T.C. Memo. 2010-86

 

UNITED STATES TAX COURT

DAAWUD-EL WAAMIQ-ALI, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24108-08. Filed April 21, 2010.

Daawud-El Waamiq-Ali, pro se.

James P.A. Caligure, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: For 2004 and 2005 respondent determined

deficiencies in petitioner’s Federal income taxes and additions

to tax as follows:

 Additions to Tax 

Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a) 

2004 $3,193 $718.42 $606.67 ---

2005 3,188 717.30 414.44 $127.87
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All section references are to the Internal Revenue Code (Code),

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

and Procedure. The issues for decision are whether petitioner

is: (1) liable for the deficiencies in his Federal income taxes;

(2) liable for the additions to tax under sections 6651(a)(1) and

(2) and 6654(a); and (3) liable for a penalty pursuant to section

6673(a).

FINDINGS OF FACT

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

The stipulation of facts and the accompanying exhibits are

incorporated by this reference. At the time the petition was

filed, petitioner resided in New York.

During 2004 petitioner worked for Barton Protective

Services, Inc. (Barton), and Allied-Barton Security Services

(Allied) and received wages of $20,171 and $11,716 from Barton

and Allied, respectively. In 2005 petitioner worked for Allied

and received $31,893 in wages. Neither Barton nor Allied

withheld any Federal income tax from petitioner’s wages because

he filed a Form W-4, Employee’s Withholding Allowance

Certificate, for both years claiming that he was exempt from

Federal income tax withholding. Petitioner filed several

documents with his employers claiming that his submission of Form

W-4 was involuntary, he was exempt from withholding, and he
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1 Respondent listed petitioner’s wages on the 2004 SFR as

$31,627, which is $260 less than the stipulated amount of

$31,887. This discrepancy has no effect on the outcome of this

case.

incurred no Federal income tax liability. Petitioner failed to

file Federal income tax returns for 2004 and 2005.

Pursuant to section 6020(b), respondent filed substitutes

for returns (SFR) for petitioner for 2004 and 2005. For 2004

respondent determined that petitioner’s filing status was single

and that petitioner’s taxable income was $31,627.1 For 2005

respondent determined that petitioner’s filing status was single

and that petitioner’s taxable income was $31,893.

Petitioner stipulated that he received wages from Barton and

Allied as determined by respondent. However, petitioner claims

that he is not liable for tax on the amounts included in his

gross income by respondent because: (1) Employers are liable for

Federal income taxes on employee wages; (2) wages are not taxable

income; and (3) respondent does not have the authority to prepare

SFRs.

OPINION

I. Deficiencies in Federal Income Tax

Section 61(a)(1) defines gross income as all income from

whatever sources derived, including compensation for services.

As a general rule, the taxpayer bears the burden of proving

the Commissioner’s deficiency determinations incorrect. Rule
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142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section

7491(a), however, provides that if the taxpayer introduces

credible evidence and meets certain other prerequisites, the

Commissioner shall bear the burden of proof with respect to

factual issues relating to the taxpayer’s liability for a tax

imposed under subtitle A or B of the Code.

Petitioner does not dispute receiving the wages or

respondent’s calculation of tax. Rather, petitioner disagrees

only with respondent’s legal conclusions (i.e., that petitioner’s

wages are taxable; that petitioner, not his employer, is liable

for the income tax; and that respondent has the authority to

prepare the SFRs). Since the facts are undisputed and petitioner

has failed to introduce credible evidence, section 7491(a) does

not apply. See Davenport v. Commissioner, T.C. Memo. 2009-248.

In his petition, at trial, and on brief, petitioner advanced

shopworn arguments characteristic of tax-protester rhetoric that

have been universally rejected by this and other courts. See

Ledford v. United States, 297 F.3d 1378, 1381 (Fed. Cir. 2002);

United States v. Connor, 898 F.2d 942, 943 (3d Cir. 1990); Connor

v. Commissioner, 770 F.2d 17, 19-20 (2d Cir. 1985); Sawukaytis v.

Commissioner, T.C. Memo. 2002-156, affd. 102 Fed. Appx. 29 (6th

Cir. 2004). We shall not painstakingly address petitioner’s

assertions “with somber reasoning and copious citation of

precedent; to do so might suggest that these arguments have some
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2 If the Secretary makes a return for the taxpayer under

sec. 6020(b), it is disregarded for purposes of determining the

amount of the addition to tax under sec. 6651(a)(1), but it is

treated as a return filed by the taxpayer for purposes of

(continued...)

colorable merit.” See Crain v. Commissioner, 737 F.2d 1417, 1417

(5th Cir. 1984). Accordingly, we sustain respondent’s 

deficiency determinations for 2004 and 2005.

II. Additions to Tax

Section 7491(c) provides that the Commissioner has the

burden of production with respect to the liability of any

individual for additions to tax. “The Commissioner’s burden of

production under section 7491(c) is to produce evidence that it

is appropriate to impose the relevant penalty, addition to tax,

or additional amount”. Swain v. Commissioner, 118 T.C. 358, 363

(2002); see also Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Once the Commissioner satisfies this burden of

production, the taxpayer must persuade the Court that the

Commissioner’s determination is in error by supplying sufficient

evidence of an applicable exception. Higbee v. Commissioner,

supra at 446.

A. Section 6651(a)(1)

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

file a return on the date prescribed (determined with regard to

any extension of time for filing), unless such failure is due to

reasonable cause and not due to willful neglect.2
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2(...continued)

determining the amount of the addition to tax under sec.

6651(a)(2). Sec. 6651(g).

Petitioner failed to file Federal income tax returns for

2004 and 2005. Accordingly, we find that respondent has met his

burden of production with regard to the additions to tax under

section 6651(a)(1). Petitioner has presented no evidence of a

reasonable cause defense. Therefore, petitioner is liable for

additions to tax under section 6651(a)(1) for 2004 and 2005. 

B. Section 6651(a)(2)

Section 6651(a)(2) provides for an addition to tax where

payment of the amount reported as tax on a return is not timely

“unless it is shown that such failure is due to reasonable cause

and not due to willful neglect”.

With respect to the section 6651(a)(2) addition to tax, the

Commissioner must introduce evidence that the tax was shown on a

Federal income tax return to satisfy his burden of production

under section 7491(c). Cabirac v. Commissioner, 120 T.C. 163

(2003). When a taxpayer has not filed a return, the section

6651(a)(2) addition to tax may not be imposed unless the

Secretary has prepared a substitute for return (SFR) that meets

the requirements of section 6020(b). Wheeler v. Commissioner,

127 T.C. 200, 208-209 (2006), affd. 521 F.3d 1289 (10th Cir.

2008).
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Section 6020(b) provides:

SEC. 6020(b). Execution of Return by Secretary.--

(1) Authority of Secretary to execute return.-–If

any person fails to make any return required by any

internal revenue law or regulation made thereunder at the

time prescribed therefor, or makes, willfully or otherwise,

a false or fraudulent return, the Secretary shall make such

return from his own knowledge and from such information as

he can obtain through testimony or otherwise.

(2) Status of returns.-–Any return so made and

subscribed by the Secretary shall be prima facie good and

sufficient for all legal purposes. 

Respondent provided the Court with copies of the SFRs

prepared for petitioner for 2004 or 2005. The SFRs satisfy the

requirements of section 6020(b). See Nino v. Commissioner, T.C.

Memo. 2009-293; Carver v. Commissioner, T.C. Memo. 2009-279;

Hawkins v. Commissioner, T.C. Memo. 2008-168. Petitioner did not

timely pay his 2004 or 2005 Federal income taxes as shown on the

SFRs. Respondent has produced sufficient evidence that

petitioner is liable for the section 6651(a)(2) addition to tax.

Petitioner provided no evidence of a reasonable cause defense. 

Therefore, petitioner is liable for additions to tax under

section 6651(a)(2) for 2004 and 2005.

C. Section 6654(a)

Section 6654(a) imposes an addition to tax “in the case of

any underpayment of estimated tax by an individual”. A taxpayer

has an obligation to pay estimated tax for a particular year only

if he has a “required annual payment” for that year. Sec.
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6654(d). A required annual payment generally is equal to the

lesser of: (i) 90 percent of the tax shown on the return for the

taxable year (or, if no return is filed, 90 percent of the tax

for the year); or (ii) 100 percent of the tax shown on the return

of the individual for the preceding taxable year. Sec.

6654(d)(1)(B); Wheeler v. Commissioner, supra at 210-211; Heers

v. Commissioner, T.C. Memo. 2007-10. Clause (ii) does not apply,

however, if the individual did not file a return for the

preceding year. Sec. 6654(d)(1)(B). Respondent’s burden of

production under section 7491(c) requires him to produce evidence

that petitioner had a required annual payment for 2005.

Petitioner failed to file Federal income tax returns for

2004 and 2005. Accordingly, his required annual payment was 90

percent of the tax for 2005. Petitioner did not make any

estimated income tax payments for 2005. Therefore, respondent

has produced sufficient evidence that petitioner is liable for

the section 6654(a) addition to tax. None of the defenses

enumerated in section 6654(e) apply. Therefore, petitioner is

liable for an addition to tax under section 6654(a) for 2005.

III. Section 6673(a)(1) Penalty

At the conclusion of the trial, respondent filed a motion

for sanctions pursuant to section 6673. Section 6673(a)(1)

authorizes the Court to impose a penalty not to exceed $25,000 if

the taxpayer took frivolous or groundless positions in the
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3 In Sawukaytis v. Commissioner, T.C. Memo. 2002-156, the

Court imposed a $12,500 penalty under sec. 6673(a) against the

taxpayer for advancing the frivolous argument that the income tax

is an excise tax and therefore his wages were not taxable income.

proceeding or instituted the proceeding primarily for delay. A

taxpayer’s position 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).

In his petition petitioner claimed that his wages were not

taxable because he was not engaged in any “excise taxable

activities.” During a face-to-face meeting, respondent warned

petitioner that his argument was frivolous. Through written

correspondence, respondent advised petitioner that his argument

was frivolous and that he would seek sanctions under section

6673(a) if petitioner presented this argument to the Court. As a

final attempt to discourage petitioner from making a frivolous

argument at trial, respondent provided petitioner with a copy of

this Court’s decision in Sawukaytis v. Commissioner, T.C. Memo.

2002-156.3

Undeterred, petitioner in his pretrial memorandum raised

various issues, including whether subtitle C of the Code should

be considered in determining petitioner’s tax liability. At

trial petitioner argued that under subtitle C, employers rather

than employees, are liable for Federal income taxes on employee

wages. We warned petitioner that his arguments were frivolous
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and have been universally rejected by this and other courts. We

further advised petitioner that the Court has the discretion to

impose a penalty of up to $25,000 if he were to proceed with such

arguments.

Despite repeated warnings from respondent and this Court,

petitioner advanced patently frivolous arguments at trial and in

his postrial brief. In doing so, petitioner has wasted the

limited time and resources of the Court. The Court of Appeals

for the Second Circuit, the court to which this case would be

appealable, has characterized petitioner’s subtitle C argument as

“baseless”. See Church v. Commissioner, 810 F.2d 19, 20 (2nd

Cir. 1987). Furthermore, the argument that wages are not taxable

“has been rejected so frequently that the very raising of it

justifies the imposition of sanctions.” Connor v. Commissioner,

770 F.2d at 20. Accordingly, we are well within our discretion

to impose a penalty under section 6673(a).

We are convinced, however, that petitioner’s frivolous

arguments were made at the suggestion of a woefully misinformed

adviser. In response to questions from the Court, petitioner was

unable to articulate certain positions raised in his pretrial

memorandum. This is the first time petitioner has engaged in

conduct sanctionable under section 6673(a). Therefore, we shall

not impose a penalty under section 6673(a).

 Though we decline to impose a penalty at this time, we take

this opportunity to warn petitioner that we will impose a section
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6673 penalty if he returns to the Court and proceeds in a similar

manner in the future. See Pierson v. Commissioner, 115 T.C. 576

(2000).

In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

To reflect the foregoing,

An appropriate order will

be issued and decision will be

entered for respondent.