Opinion
12846-22L
05-05-2023
MICHAELENE J. FORMANACK, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Ronald L. Buch, Judge
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit with this order to petitioner and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at St. Paul, Minnesota, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, an order and decision will be entered for respondent as to the section 6702(a) frivolous return penalty that applies to the Form 1040X for 2012 and as to the motion to impose a penalty under section 6673; and for petitioner as to the to the section 6702(a) frivolous return penalty that applies to the Form 843 for 2013.
Bench Opinion by Judge Ronald L. Buch
March 30, 2023
Michaelene J. Formanack v. Commissioner of Internal Revenue
Docket No. 12846-22L
THE COURT: The following represents the Court's oral findings of fact and opinion in this case. The oral findings of fact and opinion may not be relied upon as precedent in any other case. These oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times.The Commissioner assessed frivolous return penalties pursuant to section 6702(a) for documents Ms. Formanack submitted for 2012 and 2013. When the Commissioner sought to collect those penalties, Ms. Formanack challenged the appropriateness of the penalties through a collection proceeding. At trial, the Commissioner submitted into evidence one of the two forms that resulted in the imposition of the frivolous return penalties. That form showed well-worn and long-ago rejected tax protestor tactics. But as for the other form that was the basis for the imposition of a penalty, the Commissioner did not offer it into evidence.
To evaluate the appropriateness of a frivolous return or frivolous tax submission penalty, we need to be able to evaluate the return or submission that resulted in the penalty. Only one of the two forms that resulted in the imposition of the penalties underlying this case is in the record, and that one document is patently frivolous. We sustain the 6702(a) penalty only as to that document.
The Commissioner also asks that we impose a penalty under section 6673 for Ms. Formanack's having advanced frivolous arguments in this proceeding. She did, and we will.
FINDINGS OF FACT
The Commissioner determined that Michaelene Jo Formanack was liable for frivolous tax return penalties pursuant to section 6702(a) for 2012 and 2013 (years in issue). For 2012, the Commissioner assessed a $5,000 penalty on January 5, 2015, and that penalty received supervisory approval on May 2, 2014, before the penalty was assessed. The Commissioner imposed that penalty because Ms. Formanack joined in the filing of a 2012 Form 1040X, Amended U.S. Individual Income Tax Return, in which she and her husband zeroed out their income. For 2013, the Commissioner assessed a $5,000 penalty on January 2, 2017, but there is no evidence that the penalty received timely supervisory approval. The Commissioner imposed that penalty because Ms. Formanack joined in the filing of a 2013 Form 1040, U.S. Individual Income Tax Return, showing zero as to all income items but claiming a refund of taxes withheld. Lastly, the Commissioner assessed another $5,000 penalty on May 8, 2017, and that penalty received supervisory approval on March 1, 2017, before it was assessed. The Commissioner represents that he assessed that penalty because Ms. Formanack joined in the filing of a Form 843, Claim for Refund and Request for Abatement. The penalty approval form also contains the remark "FRIVOLOUS FORM 843 . . . ."
Ms. Formanack did not pay those penalties.
On December 30, 2019, the Commissioner sent Ms. Formanack a CP90, Notice of Intent to Seize Your Assets & Notice of Your Right to a Hearing, for the unpaid section 6702(a) penalties of $15,000. In response to that notice, Ms. Formanack timely requested a collection hearing. In her request, she stated that she was requesting a hearing because "the notice of federal tax lien was filed prematurely or not in accordance with IRS procedures."
Ms. Formanack's case was assigned to a settlement officer in the IRS Independent Office of Appeals. On January 13, 2022, the Settlement officer sent a letter to Ms. Formanack scheduling a telephone conference for February 16, 2022. The letter also requested that Ms. Formanack provide a list of documents to enable the settlement officer to consider collection alternatives. Ms. Formanack did not respond to the letter or call for the conference. On February 17, 2022, the settlement officer sent her a second letter, again requesting that Ms. Formanack provide documents. The letter also notified her that if she did not contact the settlement officer within 14 days, the Commissioner would issue a notice of determination on the basis of the administrative file. Ms. Formanack responded to the second letter with a 32-page fax. In the fax, she asserted that she never received the first letter and demanded that the settlement officer provide proof it was sent. She also asked for proof that her 2012 and 2013 returns were prepared incorrectly and proof of the evidence used to assess the frivolous penalties. Other than these requests, the fax contained frivolous arguments and assertions.
On March 22, 2022, the settlement officer replied to Ms. Formanack. In the reply, the settlement officer addressed Ms. Formanack's requests, but also informed her that because some of the information she requested was not part of the administrative file, the settlement officer would need to contact the IRS Disclosure Office to obtain the information. The settlement officer also instructed Ms. Formanack to contact her within 14 days if she wanted a collection hearing. Because the settlement officer did not hear or receive any documents from Ms. Formanack, the settlement officer determined that the collection action was appropriate and closed the case. On April 21, 2022, the Commissioner issued Ms. Formanack a notice of determination sustaining the collection action.
Although the collection action was sustained, one of the three penalties was abated. As noted in the notice of determination, the settlement officer was unable to verify the validity of the assessment of the penalty that was assessed in January 2017, and as a result, the Commissioner abated that penalty. (As a reminder, that penalty was for the 2013 Form 1040. Thus, the penalties remaining at issue are for the 2012 Form 1040X and the 2013 Form 843.)
While residing in Wisconsin, Ms. Formanack timely petitioned the Tax Court challenging the Commissioner's determination. While this case has been pending, and while her matter was before the settlement officer, Ms. Formanack continually challenged the section 6702(a) penalties. She has not challenged the collection activity or offered collection alternatives. We consider those issues to have been waived. She contends that her returns for the years at issue were not frivolous and disputes her liability for the underlying penalties. In support of these contentions, she has advanced various arguments that the IRS and this Court have identified as frivolous. For example, Ms. Formanack has stated that she is not a person as defined in the Internal Revenue Code.
We decided some of the issues in this case before trial. The Commissioner filed a Motion for Summary Judgment asking the Court to decide this case as a matter of law. In an order dated March 8, 2023, we held that Ms. Formanack's underlying liability is properly at issue and that we were unable to grant summary judgment because "Neither the tax returns nor the Form 843 that resulted in these penalties was provided as exhibits to the Commissioner's motion." Because Ms. Formanack has not challenged the collection action but has challenged her underlying liability for the section 6702(a) penalties, the sole issues remaining for decision are whether the 2012 Form 1040X and the 2013 Form 843 properly resulted in penalties under section 6702(a).
At trial, the Commissioner produced some of the documents for which the section 6702(a) penalties were assessed. The record includes the Form 1040X for 2012, on which Ms. Formanack and her husband reported "corrected" taxable income and total tax of zero and claimed a refund for taxes withheld. Attached to the Form 1040X were Forms 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement, or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., on which her husband reported wages of zero and asserted that the wages reported on the Forms W-2 previously issued to him were erroneous. Specifically, he stated:
Company provided W-2 which erroneously allege payments of I.R.C. section 3401(a) and 3121(a) 'wages' and is hereby DISPUTED. I received no such 'wages'. No payments were received which were connected with the performance of the functions of public office, or otherwise constituted gains, profit, or income within the meaning of relevant law.
The Commissioner also offered, and the Court received as evidence, the Formanacks' 2013 Form 1040, which is the form that resulted in the penalty that has already been abated. The Commissioner did not offer as evidence a copy of the Form 843 that resulted in the penalty that was assessed in May 2017, nor is that Form 843 contained within any of the other exhibits that the Court received in evidence.
OPINION
When the taxpayer's underlying liability is properly at issue, we determine the liability de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000). Where the underlying liability is not properly at issue, we review the Commissioner's collection determination for an abuse of discretion. Id. Ms. Formanack's underlying liability is properly at issue, and she did not allege any abuse of discretion by the settlement officer. Thus, we will determine Ms. Formanack's underlying liability de novo.
Section 6702 Penalties
Section 6702(a) imposes a civil penalty of $5,000 for filing frivolous tax returns. When a section 6702(a) penalty is imposed, the Commissioner bears the burden of proving that it applies. I.R.C. § 6703(a); O'Brien v. Commissioner, T.C. Memo. 2012-326, at *13; Clarkson v. Commissioner, T.C. Memo 2022-92, at *8. To meet this burden, the Commissioner must demonstrate that: (1) the taxpayer filed a document purporting to be a tax return; (2) the purported return "does not contain information on which the substantial correctness of the self-assessment may be judged" or "contains information that on its face indicates that the self-assessment is substantially incorrect"; and (3) the taxpayer's conduct in filing the purported return is "based on a position which the Secretary has identified as frivolous" or "reflects a desire to delay or impede the administration of Federal tax laws." I.R.C. § 6702(a); Clarkson, T.C. Memo 2022-92, at *8; O'Brien, T.C. Memo. 2012-326, at *13.
The Commissioner has established that the frivolous return penalty applies for 2012. The Form 1040X purports to be a return and bears Ms. Formanack's signature. See Clarkson, T.C. Memo. 2022-92 at *9. There was nothing indicating that the IRS should not process it as a return. See id. It also contained information on its face that indicates the self-assessment was substantially incorrect. It reported zero taxable income, and it included "corrections" to Forms W-2, which asserted that payments received from employers were not "wages." See id., at *10. Because this is a frivolous argument, the Form 1040X indicates on its face that the self-assessment was "substantially incorrect." See I.R.C. § 6702(a)(1)(B); Clarkson, T.C. Memo. 2022-92 at *10. Finally, Ms. Formanack's return position was "based on a position [that] the Secretary has identified as frivolous." See I.R.C. § 6702(a)(2)(A). The Form 1040X was a "zero return," and the Secretary has identified as frivolous the position that a taxpayer can "elect to file a tax return reporting zero taxable income and zero tax liability even if she received taxable income." Clarkson, T.C. Memo. 2022-92 at *10. Further, as the Formanacks explained in the Forms 4852 accompanying their return, the zero return was based on frivolous position that they had not received "wages." See id. at *4-5, *10-11. The Secretary and this Court have repeatedly identified similar arguments as frivolous. Id. at *10-11. Thus, the Form 1040X for 2012 satisfies all three conditions specified in section 6702(a) for a "frivolous return."
The Commissioner has not established that the frivolous return penalty applies for 2013. A Form 843 may purport to be a return for purposes of section 6702(a). See Callahan v. Commissioner, 140 T.C. 44, 53 (2008). And we "generally look to the face of the document to determine whether a purported return is frivolous." Clarkson, T.C. Memo. 2022-92 at *8. But the Form 843 is not in the record, and without the return in the record, we cannot determine whether the conditions specified in section 6702(a) for a frivolous return are satisfied. Thus, the Commissioner has failed to meet his burden as to the 2013 penalty.
Section 6673
Section 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty, not in excess of $25,000, "[w]henever it appears to the Tax Court that - (A) proceedings before it have been instituted or maintained . . . primarily for delay, [or] (B) the taxpayer's position in such proceeding is frivolous or groundless." "The purpose of section 6673 is to compel taxpayers to conform their conduct to settled tax principles and to deter the waste of judicial and IRS resources." Clarkson, T.C. Memo. 2022-92 at *14. "Frivolous and groundless claims divert the Court's time, energy, and resources away from more serious claims and increase the needless cost imposed on other litigants." Id.
Ms. Formanack has advanced frivolous arguments throughout this proceeding. On her petition in this case, she takes the position that she is not a person because the Internal Revenue Code defines a person to include certain types of people. When a definition "includes" something, it does not exclude everything else. And the argument, "I am not a person" is absurd on its face. The Court has repeatedly addressed these types of arguments, and we did so thoroughly in Waltner v. Commissioner, T.C. Memo. 2014-35 (2014). Ms. Formanack alleges to have researched the law thoroughly and states that there is no definition of income, but her thorough research did not lead her to section 61, titled "gross income defined." She alleges to have researched the Constitution and argues that taxes must be apportioned among the States, but her research did not lead her to the Sixteenth Amendment which lifts the apportionment requirement for income taxes.
In Wnuck v. Commissioner, we explained why courts will often refuse to address tax protestor arguments. 136 T.C. 498, 501-513 (2011). The number of potential protestor arguments is infinite, many of them have been answered already yet the protestor ignores or rejects the answer and it wastes time. Moreover, many of the arguments are absurd on their face, such as a person standing in front of the Court and stating that she is not a person.
We also note that we previously put Ms. Formanack on notice that she was making frivolous arguments in this very case. In our Order served March 8, 2023, we stated, quite directly: "We note that Ms. Formanack has put forth frivolous arguments in disputing whether the section 6702 penalties apply." Yet she persisted in making frivolous arguments.
Lastly, we note that Ms. Formanack has joined in other frivolous petitions to our Court. In docket numbers 26258-17 and 4205-18, she joined in the petitions attempting to dispute notices of deficiency and notices of determination for several years while stating that no notices were received. This is yet another well-worn protestor tactic that wastes judicial resources.
Because we have previously put Ms. Formanack on notice that she was making frivolous arguments and yet she persisted, we impose a sanction under section 6673 of $7,500.
Conclusion
The Commissioner established that the $5,000 section 6702(a) frivolous return penalty applies to the Form 1040X for 2012, but he did not establish that such a penalty applies to the Form 843 for 2013 because he failed to put the form in the record. Because Ms. Formanack instituted a frivolous proceeding in this Court and perpetuated frivolous arguments after being informed that her arguments were frivolous, we impose a penalty under section 6673 of $7,500. This concludes the Court's oral findings of fact and opinion in this case.
(Whereupon, at 11:04 a.m., the above-entitled matter was concluded.)