TAX COURT OPINION

Case: Walter K. Lawson
Docket Number: 22078-09S
Judge: Colvin
Opinion Type: bench
Filed: 11/04/2010
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 WALTER K. LAWSON, Petitioner, v. Docket No. 22078-09S COMMISSIONER OF INTERNAL REVENUE Respondent O R D E R Pursuant to Rule.152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of transcript of the trial in the above case before Judge David Gustafson at Philadelphia, Pennsylvania, on October 20, 2010, containing his oral fact and opinion rendered at conclusion of the pages of findings of the trial. the the In accordance with the oral findings of decision will be entered for respondent. fact and opinion, (Signed) David Gustafson Judge Dated: Washington, D.C. November 4, 2010 SERVED NOV - 5 2010 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 David Gustafson Lawson v. Commissioner, No. 22078-095. . 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. The oral Findings of Fact and Opinion shall not be relied on as precedent in any other case. 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 Rules of Practice and Procedure. By a statutory notice of deficiency dated June 15, 2009, the Internal Revenue Service (IRS) determined a deficiency in the Federal income tax of petitioner Walter K. Lawson in the amount of $2,019 for tax year 2006, with additions to tax of $454.28 pursuant to section 6651(a) (1), and $242.28 pursuant to section 6651(a) (2). Trial of this case was conducted on October 19, 2010, in Philadelphia, Pennsylvania. The parties submitted a stipulation, which Mr. Lawson had cooperated in preparing. We find the following facts: Findings Mr. Lawson was born in New York State (Ex. 5-P), 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 and we assume that he is, as he alleges, a natural- born citizen. In 2006 he resided in Florida. (Ex. 3-P.) During that year he received wages from employment in the amount of $23,393 (Stip. 7) and received interest and other income totaling $1,041 (Stip. 8-9). He made no tax payments for 2006, and no tax was withheld from his income by third parties. Mr. Lawson did not file a Federal tax return for 2006 (Stip. 2), so the IRS prepared a substitute for return pursuant to section 6020 that was executed by an IRS official on April 13, 2009 (Ex. 6-R). On June 15, 2009, the IRS mailed to Mr. Lawson a notice of deficiency pursuant to section 6212. (E:x. 1-J.) On September 14, 2009, Mr. Lawson mailed his petition to the Tax Court, and it was filed September 15, 2009. At that time he resided in Pennsylvania. Opinion Mr. Lawson's liability for 2006 income tax Mr. Lawson admits and has stipulated that he received in 2006 the wages, interest, and other income that the IRS included in its computations on the substitute for return and the notice of deficiency. However, he makes several constitutional arguments in his petition, his pretrial memorandum, and the contentions stated in Exhibit 2-J: 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 He disputes the constitutionality of the income tax, contending that as enacted it exceeds the actual authority of the 16th Amendment (i.e., to impose a tax on "income"), because (he says) "income" means only a gain or increase arising from corporate activities, so that wages are not "income" under the 16th Amendment. Courts have consistently held that compensation for services rendered constitutes taxable income. See, e.g., Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985); Abrams v. Commissioner, 82 T.C. 403, 407 (1984). The Supreme Court has affirmed the criminal conviction of someone who made "[c]laims that some of the provisions of the tax code are unconstitutional". Cheek v. United States, 498 U.S. 192, 205 (1991). It is clear that the income tax is constitutional. Mr. Lawson also argues that the income tax does not apply to him because he is a natural-born citizen and (in 2006) a citizen of Florida rather than of the United States. The Supreme Court, however, has stated what seems obvious--i.e., "The same person may be at the same time a citizen of the United States and a citizen of a State". United States v. Cruikshank, 92 U.S. 542, 549 (1875). See also Rev. Rul. 2007-22, 2007-1 C.B. 866. Mr. Lawson argues that the income tax does not 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 apply to him because he lived not in the United States (which he says consists only of federal enclaves) but rather in Florida. This is a thoroughly discredited and frivolous argument. See United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990) (citing Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916), and noting that the Supreme Court has recognized that the "sixteenth amendment authorizes a direct nonapportioned tax upon United States citizens throughout the nation, not just in federal enclaves"); Rev. Rul. 2006-18, 2006-1 C.B. 743. Mr. Lawson's constitutional arguments are frivolous. He is subject to the income tax; he is liable for income tax on his stipulated income; and he was obliged to file a return reporting that liability. Addition to tax under section 6651(a) (1) The notice of determination also reflects the determination of an addition to tax under section 6651(a) (1) for Mr. Lawson's failure to file his income tax return when due. Section 6651(a) (1) authorizes the imposition of an addition to tax for failure to file a timely return unless the taxpayer proves that such failure is due to reasonable cause and is not due to willful neglect. Sec. 6651(a) (1); see United States v. Boyle, 469 U.S. 241, 245 (1985). 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 Respondent met his burden of production under section 7491(c) with the stipulated fact that Mr. Lawson filed no return. (Stip. 2.) Mr. Lawson alleges no reasonable cause to excuse the non-filing, and the addition under section 6651(a) (1) will be sustained. Addition to Tax Under Section 6651(a) (2) Section 6651(a)l21 imposes an addition to tax "[i]n case of failure * * * to pay the amount shown as tax on any return", including an income tax return. This addition does not accrue unless a tax amount is "shown on" a return, so 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 be imposed if the IRS 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). In this case, the IRS proved that it prepared an SFR (Ex. 6-R) and that Mr. Lawson did not pay the liability "shown on" the SFR. The addition under section 6651(a) (2) will be sustained. // 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 Penalty under section 6673(a) At the calendar call on October 18, 2010, respondent filed a motion for sanctions under section 6673(a) (1), and the parties argued the motion at the conclusion of trial. Section 6673(a) (1) authorizes the Tax Court to impose 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 position maintained by the taxpayer is "frivolous" where 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); see also Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th Cir. 1987) (section 6673 penalty upheld because taxpayer should have known claim was frivolous). The statute grants the Court discretion in deciding whether to impose the penalty. See Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 102 (2000), affd. 299 F.3d 221 (3d Cir. 2002). Respondent proposes that we impose such a penalty on Mr. Lawson. We will do so. Mr. Lawson's position is indeed frivolous, as we have shown. He persisted 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 9 in maintaining that position after respondent explained his errors and warned him of the section 6673 penalty. On the other hand, respondent does not allege that Mr. Lawson has made frivolous claims in other tax years. He was reasonably cooperative in this litigation, and in particular he cooperated in the preparation of the stipulation. He made no denial of his receipt of the income at issue. He was not obnoxious or unpleasant in his dealings with respondent or the Court. At the conclusion of the brief trial, when the Court indicated that it would rule against him because his positions were frivolous, he seemed to say that he would not take those positions again. All of this counsels against an extreme penalty. We will impose instead a very modest penalty. The liabilities on the notice of deficiency totaled approximately $2,700. We will therefore impose a penalty of only 10 percent of that amount--i.e., $270. Mr. Lawson is warned that if he maintains frivolous positions in the future, he is at risk for a much stiffer penalty--up to and including $25,000. Consequently, the 2006 deficiency is sustained in full, and the additions to tax under 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 10 section 6651(a) (1) and (a) (2) as reflected on the notice of deficiency are sustained. Decision will be entered in respondent's favor, and a penalty of $270- will be imposed against Mr. Lawson pursuant to section 6673(a) (1). This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:10 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888