When I write about some Tax Court decisions, the title “You Can’t Make This Stuff Up” seems to be called for.  I don’t use it, because it would get old pretty quickly and I can’t have that.  Speaking of things getting old, that is a behind the scenes question in the recent case of Jo Delia Hovind.  She and her husband Kent E Hovind were interested in the age of the earth.  I’m not a close student of this so forgive me if I use wikipedia here.  Apparently radiometric evidence, whatever that is, puts the age of the earth at 4.54 billion years plus or minus 1 per cent.  Scientists.  They could be off by as much as 45 million years, by their own account, and they think they have given us an answer.  Fortunately, we have documentary evidence that narrows the range considerably.  There are some issues with translation and the like that create a little bit of uncertainty, but when you add up all the begats in Genesis, you get to about 6,000 years.  Might be off by a couple of centuries, but it is a much narrower range.

Six thousand years is a pretty long time, but not nearly enough for evolution to work.  Also it means that people and dinosaurs must have been running around at the same time.   Well everybody knows that.  Don’t you remember Fred Flinstone’s pet Dino,

At any rate, the Hovinds decided to teach people about this stuff.  They started Creation Science Evangelism, a non-denominational ministry, which focused on the distribution of educational material.  Then there was Dinosaur Adventure Land

Turns out there is money to made in promoting young earth creationism.  The Hovinds became tax-paying job creators.  Only they had some trouble with the taxpaying part.  They found a way to formalize not paying taxes:

In 2002 Mr. Hovind decided to change the ownership structure of CSE and to that end contacted Glenn Stoll, the director of Remedies at Law. Mr. Stoll directed clients to form personal ministries which, once created, could be used to form ministerial trusts to manage ministry assets including management of assets on a tax-free basis. Mr. Stoll directed clients to associate each ministerial trust with a corporation sole.

It did not work out very well.  Mr. Hovind is in prison now.  Some say it is religious persecution.

Given how fascinating the story behind the story is, the recent tax court decision seems a little mundane, although it does have some interesting bits to it, like the way cash can increase and multiply when left alone:

On April 14, 2004, Special Agent Schneider, along with other special agents from the IRS Criminal Investigation Division, executed a search warrant at the 29 Cummings Road and 21-23 Cummings Road properties. During execution of the search warrant Special Agent Schneider asked petitioner  whether there was any cash on the premises. Petitioner informed Special Agent Schneider that there was approximately $3,000 in cash; however, Special Agent Schneider found $42,000 in cash on the premises. Of the $42,000, approximately $14,000 was in a safe next to petitioner’s desk, and approximately $15,000 was in a night stand in petitioner and Mr. Hovind’s bedroom.

The main issue was about whipsawing.  Mr. and Mrs. Hovind did not file returns.  They were both involved in the financial transactions of the enterprises and they lived together.  That makes it hard for the IRS to sort out which of them should be taxed on the unreported income.  They are married, but filing a joint return is an election.  The solution is for the IRS to send a deficiency notice to each of them for 100% of the tax.  With interest and penalties the balance for the years 1998 to 2006 is over $3,000,000.

The IRS is allowed to do that:

The Commissioner “may, in notices of deficiency present alternative claims for deficiencies when there is a basis for doing so. He may assert, in the alternative, that the same income was received by different taxpayers”.

The Tax Court saw the reasoning in this case:

Respondent   issued the notices of deficiency following an examination during which petitioner and Mr. Hovind failed to cooperate with respondent. Because neither petitioner nor Mr. Hovind cooperated during the examination, respondent did not determine how much of the total net income was attributable to petitioner and Mr. Hovind, respectively.

And the Tax Court approved:

Although petitioner argues otherwise, we find that respondent acted in good faith in issuing the notices of deficiency to both petitioner and Mr. Hovind. On the basis of petitioner and Mr. Hovind’s bank records alone, respondent could not determine whether and to what extent petitioner and Mr. Hovind individually were liable for the unreported net income of CSE. The actions of petitioner and Mr. Hovind in withholding information resulted in respondent’s determination to assign the same income to each of petitioner and Mr. Hovind.

Mrs.  Hovind had also tried to make an argument based of something called “collateral estoppel”.  Basically there were things in other decisions surrounding this whole mess that might be read to contradict taxing Mrs. Hovind on 100% of the income.  For example when Mr. Hovind was sentenced he got extra credit for being the mastermind:

Mr. Hovind, as I’ve already indicated, was the decision-making authority for the operation, and based on the degree of control and influence that he exercised over others, including those involved in the financial transactions at issue here, I believe I can find and do find. that the adjustment for being an organizer and a leader of an otherwise extensive operation is appropriate,

That did not work.  There is more, but if you want it you can read the case yourself.  I gave you a link.

By the way, you might wonder why there aren’t any dinosaurs around now.  Well, that ark was pretty big, but it might not have been that big.  Also, you can’t rule out that when the rain started they might have been off playing silly games.

You can follow me on twitter @peterreillycpa.