UNITED STATES TAX COURT
MICHAEL S. IOANE,
SHELLY J. OLSON-IOANE,
Petitioner, Docket Nos. 9903-06L
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
PETITIONERS’ TRIAL BRIEF
TABLE OF CONTENTS
INTRODUCTION...................................................................................................... 1
ISSUES TO BE DECIDED....................................................................................... 1
PROPOSED FINDINGS OF FACT............................................................................ 2
POINTS RELIED ON................................................................................................ 6
AUTHORITIES & ARGUMENT................................................................................... 8
1. Respondent’s ‘Unreported Income’ Claims Regarding The Income of Acacia Corporate Management, Inc, And Its Related Trusts, Are Barred By Res Judicata Or Collateral Estoppel Since A Bankruptcy Court Has Already Ruled That This Corporation (And Its Related Trust Entities) Is The ‘Nominee or Alter Ego of Gerald and Ona Lindsey’.................... 8
2. Respondent’s ‘Unreported Income’ Claims Are Barred By Res Judicata Or Collateral Estoppel Since It Already Assessed The Tax Against Other Various Entities On The Exact Same Income It Is Asserting As ‘Unreported Income’ to Petitioners.......................................... 11
3. Respondent’s Submission of Third-Party Tax Information Violates IRC §6103(a), And The Court Should Not Be A Party To Such Violations Of Law.......................................... 13
4. Respondent Had The Burden Of Proving Unreported Income And Tax Deficiencies, But Failed To Sustain That Burden................................................................................ 14
5. Respondent Did Not Sustain Its Burden of Production Showing Petitioners Are Liable for The Penalty(s) Under IRC §6651(a)(1)................................................................. 15
6. Respondent Did Not Sustain Its Burden of Production Showing Petitioner is Liable for The Penalty Under IRC §6654(a)......................................................................... 15
7. Petitioners Should Be Allowed All Denied Deductions Since Respondent Seized Petitioners Records And Has Refused to Return Them..................................................... 16
CONCLUSION....................................................................................................... 16
TABLE OF AUTHORITIES
CASES:
Bull v U.S., 295 U.S. 247 (1935)............................................................................ 11
Franchise Tax Board of California v. USPS, 467 U.S. 512 (1984)............................ 11
Helvering v Taylor, 293 U.S. 507 (1935)................................................................. 14
In re Los Gatos Lodge, Inc., 278 F.3d 890 (9th Cir. 2002)........................................ 10
In re Mason, 709 F.2d 1313 (9th Cir. 1983)............................................................. 10
In re Pardee, 193 F.3d 1083 (9th Cir. 1999)............................................................ 10
Karme v CIR, 673 F.2d 1062 (9th Cir 1982)............................................................. 14
Portillo v. C.I.R., 932 F.2d 1128 (5th Cir. 1991)....................................................... 14
Siegel v. the Federal Home Loan Mort. Corp., 143 F.3d 525 (9th Cir. 1998).............. 10
United States v. Philatelic Leasing, Ltd., 601 F.Supp. 1554 (S.D.N.Y. 1985)............. 16
Weimerskirch v. C.I.R., 596 F.2d 358 (9th Cir. 1979).............................................. 14
Williams v CIR, 123 TC 144 (2004)........................................................................ 15
STATUTES:
IRC §6103(a)........................................................................................................ 13
IRC §6651(a)(1).................................................................................................... 15
IRC §6654(a)........................................................................................................ 15
IRC §6654(d) ....................................................................................................... 15
IRC §7491(c)........................................................................................................ 15
OTHER AUTHORITIES:
Saltzman, IRS Practice And Procedure................................................................... 11
INTRODUCTION
This case involves asserted deficiencies and penalties for the following amounts and periods:
Year(s) Deficiency: §6651(a)(1) §6654
2002 $2,104,868 314,754.30 420,973.60
2003 $457,468 ------ 91,493.60
The basis for all these claims is Respondent’s assertion of unreported income that belongs to other entities, for which they filed tax returns claiming the income, and for which assessments have already been made against them. Trial of this case began on January 7, 2008 and concluded January 18, 2008 in Reno, Nevada before Judge Robert Wherry. Petitioner appeared in person. Respondent appeared through counsel, Wesley Wong and David Sorenson.
The evidence in this case consists of a stipulation of facts under Rule 91(f), admissions made by Respondent, and various testimony and exhibits admitted at trial.
ISSUES TO BE DECIDED
The following issues remain to be decided:
1 Whether Respondent’s ‘Unreported Income’ Claims Regarding The Income of Acacia Corporate Management, Inc, And Its Related Trust DBA’s, Are Barred By Res Judicata Or Collateral Estoppel Since A Bankruptcy Court Has Already Ruled That This Corporation Is The ‘Nominee or Alter Ego of Gerald and Ona Lindsey’.
2 Whether Respondent’s ‘Unreported Income’ Claims Are Barred By Res Judicata Or Collateral Estoppel Since It Has Already Assessed The Tax Against Other Various Entities On The Exact Same Income It Is Asserting As ‘Unreported Income’ to Petitioners.
3 Whether The Court Should Allow Respondent To Submit Evidence In Violation of IRC §6103(a).
4 Whether Respondent Sustained Its Burden of Proving Unreported Income, And Any Tax ‘Deficiency’.
5 Whether Respondent Sustained Its Burden of Production Showing Petitioners Are Liable For The Penalty(s) Under IRC §6651(a)(1).
6 Whether Respondent Sustained Its Burden of Production Showing Petitioners Are Liable For The Penalty(s) Under IRC §6654(a).
7 Whether Petitioners Should Be Allowed All Denied Deductions Since Respondent Seized Petitioners Records And Has Refused to Return Them.
PROPOSED FINDINGS OF FACT
1 Petitioners timely filed a tax return for the year 2002. (Stipulation, ¶3, Exh 3-J).
2 Petitioners timely filed a tax return for the year 2003. (Id, ¶4, Exh 4-J).
3 The ‘Notice of Deficiency’ in this case was issued from the Oakland, California office of the IRS dated March 1, 2006 for the years 2002-2003, and was addressed to Petitioners at their Nevada address. (Id ¶2, Exhibit 2-J).
4 The deficiency notice alleges that income belonging to the following entities is ‘unreported income’ of Petitioners for the years 2002 and 2003: Acacia Charitable Foundation, Charitable Scholarship Foundation, American Federal Trust, First Amendment Publishers. (Id).
5 The deficiency notice alleges that income belonging to the following entities is ‘unreported income’ of Petitioners for the year 2003: Acacia Corporate Management Inc, Paradise Solutions Trust. (Id).
6 According to the IRS’ own witness testimony, Acacia Corporate Management Inc had bank accounts which indicated it was ‘doing business as’ the following entities: Paradise Solutions Trust (Tr at 138:13-17); First Amendment Publishers Trust (Tr at 142:4-8); American Federal Trust (Tr 158:11-17); Acacia Charitable Foundation (Tr 160:1-4). All the various trust accounts were associated and created by the Acacia corporation. (Tr. 510:23 - 511:6).
7 Acacia Corporate Management Inc held and managed funds for other persons and entities, including the various trusts already mentioned in this case. (Tr. 510:2-5).
8 Respondent admits there is nothing in writing to indicate that Petitioners are the owners or have sole control over First Amendment Publishers Trust, Paradise Solutions Trust, or Acacia Corporate Management, Inc. It further admitted it had virtually no bank records concerning Paradise Solutions Trust. (Tr at 459-461). It also admitted it has no personal knowledge concerning any checks, bank statements, or signature cards. (Id at 463).
9 Although many of the checks Respondent presented were made payable to credit card companies, Respondent is not contending those cards were for the personal use of Petitioners. (Tr. 465:13-16). It has “no idea” what the payments to the credit card companies were for, and (because it lacks knowledge) is not contending any credit card charges were merely at the discretion of Petitioners. (Tr. 466:1-14).
10 Respondent has no knowledge of whether any of the exhibits concerning deposits were taxable income events, or whether they were loans, transfers, or merely reimbursements. (Tr. 472:12 - 473:12).
11 Respondent does not know what, if any, business was done by American Federal Trust, Paradise Solutions Trust, Acacia Church, or Acacia Charitable Foundation. (Tr at 482:19-21, 483:1-5).
12 Respondent’s stated reason for assigning all trust income to Petitioners, but disallowing any related trust expenses is because the trust income was not conceded by Petitioners as being their personal income. (Tr. 486:15-22; 489:11-15).
13 Petitioners did not prepare or sign any of the returns for any of the entities of which Respondent claims their income belongs to Petitioners. (Tr. 492:15-22).
14 Respondent has no knowledge of who the trust beneficiaries (owners) may be for any of the various trusts involved, or who any shareholder(s) may be for Acacia Corporate Management, Inc. (Tr. 501:2-8; 510:9-17).
15 During the entire course of this multi-day trial, Respondent failed to present any trust creation/indenture documents, or present any evidence that it even attempted to obtain any such documents. (Entire record). In fact, the auditing agent testified that he never even attempted to summon any such documents from any trustee, trust principals, or trust record custodian, and has never seen any trust documents. (Tr, 504:6-24).
16 Respondent never attempted to summon Petitioners for any information. (Tr. 503:23 - 504:1).
17 Respondent issued a deficiency notice to American Federal Trust for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶4).
18 Respondent assessed income tax against American Federal Trust for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶5).
19 Respondent issued a deficiency notice to First Amendment Publishers Trust for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶7).
20 Respondent assessed income tax against First Amendment Publishers Trust for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶8).
21 Respondent issued a deficiency notice to Acacia Corporate Management, Inc for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶10).
22 Respondent assessed income tax against Acacia Corporate Management, Inc for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶11).
23 Respondent issued a deficiency notice to Paradise Solutions Trust for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶13).
24 Respondent assessed income tax against Paradise Solutions Trust for the same income that it claims as unreported income in the deficiency notice it issued to Petitioners. (Second Request For Admissions and Response thereto, ¶14).
25 On July 30, 2004 the Bankruptcy Court for the District of Ohio entered an order which stated Acacia Corporate Management, Inc was the ‘nominee or alter ego of Debtors Gerald and Ona Lindsey’ exclusively. (Stip. ¶5, Exh. 5-J). No evidence was submitted to indicate this order was ever appealed or disturbed in any manner. (Entire record). Respondent was not only fully aware of this bankruptcy, but was directly involved in it. (Tr 512 -515).
26 Petitioners do not have possession of the records concerning claimed expenses/ deductions because the IRS seized them in a search warrant raid on June 8, 2006, and has refused to return them. (Tr at 54:16-24; p. 62-63; p. 70; p. 86-87).
27 Although Petitioners had the various trust documents in their possession which would show they do not own them, the IRS seized these documents as well on June 8, 2006, and has refused to return them. (Tr at 55:2-7).
28 All documents concerning the preparation of any Petitioner tax returns at issue were given to Mary Fuentes, a tax return preparer. (Tr p. 49 and 68).
29 The IRS agent/auditor in this case never made any inquiry regarding anything on the Petitioner’s returns, and only made requests for documents concerning other entities. (Tr at 88).
30 The IRS agent/auditor in this case never attempted to summon any records from Petitioners concerning their returns. (Tr, at 89).
31 All documents requested during the audit of Petitioners were supplied by both Fuentes and Petitioners. (Tr at 57-58; 63
32 For the year 2002, Petitioners made $12,133 in interest payments to the various other entities identified above.
POINTS RELIED ON
This is a case where Respondent recklessly accuses Petitioners of having unreported income from various entities, even though the income in question was (i) claimed by the various entities on their own returns, (ii) Respondent issued deficiency notices to those entities concerning the exact same income in question here, and (iii) Respondent has assessed the tax on the income in question here against all the other various entities.[1] These assessments are equivalent to judgments, and are binding. They are also subject to principles of res judicata and collateral estoppel against Respondent asserting the tax on the income in question could be owed by someone other than the assessed party. Nonetheless, apparently not satisfied with its assessments (for reasons remaining unknown to Petitioners), Respondent has greedily decided to also assert a deficiency claim against Petitioners based on its claim that the exact same income belonging to the entities somehow belongs to Petitioners. Again, this is even though it has already assessed the tax on the exact same income against the entities.
Respondent is also attempting to outright defy prior findings and orders from a bankruptcy court in 2004 concerning Acacia Corporate Management, Inc. That court held that corporation was solely and exclusively the ‘nominee or alter ego of Gerald and Ona Lindsey.’ Respondent also testified that all the various trust bank accounts involved in this case were dba’s of the corporation, and were created and managed by the corporation (which was involved in the bankruptcy proceeding). Despite this specific ruling of the bankruptcy court, as well as other ramifications of the bankruptcy proceeding, Respondent decided to nonetheless defiantly and groundlessly assert the 2002 and 2003 income of this company, and its related trusts, belongs to Petitioners. Since the bankruptcy court made no such finding, Respondent’s scurrilous claims are barred by res judicata and/or collateral estoppel. If Respondent wanted to make any such assertions, it would have been required to do so in the bankruptcy proceedings.
At trial, Respondent produced 35+ pounds of bank records that belong to the entities, not Petitioners. A few of the checks were signed by Petitioners in their official capacity for some of the entities. Although Respondent certainly had the power to do so, it never even attempted to obtain any trust indentures/documents which would show what sort of trusts were involved or who any grantor(s) might be. Nor did it attempt to obtain any corporate records which would show the owner(s) of Acacia Corporate Management, Inc. But for the icing on the cake, even though it knew of the bankruptcy court order concerning Acacia in 2004, it still decided to recklessly assert the corporate income somehow belongs to Petitioners (forcing both the Petitioners and this Court to waste their resources addressing this groundless claim). Respondent’s claims should be soundly rejected by this Court.
AUTHORITIES & ARGUMENT
1. Respondent’s ‘Unreported Income’ Claims Regarding The Income of Acacia Corporate Management, Inc, And Its Related Trusts, Are Barred By Res Judicata Or Collateral Estoppel Since A Bankruptcy Court Has Already Ruled That This Corporation (And Its Related Trust Entities) Is The ‘Nominee or Alter Ego of Gerald and Ona Lindsey’.
On July 30, 2004 the Bankruptcy Court for the District of Ohio entered an order which stated Acacia Corporate Management, Inc was the ‘nominee or alter ego of Debtors Gerald and Ona Lindsey’ exclusively. (Stip. ¶5, Exh. 5-J). It was also disclosed at trial that Acacia Corporate Management Inc held, created accounts for, and managed funds for other persons and entities, including the various trusts at issue in this case. Despite the fact that Respondent submitted no evidence to indicate this order was ever appealed or disturbed in any manner, it still recklessly asserts the 2002 and 2003 income of this corporation, and its related trust entities, somehow belongs to Petitioners. This is nothing short of absolute defiance of a court’s order, and the res judicata and estoppel effects therefrom. This is especially true for bankruptcy court proceedings.
As this Court will probably recognize, one of the purposes of a bankruptcy is to make a universal resolution of all issues concerning a bankruptcy petitioner/debtor and all its creditors. Because the government will always have tax claims to be handled, they will always be involved in anyone’s bankruptcy proceeding. Respondent admitted it not only had knowledge of the bankruptcy proceeding here, but was directly involved in it.
The bankruptcy proceeding involved Gerald and Ona Lindsey, Acacia Corporate Management, Inc, and Michael Ioane in July 2004 (a time-frame immediately following the 2002 and 2003 tax years at issue in this case). The bankruptcy court ruled that the corporation was the ‘nominee or alter ego of Gerald and Ona Lindsey’ exclusively. Since the corporation held, created accounts for, and managed funds for the various trusts at issue in this case, the bankruptcy court would have had to resolve any and all issues concerning the funds of any of the trusts, including who they may belong to. Respondent has failed to provide any explanation as to how this order would not have preclusive effects against its assertion that either the corporate income, or its related trust entity income, for the years at issue could belong to anyone else other than Gerald and Ona Lindsey.
The doctrine of res judicata applies to bankruptcy court rulings and orders. Siegel v. the Federal Home Loan Mort. Corp., 143 F.3d 525, 528 (9th Cir. 1998) (discussing application of res judicata to bankruptcy proceedings); In re Pardee, 193 F.3d 1083, 1086-87 (9th Cir. 1999) (discussing res judicata effect of plan confirmation in bankruptcy); In re Mason, 709 F.2d 1313, 1315-16 (9th Cir. 1983) (a bankruptcy adjudication is a judgment in rem, a conclusive determination of the debtor's status in bankruptcy, and res judicata.) It even applies to certain orders which would not even result in a final judgment. In re Los Gatos Lodge, Inc., 278 F.3d 890, 894 (9th Cir. 2002) (discussing bankruptcy court’s order disallowing a claim was res judicata as to whether the claim was ‘allowed’ or ‘disallowed’). There should be no doubt as to the res judicata effect of bankruptcy proceedings in general, or in this case.
Despite what should be the obvious res judicata effect of the bankruptcy court order on this case, Respondent nonetheless asserts that the income of Acacia Corporate Management, Inc (and its related trust dba’s) for 2002 and 2003 somehow belongs to Petitioners. This sort of claim would be barred by res judicata from the bankruptcy court order. It should be obvious that if anyone else had any interest in the corporation or its related trust dba’s, the bankruptcy court would have declared so. Since it did not, Respondent cannot now attempt to make arguments contrary to the bankruptcy court’s order. Moreover, because that order came from a bankruptcy court, and bankruptcy proceedings concern a universal resolution of all matters concerning creditors, property of the bankruptcy estate, and all those who may have any interest in it, the order is binding and conclusive on the parties to this case. Respondent’s claim that any of Acacia Corporate Management, Inc’s income could belong to Petitioners is simply barred by res judicata and/or collateral estoppel.
Petitioner also contend this same preclusion would apply to Respondent’s contention that the income of Paradise Solutions Trust, First Amendment Publishers Trust, American Federal Trust, and Acacia Charitable Foundation would be barred. According to Respondent’s own testimony, these entities were merely dba’s of Acacia Corporate Management, Inc. Since these entities were merely dba’s of a company who has already been adjudged in bankruptcy proceedings to be the nominee or alter ego of someone else, Respondent’s contention that the income of any of these entities could actually belong to Petitioners must be rejected out of hand.
2. Respondent’s ‘Unreported Income’ Claims Are Barred By Res Judicata Or Collateral Estoppel Since It Already Assessed The Tax Against Other Various Entities On The Exact Same Income It Is Asserting As ‘Unreported Income’ to Petitioners.
In addition to the above, Respondent’s own assessments against both the corporation and its related trust dba’s, would preclude it from making its claims against Petitioners. In Bull v U.S., 295 U.S. 247, 259 (1935) the Supreme Court held that once an assessment is made, it is “given the force of a judgment”. It conclusion has not changed since then. It stated the same thing in Franchise Tax Board of California v. USPS, 467 U.S. 512, 523-24 (1984) (the assessment is given the force of a judgment, citing Bull v U.S.). Also see Saltzman, IRS Practice And Procedure, ¶10.01 (assessment is formal recording of taxpayer liability; it divides examination and deficiency procedures from collection procedures). Once a judgment is made, it is conclusive as to the parties and issues adjudicated, and also creates res judicata and/or collateral estoppel effects as to the parties and issues. Given that tax assessments are equated with court judgments, they would have to include res judicata and/or collateral estoppel effects. This would mean that once an assessment is made, whoever it is made against is the one who actually owes the tax; no one else would owe it. Petitioners do not see how these properties of a judgment can be escaped for tax assessments when such assessments are equated with court judgments.[2]
In the instant case, Respondent has admitted that the tax on the exact same ‘unreported income’ that Respondent is asserting against Petitioners has already been assessed against the following entities: American Federal Trust, First Amendment Publishers Trust, Acacia Corporate Management, Inc., and Paradise Solutions Trust. Given this fact, Petitioners contend that Respondent cannot avoid the res judicata and/or estoppel effects of those assessments. The tax on the income in question has been adjudged (by Respondent itself) to be owed by and collectible from, someone else, not Petitioners.
Here, Respondent is apparently not just trying to double, triple, or even quadruple ‘dip’, but is apparently seeking a quintuple dip of tax against multiple parties based on the exact same income. Petitioners submit this is simply unprecedented. No such tax claims against multiple parties on the exact same income are authorized anywhere in the tax code. Petitioners have found no case where a tax deficiency claim against one party was ever sustained on the exact same income when the tax had already been assessed against another party. If this Court were to allow this, it would not only be unprecedented,[3] but highly questionable at best.
3. Respondent’s Submission of Third-Party Tax Information Violates IRC §6103(a), And The Court Should Not Be A Party To Such Violations Of Law.
Prior to the start of trial, Petitioner made a motion in limine to exclude any third-party tax information because to allow such would violate the tax information confidentiality provisions of 26 U.S.C. §6103(a), and the Court could be an unwitting accomplice in violating the law. (Tr at 30-32). The Court denied the motion, but appears to have skirted the issue by saying this was not an action under §6103, and that this statute is only aimed at individuals, not courts. During trial, Respondent submitted approximately 35 pounds of third-party tax information into evidence. Petitioner believes the Court should reconsider its ruling on the matter.
While it may be true that §6103 does not directly preclude the introduction of illegal disclosures by Respondent, it is also true that the Fourth Amendment does not directly preclude the introduction of illegally seized evidence. However, such evidence is excluded everyday of the week under the Fourth Amendment. To allow such evidence would foster and encourage government agents to disregard the law. Petitioners submit the prohibition of §6103 is no different. If courts decide to simply allow disclosures of information made in violation of §6103, the law will become virtually meaningless and encourage government agents to simply ignore it. The Court should not be an unwitting accomplice in illegal conduct by the government’s agents. For this reason, the Court should reconsider its ruling, exclude all third-party tax information from evidence, and order it to be sealed to prevent further disclosures due to the fact that those records are now ‘public records’ due to the Court’s own proceedings.
4. Respondent Had The Burden Of Proving Unreported Income And Tax Deficiencies, But Failed To Sustain That Burden
Respondent’s entire deficiency assertion is based on alleged unreported income. Respondent has the burden of proof, at least initially, with respect to claims of “unreported income”. Karme v CIR, 673 F.2d 1062, 1065 (9th Cir 1982), (“[w]hen the Commissioner attempts to include unreported income, the Commissioner should have the burden of proving his case ‘because the taxpayer may face practical difficulties in attempting to refute the Commissioner's assertion that the taxpayer received unreported income.’); Weimerskirch v. C.I.R., 596 F.2d 358 (9th Cir. 1979) (no presumption of correctness for "unreported income"); also see Portillo v. C.I.R., 932 F.2d 1128, 1134 (5th Cir. 1991) (presumption of correctness does not attach to notice of deficiency pertaining to "unreported income"). With this burden assignment, the burden is not on a taxpayer to show a correct amount of tax (if any). Helvering v Taylor, 293 U.S. 507, 515-516 (1935).
Petitioners submit Respondent failed to carry their burden of proof. As discussed already, their claims were barred by (i) a prior bankruptcy proceeding between the parties, and (ii) Respondent’s own assessments against other parties for the exact same income it claims belongs to Petitioners.
5. Respondent Did Not Sustain Its Burden of Production Showing Petitioners Are Liable for The Penalty(s) Under IRC §6651(a)(1).
Respondent’s deficiency notice also asserted a failure to file penalty under IRC §6651(a)(1). Pursuant to IRC §7491(c), the burden of production is on Respondent when any penalty is asserted. Williams v CIR, 123 TC 144, 152 (2004). Under §6651(a)(1), Respondent was required to produce evidence that (1) Petitioner failed to file a required return, (2) on the date prescribed, and (3) the failure was due to willful neglect and not reasonable cause. Respondent failed to produce any such evidence, and in fact, did not even attempt to address any of these elements. Respondent failed to produce any evidence on even the most fundamental element: failure to file any return. Without this, the penalty of course must fall on its face, and should be rejected for this reason alone. With this failure of evidence, of course, Respondent also failed to satisfy the other two required elements.
6. Respondent Did Not Sustain Its Burden of Production Showing Petitioner is Liable for The Penalty Under IRC §6654(a).
Similar to the above penalty, Respondent also failed to produce evidence in support of its IRC §6654(a) penalty for alleged failure to make estimated tax payments. Respondent failed to present any evidence whatever of any failure to pay any estimated tax at any time or for any period. Moreover, Respondent did not even present any evidence to show what any installment amount may have been. IRC §6654(d) states the installment amount must be computed based on either 90 percent of the tax shown on the return (or 90% of the tax if no return was filed), or 100 percent of the tax shown on the prior year return. As discussed above, however, Respondent presented no evidence of failure to file any returns, and its claims of the alleged unreported income are barred by res judicata.
7. Petitioners Should Be Allowed All Denied Deductions Since Respondent Seized Petitioners Records And Has Refused to Return Them.
At trial, Petitioner Michael Ioane testified without contradiction that the IRS had seized his records in a search/seizure raid which occurred on June 8, 2006, and has refused to return them.[4] Petitioners submit they simply cannot be compelled to satisfy an evidence burden when the opposing party takes sole possession of the records which might satisfy that burden and refuses to return/disclose them. Moreover, a well established principle of evidence should govern this situation: “a litigating party must‑‑of all persons‑‑be knowledgeable of the facts supporting its position, and if it falsifies ‑‑ or seeks to suppress relevant evidence, such conduct may be taken as an admission that the true facts would defeat the position the party is seeking to maintain.” United States v. Philatelic Leasing, Ltd., 601 F.Supp. 1554, at 1565‑66 (S.D.N.Y. 1985).
Here, Respondent seized the relevant records pertaining to Petitioners’ deduction claims, and in effect is suppressing them by refusing to return them to Petitioners (or disclose them to anyone). Respondent’s actions should be taken as an indication that the relevant records would not be favorable to Respondent if they were disclosed.[5]
CONCLUSION
For the foregoing reasons, Respondent’s determinations should be rejected in full, and a decision entered that no deficiency exists and no penalties are owed. The Court should also consider imposing a sanction against Respondent for its reckless claims which have caused everyone involved to waste their time and resources addressing its claims that were made in contradiction to the ruling of a bankruptcy court, and in contradiction to the assessments that Respondent already made against others for the same tax.
Date: April 7, 2008 Submitted by,
___________________________
Michael Ioane, Petitioner
CERTIFICATE OF SERVICE
It is hereby certified that a copy of the foregoing document was served on respondent by mailing the same on the below date in a postage paid envelope addressed as follows:
INTERNAL REVENUE SERVICE
Attn: Wesley Wong
110 City Parkway, Suite 301
Las Vegas, NV 89106
Date: April 7, 2008 By:______________________________
[1] Even assuming Respondent’s assertion of Petitioner’s ‘ownership’ of these entities to be true, since the entities have been assessed, then, as alleged owners of these entities, how could Petitioners have not also been already assessed the taxes in question via assessments against the entities??
[2] As discussed by Saltzman, the making of an assessment is a very distinct and separate process from making deficiency determinations. Although deficiency determinations may be subject to claims against multiple parties, this would be impossible for income tax assessments because of their ‘judgment’ nature, and because the tax is only imposed on an income transaction once, not multiple times.
[3] Although Petitioners attempted to bring this issue to the Court’s attention before trial, the Court said the IRS ‘does this all the time’. However, Petitioners have been unable to find any case where an income tax that has already been assessed against one party was allowed to be asserted as a deficiency (and later assessed) against yet another party.
[4] The Court is requested to take judicial notice of the search raid warrant and inventory, attached as exhibits to this brief.
[5] At trial Petitioner testified about a ‘casualty loss’ of $49,586,059. (Tr. 50-51). Respondent incorrectly later referred to this as a ‘net operating loss’ (NOL). It was not any NOL. In any event, it may be irrelevant to any deficiency determination since it had no effect in determining any deficiency claim made by Respondent.
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