1All 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.

T.C. Memo. 1998-372

UNITED STATES TAX COURT

GREGORY STEWART MALONE AND PAMELA JOYCE MALONE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24609-97. Filed October 13, 1998. 

Gregory Stewart Malone and Pamela Joyce Malone, pro sese.

James F. Prothro, for respondent.

MEMORANDUM OPINION

COHEN, Chief Judge: This case was assigned to Special Trial

Judge John F. Dean pursuant to section 7443A(b)(4) and Rules 180,

181, and 183.1 The Court agrees with and adopts the opinion of

the Special Trial Judge, which is set forth below.
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OPINION OF THE SPECIAL TRIAL JUDGE

DEAN, Special Trial Judge: This case is before the Court on

respondent's Motion To Dismiss For Failure To State A Claim Upon

Which Relief Can Be Granted, filed pursuant to Rule 40. The

motion also seeks an award of a penalty against petitioners under

section 6673.

Petitioners resided in Fort Worth, Texas, at the time the

petition in this case was filed. 

Respondent's Notices of Deficiency

On September 29, 1997, respondent mailed petitioners

respective notices of deficiency determining the following

deficiencies and additions to petitioners' Federal income taxes:

Petitioner Gregory Stewart Malone

 Taxable Additions to Tax 

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

 1992 $20,029 $5,007 $882

 1993 15,207 3,802 637 

 1994 21,076 5,269 1,086

 1995 20,723 5,181 1,131

Petitioner Pamela Joyce Malone

 Taxable Additions to Tax 

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

 1992 $11,744 $2,936 $512 

 1993 7,241 1,818 303

 1994 12,141 3,035 626

 1995 10,030 2,508 548

The deficiencies in income tax determined by respondent are

based on the determination that petitioners received
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compensation, prizes or awards, and capital gains during the

years 1992 through 1995, no part of which was reported on Federal

income tax returns for those years. The additions to tax under

section 6651(a)(1) are based on respondent's determination that

petitioners' failure to file timely Federal income tax returns

was not due to reasonable cause. The additions to tax under

section 6654(a) are based on respondent's determination that

petitioners failed to pay the required estimated income tax for

the years in issue.

Background

On December 24, 1997, this Court received and filed

petitioners' petition. On February 17, 1998, respondent's Motion

To Dismiss For Failure To State A Claim Upon Which Relief Can Be

Granted was filed under Rule 40, and it was requested therein

that the United States be awarded a penalty under section 6673. 

Petitioners filed a notice of objection to the motion on

February 23, 1998.

By Order dated February 20, 1998, this Court directed

petitioners to file an amended petition, stating specific

allegations of error in the notice of deficiency and a separate

statement of facts, on or before March 17, 1998. In addition,

this Court set a hearing on respondent's motion on April 20,

1998. Petitioners filed an amended petition on March 16, 1998,

and a hearing was held in accordance with the Order.
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Respondent asserts that this case should be dismissed for

failure to state a claim because petitioners have failed to

allege in the petition or amended petition any justiciable error

and merely assert frivolous arguments as a protest against paying

income taxes.

Petitioners assert numerous arguments, including assertions

that: (a) The amounts in the notices of deficiency are arbitrary

and without foundation; (b) petitioners do not voluntarily accept

liability and the Commissioner is therefore "without authority"

to act; (c) the Internal Revenue Service (IRS) does not exist as

an agency of the "Federal United States Government"; (d) no

determinations have been made in this case; (e) there is no Tax

Court jurisdiction over this case; (f) because there has been no

prior judicial determination, petitioners have been denied due

process; and (g) the substitutes for returns prepared by the IRS

in this case were not signed by petitioners or by the District

Director and are invalid.

Discussion

Rule 40 provides that a party may file a motion to dismiss

for failure to state a claim upon which relief can be granted. 

The Court may dismiss a petition when it appears beyond doubt

that the taxpayer can prove no set of facts in support of his

claim that would entitle him to relief.
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2The Internal Revenue Service Restructuring & Reform Act of

1998 (RRA 1998), Pub. L. 105-206, sec. 3001(a), 112 Stat. 685,

726-727, added sec. 7491, which shifts the burden of proof to the

Secretary in certain circumstances. Sec. 7491 is applicable,

however, to "court proceedings arising in connection with

examinations commencing after the date of the enactment of this

Act." RRA 1998 sec. 3001(c), 112 Stat. 727. The RRA 1998 was

enacted on July 22, 1998, and, accordingly, sec. 7491 is

inapplicable to this case.

Under Rule 34(b)(4) and (5), a petition must contain "Clear

and concise assignments of each and every error which the

petitioner alleges to have been committed by the Commissioner in

the determination of the deficiency" and "Clear and concise

lettered statements of the facts on which petitioner bases the

assignments of error". Moreover, any issue not raised in the

pleadings is deemed conceded. Rule 34(b)(4); Jarvis v.

Commissioner, 78 T.C. 646 (1982); Gordon v. Commissioner, 73 T.C.

736, 739 (1980).

In general, determinations made by the Commissioner in a

notice of deficiency are presumed to be correct, and the taxpayer

bears the burden of proving that those determinations are

erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).2

The petition filed in this case does not satisfy the

requirements of Rule 34(b)(4) and (5). There is neither

assignment of any error nor any allegation of fact in support of

a justiciable claim. Instead, petitioners' filings contain a

hodgepodge of rhetoric, unsupported assertions, and legalistic
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gibberish without any actual legal basis. Further, petitioners

did not file a proper amended petition as directed by the Court

in its Order dated February 20, 1998.

Petitioners are subject to the Federal income tax system the

same as other citizens of the United States. Having made up

their minds, petitioners do not seek to understand the law. They

merely seek to justify a position that they have already decided

to take. Nevertheless, we shall address some of their points.

By law, enforcement of the Internal Revenue Code is to be

performed "by or under the supervision of the Secretary of the

Treasury." Sec. 7801. Under section 7802(a): 

(a) Commissioner of Internal Revenue.--There shall

be in the Department of the Treasury a Commissioner of

Internal Revenue, who shall be appointed by the

President, by and with the advice and consent of the

Senate. The Commissioner of Internal Revenue shall

have such duties and powers as may be prescribed by the

Secretary of the Treasury.

Contrary to petitioners' argument, there is, in fact and in law,

an IRS. See Salman v. Department of Treasury--Internal Revenue

Service, 899 F. Supp. 471, 472 (D. Nev. 1995) (recognizing "a

host of Constitutional and statutory provisions that establish

the IRS is indeed a federal agency"; argument to the contrary was

found to be "wholly frivolous").

Petitioners argue that paying Federal income tax is

"voluntary", a misleading concept at best. Our Federal income

tax system provides for voluntary or self-assessment. See sec.
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3"Secretary" is defined to mean "the Secretary of the

Treasury or his delegate." Sec. 7701(a)(11)(B). A "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". Sec.

7701(a)(12).

Where a function is vested by the Internal Revenue Code or

any other statute in the Secretary or his delegate and Treasury

regulations provide that such function may be performed by such

officers as the Commissioner or District Director, the regulation

"shall constitute a delegation by the Secretary of the authority

to perform such function to the designated officer or employee." 

Sec. 301.7701-9(b), Proced. & Admin. Regs. 

An officer or employee authorized to perform a function by

regulation is authorized to redelegate the performance of such

function to an officer performing services under his supervision

unless prohibited by order or directive. Sec. 301.7701-9(c),

Proced. & Admin. Regs.

Petitioners claim to have been unable to find any delegation

of power to revenue agents to perform income tax examinations. 

We refer them to Deleg. Order No. 37 (Revised), 1957-2 C.B. 1089,

and Deleg. Order No. 4 (Rev. 20), 1990-1 C.B. 294. Even if such

(continued...)

6201(a)(1); sec. 6203 ("assessment" is recording the liability of

the taxpayer); sec. 301.6201-1(a)(1), Proced. & Admin. Regs. (the

District Director shall assess taxes determined by the taxpayer

as to which returns are made); see also Flora v. United States,

362 U.S. 145, 176 (1960). 

Imposition of the income tax, however, is not voluntary. 

See section 1, "There is hereby imposed on the taxable income

of--(1) every married individual * * * who makes a single return

jointly with his spouse under section 6013, * * * a tax

determined in accordance with" the table provided. (Emphasis

added.) Furthermore, if the Secretary or his delegate3 determines
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3(...continued)

delegations did not exist, it would have no legal impact on

petitioners' rights and obligations as citizens since delegations

are internal management rules and not substantive rules of law. 

Stamos v. Commissioner, 95 T.C. 624, 631 (1990), affd. without

published opinion 956 F.2d 1168 (9th Cir. 1992); accord United

States v. Saunders, 951 F.2d 1065, 1068 (9th Cir. 1991).

a deficiency in income tax, he is authorized to send to the

taxpayer a notice of deficiency by certified or registered mail

before assessing such deficiency. Secs. 6212(a), 6201(a). When

a taxpayer fails to file a return, as petitioners here, "it is as

if he filed a return showing a zero amount for purposes of

assessing a deficiency." Schiff v. United States, 919 F.2d 830,

832 (2d Cir. 1990). In such a case the deficiency is "the amount

of tax due", Laing v. United States, 423 U.S. 161, 174 (1976).

Petitioners, having failed to file Federal income tax

returns, were sent notices of deficiency by certified or

registered mail signed by the acting District Director.

Once a statutory notice of deficiency has been sent, a

taxpayer has 90 days in which to file a petition with the United

States Tax Court. During this period no assessment for the

deficiency may be made and no levy or proceeding in court for its

collection can be made or begun or, if a petition is filed, until

a decision of the Tax Court is final. Sec. 6213(a).

Petitioners have availed themselves of the statutory

protections provided by Congress by filing their petition and
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cannot be heard to argue that they have been somehow deprived of

their due process rights by this procedure. The issue was

decided by the Supreme Court at least 67 years ago. See Phillips

v. Commissioner, 283 U.S. 589, 599 (1931).

Petitioners rely on Scar v. Commissioner, 814 F.2d 1363 (9th

Cir. 1987), revg. 81 T.C. 855 (1983), and assert that there has

been no "determination" of a deficiency in their case and

therefore the notices of deficiency are invalid. In Scar, the

court noted that "The Commissioner acknowledges in the notice

that the deficiency is not based on a determination of deficiency

of tax reported on the taxpayer's return and that it refers to a

tax shelter the Commissioner concedes has no connection to the

taxpayers or their return." Scar v. Commissioner, supra at 1368. 

The facts of this case differ from those in Scar.

Petitioners evidently think that they fall within the rule

of Scar because they admittedly filed no Federal income tax

returns. But section 6211(a) makes it clear that only "if a

return was made by the taxpayer" does the tax shown "on a return"

figure in the Commissioner's determination of a deficiency. If

no return is made, the amount shown as the "'tax by the taxpayer

upon his return' shall be considered as zero." Sec. 301.6211-

1(a); see Laing v. United States, supra.
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Nowhere in petitioners' petition or amended petition do they

state any facts indicating that they did not receive the income

that was the subject of the notices of deficiency. The notices

of deficiency include as unreported income "employee

compensation". At the hearing on this motion petitioners admit

working during the years in issue and to being "compensated" for

that work. The notices of deficiency compute petitioners' tax

liability using the appropriate tax rate. The notices

unquestionably meet the minimum requirements; the Commissioner

properly "determined" the deficiency within the meaning of

section 6212(a).

At the hearing on this motion, apparently reading from

section 6020(a), petitioners made much of the fact that

substitutes for returns (SFR's) prepared by the Commissioner in

this case were not signed by them. But where a taxpayer fails to

file a return, section 6020(b) allows the Secretary (or the

District Director or other authorized internal revenue officer or

employee, sec. 301.6020-1(b)(1), Proced. & Admin. Regs.) to

prepare one "from his own knowledge and from such information as

he can obtain through testimony or otherwise". This section is,

however, permissive, not mandatory. United States v. Stafford,

983 F.2d 25, 27 (5th Cir. 1993); Roat v. Commissioner, 847 F.2d

1379, 1381 (9th Cir. 1988). Further, any inadequacies in SFR's
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4Petitioners misinterpret Abrams v. Commissioner, 787 F.2d

939 (4th Cir. 1986), affg. 84 T.C. 1308 (1985), to stand for the

proposition that a SFR must be filed where a taxpayer does not

himself file a tax return. What the court actually held in

Abrams was that warning letters sent by IRS to tax shelter

investors were not notices of deficiency.

or the absence of SFR's4 do not defeat a taxpayer's liability or

the Commissioner's computation of a deficiency. Geiselman v.

United States, 961 F.2d 1, 5 (1st Cir. 1992); Roat v.

Commissioner, supra; Hartman v. Commissioner, 65 T.C. 542, 546

(1975).

Petitioners have failed to state a claim upon which relief

can be granted. Accordingly, we will grant so much of

respondent's motion that moves to dismiss. See Scherping v.

Commissioner, 747 F.2d 478 (8th Cir. 1984).
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Section 6673 Penalty

We turn now to that part of respondent's motion that moves

for an award of a penalty against petitioners under section

6673(a). Section 6673(a)(1) authorizes the Tax Court to require

a taxpayer to pay to the United States a penalty not in excess of

$25,000 whenever it appears that proceedings have been instituted

or maintained by the taxpayer primarily for delay or that the

taxpayer's position in such proceedings is frivolous or

groundless.

A petition to the Tax Court is frivolous "if it is contrary

to established law and unsupported by a reasoned, colorable

argument for change in the law." Coleman v. Commissioner, 791

F.2d 68, 71 (7th Cir. 1986), affg. an unreported order of this

Court. Based on well-established law, petitioners' positions are

frivolous and groundless.

The record in this case convinces us that petitioners were

not interested in disputing the merits of either the deficiencies

in income tax or the additions to tax determined by respondent in

the respective notices of deficiency. Rather, the record

demonstrates that petitioners regard this case as a vehicle to

espouse their own misguided views of the tax laws of this

country.
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We are also convinced that petitioners instituted and

maintained this proceeding primarily, if not exclusively, for

purposes of delay. Dealing with this matter wasted the Court's

time and respondent's time, and taxpayers with genuine

controversies were delayed.

In view of the foregoing, we will exercise our discretion

under section 6673(a)(1) and require petitioner Gregory Stewart

Malone to pay a penalty to the United States in the amount of

$10,000. We will also require petitioner Pamela Joyce Malone to

pay a penalty to the United States in the amount of $5,000. See

Fox v. Commissioner, 969 F.2d 951, 953 (10th Cir. 1992), affg.

T.C. Memo. 1991-240 and T.C. Memo. 1991-241; Crain v.

Commissioner, 737 F.2d 1417, 1417-1418 (5th Cir. 1984); Coulter

v. Commissioner, 82 T.C. 580, 584-586 (1984).

An order of dismissal and

decision will be entered granting

respondent's Motion To Dismiss For

Failure To State A Claim Upon Which

Relief Can Be Granted.