Tax Court in Brief | Hatfield v. Commissioner | Frivolous Arguments

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The Tax Court in Brief – June 13th – June 17th, 2022

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Tax Litigation:  The Week of June 13th, 2022, through June 17th, 2022

Hatfield v. Comm’r, T.C. Memo. 2022-59 | June 13, 2022 | Lauber, J. | Dkt. Nos. 7327-20, 1500-21

Short Summary:  Petitioners were a married couple filing joint federal income tax returns for tax years 2013 and 2014. Husband was employed as a radiologist. Petitioners failed to report husband’s wages as gross income on their federal income tax returns for 2013 and 2014.

The Internal Revenue Service (IRS) examined petitioners’ 2013 and 2014 returns and assessed federal income tax based on the wages reported on the Forms W-2, Wage and Tax Statement, that husband’s employer had filed with the IRS for each of those years. In addition, the IRS found that petitioners were liable for additional tax for early withdrawals from an individual retirement account in 2013 and 2014 and that petitioners had failed to report taxable interest in 2014. The IRS also imposed accuracy-related penalties for both years and an addition to tax for petitioners’ failure to timely file their 2014 return.

The IRS issued timely notices of deficiency for 2013 and 2014, and petitioners timely petitioned the Tax Court for redetermination. Petitioners’ sole argument was that husbands’ wages were not taxable income because “the United States Code [does not] actually make the ‘wages’ of American citizens subject to the Subtitle A federal personal income tax.”

The IRS filed a motion for summary judgment for 2013 and a motion for partial summary judgment for 2014, conceding the accuracy-related penalty for this latter year. Petitioners responded to the motion for 2013 but did not respond to the motion for 2014.

Key Issues

Primary Holdings

Key Points of Law

Insights: This case highlights the danger of raising frivolous arguments before the Tax Court and the importance of heeding the Tax Court’s warnings if a taxpayer has already started down that path.

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