# United **States Tax Court**

T.C. Memo. 2023

- 95

REYNOLD HARVEY

, Petitioner

v

. COMMISSIONER OF INTERNAL REVENUE, Respondent

—————

Docket N o. 1 4439

- 22

. Filed July 2 5 , 2023.

—————

Re ynold Harvey , pro se

.
Karen Y. Leon and Thomas A. Deamus

, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LAUBER

, Judge : With respect to petitioner’s Federal income tax for 2018, the Internal R evenue Service (IRS or respondent) determined a deficiency of $12,058 and additions to tax under sections 6651 and 665 4. 1 The principal question presented is whether petitioner is taxable on wages and a re tirement distribution he receive d during 2018

. He urged that we answer that question in the negative, asserting: “I amexempt from Federal Income Tax, as defined by The House of Representatives .” Disagreeing with that submission, we will sustain respondent’s deficiency determinations and impose on petitioner a penalty of $1,000 for advancing frivolous positions in this Court

.

1 Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times. We round all monetary amounts to the nearest dollar.



### Served 07/25/232

[* 2] FINDINGS OF FACT

The following facts are derived from the parties’ pleadings, document ary exhibits admit ted into evidence at trial, and petitioner’s tria l
t estimony. Petitioner resided in the Bronx, New York, when his Petition was timely filed. Absent stipulation to the contrary, appeal of this case would lie to the U.S. Court of Ap pe als for the Seco nd Circuit

. S ee § 7 48 2 (b)(1)(A) . We thus follow its precedent. See Golsen v. Commissioner

, 54 T.C. 742, 757 (1970), aff’d , 445 F.2d 985 (10th Cir. 1971).

During 2018 petitioner was employed by the N ew York City Transit Authority. For that year it paid him wages o f $80,764 , reporting that amount to him on Form W

– 2, Wage and T ax Statem ent . He does not dispute that he received wages of $80,764 during 2018.

During 2018 petitioner received from the New York C ity Retirement Systems Trust a distribution of $3,099 . It reported that payment to him on Form 1099

– R, Distributions From Pensions, Annuities, Retirement or Profit

- Sharing Plans, IRAs, Insurance Contracts, etc

. The Form 1099

– R reporte d that the “taxable amount” of this distribution was $3,099. Petitioner does not dispute that he received a retirement distribution o f $3,099 during 2018. Nor does he dispute that this amount was taxable (apart from asserting that he is altogether exempt from Federal income tax).

Petitioner did not file a Federal income tax return for 2018 . Nor did he remit any tax payments for 2018 beyond the amounts withheld by his employer

. T he IRS prepared a substitute for return (SFR) based on the information returns it receive d and, o n March 14, 2022, mailed petitioner a notice of defi ciency

. 2

The n o tice of deficiency determined that petitioner for 2018 received total income of $83,863, cons is ting of $80,764 in wages and a $3,099 taxable retirement distribution. Allowing him the standard deduction of $12,000, it determined taxable income of $71,863 and a tentative tax of $11,7 4 8. To that sum the IRS added tax of $ 310 under section 7 2 (t) , which im poses a 10% additional tax on early distributions from qualified retirement plans

.

2 Petitioner’s IRS account transcript for 2018, which was admitted into evidence as Exhibit 2

– R, references a “substitute for return” opposite the date July 11,2022. However, respondent did not submit the SFR into evidence or otherwise demonstrate that it met the requirements of section 6020(b).3

[* 3 ] Petitioner timely petitioned this Court

. In his P etition he did not dispute his receipt of the income determined in the notice of deficiency. N or did he dispute that his $3,099 ret i rement distribution was an “early distribution ” within the meaning of section 72(t). The sole argument he advanced w as that he was exempt from Federal income tax.

Petitioner filed a P retrial M emorandum in wh ich he reiterated his position that he wa s not “liab l e to pay the federal income tax. ” In support of that position he cited section 7701(a)(9), which defines the term “United States” ( when used in a geographical sense ) to “include[] only the States and the District of Columbia.” He asserted that “the term ‘income’ is defined nowhere in title 26 of the U.S. Code,” that “the meaning of i ncome did not change aft er the passage of the 16 th Amendment ,” and that “the U.S. Supreme C ourt ha s ruled, not just once, but repeatedly, that the federal government cannot levee [sic] a tax on your property , and ultimately, your labor.”

We tried this case remotely on June 20, 2023, via Zoomgov. At trial petitioner did not dispute his receipt of the i ncome in question, but he denied that he was taxable on it. W e advised him that this Court and others have repeatedly characterized as frivolous the argument that wages are not income

. We warned him that, by advancing th is argument
, he risked a penalt y under section 6673. He nevertheless persisted in his position, asserting that he intended to take his argument “all the way to the Supreme Court.”

OPINION

A. Gross Income

The Internal R evenue Code provides that “gross income means all income from whatever source derived,” including “[c]ompensation for services.” § 61(a)(1). Gross income likewise includes distributions from a qualified retirement plan

. See §§ 61, 72(a)(1), 408(d)(1)

. Such distributions are taxable in full unless the taxpayer has acquired a basis in his account (for example) b y making nondeductible contributions to it

. See §§ 72( b ) , (e)(6)

, 408(d)(2); Campbell v. Commissioner

, 108 T.C. 54, 6 6

– 6 7 (19 9 7)

. In cases of unreported income, t he Commissioner must establish an evidentiary foundation connecting the taxpayer to the income

producing activity, see Llorente v. Commissioner , 649 F.2d 152, 156 (2d Cir. 1981), aff’g in part, rev’g in part 74 T.C. 260 (1980)

, or demonstrate that the taxpayer actually received income, Edwards v. Commissioner

,4

[* 4 ] 680 F.2d 1268, 1270

– 71 (9 th Cir. 1982). I nformation supplied to the IRS by the taxpayer’s employer on Form W

– 2, or by other payors on Forms 1099, is sufficient to meet this burden. See Hardy v. Commissioner , 181 F.3d 1002, 1004

– 05 (9 th Cir. 1999), aff’g T.C. Memo. 1997

- 97. “Once the Commissioner makes the required threshold showing, theburden shifts to the taxpayer to prove by a preponderance of the evidence that the Commissioner’s determinations are arbitrary or erroneous.” Walquist v. Commissioner , 152 T.C. 61, 67

– 68 (2019) (citing Helvering v. Taylor , 293 U.S. 507, 515 (1935)); see Texasgulf, Inc. , & Subs. v. Commissioner , 172 F.3d 209, 214 (2d Cir. 1999), aff’g 107 T.C. 51 (1996).

T he IRS may not rely solely on a third

- party report of income

, such as a Form 1099, if the taxpayer raises a reasonable dispute concerning the accuracy of the report. See § 6201(d). Petitioner has not done so. To the contrary, he has admitt ed that he received during 2018 the wages reported on the Form W

– 2 and the retirement distribution reported on the Form 1099

– R

. H e does not contend that he made an y nondeductible contributions t o his r eti rement account . A nd he does not dispute the determination, set forth on the Form 1099

– R by the New York City Retirement Systems Trust , that the “taxable amount” of his distribution was $3,099.

In contending that he is not taxable on the gross income he received, petitioner relies solely on the assertion that he is exempt from
tax on the fruits of his labor, including his wages and the retirement distribution paid with r e spect to his labor in prior years

. His pretrial

memo randum, which is not a model of clarity, appears to allege that his wages and retirement benefits are tax exempt because he received them as an equal exchange for labor. He asserts that “ [t]he term ‘income’ has repeatedly been held by the court to indicate ‘gain on capita l’ and not

r eceipt [o f] wages or a fee received in exchange for selling an item of property.”

W e have repeatedly rejecte d such arguments as fri volous. See

, e.g. , Rowlee v. Commissioner , 80 T

. C. 1111, 1120

– 22 (1983) ( rejecting the taxpayer’s claim that he did not have taxable income or “gain” because the wages he received were the product of his labor ) ; Holland v. Commissioner , T.C. Memo. 2021

- 129, 122 T.C.M. (CCH) 311, 312

– 13
, aff’d per curiam , No. 22

- 1007, 22 WL 161 9 849 (4th Cir. May 23, 2022)

. And the S eco nd Circuit has done the same

. See

, e.g. , Connor v. Commissioner , 770 F.2d 17, 20 (2d Cir. 1985); Schiff v. Commissioner

, 751 F.2d 116, 117 (2d Cir. 1984 ) (ruling that the argument that taxation of wage5

[* 5 ] income is unconstitutional is “wholly lacking in merit, is without any logical basis, and has been rejected countless times by [the Second Circuit] and others”), aff’g T.C. Memo. 1984

- 223

. We accordingly holdthat petitioner was taxable in 2018 on gross income of $83,863, as determined in the notice of deficiency.

B. Additional Tax

Section 72(t) imposes a 10% “ additional tax ” on early distributions from qualified retirement plans. An early distribution is defined

as one made before “the date on which the employee attains age 59 1/2 .” S ee § 72(t)(2)(A)(i). Petitioner did not c o ntend, in his P e tition, in his P retrial M emorandum, or a t trial, that he was age 59

- 1/2 or older when the $3,099 was distributed to him. Nor does he c o ntend tha t any other exception set forth in section 72(t)(2) applies. The sole argument he has advanced at any point in this case is that he is exempt from Federal income tax altogether. We accordingly sustain the IRS’s determination of a $310 additional tax for 2018.

C. Additions to Tax

With respect to the additions to tax under sections 6651 and 6654, respondent bears the burden of production, but petitioner bear s the burden of proof. See § 7491(c). To meet his burden of production, respondent “must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty.” See Higbee v. Commissioner

, 116 T.C. 438, 446 (2001). As explained below, t he evidence required to meet this burden is not necessarily the same for each addition to tax. See, e.g.

, Spurlock v. Commissioner , T.C. Memo. 2003

- 124, 85 T.C.M. (CCH) 1236, 1242

– 45.

1. Failure to File

Section 6651(a)(1) provides for an addition to tax of 5% of the tax required to be shown on a return for each month (or a fraction thereof) for which there is a failure to file the return, not to exceed 25% in toto. Respondent has produced the a ccount t ranscript for petitioner’s 2018 tax year , which shows that petitioner did not file a retur n for 201 8 . Th is

was sufficient to satisfy respondent’s burden of production. See Murray v. Commissioner

, T.C. Memo. 20 17

- 67, 113 T.C.M. (CCH) 1314 , 1317.

Petitioner has supplied no evidence that he filed a Federal income tax return for 201 8 . Indeed, by asserting frivolous arguments in support of his assertion that he had no obligation to file such a return
, he has6

[* 6 ] effectively admitted that he did not do so . He has alleged no facts and produced no evidence showing that his failure w as “due to reasonable cause and not due to willful neglect.” See § 6651(a)(1). We will accordingly sustain the failure

- to

- file addition to tax of $2 ,713 determined by the IRS for 2018.

2. Failure to Pay

Section 6651(a)(2) provides for an addition to tax when a taxpayer fails to pay timely “ the amount shown as tax on [a] return ” unless the taxpayer proves that his failure was due to reasonable cause and not due to willful neglect. To meet his burden of production under section 7491(c) for this addition to tax, the Commissioner must produce evidence of a tax return. Wheeler v. Commissioner , 127 T.C. 200, 208

– 1 0 (2006), aff’d , 521 F.3d 1289 (10 th Cir. 2008); Gardner v. Commissioner

, T.C. Memo. 2013

- 67, 105 T.C.M. (CCH) 1433, 1439

, aff’d , 845 F.3d 971 (9th Cir. 2017)

. An SFR prepared by the IRS pursuant to section 6020(b) is treated as the “return” filed by the taxpayer for this purpose. See § 6651(g).

Petitioner’s a ccount t ranscript for 2018 indi cat es that the IRS

prep a red an SFR on his behalf . But resp o ndent did not include , among his proposed trial exhibits, a certified copy of an SF R for 2018 . Nor doesthe record of this case otherwise include a copy of that document. Because respondent has not met his burden of production by producing evidence of a tax return for 2018, we are unable to sustain the addition to tax for failure to timely pay. See Gardner , 105 T.C.M. (CCH) at 1439 (holding that the reference in an a ccount transcript to a “ substitute tax return pr epared by IRS” was insufficie nt to satisfy the Commissioner’s burden of production).

3. Failure to Make Estimated Tax Payments

Section 6654(a) imposes an addition to tax on an individual whounderpays his estimated tax. This addition to tax is calculated with reference to four required installment payments of the taxpayer’s estimated tax liability. § 6654(c) and (d). Each requi red installment is equal to 25% of the “required annual payment.” § 6654(d). Where a taxpayer has not filed a return for the current tax year or the immediately preceding tax year, the “ required annual payment ” is equal to 90% of the tax due for the current year. § 6654(d)(1)(B).

The Commissioner’s burden of production under section 7491(c) requires him to produce, for each year for which the addition to tax is7

[* 7 ] asserted, evidence that the taxpayer had a “ required annual payment ” under section 6654(d). To do so, the Commissioner must establishthe tax shown on the taxpayer’s return for the preceding year or demonstrate that the taxpayer filed no such return. See Wheeler , 127 T.C.
at 212; Collins v. Commissioner

, T.C. Memo. 2020

- 50
, 119 T.C.M. (CCH) 1319 , 1330.

Respondent did not include among his proposed trial E xhibits a copy of petitioner’s Federal income tax return for 2017 or evidence that petitioner failed to file a r eturn for 2017. No information regarding petitioner’s 2017 tax year is included in the record of this case. Because respondent has not met his burden of pro duction, we are unable to sustain the addition to tax under section 6654(a).

D. Penalty for Maintaining Frivolous Positions

Section 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty, not in excess of $25,000, “[w]henever it appears to the Tax Court that

— (A) proceedings before it have been instituted or maintained

. . . primarily for delay, [or] (B) the taxpayer’s position in such proceeding is frivolous or groundless.” The purpose of section 6673 is to compel taxpayers to conform their conduct to settled tax principles and to deter the waste of judicial and IRS resource s. Coleman v. C ommissioner , 791 F.2d 68, 71 – 72 (7 th Cir. 1986); Salzer v. Commissioner

, T.C. Memo. 2014

- 188, 108 T.C.M. (CCH) 284, 287. “Frivolous and groundless claims divert the Court’s time, energy, and resources away from more serious claims and increase the needless cost imposed on other litigants

. . . . ” Kernan v. Commissioner, T.C. Memo. 2014

- 228, 108 T.C.M. (CCH) 503, 512, aff’d

, 670 F. App’x 944 (9 th Cir. 2016)

.
Petitioner ’s assertion that the income he concedes having received is not s ubject to Federal income tax is a frivolous argument. See May v. Commissioner , 752 F.2d 1301, 1304 (8 th Cir. 1985) (citing Abrams v. Commissioner , 82 T.C. 403, 406

– 07 (1984)); see also United States v. Gerads , 999 F.2d 1255, 1256 (8 th Cir. 1993) ( “ [W]e have held that wages are within the definition of income under the Internal Revenue Code . . . and are subject to taxation. ” ); Coleman v. Commissioner

, 791 F.2d at 70

– 71 (same and collecting authorities); Waltner v. Commissioner , T.C. Memo. 2014

- 35 (same), aff’d , 659 F. App ’ x 440 (9 th Cir. 2016)

.
The a ssertion that wages are not income is a time

- worn tax

- protest e r argument. Variations on this theme have been compiled8

[* 8 ] by the IRS in The Truth About Frivolous Tax Arguments, a compendium of frivolous positions and the caselaw refuting them. See Internal Revenue Serv

. , The Truth About Frivolous Tax Arguments 9

– 13 (Mar. 2022), https://www.irs.gov/pub/irs

- utl/2022

- the

- truth

- about

f riv o lous

- tax

- arguments.pdf

. In plain English, this document characteriz es as frivolous the arguments that “wages . . . and other compensationreceived for personal services are not income” and that “there is no taxable gain when a person ‘exchanges’ labor for money

. ” See id. at 10. Although petitioner is not a lawyer , had he made even a modest inquiry using an internet search engine he would have found the copious authorities refuting h is stance. See Wnuck v. Commissioner

, 136 T.C. 498, 504 (2011) (“Anyone with the inclination to do legal research

. . . will confront such aut horities.”).

W e warned petitioner at the outset of trial that he was advanc ing a frivolous argument that had repeatedly been rejected by the courts

. He nevertheless adhered to his position, asserting that he intended totake his argument “all the way to the Supreme Court.” We will accordingly require that he pay to the United S tates a penalty of $1,000.

To reflect the foregoing

, An appropriate order and decision will be entered.