https://www.ustaxcourt.gov/UstcInOp/Opi ... x?ID=12023
From the opinion:
Section 6702(a) is a very different context. That statute imposes a penalty
on a document that merely “purports to be a return” (the second of the Beard
criteria). Thus, even if (or especially if) a document fails the other Beard criteria,
the document may warrant the penalty as a “frivolous tax return”. Mrs. Kestin’s
original Form 1040X failed the Beard test because, although it “purports to be a
return”, it lacks an “honest and reasonable attempt to satisfy the requirements of
the tax law”; and it is therefore not a return. However, because that Form 1040X
purports to be a return but has the defects set out in section 6702(a), it is subject tothe section 6702(a) penalty.
But the photocopies require a different analysis. No doubt they are
photocopies of a document (the Form 1040X) that purports to be a return, but the
question we must answer is whether the photocopies themselves purport to be
returns. She did not request action on the photocopy itself; rather, she asked the
IRS to process and honor her original Form 1040X. A photocopy so marked and
so explained does not “purport to be a return”.
The statute does not address whether copies might be subject to the penalty,
and the Commissioner points us to no pertinent regulation on the subject. The
Commissioner cites no case law that addresses the question of copies labeled as
such (or even of copies not labeled as such). The Commissioner does cite
Grunsted v. Commissioner, 136 T.C. 455, 456-457 (2011), in which two
section 6702(a) penalties for each of two years were sustained against a taxpayer
who, after being told that the IRS would not accept his first purported returns,
“resubmitted substantially identical purported tax returns for those two years”.
However, there is no suggestion in Grunsted that the later returns were mere
copies or were labeled as such. On the contrary, we found in that case that the
later documents were “again seeking a refund”. Id. at 457. We explicitly held that
“each purported to be an income tax return” and that each was “filed to obtain tax
refunds”. Id. at 459.
The Commissioner also cites Whitaker v. Commissioner, T.C. Memo.
2017-192, at *10, for the true proposition that “f a taxpayer files multiple
frivolous returns for a single year, the IRS can assess multiple frivolous return
penalties”; but in Whitaker the penalties for the year at issue were sustained only
as to a “Form 1040 [that] bore original signatures”, id. at *3, and “what purported
to be a correct Federal income tax return” that “was signed by” the taxpayer, id. at
6. In holding that such a document “purports to be a return”, sec. 6702(a)(1), we explained:
The June purported return was submitted on Form 1040, bore petitioner’s and Ms. Valentine-Whitaker’s original signatures, and was filed in an effort to obtain a refund. The September purported return was substantially similar to the June purported return, with original signatures but different attachments. It was filed in response to a CP72 notice that instructed petitioner to “[f]ile a corrected 2012 Form 1040 tax return within 30 days.” It thus purported to be a corrected Form 1040 for 2012, and it was likewise filed in an effort to obtain a refund. [Whitaker v. Commissioner, at *12; alteration in original.]
No penalty was sustained against a mere copy in Whitaker.5 The second penalized document was not labeled a copy, was not in fact a copy, was instead a signed original, and sought a refund (as opposed to merely arguing that the IRS should process a previously filed original). Mrs. Kestin’s circumstance is plainly different from both Grunsted and Whitaker.
The Commissioner advises that IRM pt. 25.25.10.8(4) (Aug. 13, 2015) instructs IRS employees as follows:
Penalties will be assessed [under section 6702(a)] without regard to whether the claim is a copy or an original, whether the signature on the claim is a copy or an original or whether there has been an IRC Section 6702 penalty previously assessed for the same tax period.
However, the IRM also advises: “If unable to determine whether the filing is an additional claim for refund (secondary filing) or a response to a Service request for a copy of a previous filing, Do Not assess the penalty.” Id. pt. 25.25.10.8(5). Moreover, although the IRM can show “the IRS’s interpretation of the statute”, it “does not have the force of law”. Ginsburg v. Commissioner, 127 T.C. 75, 87 (2006). If we assume that the IRM provision cited by the Commissioner shows that the IRS interprets section 6702 to call for a penalty even where a copy is labeled as such and does not seek an additional refund, then we think it is incorrect because it fails to distinguish a purported tax return from a mere copy of a purported tax return.6
We hold that Mrs. Kestin’s six plainly marked photocopies sent to the IRS with her letters did not purport to be tax returns and are not subject to the penalty under section 6702(a).