T.C. Mem o. 2 01 3- 26 5

UNITED STAT ES TAX COURT

JOHN LEW IS HILL, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 14 62 5- 12
. Fi le d No ve m be r 19 , 20 13
.
Jo hn Lewis Hil l, p ro se. Ann e M. Cra ig , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION MARVEL, Ju dg e: Res po nd en t d et erm in eda de fic ie nc y of $ 4,0 93 in pe ti ti on er’s 2 00 5 F ed eral in co m e ta x a ndad di ti on s t o t ax of $ 92 1, $ 1,0 23 , and $1 64 un de r se ct io ns 66 51 (a)( 1) an d (2 ) an d 6 65 4, res pe ct iv el y . After 1
Unl es s o th erwi se in di cat ed , all st atut ory refe ren ces are t o t he Int ern al 1 (co nt in ue d...)- 2 -

[* 2] co nc es si on s, th e is su es forde ci si onare: (1) whet he r pe ti ti on er i s l iabl e fo r a 2 de fic ie nc y

inFed eral in co m e ta x fo r 20 05 ; (2 ) whe th er p et it io ne r is li ab le forth e ad di ti on s t o t ax un de r se ct io ns 66 51 (a)( 1) an d (2 ) an d 6 65 4; an d (3 ) whe th er pe ti ti on er i s l iabl e fo r a p en al ty und er s ect io n 6 67 3 fo r in st itut in g p ro ceed in gs pr im ari ly for d el ay

or f orass ert in g fr iv ol ou s o r gr ou nd le ss po si ti on s. FINDINGS OF FACT So m e o f th e fac ts ha ve be ende em edest ab li sh edforpurp os es of t hi s ca se pu rs ua ntto Ru le 91 (f). The de em edfact s ar e in co rp or at edhe rei n b y th is refe ren ce. Pet it io ne r res id edinFlo rid a whe n h e p et it io ne d thi s C ou rt. I. Pet it io ne r’s In co m e Dur in g 2 00 5 p et it io ne r was sel f-em pl oyed as a he ari ng aidsp eci al is t. He
or de redan d s ol d h eari ng aid s, p erfo rm edhe ari ng tes ts , andfit te d a ndad jus te d he ari ng aid s fo r cu st om ers . Peti ti on er p erfo rm edhi s h eari ng aidact iv it ie s thr ou gh hi s s ol e p ro pr ie to rs hi p, Pr eci si on Heari ng AidCen te r (Pre ci si on Heari ng ). Prec is io n Hearin g was inSt. Cl ou d, Fl or id a. (...co nt inue d) 1 Rev enue Co de (Co de ) in effe ctforth e y ear a t i ss ue , andall Ru le refe ren ces are t o th e Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. All m on et ary am ount s ar e ro un de d t o t he ne ares t d ol la r. Res po nd en t co nc ed es th atpe ti ti on er’s cap it al ga in for20 05 was $ 68 5 a nd 2 th atpe ti ti on er d idno t re cei ve $6 49 inno ne m pl oyee co m

pe ns at io n i nc om e.- 3 -

[* 3] Thro ug h P reci si on Heari ng pe ti ti on er re cei ve d m ed ic al pa ym en t i nc om e th at was rep orte d t o re sp on de nton th ird -p arty in fo rm at io n re tu rn s. Pet it io ne r rec ei ve d
m ed ic al pa ym en t i nc om e o f $2 ,80 0 fr om Nort h Am eri canHeal th Pla ns , Inc ., $6 ,35 0 fr om

Uni te d Hea lthc are I ns ur an ce Co ., and$6 66 fro m Blu e Cro ss & Bl ue Sh ie ldof F lo rid a, In c. Pet it io ne r al so m ai nt ai ne d a n i nv es tm en t ac co un t atTD Am eri tra de du rin g 2 00 5. Pe ti ti on er re cei ve d $ 30 ,92 0 fro m th e sa le of s to ck s an d 3 bo nd s thr ou gh hi s Am eri tra de acco un t i n 2 00 5. II. Pet it io ne r’s Return a ndNot ic e o f Defi ci en cy On J anua ry

21 , 20 09 , res po nd en t re cei ve d p et it io ne r’s Fo rm 10 40 , U.S. In di vi du al Inc om e Tax Return, fo r 20 05 . W ith t he ex cep ti on of l in es 40 an d 4 1 (s ho win g the st an da rdde du ct io n a s a p os it iv e am ou ntan d ane ga ti ve am ou nt , res pe ct iv el y ) an d l in e 4 2 (s ho win g t he ex em pt io n a m ou nt ), eachli ne on Res po nd en t i nt ro du cedin to ev id en ce co ns ol id at edFo rm 10 99 -INT-DIV- 3 MIS C-OID-1 09 9B , whi chsh owe d p et it io ne r rec ei ve d $ 30 ,92 4 fr om th e sa le of st oc ks an d b on ds th ro ug h Am eri tra de in20 05 . On March 13 , 20 13 , res po nd en t fil eda m ot io n t o s ho w cau se why pr op os edfact s an d e vi de nc e sh ou ldno t b e acce pt edas e st ab li sh edun de r Ru le 91 (f). In cl ud edinres po nd en t’s fa ct s at pa rag rap h 6 was apro po se d fi nd in g t ha t p et it io ne r earne d $ 30 ,92 0 fr om th e sa le of st oc ks an d b on ds th ro ug h Am eri tra de in20 05 . By ord er d at edApri l 1 1, 2 01 3, thi s Co urt d eem edest ab li sh edth e fac ts an d e vi de nc e se t fo rth inres po nd en t’s m ot io n to sh ow caus e. Res po nd en t al so in tro du cedin to ev id en ce a Fo rm 45 49 , Inc om e Tax Exam in at io n C ha ng es , anda Fo rm 88 6- A, Exp la na ti on of I te m s, wh ic h s ta te th atpe ti ti on er’s i nc om e fro m th e sa le of s to ck s an d b on ds th ro ug h Am eri tra de was $3 0,9 20 . W e res ol ve th e d is crep an cy inpe ti ti on er’s i nc om e fro m Am eri tra de in 20 05 by treat in g $ 30 ,92 0 a s p et it io ne r’s rece ip ts fro m th e sa le of s to ck s an d b on ds
.- 4 -

[* 4] pe ti ti on er’s Fo rm

10 40 was e ithe r bl an k o r fi ll edinwith azero . Peti ti on er rep orte d t ax ab le in co m e o f zer o fo r 20 05 an d d idno t m ak e an y est im at edtax pa ym en ts . Pet it io ne r at ta ch edto hi s 2 00 5 F orm 10 40 a do cu m en t p ur

po rti ng to

“ co rrec t” to zero th e am ou nt s o n c ert ai n F orm s 1 09 9. The d oc um en t at ta ch edto 4 pe ti ti on er’s Fo rm s 1 04 0 i nc lu de d t he fol lo win g s ta te m en t: 5 The pu rp os e o f th is do cum en t i s t o re bu t an d c orrectpa ym en ts m ad e to m y se lf, J oh n L. Hil l, b y

th irdpa rty “ PAYERS,” fo r th e y ear 2 00 5, th aterro ne ou sl y

all eg e “ ga in s, p ro fit , or i nc om e” m ad e inth e co ur se of a “ tra de or b us in es s” as t he term “ tra de or b us in es s” is de fin ed un de r [s ]ecti on 77 01 (a)( 26 ), “ in co m e” fo r th e p ur po se of a n “ in co m e ta x,” or “ gr os s i nc om e” fo r th e p ur po se of a n “ in co m e ta x.” The co rrec te d am ou nt s i nd ic at e th e p ro pe r am ou ntof “ ga in s, p ro fit , or in co m e” m ad e in th e co ur se of a“ tra de or b us in es s” as t he term “ tra de orbu si ne ss ” is de fin edun de r [s ]ecti on 77 01 (a)( 26 ), “ in co m e” fo r th e pu rp os e o f an“ in co m e ta x,” or “ gr os s i nc om e” fo r th e p ur po se of a n “ in co m e ta x” pa idto m e, th e “ RECIP IENT,” by th os e th irdpa rty “ PAYERS.”

The do cum en t at ta ch edto pe ti ti on er’s 2 00 5 re tu rnpu rp orte d t o c orrect 4 Fo rm s 1 09 9- MIS C, Mi sc el la ne ou s In co m e, fi le d b y Blu e Cro ss & Bl ue Sh ie ldof Fl or id a, In c., Uni te d Hea lth C are I ns ur an ce Co ., andNort h Am eri canHeal th Pl an s, In c., an d c on so li da te d F orm 10 99 fil edby Am eri tra de
. Pet it io ne r al so att ach edto hi s re tu rna le tt er i n wh ic h h e o bjec te d t o h av in g 5 to fil e a Fo rm

10 40 an d que st io ne d re sp on de nt ’s aut ho rit y to reque sta Fo rm

10 40
.- 5 -

[* 5] Res po nd en t d et erm in edth atpe ti ti on er’s 2 00 5 F orm 10 40 was n ota va li d return andpre pareda subs ti tu te forreturn o n b eh al f of pe ti ti on er u nd er s ect io n 60 20 (b ). Res po nd en t i ss ue d ano ti ce o f de fic ie nc y da te d M arch 7, 2 01 2. 6 OPINION I. Bu rd enof P ro of Ord in ari ly, th e Co m

m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are pr es um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tha t the de te rm in at io ns are erro ne ou s. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 11 5 (1 93 3) . Here, th e rec or d e st ab li sh es , andpe ti ti on er co nc ed es , th athe rece iv ed
m ed ic al pa ym en ts forservi ces as ahe ari ng aidsp eci al is t an d p ro ceed s fr om th e sa le of s to ck . Peti ti on er d oe s n otdi sp ut e res po nd en t’s d et erm in at io n o f th e am ountof h is tax ab le in co m e. He di sp ut es on ly the ch arac te riz at io n o f th es e pa ym en ts as t ax ab le in co m e. Becaus e p et it io ne r rai se s o nl y leg al is su es , we 7 The subs ti tu te forreturn c on si st edof aFo rm 45 49 , a Fo rm

88 6- A, anda 6 Fo rm 13 49 6, IR C Sec ti on 60 20 (b ) Certi fic at io n. Pet it io ne r di sp ut edth e acc ur acy of cert ai n F orm s 1 09 9 i n h is pe ti ti on an d a t 7 tri al . Und er s ec. 6 20 1( d) , if a t ax pa y er as se rts a reas on ab le di sp ut e wit h re sp ectto anit em of i nc om e rep orte d o n a n i nf orm at io n re tu rnfil edby a thi rdpa rty andth e ta xp ay er m eet s ce rta in othe r requi rem en ts , th e Co m m is si on er b ears th e b ur de n o f pr oduc in g re as on ab le an d p ro ba ti ve ev id en ce, i n a dd it io n t o t he in fo rm at io n return, co nc ern in g t he de fic ie nc y att rib ut ab le to th e in co m e it em . (co nt in ue d...)- 6 -

[* 6] de ci de whet he r he is li ab le forth e d efi ci en cy at i ss ue witho utreg ardto th e bu rd enof p ro of

. 8 II. Unr ep orte d In co m e Sect io n 6 1( a) d efi ne s g ro ss in co m e as “ al l i nc om e fro m what ev er s ou rce de riv ed ”, in cl ud in g g ai ns fro m de al in gs inpro pe rty andco m pe ns at io n p ai d fo r se rv ic es , whethe r fu rn is he d b y th e ta xp ay er as anem

pl oyee, a se lf- em

pl oyed pe rs on , or an i nd ep en de ntco nt ract or . See s ec. 6 1( a)(1 ), (3 ); C omm is si on er v . Glen sh aw Glas s C o., 3 48 U.S. 42 6, 4 31 (19 55 ). Pet it io ne r co nt en ds th atth e in co m e h e rec ei ve d fr om

hi s h eari ng aidbu si ne ss is no t i nc om e subjec t t o F ed eral ta xa ti on . Like wis e, pe ti ti on er co nt en ds th athi s s to cksal e p ro ceed s ar e n otsubjec t to Fed eral tax at io n.
(...co nt inue d) 7 Pet it io ne r adm it te d t ha t h e p erfo rm edservi ces for , andrece iv edm ed ic al pa ym en ts fro m , th e v ari ou s h eal th care co m pa ni es forwhi chres po nd en t re cei ve d Fo rm s 1 09 9. Pe ti ti on er d idno t d is pu te th e am ount s re po rte d o n t he in fo rm at io n returns res po nd en t re cei ve d. Pe ti ti on er h as no t ra is edan y reas on ab le di sp ut e wit h res pe ctto th e acc ur acy of th e in fo rm at io n re tu rn s. We con cl ud e th atpe ti ti on er’s at te m ptto di sp ut e th e acc ur acy of th e in fo rm at io n re tu rn s u nd er the se ci rcu m st an ces is no t re as on ab le un de r se c. 62 01 (d ). See, e.g ., Carl so n v . Co m m is si on er, T.C. Mem o. 2 01 2- 76 ; Hy de v. Co m m is si on er, T.C. Mem o. 2 01 1- 13 1. Res po nd en t, h owe ve r, be ars th e in it ia l b ur de n o f pr oduc ti on with re sp ectto

8 th e ad di ti on s t o t ax . See s ec. 7 49 1( c); in fra p . 9.- 7 -

[* 7] Pet it io ne r supp orts hi s p os it io n b y co nt en di ng , am on g o th er thi ng s, tha t h e was no t i nv ol ve d i n atra de or b us in es s as de fin edby the Co de . Peti ti on er d efi ne s a tr ad e o r bu si ne ss to in cl ud e o nl y th e p erfo rm an ce o f th e fu nc ti on of apubl ic of fic e, an d n othi s p riv at e se ct oract iv it ie s fo r whi chhe rece iv edon ly priv at e se ct orm on ey . Peti ti on er the refo re as se rts th atth e am ou nt s h e rec ei ve d fr om all th ird -p arty

pay or s ar e n otga in or p ro fitfro m a tr ad e o r bu si ne ss as d efi ne d i n se ct io n 7 70 1( a)(2 6) , tax ab le in co m e, orgro ss in co m e. Pet it io ne r al so co nt en ds th at(1) he is no t a p ers on st atut or il y m ad e li ab le forth e in co m e ta x; (2) th e 9 in co m e ta x i s an ex ci se tax ; (3 ) he di d n otha ve in co m e wit hi n the m ean in g o f th e Si xt een th Am en dm en t; an d (4 ) th e in co m e ta x d oe s n otap pl y to th e rec ei pt s o f al l Am eri cancit iz en s. W itho utex cep ti on , pet it io ne r ha s ra is edon ly friv ol ou s an d g ro un dl es s arg um en ts . The U.S. Co urt o f App eal s fo r th e Ele ve nt h C irc ui t h as rep eat ed ly

1 0 Pet it io ne r’s st atut ory

arg um en t i s b as edinpa rt o n h is co nt en ti on th at 9 withh ol di ng ag en ts un de r se c. 14 61 are the on ly pers on s m ad e st atut or il y li ab le for th e p aym en t o f in co m e ta x. Inhi s n um ero us pre tri al fil in gs pe ti ti on er re pe at ed ly inv it es ou r at te nt io n 1 0 to va rio us co urt o pi ni on s i nc lu di ng , m os t p ro m in en tl y , Bru sh ab er v . Uni on Pac. R.R. Co ., 24 0 U.S. 1 (19 16 ). The Supr em e Co urt’s o pi ni on inBru sh ab er s tri ke s do wn ev ery ob

jecti on adva nc edinth atcas e reg ard in g t he co ns ti tu ti on al ity of t he in co m e ta x p ro vi si on s o f th e 1 91 3 Tar iff Act. See Po wers v. Co m mis si on er, T.C. Mem o. 2 00 9- 22 9. No th in g i n t he Supr em e Co urt’s o pi ni oninBru sh ab er s up po rts (co nt in ue d...)- 8 -

[* 8] he ldsi m il ar ar gu m en ts to be fri vo lo us an d wi th ou t m eri t. See Uni te d S ta te s v. M or ga n, 4 19 Fed . App x. 9 58 , 95 9 (1 1t h C ir. 2 01 1) (ho ld in g t ha t the tax pay ers ’ arg um en t tha t the y

were n otin vo lv edina “ tra de or b us in es s” was fr iv ol ou s) ; Uni te d S tate s v . Mo rs e, 53 2 F .3d11 30 , 11 32 -1 13 3 (1 1t h C ir. 2 00 8) (ho ld in g t ha t anarg um en t tha t i nc om e fro m workinth e p riv at e se ct oris no t s ub ject t o i nc om e ta x was fri vo lo us ); Un it edSta te s v . W ard , 83 3 F .2d15 38 , 15 39 (11 th Cir . 19 87 ) (s ta ti ng th ata ta xp ay er’s arg um en t tha t wi th ho ld in g a ge nt s ar e th e o nl y pe rs on s st atut or il y

li ab le forth e in co m e ta x was “ut te rly with ou t m eri t” ); M cNai r v. Egg ers , 78 8 F .2d15 09 , 15 10 (11 th Cir . 19 86 ) (s ta ti ng th atarg um en ts th atth e ta xp ay er i s n ota pe rs on subjec t t o t he in co m e ta x a ndth atth e In te rn al Rev enue Serv ic e d oe s n otha ve juri sd ic ti on ov er the tax pa y er ar e “pa te nt ly friv ol ou s” ); Mo te s v . Uni te d S ta te s, 7 85 F.2d92 8, 9 28 (11 th Cir . 19 86 ) (h ol di ng th atth e ta xp ay er’s arg um en ts th at“ on ly pub li c se rv an ts are s ub ject t o t ax li ab il ity ” were fri vo lo us ). In de ed , pet it io ne r’s fri vo lo us an d g ro un dl es s ar gu m en ts warran t n o fu rth er di sc us si on . See Cra in v. Co m m is si on er, 7 37 F.2d14 17 , 14 17 (5t h C ir. 1 98 4) (...co nt in ue d) 1 0 an y co nt en ti onpe ti ti on er m ak es inth e in st an t ca se ; t o c on te ndot he rwis e is fri vo lo us . Like wis e, no ne of p et it io ne r’s ad di ti on al cit at io ns of l eg al pre ced en t supp ort h is co nt en ti on s.- 9 -

[* 9] (“ W e p erce iv e n o n eedto refu te th es e arg um en ts with s om be r rea so ni ng an d
co pi ou s ci ta ti on of p rece de nt ; t o d o s o m ig htsu gg es t tha t the se arg um en ts ha ve so m e co lo rab le m eri t.”) ; s ee al so Wnu ckv. Co m m is si on er, 1 36 T.C. 49 8, 5 01 -5 13 (2 01 1) . Becau se sel f-em

pl oym en t i nc om e an d c ap it al ga in s m us t b e in cl ud edin pe ti ti on er’s i nc om e und er s ect io n 6 1, we s us ta in res po nd en t’s d et erm in at io n wi th
res pe ctto th e in crea se d d efi ci en ci es as m od ifi edby con ces si on s. III. Add it io ns to Tax If a t ax pa y er as si gn s erro r to th e Co m m is si on er’s d et erm in at io n t ha t the ta xp ay er i s l iabl e fo r anad di ti on to tax , th e Co m m is si on er h as th e b ur de n, u nd er se ct io n 7 49 1( c), o f pr oduc in g e vi de nc e wit h re sp ectto th e li ab il ity of the tax pa y er fo r th e ad di ti on s t o t ax . See Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 -4 47 (2 00 1) . To m eetth is bu rd enof p ro du ct io n, the Co m m is si on er m

us t co m e fo rward with s uf fic ie ntev id en ce s ho win g t ha t i t i s ap pr op ria te to im po se th e ad di ti on to ta x. Id . Once t he Co m

m is si on er m eet s h is bu rd en , th e ta xp ay er m us t co m e fo rwardwith s uf

fic ie ntev id en ce t o p ers ua de th is Co urt tha t the de te rm in at io n i s in co rrec t. Id
. Res po nd en t d et erm in edth atpe ti ti on er i s l iabl e fo r anad di ti on to tax un de r se ct io n 6 65 1( a)(1 ) fo r fai lu re t o t im el y fil e a return fo r 20 05 . Sect io n 6 65 1( a)(1 )
au th or iz es th e im

po si ti on of an a dd it io n t o t ax forfai lu re t o t im el y fil e a return,- 10 -

[* 10 ] un le ss itis sh own th atsu chfai lu re i s due to reas on ab le cau se an d n otdu e to wil lfu l n eg le ct . See Un it edSta te s v . Boyle, 4 69 U.S. 24 1, 2 45 (19 85 ); Un it ed St at es v. No rdbr oc k, 3 8 F .3d44 0, 4 44 (9t h C ir. 1 99 4) . Fail ur e to fil e a t im el y Fed eral in co m e ta x re tu rnis du e to reas on ab le cau se if the tax pa y er ex erci se d
or di na ry bu si ne ss care an d p ru de nc e b utne ve rth el es s was un ab le to fil e th e return withi n t he pre sc rib edti m e. See s ec. 3 01 .66 51 -1 (c)( 1) , Pro ced . & Adm in . Reg s. W il lfu l n eg le ctm ean s a c on sc io us , in te nt io na l fa il ur e to fil e o r rec kl es s in di ffer en ce t owa rd s fi li ng . Boyle, 46 9 U.S. at24 5. To m eetth e requi rem en t o f fi li ng a return, a t ax pa y er m us t fi le a va li d return. Se e Bea rdv. Co m m is si on er, 8 2 T.C. 7 66 , 77 7 (1 98 4) , aff’d, 7 93 F.2d13 9 (6 th Cir . 19 86 ). Und er Be ardv. Co m m is si on er, 8 2 T.C. at77 7, a v al idreturn i s on e th at(1) co nt ai ns su ffi ci en t d at a to cal cu la te a ta x l iabi li ty, (2 ) pu rp orts to be a return, (3 ) rep res en ts anho ne stan d re as on ab le att em ptto sat is fy

th e requi rem en ts of th e ta x l aw, an d (4 ) is ex ecu te d b y th e ta xp ay er u nd er p en al ti es of p erjury . A ta xp ay er wh o fi le s a d oc um en t tha t p ur po rts to be a Fed eral in co m e ta x re turnbu t whi chco nt ai ns on ly zeros on th e rel ev an t l in es ge ne ral ly has no t fi le d ava li d return b ecau se itdo es no t co nt ai n s uf fic ie ntin fo rm at io n fo r th e Co m m is si on er t o cal cu la te an d a ss es s a t ax li ab il ity . See Cabi rac v . Comm is si on er, 1 20 T.C. 16 3, 16 9 (2 00 3) ; Ham il to n v . Comm is si on er, T.C. Mem o. 2 00 9- 27 1; see als o Un it ed- 11 -

[* 11 ] Sta te s v . Mo or e, 62 7 F .2d83 0, 8 35 (7t h C ir. 1 98 0) (st at in g t ha t an in co m e ta x m ig htco nc ei vabl y

be cal cu la te d o n t he ba si s o f a return s ho win g z ero en tri es , bu t tha t “ itis no t en ou gh fora fo rm to co nt ai n s om e in co m e in fo rm at io n; th ere m us t al so be anho ne stan d re as on ab le in te ntto supp ly the in fo rm at io n re qu ire d b y th e ta x c od e”). Res po nd en t i nt ro du cedin to ev id en ce p et it io ne r’s 20 05 Fo rm 10 40 on whi ch pe ti ti on er re po rte d z ero tax ab le in co m e an d wh ic h c on ta in edzero s o n a ll rel ev an t in co m e li ne s. Att ach edto pe ti ti on er’s Fo rm 10 40 was ado cu m en t wh ic h pu rp orte d t o “ co rrec t” to zero tax ab le in co m e rep orte d b y cert ai n t hi rd -p arty pa y or s. Th e rec or d a ls o i nc lu de s d eem edst ip ul at io ns th atpe ti ti on er h adin co m e fro m va rio us so ur ces inam ou nt s s uf fic ie ntto requi re the fil in g o f a return. Res po nd en t d idno t treatpe ti ti on er’s p ur po rte d re tu rnas ava li d re tu rn , andth e reco rdsupp orts res po nd en t’s p os it io n t ha t p et it io ne r di d n otm ak e anho ne stan d
reas on ab le att em

ptto supp ly the in fo rm at io n re qu ire d b y th e Co de . See Cabi rac v . Co m m is si on er, 1 20 T.C. at 1 69 . Con se qu en tl y , we con cl ud e th atres po nd en t h as sa ti sf ie d h is bu rd enof p ro du ct io n u nd er s ect io n 7 49 1( c). Pet it io ne r m

us t co m e fo rwardwith e vi de nc e su ffi ci en t t o p ers ua de th e Co urt th atres po nd en t’s d et erm in at io n i s i n e rro r. Pet it io ne r di d n otin tro du ce an y ev id en ce t o p ro ve th athe is no t l iabl e fo r th e ad di ti on to tax or t ha t h e h ad- 12 -

[* 12 ] reas on ab le cau se forhi s fa il ur e to ti m el y fil e a v al idreturn. Acco rd in gl y , we co nc lu de th atpe ti ti on er i s l iabl e fo r th e se ct io n 6 65 1( a)(1 ) ad di ti on to tax for 20 05
. Res po nd en t al so de te rm in edth atpe ti ti on er i s l iabl e fo r anad di ti on to tax for fai lu re t o p ay

anam ou ntof t ax sh own on a return u nd er s ect io n 6 65 1( a)(2 ). The
se ct io n 6 65 1( a)(2 ) ad di ti on to tax ap pl ie s o nl y when anam ou ntof t ax is sh own on a return. Cabi rac v . Comm is si on er, 1 20 T.C. at 1 70 . Peti ti on er d idno t fi le a va li d 20 05 return. Ho wev er, res po nd en t p rep areda subs ti tu te forreturn u nd er s ect io n 60 20 (b ). A retu rnpre pa redby the Secr et ary un de r se ct io n 6 02 0( b) is tre at edas 1 1 th e return fi le d b y

th e ta xp ay er fo r pu rp os es of d et erm in in g wh ethe r th e se ct io n 66 51 (a)( 2) ad di ti on to tax ap pl ie s. Sec . 66 51 (g )(2 ); Whee le r v. C ommis si on er, 12 7 T.C. 2 00 , 20 8- 20 9 (2 00 6) , aff’d, 5 21 F.3d12 89 (10 th Cir . 20 08 ). Res po nd en t i nt ro du cedin to ev id en ce a s ub st itut e fo r return tha t s at is fie d t he requi rem en ts of s ect io n 6 02 0( b) , as wel l as a co py of p et it io ne r’s acco un t tra ns cri pt . The s ub st itut e fo r return a ndth e acc ou nttrans cri ptest ab li sh th at pe ti ti on er fa il edto pa y

th e ta x s ho wn o n t he subs ti tu te forreturn. Re sp on de ntha s sa ti sf ie d t he bu rd enof p ro du ct io n u nd er s ect io n 7 49 1( c). Pet it io ne r di d n ot
The term “ Secr et ary” m ean s the Secr et ary of th e Treas ury

or h is de le ga te . 1 1 Sec. 7 70 1( a)(1 1) (B).- 13 -

[* 13 ] in tro du ce an y

ev id en ce tha t h e was un ab le to pa y th e ta x o wedor t ha t h e wou ldha ve su ffer edun du e h ard sh ip if h e h adpa idth e ta x o n t he du e d at e. See
se c. 30 1.6 65 1- 1( c), Pro ced . & Adm in . Reg s. Acco rd in gl y , we ho ldth atpe ti ti on er is li ab le forth e se ct io n 6 65 1( a)(2 ) ad di ti on to tax for20 05
. Res po nd en t al so de te rm in edth atpe ti ti on er i s l iabl e fo r anad di ti on to tax for fai lu re t o p ay

est im at edtax un de r se ct io n 6 65 4 fo r 20 05 . Sect io n 6 65 4 i m po se s an ad di ti on to tax on anin di vi du al who un de rp ay s h is est im at edtax . The ad di ti on 1 2 to tax is cal cu la te d wi th refe ren ce t o fo ur requi redin st al lm en t p aym en ts of t he ta xp ay er’s es ti m at edtax li ab il ity . Sec. 6 65 4( c) an d (d ). Eachrequi redin st al lm en t of est im at edtax is equa l t o 2 5% o f th e “ requi redan nu al pa ym en t” . Sec. 6 65 4( d)
. The “requi redan nu al pa ym en t” is equa l t o t he les se r of (1) 90 % of t he tax sh own on th e in di vi du al ’s return fo r th aty ear (o r, if n o re tu rnis fil ed , 90 % of h is tax for
su chy ear) , or (2 ) if

th e in di vi du al fil eda va li d re tu rnforth e imm ed iate ly pr eced in g t ax ab le y ear, 1 00 % of t he tax sh own on th atreturn. Se e se c. 66 54 (d )(1 )(A), (B) , and(C). A ta xp ay er h as anob li ga ti on to pa y est im at edtax on ly if he ha s a “ requi redan nu al pa ym en t” . Whe el er v . Comm is si on er, 1 27 T.C. at21 2; see als o M en de s v . Comm is si on er, 1 21 T.C. 30 8, 3 24 (20 03 ). Unl es s a s ta tu to ry

ex cep ti onap pl ie s, the sec . 66 54 (a) a dd it io n t o t ax is 1 2 m an da to ry . See s ec. 6 65 4( a), (e) ; Re ck li ti s v . Comm is si on er, 9 1 T.C. 8 74 , 91 3 (1 98 8)
.- 14 -

[* 14 ] Res po nd en t i nt ro du cedanacco un t tran sc rip t s ho win g tha t p et it io ne r ha d a Fed eral in co m e ta x l iabi li ty for 2 00 4 a ndth athe di d n otfil e a v al idreturn. 1 3 Res po nd en t al so in tro du cedev id en ce s ho win g t ha t p et it io ne r ha d aFed eral in co m e ta x l iabi li ty for 2 00 5, tha t p et it io ne r was requi redto fil e a Fed eral in co m e ta x re turnfor20 05 , th atpe ti ti on er d idno t fi le a va li d F ed eral in co m e ta x re tu rn , an d t ha t p et it io ne r di d n otm ak e an y est im at edtax pa ym en ts . There fo re, res po nd en t h as sh own pe ti ti on er h ada requi redan nu al pa ym en t u nd er s ect io n 66 54 (d )(1 )(B) for20 05 . Accor di ng ly, we ho ldth atpe ti ti on er i s l iabl e fo r th e se ct io n 6 65 4( a) ad di ti onto tax for20 05 un le ss th e Ru le 15 5 c om pu ta ti on s s ho w th athe qu al ifi es forth e se ct io n 6 65 4( e)(1 ) ex cep ti onto th e ad di ti on to tax . 1 4 IV. Sect io n 6 67 3 P en al ty Und er s ect io n 6 67 3( a)(1 ), th is Co urt m ay requi re a t ax pa y er t o p ay a pe na lty no t i n e xc es s o f $2 5,0 00 when ev er i t ap pe ars th at : (1 ) th e ta xp ay er h as in st itut ed
orm ai nt ai ne d p ro ceed in gs pri m ari ly for d el ay ; (2 ) th e ta xp ay er’s p os it io n i s

Bec au se pe ti ti on er d idno t fi le a va li d t ax return fo r 20 04 , we nee d n ot 1 3 en ga ge inan y

an al y si s u nd er s ec. 6 65 4( d) (1 )(B) (ii ). See Tres co ttv. Co m m is si on er, T.C. Mem o. 2 01 2- 32 1; Man de vi ll e v . Comm is si on er, T.C. Mem o. 20 07 -3 32
. Und er s ec. 6 65 4( e)(1 ), th e se c. 66 54 (a) a dd it io n t o t ax do es no t ap pl y if 1 4 th e ta x s ho wn o n t he return fo r th e ta xabl e y ear ( or , if n o re tu rnis fil ed , th e ta x) , reduc edby the cred itun de r se c. 31 , is les s tha n $ 1,0 00
.- 15 -

[* 15 ] fri vo lo us or g ro un dl es s; or ( 3) th e ta xp ay er u nr eas on ab ly fail edto purs ue av ai labl e admin is tra ti ve rem ed ie s. A ta xp ay er’s p os it io n i s fr iv ol ou s o r gr ou nd le ss if i t i s “ ‘con trary to est ab li sh edlaw an d u ns up po rte d b y a reas on ab le , co lo rab le arg um en t fo r ch an ge inth e law.’ ” W il li am s v . Comm is si on er, 1 14 T.C. 13 6, 1 44 (20 00 ) (quo ti ng Co le m anv. Co m m is si on er, 7 91 F.2d68 , 71 (7t h C ir. 19 86 )). Thro ug ho utth es e p ro ceed in gs , pet it io ne r rep eat ed ly ass ert edarg um en ts th at are c on tra ry

to well -es tabl is he d l aw an d a re fri vo lo us . At tri al pe ti ti on er d idno t te st ify rega rd in g a ny factu al m at te rs an d i ns te adpe rs is te d i n a ss ert in g fr iv ol ou s an d g ro un dl es s ar gu m en ts . Alth ou gh th is Co urt p ro vi de d a m pl e warn in g i n pr etria l p ro ceed in gs of t he po te nt ia l i m pl ic at io ns of c on ti nu in g t o a ss ertth os e fri vo lo us an d g ro un dl es s ar gu m en ts , pet it io ne r di d n otab an do n h is arg um en ts or ackno wled ge hi s l iabi li ty for i nc om e ta x o n t he in co m e h e rec ei ve d i n 2 00 5. 1 5 Pet it io ne r is no stran ge r in th is Co urt. Ina cas e atdo ck etNo. 1 32 67 -0 9L, 1 5 we su st ai ne d re sp on de nt ’s det erm in at io n t o p ro ceedwith t he co ll ect io n b y li enan d le vy of p et it io ne r’s unpa idli ab il it ie s fo r 19 99 -2 00 4. Indo in g s o, we warne d pe ti ti on er tha t h e m ig htbe co m e subjec t t o asec . 66 73 pe na lty infutur e cas es if h e pe rs is te d i n m ai nt ai ni ng pro ceed in gs forde la y or o th erwi se adva nc edfri vo lo us arg um en ts . At d oc ke t No . 15 45 2- 10 L, a col le ct io n due pro ces s ca se for20 06 co nc ern in g i m

po si ti on of asec . 67 02 pe na lty forfil in g afri vo lo us return, we h el d th atpe ti ti on er’s 2 00 6 F orm 10 40 “ refl ect s a d es ire (whi chap pe ars on th e (co nt in ue d...)- 16 -

[* 16 ] Pet it io ne r ha s was te d t he ti m e an d re so ur ces of t hi s C ou rt. Th e rec or d de m on st rat es th atpe ti ti on er m ai nt ai ne d t he se pro ceed in gs pri m ari ly for d el ay an d th atpe ti ti on er’s as se rte d p os it io ns were fri vo lo us an d g ro un dl es s. Inth e ex erci se of ou r di sc ret io n we c on cl ud e th ata pe na lty un de r se ct io n 6 67 3( a)(1 ) is ap pr op ria te . Peti ti on er s ha ll pa y to th e Uni te d S ta te s a p en al ty of $1 0,0 00 un de r se ct io n 6 67 3( a)(1 ). W e h av e co ns id eredth e rem ai ni ng arg um en ts m ad e b y th e p art ie s an d, t o th e ex te ntno t d is cu ss edab ov e, co nc lu de th os e arg um en ts are i rrel ev an t, m oo t, o r witho utm eri t.

(...co nt in ue d) 1 5 pu rp orte d re turn ) to de la y or i m pe de th e adm in is tra ti on of F ed eral tax laws ” an d im po se d o n p et it io ne r a s ec. 6 67 3 p en al ty of $5 ,00 0. At d oc ke t No s. 2 21 -1 0 a nd15 50 1- 10 , con so li da te d c as es ad dr es si ng de fic ie nc ie s i n p et it io ne r’s 20 06 an d 2 00 7 i nc om e ta x wh ic h thi s C ou rt h eard be fo re the tri al inth is cas e, we rep eat ed ly w arn edpe ti ti on er tha t h e m ig htbe co m e subjec t t o asec . 66 73 pe na lty if h e co nt in ue d t o a dv an ce fr iv ol ou s ar gu m en ts . Unf ortu na te ly, th e im

po si ti on of s an ct io ns indo ck etNo. 1 54 52 -1 0L, o urpre vi ou s warn in gs indo ck etNo. 1 32 67 -0 9L, an d o urrep eat edwarn in gs inth e co ns ol id at ed cas es di d n otde te r pe ti ti on er fro m adva nc in g t he same friv ol ou s ar gu m en ts inth is cas e. W e im

po se d o n p et it io ne r a s ec. 6 67 3 p en al ty of $1 0,0 00 ineach of t he co ns ol id at edcas es (to ta l s ec. 6 67 3 p en al ty of $2 0,0 00 inth e co ns ol id at edcas es ) fo r adva nc in g fr iv ol ou s ar gu m en ts . The s am e $ 10 ,00 0 p en al ty is warr an te d h ere.- 17 -

[* 17 ] To re fle ctres po nd en t’s co nc es si on s an d t he for eg oi ng , Deci si on wil l b e en te redun de r Ru le 15 5.