T.C. Memo. 1995-540

UNITED STATES TAX COURT

SCOTT R. PHILIPS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

 Docket No. 10078-94. November 14, 1995.

Scott R. Philips, pro se.

Ronald J. Aiani, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

FOLEY, Judge: By notices dated March 11, 1994, March 18,

1994, April 12, 1994, and June 15, 1994, respondent determined

deficiencies in and additions to petitioner's Federal income

taxes as follows:
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1Unless otherwise indicated, all 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. 

 Additions to Tax 

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

1987 $25,096 $6,274.00 $1,355

1988 19,548 4,887.00 1,248

1989 28,462 7,116.00 1,926

1990 33,185 8,296.25 2,178

1991 30,884 7,721.00 1,771

This case presents the following issues:

1. Whether petitioner is liable for the deficiencies

determined by respondent. We hold that petitioner is liable.

2. Whether petitioner is liable for additions to tax

pursuant to section 6651(a)(1)1 for failing to file Federal

income tax returns. We hold that petitioner is liable.

3. Whether petitioner is liable for additions to tax

pursuant to section 6654 for failing to make estimated Federal

income tax payments. We hold that petitioner is liable.

4. Whether petitioner has asserted frivolous and groundless

arguments that warrant the imposition of a penalty pursuant to

section 6673. We hold that petitioner has asserted frivolous and

groundless arguments, and the Court shall impose a penalty.

FINDINGS OF FACT

The parties have stipulated all relevant facts, and these

facts are so found.
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Petitioner resided in San Clemente, California, at the time

he filed his petition. Petitioner has acknowledged that he

received income from several sources in taxable years 1987

through 1991 yet did not file individual income tax returns for

those years. In 1987, petitioner received $70,500 from Ronco

Plastics, Inc., and $809 from Buckhorn, Inc. In 1988, petitioner

received $60,000 from Ronco Plastics, Inc. In 1989, petitioner

received $76,100 from Ronco Plastics, Inc., $10,250 from American

Telephone & Telegraph Co., $160 from ADAC Laboratories, and $10

from American Transtech. In 1990, petitioner received $100,738

from Ronco Plastics, Inc., $40 from ADAC Laboratories, and $14

from U.S. Clearing Corp. In 1991, petitioner received $93,600

from Ronco Plastics, Inc. The amounts received from Ronco

Plastics, Inc., were compensation; the other amounts were

dividends and returns on stock and bond investments.

In answering respondent's notice of deficiency, petitioner

on June 9, 1994, filed a defective petition with this Court. The

petition submitted did not comply with the form and content rules

set forth in Rule 34(b). Petitioner presented typical tax

protester arguments and claimed that he is not subject to the

income tax. He also challenged respondent's "SUBJECT MATTER

JURISDICTION", questioned whether he could "BE LIABLE FOR AN

INCOME TAX" on his wages, and asserted that wages "ARE NOT A
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REVENUE TAXABLE EVENT WITHIN THE PURVIEW OF THE INTERNAL REVENUE

CODE."

On June 14, 1994, the Court ordered petitioner to file an

amended petition by August 15, 1994. In response, petitioner

submitted on August 11, 1994, the same defective petition that

had been rejected by the Court on June 14, 1994 (except that it

bore a new date). On October 13, 1994, respondent filed a Motion

to Dismiss for Failure to State a Claim upon Which Relief Can Be

Granted. In its motion, respondent also asked the Court to

impose a penalty pursuant to section 6673.

On October 14, 1994, the Court issued an order directing

petitioner to file a written objection setting forth clear and

concise reasons why respondent's motion to dismiss should not be

granted or, in the alternative, setting forth clear and concise

allegations of error and facts concerning the merits of the

specific adjustments contained in the notices of deficiency. In

its order, the Court also advised petitioner that penalties have

been imposed under section 6673 in similar cases.

On November 14, 1994, petitioner filed a second amended

petition that complied with the Court's form and content

requirements. Accordingly, the Court denied respondent's Motion

to Dismiss on November 21, 1994.
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On September 11, 1995, respondent filed a Motion for

Sanctions Pursuant to I.R.C. § 6673. A trial was held in Los

Angeles, California, on September 12, 1995.

OPINION

The Internal Revenue Code provides that gross income means

all income from whatever source derived. Sec. 61(a). The

Supreme Court has held that income includes "gain derived from

capital, from labor, or from both combined." Eisner v. Macomber,

252 U.S. 189, 207 (1920). The Court of Appeals for the Ninth

Circuit, to which any appeal in this case would lie, has

expressly held that wages are income and are subject to taxation. 

United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981).

In affirming this Court's decision in a tax protester case,

the Court of Appeals for the Seventh Circuit aptly noted: "Some

people believe with great fervor preposterous things that just

happen to coincide with their self-interest. 'Tax protesters'

have convinced themselves that wages are not income, that only

gold is money, that the Sixteenth Amendment is unconstitutional,

and so on." Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir.

1986).

In this case, petitioner advanced a variety of

constitutional arguments that the courts have uniformly rejected. 

Generally, he argued that: (1) He is not a "taxpayer" as defined

in the Internal Revenue Code; (2) the Tax Court lacks
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jurisdiction to decide this case; and (3) an income tax violates

the Sixteenth Amendment because it is an impermissible "direct

tax". We see no need to fully describe each of petitioner's

constitutional arguments or to address them individually. To do

so might imply that the arguments have some colorable merit when

in fact they are groundless.

It is sufficient to note that petitioner readily

acknowledges that he received income yet refuses to pay tax on

it. Accordingly, we hold that petitioner is liable for the

deficiencies determined by respondent.

Respondent determined additions to tax under sections

6651(a)(1) and 6654. Section 6651(a)(1) imposes an addition to

tax for failure to file a timely return unless it is shown that

such failure to file was due to reasonable cause and not due to

willful neglect. Petitioner bears the burden of proving that he

had reasonable cause for failing to file tax returns for the

years in issue. Rule 142(a); Larsen v. Commissioner, 765 F.2d

939, 941 (9th Cir. 1985). Petitioner's tax protester rhetoric

does not establish reasonable cause. Accordingly, we hold that

petitioner is liable for additions to tax under section

6651(a)(1).

Section 6654(a) generally imposes an addition to tax if the

total tax withheld and any estimated tax payments made during a

year do not equal or exceed the threshold set forth in section
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6654(d). During the 5 years in issue, petitioner received income

totaling $412,221. His tax liability totaled $137,175, yet his

tax payments totaled zero. Petitioner offered no evidence

showing that he qualified under an exception to section 6654(a). 

Accordingly, we hold that petitioner is liable for additions to

tax under section 6654(a).

Finally, we consider whether a penalty should be imposed

under section 6673. Section 6673(a)(1) provides that, whenever

it appears to the Tax Court that the taxpayer's position in a

proceeding is frivolous or groundless, the Court may impose a

penalty not in excess of $25,000. This Court has often imposed

such penalties on taxpayers who make frivolous tax protester

arguments. See, e.g., Coulter v. Commissioner, 82 T.C. 580, 584-

586 (1984); Abrams v. Commissioner, 82 T.C. 403, 408-413 (1984);

Wilkinson v. Commissioner, 71 T.C. 633, 639-643 (1979);

Santangelo v. Commissioner, T.C. Memo. 1995-468; McNeel v.

Commissioner, T.C. Memo. 1995-211; Devon v. Commissioner, T.C.

Memo. 1995-206; Carr v. Commissioner, T.C. Memo. 1995-138; cf.

Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985) (noting

that the argument that wages are not income "has been rejected so

frequently that the very raising of it justifies the imposition

of sanctions").

In this case, petitioner knew that courts have repeatedly

rejected his constitutional arguments and repeatedly imposed the
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section 6673 penalty on taxpayers who have made such arguments. 

Indeed, the Court so advised petitioner in its October 14, 1994,

order. 

In his trial memorandum, however, petitioner continued to

assert the same groundless claims. Petitioner stated, for

example, that "the free exercise and enjoyment of the God-given

and constitutionally secured right to lawfully acquire property

or compensatory income, by lawfully contracting one's own labor

in innocent and harmless activities, for lawful compensation,

cannot be (and therefore has not been) taxed for revenue

purposes." Petitioner made similar assertions in his request for

admissions, in his proposed joint stipulation of facts, and in a

list of 21 "Special Questions for the Tax Court" that served no

function but to restate petitioner's antitax views.

At the beginning of the trial, the Court warned petitioner

that it would impose a penalty, up to $25,000, if it found

his position to be frivolous and groundless. During the trial,

the Court admonished petitioner several times to set forth a

legitimate argument for not paying the taxes due. Ignoring these

admonitions, petitioner consumed all of his trial time asserting

that his income is not subject to taxation, contending that this

Court did not have jurisdiction, and asking extraneous questions. 

Among his inquiries, he asked: "Am I here under common law?",

"Is this a Court of Admiralty?", and "Does this Court have
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anything to do with the Uniform Commercial Code?" He also stated

that he did not "see a corpus delicti" in this case.

In sum, petitioner has advanced trite constitutional

arguments in his submissions to this Court and at trial. 

Petitioner has received $412,221 during the tax years in issue

yet has steadfastly refused to honor his obligation to pay taxes. 

Indeed, his actions have wasted the time and resources of the

Internal Revenue Service and this Court. Accordingly, we hold

that petitioner's position in these proceedings is frivolous and

groundless, and the Court shall impose a penalty of $10,000.

 Respondent's motion for sanctions

will be granted, and decision will be

entered for respondent.