Crummey v. Commissioner
684 F. App'x 416
5th Cir.2017Background
- Brent and Cheryl Crummey filed unconventional tax documents for 2005, 2006, and 2008, using a self-created "Brent E. Crummey Trust" and Form 1041s instead of individual Form 1040s; Mrs. Crummey filed nothing for those years.
- Crummey treated wages as trust income and claimed fiduciary-fee deductions and distributions to reduce reported tax liability to zero; he requested refunds for withheld amounts for each year.
- Crummey received full refunds for 2005 and 2006 withholdings (2006 refund issued March 13, 2007); the 2008 refund was denied. He was convicted in 2010 under 18 U.S.C. § 287 for false refund claims.
- The IRS assessed penalties under 26 U.S.C. §§ 6651(a)(1), 6651(f) (fraudulent failure to file), and 6651(a)(2) (failure to pay) for relevant years; the Tax Court upheld the assessments after a bench trial.
- The Tax Court denied the Crummeys’ motions for reconsideration, partial vacatur, and recusal; the Crummeys appealed the penalty findings and the recusal denial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filings qualified as valid tax returns under § 6651(a)(1) | Crummey: filings purported to be returns, signed under penalty, contained data, and relied on precedent | IRS: filings used wrong form and relied on frivolous tax-protester theories; not an honest and reasonable attempt to satisfy the law | Filings were not valid returns; § 6651(a)(1) penalties apply |
| Whether evidence supports finding of fraudulent failure to file under § 6651(f) (increased penalties) | Crummey: insufficient clear and convincing evidence of fraud | IRS: multiple Bradford factors evidence fraud (understated income, prior correct filings, ignored IRS guidance, conviction for related fraud) | Court affirmed fraud finding; § 6651(f) increased penalties apply to Crummey |
| Whether 2006 withholding and later payments should credit or reduce § 6651(a)(2) failure-to-pay penalties | Crummey: IRS failed to credit 2006 withholding and later payments toward 2006 tax | IRS: 2006 withholding was refunded to Crummey before the payment due date (Apr 16, 2007); later payments came after prescribed date and after maximum penalties accrued | Withholding and later payments did not reduce § 6651(a)(2) penalties for 2006; Tax Court affirmed |
| Whether Tax Court judge should have recused | Crummeys: judge showed bias by misapplying statutes and precedent | Tax Court/IRS: alleged bias stems from rulings, not personal bias; recusal requires personal, not judicial, bias | Denial of recusal affirmed; disagreement with rulings insufficient for recusal |
Key Cases Cited
- United States v. Davis, 603 F.3d 303 (5th Cir.) (definition of a valid tax return)
- Green v. Commissioner, [citation="322 F. App'x 412"] (5th Cir.) (homemade disclosure documents are not returns)
- Webb v. Commissioner, 394 F.2d 366 (5th Cir.) (fraud requires clear and convincing evidence of intent to evade tax)
- Payne v. Commissioner, 224 F.3d 415 (5th Cir.) (fraud may be inferred from conduct to mislead or conceal)
- Spies v. United States, 317 U.S. 492 (Sup. Ct.) (conduct that misleads or conceals supports fraud inference)
- Bradford v. Commissioner, 796 F.2d 303 (9th Cir.) (nonexhaustive Bradford factors for inferring fraud)
- Estate of Liftin v. United States, 754 F.3d 975 (Fed. Cir.) (timing of payments/withholdings affects § 6651 penalty calculations)
- Ferguson v. Commissioner, 568 F.3d 498 (5th Cir.) (statutory framework for § 6651(a)(1) penalty)