Green v. Commissioner of Internal Revenue, T.C. Memo. 2008-130 (U.S.T.C. 5/15/2008)
| Decision Date | 15 May 2008 |
| Docket Number | No. 11851-05.,11851-05. |
| Parties | JOHN O. GREEN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
Charles N. Woodward, for petitioner.
M. Kathryn Bellis, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
John Green has not had much success in Tax Court. In 1993, Green wanted to escape paying income tax on money he'd embezzled ten years earlier, claiming he was exempt because he is a Native American. We held him liable for both the tax and penalties. Green v. Commissioner, T.C. Memo. 1993-152, affd. without published opinion 33 F.3d 1378 (5th Cir. 1994). He then fought a notice of deficiency for his 2001 taxes, arguing that it wasn't valid because it was based on data not included in his tax return. In fact, he had never filed a 2001 tax return. We sustained both the deficiency and penalties. He also made numerous other frivolous arguments, and we sanctioned him for them as well. Green v. Commissioner, T.C. Memo. 2007-262.
He has returned. In this case, he challenges with hydra-headed interpretations of settled law the deficiencies which the Commissioner determined for his 1997, 1999, and 2000 tax years.
John Oliver Green was born John Oliver Hornung in Oklahoma City in 1947. He joined the Army in 1966 and was honorably discharged in 1969, receiving a 10-percent service-connected disability compensation for allergic rhinitis. He then signed up as an auditor trainee at the IRS.
As he began his IRS career, he was also continuing his education, and eventually he earned degrees in both accounting and law. These helped him move up at the IRS, and he became first a revenue agent and then a criminal investigator. But health issues continued to plague him. In 1973, he unsuccessfully filed for disability after hurting his knee when he tripped over an electrical cord at work. In 1976, he unsuccessfully applied for disability from an eye injury that he claimed had occurred while he was in the Army. In 1978, he applied for disability-retirement from his position as a criminal investigator after discovering that he had only one kidney. After a year of administrative appeals and an opinion from Green's doctor that supported a finding of disability in this "unusual medical case," the Civil Service Retirement System (CSRS) determined that Green could no longer plan and conduct tax-evasion investigations. CSRS awarded him 40-percent disability-retirement pay. This meant that Green would receive 40 percent of his average basic pay (using 3 consecutive years of work) with inflation adjustments. He would receive this level of pay for his disability-retirement benefit each year if, but only if, his annual earned income didn't exceed 80 percent of the pay of an IRS criminal investigator—the same position he held immediately before retirement. Civil Service Retirement Act (CSRA), 5 U.S.C. secs. 8331-348 (1976 & Supp. II, 1978). To police this condition, the CSRS requires a disability claimant to submit annual income statements.
After securing this civilian retirement benefit, Green applied to the VA for an increase in his military disability compensation on the theory that he might have lost his kidney in a truck accident while he was still in the Army. The VA denied both this request and a later appeal when it found that Green's condition was congenital.
Shortly after leaving the IRS in 1978, Green opened a law office in Oklahoma City.1 Among his clients were Robert and Linda Schaffer. Mr. Shaffer was an entrepreneur in the business of smuggling illegal drugs. He died in 1982 when his plane crashed in Mississippi while he was making a delivery. Green visited the crash site and helped two of Mr. Shaffer's friends remove his body from the wreckage and bury it. He then began helping Mrs. Shaffer in the distribution of her late husband's estate. She had received $380,000 for the final drug delivery, which she added to the $200,000 already stored in a safe hidden in the floor of her home. She sought Green's advice on how to safeguard this hoard, and Green suggested that Mrs. Shaffer store it in a safe-deposit box that he would rent as trustee for her benefit. Mrs. Shaffer then began getting worried calls from her father-in-law, who had possession of yet more cash from his son's business that he no longer wanted in his home. There was so much that it could not fit in the first safe-deposit box, but Green helpfully suggested putting it in a second safe-deposit box that was in the name of Green's own grandmother.
A few months later, in January 1983, Green told Mrs. Shaffer that the money wasn't secure there and should be moved. Innocent in the ways of the world, Mrs. Shaffer agreed to move the loot from the first safe-deposit box to Dallas. Green took the money from the box but, instead of moving it to Dallas, gave Mrs. Shaffer $40,000 for living expenses and disappeared. It was about this time that he changed his name from Hornung to Green.2 He moved to Austin where he bought a home and several vehicles, and led a seemingly comfortable life.
It didn't last. The law caught up with him in 1985, and he was convicted of conspiracy to defraud the United States by hindering the Commissioner's determination of the Shaffers' tax liabilities. As a felon, Green lost his license to practice law and he became a free-lance paralegal after he was released from prison.
In 1986, the Commissioner sent Green, who was then still in federal custody, notices of deficiency for underreported 1981 and 1982 income tax. This was the same year that Green's girlfriend bore the first of three children.
In 1990, the Commissioner and Green settled the dispute over his 1981 and 1982 income tax liability, but Green never paid the agreed amount. This prompted the IRS to try to levy on Green's disability-retirement pay, which was by then administered through the Office of Personnel Management (OPM). That same year, the Commissioner assessed income tax on the money Green had stolen from the Shaffers in 1983. Once OPM received the notice of levy, it redirected Green's disability-retirement payments to the IRS for payment of his tax debts. Green responded by failing to submit his annual income statements to OPM. OPM then suspended the disability-retirement payments, and the flow of funds to the IRS was effectively stanched.
Green sued OPM in 1996, claiming that his disability retirement was exempt from IRS levy, but he lost. Green v. U.S. Office of Personnel Mgmt., Civil No. A-96-CA-448-SC (W.D. Tex., May 6, 1997). He also filed for bankruptcy, and was released from all dischargeable debts. In re Green, No. 96-13645 (Bankr. W.D. Tex., May 6, 1997). As of November 1997, Green still owed over $50,000 on his 1981 unpaid tax liability, and more than $1.3 million on his 1983 tax liability. By June 30, 1998, however, the same bankruptcy court issued a decision in an adversary proceeding regarding his 1981-83 tax debts. In re Green, No. 97-1044 (Bankr. W.D. Tex. 1998). That decision discharged Green's 1981-82 personal tax liabilities and his 1982-83 business tax debt. The bankruptcy court also ordered a 36-month levy on his OPM benefits in satisfaction of the 1983 tax debt, a debt that wasn't dischargeable due to fraud.
But this ended neither his troubles nor his ingenuity. He resumed submitting income statements to OPM, which released his pent-up disability-retirement payments. But by this time OPM had also been notified that Green had not been paying child support. When OPM reinstated the payments, it owed Green a gross amount of $93,305, reflecting payments due from July 1992 through October 1997. But most of this never flowed out to him—$32,656.40 was sluiced away to pay part of his outstanding tax liability, and $60,647.60 cascaded to his ex-wife to pay overdue child support. OPM sent Green the remaining $1. (There is no clear evidence of when that $1 made its way to Green.) It also issued him a Form 1099R for tax year 1997 reporting income to him of the entire $93,305. And it reinstated his disability-retirement pay as of November 1, 1997, though again withholding most of it to satisfy his child support and tax debts.3 OPM included these regular payments for November and December 1997 on Green's 1099R for the 1998 tax year.
When income payable to a person is shunted away to pay a debt, it normally still counts as taxable income.4 This is just what happened to Green in the years at issue here—1997, 1999, and 2000. But Green never filed Forms 1040 for those years. Nor did he make estimated income tax payments. Instead, as he had done since at least 1991, he sent to the IRS documents called "Treaty-Based Return Position Disclosure Under Section 6114."5 In these documents, he claimed that he was exempt from taxation under an 1815 treaty between the United States and the Potawatomi tribe.6 Treaty with the Potawatomies, Sept. 8, 1815, art. 2, 7 Stat. 131. A footnote in a much tinier font set out his income for each year.7 Accompanying the big-font, little-font assertion of his tax-exempt status was a cover letter, a summary of purported legal arguments for his treaty-based return position, a photocopy of the regulations applicable to section 6114,8 copies of computer screen printouts that Green claims show the Commissioner's agreement with his decision not to file returns, a long article written by Green himself describing his belief that tribal Potawatomi are exempt from income tax, and copies of caselaw supposedly supporting his arguments.9
In 2003, the IRS mailed notices of deficiency to Green for tax years 1997 through 2000, but used the wrong mailing address. Green filed a petition, but it was dismissed for lack of jurisdiction on the Commissioner's own motion because of that snafu. The Commissioner then mailed the notices to the right address and Green filed another petition (carefully omitting the 1998 tax year). Trial was held in Houston—Green was a...
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