David L. Nelson v. Commissioner, TC Memo 2012-232 , Code
Sec(s) 61; 6651; 6673; 7491.
DAVID LOVEN NELSON, Petitioner v. COMMISSIONER OF INTERNAL
REVENUE, Respondent .
Case Information:
Code Sec(s): 61;
6651; 6673; 7491
Docket: Docket
No. 21102-10.
Date Issued:
08/13/2012
HEADNOTE
XX.
Reference(s): Code Sec. 61; Code Sec. 6651; Code Sec. 6673;
Code Sec. 7491
Syllabus
Official Tax Court Syllabus
Counsel
David Loven Nelson, pro se.
Horace Crump, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: On June 30, 2010, respondent issued notices
of deficiency in which he determined the following deficiencies and additions
to tax with respect to petitioner's Federal income tax: [*2] Additions to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654 2005 $40,153 $9,034 $9,837 $1,611 1
2008 86,440 12,112 3,499 -0- After concessions, 1 the issues for decision are:
(1) whether petitioner had unreported compensation income for the years at
issue; (2) whether petitioner is liable for additions to tax under section
6651(a)(1) 2 for 2005 and 2008; and (3) whether the Court should impose a
penalty under section 6673(a)(1).
In his petition, petitioner assigns error only to
respondent's determinations that he received wages of $154,749 and $264,640 in
2005 and 2008, respectively. Ordinarily, we deem conceded any issue not raised
in the assignments of error in the petition. See Rule 34(b)(4). This Court
concludes that petitioner has conceded the other income adjustments in the
notices of deficiency. Respondent also conceded the secs. 6651(a)(2) and 6654
additions to tax for 2005 and the sec. 6651(a)(2) addition to tax for 2008.
[*3] FINDINGS OF FACT
Some of the facts have been deemed established for purposes
of this case in accordance with Rule 91(f). 3 The deemed facts are incorporated
herein by this reference. Petitioner resided in Florida when he filed his
petition.
Petitioner began his career as an aviator in the U.S. Navy.
Beginning in 1980 he worked for three different airlines. During the years at
issue he was employed by Northwest Airlines, Inc. (Northwest). In 2005 he
received wages of $154,749 from Northwest. In 2008 he received wages of
$264,640 from Northwest.
Petitioner submitted for filing a Form 1040, U.S. Individual
Income Tax Return, for 2005 on March 27, 2006. On his Form 1040, he reported
his occupation as “American citizen”. He reported zero taxable income and
requested 3
On March 4, 2011, respondent filed a motion to show cause
why proposed facts and evidence should not be accepted as established under
Rule 91(f) and attached a proposed stipulation of facts. By order dated March
15, 2011, this Court ordered that petitioner file a response to respondent's
motion in accordance with Rule 91(f)(2). In response, petitioner submitted a
document titled “Petitioner's Objection to Stipulation of Facts”, which this
Court filed as petitioner's response to our order of March 15, 2011.
Petitioner's response did not comply with Rule 91(f)(2). Consequently, by order
dated March 30, 2011, this Court made (with specified revisions) the order to
show cause under Rule 91(f) absolute and deemed established the facts and evidence
set forth in respondent's proposed stipulation of facts. On April 8, 2011,
petitioner filed a motion for relief from stipulations, which this Court
denied. [*4] a refund of a claimed $29,814 overpayment. He attached to his 2005
return a self-prepared Form 4852, Substitute for Form W-2, Wage and Tax
Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., on behalf of
Northwest. On the Form 4852 he reported that Northwest paid him zero wages and
that it withheld Federal income tax of $21,787. Respondent processed
petitioner's 2005 Form 1040 and refunded the $29,814 claimed overpayment to
him.
Petitioner submitted for filing a Form 1040 for 2008 on May
12, 2009. On his Form 1040 he reported his occupation as “American Citizen”. He
reported zero taxable income and requested a refund of a claimed $25,778
overpayment. He attached to his 2008 return a self-prepared Form 4852 on behalf
of Northwest. On the Form 4852 he reported that Northwest paid him zero wages
and withheld Federal income tax of $17,214. Respondent did not accept
petitioner's 2008 Form 1040 for filing.
On June 30, 2010, respondent issued to petitioner notices of
deficiency for 2005 and 2008. On the basis of the Forms W-2 filed by Northwest
respondent determined that petitioner failed to report wages of $154,749 and
$264,640 for 2005 and 2008, respectively. Respondent also determined that
petitioner was [*5] liable for additions to tax under sections 6651(a)(1) and
(2) and 6654 for 2005 and 2008.
On September 22, 2010, petitioner filed a petition with this
Court contesting respondent's determinations in the notices of deficiency. This
Court set this case for trial at the Mobile, Alabama, trial session beginning
April 26, 2011. At trial this Court warned petitioner that if he continued to
assert frivolous or groundless positions, this Court would consider imposing a
penalty under section 6673. In addition,
this Court repeatedly told petitioner that any testimony must be directed to
relevant factual issues and that this Court would give him an opportunity to
make his arguments after the testimony was completed and the evidentiary record
was closed. Despite the Court's warnings, petitioner continued to ignore the Court's
instructions and assert arguments in lieu of proper testimony. Specifically, he
argued that he did not receive wages in 2005 and 2008 because his activities
during those years did not satisfy the definition of “employment” in the Code.
He also referenced during his testimony various Code sections and regulations
that purportedly support his argument. Because he repeatedly violated this
Court's express instructions and ignored those instructions after repeated
warnings, this Court closed the evidentiary record and removed petitioner from
the courtroom. [*6] Because the Court had informed petitioner that he would be
allowed an opportunity to present to the Court his arguments in this case, on
May 23, 2012, this Court ordered each party to file a posttrial memorandum of
facts and law setting forth each party's factual and legal positions. In his
posttrial memorandum, petitioner continues to advance frivolous and groundless
arguments, including the following: (1) he is not engaged in “employment”, he
is not an “employee”, and he did not receive “wages”, as those terms are
defined in the Code; and (2) he is not subject to tax because he did not
perform services in “the District of Columbia, the Commonwealth of Puerto Rico,
the Virgin Islands, Guam, or American Samoa”. Petitioner's posttrial memorandum
cites numerous authorities, including cases and Code sections, out of context.
OPINION
I. Burden of Proof and Burden of Production Ordinarily, the
taxpayer bears the burden of proving that the determinations are erroneous.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 [12 AFTR 1456] (1933). The
burden of proof shifts to the Commissioner, however, if the taxpayer produces
credible evidence to support the deduction or position, the taxpayer complied
with [*7] the substantiation requirements, and the taxpayer cooperated with the
Secretary 4 with regard to all reasonable requests for information. Sec. 7491(a);see also Higbee v. Commissioner,
116 T.C. 438, 440-441 (2001).
Petitioner does not contend that section 7491(a)(1) applies,
and the record establishes that he did not satisfy the section 7491(a)(2)
requirements. Consequently, petitioner bears the burden of proof as to any
disputed factual issue. See Rule 142(a).
Under section 6201(d), if a taxpayer asserts a reasonable
dispute with respect to an item of income reported on an information return
filed by a third party and the taxpayer meets certain other requirements, the
Commissioner bears the burden of producing reasonable and probative evidence,
in addition to the information return, concerning the deficiency attributable
to the income item. The record establishes that petitioner received $154,749
and $264,640 from Northwest in 2005 and 2008, respectively. In his petition and
at trial, petitioner argued only that the payments from Northwest did not
constitute “wages” as defined by the [*8] Code. Petitioner has raised no
reasonable dispute with respect to the accuracy of the information returns. We
conclude that petitioner's attempt to dispute the accuracy of the information
returns under these circumstances is not reasonable and that the burden of
production with respect to the income did not shift to respondent under section
6201(d). 5 See, e.g., Carlson v. Commissioner, T.C. Memo. 2012-76 [TC Memo
2012-76].
II. Unreported Income
Section 61(a) defines gross income as “all income from whatever source
derived”, including “compensation for services, including fees, commissions,
fringe benefits, and similar items”. Wages and salaries are compensation for
services that are includable in gross income. See sec. 1.61-2(a), Income Tax
Regs.
The Commissioner's deficiency determination ordinarily is
entitled to a presumption of correctness. See Bone v. Commissioner, 324 F.3d
1289, 1293 [91 AFTR 2d 2003-1364] (11th Cir. 2003), aff'g T.C. Memo. 2001-43
[TC Memo 2001-43]. However, when a case involves “naked' assessment without any
foundation whatsoever”. Id. The record establishes that petitioner received
payments from Northwest in 2005 and 2008. The notices of deficiency are
adequately supported and are not “naked assessments”, and therefore the burden
of proof did not shift to respondent. See Gale v. Commissioner, T.C. Memo.
2002-54 [TC Memo 2002-54]. [*9] unreported income, the U.S. Court of Appeals
for the Eleventh Circuit, to which an appeal in this case would lie absent a
stipulation to the contrary,see ,sec. 7482(b)(1)(A), (2), has held that the
Commissioner's determination of unreported income is entitled to a presumption
of correctness only if the determination is supported by a minimal evidentiary
foundation linking the taxpayer to an income- producing activity, see Blohm v.
Commissioner 994 F.2d 1542, 1549 [72 AFTR 2d 93-5347] (11th Cir. , 1993), aff'g
T.C. Memo. 1991-636 [1991 TC Memo ¶91,636]. Once the Commissioner produces
evidence linking the taxpayer to an income-producing activity, the presumption
of correctness applies and the burden of production shifts to the taxpayer to
rebut that presumption by establishing that the Commissioner's determination is
arbitrary or erroneous. Id. at 1549; see also United States v. Janis, 428 U.S.
433, 441-442 [38 AFTR 2d 76-5378] (1976).
The record establishes, and petitioner has conceded, that he
received payments as reported by Northwest on Forms W-2 for the years at issue.
We conclude that respondent laid the requisite minimal evidentiary foundation
for the contested unreported income adjustments and that respondent's
determinations of tax due are entitled to a presumption of correctness.
At trial petitioner argued that the compensation amounts he
received are not wages and that he was not engaged in any “employment”
activity, as that term is [*10] defined in the Code. In his posttrial
memorandum petitioner continues to advance these same arguments. Petitioner
also argues that his compensation income is not subject to tax because he did
not perform services within “the District of Columbia, the Commonwealth of
Puerto Rico, the Virgin Islands, Guam, or American Samoa”. Petitioner raised no
other arguments regarding the accuracy of the information returns.
Petitioner has raised only frivolous and groundless
arguments. The U.S. Court of Appeals for the Eleventh Circuit has held similar
arguments to be frivolous and without merit. See United States v. Morgan, 419 Fed. Appx. 958, 959 [107 AFTR 2d
2011-1550] (11th Cir. 2011) (taxpayers' arguments concerning the definitions of
“employment” and “wages” were frivolous and without merit);United States v.
Ward, 833 F.2d 1538, 1539 [61 AFTR 2d 88-357] (11th Cir. 1987); Motes v. United
States, 785 F.2d 928, 928 [57 AFTR 2d 86-1115] (11th Cir. 1986); Biermann v.
Commissioner 769 F.2d 707, 708 [56 AFTR 2d 85-5783] (11th , Cir. 1985); Waters
v. Commissioner, 764 F.2d 1389, 1390 [56 AFTR 2d 85-5479] (11th Cir. 1985); see
also United States v. Nelson (In re Becraft), 885 F.2d 547, 548-549 [64 AFTR 2d
89-5656] (9th Cir. 1989). Petitioner's frivolous and groundless arguments
warrant no further discussion. See Crain v. Commissioner, 737 F.2d 1417, 1417
[54 AFTR 2d 84-5698] (5th Cir. 1984) (”We perceive no need to refute these arguments
with somber reasoning and [*11] copious citation of precedent; to do so might
suggest that these arguments have some colorable merit.”); Wnuck v.
Commissioner, 136 T.C. 498, 512 (2011).
Petitioner admitted that he provided services and received compensation
income during the years at issue. Because wages must be included in
petitioner's income under section 61, we sustain respondent's determination
with respect to the deficiencies in tax.
III. Additions to Tax Under Section 6651(a)(1) Under section
7491(c), the Commissioner bears the burden of producing evidence with respect
to the liability of the taxpayer for any penalty, addition to tax, or
additional amount. See Higbee v. Commissioner, 116 T.C. at 446-447. To meet his
burden of production, the Commissioner must come forward with sufficient
evidence that it is appropriate to impose the addition to tax. Id. Once the
Commissioner meets his burden, the taxpayer must come forward with evidence
sufficient to persuade this Court that the determination is incorrect. Id.
Respondent determined that petitioner is liable under section 6651(a)(1) for additions to tax for
failure to timely file a valid return for 2005 and 2008. 6 Section [*12]
6651(a)(1) authorizes the imposition of an addition to tax for failure to
timely file a return, unless it is shown that such failure is due to reasonable
cause and not due to willful neglect. See United States v. Boyle, 469 U.S. 241,
245 [55 AFTR 2d 85-1535] (1985); United States v. Nordbrock, 38 F.3d 440, 444
[74 AFTR 2d 94-6624] (9th Cir. 1994). A failure to file a timely Federal income
tax return is due to reasonable cause if the taxpayer exercised ordinary
business care and prudence but nevertheless was unable to file the return
within the prescribed time. See sec. 301.6651-1(c)(1), Proced. & Admin.
Regs. Willful neglect means a conscious, intentional failure to file or
reckless indifference toward filing. Boyle, 469 U.S. at 245.
To be considered as having filed a return, a taxpayer must
have filed a valid return. See Beard v. Commissioner, 82 T.C. 766, 777 (1984),
aff'd, 793 F.2d 139 [58 AFTR 2d 86-5290] (6th Cir. 1986). Under Beard v.
Commissioner, 82 T.C. at 777, a valid return is one that (1) contains
sufficient data to calculate a tax liability, (2) purports to be a return, (3)
represents an honest and reasonable attempt to satisfy the requirements of the
tax law, and (4) is executed by the taxpayer under penalties of perjury. A
taxpayer who files a document that purports to be a Federal income tax return
but which contains only zeros on the relevant lines has not filed a valid
return because it does not contain sufficient information for the Commissioner
to calculate and [*13] assess a tax liability. See Cabirac v.
Commissioner, 120 T.C. 163, 169 (2003);
Hamilton v. Commissioner T.C. Memo. 2009-271 [TC Memo 2009-271]. , Respondent
introduced into evidence petitioner's 2005 and 2008 Forms 1040 on which
petitioner reported zero taxable income. Respondent also introduced deemed
stipulations that petitioner had income from various sources including wages in
amounts sufficient to require the filing of returns and that petitioner failed
to file valid returns for 2005 and 2008. See Cabirac v. Commissioner, 120 T.C.
at 168-169. Consequently, we conclude that respondent has satisfied his burden
of production under section 7491(c), and petitioner must come forward with
evidence sufficient to persuade the Court that respondent's determination is in
error. Petitioner did not introduce any evidence to prove that he is not liable
for the additions to tax or that he had reasonable cause for his failure to
timely file his returns. Accordingly, we sustain respondent's determination as
to the section 6651(a)(1) additions to
tax for 2005 and 2008.
IV. Penalty Under Section 6673(a)(1) Section 6673(a)(1) provides that this Court
may require the taxpayer to pay a penalty not in excess of $25,000 whenever it
appears to this Court that: (1) the proceedings were instituted or maintained
by the taxpayer primarily for delay, (2) the taxpayer's position is frivolous
or groundless, or (3) the taxpayer unreasonably [*14] failed to pursue
available administrative remedies. A taxpayer's position is frivolous or
groundless if it is “contrary to established law and unsupported by a reasoned,
colorable argument for change in the law.” Williams v. Commissioner , 114 T.C. 136, 144 (2000) (quoting Coleman v.
Commissioner, 791 F.2d 68, 71 [57 AFTR 2d 86-1420] (7th Cir. 1986)).
Throughout these proceedings, petitioner repeatedly argued
that he was not an “employee” and that he did not receive “wages” as those
terms are defined by the Code. As noted supra pp. 9-10, these arguments are
contrary to well-established law and are frivolous. At trial petitioner did not
testify regarding any disputed factual matters, and he persisted in asserting
his frivolous and groundless arguments. Although this Court provided ample
warning of the potential implications of continuing to assert those frivolous
and groundless arguments, petitioner did not abandon his arguments or
acknowledge his liability for income tax on the income he received during 2005
and 2008. Instead, petitioner continued to assert these arguments at trial and
in his posttrial memorandum.
Although respondent did not move for the Court to impose a
penalty pursuant to section 6673, this Court believes that petitioner's conduct
deserves an appropriate sanction under section 6673. Accordingly, we shall
require petitioner to pay to the United States a penalty under section
6673(a)(1) of $2,000. In [*15] addition, we warn petitioner that if in the
future he maintains frivolous and groundless positions in this Court, this
Court may impose a penalty of up to $25,000 under section 6673(a)(1).
We have considered the parties' remaining arguments, and to
the extent not discussed above, conclude those arguments are irrelevant, moot,
or without merit.
To reflect the foregoing, Decision will be entered under
Rule 155.
1
In the notice of
deficiency for 2005 respondent determined that petitioner had failed to report
wages, capital gains, and interest income. In the notice of deficiency for 2008
respondent determined that petitioner had failed to report wages, capital
gains, interest income, ordinary dividends, qualified dividends, and gain from
the sale or exchange of assets.
1
In the notice of
deficiency for 2005 respondent determined that petitioner had failed to report
wages, capital gains, and interest income. In the notice of deficiency for 2008
respondent determined that petitioner had failed to report wages, capital
gains, interest income, ordinary dividends, qualified dividends, and gain from
the sale or exchange of assets.
2
Unless otherwise
indicated, all section references are to the Internal Revenue Code (Code), as
amended and in effect for the years in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure. All monetary amounts have been
rounded to the nearest dollar.
3
3
4
The term “Secretary”
means “the Secretary of the Treasury or his delegate”, sec. 7701(a)(11)(B), and the term “or his
delegate” means “any officer, employee, or agency of the Treasury Department
duly authorized by the Secretary of the Treasury directly, or indirectly by one
or more redelegations of authority, to perform the function mentioned or
described in the context”, sec.
7701(a)(12)(A)(i).
5
In his pretrial
memorandum petitioner argues that the notices of deficiency constitute “naked
assessments”. See United States v. Janis, 428 U.S. 433, 441 [38 AFTR 2d
76-5378] (1976). The presumption of correctness does not apply and the burden
of proof shifts to the Commissioner when he fails to make a determination and
issues a
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