Bruce W. Lemay v. Commissioner of Internal Revenue

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
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BRUCE W. LEMAY,
Petitioner - Appellant,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
No. 20-9001
(CIR No. 019356-15 L)
(United States Tax Court)
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before McHUGH, BALDOCK, and MORITZ, Circuit Judges.
_________________________________
Bruce Lemay, acting pro se, appeals the decision of the Tax Court holding him
liable for tax penalties under I.R.C. § 6700. Exercising jurisdiction under
I.R.C. § 7482(a)(1), we affirm.
BACKGROUND
The parties are familiar with the facts underlying this matter and we need not
restate them in full here. It suffices to say that in 1999 Lemay, along with others,
* After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
FILED
United States Court of Appeals
Tenth Circuit
September 2, 2021
Christopher M. Wolpert
Clerk of Court
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organized Cash Management Systems (“CMS”), a Virginia S-Corporation. Lemay
served on the CMS board throughout the life of the business. CMS sold, promoted,
and marketed “tool plans”—arrangements through which employers would reclassify
some of their employees’ pay as “reimbursement” for tools the employees owned and
used on the job, thereby avoiding substantial employment taxes. Employers would
divide employee pay between wages/reimbursement according to a proprietary
formula owned by CMS, which charged fees to administer the tool plans on behalf of
its employer-clients.
CMS engaged the services of Pete Davison, an accountant with Grant
Thornton LLP, who drafted a justification paper opining on the legality and tax risk
of the tool plans. Davison opined that “substantial authority” supported the tool
plans, but CMS did not disclose to clients that the term “substantial authority” meant
Davison believed the plans would have only about a one-in-three chance of
withstanding an audit. See R. Vol. 18 at 113.
From 1999 to 2005, Lemay sought other outside opinions regarding the
legality of the tool plans. He approached three additional accounting firms—Crowe
Chizek, McDermott Will & Emery, and KPMG—none of whom agreed with
Davison’s opinion regarding the tool plans. And in 2002 Grant Thornton disavowed
the justification letter Davison had written on its behalf, instructing CMS by letter to
remove its name from any marketing or promotional materials regarding the tool
plans. Throughout this period, Davison continued to provide opinions in favor of the
tool plans and continued to assist in their marketing and promotion.
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In 2008, the IRS obtained an injunction against Davison ordering him to cease
the promotion and sale of illegal tax shelters. As a result of this action, Davison’s
CPA license was suspended. The IRS opened a § 6700 examination against CMS,
Lemay, and Davison. Based upon this examination, in 2014 the IRS assessed
penalties against Lemay totaling $181,076 for tax years ending 2008, 2009, and
2010. 1 The IRS Appeals Office issued a notice of determination sustaining the levy
notice and lien notice resulting from this penalty, and Lemay timely filed a petition
seeking review from the Tax Court. The Tax Court upheld the underlying liability,
and this appeal followed.
DISCUSSION
Because Lemay proceeds pro se, we construe his arguments liberally, but we
“cannot take on the responsibility of serving as [his] attorney in constructing
arguments and searching the record.” Garrett v. Selby Connor Maddux & Janer,
425 F.3d 836, 840 (10th Cir. 2005). Where, as here, “the Tax Court decision rests on
its review of an Office of Appeals’ determination following a [collection due
process] hearing,” “we review the Office of Appeals’ determinations about
challenges to the amount of the underlying tax liability de novo and its administrative
determinations unrelated to the amount of tax liability for abuse of discretion.”
Cropper v. Comm’r, 826 F.3d 1280, 1284 (10th Cir. 2016). Section 6700 of the
Internal Revenue Code provides, as relevant here:
1 This amount represented Lemay’s proportionate share of one half of CMS’s
revenues for those tax years.
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Any person who . . . organizes . . . any . . . plan or
arrangement, . . . and . . . makes or furnishes or causes
another person to make or furnish . . . a statement with
respect to the allowability of any deduction or credit, the
excludability of any income, or the securing of any other
tax benefit by reason of . . . participating in the plan or
arrangement which the person knows or has reason to
know is false or fraudulent as to any material matter, . . .
shall pay . . . 50 percent of the gross income derived . . .
from such activity by the person on which the penalty is
imposed.
I.R.C. § 6700(a). From this language, the Tax Court concluded the government could
establish Lemay’s liability for § 6700 penalties by showing he
(1) organized (or assisted in the organization of) or
participated (directly or indirectly) in the sale of an interest
in an investment plan or arrangement, or any other plan or
arrangement; and (2) made material statements concerning
the “tax benefits” to be derived from that plan or
arrangement that [he] knew or had reason to know were
false.
R. Vol. 18 at 151 (footnote omitted). Lemay raises two issues on appeal. First, he
argues the Tax Court should have applied a more demanding standard of proof to the
government. Second, he argues the Tax Court “fail[ed] to examine the evidence in an
unbiased manner and misapplied the law relating to reliance on tax advice.” Aplt.
Opening Br. at 10.
1. Standard of Proof
Under I.R.C. § 6703(a), “[i]n any proceeding involving the issue of whether or
not any person is liable for a penalty under section 6700 . . . the burden of proof with
respect to such issue shall be on the Secretary.” But, while the tax code specifies
which party bears the burden of proof, it does not specify the magnitude of that
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burden. The Tax Court applied a preponderance-of-the-evidence standard, which the
Supreme Court has described as “generally applicable in civil actions,” Herman &
MacLean v. Huddleston, 459 U.S. 375, 390 (1983). Lemay, though, argues the Tax
Court should have held the government to a clear-and-convincing standard of proof.
We do not need to decide this issue, however, because even if the clear-and-
convincing standard of proof applied the government presented more than sufficient
evidence to establish Lemay’s liability under § 6700. We therefore will not disturb
the conclusion of the Tax Court on this basis.
2. Other Alleged Errors
In his second issue on appeal, Lemay argues the Tax Court misconstrued the
law in rejecting his argument that he reasonably relied on the tax advice and opinions
of Davison. The Tax Court concluded it was unjustifiable for Lemay to rely on the
advice of a co-promotor of the tool plans despite the advice of four independent
accounting companies and published IRS guidance. Lemay does not cite any
authority or otherwise articulate how the Tax Court erred in this respect, and such
“conclusory allegations with no citations to the record or any legal authority for
support” are inadequate to preserve an issue for review. Id. at 841.
Lemay argues the Tax Court “showed bias in allowing the [government] to
submit a 162[-]page brief,” Aplt. Opening Br. at 12, but the record reveals the
government’s brief complied with the Tax Court’s orders, which excluded certain
sections of the parties’ submissions from the page limit. See R. Vol. 18 at 54–55.
Lemay also asserts he “believes The Tax Court was bias[ed] adversely to [him] due
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to Mr. Davison’s record of disputes with the Internal Revenue Service, that the Tax
Court allowed itself to consider, and by transference, adversely applied to [Lemay].”
Aplt. Opening Br. at 12. But because Lemay does not support this conclusory
statement with any developed argument, we decline to consider it.
See Garrett, 425 F.3d at 841.
CONCLUSION
We affirm the judgment of the Tax Court.
Entered for the Court
Carolyn B. McHugh
Circuit Judge
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