Tax Court flexes its muscles - imposes sanctions and issues a warning.

• Author: Elly, Mark H.
• Position: Penalties for dilatory or improper actions by taxpayers or practitioners

Recently, the Tax Court issued several opinions that reflect its intolerance of taxpayers' and practitioners' (both private and governmental) actions that the court determined to be dilatory or improper. To clearly communicate its message, the court drew on Sec. 6673, a rather infrequently used (but very potent) Code provision that permits the Tax Court, in its discretion, to impose monetary sanctions or penalties if it determines that (1) proceedings have been instituted or maintained by a taxpayer primarily for delay, (2) the taxpayer's position is frivolous or groundless or (3) the taxpayer unreasonably failed to pursue available administrative remedies. In addition, if the court determines that a practitioner has multiplied the proceedings unreasonably or vexatiously, it may require the payment of excess costs (including attorneys' fees) reasonably incurred because of such conduct.

In Nis Family Trust, 115 TC No. 37 (2000), the court imposed monetary sanctions (the maximum $25,000 in one docket) against the taxpayers and also required their attorney to pay $10,600 to the IRS, representing excess attorneys' fees that the Service incurred on account of the attorney's conduct in unreasonably delaying the proceedings. The case involved three separate dockets. In each petition filed in response to the statutory deficiency notices, the taxpayers (appearing pro se) failed to address any of the adjustments that the IRS proposed; rather, the petitions contained nothing but frivolous, tax-protester-like positions. The court entered judgment against the taxpayers based on the pleadings, imposed accuracy-related penalties and further found that the taxpayers both instituted and maintained the proceedings primarily for delay. This latter finding was based on the taxpayers' noncooperation and nonresponsiveness throughout the audit and during the court proceedings, including the discovery process. Sometime during the pendency of the proceeding (as often occurs), the taxpayers retained an attorney who entered an appearance on their behalf. The attorney continued to raise the same type of arguments that the taxpayers had previously advanced. Based on the record, the court held that the taxpayers were subject to penalties under Sec. 6673(a)(1), and their attorney was required to pay costs under Sec. 6673(a)(2). The court found that both the taxpayers and their attorney attempted to unreasonably and unduly multiply the proceedings and that the attorney's...