T.C. Memo. 2004-234

UNITED STATES TAX COURT

GREG OLSON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21529-03. Filed October 13, 2004.

Respondent determined deficiencies and additions

to tax for petitioner’s 1999 and 2000 taxable years.

Held: Petitioner received taxable income during

1999 and 2000, and a portion thereof is subject to

self-employment tax. Sec. 861, I.R.C., and regulations

thereunder, do not exempt his compensation from tax.

Held, further, petitioner is liable for the sec.

6651(a)(1), I.R.C., addition to tax for failure timely

to file income tax returns for each of the years in

issue.

Held, further, petitioner is liable for the sec.

6654, I.R.C., addition to tax for failure to pay

estimated tax for the year 2000.

Greg Olson, pro se.

Cameron M. McKesson, for respondent.
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1 Unless otherwise indicated, section references are to the

Internal Revenue Code of 1986 as amended and in effect for the

years in issue, and Rule references are to the Tax Court Rules of

Practice and Procedure.

MEMORANDUM OPINION

WHERRY, Judge: This case is before the Court on crossmotions by the parties for summary judgment pursuant to Rule

121.1 The instant proceeding arises from notices of deficiency

in which respondent determined the following deficiencies and

additions to tax with respect to petitioner’s Federal income

taxes:

 Additions to Tax

Year Deficiency Sec. 6651(a)(1) Sec. 6654

1999 $4,107 $427.25 --

2000 9,772 1,908.50 $395.08

After a concession by respondent with respect to 2000, the

recalculated amounts for the deficiency, section 6651(a) addition

to tax, and section 6654 addition to tax for that year are

$6,921, $1,195.75, and $242.81, respectively. The issues for

decision are:

(1) Whether petitioner received taxable income during 1999

and 2000, a portion of which is subject to self-employment tax;

(2) whether petitioner is liable for the section 6651(a)(1)

addition to tax for failure timely to file income tax returns for

each of the years at issue; and
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(3) whether petitioner is liable for the section 6654

addition to tax for failure to pay estimated tax for 2000.

Background

During the taxable year 1999, petitioner received $18,521 in

wages from University Medical Center Corp. and $8,122 in

nonemployee compensation from Southwest Sleep Diagnostics. 

During the taxable year 2000, petitioner received wages of

$16,719 from University Medical Center Corp. and nonemployee

compensation of $17,181 from American Sleep Diagnostics. 

Petitioner did not file a Federal income tax return for 1999 or

2000.

On September 12, 2003, respondent issued the underlying

notices of deficiency referenced above. The determined

deficiencies and additions to tax were computed on the basis of

information returns submitted to the Internal Revenue Service by

third-party entities.

Petitioner’s petition challenging the notices of deficiency

was filed with the Court on December 18, 2003, having been

postmarked December 11, 2003, and reflected an address for

petitioner in Tucson, Arizona. The petition reflected

petitioner’s position that his income, being “domestic” and not

from any taxable source identified by regulations, did not

constitute taxable income. Respondent’s answer was filed on

February 4, 2004, and petitioner filed a reply, with multiple

attachments, on March 22, 2004. The attachments set forth at
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some length petitioner’s argument that section 861 and

regulations promulgated thereunder excluded his income from the

definition of taxable income.

After the pleadings were closed, petitioner on August 30,

2004, filed a motion for summary judgment. Respondent then filed

an opposing motion for summary judgment on September 20, 2004,

and a response to petitioner’s motion on September 23, 2004. On

September 30, 2004, a supplement to respondent’s motion for

summary judgment was filed, setting forth the adjusted

computations for the 2000 deficiency and additions to tax

engendered by respondent’s concession as to a portion of the

income for that year. By order dated September 21, 2004,

petitioner was directed to file any response to respondent’s

motion on or before October 1, 2004. Petitioner filed a response

largely reiterating the position expressed in his own motion.

Discussion

Rule 121(a) allows a party to move “for a summary

adjudication in the moving party’s favor upon all or any part of

the legal issues in controversy.” Rule 121(b) directs that a

decision on such a motion shall be rendered “if the pleadings,

answers to interrogatories, depositions, admissions, and any

other acceptable materials, together with the affidavits, if any,
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show that there is no genuine issue as to any material fact and

that a decision may be rendered as a matter of law.”

The moving party bears the burden of demonstrating that no

genuine issue of material fact exists and that he or she is

entitled to judgment as a matter of law. Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994). Facts are viewed in the light most favorable to the

nonmoving party. Id. However, where a motion for summary

judgment has been properly made and supported by the moving

party, the opposing party may not rest upon mere allegations or

denials contained in that party’s pleadings but must by

affidavits or otherwise set forth specific facts showing that

there is a genuine issue for trial. Rule 121(d).

I. Petitioner’s Motion for Summary Judgment

Petitioner’s motion for summary judgment summarizes his

position as follows:

this is what must happen in order for there to be

taxable domestic income: 1)One must receive a taxable

“item” of income (e.g. compensation, interest, rents,

etc.) per 26 USC §§ 61 and following. I stipulate that

my income appears to be a taxable item. 2) The “source

rules” must categorize the income as domestic income

per 26 USC §§ 861(a) and 26 CFR §§§§ 1.861-2 through

1.861-7. I stipulate that my income appears to be

domestic. 3) The income must derive from a “specific

source or activity” which is taxable. My income does

not appear to be derived from a taxable specific source

or taxable activity.

As to the third point enumerated, petitioner explained:
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There are specific rules (mainly in 26 CFR §§

1.861-8) describing when domestic income is

taxable (non-exempt), and describing when

foreign income is taxable. Those rules only

show income to be taxable when derived from

certain specific sources and activities, all

of which are connected to international or

foreign commerce (including, among other

things, foreigners receiving income from the

U.S., and Americans receiving certain foreign

income). Those rules do not show the

domestic income of most Americans to be

taxable.

As to the substance of petitioner’s motion, analogous

arguments premised on section 861 and the regulations promulgated

thereunder have been repeatedly rejected. E.g., Takaba v.

Commissioner, 119 T.C. 285, 294-295 (2002); Williams v.

Commissioner, 114 T.C. 136, 138-139 (2000); Dashiell v.

Commissioner, T.C. Memo. 2004-210; Corcoran v. Commissioner, T.C.

Memo. 2002-18, affd. 54 Fed. Appx. 254 (9th Cir. 2002). In

Williams v. Commissioner, supra at 138, for instance, the

taxpayer contended that his income, because not from any of the

sources listed in section 1.861-8(a), Income Tax Regs., was not

taxable. This Court observed:

Petitioner’s arguments are reminiscent of taxprotester rhetoric that has been universally rejected

by this and other courts. We shall not painstakingly

address petitioner’s assertions “with somber reasoning

and copious citation of precedent; to do so might

suggest that these arguments have some colorable

merit.” Crain v. Commissioner, 737 F.2d 1417, 1417

(5th Cir. 1984). * * * [Id. at 138-139.]

Suffice it to say that we direct petitioner to this Court’s

recent detailed explanation and analysis in Dashiell v.
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Commissioner, supra, which explicitly addresses petitioner’s

contentions by pointing out, inter alia, that section 61

“prefaces its use of the word ‘source’ by the word ‘whatever’,

thereby making the particular source of a U.S. taxpayer’s income

(and the income sourcing rules of sections 861-865) irrelevant

for purposes of the definition of income under section 61.”

Accordingly, the contentions raised in petitioner’s motion

do not provide a basis upon which summary judgment may be granted

in his favor. We also caution petitioner that similar arguments

have led to the imposition of penalties under section 6673 for

maintaining frivolous positions. E.g., Takaba v. Commissioner,

supra at 295-296; Williams v. Commissioner, supra at 144;

Corcoran v. Commissioner, supra. Petitioner is hereby forewarned

that any arguments pressed in the future should be carefully

tailored and limited to nonfrivolous matters.

II. Respondent’s Motion for Summary Judgment

A. Deficiencies

Respondent determined that petitioner was liable for

deficiencies generated by his failure to report and pay taxes on

income earned in 1999 and 2000. As a general rule, the Internal

Revenue Code imposes a Federal tax on the taxable income of every

individual. Sec. 1. Section 61(a) specifies that “Except as

otherwise provided”, gross income for purposes of calculating

taxable income means “all income from whatever source derived”. 
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The scope of this definition is broad, typically reaching any

accretions to wealth. Commissioner v. Schleier, 515 U.S. 323,

327 (1995); Commissioner v. Glenshaw Glass Co., 348 U.S. 426,

429-431 (1955). Among the items expressly classified as income

under section 61(a) is “Compensation for services, including

fees, commissions, fringe benefits, and similar items”. Sec.

61(a)(1).

Petitioner conceded in signed stipulations that he received

wage income during 1999 and 2000 in the amounts of $18,521, and

$16,719, respectively. He similarly admitted that he received

nonemployee compensation of $8,122 in 1999 and $17,181 in 2000. 

As previously indicated, petitioner’s arguments as to why this

income is nontaxable are meritless. The Court concludes that

petitioner is liable for income tax deficiencies on the above

compensation. Similarly, given petitioner’s concession that the

$8,122 and $17,181 amounts constitute nonemployee compensations,

these amounts are subject to self-employment tax under section

1401.

B. Additions to Tax

Section 7491(c) places on the Commissioner the burden of

production regarding additions to tax. The burden with respect

to “reasonable cause, substantial authority, or similar

provisions” then shifts to the taxpayer. Higbee v. Commissioner,
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116 T.C. 438, 446 (2001). On the record presented in this case,

respondent has carried the requisite burden of production. 

Section 6651(a)(1) imposes an addition to tax for failure to

file a required return on or before the prescribed filing date,

unless it is shown that such failure is due to reasonable cause

and not due to willful neglect. “Willful neglect” denotes “a

conscious, intentional failure or reckless indifference.” United

States v. Boyle, 469 U.S. 241, 245 (1985). “Reasonable cause”

correlates to “ordinary business care and prudence”. Id. at 246

& n.4; sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

Petitioner here conceded that he did not file a Federal

income tax return for 1999 and 2000. He has offered no

explanation for this failure beyond his frivolous assertions that

his income was not subject to tax. The Court holds that

petitioner is liable for additions to tax under section 6651 for

both years in issue.

Section 6654 imposes an addition to tax for underpayment of

estimated tax, subject to limited exceptions enumerated in

subsection (e). The record here reflects an underpayment of

estimated tax for 2000 and does not reflect that any of the

referenced exceptions is applicable. Imposition of an addition

to tax under section 6654 is sustained with respect to 2000.
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To reflect the foregoing and the concession by respondent,

An appropriate order will

be issued denying petitioner’s

motion for summary judgment

and granting respondent’s

motion for summary judgment as

supplemented, and an

appropriate decision,

incorporating respondent’s

concession, will be entered

for respondent.