CHICOINE, BRADLEY & COLLEEN (1984)(F)(IND)

Topic Code: P071 Penalty/Interest, to Evade Tax          Document Reference:

RE: BRADLEY & COLLEEN CHICOINE INDIVIDUAL INCOME TAX ASSESSMENT DOCKET NO. 83-343-2C-A

Jack A. Conner

Williams & Company

814 Pierce Street

P.0. Box 3226

Sioux City, IA 51102

Dear Mr. Conner:

The Tax Review Committee of the Iowa Department of Revenue has met with regard to this Protest. It has been determined that the penalty as assessed should be sustained.

The only issue being protested is the applicability of assessing the 50 percent penalty rather than the 25 percent penalty for the tax years in question. Iowa Code ยง 422.25(2) states in part:

In case of willful failure to file a return with intent to evade tax, or in case of willfully filing a false return with intent to evade tax, in lieu of the penalty otherwise provided in this subsection, there shall be added to the amount required to be shown as tax on the return fifty percent of the amount of the tax. (Emphasis added.)

The tax years being protested are 1978, 1979 and 1980. During these years, Bradley Chicoine, was a chiropractor engaged in a chiropractic business. In 1977, Bradley filed a separate Iowa return reporting no income for that year. The reason for this was that he was taking a vow of poverty for the Life Science Church in which he was supposedly an ordained minister. The Department issued a letter dated May 26, 1978, requesting documentation that his church was a tax exempt organization. Until such information was received, Mr. Chicoine was informed that his $525 in estimated tax paid in 1977 would not be applied to his 1978 tax account. Mr. Chicoine never provided any confirmation of his church exempt status pursuant to the May 26, 1978, request.

For the 1978 and 1979 tax years, the Protestors filed Iowa Joint returns on which Bradley again reported no income from his chiropratic practice. For the 1980 tax year, the Protestors did not file any Iowa returns. For the 1978 and 1979 returns which were filed, Mr. Chicoine did not report his occupation as a chiropractor, not did he cite his vow of poverty or assert the tax exempt status of his church.

Mr. Chicoine was first contacted by the Internal Revenue Service regarding his filing status in the summer of 1980. A federal audit was conducted at which time the Protestors' unreported income was picked up for the years in question. The IRS also determined at that time that Mr. Chicoine was not part of a tax exempt organization. The IRS assessed a negligence penalty but did not assess a 50 percent fraud penalty.

The federal audit was not completed until February 2, 1982. However, by the time the Department contacted him in August of 1982, Mr. Chicoine still had not filed a 1980 Iowa return nor had he attempted to amend the 1977 through 1979 Iowa returns.

Section 422.25(2) clearly provides for the imposition of a 50 percent penalty for willfully filing a false return and for the willfull failure to file a return with the intent to evade tax. The Protestors rely on the fact that Bradley Chicoine was only 24 years old in 1977 and was inexperienced in business affairs. As a result, the Protestors are described to have "detrimentally relied upon the advice of others who held themselves out to be tax experts." See, p. 2 of Protest. First of all, Mr. Chicoine was not that young and secondly, he was experienced enough to operate his chiropractic business. It is hard to imagine the Protestors testifying under oath that they believed they were involved in a legitimate church organization and that such action was not merely an improper scheme to avoid paying tax on income earned from his chiropractic business. This is clearly a case in which the 50 percent penalty was intended to be and should be applied. The fact that the IRS did not charge a fraud penalty is irrelevant as to whether or not the Department charges a fraud penalty for the evasion of Iowa income tax.

Please advise me of your position in light of the enclosed Findings within thirty days of the date of this letter. If you agree, or choose not to pursue the Protest, please inform me in writing. That letter and receipt of the amount due which is $9,196.26 with interest calculated through August 31, 1984, directed to my attention, will serve as authority for the hearing officer to close the Protest. Please note that interest accrues at $35.44 per month.

If the Protestor is in disagreement with the Findings and chooses to pursue the Protest, the Department will file an Answer to the Protest pursuant to rule 730-7.12(17A), IAC, thereby initiating contested case proceedings. The hearing officer of the Department will then notify all parties of a time and place for an evidentiary hearing to be held on this matter. If no response is received within thirty (30) days of the date of this letter, the Committee will construe this inaction as failure to pursue the Protest and will request dismissal of the Protest pursuant to department rule 730-7.11(2).

If you have any questions with regard to this matter, please do not hesitate to contact me.

Sincerely, James D. Miller Appeals Section 515/281-5998