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Farber v. U.S.

United States District Court for the District of Colorado

May 20, 1983

Civil Action No. 81-JM-2144


MOORE, District Judge:


The Plaintiffs in this civil action against the United States move for a new trial or, in the alternative, for modification of the Court's Memorandum Opinion and Order from which judgment entered against them on all issues presented in the complaint. The plaintiffs brought suit to recover $53,787.86 in taxes, penalties and interest assessed against them and collected by the Internal Revenue Service [IRS].

During trial to the Court, the plaintiffs attempted to introduce a new interpretation to the series of transactions which had been attached by the IRS. They asked that the Court find that a loan "scheme", which resulted in the shifting of income from certain assets from the plaintiffs to their children, was in fact in intra-family gifting arrangement. This interpretation was not raised in the complaint nor in the taxpayers' original refund claim filed with the IRS May 1, 1981. Nevertheless, the plaintiffs [*2]  contend in their new trial motion that I erred in failing to consider that the transaction in question were "gifts" from parents to their children. Both case law and treasury regulations support my previous decision and thus the motion for a new trial must be denied. See Herrington v. United States, 415 F.2d 1029 (10th Cir. 1969); 26 C.F.R. § 301.6402-2(b)(1).

Through their alternative motion for modification of my order the plaintiffs assert that their reliance upon their accountant's advice was sufficient to render inapplicable the pendalty assessed against them. This attack on the penalty assessment differs from that presented at trial. This time plaintiffs' counsel makes clear that the thrust of his argument is that the Farbers did not negligently rely upon the advice of their accountant, Mr. Samuel Butler. The plaintiffs cite authority for the proposition that "[w]here warranted, reliance on the advice of an expert suffices to avoid the negligence penalty" under 26 U.S.C. § 6653(a). Columbia Steakhouse II, Inc., 41 T.C.M. (CCH) 1981-142 at 1168.

In response the government observes that the Commissioner's assessment of a negligence penalty enjoys a presumption [*3]  that the penalty was proper. Peter W. DeFelice, T.C.M. (P-H) 1966-158 P66,158 at 66-949. However, the Tax Court in DeFelice determined that the penalty assessed was impermissible because if found no negligence or intentional disregard of the rules in making the claim for certain deductions which, as a matter of law in the eyes of the Tax Court, were not allowable.

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1983 U.S. Dist. LEXIS 16793 *; 52 A.F.T.R.2d (RIA) 5446

Joseph FARBER and Virginia Farber, PLAINTIFFS v. U.S., DEFENDANT.


advice, motion for a new trial, intentional disregard, rules and regulations, alternative motion, negligence penalty, penalty assessment, no recollection, tax assessment, modification, Deposition, collected, gifting