T.C. Memo. 2005-141

UNITED STATES TAX COURT

TERRY I. AND LOUISE MAJOR, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20846-03. Filed June 16, 2005.

Ps failed to file a Federal income tax return for

the 2001 year. R subsequently determined a deficiency

and additions to tax, which Ps then contested primarily

on the basis of R’s failure to carry his burden of

proof and the inapplicability of the filing

requirement.

Held: Ps are liable for the deficiency determined

by R and for additions to tax under sec. 6651(a)(1),

I.R.C. 

Terry I. and Louise Major, pro sese.

Kelly Davidson, for respondent.
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1 Unless otherwise indicated, all section references are to

the Internal Revenue Code (Code) in effect for the year in issue,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: Respondent determined a Federal income tax

deficiency for Terry Major’s 2001 taxable year in the amount of

$5,613 and an addition to tax pursuant to section 6651(a)(1) in

the amount of $1,403.25 and for Louise Major’s 2001 taxable year

a Federal income tax deficiency in the amount of $1,016 and an

addition to tax pursuant to section 6651(a)(1) in the amount of

$254.1 The issues for decision are:

(1) Whether petitioner Terry Major (Terry) is liable for a

deficiency in the amount of $5,613 for the 2001 taxable year;

(2) whether petitioner Louise Major (Louise) is liable for a

deficiency in the amount of $1,016 for the 2001 taxable year;

(3) whether petitioners are liable for additions to tax

under section 6651(a)(1); and

(4) whether the Court should impose a penalty, sua sponte,

under section 6673.
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2 Petitioners objected to many of the paragraphs in the

Stipulation of Facts on Fifth Amendment grounds. The Court

informed petitioners that they were not permitted to use the

Fifth Amendment privilege as both a sword and a shield. See

United States v. Rylander, 460 U.S. 752, 758 (1983). 

Furthermore, the Court warned petitioners that both the Supreme

Court and the Courts of Appeals have held that a person does not

have a right to claim the Fifth Amendment privilege to avoid

filing a Federal income tax return or to refuse signing a Federal

income tax return under penalties of perjury. See United States

v. Sullivan, 274 U.S. 259, 263 (1927).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.2

The stipulations of the parties, with accompanying exhibits, are

incorporated herein by this reference. At the time this petition

was filed, petitioners resided in Glendale, Arizona.

On August 29, 2003, respondent issued to petitioner Terry a

notice of deficiency determining that in 2001 Terry received

$18,407 in miscellaneous income from The Dollarhide Financial

Group LLC (Dollarhide) and $8,182 in miscellaneous income from

Lincoln Financial & Insurance Services of Nebraska or Lincoln

Financial Group (Lincoln) for computer services rendered under

the d.b.a. name, Major Computer Services. These amounts were

reported to respondent on Forms 1099-MISC, Miscellaneous Income. 

Respondent also determined that in 2001 Terry received $15 from

National Financial Services LLC, as reported to respondent on

Form 1099-DIV, Dividends and Distributions, and $1 from Robert
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3 Respondent did not address these amounts on brief or at

trial. As addressed, infra p. 16, respondent’s “presumption of

correctness” with respect to the determination is appropriate

where respondent has furnished evidence linking the taxpayer to

the “tax generating activity.” Gold Emporium, Inc. v.

Commissioner, 910 F.2d 1374, 1378 (7th Cir. 1990), affg. Malicki

v. Commissioner, T.C. Memo. 1988-559. Respondent did not provide

any third party payor information or any other evidence linking

these amounts to petitioner. Thus, the Court deems that

respondent has conceded these amounts. 

4 See infra p. 20.

5 With respect to the amount received from Desert Schools

Federal Credit Union, respondent did not address this amount on

brief or at trial or provide any third party payor information. 

The Court assumes that respondent has conceded this amount. See

also supra note 3.

McCauley, Jr. as reported to respondent on a Form 1041, Schedule

K-1, Beneficiary’s Share of Income, Deductions, Credits, etc.3

On August 29, 2003, respondent also issued to petitioner

Louise a notice of deficiency determining that in 2001 Louise

received $18,037 in demutualization compensation4 from Principal

Financial Group, Inc., Mellon Investor Services (Mellon) as

reported to respondent on Form 1099-B, Proceeds from Broker and

Barter Exchange Transactions 2001, and $343 in interest income

from Principal Life Insurance Company (Principal) as reported to

respondent on Form 1099-INT, Interest Income, and $12 in interest

income from Desert Schools Federal Credit Union as reported on

Form 1099-INT.5 None of the payors withheld any Federal income

tax from either Terry’s or Louise’s reported income. Petitioners
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6 The Court on Dec. 2, 2003, filed as a petition a letter

received from petitioners, which was postmarked on Nov. 26, 2003. 

By an order dated Dec. 8, 2003, the Court directed petitioners to

file an amended petition complying with the Rules of the Court as

to form and content of a proper petition. Petitioners filed an

amended petition on Jan. 27, 2004.

timely filed a joint petition disputing the determinations with

this Court.6

Petitioners did not file tax returns for 2001 as reflected

by Form 4340, Certificate of Assessments, Payments and Other

Specified Matters, dated October 1, 2004, for each petitioner. 

During 2004, Terry wrote a letter, in response to respondent’s

correspondence and proposed audit adjustments for his 2001

taxable year, containing essentially tax protester rhetoric.

At trial, Terry generally agreed that for a living he

“work[ed] on people’s computers”. However, Terry did not

characterize what he received in exchange for those services as

taxable income compensation. Terry described his receipts as

being in exchange for his services, “People occasionally pay me

in trade for my time, yes.”

Respondent offered a copy of Terry’s online resume listing

his employment history, d.b.a Major Computer Services in

Glendale, Arizona, from January 1981 to July 2003. Terry

described the Web site carrying his resume as “way out of date

since it was put up in 1996 and it no longer is relevant”, and he

further stated that he “gained nothing from the website”. Terry
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confirmed that his online resume and Web site were in existence

in 2001 and remained in existence as of the date of trial.

Terry acknowledged that in 2001 he had provided computer

services for both Dollarhide and Lincoln, but, generally, he

denied that he had received compensation for his services. 

Respondent provided copies of checks issued by Dollarhide to

Major Computer Services and a copy of the Dollarhide general

ledger showing the same check amounts issued to Terry Major as

the vendor. Julie Yows, director of operations for Dollarhide,

testified that in 2001 Dollarhide paid Terry for computer

services rendered and issued him a Form 1099-MISC for 2001

reflecting total compensation of $18,407.94. Terry admitted that

when he received the notice of deficiency claiming he received a

Form 1099-MISC from Dollarhide, he did nothing to investigate

what he apparently contended was an error by Dollarhide.

Louise was not present at trial. Although respondent, in an

opening statement, referenced the deficiency and addition to tax

for Louise, Terry did not address any items respondent listed in

the notice of deficiency with respect to Louise.

Respondent presented as evidence the declaration of Donna

Cooper, an employee in the tax department at Lincoln National

Corporation which together with its affiliates is known as

Lincoln Financial Group. Accompanying Ms. Cooper’s declaration

was a duplicate of the original Form 1099-MISC which Lincoln
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issued to Terry in 2001 reflecting nonemployee compensation of

$8,812.72. The declaration of Deborah S. Kerns, a paralegal

analyst employee at Principal Life Insurance Company, was offered

into evidence. Attached to Ms. Kerns’s declaration was a copy of

a Form 1099-INT issued to Louise for interest paid to her in 2001

in the amount of $343.58. Respondent also sought to admit into

evidence the declaration of Marlene Mills, an employee of Mellon,

and the attached Form 1099-B issued to Louise in 2001 for

demutualization compensation received in the form of cash in the

amount of $18,037.50. The Court admitted these declarations into

evidence despite Terry’s objections.

OPINION

I. Contentions of the Parties

Petitioners contended that they were not required to file a

Federal income tax return for the taxable year 2001. 

Specifically, they argued that they did not receive any amounts

that constitute gross income and asserted that respondent’s

evidentiary documents were inadmissible. Petitioners raised tax

protester arguments in opposition to the constitutionality of the

filing requirement of section 6011.

Respondent claimed that petitioners earned income in the

form of compensation and interest for 2001. Since petitioners

did not provide any evidence or documentation to contradict

respondent’s evidence, respondent contended that the
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7 The Court notes that respondent submitted two exhibits

consisting of checks from Dollarhide to Major Computer Services. 

At trial, Terry objected to one of the two exhibits, identified

as “8-R”, but he did not offer any objection to an exhibit that

was substantially similar, identified as “7-R”. The Court

admitted both exhibits into evidence. However, on brief, it

appears that petitioners now object to the admission of both

exhibits “7-R” and “8-R”.

determinations of petitioners’ tax liability and additions to tax

are correct.

II. Admissibility of Respondent’s Exhibits

Respondent introduced the following exhibits at trial to

which Terry objected on the grounds that the declarations and

accompanying documentation did not satisfy the substantive

requirements of rule 803(6) and rule 902(11) of the Federal Rules

of Evidence: (1) Copies of Form 4340, for each petitioner for

2001; (2) declarations of (and accompanying Forms 1099) Julie

Yows, Donna Cooper, Deborah S. Kerns, and Marlene Mills; and (3)

copies of three checks from Dollarhide payable to Major Computer

Services.7

In general, section 7453 and Rule 143(a) provide that Tax

Court proceedings shall be conducted in accordance with the rules

of evidence (Federal Rules of Evidence) applicable in trials

without a jury in the United States District Court for the

District of Columbia. Clough v. Commissioner, 119 T.C. 183, 188

(2002).
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A. Form 4340, Certificate of Assessments, Payments and 

Other Specified Matters

Fed. R. Evid. 902 sets forth the rules for selfauthentication of various types of evidence. The Court has

thoroughly examined the copies of Form 4340 presented by

respondent, and the Forms 4340 meet the requirements under Fed.

R. Evid. 902(1) for admissibility.

B. Declarations and the Accompanying Forms 1099

Respondent provided third party records, the Forms 1099,

accompanying the declarations of Ms. Yows, Ms. Cooper, Ms. Kerns,

and Ms. Mills. Rule 803 of the Federal Rules of Evidence

specifies exceptions to the general rule, Fed. R. Evid. 802,

excluding hearsay. The Court’s examination of the declarations

and their respective attached Forms 1099 reveals that such

records were kept in the course of a regularly conducted business

activity. Except for the Dollarhide checks, the exhibits were

made available to petitioner at least 14 days before the calendar

call and the trial as required by the Court’s pretrial order. 

The Dollarhide checks were made available to petitioners 4 days

before the trial and were also admitted as rebuttal exhibits. 

The Court is satisfied that each payor is a “business” for

purposes of Fed. R. Evid. 803(6) and Fed. R. Evid. 902(11). 

Neither Fed. R. Evid. 803(6) nor Fed. R. Evid. 902(11) requires

that the custodian of the record have any personal knowledge of
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the recorded facts. What is required is the custodian’s

certification that the records were made by a person with

knowledge of the matters recorded therein. Each of the

custodians here certified that the records were made in the

course of the business’s regularly conducted activity, and a

duplicate or copy of the original Form 1099 accompanied the

declaration of each custodian.

Although Fed. R. Evid. 1002 requires an original to prove

the content of a writing, Fed. R. Evid. 1003 generally allows

duplicates, as defined in Fed. R. Evid. 1001(4), to be admitted

into evidence “to the same extent as an original unless (1) a

genuine question is raised as to the authenticity of the original

or (2) in the circumstances it would be unfair to admit the

duplicate in lieu of the original.” Likewise, Rule 143(d) allows

a copy to be “admissible to the same extent as an original unless

a genuine question is raised as to the authenticity of the

original or in the circumstances it would be unfair to admit the

copy in lieu of the original.” Petitioners have not questioned

the authenticity of the original, nor have they demonstrated that

admission of the duplicates or copies would be unfair under the

circumstances. Thus, the Court finds that the declarations and

the Forms 1099 are sufficient, and such records satisfy the

requirements of Fed. R. Evid. 803(6) and Fed. R. Evid. 902(11). 

Clough v. Commissioner, supra at 190. Moreover, petitioners did
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not present any arguments that the records received into evidence

were unreliable.

C. Copies of Checks From Dollarhide

Petitioners further claimed that copies of checks from

Dollarhide offered by respondent were not a complete record since

they were only copies of the front of the checks and not the back

of the checks. Checks are admissible as commercial paper under

Fed. R. Evid. 902(9). “A check is a negotiable instrument, a

legally operative document, and falls within the category of

‘verbal acts’ which are excludable from the hearsay rule.” 

Spurlock v. Commissioner, T.C. Memo. 2003-124 (citing Advisory

Committee’s Note to Federal Rule of Evidence 801(c)). 

Furthermore, checks are self-authenticating documents under Fed.

R. Evid. 902(9). United States v. Hawkins, 905 F.2d 1489, 1494

(11th Cir. 1990); United States v. Little, 567 F.2d 346 n.1 (8th

Cir. 1977). Self-authenticating documents are not considered

hearsay. Since the checks are admissible documents, copies of

the checks are admissible under Rule 143(d). See Fed. R. Evid.

1003. Petitioners’ contention does not impugn the authenticity

of the original, nor have they shown that the introduction of the

checks copies would be unfair. In the present case, it is not

necessary that copies of both the front and the back of the check

be presented for the copies of the front of the check to be

admitted into evidence. See United States v. Hawkins, supra at

1494.
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D. Forms 1099 and 1096

Petitioners offer an additional argument against admitting

the Forms 1099. They maintain that copies of Forms 1099 were not

complete and could not have been prepared in the normal course of

business because they did not also include a Form 1096, Annual

Summary of Transmittal of U.S. Information Returns. Although the

Court holds that the Forms 1099 are admissible, we address

petitioners’ argument.

A Form 1099 shows the amount paid by the payor to the

recipient listed in the form for a certain taxable year. In this

case, petitioners received two Forms 1099-MISC, Form 1099-B, and

Form 1099-INT. Each Form 1099 was attached to a declaration,

which, as discussed previously, satisfied Fed. R. Evid. 803(6)

and Fed. R. Evid. 902(11). The purpose of Form 1096 is to

transmit paper forms such as Form 1099 to the Internal Revenue

Service. As the title implies, Form 1096 summarizes the

information contained in all the forms transmitted with it. 

Forms 1099 supply the details underlying Form 1096. United

States v. Carroll, 345 U.S. 457, 459 (1953). Form 1096

effectively acts as a verifying cover sheet to the Internal

Revenue Service for transmitted Forms 1099, providing information

on who is submitting the attached forms, the total number of

forms submitted, the total amount listed on the forms, and the

total amount of Federal income tax withheld on the forms. United

States v. Yagow, 953 F.2d 423, 425 (8th Cir. 1992). It is not
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necessary for Form 1096 to accompany Form 1099 for a Form 1099 to

be a record that satisfies the requirements of Fed. R. Evid.

803(6) and Fed. R. Evid. 902(11). See Spurlock v. Commissioner,

supra.

E. Petitioners’ Opportunity To Challenge Records

Petitioners contend that the declarations and the underlying

records should be excluded because they were not provided with

sufficient time to challenge the adequacy of their foundation. 

Thus, petitioners claim they were not given a fair opportunity to

challenge the documents under the notice requirement of Fed. R.

Evid. 902(11). The notice requirement directs that a proponent

of the evidence must provide both the records sought to be

introduced, as well as the declaration of the custodian of those

records “sufficiently in advance of their offer into evidence”.

The Court finds that respondent has complied with the notice

requirement. Respondent provided copies of his exhibits or

unsigned proposed exhibits and gave written notice to petitioners

of the possibility of introducing those exhibits and proposed

exhibits as evidence under Fed. R. Evid. 803(6) and Fed. R. Evid.

902(11) on October 1, 2004, more than 2 weeks before the October

18, 2004, calendar call. Exchange of the documents by that date

was in accordance with the Court’s Standing Pretrial Order of May

14, 2004. Respondent identified the declarants, the payors

involved, and the underlying records to be introduced by the

declarations. Petitioners were, therefore, adequately informed
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of the information in advance of trial, and petitioners had

sufficient time to contact any witnesses named in respondent’s

trial memorandum and payors listed in the notices of deficiency. 

A deposition or other types of discovery were not the only

opportunities available to petitioners to challenge respondent’s

records, for petitioners had the opportunity to call those

witnesses or parties to testify at trial.

Petitioners also argue that certain records comprised of the

Dollarhide checks and the declaration of Marlene Mills should be

excluded because respondent failed to meet the provisions of the

Court’s Standing Pretrial Order, dated May 14, 2004, requiring

the exchange of documents 14 days prior to the trial session. 

The Court admitted these documents at trial for the purpose of

impeachment. In this case, respondent sought to impeach the

direct testimony of Terry. With respect to impeachment of a

witness, Fed. R. Evid. 607 provides that “The credibility of a

witness may be attacked by any party, including the party calling

the witness.” Further, the Court’s Standing Pretrial Order does

not mandate exclusion of any exhibit not exchanged at least 14

days before the calendar call. It provides only: “The Court may

refuse to receive in evidence any documentation or material not *

* * exchanged, unless otherwise agreed by the parties or allowed

by the Court for good cause shown.” The Court is satisfied that

the Dollarhide checks were admissible.
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Respondent provided to petitioners the written declaration

of Marlene Mills, a Mellon employee, outside the Standing

Pretrial Order’s minimum time period for the exchange of

documents. That document was not in existence until October 7,

2004, and accordingly, it could not be exchanged within the

Court’s requirement of 14 days before the trial session. The

Court does not find that exclusion of the declaration is proper

considering the declaration only replaced the previous defective

declaration of Latoshia Desir, another Mellon employee.

Ms. Desir’s declaration, which was provided to petitioners

in compliance with the Court’s rule on document exchanges prior

to trial, did not comply with Fed. R. Evid. 902(11); therefore,

respondent offered another declaration, that of Ms. Mills,

meeting the requirements of Fed. R. Evid. 902(11). The records

accompanying Ms. Mills’s declaration contained the same content

as Ms. Desir’s declaration. Petitioners argue that the new

records reflected a change in one of respondent’s arguments, but

the Court is convinced that petitioners were sufficiently aware

of this argument in advance since it was referenced in

petitioners’ own pretrial memorandum. Additionally, petitioners

objected to the admission of Form 1099-B in the Stipulation of

Facts, in turn, acknowledging that respondent was seeking to

introduce Form 1099-B as evidence of the $18,037.50 amount from

Principal Life Insurance Company. See Rodriguez v. Commissioner,

T.C. Memo. 2005-12. Consequently, the Court believes that
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petitioners had sufficient notice to reasonably contest the

documents, and, thus, the Court admitted the documents into

evidence.

III. Petitioners’ Income Tax Liability

A. Burden of Proof

In general, the Commissioner’s determination of a taxpayer’s

tax liability is presumed correct, and the taxpayer bears the

burden of proving that respondent’s determination is improper. 

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The

“presumption of correctness” is appropriate where respondent has

furnished evidence linking the taxpayer to the “tax generating

activity”. Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374,

1378 (7th Cir. 1990), affg. Malicki v. Commissioner, T.C. Memo.

1988-559. If respondent introduces evidence that the taxpayer

received unreported income, then the burden shifts to the

taxpayer to show by a preponderance of the evidence that the

deficiency was arbitrary and erroneous. Hardy v. Commissioner,

181 F.3d 1002, 1004 (9th Cir. 1999), affg. T.C. Memo. 1997-97; 

see also Edwards v. Commissioner, 680 F.2d 1268, 1270 (9th Cir.

1982) (“[T]he Commissioner’s assertion of deficiencies are

presumptively correct once some substantive evidence is

introduced demonstrating that the taxpayer received unreported

income.”). In this case, respondent need only present some

substantive evidence that petitioners received income in 2001 to

shift the burden to petitioners. Hardy v. Commissioner, supra at
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8 This is with exception to amounts referred to supra notes

3 and 5.

1005. The Court finds that Forms 1099 demonstrate that Terry

received income constituting sufficient evidence in this case. 

Likewise, Form 1099-B shows that Louise Major received income

from “stocks, bonds, etc.”, and Form 1099-INT reveals that Louise

Major received income from interest. Consequently, respondent

provided sufficient evidence linking petitioners to the income

underlying the statutory notices of deficiency.8

However, section 7491 may shift the burden to respondent in

specified circumstances, for example, where the taxpayer produces

“credible evidence”. Sec. 7491(a)(1). The legislative history

of section 7491 clarifies the meaning of “credible evidence”:

Credible evidence is the quality of evidence which,

after critical analysis, the court would find

sufficient upon which to base a decision on the issue

if no contrary evidence were submitted (without regard

to the judicial presumption of IRS correctness). A

taxpayer has not produced credible evidence for these

purposes if the taxpayer merely makes implausible

factual assertions, frivolous claims, or tax protestortype arguments. The introduction of evidence will not

meet this standard if the court is not convinced that

it is worthy of belief. If after evidence from both

sides, the court believes that the evidence is equally

balanced, the court shall find that the Secretary has

not sustained his burden of proof. * * * [H. Conf.

Rept. 105-599, at 240-241 (1998), 1998-3 C.B. 747, 994-

995.]

In addition, to effectuate a shift in the burden, petitioners

must also maintain all records required by the Code and

regulations thereunder and cooperate with reasonable requests by
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9 Terry denied he was a “U.S. person”; however, at trial, he

asserted that he was a “citizen of the United States”. Section

7701(a)(30) defines the term “United States person” as, inter

alia, a “citizen or resident of the United States”.

10 In petitioners’ letter, contained in the record, Terry

makes reference to the validity of the filing requirement. Our

(continued...)

the Secretary for witnesses, information, documents, meetings,

and interviews. Sec. 7491(a)(2). Petitioners here did not

satisfy the prerequisites under section 7491(a)(1) and (2) for

such a shift. Consequently, except for additions to tax subject

to section 7491(c), as to which respondent bears the burden of

production, petitioners bear the burden of persuasion and the

burden of production in this case.

B. Filing Requirement

The Code imposes a Federal tax on the taxable income of

every individual. Sec. 1. Gross income for the purposes of

calculating taxable income is defined as “all income from

whatever source derived”. Sec. 61(a). Every U.S. resident

individual whose gross income for the taxable year equals or

exceeds the exemption amount is required to make an income tax

return.9 Sec. 6012(a)(1)(A). Petitioners had aggregate gross

income totaling at least $44,971.74, and each individually had

gross income totaling at least $18,381.08 for taxable year 2001. 

Both petitioners’ gross incomes exceeded the filing threshold for

the 2001 taxable year, and petitioners were, therefore, required

to file an income tax return.10
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10(...continued)

tax system, the Code, and the Tax Court have been firmly

established as constitutional. Crain v. Commissioner, 737 F.2d

1417, 1417-1418 (5th Cir. 1984); Ginter v. Southern, 611 F.2d

1226, 1229 (8th Cir. 1979); Rev. Rul. 2005-19, 2005-14 I.R.B.

819.

C. Petitioners’ Taxable Income

1. Terry I. Major’s Income

Terry contended that he did not receive any income as

defined in section 61 for the taxable year 2001, but he did not

offer any evidence supporting his position. Respondent, on the

other hand, provided documentation showing that Terry earned

income of at least $26,590.66 in 2001.

Terry’s online resume established that he was a computer

consultant for Major Computer Services. Ms. Yows confirmed: (1)

Terry furnished computer services for Dollarhide in 2001; (2)

Dollarhide paid Terry shortly after receiving invoices from him;

and (3) Dollarhide issued Terry a Form 1099-MISC for 2001. 

Respondent also provided Forms 1099-MISC for both Dollarhide and

Lincoln for 2001. Terry offered no evidence or testimony

contesting respondent’s evidence. Terry had the opportunity to

cross-examine respondent’s two witnesses to attempt to elicit

favorable testimony, but he chose not to. The Court therefore

sustains the deficiency determined by respondent with respect to

Terry.
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11 Demutualization, as it applies here, is the process of

converting from a mutual insurance company to a stock company

pursuant to a written plan of conversion. Prior to Oct. 26,

2001, Louise had an interest in an insurance policy administered

by Principal Financial Group, Inc., a mutual insurance company.

On Oct. 26, 2001, Principal Financial Group, Inc.’s initial

public offering became effective. Demutualization of the company

also became effective on this same date. On Dec. 10, 2001,

Mellon distributed demutualization compensation to the former

Principal Financial Group, Inc. policyholders. Former policy

holders could choose to receive their demutualization

compensation in the form of Principal Financial Group, Inc.

common stock, cash, or policy credits. As stated above, Louise

received $18,037.50 in cash as demutualization compensation.

12 In petitioners’ pretrial memorandum and in an objection

to stipulation #9 in the Stipulation of Facts, they contended

that the amounts received from Mellon should be treated as a

return of premium or excess premium and, thus, not income. 

Petitioners also confirmed that Louise received these amounts in

cash. However, since petitioners did not argue this assertion on

brief or at trial, the Court deems that petitioners have

abandoned it.

2. Louise Major’s Income

In support of respondent’s position, respondent provided

Form 1099-B and the declaration of Marlene Mills, a Mellon

employee, evidencing that in 2001 Louise Major received

$18,037.50 of demutualization11 income in the form of cash and

Form 1099-INT, reflecting interest income of at least $343.58.

Louise did not appear at trial. While Terry was present at

trial, he did not offer any evidence contesting Louise’s

deficiency or addition to tax.12 Thus, respondent’s

determination of Louise’s deficiency is sustained.
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IV. Additions to Tax

With respect to the examinations beginning after July 22,

1998, the Commissioner bears the burden of production in any

court proceeding involving an individual’s liability for

penalties or additions to tax. Sec. 7491(c). To meet this

burden, the Commissioner must come forward with sufficient

evidence indicating that it is appropriate to impose the relevant

penalty or addition to tax. Higbee v. Commissioner, 116 T.C.

438, 446 (2001). In instances where an exception to the penalty

or addition of tax is afforded upon a showing of reasonable

cause, the taxpayer bears the burden of showing such cause. Id.

at 447.

Section 6651(a) provides for a 5-percent addition to tax for

each month or portion thereof that the return is filed late, not

to exceed 25 percent in the aggregate, imposed upon a taxpayer

for failure to timely file a tax return, unless such failure to

file is due to reasonable cause and not due to willful neglect. 

Although not defined in the Code, “reasonable cause” is viewed in

the applicable regulations as the “exercise of ordinary business

care and prudence”. Sec. 301.6651-1(c)(1), Proced. & Admin.

Regs; see also United States v. Boyle, 469 U.S. 241, 246 (1985). 

“Willful neglect” can be interpreted as a “conscious, intentional

failure or reckless indifference.” United States v. Boyle, supra

at 245. With respect to section 6651(a) additions to tax,
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reliance on misguided constitutional beliefs is not reasonable. 

Edwards v. United States, 680 F.2d at 1271 n.2; see also Ginter

v. Southern, 611 F.2d 1226, 1229 (8th Cir. 1979).

On the basis of the record in this case, the Court concludes

that respondent’s relevant burdens of production and proof have

been met. Specifically, respondent provided Forms 4340 showing

that petitioners did not file a return for the 2001 taxable year. 

Petitioners have not provided any evidence that they filed a tax

return for 2001 or that their failure to file was due to

reasonable cause. Therefore, the Court sustains the imposition

of an addition to tax under section 6651(a)(1).

V. Section 6673 Penalty

Section 6673 allows this Court to award a penalty to the

United States in an amount not in excess of $25,000 for

proceedings instituted by the taxpayer primarily for delay or for

proceedings in which the taxpayer’s position is frivolous or

groundless. “A petition to the Tax Court, or a tax return, 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)(imposing

penalties on taxpayers who made frivolous constitutional

arguments in opposition to the income tax). Courts have ruled

that constitutional defenses to the filing requirement, such as

petitioner presents, are groundless and wholly without merit. 
- 23 -

Ginter v. Southern, supra at 1229; see also Williams v.

Commissioner, T.C. Memo. 1999-277; Morin v. Commissioner, T.C.

Memo. 1999-240; Sochia v. Commissioner, T.C. Memo. 1998-294 (all

of which imposed a section 6673 penalty for tax protester

arguments).

Groundless litigation diverts the time and energies of 

judges from more serious claims; it imposes needless costs 

on other litigants. Once the legal system has resolved a 

claim, judges and lawyers must move on to other things. 

They cannot endlessly rehear stale arguments. Both 

appellants say that the penalties stifle their right to 

petition for redress of grievances. But there is no 

constitutional right to bring frivolous suits, see Bill

Johnson’s Restaurants, Inc. v. NLRB, 461 U.S. 731, 743, 103 

S.Ct. 2161, 2170, 76 L.Ed.2d 277 (1983). People who wish to

express displeasure with taxes must choose other forums, and

there are many available. * * * [Coleman v. Commissioner, 

supra at 72.] 

Respondent has not sought a section 6673 penalty in this case,

and the Court declines to impose such a penalty today. However,

the Court explicitly admonishes petitioners that they may, in the

future, be subject to a penalty under section 6673 for any

proceedings instituted or maintained primarily for delay or for

any proceedings which are frivolous or groundless.

The Court has considered all of petitioners’ contentions,

arguments, requests, and statements. To the extent not discussed

herein, we have found them to be meritless, irrelevant, or moot.

To reflect the foregoing,

Decision will be entered

under Rule 155.