Gary Gaskin & Jessie Gaskin v. Commissioner ( 2018 )

T.C. Memo. 2018-89UNITED STATES TAX COURT
GARY GASKIN AND JESSIE GASKIN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7475-17. Filed June 20, 2018.
Gary Gaskin and Jessie Gaskin, pro sese.
Alicia A. Mazurek and Robert D. Heitmeyer, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
BUCH, Judge: Mr. Gaskin filed fraudulent returns, which he admits. He
later filed amended returns reporting additional income. The Commissioner
processed those amended returns and determined deficiencies in tax beyond what
was shown on those amended returns along with fraud penalties. Mr. Gaskin
disputes the fraud penalties. We find for the Commissioner.
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[*2] FINDINGS OF FACT
The facts of this case are undisputed. Mr. Gaskin filed fraudulent tax
returns for 2008 through 2011. With the intent to evade tax, Mr. Gaskin omitted
income from each of those returns. The Commissioner selected the returns for
examination, and that examination led to a criminal investigation, indictment, and
plea agreement. The criminal investigation began in 2012, with the indictment
and plea agreement both taking place in 2015.
In August 2014, while under criminal investigation, Mr. Gaskin filed Forms
1040X, Amended U.S. Individual Income Tax Return, for 2008 through 2011.
Those amended returns reported, in aggregate, more than $400,000 of additional
adjusted gross income and more than $100,000 of additional tax. In 2016 the
Commissioner assessed the tax shown on those amended returns.
When Mr. Gaskin entered into the plea agreement in 2015, he agreed to
amounts of adjusted gross income and tax that differed from those reported on his
previously filed amended returns. The Commissioner eventually issued a notice of
deficiency in which he determined deficiencies for 2008, 2010, and 2011 and
fraud penalties under section 6663 for 2008 through 2011.1 The underpayments
1
All section references are to the Internal Revenue Code (Code) in effect for
the years in issue.
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[*3] on which the fraud penalties were calculated were based on the differences
between Mr. Gaskin’s tax liabilities as determined in the notice of deficiency and
those reported on his original fraudulent returns. While residing in Michigan, Mr.
Gaskin filed a timely petition.
We held a trial on March 21, 2018, in Detroit, Michigan. At trial Mr.
Gaskin admitted to filing fraudulent returns. He does not contest the deficiencies
in tax determined in the notice of deficiency. He contests only the penalties under
section 6663.
OPINION
Mr. Gaskin does not dispute the deficiencies in tax; however, he disputes
the fraud penalties. Mr. Gaskin argues that the comparatively modest tax
adjustments shown in the notice of deficiency were not attributable to his fraud but
to his honest mistakes. From his perspective the notice of deficiency makes tax
adjustments by comparing Mr. Gaskin’s correct tax liabilities with the amounts
reported on his amended, nonfraudulent returns. He observes what he considers to
be an inconsistency in that the fraud penalties are computed by comparing Mr.
Gaskin’s correct tax liabilities with the amounts shown on his original, fraudulent
returns. Because in his view the notice of deficiency is predicated on the
nonfraudulent returns, he reasons that the fraud penalties should not apply.
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[*4] Section 6663 imposes a penalty equal to 75% of any portion of an
underpayment that is attributable to fraud. Under section 6664(a) an
underpayment is defined as the amount by which any tax imposed by the Code
exceeds the sum of the amount of tax shown by the taxpayer on his return, plus the
amounts previously assessed or collected without assessment over the amount of
rebates, which include abatements, credits, refunds, and other payments to the
taxpayer.
The regulations clarify the effect of an amended return on a previously filed
fraudulent return for the purposes of determining an underpayment. Under section
1.6664-2(c)(2), Income Tax Regs., the amount shown on an amended return is not
included in the “amount shown as the tax by the taxpayer on his return” for
establishing the amount of the underpayment in determining the fraud penalty
under section 6663.
Courts at every level have held that a taxpayer who filed a fraudulent return
cannot avoid the fraud penalty by filing an amended return. In Badaracco v.
Commissioner, 464 U.S. 386, 394 (1984), the U.S. Supreme Court held that “a
taxpayer who submits a fraudulent return does not purge the fraud by subsequent
voluntary disclosure; the fraud was committed, and the offense completed, when
the original return was prepared and filed.” In Badaracco the taxpayer argued that
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[*5] an amended return restarted the period of limitations for that year. While the
facts in this case differ, the same principle applies. In Brown v. Commissioner,
T.C. Memo. 1996-416, 72 T.C.M. (CCH) 620 (1996), we held that a taxpayer was
liable for a fraud penalty even after he filed an amended return. The subsequent
filing of an amended return after an audit had begun did not purge the original
fraudulent filing or fraudulent intent.
In his plea agreement Mr. Gaskin admitted to filing fraudulent returns. He
agreed that from 2008 to 2011 he underpaid his taxes by over $100,000 and that
the underpayment for each year was due to fraud. As a result the fraud penalty
applies to each of the fraudulent returns. An amended return cannot erase the
fraud he committed.
Decision will be entered for
respondent.