To file jointly for the tax years 2013 and 2014, the petitioners, a married couple, were married. Radiologist employed as husband’s profession. In their federal income tax forms for 2013 and 2014, the petitioners neglected to include their husband’s salaries as gross income.
The Internal Revenue Service (IRS) reviewed the petitioners’ 2013 and 2014 tax returns and assessed federal income tax based on the wages listed on the Forms W-2, Wage and Tax Statement, that the petitioners’ husband’s employer had submitted to the IRS for each of those years.
The IRS also discovered that the petitioners had neglected to record taxable interest in 2014 and that they owed additional tax for taking early withdrawals from an IRA in 2013 and 2014. For the petitioners’ failure to timely file their 2014 return, the IRS also assessed accuracy-related fines for both years and a tax increase.
The petitioners asked the Tax Court for a redetermination in time, and the IRS promptly issued notifications of deficiencies for 2013 and 2014.
The United States Code “does not actually make the ‘wages’ of American citizens subject to the Subtitle A federal personal income tax,” according to the petitioners’ lone defence, hence the husbands’ wages were not considered taxable income.
The accuracy-related penalty for the 2014 tax year was conceded by the IRS in motions for partial summary judgement and summary judgement for 2013 filed by the IRS. The motion for 2013 received a response from the petitioners, however, the move for 2014 received no response.
Important Points
A judgement could be made in favour of the IRS as a matter of law if there was no genuine dispute as to any material fact (except what the IRS accepted).
Were the petitioners’ husband’s salaries counted toward their 2013 and 2014 gross income?
Was the 2013 accuracy-related fine correctly levied?
The late filing extra to tax for 2014 was it properly imposed?
Would petitioners be subject to the penalty for frivolous positions?
Principal Holdings
Yes, there was no genuine disagreement as to a substantial fact, and the IRS was entitled to a legal conclusion (except as conceded by the IRS).
The applicants’ 2013 and 2014 gross income did indeed include their husband’s salaries.
Petitioners did not claim that there was a “reasonable question” as to the veracity of the Forms W-2 that the husband’s employer submitted to the IRS for the years 2013 and 2014, nor did they deny that husband worked as a radiologist for his company during those years.
Furthermore, it was a “worn tax-protester argument” and hence absurd for petitioners to claim that payments received by citizens of the United States from employment in the country were not subject to federal income tax.
Because of this, petitioners did not satisfy their obligation to demonstrate that the IRS acted arbitrarily or incorrectly by counting their husband’s salaries in their gross income for 2013 and 2014.
The IRS indeed proved petitioners were accountable for the 2013 accuracy-related penalty and that it had followed all legal procedures in seeking the penalty.
Furthermore, petitioners failed to demonstrate that they acted in good faith about the underpayment or that any part of the tax they underpaid for that year was attributable to reasonable cause.
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Yes, the IRS has proven that the petitioners’ 2014 return was filed late. Petitioners also failed to demonstrate that their failure to timely file their 2014 return was due to legitimate cause and not deliberate neglect, and all they provided as a justification for their late filing were frivolous assertions.
While petitioners’ position was frivolous and it was obvious that they brought and maintained these cases before the Tax Court for the delay, petitioners refrained from making frivolous arguments after the Tax Court forewarned them that they risked a frivolous position penalty.
Therefore, the Tax Court did not choose to impose a frivolous position penalty upon petitioners.
