T.C. Memo. 1998-234
UNITED STATES TAX COURT
JORGE V. AND CAROL A. GEAGA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13972-97. Filed July 1, 1998.
Jorge V. Geaga, pro se.
Roger P. Law, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Chief Judge: Respondent determined a deficiency of
$14,173 in petitioners' Federal income taxes for 1995 and a
penalty of $2,835 under section 6662(a). All section references
are to the Internal Revenue Code in effect for the year in issue,
unless otherwise indicated. The issue for decision is whether
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petitioners are liable for the penalty as determined by
respondent.
FINDINGS OF FACT
Petitioners resided in Los Angeles, California, at the time
that they filed their petition. On December 23, 1991, petitioner
Jorge V. Geaga (petitioner) wrote to the Department of the
Treasury with respect to a notice that he owed Federal income
taxes and a penalty for 1990, explaining petitioner's theories
why certain items should be deductible notwithstanding contrary
legal precedent, and requesting a hearing before a Tax Court
judge. Thereafter, petitioner commenced an intensive letter-
writing campaign concerning the amounts that he wished to claim
as business deductions. Over the years, petitioner's letters
became increasingly threatening and accusatory, demanded greater
refunds, and repeated his request for a hearing before a Tax
Court judge.
Petitioners filed two prior cases in this Court, docket No.
9749-93, with respect to their Federal income taxes for 1990, and
docket No. 18569-93, with respect to their Federal income taxes
for 1991. The petition in docket No. 9749-93 was filed May 17,
1993. That case was set for trial but was continued on
respondent's motion without objection by petitioners. On
November 22, 1994, a decision was entered in that case pursuant
to a stipulation signed by petitioners. As a result of allowance
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of a loss carried back from 1993, the settlement reflected an
overpayment for 1990.
The petition in docket No. 18569-93 was filed August 27,
1993. That case was set for trial, but, prior to the trial date,
the parties agreed to a settlement. A decision was entered
October 28, 1994, pursuant to a stipulation signed by
petitioners. The stipulated decision reflected a deficiency of
$10,131 for 1991.
After settlement of the cases for 1990 and 1991, disputes
between petitioners and the Internal Revenue Service (IRS)
continued as a result of collection efforts by the IRS relating
to petitioners' liabilities for 1991 and 1992. In February 1996,
petitioners prepared their Federal income tax return for 1995.
On line 12 of that return, they claimed a $99,000 business loss
and inserted "See Appendix A". Petitioners offset their combined
wages and salaries income of $124,553.62 with this alleged loss,
resulting in a claimed overpayment of $4,764. In "Appendix A",
they explained that they were claiming a loss of $49,000 that was
disallowed on their 1990 tax return and $50,000 that was
disallowed on their 1991 tax return. Attached to their 1995 tax
return was a statement dated February 25, 1996, as follows:
Please note that I have assigned the $4764.00
overpayment for 1995 to pay for the $794.00 1991-1992
ACS plan installments for the payment dates Apr. 1,
May 1, June 1, Jul 1, Aug. 1, and Sep 1, 1996. I am
sending a copy of this statement to the ACS plan office
and to Congressman Becerra's office. In the instance
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the IRS decides to contest the loss deduction I have
claimed, let this document serve as proof that I waive
my rights to an appeal before the IRS and directly
request a tax deficiency statement so I can file for a
hearing before the U.S. Tax Court. Please furnish
appropriate citations of sections of the U.S. Tax Code
which are used to justify denial [of] the deductions I
have claimed.
On February 12, 1997, a Problem Resolution Specialist for
the IRS sent to petitioner a letter containing the following
paragraphs:
This is in response to your letter to me dated
January 21, 1997, regarding your original inquiry on
October 28, 1996. You stated that you believe that the
Internal Revenue Service can overturn the decisions
made by the United States Tax Court on your 1990 and
1991 cases. Unfortunately, that is not true. A
taxpayer's purpose in filing a petition with Tax Court
is to appeal an Internal Revenue Service determination
to a higher authority. We must accept the decision of
the Tax Court whether it is in our favor or in the
taxpayer's favor. The taxpayer, however, can appeal
the decision to a higher court if he has not signed the
Decision Document. The Decision Document that you
signed is legally binding, and it cannot be retracted.
Although we could not overturn the Tax Court
decision, you have been allowed to take the $99,000
deduction from your 1995 taxes. You claimed that
deduction as a business loss on your 1995 tax return,
and it was allowed without being audited. The loss
offset most of your earnings for that year and resulted
in no tax being due. The credit that was created by
your withholding, $4,764, was applied to the balance on
your 1991 and 1992 taxes, $2,082.53 for 1991 and
$2,681.47 for 1992. You are making monthly payments on
the balance still owing for 1992, but I must inform you
that interest will continue to accrue until the account
is paid in full.
On June 9, 1997, the statutory notice for 1995 was sent to
petitioners. The $99,000 deduction was disallowed, and a small
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adjustment was made to petitioners' itemized deductions. The
petition was filed June 30, 1997, in which petitioners allege:
(1) * * * IRS knowingly and intentionally accepted
deductions claimed in 1995 which were incurred in 1990
and 1991 (in violation of federal law). (2) * * *
Court is requested to reverse decisions on Dockets
9749-93 and 18569-93. IRS consciously and
intentionally violated the constitutional rights of the
petitioners in securing these decisions. (3) * * *
Damages are claimed by the petitioners against the IRS
* * * [named employees of the IRS] in the amount of
$314173.00 for: (a) violation of constitutional rights
* * * (b) unlawful and abusive actions by the IRS
resulting in extreme anxiety to the petitioners * * *
(c) * * * imposing a lien on the petitioners causing
extreme anxiety on the petitioners and dependent parent
* * * who passed away of a stroke on January 9, 1997.
After the petition was filed, petitioners filed a Motion for
Leave to Amend Petition (to increase their claim to damages by
$1 million), which was denied; a Motion to Vacate Denial of
Motion to Amend Petition, which was denied; a Motion to Schedule
Trial Date, requesting an expedited hearing, which was granted; a
Motion for Ruling (on the "incompleteness" of the notice of
deficiency), which was denied; a Motion to Dismiss Respondent's
Claim (allegedly "forfeited" as a result of the February 12,
1997, letter), which was denied; and a Motion to Reverse
Decisions (in docket Nos. 9749-93 and 18569-93), which was
denied. They also sent to the Court several other items of
correspondence concerning their claims. During the pretrial
process, petitioners were warned by the Court concerning the
provisions of section 6673.
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OPINION
In this case, it is apparent from the allegations of their
petition and from their correspondence that petitioners knew they
were not entitled to the deduction of $99,000 claimed on their
1995 return. As early as December 1991, petitioner had written a
letter acknowledging that the disputed deductions, first taken on
his return for 1990, were contrary to legal precedent. (From
petitioner's correspondence and his statements at trial, it
appears that the dispute involved whether certain payments must
be capitalized rather than deducted in the years paid.) On the
1995 return, filed early in 1996, they claimed the erroneous
deduction expressly for the purpose of securing a hearing before
the Court, in which they would attack the settlements for 1990
and 1991 into which they had entered in 1994. They neither
appealed nor directly attacked by motion the decisions in the
earlier cases.
Approximately a year after the filing of petitioners' return
for 1995, an IRS Problem Resolution Specialist sent to
petitioners a letter dated February 12, 1997, ambiguously stating
that the deduction claimed on petitioners' 1995 return was being
allowed. Petitioners claim that the IRS thereby "forfeited" the
right to disallow the deduction. Their position has no merit.
See Dixon v. United States, 381 U.S. 68, 75 (1965); Automobile
Club v. Commissioner, 353 U.S. 180, 183-184 (1957); Warner v.
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Commissioner, 526 F.2d 1 (9th Cir. 1975), affg. T.C. Memo.
1974-243.
Petitioners also claim that they were damaged by employees
of the IRS. We have refrained from quoting at length their
reckless and inflammatory rhetoric, because to do so would be to
exacerbate an unfortunate situation. The record does not
substantiate petitioners' accusations of misconduct on the part
of IRS employees.
The only bona fide issue in this case is applicability of
the section 6662 penalty. Section 6662 provides in pertinent
part as follows:
SEC. 6662. IMPOSITION OF ACCURACY-RELATED
PENALTY.
(a) Imposition of Penalty.--If this section
applies to any portion of an underpayment of tax
required to be shown on a return, there shall be added
to the tax an amount equal to 20 percent of the portion
of the underpayment to which this section applies.
(b) Portion of Underpayment to Which Section
Applies.--This section shall apply to the portion of
any underpayment which is attributable to 1 or more of
the following:
(1) Negligence or disregard of rules or
regulations.
(2) Any substantial understatement of income
tax.
* * * * * * *
(c) Negligence.--For purposes of this section, the
term "negligence" includes any failure to make a
reasonable attempt to comply with the provisions of
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this title, and the term "disregard" includes any
careless, reckless, or intentional disregard.
To the extent that the penalty is attributable to a
substantial understatement of income tax under section 6662(b)(2)
or to a position contrary to rules or regulations under section
6662(b)(1), it may be reduced if relevant facts are adequately
disclosed in a statement attached to the return. The provision
for reduction, however, requires that the taxpayer's position
have a reasonable basis. Sec. 6662(d)(2)(B)(ii)(II); sec.
1.6662-3(c), Income Tax Regs.
There is no indication that petitioners ever sought
professional advice concerning their deductions or the procedural
means for vacating decisions. They rejected the explanations of
the IRS, and ultimately of the Court, out of hand. They did not
have a reasonable basis for their position on their 1995 return.
The underpayment of their taxes for 1995 is due to intentional
disregard of applicable rules, and the section 6662(a) penalty is
sustained in full.
Prior to and during the trial in this matter, petitioners
acknowledged that the $99,000 deduction was improper and that the
Court does not have jurisdiction to award the damages that they
seek. They claim that they are merely bringing the issues before
the Court to secure findings that would support their charges
against the IRS. Although the Court warned petitioners of the
applicability of section 6673 to frivolous or groundless claims,
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respondent has not requested a penalty under that section, and we
have decided not to impose one at this time on our own motion.
Petitioners are again cautioned, however, that if they pursue
further action in this Court based on the same groundless claims
a penalty may well be imposed on them.
Decision will be entered
for respondent.