Muncy v. Comm'r
| Decision Date | 17 May 2017 |
| Docket Number | Docket No. 27807-11.,T.C. Memo. 2017-83 |
| Parties | LEROY MUNCY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Leroy Muncy, pro se.
Ann Louise Darnold and H. Elizabeth H. Downs, for respondent.
NEGA, Judge: This case is before us on remand from the U.S. Court of Appeals for the Eighth Circuit, Muncy v. Commissioner, 637 F. App'x 276 (8thCir. 2016), vacating and remanding T.C. Memo. 2014-251. The Court of Appeals vacated our decision, entered in accordance with our conclusions in Muncy, that petitioner was liable for respondent's deficiency determinations and additions to tax under sections 6651(a)(2) and (f) and 6654(a).
The case was remanded for a determination of whether Janet A. Miller, an Internal Revenue Service (IRS) "Technical Services Territory Manager" who issued the notice of deficiency on behalf of the Commissioner, had authority to issue the notice of deficiency and thus whether this Court has proper subject matter jurisdiction over petitioner's action.
We afforded the parties the opportunity to supplement the record on remand. Accordingly respondent filed with the Court Delegation Order 4-8.
Respondent determined deficiencies and additions to tax and asserted increased deficiencies with respect to petitioner as follows:1
| Sec. 6651(f) |
| Additions to tax |
| Sec. 6651(a)(2) |
| Sec. 6654(a) |
| 2000 |
| $60,957 |
| $44,194 |
| $15,239 |
| $3,279 |
| 2001 |
| 53,915 |
| 39,088 |
| 13,479 |
| 2,155 |
1Respondent originally determined deficiencies of $10,924, $6,881, and $7,435 for 2003, 2004, and 2005, respectively by reducing petitioner's total corrected tax liabilities for these years (the numbers above) by the amounts of restitution ordered by the U.S. District Court for the Eastern District of Arkansas. Respondent now asserts, in his amendment to answer, that the total corrected tax liabilities unreduced by the restitution amounts are the appropriate tax deficiencies for these years.
The issues for decision are whether petitioner: (1) had unreported income for the taxable years 2000 through 2005 (years at issue); (2) is liable for the additions to tax for these years; and (3) is liable for a penalty under section 6673 on the grounds that petitioner's arguments are frivolous and that the proceeding was commenced and maintained primarily for delay.
For convenience, we repeat here the findings of fact in our prior Memorandum Findings of Fact and Opinion describing the relevant history of petitioner Leroy Muncy's employment arrangements and criminal proceedings. We also set forth below certain supplemental findings of fact that were not set forth in our prior Memorandum Findings of Fact and Opinion but which are based on the record in the instant case and are relevant to the issues decided on remand.
Petitioner resided in Arkansas at the time the petition was filed. Petitioner failed to file Federal income tax returns and pay estimated tax for tax years 2000 through 2005. Respondent prepared substitutes for returns (SFRs) for these years pursuant to section 6020(b).
From 1978 through 2005 petitioner worked as a wholesale tire salesman at Beacon Tire, Inc. (Beacon Tire). Petitioner was treated as an employee of Beacon Tire until 1994. Around this time petitioner was exposed to an antitaxation group that convinced him that his wages were not taxable and that it was illegal for Beacon Tire to withhold tax from his wages. At his insistence Beacon Tire stopped withholding petitioner's income tax.
In 1998 petitioner began working with individuals who promoted tax-avoidance schemes. The plan was to set up employment agencies to receive petitioner's wages so the wages would not be reported in his name or paid directly to him. Accordingly, petitioner became a "contractor" for a company called Contract Select, Inc. (Contract Select), and a contract was entered into between Beacon Tire and Contract Select. Although petitioner was allegedly an "independent contractor" for Contract Select (which eventually became Accurate Consulting), no other aspects of petitioner's job or duties changed. Beacon Tire continued to reimburse petitioner for all his business expenses, provided him with a company vehicle to drive, and determined his earnings. Checks for earnings were sent to Contract Select (from 1999 to 2002) and Accurate Consulting (from 2002 to 2005) and were either: (1) deposited or transferred into a trust or a nominee account that petitioner created, (2) cashed by petitioner, or (3) endorsed over to a third party. Petitioner made all decisions regarding the receipt, deposit, or disbursement of income that Beacon Tire paid to these entities. Upon petitioner's insistence, no Forms W-2, Wage and Tax Statement, nor any version of Form 1099 were issued to petitioner by Contract Select or Accurate Consulting to report income paid to him for tax years 2000 through 2005.
Petitioner was investigated by the Criminal Investigation Division of the IRS after audits revealed that petitioner was using an abusive tax scheme and was claiming to be a "sovereign, living soul" who was not a citizen of the United States or the State of Arkansas and not a party to the United States Constitution. During the investigation no valid business purpose was discovered to explain why petitioner's income was sent to Contract Select or Accurate Consulting. In an attempt to impede the investigation, petitioner filed over 70 Freedom of Information Act requests with the IRS.
In January 2010 petitioner pleaded guilty to one count2 of willful attempt to evade and defeat his individual income tax for the 2004 tax year.3 His criminal plea agreement stated: "Except to the extent otherwise expressly specified herein, this Agreement does not bar or compromise any civil or administrative claim pending or that may be made against the defendant, including but not limited to tax matters." The plea agreement also stated:
In its judgment filed October 26, 2010, the District Court placed petitioner on probation for three years and required him to file tax returns as a condition ofthe probation. United States v. Muncy, No. 4:10-cr-00018-BSM (E.D. Ark. filed Jan. 8, 2010). The judgment also deferred the full determination of restitution, or what it called "criminal monetary penalties", until a later date. Soon after, a restitution report was filed determining restitution amounts of $43,275, $57,878, and $52,587 for tax years 2003 through 2005, respectively. An order was entered on January 25, 2011, reflecting this determination.
On September 7, 2011, respondent mailed a notice of deficiency to petitioner and attached a Form 4549-A, Income Tax Discrepancy Adjustments. The notice of deficiency was signed on behalf of the Commissioner by Ms. Miller, Technical Services Territory Manager, pursuant to Delegation Order 4-8, set forth in Internal Revenue Manual (IRM) 1.2.43.9 (Feb. 10, 2004). In the notice respondent calculated petitioner's total corrected tax liability for each year. For each of the tax years 2000 through 2002 petitioner's deficiency amount was his total corrected tax liability. For each of the tax years 2003 through 2005 respondent reduced petitioner's total corrected tax liability by the amounts of criminal restitution ordered for that year to come up with the deficiency amount. On September 30, 2013, respondent made assessments of the restitution in his internal records. On June 13, 2014, respondent filed a first amendment to answer stating that petitioner's deficiency for each of the tax years 2003 through 2005 should be petitioner's total corrected tax liability for that year unreduced by the amount of criminal restitution for that year.
Petitioner asserts that the restitution report and the order for restitution represent the full settlement of his tax liabilities for 2003 through 2005. There is no evidence that petitioner has satisfied his criminal restitution order or received any discharge.
On November 7, 2013, in response to petitioner's informal discovery request seeking information about the employment status and authority of IRS personnel, respondent mailed to petitioner (1) a copy of Delegation Order 5-2, which delegates authority to several IRS employees to prepare and execute returns when taxpayers fail to file returns; (2) a copy of Delegation Order 4-8, which delegates the authority to other IRS employees to issue notices of deficiency; and (3) a copy of the Tax Court opinion in Roye v. Commissioner, T.C. Memo. 2012-246, in which the notice of deficiency signed by Ms. Miller was valid.
OPINIONPetitioner contends that respondent's deficiency determinations for tax years 2000 through 2005 are "null and void" because the notice of deficiency was not "issued and sent by a duly authorized delegate of the Secretary". Petitioner's argument regarding the authority of IRS employees is similar to those we have previously rejected, held to be without merit, and characterized as frivolous. See e.g., Roye v. Commissioner, at *15, *16 n.6; Cooper v. Commissioner, T.C. Memo. 2006-241, 2006 WL 3257397, at *2. We nonetheless address petitioner's contention in accordance with the U.S. Court of Appeals for the Eighth Circuit's instructions that we establish jurisdiction over the present matter.
Statutory notices of deficiency are valid only if issued by the Secretary of the Treasury or his delegate. Kellogg v. Commissioner, 88 T.C. 167, 172 (1987); see secs. 6212(a), 7701(a)(11)(B), (12)(A)(i). The technical services territory manager position is part of the...
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