Orth - TP uses WEvGOV.com materials but avoids 6673 penalty

[jcolvin2]

https://www.ustaxcourt.gov/InternetOrde ... 3&Todays=Y

UNITED STATES TAX COURT
WASHINGTON, DC 20217

Robert Edward Orth, )
Petitioner,)
v. ) Docket No. 18049-16.
COMMISSIONER OF INTERNAL REVENUE, )
)
Respondent )

ORDER AND DECISION

This case is currently set for trial at the session of the Court commencing on October 30, 2017, in Indianapolis, Indiana. The Commissioner determined that Mr. Orth had unreported nonemployee compensation resulting in deficiencies for 2012 and 2013, along with additions to tax for failure to file, failure to pay, and failure to make estimated tax payments. On May 16, 2016, the Commissioner sent Mr. Orth a notice of deficiency for 2012 and 2013, and Mr. Orth filed a timely petition. At the time of the petition, Mr. Orth resided in Indianapolis, Indiana.

Pending before the Court is the Commissioner's motion for summary
judgment filed August 31, 2017. In his motion, the Commissioner argues that Mr. Orth did not raise any factual dispute and that the legal issues are ripe for decision. Because Mr. Orth only offers arguments as to why he should not be taxed, the Commissioner alleges there is no genuine dispute as to any material fact for trial. Specifically, the Commissioner argues that he is entitled to summary judgment on the issue of unreported income because Mr. Orth does not dispute receiving nonemployee compensation for the years at issue. The Commissioner conceded the addition to tax for failure to make estimated tax payments for 2012.

As for the other additions to tax, the Commissioner argues that he is entitled to summary judgment because the Commissioner has provided records to demonstrate that they apply, and Mr. Orth failed to dispute the additions. To support the motion, the Commissioner filed a signed certification of lack of record for 2012 and 2013 and certificates of assessment, payments, and other specified matters for 2012 and 2013. The certificates of assessment show that the Commissioner generated a substitute for return and subsequently issued Mr. Orth a notice of deficiency for those years. They also indicate that Mr. Orth did not make any payments for 2012 and 2013.

In his response to the Commissioner's motion, Mr. Orth does not dispute any facts set forth in the Commissioner's motion. Mr. Orth does not dispute the fact that he did not timely file his income tax returns, or that he failed to make payments towards his 2012 and 2013 tax liability. Instead, he asserts a variety of frivolous arguments briefly discussed below.

Under Rule 121(a), either party may move for summary judgment regarding all or any part of the legal issues in controversy. The purpose of summary judgment is to expedite litigation and avoid unnecessary and expensive trials.¹ However, summary judgment is not a substitute for trial and should not be invoked in proceedings where the facts are disputed.2 We may grant summary judgment only if "there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law."3

The party moving for summary judgment bears the burden of demonstrating that there is no genuine dispute of any material fact.4 "In deciding whether to grant summary judgment, the factual materials and the inferences drawn from them must be considered in the light most favorable to the nonmoving party."5 When a motion for summary judgment is made and properly supported, the nonmoving party may not rest on mere allegations or denials, but must set forth specific facts showing that there is a genuine dispute for trial.

Mr. Orth has not set forth any facts showing that there is a genuine dispute for trial. Neither his petition nor his response to the motion for summary judgment contest the facts set out by the Commissioner. We conclude that a decision may be rendered as a matter of law.

Mr. Orth makes a frivolous argument about the application of section 83. He claims that section 83 does not apply to compensation for services. But section 61 includes in gross income compensation for services. Section 83 is one of several provisions that specifically include items in income, but it does not displace the general rule that compensation for services is income. Mr. Orth's section 83 argument is frivolous. And we have previously held that it is frivolous.6

Likewise, Mr. Orth's claim that self-employment tax does not apply to U.S. citizens is baseless. Self-employment tax applies to individuals other than nonresident aliens.7

Mr. Orth raises the issue of whether this deficiency case is subject to the Administrative Procedures Act (APA). He concludes that it is and cites to a collection case for that proposition. His citation is erroneous; deficiency cases are not subject to the APA.8

Mr. Orth raises the concern that presenting his frivolous arguments in our Court may lead to a sanction being imposed against him. He is right to be concerned. Raising frivolous arguments wastes precious court resources. One purpose of sanctions is to deter frivolous arguments from being presented or perpetuated. Although that is precisely what Mr. Orth did, we will not impose a sanction. Rather, we caution him against making frivolous arguments in the future.
Accordingly, it is

ORDERED that the Commissioner's motion for summary judgment is
granted. It is further ORDERED and DECIDED that there are deficiencies in income tax and additions to tax as follows:

Additions to Tax/Penalties
I.R.C. §§
Year Deficiency 6651(a)(1) 6651(a)(2) 6654(a)
2012 $31,176.00 $7,014.60 $5,455.80 $ 0.00
2013 $40,391.00 $9,087.98 $4,644.97 $ 725.29
(Signed) Ronald L. Buch
Judge
ENTERED: OCT12 2017

1 RSW Enterprises, Inc. v. Commissioner, 143 T.C. 401, 404 (2014); Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).

2 Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974).

3 Rule 121(b); see Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

4 Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).

5 FPL Group, Inc. v. Commissioner, 115 T.C. 554, 559 (2000).

6 Santangelo v. Commissioner, T.C. Memo. 1995-468, aff'd, 87 F.3d 1322 (9th Cir. 1996). Notably, Mr. Orth cited Santangelo in his petition, but we suspect he did so unknowingly. His petition and his response to the motion for summary judgment appear to be cobbled together, verbatim, from the tax protester Website WEvGOV.com. On the internet, one can find many variations of the quote "Don't believe everything you read on the internet", most often attributed to Abraham Lincoln. See, e.g., intern_et-3_970560. That meme, even with its apocryphal provenance, is worth heeding.

7 Sec. 1402(b).

8 QinetiQ U.S. Holdings, Inc. & Subsidiaries v. Commissioner, 845 F.3d 555, 561 (4th Cir. 2017), aff'g T.C. Memo. 2015-123; Ax v. Commissioner, 146 T.C. 153, 163 (2016).

9 See sec. 6673(a)(1)(B).

[The Observer]

On the internet, one can find many variations of the quote "Don't believe everything you read on the internet", most often attributed to Abraham Lincoln. See, e.g., intern_et-3_970560. That meme, even with its apocryphal provenance, is worth heeding.

The problem is that, even if Orth had seen that meme, he would have ignored it.

[Famspear]

......Mr. Orth makes a frivolous argument about the application of section 83. He claims that section 83 does not apply to compensation for services. But section 61 includes in gross income compensation for services.....

Hold it right there.

Without even looking at section 61, let's look at just the first few words of section 83:

Sec. 83. Property transferred in connection with performance of services.

(a) General rule.--If, in connection with the performance of services, property is transferred [. . . ]

Was this bozo maybe, possibly, trying to argue that property transferred "in connection with" the performance of services would somehow not include property transferred as compensation for services?



Although, in fairness, I guess the intent of section 83 would arguably be more clear if the text were worded as follows:

Sec. 83. Non-monetary property transferred in connection with performance of services.

(a) General rule.--If, in connection with the performance of services, non-monetary property is transferred [. . . ]

I'm not sure. If a recipient who provides services is paid for those services with money (hey, that happens from time to time) -- but under the terms of the payment, the money cannot yet be transferred from the recipient to a third party, or the recipient's right to keep the money is subject to a "substantial risk of forfeiture" (per the language of section 83), would section 83 still apply?

PS: "Money" is a type of property in the general legal sense.

[Famspear]

Note: My comments are intended as a digression. Obviously we can't clearly tell from the text of the case whether the "property" received by Mr. Orth was money or, alternatively, some other kind of property.

[jcolvin2]

Note: My comments are intended as a digression. Obviously we can't clearly tell from the text of the case whether the "property" received by Mr. Orth was money or, alternatively, some other kind of property.

Treas. Reg. Section 1.83-3(e) Property. For purposes of section 83 and the regulations thereunder, the term “property” includes real and personal property other than either money or an unfunded and unsecured promise to pay money or property in the future. The term also includes a beneficial interest in assets (including money) which are transferred or set aside from the claims of creditors of the transferor, for example, in a trust or escrow account. See, however, § 1.83-8(a) with respect to employee trusts and annuity plans subject to section 402(b) and section 403(c). In the case of a transfer of a life insurance contract, retirement income contract, endowment contract, or other contract providing life insurance protection, or any undivided interest therein, the policy cash value and all other rights under such contract (including any supplemental agreements thereto and whether or not guaranteed), other than current life insurance protection, are treated as property for purposes of this section. However, in the case of the transfer of a life insurance contract, retirement income contract, endowment contract, or other contract providing life insurance protection, which was part of a split-dollar arrangement (as defined in § 1.61-22(b)) entered into (as defined in § 1.61-22(j)) on or before September 17, 2003, and which is not materially modified (as defined in § 1.61-22(j)(2)) after September 17, 2003, only the cash surrender value of the contract is considered to be property. Where rights in a contract providing life insurance protection are substantially nonvested, see § 1.83-1(a)(2) for rules relating to taxation of the cost of life insurance protection.

[Famspear]

Treas. Reg. Section 1.83-3(e) Property. For purposes of section 83 and the regulations thereunder, the term “property” includes real and personal property other than either money or an unfunded and unsecured promise to pay money or property in the future...

Thanks, Colvin!

[The Observer]

If a recipient who provides services is paid for those services with money (hey, that happens from time to time)...

Well, I don't know about this thing you call "money", but my employer only transfers either checks or electronic transfers of FRNs to me. That possibly cannot be considered as being a taxable item.

The term also includes a beneficial interest in assets (including money) which are transferred or set aside from the claims of creditors of the transferor, for example, in a trust or escrow account

Oh, darn. Guess that blows my theory out of the water.

[jcolvin2]

http://wevgov.com/index2.htm
WEvGOV.com appears to be a David Myrland website. Myrland has been discussed before:

viewtopic.php?f=49&t=6848&start=120&hilit=Myrland

viewtopic.php?f=49&t=10596&p=191766&hil ... nd#p191342

[Jeffrey]

Been waiting for this decision for a while. Myrland has been promoting the section 83 thing as a silver bullet to dodge income taxes for years but there were no published decisions directly addressing his argument.

Myrlands internet radio shows have been running more often that normal recently, my guess is this is the reason. I can’t listen in currently due to connectivity issues, but if someone wants to check them out I can guarantee Myrland will be real angry.

[juan galt]

Here's a YT video he made and posted Friday Oct 20, 2017.

https://www.youtube.com/watch?v=UCYd0uLSw28

[Famspear]

.....Myrland has been promoting the section 83 thing as a silver bullet to dodge income taxes for years but there were no published decisions directly addressing his argument....

I don't know what Myrland's specific wording of his section 83 argument was, and I don't know what you mean by published decisions "directly" addressing his argument, but there have certainly been published court decisions rejecting frivolous section 83 arguments, including Santangelo v. Commissioner, T.C. Memo. 1995-468 (1995), aff'd, 87 F.3d 1322 (9th Cir. 1996) (cited by Mr. Orth in his case, above, and mentioned by the Court in a footnote), and Talmage v. Commissioner, 71 T.C.M. (CCH) 2370, T.C. Memo 1996-114 (1996).

Of course, by definition, a frivolous argument does not need to be "directly" addressed by a Court when the Court rules the argument to be without merit. By definition, a frivolous argument is one that is not worthy of serious consideration.

EDIT: Expanded one citation.

[Burnaby49]

Of course, by definition, a frivolous argument does not need to be "directly" addressed by a Court when the Court rules the argument to be without merit. By definition, a frivolous argument is one that is not worthy of serious consideration.

Wouldn't the court have to review the merits of an argument, even if apparently frivolous, the first time it is argued? How else would you know it's frivolous? I agree that after the first review subsequent decisions could rely on the frivolous designation but somebody has to first review it to determine its validity. Otherwise courts could just deem arguments frivolous and not consider them when there might be merit.

[Famspear]

Of course, by definition, a frivolous argument does not need to be "directly" addressed by a Court when the Court rules the argument to be without merit. By definition, a frivolous argument is one that is not worthy of serious consideration.

Wouldn't the court have to review the merits of an argument, even if apparently frivolous, the first time it is argued? How else would you know it's frivolous? I agree that after the first review subsequent decisions could rely on the frivolous designation but somebody has to first review it to determine its validity. Otherwise courts could just deem arguments frivolous and not consider them when there might be merit.

If, by "review," you mean physically read the frivolous pleading or actually listen to the orally-presented frivolous argument, the courts do that.

When I say "address" the frivolous argument, I mean that the court discusses the argument in a written opinion, explaining why the argument has no merit. In that sense, sometimes a court will address the argument, and other times they will not.

[Famspear]

In all the years that tax protesters have been presenting arguments ruled to be frivolous in the U.S. District Courts, the Court of Federal Claims, the U.S. Bankruptcy Courts, and the U.S. Tax Court (collectively, the "trial courts"), has any tax protester ever prevailed by getting an appellate court to rule that the argument was not frivolous? They have certainly tried -- over and over.

My sense is that it is not very difficult for a trial court to determine that an argument about Federal taxes is legally frivolous -- regardless of whether the argument has been litigated before or not. If it were difficult, you would see trial courts being reversed a lot by the appellate courts. Off the top of my head, I can't think of a single case. If there are some such cases, they are very rare.

[Jeffrey]

I don't know what Myrland's specific wording of his section 83 argument was, and I don't know what you mean by published decisions "directly" addressing his argument, but there have certainly been published court decisions rejecting frivolous section 83 arguments, including Santangelo v. Commissioner, T.C. Memo. 1995-468 (1995), aff'd, 87 F.3d 1322 (9th Cir. 1996) (cited by Mr. Orth in his case, above, and mentioned by the Court in a footnote), and Talmage v. Commissioner, 71 T.C.M. (CCH) 2370, T.C. Memo 1996-114 (1996).

To clarify, Myrland's reading of Section 83 is

"If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed".

Myrland interprets "property" to include money, in which case if you're given given money in exchange for performing a service (read wages), then that doesn't fall under taxable income rather it falls under section 83.

I had looked up to see if anyone had tried Myrland's specific interpretation of 83 and didn't find any. Now that I read Santangelo it's almost what Myrland is saying except Santangelo argued "that services (labor) are property" not that the money received was property. Although maybe Myrland got 83 from Santangelo?

Checking the previous Myrland thread, Myrland had stated he'd be helping a "20 year veteran" of the tax protest movement, could it have been Orth?

[Famspear]

I don't know what Myrland's specific wording of his section 83 argument was, and I don't know what you mean by published decisions "directly" addressing his argument, but there have certainly been published court decisions rejecting frivolous section 83 arguments, including Santangelo v. Commissioner, T.C. Memo. 1995-468 (1995), aff'd, 87 F.3d 1322 (9th Cir. 1996) (cited by Mr. Orth in his case, above, and mentioned by the Court in a footnote), and Talmage v. Commissioner, 71 T.C.M. (CCH) 2370, T.C. Memo 1996-114 (1996).

To clarify, Myrland's reading of Section 83 is

"If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed".

Myrland interprets "property" to include money, in which case if you're given given money in exchange for performing a service (read wages), then that doesn't fall under taxable income rather it falls under section 83.

I had looked up to see if anyone had tried Myrland's specific interpretation of 83 and didn't find any. Now that I read Santangelo it's almost what Myrland is saying except Santangelo argued "that services (labor) are property" not that the money received was property. Although maybe Myrland got 83 from Santangelo?

Myrland does not make a coherent, logical argument. Money IS property. Even the taxpayer applies section 83 to a receipt of money as compensation for services where there is no restriction as to the taxpayer's use of the money, the amount of gross compensation is included in gross income -- under section 61 or section 83 or any combination thereof. And, it's includible at the moment he or she receives or constructively receives the money. There is no "basis" for the taxpayer to "deduct" in arriving at the amount of compensation.

[Famspear]

Myrland suffers from a condition found with many other tax protesters. He tries to put lipstick on The Pig with the idea that the courts will somehow find His Pig to be beautiful. When he discovered that the courts had already ruled that lipstick on The Pig does not induce the courts to conclude that The Pig is beautiful, he points out that the courts were referring to The Pig with red lipstick -- whereas he uses a shade of purple lipstick. He wants to believe that his version of a frivolous section 83 argument is somehow better than the versions argued in the prior cases.

Of course, the courts don't care what shade of lipstick Myrland claims to be using on The Pig, or whether he applies the lipstick using a different kind of stroke than the one used by the previous losers.

Other protesters exhibit similar pathetic behavior. Look at Peter E. ("Blowhard") Hendrickson. When his nonsense is shot down in court, he strains to explain that his nonsense was not really shot down, because his followers just didn't present his nonsense quite correctly, or that the courts didn't use "just the right" words to explain what Hendrickson's nonsense is.

These people are contending with a Windmill, and most of them can't seem to stop. It is a sickness.

[notorial dissent]

But... but... but.... their variation is right even if all the others are wrong, that's sovcit/TP 101.

[The Observer]

Look at Peter E. ("Blowhard") Hendrickson. When his nonsense is shot down in court, he strains to explain that his nonsense was not really shot down, because his followers just didn't present his nonsense quite correctly, or that the courts didn't use "just the right" words to explain what Hendrickson's nonsense is.

But wait - what is Pete's explanation when he presented his nonsense in court and got shot down?

[Cpt Banjo]

Even the taxpayer applies section 83 to a receipt of money as compensation for services where there is no restriction as to the taxpayer's use of the money, the amount of gross compensation is included in gross income -- under section 61 or section 83 or any combination thereof. And, it's includible at the moment he or she receives or constructively receives the money. There is no "basis" for the taxpayer to "deduct" in arriving at the amount of compensation.

The counterargument to this would be that under §83 the amount to be included is the excess of the fair market value of the property received over the amount paid by the service provider, and that under the regulations the "amount paid" is the fair market value (not the basis) of the property given:

Reg. §1.83-3(g) Amount paid. For purposes of section 83 and the regulations thereunder, the term “amount paid” refers to the value of any money or property paid for the transfer of property to which section 83 applies, and does not refer to any amount paid for the right to use such property or to receive the income therefrom. Such value does not include any stated or unstated interest payments. For rules regarding the calculation of the amount of unstated interest payments, see §1.483-1(c). When section 83 applies to the transfer of property pursuant to the exercise of an option, the term “amount paid” refers to any amount paid for the grant of the option plus any amount paid as the exercise price of the option. For rules regarding the forgiveness of indebtedness treated as an amount paid, see §1.83-4(c).

So putting aside the regulation that says money isn't "property" for purposes of §83, could someone argue that his pay isn't taxable because under §83 the value of what he received equaled the value of what he paid?* Or what if the employer paid the employee in non-cash property, such as publicly-traded securities -- would that work? No, because the receipt of the compensation is already a taxable transaction aside from §83. For example, in Rev. Rul. 2007-49 the Service ruled on a situation in which A exchanged stock in corporation X in a taxable merger for stock in corporation Y that was subject to a substantial risk of forfeiture relating to A's employment with Y. Among other holdings the Service ruled that (a) since the Y stock was subject to a substantial risk of forfeiture, §83 applied, and (b) the exchange of stock was taxable under §1001, so that A realized gain equal to the excess of the value of the Y stock over his basis in the X stock.

(As an aside, the significance of §83 applying to the transaction has to do with determining how much income A recognizes when the restriction lapses. Unless A makes an election under §83(b), when the restriction lapses he will recognize income equal to the excess of the value of the Y stock at that time over his basis (which is his original basis in the X stock plus the gain he recognized on the exchange). But if he makes the election he won't recognize any additional gain either on receipt of the Y stock (because under §83 the value of what he received equaled the value of what he gave up) or when the restriction lapses. Instead, he recognizes gain only when he disposes of the Y stock in a taxable transaction. Under the facts A would be foolish not to make the election.)

So even if one were to view the receipt of compensation as an exchange subject to §83 instead of as payment for services under §61, it's still taxable under §1001 because there's zero basis in the services that were exchanged.

§83 addresses a timing issue -- when is something included in income if it's subject to restrictions? It was never intended to address what's included in income in the absence of any restrictions, since other sections (e.g., §§61 and 1001) already do that.

*Yes, there's a blatant inconsistency in ignoring one regulation while relying on another one, but no one ever accused tax protesters of being consistent.