TAX COURT OPINION

Case: Ronald E. Mueller
Docket Number: 7847-10
Judge: Colvin
Opinion Type: bench
Filed: 03/25/2011
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 RONALD E. MUELLER, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 7847210. ) ) Order of Service of Transcript Pursuant to Rule 152(b), Rules of Practice of Procedure of there is transmitted herewith to petitioner and to this Court, respondent a copy of the pages of the above cases before Judge Mark V. Holmes, at Dallas, Texas, on March 8, 2011 containing his oral opinion rendered at findings of the trial. the transcript of the trial of the conclusion of fact and In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. March 25, 2011 SERVED MAR 3 0 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 Bench Opinion by Judge Mark V. Holmes March 8, 2011 Ronald E. Mueller v. Commissioner Docket No. 7847-10 THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the court's oral findings of fact and opinion. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court's Rules of Practice and Procedure. This case involves the 2007 tax year of Mr. Mueller, who did not file a return for that year, despite earning close to $50,000 in compensation from his business of making dental appliances -- crowns, for example -- for patients of dentists in the region of Paris, Texas. He came to the attention of the Commissioner because a report of nonemployee compensation from one of his chief customers triggered a "no match" indication. The Commissioner, noting that Mr. Mueller had not filed a return, prepared a substitute for return under Section 6020 of the Internal Revenue Code, issued a notice of deficiency, and Mr. Mueller responded by filing a petition. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 on the petition he listed his explanation for why he disagreed with the IRS as "Petitioner performed self-assessment and found that he did not have sufficient taxable income for the year to warrant filing a return" and also, under the statement of fact on which he relies, said, "Petitioner followed the directions required to determine one's taxable income, beginning with section 1 of Title 26 U.S.C. and continuing through 26 C.F.R. Part 1.861-8." The reference to section 861 is the key here. Mr. Mueller made only two arguments, and his primary argument is what's known as the 861 argument. In brief, this argument states that all income must have a sourcenthat the definition of "source" in the Code applies only to nonresident aliens and foreign corporations. Such people look to section 861, the sourcing regulations, for nonresident aliens and foreign corporations and then conclude that, since they are neither a nonresident alien nor a foreign corporation, they have no income from any particular source. The problem, of course, is that the major premise in their argument is completely incorrect. All citizens of the United States are liable for Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 taxes, under the Code, on their income, whether received from sources within or without the United States. See, for instance, 26 C.F.R. section 1.1- 1(b). This argument is commonly made and has been universally regarded as frivolous by the courts and specifically listed as frivolous by the Commissio in Revenue Ruling 2004-30. Seeing no hope there, Mr. Mueller moved on to playing with definitions, specifically Internal Revenue Code section 7701(a) (9), which states that the term "United States," when used in a geographical sense, includes only the states and the District of Columbia. When asked why he thought Texas was not a state, he replied that under 7701(a) (10), the term "state" shall be construed to include the District of Columbia where such construction is necessary to carry out provisions of this title, evidently reasoning that the inclusion of the District of Columbia as a state for purposes of the Code means Texas isn't a state, an issue which, in this sesquicentennial year of the War of Northern Aggression, was settled long ago. Nevertheless, under section 7701(c), the Code itself says that the terms "includes" and Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6 "including," when used in a definition contained in this title, shall not be deemed to exclude other things otherwise within the meaning of the term "defined." Again, saying that the individual states of the Union are not in fact states of the Union and only that the District of Columbia and federal enclaves are is a completely frivolous argument and has been listed and described by the IRS as such in Revenue Ruling 2004-28. We warned Mr. Mueller personally, in his last case before the Tax Court, that these arguments were frivolous. See Mueller v. Commissioner, TC Memo 2010.-10, where Judge Paris warned him that Petitioner was uncooperative, had not filed any tax returns. for tax years 2000 through 2007, and raised only frivolous arguments such as "income reporting and payment are voluntary" to contest the underlying tax liability. None of this works, and so I sustain the deficiency in this case for the 2007 year. That leaves only the additions to tax to talk about. Internal Revenue Code section 6651(a) (1) imposes an addition to tax if an individual fails to file a return. Internal Revenue Code section 6651(a) (2) imposes an addition to tax if an individual Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7 fails to pay a tax required to be shown on a return. And for purposes of this section, section 6651(g) says that substitutes for return that the Commissioner prepares under section 6020 count as returns. Finally, Internal Revenue Code section 6654 imposes an addition to tax for underpayment of estimated tax. Mr. Mueller does not fall under any of the exceptions listed to this edition in 6654(e). He admitted his nonfiling and his nonpayment, so the Commissioner met the burden of production, and all of these additions to tax are sustained as well. Naturally this led the Respondent's counsel to make a motion under 6673 for an additional penalty for relying entirely on frivolous arguments. The Court warned Mr. Mueller at the beginning of his testimony that his arguments were frivolous. He had been warned that his arguments were frivolous by Judge Paris in his previous case, and yet he went forward. In considering whether and in what amount to grant sanctions under 6673, I took into consideration the relatively small amount of tax that was at issue in this case; Mr. Mueller's educational level, which was mostly at the high school level. On the other hand, he had been told that his arguments were Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8 frivolous before. So for now I'll set the penalty at only $500 but warn him when he gets this transcript that that penalty will only go up if he continues to make such frivolous arguments in the future. I also take into consideration his admission under oath that he has been a nonfiler since at least 1993, which puts his business at considerable risk in this fragile.economy. The only other matter open in this case is Mr. Mueller's late-filed motion to strike the Commissioner's pretrial memorandum for what he called fraud and felony extortion by the lawyer who wrote it. I will deny this motion as completely ludicrous. Therefore I find for Respondent as to the following deficiencies and additions to tax. For the tax year 2007, Mr. Mueller owes a deficiency of $12,128; an addition to tax under 6651(a) (1) of $2,728.80; an addition to tax under section 6651(a) (2) of $1,030.88; an addition to tax under 6654(a) of $551.97; and a penalty under section 6673(a) (1) (1B) of $500. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 9:10 a.m., the bench opinion in the above-entitled matter was concluded.) Heritage Reporting Corporation (202) 628-4888