T.C. Memo. 1995-577

UNITED STATES TAX COURT

ANGELA MATTHEWS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

RICHARD L. MATTHEWS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 16603-94, 16604-94. Filed December 4, 1995.

Montford S. Ray, for petitioners.

Jill R. Zimmerman, for respondent.

MEMORANDUM OPINION

FAY, Judge: These cases were assigned to Chief Special

Trial Judge Peter J. Panuthos pursuant to the provisions of
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1 All section references are to the Internal Revenue Code

in effect for the year in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure, unless otherwise

indicated.

section 7443A(b)(4) and Rules 180, 181, and 183.1 The Court

agrees with and adopts the opinion of the Chief Special Trial

Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, Chief Special Trial Judge: Respondent determined

a deficiency in petitioner Angela Matthews' 1991 Federal income

tax in the amount of $8,362 and an addition to tax in the amount

of $2,091 pursuant to section 6651(a)(1). Respondent also

determined a deficiency in petitioner Richard Matthews' 1991

Federal income tax in the amount of $9,597 and an addition to tax

in the amount of $2,399 pursuant to section 6651(a)(1). Upon

motion by the parties, these two dockets were consolidated for

trial, briefing, and opinion. In her Amendment to Answer in each

docket, respondent asserted an increased deficiency and addition

to tax. Thus, the amounts of the deficiencies and additions to

tax in issue for 1991 are as follows:

Docket No. 16603-94--Angela Matthews

Deficiency Sec. 6651(a)(1) Addition to Tax

 $23,255 $5,814

Docket No. 16604-94--Richard L. Matthews

Deficiency Sec. 6651(a)(1) Addition to Tax

 $41,316 $10,329
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2 The Forms 1040-NR were not made part of the record.

Petitioners, however, do not appear to dispute respondent's

assertion that said forms did not contain relevant tax

information.

The issues for decision are: (1) Whether petitioners'

failure to file Federal income tax returns for 1991 invalidates

the notices of deficiency; (2) whether the result in this case is

affected by the burden of proof; and (3) whether respondent's

motion for the imposition of penalties and costs pursuant to

section 6673 should be granted.

Some of the facts have been stipulated, and they are so

found. The stipulation of facts and attached exhibits are

incorporated herein by this reference. At the time of filing the

petitions, petitioners resided in Malvern, Pennsylvania.

Petitioners did not file Federal income tax returns for the

1991 tax year. At some point, petitioners submitted Forms 1040-

NR for 1991 to the Internal Revenue Service (IRS). The Forms

1040-NR did not include any tax information.2 The IRS prepared a

substitute for return for each petitioner on Forms 1040 for the

1991 tax year. In their respective petitions for redetermination

of the deficiencies, petitioners originally disputed the

adjustments as determined by respondent in her notices of

deficiency. Counsel for petitioners, Montford S. Ray, entered an

appearance in each case on June 12, 1995, the date these cases

were called at the calendar call in Philadelphia, Pennsylvania. 
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The cases were set for trial on the following day, June 13, 1995. 

At the calendar call, petitioner Angela Matthews conceded that

she received $59,147 in income during 1991, and petitioner

Richard Matthews conceded that he received $113,048 in income

during 1991. At trial, petitioners conceded the amounts of the

deficiencies and the additions to tax as determined and claimed

by respondent.

At trial, Mr. Ray made a number of arguments including: (1)

The substitute for return prepared by respondent does not

constitute a valid return; (2) the IRS does not have the

statutory authority to determine a deficiency since petitioners

failed to file returns; (3) petitioners do not bear the burden of

proof as mandated by Rule 142(a) because said rule is not

explicitly authorized by statute; (4) the IRS is seeking to

collect a "penalty * * * in regard to a W-4, which is a subtitle

C tax" that is not collectible by the IRS; and (5) the addition

to tax is a non-compliance penalty which may only be asserted

through an action maintained in U.S. District Court. Respondent

argues that petitioners' claims are frivolous and groundless, and

asks this Court to impose penalties against petitioners and costs

against counsel pursuant to section 6673(a)(1) and (2),

respectively. Petitioners oppose respondent's motion as

unwarranted and excessive.

At the outset we note that the arguments made by Mr. Ray are

without factual and legal foundation and appear to represent a
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protest of the Federal tax laws. While all of Mr. Ray's

arguments do not require responses or copious citation of

precedent (Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984),

affg. per curiam an order of this Court), we shall, nevertheless,

briefly discuss some of the issues raised.

We first address the issue of the validity of the notices of

deficiency. Section 6212 provides that "If the Secretary

determines that there is a deficiency in respect of any tax

imposed by subtitle A or B * * *, he is authorized to send notice

of such deficiency to the taxpayer by certified mail or

registered mail." Sec. 6212(a). We have construed this

statutory language broadly so as to give great latitude to the

IRS in making determinations of tax liability. See Giddio v.

Commissioner, 54 T.C. 1530, 1533 (1970).

The failure of a taxpayer to file a return does not prevent

the Commissioner from determining a deficiency. In Hartman v.

Commissioner, 65 T.C. 542, 546 (1975), we stated: "Obviously,

the fact that petitioner failed to file a return will not

insulate him from a determination by the Commissioner that a tax

is due and owing and a civil proceeding based thereon." 

According to the U.S. Supreme Court, "Where there has been no tax

return filed, the deficiency is the amount of tax due." Laing v.

United States, 423 U.S. 161, 174 (1976). The argument petitioner

has advanced is inconsequential given the clear weight of

authority on this issue.
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3 RULE 142. BURDEN OF PROOF

(a) General: The burden of proof shall be upon the

petitioner, except as otherwise provided by statute or

determined by the Court; and except that, in respect of

any new matter, increases in deficiency, and

affirmative defenses, pleaded in the answer, it shall

be upon the respondent. * * *

 

4 Petitioners would have the burden of proof with respect

to the deficiencies and additions to tax determined in the

notices of deficiency, and respondent would have the burden of

proof with respect to new matters raised in respondent's

amendments to answers. Rule 142(a); Wayne Bolt & Nut Co. v.

Commissioner, 93 T.C. 500, 507 (1989); Zirker v. Commissioner,

87 T.C. 970, 978 (1986); Achiro v. Commissioner, 77 T.C. 881, 890

(1981).

Petitioners argue that there is no authority for requiring

them to bear the burden of proof.3 We note initially that the

burden of proof is not in question in these cases. Petitioners

have conceded the deficiencies and additions to tax as determined

in the notices of deficiency and as claimed by respondent in her

amendments to answer. The burden of proof is a device utilized

in a legal proceeding to establish which party must come forward

with sufficient factual evidence to allow the Court to make its

findings. Zirker v. Commissioner, 87 T.C. 970, 978 (1986). Had

petitioners not conceded the deficiencies and additions to tax,

the burden of proof would have been split between petitioners and

respondent.4 However, in light of petitioners' concession of the

deficiencies and additions to tax (including the increased

deficiencies and additions claimed by respondent in her

amendments to answers), any question as to the burden of proof is
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5 Sec. 6673(a) provides:

(1) Procedures instituted primarily for delay,

etc.--Whenever it appears to the Tax Court that--

(A) proceedings before it have been

instituted or maintained by the taxpayer

(continued...)

irrelevant. Mr. Ray's attempt to raise the burden of proof in

light of the concessions at trial is patently unreasonable. As a

further matter, we note that, even if the burden of proof were an

issue, petitioners' argument is without merit. There is no

question that a taxpayer generally bears the burden of proving

that the Commissioner's determination is erroneous. See Rockwell

v. Commissioner, 512 F.2d 882 (9th Cir. 1975), affg. T.C. Memo.

1972-133; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

As previously indicated, we will not address Mr. Ray's other

arguments. To do so may suggest that these arguments are

tenable. The Court of Appeals for the Fifth Circuit responded to

similar tax protestor arguments as follows: "We perceive no need

to refute these arguments with somber reasoning and copious

citation of precedent; to do so might suggest that these

arguments have some colorable merit." Crain v. Commissioner,

supra at 1417. The Court of Appeals for the Third Circuit

followed Crain v. Commissioner, supra, in Sauers v. Commissioner,

771 F.2d 64, 67 (3d Cir. 1985), affg. T.C. Memo. 1984-367.

The final issue pertains to respondent's motion for

penalties and costs pursuant to section 6673.5 In their
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5(...continued)

primarily for delay,

(B) the taxpayer's position in such

proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably failed to

pursue available administrative remedies,

the Tax Court, in its decision, may require the

taxpayer to pay to the United States a penalty not in

excess of $25,000.

(2) Counsel's liability for excessive costs.--

Whenever it appears to the Tax Court that any attorney

or other person admitted to practice before the Tax

Court has multiplied the proceedings in any case

unreasonably and vexatiously, the Tax Court may

require--

(A) that such attorney or other person

pay personally the excess costs, expenses,

and attorneys' fees reasonably incurred

because of such conduct, * * *

respective petitions to this Court, petitioners alleged that

respondent's determinations would be refuted by the facts they

would present at trial. Petitioners did not present any evidence

with respect to income or deductions. In fact, petitioners

conceded the adjustments at trial. While respondent alludes to

frivolous arguments made by petitioners, the record does not

reflect any frivolous or groundless arguments made by petitioners

prior to their representation by Mr. Ray. Nor is this Court

convinced that the petitions were filed primarily for delay. 

Therefore, in the exercise of our discretion, we decline to

impose penalties pursuant to section 6673(a)(1) against

petitioners.
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6 The failure of this Court to impose sanctions against

petitioners pursuant to sec. 6673 does not necessitate a finding

that these sanctions should not be levied against counsel for

petitioners as well. To the contrary, we may determine that

petitioners' counsel's actions warrant imposition of a sanction

despite our failure to impose such sanctions against petitioners.

See Harper v. Commissioner, 99 T.C. 533 (1992), in which this

Court granted sec. 6673 sanctions against taxpayers' counsel but

not against taxpayers. 

Respondent also seeks to have this Court award costs against

Mr. Ray pursuant to section 6673(a)(2)(A).6 For a history of

section 6673(a)(2) and a full discussion of the standards to be

considered, see Harper v. Commissioner, 99 T.C. 533, 545 (1992);

see also Murphy v. Commissioner, T.C. Memo. 1995-76; Leach v.

Commissioner, T.C. Memo. 1993-215. We stated in Murphy as

follows:

Section 6673(a)(2) is derived from section 1927 of the

Judicial Code, 28 U.S.C. section 1927 (1988), and it

has been held that imposition of a sanction under 28

U.S.C. section 1927 requires a "clear showing of bad

faith". See, e.g., Oliveri v. Thompson, 803 F.2d 1265,

1273 (2d Cir. 1986); Kamen v. American Telephone &

Telegraph Co., 791 F.2d 1006, 1010 (2d Cir. 1986). 

However, a minority of Courts of Appeals, including the

Court of Appeals for the District of Columbia Circuit,

do not require such a showing. Reliance Ins. Co. v.

Sweeney Corp., 792 F.2d 1137, 1138 (D.C. Cir. 1986);

see also In Re Ruben, 825 F.2d 977, 983-984 (6th Cir.

1987). This Court has not decided which standard we

will apply. * * * [Fn. ref. omitted.]

 We are satisfied that Mr. Ray acted in bad faith. The

position argued by him is frivolous and groundless. As in Sauers

v. Commissioner, petitioners' counsel did not dispute the

deficiencies and additions to tax but "raised a litany of legal

arguments typical of those asserted by 'tax protesters.'" Sauers
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v. Commissioner, supra at 66. Additionally, counsel had fair

notice that costs might be imposed against him for pursuing such

frivolous arguments. At trial, after Mr. Ray made his opening

statement, the Court read section 6673(a)(2) aloud and gave the

following warning:

The Court simply read that section to you, Mr. Ray,

suggesting to you that you proceed at your peril. And

if you want to proceed, you certainly may proceed. It

may well be that there's something new that I've never

seen or heard of before, but I'd, frankly, be

surprised.

Despite the warning, Mr. Ray proceeded to present argument with

respect to the aforementioned issues. When Mr. Ray asked the

Court if briefs could be filed with respect to the issues raised,

the Court initially declined. At a later point in the

proceeding, the Court indicated that it would permit briefs on

the issue of the application of penalties or costs under section

6673. Nevertheless, Mr. Ray submitted a brief which included

other arguments previously made. Mr. Ray also indicated in

petitioners' brief as follows:

At trial the undersigned was unaware that no financial

information had been included on the Forms 1040 NR

filed by Petitioners and would not have argued that

said filing constitutes a return. This attorney is

without sufficient information on the subject to form

an opinion on the matter.

The record in this case demonstrates that petitioners'

counsel acted in bad faith. Bad faith relates not only to the

commencement of litigation, but to the continuation of litigation

vexatiously, wantonly, or for oppressive reasons. Harper v.
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7 See also Rule 33(b); Versteeg v. Commissioner, 91 T.C.

339 (1988); Shamam v. Commissioner, T.C. Memo. 1992-77.

Commissioner, supra at 546. Despite being admonished by the

Court, Mr. Ray proceeded to make frivolous nonsensical arguments

at trial and on brief. His statements with respect to lack of

knowledge of matters relating to assertions and arguments made

before this Court reflect a failure to carefully review the

evidence in this case and do the appropriate research to properly

prepare the case.7 The fact of his having filed an entry of

appearance the day before trial is not an acceptable excuse for

counsel's action in this case. Such conduct has multiplied the

proceedings unreasonably and vexatiously.

We also note that this is not the first time Mr. Ray has

appeared before this Court to advance tax protester claims. In

Reichenbach v. Commissioner, T.C. Memo. 1995-369, Mr. Ray

unsuccessfully argued that "respondent may only determine a

deficiency for a taxpayer when she receives a tax return `filled

out and filed by the taxpayer.'" Mr. Ray also argued in

Reichenbach that respondent bears the burden of proof because

Rule 142(a) is without statutory support. The Court explained

that these arguments, which are virtually identical to those

raised here, are frivolous tax protester claims. Therefore, Mr.

Ray was well aware that such claims are frivolous, and yet he

continued to advance them in the present case. We conclude
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petitioners' counsel acted in bad faith in multiplying the

proceedings unreasonably and vexatiously.

 The question presented then is the extent to which counsel

will be penalized for asserting such frivolous claims. 

Attorney's fees awarded under section 6673(a)(2) are to be

computed by multiplying the number of excess hours reasonably

expended on the litigation by a reasonable hourly rate. The

product is known as the "lodestar" amount. * * * [Harper v.

Commissioner, 99 T.C. 533, 549 (1992).]

See also Pennsylvania v. Delaware Valley Citizens' Council for

Clean Air, 478 U.S. 546, 563 (1986). The standards of rule 11 of

the Federal Rules of Civil Procedure are applicable in

determining the hourly rate to charge counsel for respondent's

excess attorney time. Harper v. Commissioner, supra at 550. 

Specifically--

The hourly rate properly charged for the time of a

government attorney is the "amount to which attorneys

of like skill in the area would typically be entitled

for a given type of work on the basis of an hourly rate

of compensation". [Harper v. Commissioner, supra at 551

(citing United States v. Kirksey, 639 F. Supp. 634, 637

(S.D.N.Y. 1986); citations omitted.]

This Court has inherent authority to reduce or increase the

number of hours in respondent's accounting, and to adjust the

rate to be applied in determining the lodestar amount. Fed. R.

Civ. P. 11; Harper v. Commissioner, supra at 550 n.13.

Respondent submitted itemized affidavits of estimated excess

attorney and paralegal time spent on this case with a fee

schedule. Specifically, respondent submitted affidavits

detailing the time spent on this case as follows:
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 Name Time Rate Lodestar Amount

Jill R. Zimmerman1 51 hrs., 21 min. $100/hr. $ 5,135.00

Kenneth J. Rubin 5 hrs., 27 min. $150/hr. 817.50

John E. Becker 12 hrs., 5 min. $150/hr. 1,812.50

Lori A. Feldish 12 hrs., 30 min. $75/hr. 937.50

TOTAL: $8,702.50

1 Jill R. Zimmerman is the docket attorney to whom

these cases were assigned. She commenced employment

with respondent's Office of Chief Counsel and was

admitted to practice before this Court in Jan. 1995. 

Kenneth J. Rubin is an Assistant District Counsel and

supervised the work of Ms. Zimmerman. (The record does

not reflect the extent of Mr. Rubin's background or

experience.) John E. Becker is a senior trial attorney

with a post of duty in Philadelphia. He has been

employed by respondent's Office of Chief Counsel since

1971. He sometimes served as Acting Assistant District

Counsel and supervised the work of Ms. Zimmerman. Lori

A. Feldish is a paralegal and has been employed by

respondent's Office of Chief Counsel since Oct. 1987.

Petitioners do not dispute the hourly rates suggested by

respondent. However, petitioners' counsel asserts that

respondent's claim for the amount of time expended in this matter

is excessive. Mr. Ray argues that he should not be liable for

fees associated with respondent's counsel's "on the job

training."

Upon a review of the estimates submitted by respondent, we

conclude that not all the time spent by respondent's counsel was

due to the misconduct of Mr. Ray. Respondent's claim of excess

attorney and paralegal time exceeds 80 hours. The attorney

assigned to this case (Ms. Zimmerman) indicates in her affidavit

that she spent over 51 hours in dealing with this case between

June 12, 1995, and August 11, 1995. A review of the specific
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breakdown of hours reflects that the bulk of the time was spent

in brief preparation and consultation with her supervisor. A

review of the breakdown of hours spent on this matter by the

paralegal reflects that the majority of time was allocated to

research and consultation with Ms. Zimmerman. Almost the entire

time allocated to this case by Messrs. Rubin and Becker relate to

advice, discussions, and review provided to Ms. Zimmerman. Given

that Ms. Zimmerman, the attorney who had primary responsibility

for this case, only commenced employment with respondent's Office

of Chief Counsel and was only admitted to practice in this Court

in January 1995, we conclude that Mr. Ray should not be

responsible for all of the excess time claimed. Based on the

entire record, including our substantial experience with

"protestor cases", we hold that Mr. Ray is liable for 16 hours

and 45 minutes of attorney and paralegal time as follows:

 Name Time Rate Lodestar Amount

Jill R. Zimmerman 8 hrs., 30 min. $100/hr. $ 850.00

Kenneth J. Rubin 1 hr., 45 min. $150/hr. 262.50

John E. Becker 3 hrs. $150/hr. 450.00

Lori A. Feldish 3 hrs., 30 min $75/hr. 262.50

TOTAL: $1,825.00

Therefore, respondent's motion for award of damages against

petitioners' counsel is granted in the amount of $1,825.

To reflect the foregoing,

 An appropriate order will

 be issued, and decisions for

 respondent will be entered.