T.C. Memo. 2002-73
UNITED STATES TAX COURT
HERBST ASSET MANAGEMENT TRUST, ET AL.,1 Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 9999-00, 10000-00, Filed March 27, 2002.
10001-00, 10002-00.
John M. Tkacik, Jr., for respondent.
MEMORANDUM OPINION
CHIECHI, Judge: These consolidated cases are before us on
respondent’s motion to hold petitioner in default in the case at
docket No. 9999-00 (respondent’s motion in the case at docket No.
1
Cases of the following petitioners are consolidated here-
with: Herbst Charitable Trust, docket No. 10000-00; Andrea
Herbst, docket No. 10001-00; and Ronald Herbst, docket No. 10002-
00.
- 2 -
9999-00), respondent’s motion to hold petitioner in default in
the case at docket No. 10000-00 (respondent’s motion in the case
at docket No. 10000-00), respondent’s motion to dismiss for lack
of prosecution and to impose sanctions under section 66732 in the
case at docket No. 10001-00 (respondent’s motion in the case at
docket No. 10001-00), and respondent’s motion to dismiss for lack
of prosecution and to impose sanctions under section 6673 in the
case at docket No. 10002-00 (respondent’s motion in the case at
docket No. 10002-00). (We shall refer collectively to those four
motions as respondent’s motions.) At the request of respondent,
on October 15, 2001, the Court held a trial in order to enable
respondent to present evidence to satisfy the burden of produc-
tion under section 7491(c) that respondent maintains respondent
has with respect to: (1) The accuracy-related penalty under
section 6662(a) that respondent determined for each of the
taxable years 1996 and 1997 in the notice of deficiency (notice)
issued to Herbst Asset Management Trust (Herbst Management
Trust)3 in the case at docket No. 9999-00; (2) the addition to
tax under section 6651(a)(1) for each of the taxable years 1996
2
All section references are to the Internal Revenue Code
(Code) in effect at all relevant times. All Rule references are
to the Tax Court Rules of Practice and Procedure.
3
When referring in this Opinion to Herbst Asset Management
Trust and Herbst Management Trust, our use of the word “Trust”
and any similar words is for convenience only and is not intended
to convey any meaning or have any significance for Federal tax
purposes.
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and 1997 that respondent determined in the notice issued to
Herbst Charitable Trust4 in the case at docket No. 10000-00;5
(3) the accuracy-related penalty under section 6662(a) that
respondent determined for each of the taxable years 1996 and 1997
in the notice issued to Andrea Herbst (Ms. Herbst) in the case at
docket No. 10001-00; and (4) the accuracy-related penalty under
section 6662(a) for each of the taxable years 1996 and 1997 that
respondent determined in the notice issued to Ronald Herbst (Mr.
Herbst) in the case at docket No. 10002-00.
Background
The record establishes and/or the parties do not dispute the
following:
At the time the respective petitions in these cases were
filed, Herbst Management Trust, Herbst Charitable Trust, Ms.
Herbst, and Mr. Herbst listed in those petitions the same address
in Canton, Ohio.
4
When referring in this Opinion to Herbst Charitable Trust,
our use of the word “Trust” and any similar words are for conve-
nience only and is not intended to convey any meaning or have any
significance for Federal tax purposes.
5
In the notice issued to Herbst Charitable Trust, respondent
also determined to impose the accuracy-related penalty under sec.
6662(a) for each of the taxable years 1996 and 1997. At the
trial, respondent indicated that respondent was abandoning
pursuing the determinations in the notice issued to Herbst
Charitable Trust to impose the penalty under sec. 6662(a) for
each of the taxable years 1996 and 1997.
- 4 -
Herbst Management Trust filed Form 1041, U.S. Income Tax
Return for Estates and Trusts (trust return), for each of the
taxable years 1996 and 1997. In separate Schedules K-1, Benefi-
ciary’s Share of Income, Deductions, Credits, etc., that Herbst
Management Trust included with each of its 1996 and 1997 trust
returns, Herbst Management Trust showed Mr. Herbst, Ms. Herbst,
and Herbst Charitable Trust as beneficiaries and Mr. Herbst and
Ms. Herbst as fiduciaries of Herbst Management Trust.
In each of its 1996 and 1997 trust returns, Herbst Manage-
ment Trust deducted depreciation with respect to certain personal
assets of Ms. Herbst and/or Mr. Herbst, including their personal
residence that they had transferred to Herbst Management Trust at
a time that is not disclosed by the record. Herbst Management
Trust also deducted other amounts in its 1996 and 1997 trust
returns with respect to personal expenses of Ms. Herbst and/or
Mr. Herbst.
During respondent’s examination of Herbst Management Trust’s
1996 and 1997 trust returns and thereafter, respondent was
provided with a trust document relating to Herbst Management
Trust. That document showed an individual named Edward Bartolli
as the original trustee of Herbst Management Trust. Edward
Bartolli resigned shortly after the Herbst Management Trust was
purportedly formed. During respondent’s examination of Herbst
Management Trust’s 1996 and 1997 trust returns and thereafter, no
- 5 -
books, records, or other reliable information was provided to
respondent establishing (1) the jurisdiction under the laws of
which Herbst Management Trust was purportedly organized, (2) the
person who is authorized to act on behalf of Herbst Management
Trust, and (3) that Herbst Management Trust was at all relevant
times a trust cognizable for Federal tax purposes. Nor did
Herbst Management Trust at any time provide any books, records,
or other information to respondent establishing the income
reported and the expense deductions claimed in Herbst Management
Trust’s 1996 and 1997 trust returns.
In the notice issued to Herbst Management Trust, respondent
determined, inter alia, that Herbst Management Trust is liable
for each of the taxable years 1996 and 1997 for the accuracy-
related penalty under section 6662(a).
Respondent has no record of Herbst Charitable Trust’s having
filed with respondent Form 990-PF, Return of Private Foundation
(Form 990-PF), for either of the taxable years 1996 and 1997.
Nor does respondent have a record of any other Federal tax
returns having been filed by Herbst Charitable Trust for those
years.
In response to a request by respondent for information with
respect to Herbst Charitable Trust, respondent was provided with
a copy of Form 990-PF for each of the taxable years 1996 and 1997
that showed Herbst Charitable Trust as the organization to which
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each such form pertained. However, as discussed above, respon-
dent has no record that Herbst Charitable Trust filed with
respondent Forms 990-PF for the taxable years 1996 and 1997.
During respondent’s examination of Herbst Charitable Trust’s
taxable years 1996 and 1997 and thereafter, no books, records, or
other information was provided to respondent establishing (1) the
jurisdiction under the laws of which Herbst Charitable Trust was
purportedly organized, (2) the person who is authorized to act on
behalf of Herbst Charitable Trust, and (3) that Herbst Charitable
Trust was at all relevant times a trust cognizable for Federal
tax purposes. Nor did Herbst Charitable Trust at any time
provide any books, records, or other information to respondent
establishing the income shown and the expense deductions claimed
in the copies of Forms 990-PF for the taxable years 1996 and 1997
that were provided to respondent during respondent’s examination
of Herbst Charitable Trust in response to respondent’s request
for information with respect to Herbst Charitable Trust and that
showed Herbst Charitable Trust as the organization to which each
such form pertained.
In the notice issued to Herbst Charitable Trust, respondent
determined, inter alia, that Herbst Charitable Trust is liable
for each of the taxable years 1996 and 1997 for the addition to
tax under section 6651(a)(1) and for the accuracy-related penalty
under section 6662(a).
- 7 -
Ms. Herbst filed Form 1040, U.S. Individual Income Tax
Return (return), for each of the taxable years 1996 and 1997.
During respondent’s examination of Ms. Herbst’s 1996 and 1997
returns and thereafter, Ms. Herbst provided no books, records, or
other information to respondent establishing the income reported
and the expense deductions claimed in those returns.
In the notice issued to Ms. Herbst, respondent determined,
inter alia, that Ms. Herbst is liable for each of the taxable
years 1996 and 1997 for the accuracy-related penalty under
section 6662(a).
Mr. Herbst filed a return for each of the taxable years 1996
and 1997. During respondent’s examination of Mr. Herbst’s 1996
and 1997 returns and thereafter, Mr. Herbst provided no books,
records, or other information to respondent establishing the
income reported and the expense deductions claimed in those
returns.
In the notice that respondent issued to Mr. Herbst, respon-
dent determined, inter alia, that Mr. Herbst is liable for each
of the taxable years 1996 and 1997 for the accuracy-related
penalty under section 6662(a).
James Binge (Mr. Binge) was the return preparer for each of
Herbst Management Trust’s 1996 and 1997 trust returns, each of
Ms. Herbst’s 1996 and 1997 returns, and each of Mr. Herbst’s 1996
and 1997 returns. Mr. Binge was also listed as the return
- 8 -
preparer for each of Herbst Charitable Trust’s Forms 990-PF for
the taxable years 1996 and 1997 that were provided to respondent
during respondent’s examination of Herbst Charitable Trust but
that respondent has no record of having been filed with respon-
dent. Respondent has identified Mr. Binge as an individual
involved with purported trusts used for tax avoidance purposes.
On August 31, 2001, respondent filed separate motions to
compel answers to interrogatories and to compel production of
documents in each of the cases at docket Nos. 10001-00 and 10002-
00. On September 19, 2001, the Court granted each of those
motions. Neither Ms. Herbst nor Mr. Herbst answered respondent’s
interrogatories or produced the documents requested by respon-
dent, as ordered by the Court on September 19, 2001.
On October 3, 2001, Herbst Management Trust, Herbst Charita-
ble Trust, Ms. Herbst, and Mr. Herbst filed a joint motion to
continue the trial in these cases, which the Court denied on
October 4, 2001.
On October 15, 2001, these cases were called from the
Court’s trial calendar at the Court’s trial session in Cleveland,
Ohio (Cleveland trial session). At that calendar call, there was
no appearance by or on behalf of Herbst Management Trust, Herbst
Charitable Trust, Ms. Herbst, and Mr. Herbst. At that time,
respondent orally moved to dismiss each of these cases for
failure to prosecute, and respondent requested, and the Court
- 9 -
held, a trial because, according to respondent, respondent has
the burden of production pursuant to section 7491(c) with respect
to (1) the accuracy-related penalties under section 6662(a) for
1996 and 1997 that respondent determined against Herbst Manage-
ment Trust, (2) the additions to tax under section 6651(a)(1) for
1996 and 1997 that respondent determined against Herbst Charita-
ble Trust,6 and (3) the respective accuracy-related penalties
under section 6662(a) for 1996 and 1997 that respondent deter-
mined against Ms. Herbst and against Mr. Herbst. At the trial in
these cases on October 15, 2001, there was no appearance by or on
behalf of Herbst Management Trust, Herbst Charitable Trust, Ms.
Herbst, or Mr. Herbst.
On November 13, 2001, respondent filed a written motion to
hold petitioner in default in each of the cases at docket Nos.
9999-00 and 10000-00 and a written motion to dismiss for lack of
prosecution and to impose sanctions under section 6673 in each of
the cases at docket Nos. 10001-00 and 10002-00.
On December 3, 2001, the Court sua sponte issued separate
Orders (December 3, 2001 Show Cause Orders) directing each party
in the case at docket No. 9999-00 in which Herbst Asset Manage-
ment Trust is named as petitioner and in the case at docket No.
10000-00 in which Herbst Charitable Trust is named as petitioner
to
6
See supra note 5.
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show cause in writing why the Court has jurisdiction
over this case, including the identity of any purported
fiduciary of petitioner and a detailed analysis of why
such purported fiduciary has the capacity to litigate
in the Court on behalf of petitioner.
On December 19, 2001, respondent filed separate written
responses to the December 3, 2001 Show Cause Orders in the cases
at docket Nos. 9999-00 and 10000-00 in which respondent con-
tended, inter alia, that Herbst Management Trust and Herbst
Charitable Trust, respectively,
11. * * * failed to establish that a trustee, if
authorized, acted on its behalf when the purported
petition was filed with the Court on September 25,
2000.
12. * * * failed to file a proper petition with
this Court in that the petition was not brought by and
with the full descriptive name of the fiduciary enti-
tled to institute a case on its behalf.
Respondent further argued in those separate responses to the
December 3, 2001 Show Cause Orders in the cases at docket Nos.
9999-00 and 10000-00 that
Since the petition in this case was not brought by a
party with proper capacity as required by the Tax Court
Rules of Practice and Procedure, the Court lacks juris-
diction * * *.
On December 20, 2001, Herbst Management Trust and Herbst
Charitable Trust filed separate written responses to the December
3, 2001 Show Cause Orders in the cases at docket Nos. 9999-00 and
10000-00 (Herbst Management Trust’s response to the December 3,
2001 Show Cause Order and Herbst Charitable Trust’s response to
the December 3, 2001 Show Cause Order, respectively), each of
- 11 -
which was signed by Terrence A. Bentivegna (Mr. Bentivegna) who
identified himself in each such response as “Trustee”. Each such
response asserted that “Petitioner does not believe that this
Court has jurisdiction.” In support of that position, Herbst
Management Trust’s response to the December 3, 2001 Show Cause
Order and Herbst Charitable Trust’s response to the December 3,
2001 Show Cause Order set forth statements and contentions that
the Court finds to be frivolous and/or groundless.7
7
Each such response to the December 3, 2001 Show Cause Order
stated in pertinent part:
1. Petitioner petitioned this Court after having
received false and misleading information from the
respondent and attorneys David Wise and his asso-
ciate Carol Jackson. The respondent has failed to
properly assess any taxes in accordance with their
required administrative procedures, and yet ad-
vised the petitioner that the only method of dis-
agreeing with the purported tax liability was to
petition this Court.
2. This Courts’ [sic] order states “. . . petitioner
purports to be a trust . . .” Petitioner is a
trust, and the respondent has never been able to
prove otherwise. Nor does the respondent have the
right or ability to set aside a contract.
* * * * * * *
4. Petitioner does not want this false tax claim to
be litigated in court, and has petitioned this
Court to have this case removed from the docket as
having been petitioned in error due to the errone-
ous instructions given by the respondent.
WHEREFORE it is prayed that:
1. This Court dismiss this case at petitioner’s re-
(continued...)
- 12 -
On January 16, 2002, Herbst Management Trust filed a re-
sponse to respondent’s motion to hold petitioner in default in
the case at docket No. 9999-00, and petitioner in each of the
cases at docket Nos. 10001-00 and 10002-00 filed a response to
respondent’s motion in each such case to dismiss for lack of
prosecution and to impose sanctions under section 6673. On
January 30, 2002, Herbst Charitable Trust filed a response to
respondent’s motion to hold petitioner in default in the case at
docket No. 10000-00. Each of those respective responses con-
tained arguments and contentions that the Court found in an Order
dated January 18, 2002, in the case at docket No. 9999-00, an
7
(...continued)
quest as the original petition was issued in error
due to false directions given to petitioner by
respondent. Petitioner believes that he has the
right to correct his mistake and withdraw the
original petition.
2. This Court and the respondent recognize the peti-
tioner as a Trust and cease attempting to set
aside a contract in direct opposition to the Con-
stitution of the United States of America.
3. This court sanction the respondent for using this
Court for illegal purposes. Respondent has no
legal tax claim as petitioner has noted to respon-
dent and this Court on numerous occasions. With-
out a legal claim, respondent fraudulently in-
structed petitioner to use this Court to legiti-
mize his illegal attempt to deprive petitioner of
his assets.
4. This Court instruct the respondent to cease, now
and forever, harassment of petitioner.
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Order dated February 4, 2002, in the case at docket No. 10000-00,
an Order dated January 18, 2002, in the case at docket No. 10001-
00, and an Order dated January 18, 2002, in the case at docket
No. 10002-00 to be frivolous and/or groundless. In each of those
Orders, the Court reminded each petitioner about section
6673(a)(1).8
On February 15, 2002, Herbst Management Trust, Herbst
Charitable Trust, Ms. Herbst, and Mr. Herbst filed a joint brief
in these cases. That brief sets forth statements, contentions,
8
Sec. 6673(a)(1) states:
SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS.
(a) Tax Court Proceedings.--
(1) Procedures instituted primarily for de-
lay, etc.--Whenever it appears to the Tax Court
that--
(A) proceedings before it have been
instituted or maintained by the taxpayer
primarily for delay,
(B) the taxpayer’s position in such
proceeding is frivolous or groundless, or
(C) the taxpayer unreasonably failed to
pursue available administrative remedies,
the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not
in excess of $25,000.
- 14 -
and arguments that the Court finds to be frivolous and/or ground-
less.9
9
Petitioners’ joint brief in these cases states in pertinent
part:
This is a proceeding to determine if the Internal
Revenue Service can ignore the strict limitations
imposed on it by Congress, via the Code of Federal
Regulations, and its’ [sic] own required administrative
procedures to extort assets from unsuspecting inhabit-
ants of one of the fifty (50) states of the United
States of America, to wit: Ronald Herbst, et al.
* * * * * * *
U.S.C. Title 26 Section 7602 is the I.R.S.’s authority
to examine books and records regarding “internal reve-
nue tax”--not income tax. This is corroborated by the
fact that the implementing regulation for Section 7602
is located in C.F.R. Title 27, parts 70, 170 and 296.
* * * * * * *
In accordance with C.F.R. 1.861-8(f) petitioners, et
al, do not receive any “income” or receipts from a
“taxable source”.
* * * * * * *
Petitioners, et al, have never been legally assessed
any tax as required by U.S.C. Title 26 Section 6203 and
C.F.R. regulation 301.6203-1 and corroborated in Bull
v. U.S., 295 US 247 * * *.
Petitioners, et al, determinations are based on Supreme
Court decisions, Treasury Orders, U.S.C. Title 26
codes, and implementing (or lack of implementing)
C.F.R. Title 26 regulations and various other refer-
ences, and as such cannot be considered frivolous or
“. . . a hodgepodge of unsupported assertions, irrele-
vant platitudes and legalistic gibberish.”
* * * * * * *
(continued...)
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Discussion
Herbst Management Trust and Herbst Charitable Trust
On December 3, 2001, the Court sua sponte issued the respec-
tive December 3, 2001 Show Cause Orders regarding the Court’s
jurisdiction over the cases at docket Nos. 9999-00 and 10000-00.
Rule 60 provides in pertinent part:
9
(...continued)
Ronald Herbst, et al, petitioners in the cases at
Docket Nos. 9999-00, 10000-00, 10001-00 and 10002-00
are not liable for any income tax, penalties and/or
interest pursuant to any U.S.C. Title 26 code sections.
Petitioners, et al, have at all times rebutted and
refuted respondents prima facie allegations; thus, the
burden of proof is on the respondent.
Treasury Order 120-01 dated June 6, 1972 establishes
the Bureau of Alcohol, Tobacco and Firearms and trans-
fers U.S.C. Title 26 Section 61 through 80, inclusive,
to U.S.C. Title 27 and the Bureau of Alcohol, Tobacco
and Firearms. Petitioners, et al, are not now and
never have been involved in the manufacture, distribu-
tion or sale of alcohol, tobacco or firearms, or been
involved in any other excise taxable activity. This is
corroborated by the Code of Federal Regulations Table
of Authority and Rules.
A review of the Department of the Treasury organization
chart reveals that the Internal Revenue Service is not
administered by any of the organizations with enforce-
ment authority. This is corroborated by the fact that
there are no Title 26 implementing regulation under
Title 26 C.F.R.
The established trusts bear no burden of proof as their
records are not subject to review. Boyd vs. U.S. 116
U.S. 618; Silver Thorne Lumber Co. vs U.S. 1251 U.S.
385.
- 16 -
(a) Petitioner: (1) Deficiency or Liability
Actions: A case shall be brought by and in the name of
the person against whom the Commissioner determined the
deficiency (in the case of a notice of deficiency)
* * * or by and with the full descriptive name of the
fiduciary entitled to institute a case on behalf of
such person. See Rule 23(a)(1). A case timely brought
shall not be dismissed on the ground that it is not
properly brought on behalf of a party until a reason-
able time has been allowed after objection for ratifi-
cation by such party of the bringing of the case; and
such ratification shall have the same effect as if the
case had been properly brought by such party. * * *
* * * * * * *
(c) Capacity: * * * The capacity of a fiduciary
or other representative to litigate in the Court shall
be determined in accordance with the law of the juris-
diction from which such person’s authority is derived.
The record does not establish where Herbst Management Trust
and Herbst Charitable Trust were organized. The respective
petitions in the cases at docket Nos. 9999-00 and 10000-00 listed
an address for Herbst Management Trust and Herbst Charitable
Trust in Canton, Ohio,10 which is also the service address used
by the Court in those cases. Assuming arguendo that Herbst
Management Trust and Herbst Charitable Trust were trusts orga-
nized under the laws of the State of Ohio, the administration of
each of which is subject to the laws of that State, under Ohio
law, see Rule 60(c), a trustee generally is the proper party
authorized to act on behalf of a trust. Firestone v. Galbreath,
10
The Ohio address listed in the respective petitions in the
cases at docket Nos. 9999-00 and 10000-00 is the same address
listed by petitioners in the respective cases at docket Nos.
10001-00 and 10002-00.
- 17 -
976 F.2d 279, 284 (6th Cir. 1992); Saxton v. Seiberling, 48 Ohio
St. 554, 29 N.E. 179 (1891); see Ohio R. Civ. P. 17(A).11
In the cases at docket Nos. 9999-00 and 10000-00, Herbst
Management Trust and Herbst Charitable Trust, respectively, have
the burden of proving that this Court has jurisdiction, see Fehrs
v. Commissioner, 65 T.C. 346, 348 (1975); Natl. Comm. to Secure
Justice in the Rosenberg Case v. Commissioner, 27 T.C. 837, 839
(1957), by establishing affirmatively all facts giving rise to
our jurisdiction, see Wheeler’s Peachtree Pharmacy, Inc. v.
Commissioner, 35 T.C. 177, 180 (1960); Consol. Cos. v. Commis-
sioner, 15 B.T.A. 645, 651 (1929). In order to meet that burden,
Herbst Management Trust in the case at docket No. 9999-00 and
Herbst Charitable Trust in the case at docket No. 10000-00 must
provide evidence establishing who has the authority to act on its
behalf in each such proceeding. See Natl. Comm. to Secure
Justice in the Rosenberg Case v. Commissioner, supra at 839-840;
11
Ohio R. Civ. P. 17(A) provides in pertinent part:
RULE 17. Parties plaintiff and defendant; capacity
(A) Real party in interest. Every action shall be
prosecuted in the name of the real party in interest.
An executor, administrator, guardian, bailee, trustee
of an express trust, a party with whom or in whose name
a contract has been made for the benefit of another, or
a party authorized by statute may sue in his name as
such representative without joining with him the party
for whose benefit the action is brought. * * * [Empha-
sis added.]
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Coca-Cola Bottling Co. v. Commissioner, 22 B.T.A. 686, 700
(1931).
On the instant record, we find that Herbst Management Trust
in the case at docket No. 9999-00 and Herbst Charitable Trust in
the case at docket No. 10000-00 have failed to establish who has
the authority to act on their behalf in those respective proceed-
ings. We further find on that record that neither of the cases
at docket Nos. 9999-00 and 10000-00 was brought by and with the
full descriptive name of the fiduciary entitled to institute each
such case on behalf of Herbst Management Trust or Herbst Charita-
ble Trust, as the case may be, as required by Rule 60(a)(1). On
the record before us, we conclude that we do not have jurisdic-
tion over the cases at docket Nos. 9999-00 and 10000-00. Accord-
ingly, we shall dismiss those cases for lack of jurisdiction.12
Ms. Herbst and Mr. Herbst
Neither Ms. Herbst nor any authorized representative of Ms.
Herbst appeared at the Court’s Cleveland trial session on October
15, 2001, at the call of these consolidated cases from the
Court’s trial calendar. Neither Mr. Herbst nor any authorized
representative of Mr. Herbst appeared at that calendar call.
At the trial held by the Court in the case at docket No.
12
Because we shall dismiss the cases at docket Nos. 9999-00
and 10000-00 for lack of jurisdiction, we shall deny respondent’s
motion in the case at docket No. 9999-00 and respondent’s motion
in the case at docket No. 10000-00.
- 19 -
10001-00, neither Ms. Herbst nor any authorized representative of
Ms. Herbst appeared. At the trial held by the Court in the case
at docket No. 10002-00, neither Mr. Herbst nor any authorized
representative of Mr. Herbst appeared.
The respective written responses by Ms. Herbst and Mr.
Herbst to respondent’s respective motions to dismiss for lack of
prosecution and to impose sanctions under section 6673 in the
cases at docket Nos. 10001-00 and 10002-00 do not contain any
valid reason why those cases should not be dismissed for lack of
prosecution. Those respective responses contained contentions
and arguments that the Court found in the Court’s respective
Orders in those cases dated January 18, 2002, to be frivolous
and/or groundless. The joint brief filed by Ms. Herbst and Mr.
Herbst (and Herbst Management Trust and Herbst Charitable Trust)
also contains statements, contentions, and arguments that the
Court finds to be frivolous and/or groundless and do not set
forth any valid reason why the cases at docket Nos. 10001-00 and
10002-00 should not be dismissed for lack of prosecution.
Section 7491(c) provides in pertinent part:
SEC. 7491. BURDEN OF PROOF.
(c) Penalties.–-Notwithstanding any other provi-
sion of this title, the Secretary shall have the burden
of production in any court proceeding with respect to
the liability of any individual for any penalty * * *.
Section 6662(a) imposes an accuracy-related penalty equal to
20 percent of the underpayment of tax resulting from, inter alia,
- 20 -
negligence or disregard of rules or regulations, sec. 6662(b)(1),
or a substantial understatement of income tax, sec. 6662(b)(2).
For purposes of section 6662(a), an understatement is equal to
the excess of the amount of tax required to be shown in the tax
return over the amount of tax shown in the tax return, sec.
6662(d)(2)(A), and is substantial in the case of an individual if
it exceeds the greater of 10 percent of the tax required to be
shown in the return or $5,000, sec. 6662(d)(1)(A). For purposes
of section 6662(a), the term “negligence” includes any failure to
make a reasonable attempt to comply with the Code, and the term
“disregard” includes any careless, reckless, or intentional
disregard. Sec. 6662(c). Negligence has also been defined as a
lack of due care or failure to do what a reasonable person would
do under the circumstances. Leuhsler v. Commissioner, 963 F.2d
907, 910 (6th Cir. 1992), affg. T.C. Memo. 1991-179; Antonides v.
Commissioner, 91 T.C. 686, 699 (1988), affd. 893 F.2d 656 (4th
Cir. 1990).
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment if it is shown that there
was reasonable cause for, and that the taxpayer acted in good
faith with respect to, such portion. Sec. 6664(c)(1). The
determination of whether the taxpayer acted with reasonable cause
and in good faith depends on the pertinent facts and circum-
stances, including the taxpayer’s efforts to assess his or her
- 21 -
proper tax liability, the knowledge and experience of the tax-
payer, and the reliance on the advice of a professional, such as
an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs. Reliance
on the advice of a professional, such as an accountant, does not
necessarily demonstrate reasonable cause and good faith unless,
under all the circumstances, such reliance was reasonable and the
taxpayer acted in good faith. Id. In the case of claimed
reliance on the accountant who prepared the taxpayer’s tax
return, the taxpayer must establish that correct information was
provided to the accountant and that the item incorrectly omitted,
claimed, or reported in the return was the result of the accoun-
tant’s error. Ma-Tran Corp. v. Commissioner, 70 T.C. 158, 173
(1978).
On the record before us, we find that respondent has satis-
fied the burden of production that respondent maintains respon-
dent has with respect to the respective accuracy-related penal-
ties under section 6662(a) that respondent determined to impose
on Ms. Herbst and on Mr. Herbst for the taxable years 1996 and
1997.13
Based on our examination of the entire record before us, we
shall grant respondent’s motion in the case at docket No. 10001-
13
We are not deciding in the cases at docket Nos. 10001-00
and 10002-00 whether the Commissioner of Internal Revenue has the
burden of production in cases subject to sec. 7491(c) when a
taxpayer fails to appear for trial.
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00 and respondent’s motion in the case at docket No. 10002-00 in
that we shall dismiss each of those cases for failure by peti-
tioner in each such case to prosecute such case, and we shall
enter a decision in each of those cases sustaining the determina-
tions that respondent made in the notice to which each such case
pertains but in the reduced amounts which respondent concedes are
appropriate in order to reflect the duplication of certain income
determinations in the respective notices issued to Ms. Herbst and
Mr. Herbst.14
In respondent’s motions in the cases at docket Nos. 10001-00
and 10002-00, respondent also asks the Court to impose a penalty
under section 6673(a)(1) on petitioner in each of those cases.
As grounds therefor, respondent contends that each of those
14
As explained in respondent’s respective motions in the
cases at docket Nos. 10001-00 and 10002-00, respondent attributed
the income reported for each of the taxable years 1996 and 1997
by Herbst Management Trust 100 percent to Ms. Herbst, Mr. Herbst,
and Herbst Charitable Trust. The amounts of such income attrib-
uted to Herbst Charitable Trust were reattributed to Ms. Herbst
and Mr. Herbst, which resulted in a duplication of said amounts
of income in the respective notices issued to Ms. Herbst and Mr.
Herbst. As set forth in respondent’s respective motions in the
cases at docket Nos. 10001-00 and 10002-00 and in the respective
exhibits attached to those motions, the revised deficiencies for
Ms. Herbst for the taxable years 1996 and 1997 are $46,909 and
$55,145, respectively, and the revised deficiencies for Mr.
Herbst for the taxable years 1996 and 1997 are $47,449 and
$55,906, respectively. Consistently, the revised accuracy-
related penalties under sec. 6662(a) imposed on Ms. Herbst for
the taxable years 1996 and 1997 are $9,381.80 and $11,029,
respectively, and the revised accuracy-related penalties under
sec. 6662(a) imposed on Mr. Herbst for the taxable years 1996 and
1997 are $9,489.80 and $11,181.20, respectively.
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petitioners (1) instituted proceedings in the Court primarily for
delay, (2) advanced frivolous and groundless positions in such
proceedings, and (3) unreasonably failed to pursue administrative
remedies.
On the record before us, we find that Ms. Herbst instituted
the proceedings in the case at docket No. 10001-00 primarily for
delay. We also find on that record that Ms. Herbst’s position in
the case at docket No. 10001-00 is frivolous and/or groundless.
On the record before us, we shall impose a penalty on Ms. Herbst
pursuant to section 6673(a)(1) in the amount of $25,000.
On the record before us, we find that Mr. Herbst instituted
the proceedings in the case at docket No. 10002-00 primarily for
delay. We also find on that record that Mr. Herbst’s position in
the case at docket No. 10002-00 is frivolous and/or groundless.
On the record before us, we shall impose a penalty on Mr. Herbst
pursuant to section 6673(a)(1) in the amount of $25,000.
To reflect the foregoing,
An appropriate order of dis-
missal for lack of jurisdiction and
denying respondent’s motion will be
entered in each of the cases at
docket Nos. 9999-00 and 10000-00,
and an appropriate order granting
respondent’s motion and decision
- 24 -
will be entered in each of the
cases at docket Nos. 10001-00 and
10002-00 sustaining respondent’s
determinations in reduced amounts
and imposing a penalty under sec-
tion 6673(a)(1) in each of those
two cases.