T.C. Memo. 1997-48

UNITED STATES TAX COURT

WAYNE D. BUMGARNER, Petitioner v. COMMISSIONER OF

INTERNAL REVENUE, Respondent

Docket No. 407-95. Filed January 27, 1997.

P instituted this proceeding claiming that his

wages and nonemployee compensation are not income

subject to tax. Held: R's determinations of income

tax deficiencies and additions to the tax under secs.

6651(a) and 6654(a), I.R.C., are sustained. Held,

further, on the Court's own motion P must pay a penalty

to the United States in the amount of $1,000 since P's

position in this proceeding is frivolous and

groundless. Sec. 6673(a), I.R.C.

Wayne D. Bumgarner, pro se.

Shirley M. Francis, for respondent.
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*This case was submitted to Judge Arthur L. Nims, III, by

Order of the Chief Judge.

MEMORANDUM OPINION

NIMS, Judge:

* By separate statutory notices of deficiency

issued on October 11, 1994, respondent determined the following

deficiencies in, and additions to, the Federal income tax of

Wayne D. Bumgarner (petitioner or Bumgarner):

 Additions to Tax

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

1987 $3,673 $393 $56

1991 814 100 --

1992 8,747 2,187 383

1993 12,351 3,088 581

Petitioner conceded all issues set forth in the notices of

deficiency, except the adjustments for wages and nonemployee

compensation, and the additions to tax under section 6651(a) for

failure to file returns for the taxable years in issue and

section 6654(a) for failure to pay estimated taxes for 1987,

1992, and 1993. Furthermore, petitioner conceded that he would

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

6654(a) if the Court were to hold that his wages and nonemployee

compensation are subject to income tax. 

The sole remaining issue for decision is whether

petitioner's wages and nonemployee compensation should be

included in his gross income for income tax purposes for the
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years in question. For the reasons that follow, we hold that

they should.

All section references, unless otherwise specified, are to

sections of the Internal Revenue Code in effect for the years in

issue. 

This case was submitted on a full stipulation of facts, and

the facts are so found. This reference incorporates herein the

stipulation of facts and attached exhibits. Petitioner resided

in Eugene, Oregon, at the time he filed his petition. 

Background

Petitioner failed to file Federal income tax returns for the

taxable years 1987, 1992, and 1993, and untimely filed a Form

1040, U.S. Individual Income Tax Return, for the taxable year

1991 on August 19, 1994. Consequently, substitute returns were

prepared by respondent in connection with her examination of

petitioner's tax liability for those years. Respondent premised

the substitute returns on information provided by payers of the

gross income and third party recordkeepers. 

During 1987, petitioner was employed by the City of Eugene

and was paid $25,584. The City of Eugene withheld Federal income

tax of $2,103 from petitioner's wages during 1987. Petitioner

also earned $48 of interest income in 1987 from one or more

unspecified sources. 

During 1991, petitioner worked for Emerald Valley

Development (Emerald Valley), and was paid $3,000. Emerald
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Valley withheld Federal income tax of $540.20 from the wages paid

to petitioner during 1991. Petitioner also received unemployment

compensation of $7,904 from the State of Oregon in 1991. 

Furthermore, in that year petitioner earned interest income from

Amvesco, Inc., d/b/a Western Pioneer Title Co., in the amount of

$18.91, and interest income of $58 from the Public Employees

Federal Credit Union. No Federal income tax was withheld from

either distribution of interest. 

During 1992 and 1993, petitioner received $31,750 and

$42,000, respectively, in nonemployee compensation from MYCO

Financial, Inc. (MYCO). These amounts were reported on Forms

1099-MISC issued to petitioner for each of those years. No

Federal income tax was withheld by MYCO from payments made to

petitioner during 1992 and 1993. Petitioner also received

unemployment compensation during 1992 in the amount of $1,235

from the State of Oregon. Also, in 1992 Bumgarner earned

Schedule A income of $300 from Bungee Masters, Inc. and $13 from

Melaleuca, Inc. (Melaleuca). In 1993, petitioner received $151

of interest income from one or more unspecified sources. He also

earned $33 of Schedule A income from Melaleuca in that year. 

Discussion

We must decide whether petitioner's wages and nonemployee

compensation should be included in his gross income for income

tax purposes for the years at issue.
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The gist of petitioner's position is common to so-called tax

protesters, despite his repeated claims that he should not be so

pigeonholed. Petitioner admits that he exchanged his labor for

the amounts paid to him during the relevant taxable years. 

Nevertheless, petitioner maintains that such an exchange does not

constitute a taxable transaction as long as it was even. Since

the value of his labor equaled or exceeded the value of the wages

and nonemployee compensation he received in exchange therefor,

petitioner theorizes, he did not realize a gain. Therefore, no

part of his remuneration is subject to income tax. In so

arguing, petitioner contends that section 83 authorizes the

requisite specific exclusion from gross income for compensation

received for services rendered, since "[petitioner's basis (cost)

is the * * * [fair market value] of his services, [and] this

amount is deductible as cost" under the statute. Respondent

demurs to all of petitioner's assertions. 

We agree with respondent and hold that the wages and other

compensation attributed to petitioner in the notices of

deficiency are taxable income. 

"Except as otherwise provided", wages, salaries,

commissions, and other compensation received in consideration of

services or labor performed are included in the recipient's gross

income for income tax purposes. Sec. 61(a)(1); Old Colony Trust

Co. v. Commissioner, 279 U.S. 716, 729 (1929); Tyee Realty Co. v.

Anderson, 240 U.S. 115 (1916); Brushaber v. Union Pac. R.R. Co.,
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240 U.S. 1 (1916); secs. 1.61-1 and 1.61-2(a)(1), Income Tax

Regs. 

The argument that compensation received in exchange for

labor is nontaxable has been rejected by this Court and others on

myriad occasions. See, e.g., Coleman v. Commissioner, 791 F.2d

68, 70 (7th Cir. 1986), ("Wages are income, and the tax on wages

is constitutional".); Rowlee v. Commissioner, 80 T.C. 1111, 1120-

1122 (1983); Reading v. Commissioner, 70 T.C. 730 (1978), affd.

614 F.2d 159 (8th Cir. 1980); Janus v. Commissioner, T.C. Memo.

1996-195; see also Rice v. Commissioner, T.C. Memo. 1982-129, in

which we held that "whether or not wages can be characterized as

the product of an exchange, they are still income within the

Constitutional embrace."

Despite this overwhelming body of law, petitioner asserts

that section 83 provides the specific exclusion from gross income

for compensation that section 61 requires. As stated by the

Court of Appeals for the Seventh Circuit, "Some people believe

with great fervor preposterous things that just happen to

coincide with their self-interest." Coleman v. Commissioner,

supra at 69. Petitioner claims that section 83 entitles him to

deduct the fair market value of his services from the amount he

receives in exchange therefor, unless he elects otherwise. 

However, income tax deductions are a matter of legislative grace,

and are set forth in specific statutory provisions. New Colonial
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Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). No such

deduction is authorized by section 83. 

Section 83(a) provides, in general, that the fair market

value of property transferred in connection with the performance

of services, over the amount (if any) paid for such property, is

included in the gross income of the person who performed the

services in the first year in which the transferee's rights in

the property are not subject to a substantial risk of forfeiture. 

Property, for purposes of section 83, is defined as "real and

personal property other than * * * money or an unfunded and

unsecured promise to pay money or property in the future." Sec.

1.83-3(e), Income Tax Regs. (Emphasis added). Section 83(b)

offers an election to include such property in gross income in

the actual year of transfer instead. 

Section 83 is inapplicable to the instant case for several

reasons. Section 83(b) is an alternate timing provision; it does

not provide that property received for services is excludable

from gross income unless one elects to so include it, as

petitioner posits. Moreover, petitioner received cash or checks

as compensation, both of which fall outside of the definition of

property for section 83 purposes. Finally, Bumgarner has no

basis in his labor and, therefore, nothing to deduct. See

Reading v. Commissioner, supra at 734, holding that "One's gain,

ergo his 'income,' from the sale of his labor is the entire

amount received therefor". 
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We have considered petitioner's other arguments and, to the

extent they are decipherable, find them devoid of merit.

We turn now, on our own motion, to the imposition of a

penalty against petitioner pursuant to section 6673(a).

Section 6673(a)(1) authorizes the Tax Court to require a

taxpayer to pay to the United States a penalty not in excess of

$25,000 whenever it appears that proceedings have been instituted

or maintained by the taxpayer primarily for delay or that the

taxpayer's position in such proceeding is frivolous or

groundless. 

A petition to the Tax Court exhibits frivolity "if it is

contrary to established law and unsupported by a reasoned,

colorable argument for change in the law." Coleman v.

Commissioner, supra at 71. Petitioner's position, as set forth

in the petition and answering brief, consists mainly of hackneyed

tax protester blather, interspersed with choice obloquies

directed at respondent. Petitioner would subject one's wages and

other compensation to tax only to the extent that he or she

elects to include them in gross income. Based on wellestablished precedent, such a posture is frivolous and obtuse. 

In light of the above, we will exercise our discretion under

section 6673(a)(1) and require petitioner to pay a penalty to the

United States in the amount of $1,000. See Coleman v.

Commissioner, supra at 71-72; Crain v. Commissioner, 737 F.2d

1417, 1418 (5th Cir. 1984); Coulter v. Commissioner, 82 T.C. 580,
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584-586 (1984); Abrams v. Commissioner, 82 T.C. 403, 412-413

(1984); Snyder v. Commissioner, T.C. Memo. 1995-405.

To reflect the foregoing,

An appropriate

order and decision will

be entered.