Welcome back to our extremely intermittent series, “They didn’t seriously argue that, did they?” It’s a feature intended to lift everyone’s spirits, because no matter how stressful you think your life is right now, you can at least say these taxpayers have it worse.
In honor of W-2 Day, which is now two days away, we present two cases where taxpayers went seriously off the rails.
Enjoy.
There’s no gold in them there hills
Pennies are legal tender, so you can pay your taxes in pennies if you can afford the freight because pennies are heavy. You cannot, on the other hand, sue the IRS and demand it pay you $35 million in damages in gold coins, the approximate weight of which would be 2,187,500 pounds, assuming each gold coin weighed exactly 1 troy ounce.
Back in 1988, the IRS sold a tax protestor’s property for $125,916.80, and in 2020, it seized $3,000 from his bank account to satisfy his outstanding tax liabilities. The tax protestor sued in 2023, seeking $35,664,300 in damages to be paid in “United States of America minted gold coins.” He alleged that the IRS’ actions amounted to, among other claims, trespass and violation of his constitutional rights because he denied the legitimacy of the underlying tax liability and, by extension, the attempts to satisfy his tax liability.
The Federal Court of Claims swatted away his case and granted the IRS’ motion to dismiss, ruling that none of the tax protestor’s various causes of action gave it jurisdiction over the case. The appellate court upheld the trial court’s decision. Appellate court: The plaintiff didn’t satisfy the jurisdictional prerequisite to bringing a lawsuit for a tax refund: He didn’t pay his taxes in full and then sue for a tax refund. And in fact, he could never satisfy this jurisdictional requirement, because he said he’s not subject to federal income taxes, the court added.
The case is Noll v. United States.
Don’t pay employees off the books
Off the books or under the table, the result is the same—employees enjoy the cash with none of those pesky withholding issues. But if you later decide to pay them on the up-and-up, employees really won’t like it. Intentionally mess up those W-2s and they’ll like it even less.
Restaurant employees were paid off the books until the owner decided to put them on the books in 2020 because “she needed some on-the-books employees in order to apply for government grants and/or loans.”
Bad: Although not mentioned in the court’s opinion, the grant was probably a pandemic-era paycheck protection loan.
Worse: The owner sent allegedly falsified records of those payments to her accountants so they could prepare Forms W-2s, 1120-S, 941 and 940.
Worst: W-2s for three years fraudulently overstated employees’ incomes.
The employees sued the restaurant and owner under IRC § 7434, which allows plaintiffs to sue for the greater of $5,000 or actual damages if they are provided with fraudulent information returns. The trial court is letting their case proceed. It rejected the restaurant and the owner’s motion to dismiss. Court: The employees have made their case for IRC § 7434 liability:
- The defendant issued an information return.
- The information return was fraudulent.
- The defendant willfully issued the fraudulent return.
The least effective argument the restaurant made: It couldn’t be liable under IRC § 7434 because W-2s aren’t filed with the IRS.
The case is Chen v. Wow Restaurant TH, LLC.
Want more insights like these? Visit Alice Gilman’s author page to explore her other articles and expertise in business management.
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