Whitaker v. Commissioner

In 2012, State Street Retiree Security Services (State Street) distributed $15,469 to Mary Anne Valentine-Whitaker from her private retirement plan. State Street withheld $3,094 for federal income tax. In early 2014, Mary Anne asked the Internal Revenue Service (IRS) to refund the $3,094. The IRS responded that Mary Anne had to request a refund via a tax return. In June, Mary Anne and her husband, Vincent Whitaker (plaintiff), filed a joint 2012 return on IRS Form 1040, which they both signed. The return showed zero on various lines, including for adjusted gross income and taxable income, and requested the refund. The Whitakers also attached (1) the IRS Form 1099-R that State Street provided, which they described as “refuted;” (2) a purported self-created “corrected” Form 1099-R that showed zeros on various relevant lines; (3) an affidavit by Mary Anne stating that she had never been a federal employee, had never received wages from a qualifying employer, and resided in the “NON-federal” state of Arizona; and (4) a letter by Mary Anne citing tax-protestor legalese and asserting that State Street illegally withheld federal taxes. The Whitakers’ tax positions echoed positions that the IRS previously formally identified as frivolous. In July, the IRS mistakenly told the Whitakers that it had not received their 2012 return and asked them to submit it. In August, the Whitakers submitted a copy of the June return (with the attachments), along with additional correspondence. In September, the IRS advised the Whitakers that their return asserted frivolous positions, warned the Whitakers against further frivolous returns, and invited the Whitakers to submit a proper return. Also in September, the Whitakers filed another return, which was substantively identical to the June return. In January 2015, the IRS imposed three $5,000 frivolous-return penalties against the Whitakers pursuant to Internal Revenue Code (code) § 6702(a). In August, Vincent notified the IRS that Mary Anne had died. In April 2016, the IRS rejected Vincent’s administrative appeal. Vincent sued the IRS commissioner (defendant) in the United States Tax Court, which conducted a trial. After trial, the commissioner conceded that the Whitakers’ August submission was not subject to penalty.