Originally published on Forbes.com.
Attorney Donald “Mac” MacPherson, author of Tax Fraud and Evasion: The War Stories has lost a penalty appeal in the Ninth Circuit. The decision came out a few weeks ago, but I kept bumping the coverage due to the Tax Cuts and Jobs Act and more recently the failed penalty appeal of The Agent For Truth – Joseph Banister. I apologized to Mac, noting that The Agent For Truth, a regular in the conspiracy region of the alternative media bubble, is more famous than the Courtroom Commando, which is how Mac styles himself. Normally I disapprove of tax professionals using military metaphors. They are a reflection that, as Samuel Johnson observed, every man thinks meanly of himself for not having been a soldier or been to sea. As a West Point graduate Vietnam combat veteran, Mac is entitled to use them if he chooses.
The Whole Opinion
The Ninth Circuit opinion is one of the rare opinions that I can reproduce in full (citations omitted).
Attorney Donald W. MacPherson appeals the Tax Court’s imposition of sanctions in two cases in which he counseled his taxpayer clients to maintain frivolous positions. We have jurisdiction pursuant to 26 U.S.C. § 7482(a)(1), and we affirm. Because the parties are familiar with the history of this case, we need not recount it here.
The Tax Court did not abuse its discretion in ordering MacPherson to pay excess costs pursuant to 26 U.S.C. § 6673(a)(2). MacPherson “multiplied the proceedings in unreasonably and vexatiously.” 26 U.S.C. § 6673(a)(2). He “knowingly or recklessly raise a frivolous argument.” Moore v. Keegan Mgmt. Co. On behalf of his clients, he advanced a position contrary to established law and unsupported by fact. In a signed declaration, he represented that he knew his position would be unsuccessful. The Tax Court appropriately ordered MacPherson to pay only those costs incurred in responding to MacPherson’s frivolous arguments.
The Story Behind The Story And So On
The story behind the story is a Tax Court opinion in 2014 – Leonard and Evelyn Best v Commissioner – and there is a story behind that story from 2009 – a stipulated Tax Court decision in which the Bests agreed that they owed over $75,000 in income tax from 1993 and 1994. Once it is agreed that you owe a tax deficiency, you get another bite at the apple. You get to try to convince the IRS that you can’t afford to pay the deficiency or at least not the whole thing. The outcome of that decision can also be appealed to Tax Court. The Tax Court has to determine that the IRS hearing officer did not abuse discretion, before allowing IRS to use any of the nasty collection tools, like levies, that it has at its disposal.
Mac has not drunk the tax protester Kool-Aid that will convince you that the income tax is limited to treasury messengers who live in the District of Columbia or some other inane notion. He has, however, adopted a technique that the sophisticated among the not conventionally tax compliant will use – holding the feet of the IRS to the fire of meticulous procedural scrutiny. That was the approach that got him sanctioned. After receiving the transcripts from the hearing officer, he requested “a summary record of assessment” (Form 23C), Form 4340, a copy of the actual document signed by the officer and the delegation order showing authorization to assess.
The hearing officer indicated that the taxpayers were not entitled to those forms and ruled that levy should proceed. The Tax Court petition followed and in its response IRS provided Form 4340. That did not satisfy Mac, but it did satisfy Judge Halpern.
Ms. Hernandez did not abuse her discretion in relying on computer transcripts to verify that petitioners’ unpaid 1993 and 1994 tax had properly been assessed.
The question then becomes one of what the Commissioner must furnish to a taxpayer requesting pursuant to section 6203 “the record of the assessment”. Must he without exception furnish the RACS report or the Form 23C (with or without pertinent supporting records)? The answer is no; the Commissioner need not furnish the taxpayer any particular form or document.
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 ofthe pertinent parts of the assessment, without imposing any signature requirement.
Judge Halpern went further and hit the Bests with a $5,000 penalty and suggested that Mac should also face a penalty. Mac’s penalty is based on the extra costs he created and came in at $19,837.50. Mac also got hit with over seven thousand in penalties for similar arguments in the case of Howard May.
He Was Warned
I have poked at this a little harder than I did last time and note that Revenue Ruling 2007-10 held
This revenue ruling emphasizes to taxpayers, promoters, and return preparers that, although an assessment is recorded on a summary record of assessment, such as the Form 23C or its computer-generated equivalent, the Revenue Accounting Control System (RACS) Report 006, there is no legal requirement that a summary record of assessment be provided to a taxpayer before the Service may proceed with collection activity. Further, if a taxpayer requests proof that an assessment was made, the Service is not required to provide any particular form or information in any particular format to the taxpayer so long as the Service provides the information required by Treasury Regulation § 301.6203-1 to the taxpayer. Any position to the contrary has no merit and is frivolous.
Further Notice 2010-33 lists positions like that as being frivolous.
Courtroom Commando Soldiers On
So it is not like Mac did not have a fair warning making it unsurprising that the Ninth Circuit upheld the penalty. He still thinks he’s right, though. He will file for a rehearing and a rehearing en banc. He has sent me a mountain of material supporting his position, which I will try to boil down for you. Here are a few of his comments on which I have done some light editing.
The decision is not correct with the statement, “In a signed declaration, he represented that he knew his position would be unsuccessful.” The court’s reference is to my statement that years ago I found the issue of requesting a Form 23C to be a “dead letter,” meaning that there were some cases which held that a taxpayer cannot obtain the Form 23C as evidence of an assessment, the courts holding that the computerized form, RACS 006, had, in general, replaced the Form 23C and, that there were yet no cases which held otherwise; but, the decision had not yet been addressed by the ninth circuit.
I relied upon the two tax court judges dissenting in the case of Nestor; the dissent in Nestor opined that Nestor should have received his 4340 at the hearing. In both Best and May the 4340 was not provided at the hearing and was provided long after the tax court petitions.
The 23c was but one of the many issues raised but not discussed by the Ninth Circuit. (the Tax Court held that all issues I raised are frivolous). For example, I requested of IRS the delegation order, a request which IRS declares in its public information as a “frivolous” request and argument. YetIi read and relied upon a 2009 tax practice and procedures (CCH) article which discussed the need to request the d.o. which gives the IRS agent authority to sign an IRS agreement with the client, or risk that IRS will renege on the agreement for lack of the d.o..
Also, just last year the Eighth Circuit ruled in the case of Muncy that Muncy was entitled to the d.o. The court reversed the Tax Court which held that the issue is frivolous; and, the Eighth Circuit remanded the case, ordering IRS to produce the d.o. So this decision in effect holds that the Nestor dissentors and three Eighth Circuit judges acted with frivolity in reaching the decisions they reached.
Obviously I hit a raw nerve with Tax Court. apparently, likewise with the Ninth. The courts do not want IRS having to “toe the line;” to prove up “verification” during the collection due process hearing. “We are from the government; you can trust us.” “Agent says he verified, you can bet your bottom dollar he verified.” “Oh, you want documentary evidence of verification? forget it; trust us; or risk sanctions.”
Is It A Criminal Practice Thing?
Criminal tax practice is the one area of tax law where the government has the burden of proof. In the Tax Court, the government starts out with the presumption that its deficiency notice is correct. That is why lawyers representing themselves in Tax Court often have a hard time. Such was the case of the great F. Lee Bailey. He did pretty well on some sticky legal issues but got murdered when it came to substantiation. I’m wondering if a little bit of the same type of phenomenon is going on with Mac. I’ve been blessed with a conventionally compliant clientele who, knock on wood, will never need criminal representation, but if somebody asked me who they should call if they needed help in that area, I think the Courtroom Commando would be on my list.
Other Coverage
Amy Lee Rosen has something on Law360 – 9th Circ. Affirms Tax Atty’s $27 K Penalty For Bogus Claims.