First things first: the Tax Court doesn’t shut down for Rosh Hashanah? Who knew?
Tax protestor arguments are the greatest. What makes them so entertaining is the fact that every time, the taxpayer walks into court undeterred by the rather damning fact that identical arguments have been shot down for the past 100 years — whether it’s the belief that U.S. citizens only pay tax on income earned abroad, wages aren’t taxable income, or the age-old argument that nowhere in the Code does it require a taxpayer to pay income tax — and smugly believes that this time it’s all going to be different. They’re going to turn the Code upside down and change the way America collects its tax revenue forever. And when they inevitably suffer yet another defeat, they’re always stunned by the outcome. It’s like playing peek-a-boy with an infant: even though everyone else knows how the game ends, the infant never ceases to be shocked when the hands get pulled back.
Consider the case of Marla Crites. In 2008, two years after timely and properly filing her 2005 tax return, Crites filed a Form 1040X looking to claim a refund of all the tax paid on her original return. Her reason?
I was in the service of a non-Federal employer, not engaged in a “trade or business” and not an “officer of a corporation.” According to the IRC sections 3401 and 3121 then, my “income” consists only of unemployment compensation and a tax refund from the previous year.
The IRS denied her claim, and hit her with a $5,000 frivolous argument penalty under Section 6702 for good measure. When Crites refused to pay, the IRS sought to collect the penalty by levying on Crites’ assets.
Crites countered with another perfectly sane, reasonable defense against levy: she wasn’t a person.
Crites next argues that even if her amended return counts as a return under section 6702, that section’s penalties do not apply to her because she does not fall within its definition of a “person.”
The Tax Court, as one might expect, didn’t see things Crites’ way:
On this point, she falls into the old tax-protester habit of confusing “includes” and “means.” The Code’s definition of a “person” subject to section 6702 penalties “includes an officer or employee of a corporation, or a member or employee of a partnership.” Sec. 6671(b) (emphasis added). And the Commissioner and Crites agree that she is not an officer or employee of either a corporation or a partnership. But caselaw has firmly established that section 6671’s definition of “person” includes officers and employees, but certainly does not exclude all others.