455

SCOTT GRUNSTED, PETITIONER v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket No. 12954–09L. Filed May 11, 2011. 

P filed late purported income tax returns for 2002, 2003 and 

2004 showing zero income and seeking refunds for taxes withheld. R notified P that two of the purported returns would not 

be accepted for lack of sufficient information and that they 

were based on frivolous positions. P resubmitted substantially 

identical purported tax returns for those two years. R 

assessed five frivolous return penalties under sec. 6702, 

I.R.C., against P for those years. P failed to pay the penalties. 

R then commenced collection action against P. P argues that 

R may not proceed with the proposed collection action as the 

penalties were invalid assessments. P maintains that the penalties were not properly assessed because no district director 

exists. District directors were eliminated after the Internal 

Revenue Service Restructuring and Reform Act of 1998, Pub. 

L. 105–206, 112 Stat. 685. R moves for summary judgment. 

1. Held: P is liable for the five frivolous return penalties 

under sec. 6702, I.R.C., which were validly assessed because 

the district director responsibilities were reassigned under the 

savings provision of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105–206, sec. 1001, 

112 Stat. 689, and IRS Deleg. Order 1–23 (formerly IRS 

Deleg. Order 193, Rev. 6), Internal Revenue Manual pt. 

1.2.40.22 (Nov. 8, 2000). 

456 136 UNITED STATES TAX COURT REPORTS (455) 

1 Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and 

Procedure, and all section references are to the Internal Revenue Code. 

2. Held, further, R may proceed with collection. 

3. Held, further, P is not subject to a penalty under sec. 

6673, I.R.C., but is warned that continued frivolous arguments may subject him to the sec. 6673, I.R.C., penalty in the 

future. 

Scott Grunsted, pro se. 

Lisa M. Oshiro and Melanie Senick, for respondent. 

OPINION 

KROUPA, Judge: This collection review matter is before the 

Court on respondent’s motion for summary judgment under 

Rule 121. 1 The first issue for decision is whether petitioner 

is liable for the five frivolous return penalties assessed for 

the 2002, 2003 and 2004 tax years (the years at issue). We 

find that he is liable. The second issue for decision is 

whether respondent’s determination to proceed with the proposed collection action is an abuse of discretion. We hold it 

is not. 

Background

Petitioner resided in Hayden, Idaho at the time he filed 

the collection review petition. Petitioner is a husband, a 

father and a college graduate. 

Petitioner filed late purported income tax returns on Form 

1040EZ for each of the years at issue. His purported returns 

showed zero income. Petitioner attached letters to the purported returns supporting his zero income filings by claiming 

that private sector payments for labor are not taxable. He 

attached a Form 4852, Substitute for Form W–2, Wage and 

Tax Statement, to each purported tax return. Petitioner 

reported that his employer, Agency Software, Inc., had withheld Federal income tax, State tax, local tax, Social Security 

tax and Medicare tax. Petitioner sought refunds for all Federal taxes withheld and also requested refunds for Social 

Security and Medicare taxes in his letters. 

Respondent notified petitioner in a letter that the purported returns for 2002 and 2003 would not be accepted 

because they lacked sufficient information and were based on 

frivolous positions. Petitioner resubmitted substantially idenVerDate 0ct 09 2002 15:00 May 30, 2013 Jkt 372897 PO 20009 Frm 00002 Fmt 2847 Sfmt 2847 V:\FILES\GRUNSTED.136 SHEILA
(455) GRUNSTED v. COMMISSIONER 457

2The amount of the frivolous submission penalty was increased from $500 to $5,000 in December 2006. See Tax Relief and Health Care Act of 2006, Pub. L. 109–432, div. A, sec. 407, 

120 Stat. 2960. 

tical purported tax returns for those two years, again 

showing zero income and again seeking a refund of certain 

amounts withheld from his wages. Respondent assessed 

frivolous return penalties against petitioner for the three 

years at issue. Respondent assessed a penalty for each of the 

five purported returns filed in those years, in the amounts of 

$500 and $500 for 2002, $500 and $5,000 for 2003 and $5,000 

for 2004. 2

Petitioner failed to pay the penalties. Respondent issued a 

Final Notice of Intent to Levy and Notice of Your Right to 

a Hearing with respect to the five frivolous return penalties. 

Respondent also filed two notices of Federal tax lien with the 

relevant county recorder. One lien dealt with the two penalties for 2002 and the one penalty for 2004. The other lien 

dealt with the two penalties for 2003. Respondent notified 

petitioner of the Federal tax liens, detailing the liens and 

petitioner’s right to a collection due process (CDP) hearing. 

Petitioner responded to the levy and lien notices, asserting 

that no lawful assessments had been made and threatening 

criminal complaints and civil action. Petitioner argued that 

the penalties were invalid assessments because no district 

director exists. Per petitioner, the Secretary is required 

under regulations to appoint a district director for assessment purposes, and no tax may be assessed without a district director. 

Respondent’s Appeals Office scheduled a CDP hearing and 

requested petitioner to provide outstanding tax returns and 

certain financial information. Petitioner failed to provide any 

returns or financial information so that collection alternatives could be considered. Petitioner did, however, send a 

long letter arguing that respondent had failed to follow 

assessment procedures because the Secretary had not 

appointed a district director in his geographical area. Petitioner concluded that, because there was no district director, 

there were also no assessment officers and therefore the penalties could not be assessed against him. Petitioner also 

asserted other arguments that his wages were zero and that 

he was not subject to any frivolous return penalty. 

458 136 UNITED STATES TAX COURT REPORTS (455) 

3 A Federal District Court has rejected the district director argument. United States v. Booth, 

106 AFTR 2d 2010–6409, 2010–2 USTC par. 50,626 (E.D. Cal. 2010). We are not, however, 

bound by the decision of the District Court for the Eastern District of California. 

4Petitioner did not receive a deficiency notice with respect to the frivolous return penalties 

because the statutory deficiency procedures do not apply to frivolous return penalties. See sec. 

6703(b); Yuen v. United States, 290 F. Supp. 2d 1220, 1224 (D. Nev. 2003). Petitioner also has 

not disputed the penalties during a prior conference with respondent’s Appeals Office. See Lewis 

v. Commissioner, 128 T.C. 48 (2007). As a result, petitioner may contest the penalties both at 

a CDP hearing and before this Court. 

Respondent’s Appeals Office again asked petitioner to provide tax returns and other information and notified petitioner that his arguments were frivolous. After sending yet 

another letter with substantially similar arguments, petitioner had a telephone CDP hearing. Petitioner raised 

substantially similar arguments at his hearing, and he failed 

to provide the requested documents or propose collection 

alternatives. 

Respondent’s Appeals Office upheld respondent’s collection 

action, including a proposed levy, and sent a determination 

letter to petitioner. Petitioner timely filed a petition with this 

Court. Petitioner’s only argument in his two-sentence petition is that he does not owe the frivolous return penalties 

because proper assessment cannot be made in the absence of 

a district director. 

Respondent filed a motion for summary judgment, and 

petitioner filed a response. This is the first time this Court 

has addressed in a published Opinion the question of 

whether the absence of a district director causes an assessment to be invalid. 3

Discussion

Petitioner has followed in the footsteps of numerous others 

who have unsuccessfully attempted to avoid paying Federal 

income taxes. Petitioner wants only to contest his liability for 

the frivolous return penalties in this collection review 

matter. 

We begin by noting that we have jurisdiction to review a 

determination notice issued under section 6330 where the 

underlying tax liability consists of frivolous return penalties. 

See Callahan v. Commissioner, 130 T.C. 44, 47–49 (2008). 

We also note that petitioner may contest the frivolous return 

penalties before this Court. 4 See id. at 49–50. We next 

review general rules that apply to summary judgment. 

(455) GRUNSTED v. COMMISSIONER 459

The purpose of summary judgment is to expedite litigation 

and avoid costly, time-consuming and unnecessary trials. 

Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). 

Summary judgment may be granted if the pleadings and 

other acceptable materials, together with the affidavits, if 

any, show that there is no genuine issue as to any material 

fact and that a decision may be rendered as a matter of law. 

Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 

520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). 

We next consider the standard of review under which we 

evaluate respondent’s summary judgment motion. Where the 

validity of the underlying tax liability is properly at issue, as 

the case is here, we will review the matter de novo. See 

Callahan v. Commissioner, supra at 50; Sego v. Commissioner, 114 T.C. 604, 610 (2000). Where the validity of the 

underlying tax liability is not properly at issue, we will 

review the Commissioner’s determination for abuse of discretion. See Callahan v. Commissioner, supra at 50–51; Sego v. 

Commissioner, supra at 610. 

We now review the frivolous return penalties in light of the 

dual purpose of our review. A civil penalty for filing frivolous 

returns may be assessed against a taxpayer if three requirements are met. First, the taxpayer must file a document that 

purports to be an income tax return. Sec. 6702(a)(1). Second, 

the purported return must lack the information needed to 

gauge the substantial correctness of the self-assessment or 

contain information indicating the self-assessment is 

substantially incorrect. Id. Third, the taxpayer’s position 

must be frivolous or demonstrate a desire to delay or impede 

the administration of Federal income tax laws. Sec. 

6702(a)(2). We generally look to the face of the documents to 

determine whether a taxpayer is liable for a frivolous return 

penalty as a matter of law. See Yuen v. United States, 290 

F. Supp. 2d 1220, 1224 (D. Nev. 2003). 

Respondent satisfied the first element by showing that 

petitioner filed five documents for the years at issue that 

each purported to be an income tax return. The five Forms 

1040EZ purported to be income tax returns filed to obtain 

tax refunds. See Callahan v. Commissioner, supra at 53. 

Petitioner attached a Form 4852 to each purported return, 

reporting amounts that petitioner’s employer had withheld 

460 136 UNITED STATES TAX COURT REPORTS (455) 

for tax. Petitioner thus filed five purported tax returns for 

the years at issue. 

Respondent satisfied the second element as well. Petitioner 

claimed on his purported returns and on the attached Forms 

4852 that he received no wages. The same Forms 4852, however, indicated that Agency Software, Inc. had withheld certain taxes on wages to petitioner. Petitioner attached explanations to his initial purported returns, clarifying that the 

payments he received were for labor. These attached letters 

made patently erroneous assertions, including that the Federal Government could tax only income ‘‘federally connected’’ 

and not the payments petitioner received from the private 

sector. By the same token, none of the purported returns 

petitioner submitted contained information on which the 

substantial correctness of the self-assessment might be determined. 

Finally, respondent satisfied the third element by showing 

that the purported returns reflect frivolous positions. This 

Court and others have repeatedly characterized returns 

reflecting zero income and zero tax as frivolous. See Blaga v. 

Commissioner, T.C. Memo. 2010–170; Ulloa v. Commissioner, 

T.C. Memo. 2010–68; Hill v. Commissioner, T.C. Memo. 

2003–144; Rayner v. Commissioner, T.C. Memo. 2002–30, 

affd. 70 Fed. Appx. 739 (5th Cir. 2003). Petitioner advanced 

meritless tax-protester arguments to report zero wages on 

his purported returns. We do not address petitioner’s groundless arguments with somber reasoning and copious citations 

of precedent, as to do so might suggest that these arguments 

possess some degree of colorable merit. See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). We therefore find 

that petitioner is liable for the frivolous return penalties 

under section 6702 because all of the elements have been 

met. 

Petitioner argued to respondent’s Appeals Office and in his 

petition that respondent cannot assess frivolous return penalties against him, even if section 6702 would otherwise 

apply, because the assessments for the penalties are invalid. 

We disagree. 

An assessment is made by recording the liability of a taxpayer in the office of the Secretary in accordance with rules 

or regulations prescribed by the Secretary. Sec. 6203. Assessments are made by assessment officers who are appointed by 

(455) GRUNSTED v. COMMISSIONER 461

5See H. Conf. Rept. 105–599, at 194 (1998), 1998–3 C.B. 747, 948 (‘‘The IRS Commissioner 

is directed to restructure the IRS by eliminating or substantially modifying the present-law 

three-tier geographic structure and replacing it with an organizational structure that features 

operating units serving particular groups of taxpayers with similar needs. * * * The legality 

of IRS actions will not be affected pending further appropriate statutory changes relating to 

such a reorganization (e.g., eliminating statutory references to obsolete positions).’’). 

the district director and the director of the regional service 

center. Sec. 301.6203–1, Proced. & Admin. Regs. Petitioner 

argues that there is no district director; therefore no assessment officers have been properly appointed and so there can 

be no valid assessment of frivolous return penalties against 

him. Petitioner is correct in arguing that there are no longer 

any district directors. He errs, however, in concluding that 

there were no valid assessments because of the absence of 

district directors. 

The IRS has been reorganized several times in recent history. The district director position and responsibilities were 

assigned to others after the Internal Revenue Service 

Restructuring and Reform Act of 1998 (RRA), Pub. L. 105–

206, 112 Stat. 685, required the Commissioner to eliminate 

or substantially modify the IRS’ national, regional and district 

structure. Id. sec. 1001, 112 Stat. 689. To ensure continuity 

of operations, the RRA specifically included a savings provision. Id. sec. 1001(b). The savings provision applies to keep 

in effect regulations that refer to officers whose positions no 

longer exist. Id. It also provides that nothing in the reorganization plan would be considered to impair any right or 

remedy to recover any penalty claimed to have been collected 

without authority. Id.

Furthermore, IRS Deleg. Order 1–23 (formerly IRS Deleg. 

Order 193, Rev. 6), Internal Revenue Manual pt. 1.2.40.22 

(Nov. 8, 2000), allows directors, submission processing field, 

compliance services field and accounts management field to 

appoint assessment officers. This order further implemented 

Congress’ intent that the IRS’ normal duties, including that 

of assessment, not be obstructed by the reorganization. 5 In 

short, petitioner’s frivolous return penalties were properly 

assessed and his argument, albeit novel, is without merit. 

Petitioner has not advanced arguments or presented evidence allowing us to conclude that the determination to sustain the proposed collection action was arbitrary, capricious, 

or without sound basis in fact or otherwise an abuse of 

discretion. See, e.g., Giamelli v. Commissioner, 129 T.C. 107, 

462 136 UNITED STATES TAX COURT REPORTS (455) 

112, 115 (2007). Petitioner did not provide any collection 

alternatives or present any other defenses. The record 

indicates that the only issues petitioner raised throughout 

the administrative process, in his petition and at the summary judgment hearing were frivolous tax-protester arguments and groundless arguments about assessment 

authority. We therefore conclude that respondent’s determination to proceed with the proposed collection action is not 

an abuse of discretion. It is appropriate for us to grant 

respondent’s summary judgment motion. 

We now address whether it is appropriate for us to impose 

a penalty against petitioner on our own motion under section 

6673. This section authorizes the Tax Court to require a taxpayer to pay to the United States a penalty of up to $25,000 

whenever it appears that proceedings have been instituted or 

maintained primarily for delay or that the taxpayer’s position 

in such proceedings is frivolous or groundless. See sec. 6673; 

Scruggs v. Commissioner, T.C. Memo. 1995–355, affd. without published opinion 117 F.3d 1433 (11th Cir. 1997); Zyglis 

v. Commissioner, T.C. Memo. 1993–341, affd. without published opinion 29 F.3d 620 (2d Cir. 1994). The purpose of section 6673, like that of section 6702, is to compel taxpayers 

to think and to conform their conduct to settled tax principles. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th 

Cir. 1986). 

We note that the type of argument petitioner raised, especially that his wages are not taxable, is the type of argument 

that has been deemed by this Court to be frivolous and/or 

sanctionable under section 6673. It is apparent from the 

record that petitioner instituted this proceeding in continuation of his refusal to acknowledge and satisfy his tax obligations. Such proceedings waste the Court’s and respondent’s 

limited resources, taking time away from taxpayers with 

legitimate disputes. We take this opportunity to admonish 

petitioner that the Court will consider imposing a substantial 

penalty if petitioner returns to the Court and advances 

similar arguments in the future. 

We have considered all remaining arguments the parties 

made and, to the extent not addressed, we conclude they are 

irrelevant, moot or meritless. 

(455) GRUNSTED v. COMMISSIONER 463

To reflect the foregoing, 

An appropriate order and decision for 

respondent will be entered

f .