TAX COURT OPINION

Case: Mark Anthony Lovely
Docket Number: 6570-15L
Judge: Morrison
Opinion Type: bench
Filed: 03/10/2016
Pages: 9

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 MARK ANTHONY LOVELY, Petitioner v. ) ) ) ) Docket No. 6570-15 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER OF SERVICE OF TRANSCRIPT 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 the pages of the transcript of the trial in the above case before Judge Richard T. Morrison, at Winston-Salem, North Carolina, containing his Oral Findings of Fact and Opinion rendered at the trial session at which the case was heard. In accordance with the Oral Findings of Fact and Opinion, an appropriate decision will be entered. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. March 8, 2016 SERVED Mar 10 2016 Capital Reporting Company 3 1 2 Bench Opinion by Judge Richard T. Morrison January 28, 2016 3 Mark Anthony Lovely 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Docket No. 6570-15L 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. References to sections are to the Internal Revenue Code of 1986, as amended. References to rules are to the Tax Court Rules of Practice and Procedure. This Bench Opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. Mr. Andrew J. Davis appeared on behalf of the respondent, the IRS. Mr. Mark Anthony Lovely, the petitioner, appeared on his own behalf. Lovely was a resident of North Carolina when he filed his 20 petition. 21 22 23 24 25 This case is an appeal by which Lovely seeks this Court's review of a determination by the IRS Appeals Office. The Office sustained a proposed levy to collect amounts that the IRS claims it had erroneously credited to Lovely for the tax year 2010 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 and to collect a frivolous return penalty for the same year. The Office's notice of determination was issued on February 4, 2015. The IRS is authorized to collect an unpaid tax by levy. Sec. 6331(a). A "tax" includes the liability for the section 6702 frivolous return penalty. See sec. 6665(a)(2). Before the IRS may levy, it must notify the taxpayer that the taxpayer has a right to an administrative hearing, and it must conduct such a hearing if one is requested. Section 6330(a) (1) and (b) (1). At the hearing, the Appeals 12 Office must obtain verification from the Treasury 13 14 15 16 17 18 19 20 21 22 23 24 25 Secretary that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1). The taxpayer may "raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy", including challenges to the appropriateness of the collection action and offers of collection alternatives. Sec. 6330(c)(2) (A). The taxpayer may contest the existence and amount of the underlying tax liability, but only if the taxpayer did not receive a notice of deficiency and "did not otherwise have an opportunity to dispute such tax liability." Sec. 6330(c)(2)(B); see Baltic v. Commissioner, 129 T.C. 178, 180-181 (2007); Oyer v. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 Commissioner, T.C. Memo 2003-178, slip op. at 15-17. After the Appeals Office has issued its determination, the taxpayer may appeal the .4 determination to the Tax Court, pursuant to section 5 6 6330(d)(1), as Lovely has done. In such an appeal, we review de novo any determination of the Appeals 7 Office as to the underlying tax liability that is 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 properly at issue. Sego v. Commissioner, 114 T.C. 604, 610 (2000). The only issues raised by Lovely are his liability for allegedly erroneous credits for 2010 and his liability for the frivolous return penalty for 2010. We discuss the erroneous credits first. For 2010, Lovely's employers withheld federal income tax of $5,849.97. They also withheld social security and medicare tax of $3,806.49. On his Form 1040EZ, federal income tax return, for 2010, Lovely reported that his employers had withheld federal income tax of $9,656.46. He calculated this amount by erroneously including the social security and medicare tax withholdings. Even though the $9,656.46 amount was overstated by Lovely, the IRS gave Lovely $9,656.46 of credit for federal income tax withholding. Then, to rectify this error, the IRS assessed the amount of the overcredit; i.e., it 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 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 assessed $3,807. It was not required to issue a notice of deficiency before doing so. Sec. 6211(b) (1); sec. 6201(a) (3). At trial, Lovely argued that no federal income tax should have been withheld from his wages because he does not owe any federal income tax. But even if Lovely did not owe any federal income tax, he should not be given credit for withholdings that did not occur. Section 31 provides that if a taxpayer's employer withholds federal income tax from the taxpayer's wages, the taxpayer is given credit against federal income tax for the amounts withheld. The IRS gave Lovely a $9,656.46 credit under section 31, when it should have given him a $5,849.97 credit. We therefore hold that he is liable for the $3,807 assessment, which is the difference between the two amounts. We now turn to the frivolous return penalty. A taxpayer is liable for the $5,000 frivolous return penalty under section 6702 if three requirements are met. First, the taxpayer must file a document that purports to be a tax return. Sec. 6702(a)(1). Second, the purported return must suffer from one of the following defects: it either (a) lacks the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 information needed to judge the substantial correctness of the self-assessment or (b) contains information indicating the self-assessment on the purported return is substantially incorrect. Id. Third, the defect must be (a) based on a position that the Treasury Secretary has identified as frivolous or (b) reflects a desire to delay or impede the administration of federal tax law. Sec. 6702(a)(2). The IRS has the burden of proving that the taxpayer is liable for the penalty. Sec. 6703; Thornberry v. Commissioner, 136 T.C. 356, 367 (2011). On or about February 22, 2011, Lovely submitted to the IRS a Form 1040EZ for 2010. We find that the Form 1040EZ purports to be a tax return. We find that the return contains information indicating that the tax reported on the return, as substantially incorrect. First, the Form 1040EZ reported that Lovely earned $0 in wages. This contradicts the Forms 4852 attached to the return, which report that amounts had been 22 withheld from his wages, and which therefore suggest 23 24 25 that he earned wages. Second, the Form 1040EZ reported that $9,656.46 was the amount withheld from wages for federal income tax. This contradicts the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 Forms 4852, which reported that only $5,849.97 had been withheld from his wages for federal income tax. We also find that the two defects in Lovely's tax return reflect a desire to delay or impede the administration of federal tax law. Lovely asserted that the reason that he reported that his wage income was $0 (an assertion that he made before the IRS, the Appeals Office, and this Court) is that the federal income tax is unconstitutional and that private-sector workers like him are outside the scope of the federal income tax. These preposterous theories have been rejected by the courts. United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991); Abrams v. Commissioner, 82 T.C. 403, 406-407 (1984). We believe that Lovely desired to delay or impede the administration of federal tax law and that the reporting of $0 of income reflected this desire. As it turns out, his strategy was successful. The IRS failed to issue a notice of deficiency for 2010. Issuing such a notice was a necessary precondition for assessing the income tax corresponding to Lovely's wages for the year. Sec. 6213(a). This income tax went uncollected, in part because of the IRS's failure to issue a notice of deficiency, but also in part because of Lovely's 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 false return. Lovely did not testify why he overreported the amount of federal income tax withholding by including social security and medicare tax 5 withholding. By overreporting the withholdings, 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Lovely received a benefit. The IRS initially credited the excessive credits against Lovely's 2010 account, and then transferred the excessive credits to his unpaid tax liabilities for the taxable years 1999 and 2002. The IRS is still trying to undo this benefit by levying the overcredited amount. We believe that Lovely's overstatement of his federal income tax withholdings was not an innocent error. It too reflected his desire to impede or delay the administration of federal tax law. Therefore we conclude that the IRS has shown that Lovely is liable for the frivolous return penalty for 2010. We sustain the determination of the Appeals Office. The IRS made a motion for the Court to require Lovely to pay a penalty under section 6673. Such a penalty is justified when it appears to the Tax Court that the taxpayer's position in a proceeding before it is frivolous or groundless. Sec. 6673(a) (1)(B). In this case, Lovely took the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 position that the federal income tax is unconstitutional and that private-sector workers like him are outside the scope of the federal income tax. These positions are groundless. In a prior case, the 5 Court warned Lovely that his position about private- sector workers was frivolous Lovely v. Commissioner, T.C. Memo. 2015-135, at 7-8. We will impose a penalty under section 6673 of $1,000. To reflect the foregoing, an appropriate order heantarxe.d and £ decision = will be entered for the respondent. This concludes the Court' s oral findings of fact and opinion in this case. (Whereupon, at 4:20 p.m., the above- entitled matter was concluded.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com