative phrase.

The world of the Crack-a-dooster -- the world of those who look to Peter Hendrickson, Video Arcade Manager Man, the ex-con who served time in Federal prison for using his own tax evasion scam on his own tax returns, as the World's Foremost Authority on Matters of Federal Income Tax -- is The World of Obvious Weirdness.

[operabuff]

.....That's going to produce some obvious weirdness.

"Obvious Weirdness" is the operative phrase.

What's obvious to some may not be obvious to others - many of these did get through the IRS's screening.

Which reminds me of the story about the mathematics professor who writes a formula on the blackboard and says to the class, "I think you'll agree that's obvious." The professor then stares at the formula for a minute and rushes out of the classroom, only to return fifteen minutes later and say: "Yes, I was right, it is obvious."

[AndyK]

What is (and isn't) a 'zero return'?

Schiff (and others) promoted a view if the tax laws which resulted in acolytes filing a return completely filled with zeros, no attachments, and no attempt at recovering withholding since they had been advised to file inflated exemptions on their withholding forms. Thus a 'zero' return. In specific, these returns did NOT contain adequate information for the IRS to compute the tax liability since they didn't include the starting point -- income.

On the other hand, Pete's followers file returns (as described above) which attempt to recover all withholdings via fraudulent 4852s. As opposed to the Schiffies, they DO contain adequate information for the IRS to compute the taxes since there is a statement -- albeit a disavowal -- of income. So, they marginally qualify as legitimate returns enough to also qualify for the $5,000 penalty.

Note that, as was previously mentioned, the IRS position on these various returns has changed in response to both (1) court decisions and (2) volume of bogus returns. It's important to remember that initial returns processing is done by very low-level staff who are specifically told to NOT analyze the documents. Just check for blatant math errors, key them in, and forward them to the next level of processing. Since Congress gets upset when legitimate refunds (including Earned Income Credit) are delayed, the emphasis is on getting the forms processed. [Note: This led to the blatant abuse of the EITC, IRS' over-reaction, and retuning of the process.]

It isn't until Examination (and automated matching -- about 1-2 years later) catches up with the bogus returns that the wheels start to turn. Finally, Returns Processing was given specific instructions regarding identifying and handling CTC-educated returns -- forward them to Ogden. [Aside: This DESPITE specific information forwarded to senior IRS staff regarding Pete's site, posted 'victories', and other relevant information.]

Along the same line of logic, it took a while for IRS to catch up with a subsequent scam: bogus OID claims.

End of digression. So there are different flavors of 'zero' returns, different ways of processing them, and different outcomes to the taxpayers.