Originally published on Forbes.com May 21st, 2014
It is not that unusual for the Tax Court to sanction people for making frivolous arguments. So the $5,000 sanction in the case of Leonard Best is hardly surprising. The sanction can be as much as $25,000 and is for instituting proceedings primarily for delay, frivolous or groundless positions or unreasonably failing to pursue administrative remedies. What is unusual is for the Tax Court to threaten the taxpayer’s attorney with a sanction. I actually don’t ever recall seeing that. The judge was more or less springing this on attorney Donald MacPherson, so he will have a chance to defend himself. Although I thought the case, itself, was kind of interesting, I found Mr. MacPherson even more interesting.
Seen in the Company of Ducks – Not A Duck
Quatloos is a site which among other things exposes the idiocies of the tax protester movement. The posted text of this case on Quatloos has the title – Lawyer Invokes The Koolade, Gets FrivPen For Clients. The implication is that Mr. MacPherson is himself a tax protester – someone who would argue possibly that the Income Tax only applies to a very narrow group of people. This is understandable in that one way protesters fight back is by looking for subtle flaws in IRS procedure, which is what is at the heart of this case.
Mr. MacPherson is not, himself, a tax protester. As a matter of fact, he told me that he once debated Irwin Schiff, perhaps the grandfather of the contemporary tax protester movement. Mr. MacPherson is an attorney who represents people who get into deep tax trouble, including some protesters. I don’t know how the Bests got in such trouble, but I wouldn’t be surprised to learn that it was from drinking tax protester Kool-Aid.
Point Man
I don’t think that Mr. MacPherson would object to me calling him a rather combative attorney. His book, first published in 1989 is titled Tax Fraud & Evasion – The War Stories . The picture on the cover is of himself as a young officer in Vietnam. When you open the book the first thing you see is the Standing Orders of Roger’s Rangers. Roger’s Rangers was a special unit of the British Army during what we, in this country, call The French and Indian War (In the rest of the world they call it the Seven Years War (1756-1763). French Canadians call it La guerre de la Conquête ). Rogers Rangers were British colonists who had learned something about warfare from the indigenous peoples. Spencer Tracy played Rogers in Northwest Passage
Rogers Rangers were the inspiration for the US Army Rangers formed in World War II.
And hence to US Army Special Forces, popularly known as Green Berets.
On The MacPherson Group group website we learn that Mac MacPherson is a West Point Graduate, Airborne, Ranger, Infantry, Jumpmaster and Special Forces (I confirmed the West Point Graduate – Class of 1967 and have no reason to doubt the rest. After all I am a tax blogger not an investigative reporter.) The only caution I have is that Standing Number 4 reads:
Tell the truth about what you see and what you do. There is an army depending on us for correct information. You can lie all you please when you tell other folks about the Rangers, but don’t never lie to a Ranger or officer.
There is probably a reason that they call them war stories. Regardless, I can’t tell you a lot about the book, because I have not had time to read it. So many books, so little time.
When I asked him how he felt about the threat of a sanction his philosophical reply was”Sometimes when you walk point, you get shot in the knee.”
The Case
The Bests had differences with the IRS as to what their correct tax was for the years 1993 and 1994. The matter was taken to Tax Court with Mr. MacPherson representing the Bests. The IRS and the Bests settled the case in January 2009. The agreement as recorded by the Tax Court was that they owed about $30,000 in additional tax for 1993 and $45,000 for 1994. With penalties the total tab was over $100,000 and of course the interest adds up over 20 years.
That is not the end of the story, though. Once the tax is determined it has to be collected and taxpayers can negotiate with the IRS based on ability to pay – “reasonable collection potential”. When the IRS finally threatens to levy, the taxpayer can request a collection due process hearing. The results of that hearing can be appealed to Tax Court. Generally, the correct amount of the tax is not at all in issue at this point.
It was during this process that Mr. MacPherson pulled a rabbit out of the hat, perhaps inspired by Standing Order 17
If somebody’s trailing you, make a circle, come back onto your own tracks, and ambush the folks that aim to ambush you.
Mr. MacPherson is concerned that the IRS did not do a proper assessment after the Tax Court decision. He requested that the hearing officer provide a signed copy of Form 4340. The hearing officer did not think this was necessary. Ultimately the Form 4340 that was received was rubber-stamped not signed.
The Tax Court was unmoved by this argument.
Petitioners find fault with the Forms 4340 because they are accompanied by certifications as to accuracy that contain what appear to be stamped signatures of the IRS official making the certifications. We do not see that as a problem. First, while section 301.6203-1, Proced. & Admin. Regs., does require that an assessment officer sign the summary record of assessment, it provides only that a requesting taxpayer be furnished a copy of the pertinent parts of the assessment, without imposing any signature requirement. ……….. “Forms 4340 are not required to be signed.” Petitioners have provided no authority contradicting that statement. Moreover: “Generally, in the absence of a statute otherwise providing, a signature may be affixed by writing by hand, by printing, by stamping, or by various other means.”
The Court then piled it on by assessing a frivolous argument on the Bests, even though they were relying on an attorney and going one step further than usual and considering a penalty against the attorney.
What About Brafman?
On first reading the case, I was definitely leaning toward the government side. The taxpayers agreed on what the tax was five years ago and now they are trying to get out of it, because the post-case paperwork might be deficient. Mr. MacPherson, though, is an attorney and if he can find something that helps his client, it is hard to knock him for that. What he pointed me to was a 1967 Fifth Circuit decision Brafman v United States which holds.
We are not moved by the Government’s argument that the assessment was valid and effective on July 23rd because it is certified for authenticity under the seal of the United States Treasury. There is no question as to the authenticity of the document or its admissibility into evidence. But authenticity of the certificate cannot be equated with validity of the assessment on the alleged date: a seal establishes the former, a signature of the assessment officer—as required by the Treasury Regulations—establishes the latter.
Don’t Know Who To Root For On This One
If “Mac” ultimately gets his clients out of having to pay, because the IRS flubbed on the paperwork, I will have to tip my hat to him for a masterful piece of work. Even if he loses, I still can’t knock him for being overzealous. On the other hand, I go back to my original take on the case. I think the collection due process system and under-funding of IRS compliance efforts is trending to, in practice, making income tax payment close to optional. If the tax has been determined once in Tax Court, there probably should not be a second trip a few years later to discuss whether you actually have to pay it. I asked my friend Bob Baty, a retired IRS appeals officer, who pointed the Quatloos comment out to me, for his take, he wrote:
A lot of IRS employees figured, as I did, that when they changed the law and process to allow more collection appeals and litigation, the flood gates were opened. The Best case, it appears, is another good example as to how what might have been good intentions is routinely abused by those who want to game the system.
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