1 Unless otherwise indicated, all section references are

to the Internal Revenue Code in effect for the taxable year in

T.C. Memo. 1996-161

UNITED STATES TAX COURT

TED COWAN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 23292-94. Filed March 28, 1996.

Ted Cowan, pro se.

Julie L. Payne, for respondent. 

MEMORANDUM OPINION

DINAN, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1 Respondent determined a deficiency in petitioner's 1989
- 2 -

issue. All Rule references are to the Tax Court Rules of

Practice and Procedure.

 

2 The Information Report was filed by the mortgage

company conducting the settlement of petitioner's property.

Federal income tax in the amount of $1,249 and an addition to tax

pursuant to section 6651(a) in the amount of $312.25. 

The issues for decision are: (1) Whether petitioner is

liable for Federal income tax on the proceeds from the sale of

property and Social Security benefits received during the year in

issue; (2) whether section 6501 bars assessment and collection of

petitioner's tax; and (3) whether petitioner is liable for an

addition to tax pursuant to section 6651(a). 

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

The stipulations of fact and attached exhibits are incorporated

herein by this reference. Petitioner resided in Issaquah, 

Washington, on the date the petition was filed in this case.

Petitioner failed to file his Federal income tax return for

the taxable year 1989 despite receiving proceeds from the sale of

property in the amount of $10,500 and Social Security benefits in

the amount of $4,884. Respondent determined a deficiency in

petitioner's Federal income tax based on a "Seller's Tax

Reporting Information for I.R.S." form prepared by Puget Sound

Mortgage & Escrow, Inc. (Information Report)2 and Form 1099-SSA

and determined an addition to tax thereon. 
- 3 -

 

3 Sec. 1014(a)(1) provides that the basis of property

acquired from a decedent is generally the fair market value of

the property at the date of the decedent's death.

 

4 Lola Cowan is believed to be petitioner's wife. 

Petitioner testified that he sold unimproved land which he

had inherited from his grandmother. Petitioner failed to produce

any evidence of a basis3 in the inherited property. However, the

Information Report reflected that the seller of the property was

petitioner and "Lola Cowan".4 In addition, the Information

Report reflected that the sellers' net proceeds were $9,007.08.

In his petition and at trial, petitioner raised traditional "tax

protester" type arguments alleging that respondent is barred from

making an assessment after 3 years.

Respondent's determinations as to petitioner's tax liability

are presumed correct, and petitioner bears the burden of proving

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

(1933). Section 61 defines gross income as all income from

whatever source derived. Included within the definition of gross

income is "Gains derived from dealings in property". Sec.

61(a)(3). However, expenses paid in connection with the

disposition of real property ordinarily are capital expenditures

which must be offset against the selling price in determining the

gain or loss. Gunn v. Commissioner, 49 T.C. 38, 52 (1967). 

The Information Report reflected that petitioner and Lola

Cowan were the sellers of the unimproved land. Petitioner
- 4 -

testified that the unimproved land was inherited from his

grandmother and was free and clear of any encumbrances. The

Information Report further reflected that the net proceeds

received by the sellers were $9,007.08. The difference between

the sales price of $10,500 and the net amount received of

$9,007.08 by the sellers represents selling expenses in the

amount of $1,492.92.

Moreover, petitioner and Lola Cowan were residents of the

State of Washington during the year in issue. Washington is a

community property state. Petitioner's testimony was that he

inherited the property from his grandmother. Inherited property

constitutes separate property in Washington and is not subject to

the community property rules. Wash. Rev. Code Ann. Sec.

26.16.030 (1989). However, the Information Report reflects the

sellers of the property to be petitioner and Lola Cowan. 

Petitioner and Lola Cowan as the listed sellers on the

Information Report is compelling evidence which suggests that, if

the property was separate property, it was converted to community

property. See Volz v. Zang, 113 Wash. 378, 194 P. 409 (1920). 

Individuals who are married and reside in a community

property state must each report one-half of their community

property income if they file separately for Federal income tax

purposes. United States v. Mitchell, 403 U.S. 190 (1971). 

Therefore, we hold that petitioner must report only one-half of
- 5 -

 

5 For 1989, a taxpayer with married filing separately

filing status is required to file if his gross income exceeds

$4,600 (the standard deduction of $2,600 plus the personal

exemption of $2,000). 

the net proceeds from the sale of the unimproved land in the

amount of $4,503.54. 

With respect to the Social Security benefits, section 86(a)

provides that gross income includes Social Security benefits in

the amount equal to the lesser of: (1) One-half of the Social

Security benefits received during the year, or (2) one-half of

the excess over certain base amounts. The base amount for a

taxpayer using married filing separately status is zero if the

taxpayer lived with his spouse at any time during the year. Sec.

86(c)(3). 

Petitioner failed to present any evidence contrary to

respondent's position that one-half of petitioner's Social

Security benefits were taxable. Rule 142(a). Accordingly, we

hold that one-half of petitioner's Social Security benefits in

the amount of $2,442 is taxable. Sec. 86(a). 

We need not address petitioner's tax protester arguments,

which have been rejected repeatedly by the courts. For 1989,

petitioner was required to file an income tax return5 and was

required to pay taxes thereon. See secs. 1, 61, 6011, 6012,

7701(a). Petitioner is raising traditional protester arguments. 

See Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984). In

Crain v. Commissioner, supra at 1417, when a tax protester raised
- 6 -

similar arguments the Court of Appeals for the Fifth Circuit

opined: "We perceive no need to refute these arguments with

somber reasoning and copious citation of precedent; to do so

might suggest that these arguments have some colorable merit."

This Court and the Court of Appeals for the Ninth Circuit

have held petitioner's arguments to be nothing more than tax

protester rhetoric and legalistic gibberish. See Fuller v.

United States, 786 F.2d 1437 (9th Cir. 1986); Hudson v. United

States, 766 F.2d 1288 (9th Cir. 1985); United States v. Romero,

640 F.2d 1014 (9th Cir. 1981); Woods v. Commissioner, 91 T.C. 88

(1988); Abrams v. Commissioner, 82 T.C. 403 (1984); Rowlee v.

Commissioner, 80 T.C. 1111 (1983); McCoy v. Commissioner, 76 T.C.

1027 (1981), affd. 696 F.2d 1234 (9th Cir. 1983); Snyder v.

Commissioner, T.C. Memo. 1995-405; Devon v. Commissioner, T.C.

Memo. 1995-206; McGanty v. Commissioner, T.C. Memo. 1995-178;

Diehl v. Commissioner, T.C. Memo. 1990-48.

Petitioner contends that the tax liability for the taxable

year in issue is uncollectible because respondent failed to make

an assessment within 3 years. However, pursuant to section

6501(c)(3), in the case of the failure to file a return, the tax

may be assessed or a proceeding in court for the collection of

such tax may be begun without assessment at any time. 

Section 6651(a)(1) imposes an addition to tax for failure to

timely file a return, unless the taxpayer establishes: (1) The

failure did not result from "willful neglect"; and (2) the
- 7 -

failure was "due to reasonable cause". "Willful neglect" has

been interpreted to mean a conscious, intentional failure, or

reckless indifference. United States v. Boyle, 469 U.S. 241,

245-246 (1985). "Reasonable cause" requires the taxpayer to

demonstrate that he exercised ordinary business care and prudence

and was nonetheless unable to file a return within the prescribed

time. Id. at 246; sec. 301.6651-1(c)(1), Proced. and Admin.

Regs. The addition to tax equals 5 percent of the tax required

to be shown on the return for the first month, with an additional

5 percent for each additional month or fraction of a month during

which the failure to file continues, not to exceed a maximum of

25 percent. Sec. 6651(a)(1).

Petitioner presented no evidence of reasonable cause or any

evidence of attempts made to comply with the law respecting the

timely filing of returns. Accordingly, respondent's

determination with respect to the addition to tax under section

6651(a) is sustained. 

To reflect the foregoing,

Decision will be entered

under Rule 155.