Opinion
17799-18L
12-23-2021
Michael Balice, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER MAKING ABSOLUTE OUR ORDER TO SHOW CAUSE
David Gustafson Judge
This is a "collection due process" ("CDP") case brought under section 6320(a)(3)(B). By our order of November 1, 2021 (Doc. 52), we ordered petitioner Michael Balice to show cause, no later than December 3, 2021, why the Court should not impose on him a penalty in an amount of up to $25,000 under section 6673(a)(1) for maintaining frivolous and dilatory positions. Mr. Balice has failed to comply with our order and has filed no response. We will make absolute our order to show cause.
Background
Previous litigation
In his deficiency case, Docket No. 22235-13, Mr. Balice did not dispute the Commissioner's calculations of his income, tax liabilities, additions to tax, or penalties for 2007 or 2008; instead, he raised numerous frivolous arguments protesting the constitutionality of the Federal income tax, its applicability to him, and the SFR assessment procedures. We "grant[ed] the [Commissioner's] motion for summary judgment and sustain[ed] the tax deficiencies and additions to tax determined by the IRS [and] also require[d] Mr. Balice to pay under section 6673(a) a penalty to the United States in the amount of $25,000 for asserting frivolous positions in this Court." Balice v. Commissioner, T.C. Memo. 2015-46, 109 T.C.M (CCH) 1220, 1221 (2015).
Mr. Balice appealed our decision to the Third Circuit Court of Appeals. The Third Circuit affirmed our decision on all grounds and, pursuant to 28 U.S.C. 1915(e)(2)(B), dismissed Mr. Balice's appeal as frivolous. Balice v. Commissioner, 634 Fed.Appx. 349, 350 (3rd Cir. 2016).
The Department of Justice ("DOJ") included Mr. Balice's liabilities for 2007 and 2008 in a pending suit against him to reduce his tax liabilities to judgment and to foreclose on his property to satisfy the liabilities. In an unpublished opinion signed August 9, 2017, the United States District Court for the District of New Jersey reduced Mr. Balice's 1998, 2007, and 2008 liabilities to judgment (holding that "Accounting for liabilities, statutory additions, and the $25,000 penalty, Balice owes $117,337.27 for the 2007 tax year and $6,693.51 for the 2008 tax year, as of January 9, 2017") and authorized DOJ to foreclose on his primary residence. United States v. Balice, 2017 WL 3420918 at *10 (D. N.J. 2017).
CDP proceedings before IRS Appeals and Tax Court
Thereafter, in the CDP proceeding underlying this case, IRS Appeals issued a NOD sustaining the notice of federal tax lien ("NFTL") on August 27, 2018. Id. at 114-118. No hearing was held. Mr. Balice then filed a timely petition commencing this case on September 10, 2018, challenging the NOD because "no hearing was ever actually conducted," "[l]evy enforcement was never suspended while the CDP hearing result (determination) was pending," and "[p]etitioner is not the person liable by law for the payment of the disputed tax." (Doc. 1 at 1-2.)
By order dated October 21, 2019 (Doc. 23), we remanded this case to IRS Appeals to conduct an in-person hearing for consideration of all non-frivolous issues, and specifically to confirm the proper assessment of tax and penalties for Mr. Balice's benefit and to consider collection alternatives. After that remand, IRS Appeals issued a supplemental NOD sustaining the filing of the NFTL.
The Commissioner filed his motion for summary judgment (Doc. 31). Mr. Balice opposed the motion (Doc. 39) with three primary arguments: (1) the DOJ suit in the District of New Jersey was not stayed pending the outcome of his CDP hearing with IRS Appeals, (2) the NFTL for 2007 and 2008 has already been reduced to judgment and enforced through foreclosure, and (3) the SFR assessments for 2007 and 2008 are invalid. Mr. Balice also filed his own motion for summary judgment (Doc. 38), which asserts the same arguments.
By our order of November 1, 2021 (Doc. 52), we granted the Commissioner's motion for summary judgment and denied Mr. Balice's cross-motion. We held that (1) Mr. Balice's attempt to relitigate his liabilities for 2007 and 2008 was barred for multiple reasons, lacked merit in any event, and was frivolous; (2) IRS Appeals did not abuse its discretion by sustaining the NFTL, because there was no error in the Government's proceeding with the suit in the District of New Jersey; and (3) Appeals committed no error in sustaining the NFTL after the liens had been enforced through foreclosure, because some liabilities remained unsatisfied.
Penalty pursuant to section 6673(a)
Our order of November 1, 2021 (Doc. 52), also stated as follows:
Mr. Balice's attempting to relitigate his liabilities for 2007 and 2008 is frivolous, because he has already lost the matter twice in prior litigation--once before this Court in his previous deficiency case and again before the District Court in the Government's collection suit. In his previous deficiency case, Mr. Balice advanced the same arguments regarding his liabilities for 2007 and 2008 that he now makes on brief, and for which he incurred a penalty in that case under section 6673. See id. at *6. Mr. Balice was warned in his prior case that these arguments were frivolous, and he was also warned by IRS Appeals that these arguments were frivolous, yet he has persisted in repeating these arguments to the Court. Our preliminary determination is that this behavior warrants imposition of another penalty under section 6673 because Mr. Balice must be aware that his arguments are frivolous and risk incurring the section 6673 penalty, and that he is no longer entitled to challenge his liabilities for 2007 and 2008.
Before determining whether to impose any penalty under section 6673 and in what amount, we will give Mr. Balice an opportunity to show cause why the penalty either should not be imposed against him or, if it is, why it should not be the maximum amount of $ 25, 000. In this connection he may wish to consider our opinion in Leyshon v. Commissioner, 109 T.C.M. 1535, 1540-1542 (2015), which lists some of the factors that the Court may consider when deciding whether to impose a section 6673 penalty. In particular, Mr. Balice could offer to the Court his assurance that he will not hereafter attempt to relitigate his liabilities for 2007 and 2008.
An unequivocal commitment to that effect by Mr. Balice could prompt a reduction in the amount of any penalty to be imposed under section 6673. . . .
In view of the foregoing, it is . . .
ORDERED that, no later than December 3, 2021, Mr. Balice shall show cause (i.e., shall explain in writing in a submission filed with the Court) why the Court should not impose on him a penalty in an amount of up to $25,000 under section 6673(a)(1) for maintaining frivolous and dilatory positions.
Mr. Balice has made no filing in compliance with our order to show cause.
Discussion
Section 6673(a)(1) provides:
Whenever it appears to the Tax Court that
(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay, [or]
(B) the taxpayer's position in such proceeding is frivolous or groundless . . .,
the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.
We find that Mr. Balice's conduct is characterized both by "delay" and by maintaining positions that are "frivolous or groundless".
As to delay, it is clear that Mr. Balice must have known that his SFR contention (i.e., that he did not owe his liabilities because of supposed defects in the IRS's SFR procedures) was foredoomed. He had seen this same contention rejected by the same Court, and the only benefit (of sorts) that he gained from pressing that contention again was to delay the inevitable loss of the case and delay the resumption by the IRS of its collection activity that his lawsuit stalled. Section 6673 was designed to deter and punish this motive.
As to frivolous and groundless positions, his SFR contention was frivolous on its merits (being wrong for multiple reasons, conceivably applying at most to only a fraction of the case, and having been rejected by this Court in his previous case) and was barred by section 6330(c)(2)(B) (by a prior opportunity), by res judicata, and by collateral estoppel.
When we consider the factors that affect Mr. Balice's culpability, see Leyshon, supra, the facts about this case that we think most adverse to him are as follows: He raised the SFR argument in prior proceedings and was criticized and penalized. He was warned in his prior deficiency case and by us in this case that he could be liable for a penalty if he pressed frivolous positions. In his previous deficiency case, he was subjected to the maximum penalty (but was apparently not deterred by it).
The one consideration that weighs somewhat in Mr. Balice's favor is that, although all of his contentions in this case were erroneous, not all of them were frivolous. To be sure, "a taxpayer who makes frivolous arguments is not immune from penalty just because some of his arguments are not frivolous", Hill v. Commissioner, T.C. Memo. 2014-134, at *16; but we think that if Mr. Balice had raised only his non-frivolous arguments, we would not (without more) penalize him now.
Taking into account all the facts and circumstances of this case and the foregoing considerations in particular, a penalty under section 6673 is appropriate, and it is
ORDERED that our order to show cause is hereby made absolute, and that in our decision to be entered in this case, a section 6673(a)(1) penalty will be imposed in the amount of $10,000.