Frivolous Penalty Assessed and IRS Collection Continues

Posted on December 02, 2014

Are you being represented correctly?

A husband and wife failed to timely file their federal Form 1040 income tax return for 2004.

As a result, the IRS prepared a Substitute for Return for the husband using third party information and subsequently assessed tax liability against him.

In 2011, the husband and wife filed a Joint federal Form 1040 tax return for 2004.

Upon receipt of the tax return for 2004, the IRS abated the tax previously assessed against the husband and assessed Joint liability against both the husband and wife. However, they did not pay the Joint liability due to the IRS.

The IRS then took steps to collect the liability by issuing liens and levies. In response, the taxpayers filed a request for Collection Due Process hearing with the IRS.

The CDP hearing was subsequently heard by an Appeals Officer. Unfortunately, the taxpayers failed to cooperate with the Appeals Officer and did not provide any of the requested information. As a result, the Appeals Officer upheld the IRS’ decision to take enforced collection action.

Unhappy with this conclusion, the taxpayers filed a Petition in the United States Tax Court alleging abuse of discretion by the IRS in its decision to uphold IRS enforced collection action. The Petition filed in the Tax Court also alleged that the IRS assessment was not legally made.

Because the taxpayers had filed the tax return in issue and admitted the liability thereon, the IRS was displeased with the taxpayer’s argument that the assessment was not legally made and threatened to ask the Tax Court to assess penalties for making a frivolous or groundless argument primarily for delay.

After considering the arguments, the Tax Court held in favor of the IRS as to the unpaid tax liability and the steps the IRS took to collect the unpaid liability. The Tax Court also assessed a $500.00 penalty against the taxpayers for making a frivolous or groundless argument, although it could have assessed a penalty up to $25,000.00.

The Tax Court also issued an ‘order to show cause’ to the taxpayers’ attorney ordering him to explain why the Tax Court should not sanction him or impose excessive costs because the attorney unreasonably and unnecessarily prolonged the Tax Court proceedings.

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