Tax Court In Brief | Clarkson v. Comm'r | Frivolous Return Penalties And "Zero Returns"

• Published date: 13 September 2022
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

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Tax Litigation: The Week of September 5th, 2022, through September 9th, 2022

Clarkson v. Comm'r, T.C. Memo 2022-22| September 7, 2022 | Lauber, Judge | Dkt. No. 16804-21L

Short Summary: This is a collection due process opinion addressing frivolous return penalties assessed against taxpayer Eric Clarkson for submissions he made to the IRS for tax years 2003-2016. Clarkson failed to file returns for every year 2003-2016. So, the IRS prepared substitutes for return for each year and issued notices of deficiencies, totaling about $250,000. Clarkson then prepared and filed Forms 1040 for each year 2003-2016. For 2003, he attached Form 4852, Substitute for Form W-2, showing $0 income in 2003 and he created and attached his own Form 1099-MISC. He claimed a refund for 2003. Clarkson did the same for years 2004-2016, except for each year he claimed $0 wages, $0 adjusted income, $0 federal income tax withheld, and $0 overpayment and refund request. The IRS's examining agent proposed $5,000 frivolous return penalty ("FRP") for each Form 1040. Those were approved by the agent's supervisor. After assessing the penalties, the IRS sought to collect via a levy notice. Clarkson stood fast claiming that his returns were not frivolous and claimed that his compensation from a "non-governmental, for-profit, private sector business," were not taxable. He petitioned the Tax Court to determine that his returns were not frivolous and that the FRPs were not proper. The IRS moved for summary judgment on the issue.

Key Issues:

Whether, as a matter of law, Clarkson was liable for the FRPs?

Primary Holdings:

Yes. Clarkson's submissions satisfy all three conditions specified in 26 U.S.C. ' 6702(a) for a "frivolous return." Each return was submitted, unequivocally, as a return of tax. Each return contained information which, on its face, indicated that the self-assessment was substantially incorrect. And, Clarkson's conduct was based on a position that the IRS has identified as frivolous - submission of "zero returns" constitutes a frivolous position.

Key Points of Law:

Standard of Review. Section 6330(d)(1) does not prescribe the standard of review...