Minnig Tax Court Case Underreporting Penalties

Minnig Tax Court Case Underreporting Penalties

Minnig Tax Court Case Underreporting Penalties

In the case of Minnig, the tax court was tasked with determining whether or not the petitioner had an underreported income of over $100,000 and as a result, whether he is liable for a 6662 accuracy-related penalty and even a 6673 frivolous argument penalty. While the 6662 penalty is familiar to many tax professionals, it is important to know if the tax court reserves the right to issue additional penalties if they think a person is bringing a tax court claim based of frivolous arguments for the purpose of delay and wasting time. Let’s take a look at what happened in this case.

26 USC 6662(a)

      • (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.

26 USC 6673

      • (a) Tax court proceedings

        • (1) Procedures instituted primarily for delay, 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.

Facts of the Case

      • “During 2016, petitioner was employed by Tasco, Inc. (Tasco), and it issued him Form W–2, Wage and Tax Statement, reporting wages of $116,000, no federal income tax withheld, Social Security tax withheld of $7,192, and Medicare tax withheld of $1,682 for the 2016 tax year. Petitioner sent to the Internal Revenue Service a signed Form 1040, U.S. Individual Income Tax Return, for the 2016 tax year dated September 15, 2017.

      • On the return, petitioner reported zero income and federal income tax withheld of $8,797, and claimed a refund of that amount. Petitioner attached to his return Form 4852, Substitute for Form W–2, Wage and Tax Statement, or Form 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. On that form, petitioner stated that the “[r]ecords provided by company on line 5 ‘wage’ classification were erroneous per IRC Section 3121 & 3401.””

Prior History of Frivolous Arguments

      • This is not the first time that petitioner has made frivolous arguments in this Court. In his deficiency proceeding for the 2014 tax year, this Court issued a bench opinion sustaining a deficiency of $17,493 and a section 6651(a)(1) addition to tax of $1,574. Minnig v. Commissioner, T.C. Dkt. No. 22864-18 (Mar. 9, 2020) (bench opinion).

      • The facts of this case are similar to those of petitioner’s previous case: (1) petitioner’s employer issued a Form W–2 reporting wages for the year at issue; (2) petitioner submitted a Form 1040 reporting zero income; and (3) during the course of the case, petitioner asserted substantially similar, frivolous arguments. Id.

Court Finds $116,000 in Gross Income

      • We will not address each argument in detail. Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) (“We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.”); Wnuck, 136 T.C. at 499 (explaining why we do not address frivolous arguments).

      • We hold that petitioner received $116,000 of gross income for the 2016 tax year.

Taxes and Accuracy Related Penalty but No Frivolous Penalty

      • At the beginning of the trial we informed petitioner that, on the basis of our reading of his Petition and Motion papers, he appeared to be proceeding with only frivolous or groundless positions.

      • We warned petitioner that we could impose a penalty of up to $25,000 for such conduct. Although petitioner did not abandon his frivolous arguments or acknowledge his liability for income tax, he did cease to make frivolous arguments at that time.

      • Because of his restraint, we will not sanction petitioner at this time…

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.