Green v. Comm'r
2016 Tax Ct. Memo LEXIS 65
Tax Ct.2016Background
- Mark Green, a construction manager, received W-2s and 1099s showing substantial wages and nonemployee compensation for 2001–2004 but either failed to timely file valid returns or filed returns that reported zero income.
- For 2001, 2003, and 2004 Green submitted Forms (1040/1040X/4852) that the IRS found invalid or false; his 2002 Form 1040 was accepted but claimed a large ‘‘claim of right’’ Schedule A deduction tied to sections 861/1341.
- Green used nominee corporate bank accounts (Braechele and Theocentric) and nominee transfers of real estate (multiple quitclaims and a purported Green Family Trust) to divert and conceal income and assets; evidence showed personal expenses paid from those corporate accounts.
- Green participated in or attempted to participate in a mortgage-elimination scheme via trustees later criminally convicted; district court later voided the trust transfers and related instruments.
- The IRS prepared substitutes for returns under §6020(b) for 2001, 2003, and 2004 and issued notices of deficiency assessing unreported income, additions to tax, and fraud penalties. The Tax Court sustained most IRS determinations except the §6654 estimated-tax addition for 2001.
Issues
| Issue | Green's Argument | Commissioner (Respondent) Argument | Held |
|---|---|---|---|
| Did Green have unreported income for 2001, 2003, 2004? | Wages were not taxable (frivolous) or returns showed zeros/claimed "claim of right" deductions to eliminate tax. | W-2s/1099s and bank records show compensation; substitutes for returns reflect unreported income. | Held for Commissioner: Wages/gross receipts are taxable and unreported income determinations sustained. |
| Is Green entitled to a §861/§1341 "claim of right" deduction for 2002? | Claimed deduction equal to wages as "compensation for personal labor" repaid as a debt. | Deduction lacks statutory basis; return claim frivolous. | Held for Commissioner: deduction disallowed. |
| Is Green liable for §6651(f) (fraudulent failure to file) for 2001, 2003, 2004? | Submitted documents claimed to be returns; argued no tax liability. | Failed to file valid returns and committed affirmative acts (false forms, concealment) showing fraudulent intent. | Held for Commissioner: clear and convincing evidence of fraud; §6651(f) imposed for each year. |
| Is Green liable for §6663 civil fraud penalty for 2002? | Claimed frivolous ‘‘claim of right’’ deductions and filed false W‑4/4852; argued no tax owed. | Underpayment existed and record shows badges of fraud (false W‑4, nominee accounts, concealment). | Held for Commissioner: §6663 fraud penalty imposed for 2002. |
| Is Green liable for additions under §6651(a)(2) for failure to pay (2001, 2003, 2004)? | Failure to pay due to asserted legal contentions and returns submitted. | Substitutes under §6020(b) were filed by IRS; Green paid nothing and offered no reasonable-cause proof. | Held for Commissioner: §6020(b) substitutes valid; §6651(a)(2) additions sustained. |
| Is Green liable for §6654 estimated-tax addition for 2001? | N/A (argued various procedural and substantive defenses). | Commissioner must show required annual payment or prior-year tax to trigger §6654. | Held for Green on this point: Commissioner failed burden of production as to 2000 return/tax; §6654 not imposed for 2001. |
Key Cases Cited
- Welch v. Helvering, 290 U.S. 111 (general burden of proof principle in tax cases)
- Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (principles on what constitutes a return)
- Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453 (principles on return validity)
- Beard v. Commissioner, 82 T.C. 766 (four-part test for a valid return)
- Clayton v. Commissioner, 102 T.C. 632 (standards for fraudulent failure-to-file and fraud penalties)
- Zell v. Commissioner, 763 F.2d 1139 (10th Cir.) (affirmative acts and badges of fraud required for fraud penalties)
- Lonsdale v. United States, 919 F.2d 1440 (10th Cir.) (rejecting ‘‘wages are not income’’ and other frivolous tax-defier arguments)
- Holland v. United States, 348 U.S. 121 (understating income as evidence of fraud)
- Spies v. United States, 317 U.S. 492 (concealment as evidence of fraudulent intent)