T.C. Memo. 2000-78

UNITED STATES TAX COURT

PHILIP LEWIS HART, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 10398-98, 16155-98. Filed March 7, 2000.

Philip Lewis Hart, pro se.

Julie L. Payne, for respondent.

MEMORANDUM OPINION

PAJAK, Special Trial Judge: Respondent determined

deficiencies in petitioner's Federal income taxes, additions to

taxes, and penalties in the following amounts:

 Additions to tax Penalty 

Year Deficiency Sec. 6651(a)(1) Sec. 6654 Sec. 6662(a)

1994 $5,352 - - $1,070

1995 7,822 - $424 1,564

1996 12,497 $3,124 665 -
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Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure. 

After a concession by respondent, this Court must decide: 

(1) Whether wages, rental income, interest, and individual

retirement account distributions received by petitioner are

taxable; (2) whether petitioner is liable for the addition to tax

under section 72(t) for the early distributions from qualified

retirement plans during the 1996 taxable year; (3) whether

petitioner is liable for an addition to tax under section

6651(a)(1) for the failure to file a tax return for the 1996

taxable year; (4) whether petitioner is liable for additions to

tax under section 6654 for the failure to pay estimated taxes for

the 1995 and 1996 taxable years; (5) whether petitioner is liable

for accuracy-related penalties under section 6662(a) for the

underpayment of taxes for the 1994 and 1995 taxable years; and

(6) whether a penalty should be awarded to the United States

under section 6673. 

For clarity and simplicity, we have combined the findings of

fact and conclusions of law. Some of the facts in this case have

been stipulated and are so found. Petitioner resided in Coeur

d'Alene, Idaho, at the time he filed his petitions in this

consolidated case. 
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Petitioner was employed as an engineer during 1994 and 1995. 

He received wages as compensation for the services he provided as

an engineer in the amounts of $34,775 and $42,106 in 1994 and

1995, respectively. Petitioner received rental income of $9,250

and $10,500 in 1994 and 1995, respectively. In 1994 and 1995,

petitioner received interest income of $125 and $144,

respectively. In 1996, petitioner received $284 of interest

income from two different sources, $34,936 as a distribution from

an individual retirement account (IRA) held by National Financial

Services Co., and $8,933 as a distribution from an IRA held by

Charles Schwab and Co., Inc. Petitioner had not reached the age

of 591⁄2 as of December 31, 1996, nor was he disabled as of this

date.

Petitioner timely filed his 1994 and 1995 tax returns. In

an attachment to the 1994 return, petitioner stated: "The wages

I earned as reflected on my W-2 form are nontaxable personal

property." The attachment also contained other typical tax

protester arguments. The 1995 return contained a similar

attachment. In 1994, $4,777 in Federal income tax was withheld

from petitioner's wages. There is no evidence that tax was

withheld in 1995. Yet, on both returns, petitioner claimed

refunds of $4,777. Petitioner did not file a 1996 tax return.

Respondent determined that petitioner had tax liabilities

for all 3 years in the amounts of the deficiencies listed above,
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together with the additions to tax and penalties. Respondent's

determinations in the statutory notices of deficiency are

presumed correct, and petitioner bears the burden to disprove the

determinations. Rule 142(a); Welch v. Helvering, 290 U.S. 111

(1933). Respondent concedes that petitioner did not receive

refunds of California State income tax in the amounts of $774 and

$1,431 in 1994 and 1995, respectively, which had been included in

the calculations of the deficiencies for those years.

Petitioner first argues that the statutory notices of

deficiency were not authentic. At trial, we found that all

requirements of the notice of deficiency had been satisfied for

all 3 years. Petitioner next argued: "when I read the statutes

and the regulations, I do not find in them where there is a tax

on the wages, that's payable by me. It's conceivable there could

be a tax payable by somebody else, but it's not payable by me." 

Petitioner makes tax protester arguments that have been

repeatedly rejected by this Court and others as inapplicable or

without merit. Rowlee v. Commissioner, 80 T.C. 1111 (1983);

McCoy v. Commissioner, 76 T.C. 1027 (1981), affd. 696 F.2d 1234

(9th Cir. 1983). We see no need to repeat these discussions

here.

Suffice it to say that petitioner is not exempt from having

to pay Federal income taxes. Abrams v. Commissioner, 82 T.C.

403, 407 (1984). Payments of compensation for services performed
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are included in gross income and subject to the Federal income

tax. Sec. 61(a)(1). Likewise, interest, rental income, and IRA

distributions are included in gross income and subject to Federal

income tax. Secs. 1, 61(a)(4), 61(a)(5), 61(a)(9), 61(a)(11),

408(d). Petitioner's income from wages, interest, rent, and IRA

distributions is taxable. We sustain respondent's determinations

on these issues.

We next consider whether petitioner is liable for the

section 72(t) additional tax. Distributions from a qualified

retirement plan are subject to a 10-percent tax unless an

exception applies. Sec. 72(t). A qualified retirement plan

includes an IRA. Secs. 4974(c), 408(a). Petitioner has offered

no evidence that any exception applies in his case. Sec.

72(t)(2). Because petitioner received two distributions in 1996

from two IRA's, he is liable for the additional tax under section

72(t). 

We now decide whether petitioner is liable for an addition

to tax pursuant to section 6651(a)(1). Section 6651(a)(1)

imposes an addition to tax for failure to file a Federal income

tax return by its due date, unless the taxpayer establishes that

the failure was due to reasonable cause and not willful neglect. 

Petitioner must prove both reasonable cause and a lack of willful

neglect. Crocker v. Commissioner, 92 T.C. 899, 912 (1989). 

"Reasonable cause" requires the taxpayer to demonstrate that he
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exercised ordinary business care and prudence. United States v.

Boyle, 469 U.S. 241, 246 (1985). Willful neglect is defined as a

"conscious, intentional failure or reckless indifference." Id.

at 245.

Petitioner admitted that he did not file a tax return for

1996, and he did not provide any reason for his failure to file. 

Because petitioner presented no reasonable cause for his failure

to file, we sustain respondent’s determination of the addition to

tax under section 6651(a)(1).

Because the 1995 tax return was timely filed, we do not have

jurisdiction over the section 6654 addition to tax for 1995. 

Fujita v. Commissioner, T.C. Memo. 1999-164.

We now consider whether petitioner is liable for the

addition to tax under section 6654 for the failure to pay 

estimated taxes for 1996. Section 6654(c) imposes a requirement

that estimated taxes be paid in installments. If a taxpayer

fails to pay a sufficient amount of estimated taxes, section

6654(a) provides for a mandatory addition to tax in the absence

of exceptions not applicable here. Grosshandler v. Commissioner,

75 T.C. 1, 20-21 (1980). Petitioner failed to pay estimated

taxes in 1996, and no Federal income tax was withheld from his

income. Accordingly, petitioner is liable for the addition to

tax under section 6654 for the 1996 taxable year. 
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Section 6662(a) provides for an accuracy-related penalty in

the amount of 20 percent of the portion of an underpayment of tax

attributable to, among other things, negligence or disregard of

rules or regulations. Sec. 6662(a) and (b)(1). Negligence is

defined to include any failure to make a reasonable attempt to

comply with the provisions of the internal revenue laws. Sec.

6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. Moreover,

negligence is the failure to exercise due care or the failure to

do what a reasonable and prudent person would do under the

circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985). 

Disregard is defined to include any careless, reckless, or

intentional disregard of rules or regulations. Sec. 6662(c);

sec. 1.6662-3(b)(2), Income Tax Regs.

Clearly, by purposely not paying his taxes, petitioner has

not behaved as a reasonable and prudent person. Petitioner has

shown an intentional disregard of the rules and regulations. We

uphold the imposition of the accuracy-related penalties under

section 6662(a) for the underpayments of the 1994 and 1995 tax

liabilities.

We grant respondent’s motion for a penalty under section

6673. Under section 6673, this Court may award a penalty to the

United States of up to $25,000 when the proceeding has been

instituted or maintained by the taxpayer primarily for delay or

if the taxpayer’s position in such proceeding is frivolous or
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groundless. Sec. 6673. Based on the record, we conclude that

such an award is appropriate in this case.

Petitioner has pursued a frivolous and groundless position

throughout this proceeding. At the beginning of this trial,

petitioner was clearly warned that if he proceeded with the

arguments contained in his written submission, then he would be

subject to penalties. Petitioner knew or should have known that

his position was groundless and frivolous, yet he persisted in

maintaining this proceeding primarily to impede the proper

workings of our judicial system and to delay the payment of his

Federal income tax liabilities. Accordingly, a penalty is

awarded to the United States under section 6673 in the amount of

$10,000 in each docket.

To the extent we have not addressed petitioner's arguments,

we have considered them and find them to be without merit.

Decision will be entered under

Rule 155 in docket No. 10398-98 

and decision will be entered for 

respondent in docket No. 16155-98,

and a penalty will be awarded to 

the United States under section

6673.