Tax Court has low tolerance for frivolous arguments.

A family trust the IRS determined was a sham received a deficiency notice that disallowed charitable deductions, attorney and fiduciary fees, an S corporation loss and various other expenses, thereby increasing its gross income by nearly $500,000. The taxpayer responded by raising only frivolous arguments, which lacked merit and seemed intended purely to frustrate the efficient administration of justice. These were "protester-type" arguments about the application of the tax and the right of the federal government to tax.

The IRS requested the Tax Court sanction the taxpayer and its legal counsel under IRC section 6673 for instituting frivolous proceedings and causing delay.

The court found the taxpayer presented no facts to substantiate the denied deductions. It also concluded the taxpayer instituted and maintained the proceedings primarily as a delaying tactic and "unreasonably and vexatiously multiplied the proceedings of the court." The court then imposed the maximum penalty of $25,000 on the taxpayer and over $10,500 in sanctions on the attorney (Nis Family Trust v. Commissioner, 115 TC no. 37 (12-4-00)).

--Michael Lynch, Esq., professor of tax accounting at Bryant College, Smithfield, Rhode Island.