The 9th Circuit Court of Appeals just made a taxpayer put his money where his mouth was. The Court of Appeals upheld the US Tax Court’s sanction of $2,000 for a frivolous tax appeal.
In Rkyskamp v. Commissioner of Internal Revenue, Docket No. 6595, the taxpayer filed a US Tax Court petition to challenge tax in many tax years going back to 2003, for which he never filed a tax return. Taxpayer had received a notice from the IRS, Notice LT16, requesting that he contact the IRS to discuss his account.[1] The basis of the taxpayer’s Tax Court petition was that the federal income tax was a violation of protected free speech and thus constitutional.
The US Tax Court ruled that it lacked jurisdiction to hear the case since the case was not an appeal of a 90-day letter (Notice of Deficiency) or Notice of Determination (following tax liens and levies) and any other notice that would confer jurisdiction on the Tax Court.[2] Further, the Tax Court imposed sanctions in the amount of $2,000 pursuant to IRC § 6673(a)(1), which permits the taxpayer to pay a penalty not in excess of $25,000 if the proceedings are instituted primarily to delay tax proceedings or collection or if the taxpayer’s position is frivolous or groundless. The Tax Court noted that this same taxpayer had previously filed three tax court petitions containing “contentions of a similar ilk” and had been sanctioned. The Tax Court imposed the sanction again.
In reviewing the penalty, the 9th Circuit held that the sanctions would stand, stating, “Sanctions are appropriate when the result of an appeal is obvious and the arguments are wholly without merit.”[3] By those words, the taxpayer’s sanctions were upheld.
Practice Point: Protesting taxpayers do not get a free pass for advancing obviously wrong and frivolous tax positions. Had this been a first time offense, it seems doubtful that the taxpayer would have been sanctioned for appealing to the Tax Court from a nondescript IRS notice. But combined with the taxpayer’s three previous “contentions of a similar ilk” and the tax protester-heavy unconstitutionality argument, it is no great surprise that the Tax Court imposed, and the Court of Appeals affirmed, sanctions. Be professional at the Tax Court. Advance well-thought out positions and don’t come across as a tax protester. Speak with legal counsel to evaluate the success of possible tax court litigation.
Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states.
[1] Ryskamp v. Commissioner, No. 65-95-19, Order and Oder of Dismissal for Lack of jurisdiction.
[2] Id.
[3] Ryskamp v. Commissioner of Internal Revenue, No. 19-72626, 2020 WL 4718085, at *1 (9th Cir. Aug. 13, 2020).