Taking on the Tax Court – What Happened to Bruno?

Your Guide to State, Local, Federal, Estate + International Taxation

This all comes from a recent Tax Court case, Bruno Bruhwiler v Commissioner. Bruno is a self-employed post-production film compositor living in Los Angeles. He hadn’t filed a tax return during the last ten years. What Bruno wasn’t aware of was that the IRS received matching documents from his bank and his clients showing that he had income of $17,510. With this information, the IRS made a “substitute for return” and determined that he owed $2,851. The IRS sent him a notice of deficiency. Bruno then decided to petition the Tax Court.

Rather than dispute the income or tax determined by the IRS he “advanced 27 frivolous contentions, including the assertions that: (1) he ‘is not a U.S. citizen but in fact is a California National’; (2) he is not ‘a resident of the United States’ or of ‘any Federal Territory’; (3) he is not subject to title 26 taxes; (4) the Social Security laws do not apply to him; (5) the IRS officials who examined his return are ‘agents of a foreign principal’; (6) the IRS erroneously treated him as ‘a fictional entity’ whereas in fact ‘Bruno Bruhwiler is a man’; and (7) ‘the due process of Bruno Bruhwiler has been violated and dishonored.’”

The Tax Court warned him multiple times not to waste their time with such outlandish statements, explaining that the Tax Court could impose a penalty up to $25,000 “if the taxpayer’s position is frivolous or is being maintained solely for the purpose of delay.” Yet this did not deter Bruno on his crusade. When asked about his income, “He replied: ‘I don’t even know what you mean by “income.” I have my own definition of income.’ Asked what that definition was, he replied: ‘It’s a cat with a pink bow. I earned no income. I’m in my own jurisdiction. * * * I am not part of the legal society; I have my own society.’”

Unfortunately, Bruno was not successful in disputing the tax liability determined by the IRS. In the end the Tax Court fined him $3,500 for the run around he gave them. This was in addition to the $3,840 that consisted of the original tax deficiency ($2,851) with penalties for his failure to file and pay the tax timely ($1,006).

There are several lessons to learn from Bruno’s story. First, the IRS receives information about you (like W-2s and 1099s) and can determine your tax liability whether you file your return or not. So don’t think you can hide from them. Second, if you owe tax and you don’t file and/or pay on time, there are penalties. The late filing penalty is 5% of the unpaid amount for each month with a maximum of 25%. The late payment penalty is 0.5% of the unpaid amount for each month with a maximum of 25%. Third, don’t petition the Tax Court unless you have a good cause. If you end up wasting their time, you could owe up to $25,000.

By Richard Christensen