T.C. Memo. 2005-155

UNITED STATES TAX COURT

WILBUR T. HAWKS, SR., AND BETTY W. HAWKS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12080-04. Filed June 27, 2005.

Wilber T. Hawks, Sr. and Betty W. Hawks, pro se.

Ric D. Hulshoff, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge: Respondent determined deficiencies in

petitioners’ Federal income tax of $14,829 for 2000 and $40,761

for 2001, and that petitioners are liable for an accuracy-related
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1 Section references are to the Internal Revenue Code in

effect for the taxable years in issue. Rule references are to

the Tax Court Rules of Practice and Procedure.

penalty under section 6662(a)1 of $2,965.80 for 2000 and

$8,152.20 for 2001.

The issues for decision are: 

1. Whether petitioners are entitled to more itemized

deductions than respondent allowed. We hold that they are not.

2. Whether petitioners may claim net operating losses

(NOLs) of $183,455 for 2000 and $110,367 for 2001. We hold that

they may not.

3. Whether petitioners may deduct partnership losses of

$32,065 claimed on Schedule E, Supplemental Income and Loss, for

2001. We hold that they may not.

4. Whether petitioners are liable for the accuracy-related

penalty under section 6662(a) for 2000 and 2001. We hold that

they are.

5. Whether petitioners are liable for a penalty under

section 6673 for instituting proceedings primarily for delay and

for maintaining frivolous or groundless positions. We hold that

they are not. 

Computational adjustments will be required to resolve the

taxable amounts of petitioners’ Social Security benefits in 2000,

the amounts of petitioners’ standard deductions for 2000 and

2001, and the amounts of petitioners’ exemptions for 2001.
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2 An organization named Anderson Ark & Associates was

engaged in facilitating income tax evasion and bankruptcy fraud.

See United States v. Anderson, 391 F.3d 970, 972 (9th Cir. 2004).

FINDINGS OF FACT

Petitioners lived in Richmond, Virginia, when they filed

their petition in this case.

From 1998 through at least 2001, petitioners were involved

in transactions with Anderson Ark & Associates,2 pursuant to

which they purported to create a TEFRA partnership and

purportedly incurred a liability so as to create basis and cause

large losses to be shown on their income tax returns for several

years. Petitioners offset their income with net operating losses

of $183,455 for 2000 and $110,367 for 2001 from the purported

partnership. They also claimed a loss of $32,065 on the Schedule

E attached to their 2001 Federal income tax return. Petitioners

claimed itemized deductions of $31,893 for 2000 and $21,875 for

2001, including medical and dental expenses, real estate taxes,

other taxes, home mortgage interest, cash contributions, noncash

contributions, and miscellaneous expenses.

Respondent audited petitioners’ returns for 2000 and 2001

and determined deficiencies and additions to tax. Respondent

also determined that petitioners overreported capital gain income

by $9,894 for 2001. 

Petitioners provided no documents or other evidence to

support their claimed deductions or to show that respondent’s
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determinations were incorrect. Instead, petitioners have

responded, and continue to respond, to respondent’s attempts to

verify their deductions by making numerous frivolous arguments.

Petitioners timely filed a petition with this Court in which

they made numerous frivolous arguments, such as: (1) Income is

limited to foreign earned income, war profits, and windfall

profits, (2) income tax laws are in effect only in Guam, (3)

income tax returns and payments are gifts to the United States,

(4) Form 1040, U.S. Individual Income Tax Return, and Form 1040A,

U.S. Individual Income Tax Return, are to be filed only by selfemployed residents of the Virgin Islands, Puerto Rico, Guam, or

American Samoa, (5) estimated tax and interest are matters within

the exclusive jurisdiction of the Bureau of Alcohol, Tobacco, and

Firearms, (6) no statute requires anyone to file a tax return,

(7) there is no organization in the Department of the Treasury

known as the Internal Revenue Service (IRS), (8) the IRS is not

an agency of the United States, (9) the IRS is an unlawful

organization, (10) title 26 of the United States Code is not

positive law, and (11) the Tax Court lacks jurisdiction because

petitioners have not received income subject to income tax.

Petitioners did not stipulate facts as required by Rule

91(a). This Court granted respondent’s motion under Rule 91(f)

to show cause why proposed facts should not be accepted as

established and made that order absolute after petitioners failed
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to file a response as ordered. Thus, matters in respondent’s

proposed stipulation of facts are deemed admitted. 

Petitioners did not identify or exchange any documents,

identify witnesses, or file a pretrial memorandum as required by

the standing pretrial order. They did not appear at the calendar

call of this case. Respondent filed motions to dismiss for

failure to properly prosecute and to impose a penalty under

section 6673. Petitioners filed a statement with the Court in

lieu of appearing at trial. In it, petitioners stated that they

would be unable to attend trial on May 23, 2005. Petitioners

also made numerous frivolous arguments that this Court has

previously rejected, such as that their income was not taxable

because it was not from a taxable source, and that they are not

liable for tax because a Form 23C, Assessment Certificate-- 

Summary Record of Assessments, does not exist. 

OPINION

A. Burden of Proof

The burden of proof for a factual issue may shift to the

Commissioner under certain circumstances. Sec. 7491(a). 

Petitioners do not contend that section 7491(a) applies in this

case. They did not substantiate their deductions, keep records

of their income and expenses, or cooperate with respondent’s

agents. Thus, the burden of proof does not shift to respondent. 
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Respondent’s determinations are presumed correct, and

petitioners bear the burden of proof. See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).

B. Whether Petitioners Are Entitled to More Itemized Deductions

Than Respondent Allowed for 2000 and 2001

A taxpayer must keep records that are sufficient to enable

the Commissioner to determine his or her tax liability. See sec.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec.

1.6001-1(a), Income Tax Regs. A taxpayer must substantiate the

payments which give rise to claimed deductions. Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976); see sec. 6001. Petitioners have the burden

of establishing that they are entitled to the deductions claimed. 

See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Petitioners were given numerous opportunities to submit

documentation to substantiate their deductions, but they did not

do so. We have long held that where the taxpayer does not

substantiate claimed deductions, the Commissioner’s disallowance

of them will be sustained. Roberts v. Commissioner, 62 T.C. 834,

836-837 (1974); Pfluger v. Commissioner, T.C. Memo. 1986-78,

affd. 840 F.2d 1379 (7th Cir. 1988). The record in this case

provides no basis for estimating deductions under Cohan v.

Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). See Lerch v.

Commissioner, 877 F.2d 624, 628-629 (7th Cir. 1989), affg. T.C.

Memo. 1987-295; Lutheran Mut. Life Ins. Co. v. United States, 816
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F.2d 376, 379 (8th Cir. 1987); Bay Sound Transp. Co. v. United

States, 410 F.2d 505, 511 (5th Cir. 1969).

Petitioners contend that they paid $26,435 in 2000 and

$29,354 in 2001 for medical and dental expenses, $3,073 in 2000

and $3,225 in 2001 for real estate taxes, $833 in 2000 and $419

in 2001 for other taxes, $99 in 2000 for home mortgage interest,

$3,515 in 2001 for cash contributions, and $1,453 in 2000 for

miscellaneous expenses, and made noncash contributions worth $500

in 2000 and $100 in 2001. Petitioners offered no evidence.

We conclude that petitioners are not entitled to more

itemized deductions than respondent allowed for 2000 and 2001.

C. Whether Petitioners May Deduct Net Operating Loss

Carryforwards and Carrybacks

Petitioners contend that they may deduct NOL carryforwards

and carrybacks. We disagree.

To carry forward or carry back NOLs, petitioners must prove

the amount of the NOL carryforward or carryback. See Jones v.

Commissioner, 25 T.C. 1100, 1104 (1956), revd. and remanded on

other grounds 259 F.2d 300 (5th Cir. 1958). Tax returns alone do

not establish that a taxpayer is entitled to NOL carryforwards or

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

Roberts v. Commissioner, supra at 837, 839. Petitioners offered

no evidence about their NOL carryforwards or carrybacks. We

conclude that petitioners are not entitled to NOL carryforward or

carryback deductions in the years in issue.
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D. Whether Petitioners May Deduct Partnership Losses of $32,065

for 2001

Petitioners contend that they may deduct partnership losses

of $32,065 for 2001. We disagree. There is no evidence to

support petitioners’ partnership loss deduction for 2001.

E. Whether Petitioners Are Liable for the Accuracy-Related

Penalty

Section 7491(c) places on the Commissioner the burden of

producing evidence that it is appropriate to impose additions to

tax. To meet this burden, the Commissioner must produce evidence

showing that it is appropriate to impose the particular addition

to tax but need not produce evidence relating to defenses such as

reasonable cause or substantial authority. Higbee v.

Commissioner, 116 T.C. 438, 446 (2001); H. Conf. Rept. 105-599,

at 241 (1998), 1998-3 C.B. 747, 995.

Petitioners failed to keep records and substantiate their

deductions. Petitioners offered no evidence to show that they

are entitled to NOLs or partnership losses or other claimed

deductions. Thus, respondent has met the burden of production,

and petitioners are liable for the accuracy-related penalty for

2000 and 2001.

F. Penalty for Frivolous Positions or Instituting Proceedings

Primarily for Delay Under Section 6673

Respondent moved at trial to impose a penalty under section

6673. The Court may impose a penalty of up to $25,000 if the

position or positions asserted by the taxpayer in the case are
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frivolous or groundless or the proceedings were instituted

primarily for delay. Sec. 6673(a)(1)(B). A position maintained

by the taxpayer 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); Gilligan v. Commissioner, T.C. Memo. 2004-194. 

Petitioners made numerous frivolous arguments during the

administrative proceedings, in these proceedings, and in the

petition. In lieu of appearing at trial, petitioners submitted a

statement in which they made more frivolous arguments.

We will deny respondent’s motion to impose a penalty under

section 6673. However, we warn petitioners that the Court may

impose this penalty in the future if petitioners make frivolous

arguments or institute proceedings primarily for delay. 

To reflect the foregoing and concessions by respondent and

because of computational adjustments, 

An appropriate order will

be issued, and decision will

be entered under Rule 155.