In re Waltner

• Decision Date: 03 July 2014
• Docket Number: Docket No. 1729-13.,T.C. Memo. 2014-133
• Parties: STEVEN T. WALTNER AND SARAH V. WALTNER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

STEVEN T. WALTNER AND SARAH V. WALTNER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2014-133

Docket No. 1729-13.

UNITED STATES TAX COURT

Filed: July 3, 2014

Donald W. Wallis, for petitioners.

Matthew A. Houtsma and Michael W. Lloyd, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: Respondent determined a deficiency in petitioners' 2008 Federal income tax of $8,801 and an accuracy-related penalty under section6662(a) of $1,760.¹ After the parties raised additional issues in the pleadings, the issues for decision are: (1) whether respondent issued the notice of deficiency before the period of limitations on assessment expired; (2) if so, whether petitioners failed to report wage income for 2008; (3) whether petitioners failed to report income from the sale or exchange of property for 2008; (4) whether petitioners are liable for an accuracy-related penalty under section 6662(a) or, alternatively, an addition to tax under section 6651(a)(1) for 2008; (5) whether petitioners are liable for a penalty under section 6673(a)(1) for maintaining frivolous or groundless positions in this Court; and (6) whether petitioners' counsel should be required to pay respondent's excessive litigation costs under section 6673(a)(2) or be sanctioned under Rule 33(b).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts is incorporated herein by this reference. When they petitioned this Court, Steven T. Waltner resided in California and Sarah V. Waltner resided in Arizona.

I. Mr. Waltner's 2008 Employment Income

During 2008 Mr. Waltner was an employee of TEKsystems, Inc. (TEKsystems), Spherion Atlantic Enterprises, LLC (Spherion Atlantic), and Perot Systems Corp. (Perot Systems). During that year TEKsystems, Spherion Atlantic, and Perot Systems paid to Mr. Waltner $33,559, $210, and $41,957, respectively.

II. Mr. Waltner's Citigroup Account

During 2008 Mr. Waltner had an investment account with Citigroup Global Markets, Inc. (Citigroup). On May 16, 2008, Mr. Waltner sold shares in a mutual fund that he owned through his Citigroup account for $5,905, and on May 21, 2008, he withdrew that amount from his Citigroup account.

III. Petitioners' Purported Return

On August 11, 2009, petitioners filed a purported joint Form 1040, U.S. Individual Income Tax Return, for 2008 (2008 return). On their 2008 return petitioners reported IRA distributions of $22,661 and zero wages or other income. They claimed a student loan interest deduction of $738, leaving them with adjusted gross income of $21,923. After claiming itemized deductions of $26,624 and exemptions of $7,000, they reported taxable income and total tax of zero. They also reported income tax withheld, total payments, and an overpayment of $10,679.

Petitioners attached to their 2008 return three 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., corresponding to Forms W-2, Wage and Tax Statement, that Mr. Waltner received from his employers in 2008. On the Form 4852 relating to his employment with TEKsystems Mr. Waltner reported wages, tips, and other compensation of zero, Federal income tax withheld of $2,069, Social Security tax withheld of $2,081, and Medicare tax withheld of $487. On the Form 4852 relating to his employment with Spherion Atlantic Mr. Waltner reported wages, tips, and other compensation of zero, State income tax withheld of $2, Social Security tax withheld of $13, and Medicare tax withheld of $3. On the Form 4852 relating to his employment with Perot Systems Mr. Waltner reported wages, tips, and other compensation of zero, Federal income tax withheld of $2,673, State income tax withheld of $486, Social Security tax withheld of $2,601, and Medicare tax withheld of $608. On all three Forms 4852 Mr. Waltner stated that he determined these amounts from "[p]ersonal knowledge and records provided by the company listed as 'payer'" and that he had made no efforts to obtain correct Forms W-2 from his employers.

Petitioners also attached to their 2008 return a document purporting to be a "correcting Form 1099-B" relating to the distributions Mr. Waltner received from his Citigroup account in 2008. On the "correcting Form 1099-B" he reported that he had received gross proceeds less commissions from Citigroup of zero and stated that "[t]his correcting Form 1099-B is submitted to rebut a document known to have been submitted by the party identified above as 'Payer' and 'Broker' which erroneously alleged a payment to the party identified above as 'Steve T. Waltner' of 'gross proceeds' in connection with a 'trade or business.'"

IV. Petitioners' Refund Suit

Petitioners filed a suit in the U.S. Court of Federal Claims, seeking to recover refunds of allegedly overpaid Federal income tax for 2003-08. See Waltner v. United States, 98 Fed. Cl. 737, 739 (2011), aff'd, 679 F.3d 1329 (Fed. Cir. 2012). The Court of Federal Claims dismissed petitioners' refund suit with respect to 2004-08 because it held that it lacked jurisdiction. See id. at 761. It explained as follows:

[P]laintiffs in this case did not submit sufficient information for tax years 2004, 2005, 2006, 2007, and 2008 for any of the plaintiffs' returns to be considered valid tax returns. For each of the tax years, the plaintiffs claim zero in tax liability, allege that no wages were received by plaintiffs, and allege that the amount of dividends received each year was zero. The plaintiffs did not provide the IRS with sufficient information for the tax years at issue, such that the IRScould calculate their tax liability, and therefore, the returns filed by the plaintiffs were neither proper returns or proper claims for refund. As the plaintiffs failed to file properly completed, timely returns for each of the tax years at issue, the court lacks jurisdiction for the plaintiffs' claims for refund tax years 2004, 2005, 2006, 2007, and 2008.

Id.

The U.S. Court of Appeals for the Federal Circuit affirmed the dismissal of petitioners' refund suit. See Waltner, 679 F.3d at 1334. The Court of Appeals explained as follows:

We agree * * * that a form that contains zeros in place of any reportable income does not constitute a valid tax return; it is not "properly executed" for purposes of § 301.6402-3(a)(5)[, Proced. & Admin. Regs.,] and does not meet the specificity requirements imposed by § 301.6402-2(b)(1)[, Proced. & Admin. Regs]. Here, taxpayers submitted amended returns for 2004, 2005, and 2006 in which they replaced the income they previously reported, which was consistent with third-party information provided to the IRS, with zeros and inserted a string of zeros in their 2007 and 2008 tax returns that directly contradicted W-2s and other forms submitted by third parties to the IRS. The taxpayers admittedly took no action to obtain "corrected" third party forms that would corroborate their claims of zero taxable income. Thus, the taxpayers' amended returns for 2004, 2005, and 2006, as well as their returns for 2007 and 2008 do not implicate an "honest and reasonable intent to supply information required by the tax code" or rise to the level of specificity required by regulation. None of the forms submitted by the taxpayers constitute "properly executed" returns that can serve as claims for refund over which the Court of Federal Claims has jurisdiction. We affirm the dismissal of the taxpayers' claims for tax refund for lack of jurisdiction.

Id. (fn. ref. omitted). On October 1, 2012, the Supreme Court of the United States denied the petition for certiorari in petitioners' refund suit. See Waltner v. United States, 133 S. Ct. 319 (2012).

V. Notice of Deficiency and the Pleadings in This Case

On October 17, 2012, respondent mailed to petitioners the notice of deficiency in this case. In the notice respondent determined that petitioners are liable for tax on Mr. Waltner's wage income for 2008 and for an accuracy-related penalty under section 6662(a).

Petitioners timely petitioned this Court, asserting only frivolous or irrelevant objections to the adjustments in the notice of deficiency. Although respondent initially processed petitioners' 2008 purported return and issued the aforementioned notice of deficiency as if petitioners had filed a 2008 return, in his answer respondent asserted that (1) petitioners are precluded by the doctrine of collateral estoppel from arguing that their 2008 return was a valid return, and (2) petitioners are therefore liable for an addition to tax under section 6651(a)(1) for failing to timely file a required return for 2008.

In an amendment to petition, petitioners asserted that the statute of limitations on assessment bars respondent from assessing or collecting the amounts determined in the notice of deficiency. In an answer to amendment topetition respondent asserted that the statute of limitations on assessment does not apply because petitioners are precluded from arguing that the 2008 return was valid.

On the day of trial respondent filed an amendment to answer to amendment to petition. In the amendment to answer to amendment to petition respondent asserted that petitioners are liable for tax on the distributions from Mr. Waltner's Citigroup account.

VI. Pretrial and Trial Proceedings in This Case

On August 13, 2013, we set this case for trial on the Court's January 13, 2014, trial session in Phoenix, Arizona. On November 14, 2013, petitioners' counsel entered an appearance. On November 15, 2013, petitioners moved to change the place of trial to Jacksonville, Florida. We denied petitioners' motion.

On December 30, 2013, petitioners filed a pretrial memorandum. It was signed by petitioners' counsel and contained arguments that are meritless and often frivolous.

We subsequently changed the trial date to March 3, 2014, and we held a trial on that date. Neither petitioners' counsel nor Mr....