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Walquist v. Comm'r

Walquist v. Comm'r

United States Tax Court

February 25, 2019, Filed

Docket No. 25257-17.

Opinion

 [*62]  LAUBER, Judge: With respect to petitioners' Federal income tax for 2014, the Internal Revenue Service (IRS or respondent) determined a deficiency of $13,832 and an accuracy-related penalty of $2,766. Currently before the Court is respondent's motion to dismiss for lack of proper prosecution by petitioners. We will grant the motion. We will also impose on petitioners a penalty of $12,500 for repeatedly taking frivolous positions during this proceeding. See sec. 6673(a).1

Background

On August 30, 2017, the IRS sent petitioners by certified mail a timely notice of deficiency determining a deficiency in tax and an accuracy-related penalty as set forth above. Petitioners  [*63]  filed a petition purporting to challenge the notice of deficiency. Though residing in Minnesota when filing their petition, they requested Washington, D.C., as their place of trial.

Petitioners filed a Federal income tax return for 2014. They failed to report $1,215 of unemployment compensation received from the State of Minnesota. They reported wages and other gross income totaling $94,114. Against this sum they [**2]  claimed a purported offset or deduction of $87,648, which they labeled a "Remand for Lawful Money Reduction." After the standard deduction they reported negative taxable income of ($5,731).

Alerted to petitioners' underreporting by computer document matching, the IRS processed the examination of their return through its Automated Correspondence Exam (ACE) system, employing its Correspondence Examination Automated Support (CEAS) software program. This software is designed to process cases "with minimal to no tax examiner involvement until a taxpayer reply is received." Internal Revenue Manual (IRM) pt. 4.19.20.1.1 (Dec. 18, 2017).

On July 26, 2017, the CEAS program generated and issued to petitioners a Letter 525, General 30-Day Letter. In cases such as this--where the understatement of income tax calculated by the program exceeds the greater of $5,000 or 10% of the tax required to be shown on the return--the program systematically includes in the letter a substantial understatement penalty. See sec. 6662(b)(2), (d)(1)(A). The program accordingly calculated a penalty of $2,766.40, or 20% of the proposed deficiency of $13,832. See sec. 6662(a).

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152 T.C. 61 *; 2019 U.S. Tax Ct. LEXIS 2 **; 152 T.C. No. 3

CRAIG S. WALQUIST AND MARIA L. WALQUIST, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Prior History: Steven v. Mnuchin, 2017 U.S. Dist. LEXIS 216446 (D. Minn., Dec. 8, 2017)

Disposition: An appropriate order and decision will be entered for respondent.

CORE TERMS

calculated, taxpayer, automatically, frivolous, petitioners', burden of production, electronic means, substantial understatement penalty, notice of deficiency, supervisory, appears, additions to tax, mathematical, warned, immediate supervisor, statutory exception, motion to dismiss, unreported income, software program, lawful money, income tax, notice, wages

Tax Law, Federal Tax Administration & Procedures, Tax Court, Burdens of Proof, Federal Income Tax Computation, Business & Corporate Compliance, Tax Credits & Liabilities, Civil Penalties, Assessments of Tax, Assessment Authority, Governments, Legislation, Interpretation, Civil Procedure, Dismissal, Involuntary Dismissals, Failure to Prosecute, Procedural Matters, Civil Penalties, Costs & Sanctions