T.C. M em o . 2 0 1 8 -1 8 8

UNITED STATES TAX COURT

M ICHAEL J AM ES W ELLS AND LYNN ANITA KIRCHNER-W ELLS, Pet i t io n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 9 6 9 3-1 7. Fi l edNo vem b er 8 , 2 0 18
.

M i ch ael J am es W el l s an dLy n n An i ta Ki rch n er-W el l s, p ro s es e. Dav i dB. M o ra, fo r res p on d en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION GERBER, J u d g e: Th i s m at t er i s b efo re t h e Co u rt o n res p o n d en t ’ s m o t i o n fo r s u m m ary ju d g m en tfi l edp u rs u an tt o Ru l e 1 2 1
. 1 Res p o n d en td et erm i n eda

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de i n effect fo r t h e y ears ati s s u e, an dal l Ru l e referen ces are t o th e (co n ti n u ed ...)- 2
-

[* 2 ] d efi ci en cy

i n p et i t i o ner M i ch ael J am es W el ls ’ 2 0 1 2 Fed eral i nco m e t ax o f $ 5 2 ,0 5 1 an dad d i ti o n s t o tax o f $ 7 ,3 4 9 .8 5 , $ 7 ,1 8 6 .5 2 , an d$ 5 4 7 .0 3 u n d er s ect i o n s 6 6 5 1 (a)(1 ) an d(2 ) an d6 6 5 4 , res p ect i vel y . 2 Res po n d en tal s o d et erm i n eda d efi ci en cy

i n p et i t i o ners ’ 2 0 1 3 Fed eral i n co m e t ax o f $ 9 3 ,8 0 7
. 3

FINDINGS OF FACT Atth e t im e t h e p et i t i on was fi l ed , p et i t i o ners res i d edi n Tex as . Du ri n g th e y ears ati ss u e M r. W el l s wo rk edi n m ark et in g atTran s Can ad a
an d p et i t i o n er Lyn n An i t a Ki rch n er-W el l s wo rk ed i n s al es atHewl et t -Pack ard
. Pet i t io n ers fi l edjo i n tFed eral i n co m e t ax retu rn s fo r t ax ab l e y ears 2 0 1 2 an d2 0 1 3 th atrep o rt edzero wag es an dzero i nco m e ex cep tfo r $ 1 0.5 9 i n i nt eres t fo r t ax ab l e y ear 2 0 1 2 . Pet i t i o n ers s o u g h trefu nd s fo r t h e fu l l am o u n t s o f t ax wi th hel dfro m th ei r p ay ch eck s fo r b o th y ears . Att ach edt o th ei r return s were Fo rm s W -2 , W ag e
an d Tax St at em en t , fro m

Tran s Can ad a an dHewl et t -Pack ardwh i ch refl ect edth e

1 (...co n t in u ed ) Tax Co u rtRu l es o f Pract i ce an dPro cedu re.

2 Up o n m o t i o n b y res p on d en tan daft er a h eari n g , th e cas e was d i s m i s s ed s o l el y as t o M s . Ki rch ner-W el l s ’ 2 0 12 t ax ab l e y ear fo r l acko f ju ri sd i ct i o n o n th e g ro u ndth atth e p et i t io n was n ott i m el y fi l edwi th res p ectt o th e n o t i ce o f d efi ci en cy

fo r 2 0 1 2 i s su edt o h er o n Au g u st2 9 , 2 0 1 6
. 3 Res p o n d en tco n ced edthe s ec. 6 6 6 2 (a) p en al ty fo r p et i t i o n ers ’ 2 0 1 3 t ax ab l e y ear.- 3
-

[* 3 ] am ou nt s o f wag es an dt ax wi th hel dfo r each y ear an dco rrect edFo rm s 1 0 9 9
- DIV, Di v i d en d s an d Di s tri b u t i o n s , an do ther d ocu m en t s . Pet i t i o ners al s o at t ach edFo rm s 4 8 52 , Subs t i tu te fo r Fo rm W -2 , W ag e an d Tax St at em en t , t o each o f t h e ret u rn s i n d i cat i n g zero wag es an dth e s am e am o u n t s o f t ax wi th hel das was s h own o n each Fo rm W -2 . Th e Fo rm s 4 85 2 i ncl u d edth e fo l l o w i n g t ax p ro t es t er s t at em en t s : I am a p ri v at e-s ect o r wo rk er, n o tan “ em p lo y ee” as d efi n edi n IRC 3 4 0 1 (c) an d IRC 3 12 1 . I wo rk edwi th a p ri v at e-s ect o r co m p an y , n o t a fed eral em

pl oy er as d efi n edi n IRC 3 4 01 (d ). I d i dn o ten g ag e i n a “ trad e o r b u s i n es s ” as d efi n edi n USC Sect i o n 7 7 0 1 (a)(2 6).

* * * * * * * Di dn o tas kPay er t o i s su e co rrect edfo rm s l i s ti n g m y p aym en t s o f “ wag es ” as d efi nedi n IRC 3 4 0 1 (c) an d IRC 3 1 21 fo r fear o f creat i n g a co n fl i ct edwo rken v i ro n m en t . Li n e 7 (e)(h )(I) refl ectaccu rat el y wi th hel dv al u es s ub m i t tedb y Pay er o n W -2
. Res p o n d en td i dn o ttreatp et i t io n ers ’ 2 0 1 2 an d2 0 13 retu rn s as v al ido r t i m el y . In s t ead , res p on d en tp rep areds ub s t i tu t es fo r retu rn s (SFR) fo r b o th y ears p u rs u an t t o s ect io n 6 02 0 (b ) an dp u rs u an tt o s ect i o n 6 7 0 2 (a) as s es s edfri v o l o u s retu rn p en al ti es ag ai n s tp et i t i o n ers wi th res p ectt o b o th retu rn s. Th e SFRs s h o wed t ax l i ab i l i t i es o f $ 52 ,0 51 an d $ 9 3 ,8 0 7 fo r t h e 2 0 1 2 an d 2 01 3 t ax ab l e y ears , res p ect i vel y .- 4
-

[* 4 ] OnM ay

3 , 2 0 1 7 , p et it i o n ers fi l eda p et i t i o n wi th t h e Co u rt , an dth i s cas e
was cal l edfro m

the cal en d ar atth e Co u rt ’ s Feb ru ary 1 2 , 2 01 8 , Ho u s to n, Tex as , tri al s es s i o n , wh ere res p o n d en tfi l eda m o t i o n fo r s umm ary ju d g m en t . Pet i t i o n ers fi led ano p po s i t i o n t o res p o n d en t ’ s m o t i o n fo r s u m m ary ju d g m en to n Feb ru ary

1 5 , 2 0 1 8 , an da h eari ng was h el do n th e m at t er o n Feb ru ary 1 6 , 2 01 8
. OPINION Su m m ary ju d g m en tm ay

b e g ran t edi f t h ere i s n o g enu i n e d is p u t e as t o an y
m at eri al factan da d eci s i o n m ay b e ren d eredas a m at t er o f l aw. Ru l e 1 2 1 (b ). Fact u al i n feren ces are v i ewedi n a l i g htm o s t fav o rab l e t o th e n o nm o v i n g p art y , an d th e m o v i n g p art y

b ears th e b u rd en o f p ro v in g th atth ere i s n o g en u i n e d i s p u t e o f m at eri al fact an dthath e i s en t i t l edt o ju d g m en tas a m at t er o f l aw. Sund s tran d Co rp . v . Co m

m i ss i o n er, 9 8 T.C. 5 18 , 5 2 0 (1 9 9 2 ), aff’ d, 1 7 F.3 d 9 6 5 (7 th Ci r. 1 9 9 4 ). Ho wev er, t he n o nm o v i n g p art y “ m u s ts etfo rt h s p eci fi c fact s s h owi n g that th ere i s a g en u i ne d i s p u t e fo r t ri al .” Ru l e 1 21 (d ); s ee Su n d s tran dCo rp .v . Co m m i s s i o n er, 9 8 T.C. at 5 2 0
. I. Pet i t i o n ers ’ Defi ci en ci es Gro s s i n co m e i n cl u d es “ al l i n co m e fro m wh at ev er s o u rce d eri v ed ”. Sec. 6 1 (a). Paym en t s th atare “ u n d en i ab l e acces s i o n s t o weal th, cl earl y real i zed , an d
o v er wh i ch th e t ax p ay ers h av e co m p l et e d o m i n i o n ” are t ax ab l e i n co m e u nl es s an- 5
-

[* 5 ] ex cl u s i on ap p l i es . See Co m m i s s i o n er v . Gl en s h aw Gl as s Co ., 3 4 8 U.S. 4 2 6 , 4 3 1 (1 95 5 ). Pet i ti o ners d o n otd i s p u t e th atth ey recei v edth e i n co m e o n wh i ch th e d efi ci en ci es are b as ed . In s t eadp et i t i on ers arg u e t h at th ey are n o t l i ab l e fo r Fed eral i nco m e t ax . Pet i t io n ers ’ as s ert i o n s th atthey are n o tem

p l o y ees an dth ei r wag es d o n o tco n st i tut e t ax ab l e i n co m e are co m m o n t ax p ro t es t er arg u m en t s th at th i s Co u rth as rep eat ed l y reject edas g ro u n d l es s an d fri v o l o u s . See, e.g ., Gru n s t ed
v . Co m m i s s i o n er, 1 3 6 T.C. 4 55 (2 0 1 1 ); Bo n acco rs o v . Co m m i si o n er, T.C. M em o . 2 0 0 5 -2 7 8 ; Dep u ty

v . Co m m i s s i o n er, T.C. M em o . 2 0 0 3 -2 1 0 ; Rayner v . Co m m i s s i o n er, T.C. M em o . 2 0 0 2 -3 0 , aff’ d , 7 0 F. Ap p ’ x 7 3 9 (5 th Ci r. 2 0 0 3 ). W e wi l l n o trefu t e p et i t i on ers ’ arg u m en t s wi th s o m b er reas on i n g an d
co p io u s ci t at i o n s as i f s u ch arg u m en t s p o s ses s ed s om e co l o rab l e m eri t. See Crai n
v . Co m m i s s i o n er, 7 3 7 F.2 d1 4 1 7 , 1 4 1 7 (5 th Ci r. 1 9 8 4). Pet i t i o n ers h av e al l eg ed
n o fact s i n th ei r o b

j ect io n s t o res p o n d en t ’ s m o t i on fo r s u m m ary ju d g m en to r arg u ed th atan y

m at eri al fact s are i n d i s p ut e rel at i n g t o res p o n d en t ’ s d et erm i n at i o n o f t h ei r t ax l iab i l i ti es . Th erefo re, res p o n d en t ’ s d efi ci en cy d et erm in at i o n s are s u s t ai n ed
. II. Ad d it i o n s t o Tax Im

po s edAg ai n s t M r. W el l s Res p o n d en td et erm i n edM r. W el l s i s l i ab l e fo r ad d i t i o n s t o t ax u n d er s ect i on s 6 6 5 1 (a)(1 ) an d(2 ) an d6 6 5 4 fo r t h e 2 0 1 2 t ax ab l e y ear. Un d er s ect i o n- 6
-

[* 6 ] 7 4 9 1 (c), t h e Co m

m i s s i o n er h as th e b u rd en o f p ro du ct i o n t o s h o w th atth e i m p o s i t i o n o f an ad d it i o n t o t ax o r p en al ty i s ap p ro p ri at e. Res po n d en t s at i s fi edth e b u rd eno f p ro du ct i o n b y

m ean s o f p et i t i o n ers ’ retu rn , th i rd -p art y i n fo rm at i on retu rn s rel at in g t o p et i t i on ers ’ i n co m e, an d p et i t io n ers ’ Fo rm s 4 8 5 2 at t ach edt o th ei r retu rn an dth e SFR fo r 2 0 1 2
. Sect io n 6 6 5 1 (a)(1 ) req u i res an i m p o s i t i o n o f an ad d i t i o n t o t ax fo r fai l u re t o fi le a t i m el y

retu rn u n l es s th e t ax p ay er p ro ves th ats u ch fai l u re was du e t o reas on ab l e cau s e an dn o tdu e t o wi l l fu l n eg l ect . To d et erm i n e wh et h er a t ax p ay er h as fi l eda v al i dreturn fo r p u rp o s es o f s ect i o n 6 6 5 1(a)(1 ), th e Co u rt l oo k s t o th e t es ti n Beard v . Co m

m i s s i o n er, 8 2 T.C. 7 6 6 , 7 7 7 (1 98 4 ), aff’ d , 7 9 3 F.2 d1 3 9 (6 t h Ci r. 1 9 86 ). See, e.g ., Ho l m es v . Co m m i ss i o n er, T.C. M em o . 2 01 1 -3 1
. Th e fo u r-p artt es ti n Beard v . Co m m is si o n er, 8 2 T.C. at7 7 7, req u i res th at : (1 ) t h e d o cu m en tco n t ai n s s u ffi ci en td at a t o cal cu l at e t ax l i ab i l i ty , (2 ) t h e d o cu m en tp u rp o rt s t o b e a ret u rn , (3 ) t here i s a h o nes tan dreas o n ab l e at t em p tt o s at i s fy th e req u i rem en t s o f th e t ax l aw, an d(4 ) t h e t ax p ay er ex ecu t e t h e ret u rn
u n d er p en al t i es o f p erju ry . Res p o n d en tco n t en d s th atth e 2 01 2 t ax retu rnM r. W el l s fi l edd i dn o tco n s t i tu t e a v al i dretu rn b ecau s e i t d i dn o tm eetth e fi rs tan d th i rd req u i rem en t s o f the Beard t es t . W e ag ree wi th res p o n d en t . Fi rs t , a m ajo ri t y o f co u rt s an dthi s Co u rth av e co n s i s t en tl y h el dth ata t ax retu rn co n t ai n i n g o n l y- 7
-

[* 7 ] zero s i s n ota v al id retu rn b ecau s e i t d o es n o tco n t ai n s u ffi ci en t i n fo rm at i o n fo r t h e Co m

m i s s i o n er t o cal cu lat e an das s es s a t ax l i ab i l it y . See Un i t edSt at es v . M o s el , 7 3 8 F.2 d1 5 7 (6 th Ci r. 1 9 8 4 ); Un i t edSt at es v . Sm i th , 6 18 F.2 d 2 8 0 , 2 8 1 (5 th Ci r. 1 9 8 0 ); Cab i rac v . Co m m i s s i o n er, 1 2 0 T.C. 1 6 3 , 1 6 9 (2 0 0 3), aff’ d wi t h o u t p ub l i s h edo p i n i o n, 9 4 A.F.T.R.2 d(RIA) 2 0 04 -5 4 9 0 (3 dCi r. 2 0 0 4 ); Arn et tv . Co m m i s s i o n er, T.C. M em o . 2 0 0 6 -1 3 4 , aff’ d , 2 4 2 F. Ap p ’ x 4 9 6 (1 0 th Ci r. 2 0 0 7 ). Seco n d , zero retu rn s acco m p an i edb y arg u m en t s th at h av e b een co n s i s t en t ly reject edb y

the co u rt s d o n o tco n s t i tu t e an h o n es tan dreas o n ab l e at t em p tt o s at i s fy th e req u i rem en t s o f t h e t ax l aw. See Cab i rac v . Co m m i s s io n er, 1 2 0 T.C. at1 6 9
- 1 7 0 ; Hal co t tv . Co m

m is s i o n er, T.C. M em o. 2 0 0 4 -2 1 4 . M r. W el l s d i d n o t fi l e a
v al i dretu rn fo r t ax ab l e y ear 2 0 1 2 an dd i dn o targ ue o r s h o w th ath i s fai l u re t o fi l e was due t o reas o n ab l e cau s e. Th erefo re, res po n d en t ’ s d et erm i n at i o n th atM r. W el l s i s l i ab l e fo r t h e ad d i t io n t o t ax fo r fai l u re t o fi l e u n d er s ect io n 6 65 1 (a)(1 ) i s s u s t ai n ed
. Sect io n 6 6 5 1 (a)(2 ) i m

p o s es an ad d i t io n t o t ax fo r fai lu re t o p ay t im el y th e
am ou n to f t ax s h o wno n a retu rn . Li k e t h e ad d i t i o n t o t ax fo r fai lu re t o t i m el y fi le, th i s ad d i t i o n wi l l n o tb e i m p o s edwh en a t ax p ay er d em o n st rat es th atfai l ure t o p ay was due t o reas o n ab l e cau s e an dn o twi l l fu l n eg l ect . Sec. 6 6 5 1 (a)(2 ). M r. W el l s d i dn o t fi l e a v al i dretu rn fo r 2 0 1 2
. Ho wev er, res p o n d en tp rep aredan SFR fo r M r.- 8
-

[* 8 ] W el l s ’ 2 0 12 t ax ab l e y ear (2 0 1 2 SFR) p u rs u an tt o s ect i on 6 0 2 0(b ). AnSFR p rep aredb y

th e Secret ary

u n der s ect i o n 6 0 2 0 (b ) i s treat edas th e ret u rnfi l edb y th e t ax p ay er fo r p urp os es o f s ect i o n 6 6 5 1 (a)(2 ). See s ec. 6 6 5 1 (g )(2 ). Th e reco rd
co n tai n s th e 2 0 1 2 SFR res p o n d en tp rep ared an di s s u edt o M r. W el l s an ds h o ws th atth e requ i rem en t s o f s ect i o n 6 0 2 0 (b ) are m et . See Rad er v . Co m m i s si on er, 1 4 3 T.C. 3 7 6 , 3 8 2 (2 0 1 4 ), aff’ d i n p art , ap p eal d i s m i s s edi n p art , 6 1 6 F. Ap p’ x 3 9 1 (1 0 th Ci r. 2 0 1 5 ). M r. W el l s d i dn o td i s p u t e t h ath e fai l edt o p ay th e t ax s h own o n h i s 2 0 1 2 retu rnan dd i dn o targ u e o r s h o w th ath i s fai l u re t o p ay was due t o reas on ab l e cau s e. Th erefo re, res p o nd en t ’ s d et erm in at i o n th atM r. W el l s i s l i ab l e fo r t h e ad d it i on t o t ax fo r fai lu re t o t i m el y p ay u n der s ect i o n 6 6 5 1 (a)(2 ) i s s u s t ai n ed
. Sect io n 6 6 5 4 i m

p os es an ad d i t i o n t o t ax fo r u n d erp aym en to f a req u i red i n s t al l m en to f es t im at edt ax . Th e Co m m i s s i o ner’ s b u rd en req u i res h i m t o p ro du ce ev i d en ce t h atth e t ax p ay er h ad a “ req u i red an n u al p aym en t ” u nd er s ect i o n 6 6 5 4 (d ). To d o s o th e Co m

m i s s io n er m

u s tes t ab l i s h the t ax s h o wno n t h e t ax p ay er’ s retu rn fo r t h e p reced in g y ear o r d em o n s trat e t h atth e t ax pay er fi l edn o s uch retu rn . See Wh eel er v . Co m

m i s s i on er, 1 2 7 T.C. 2 0 0 , 2 0 8 -2 1 1 (2 0 06 ), aff’ d , 5 2 1 F.3 d 1 2 8 9 (1 0 th Ci r. 2 0 0 8 ). Res p o n den twas ab l e t o s h o w th atM r. W el l s was req u i redt o fi l e a Fed eral i n co m e t ax retu rn fo r 2 01 2 b u t th at th e ret u rn h e fi l edwas i n val i d
.- 9
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[* 9 ] Res po n den tp ro du ceda v al i dSFR s h o wi n g a $ 5 2 ,0 5 1 t ax l i ab i l i ty fo r M r. W el l s ’ 2 0 1 2 t ax ab l e y ear. Fu rt h er, res po n den t ’ s m o ti o n fo r s u m m ary ju d g m en t i n cl u d edev i d en ce s h o w i n g th atM r. W el l s d idn o t fi l e an i n co m e t ax retu rn fo r 2 0 1 1 . M r. W el l s d o es n o t d i s p u t e t h ath e d i dn o tm ak e es ti m at edt ax p aym en t s fo r 2 0 1 2 . M r. W el l s d o es n o t co n ten dh e qu al i fi es fo r an y o f t h e ex cep t i on s u n d er s ect i on 6 6 5 4 (e) an dp res en tedn o arg u m en t wi th res pect t o t h e s ect i o n 6 6 5 4 ad d it i o n t o t ax . Th erefo re, we s u s tai n res p o n d en t ’ s d et erm i n at io n th atM r. W el l s i s l iab l e fo r t h e ad d it i o n t o t ax u n d er s ect io n 6 65 4
. Th e Co u rtm ay

o n i ts o wnd et erm i n e wh et her t o i m p o s e a p en al ty

n o tt o ex ceed $ 25 ,0 0 0 wh en i tap p ears t o th e Co u rtth ata t ax pay er’ s p o s it i o n i s fri v o l o u s o r g ro u n d l es s . Sec. 6 6 7 3 . W e d i dn o tfi n di n t h e reco rdthatp et i t i o n ers h av e
m ad e t h es e o r s i m i l ar fri v ol o u s cl ai m s i n th e Co u rtb efo re o r t h atth ey h av e b een p rev i o u s l y fo rewarn ed . Thus we wi l l n o t i m p o s e o n e h ere, n or d o es res p o nd en t
s eeka s ect io n 6 6 7 3 p en al ty i n th i s cas e. Ho wev er, we cau t i o n p et i t i o n ers th at fu tu re ad v an cem en to f t h es e o r s i m i l ar arg u m en t s are l i k el y t o b e s an ct i o n edan d wi l l res u l ti n p en al t i es o f up t o $ 2 5 ,0 0 0 u nd er s ect i on 6 6 7 3. W e h av e ex am i n ed al l th e m at eri al s i n th e reco rdan dco n s tru edfact s m o s t fav o rab l y fo r p et i ti o n ers , an dwe co n cl u d e t h atth ere i s n o g en ui ne d i s p u t e as t o- 1 0 -

[* 1 0 ] an y m at eri al factfo r tri al i n th i s cas e. Th erefo re, res p o n den t ’ s m o ti o n fo r
s u m m ary ju d g m en twi l l b e g ran t ed
. To refl ectthe fo reg o i n g , Anap p ro p ri at e o rd er an dd eci s i o n wi l l b e en t ered
.