TAX COURT OPINION

Case: Gary & Janet Will
Docket Number: 25519-11
Judge: Armen
Opinion Type: bench
Filed: 03/01/2013
Pages: 20

UNITED STATES TAX COURT WASHINGTON, DC 20217 SEC GARY AND JANET WILL, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) ORDER Docket No. 25519-11. 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 petitioners and to respondent a copy of the pages of the transcript of the hearing in the above case before Special Trial Judge Robert N. Armen, Jr. at Dallas, Texas, on February 13, 2013, containing 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 order and decision will be entered. (Signed) Robert N. Armen, Jr. Special Trial Judge Dated: Washington, D.C. March 1, 2013 SERVED Mar 04 2013 Capital Reporting Company 3 1 2 3 4 5 6 7 8 Bench Opinion by Judge Robert N. Armen, Jr. February 13, 2013 Gary & Janet Will v. Commissioner Docket No. 25519-11 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. These Oral Findings of Fact and 9 Opinion shall not be relied upon as precedent in any 10 11 12 13 14 other case. This proceeding was heard as a regular case pursuant to the provisions of section 7443A(b) (3) of the Internal Revenue Code of 1986, as amended, and Rules 180, 181, and 182 of the Tax Court Rules of 15 Practice and Procedure. 16 17 18 19 20 21 22 23 24 25 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. Hereinafter in this bench opinion, all section numbers refer to the Internal Revenue Code, as amended and in effect for 2008 and 2009, the taxable years in issue, and all Rule numbers refer to the Tax Court Rules of Practice and Procedure. Petitioner Gary Will appeared on his own 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 behalf. Meredith L. Stuart appeared on behalf of respondent. There was no appearance by petitioner Janet Will. This case represents an action for redetermination of deficiency, addition to tax, and accuracy-related penalty. See sec. 6213(a); Rule 13(a) and (c). The case is presently before the Court on respondent's Motion For Summary Judgment And To Impose A Penalty Under I.R.C. § 6673, filed December 10, 2012, pursuant to Rule 121 and section 6673, and supplemented January 8, 2013. Petitioners resided in the State of Illinois at the time that the petition was filed with the Court. The facts relevant to the disposition of respondent's motion are as follows: 16 Petitioners' Income Tax Return for 2008 17 18 19 20 Petitioners late-filed their 2008 Federal income tax return (Form 1040) on or about April 13, 2010. On their return, petitioner Gary Will listed bis occupation as management and petitioner Janet 21 Will listed her occupation as teacher. 22 23 24 25 On their 2008 return, petitioners reported no taxable income other than $9 of taxable interest, placing zeroes on most every income line of their Form 1040. Thus, for example, petitioners placed a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 zero on line 7 for wages, on line 12 for business income, and on lines 20a and 20b for Social Security benefits. Petitioners then reported zero total tax. 4 Notably, petitioners claimed an overpayment of $5,292 5 6 7 8 9 10 11 12 13 14 based on Federal income tax withheld from their wages. In purported support of certain of the zero income entries made on their 2008 return, pe.titioners attached to their Form 1040 several self-prepared Forms 4852 ("Substitute for Form W-2 Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.") identifying as employers Woodland School District and LM 15 Operations Support, Inc., and as payors the 16 Comptroller of the State of Illinois and Fidelity 17 18 19 20 Investments. In the case of the first two Forms 4852, petitioners listed their wages as zero but listed specific monetary amounts for various withheld Federal and State taxes, specifically including 21 withheld Federal income tax of $5,301. In the case 22 23 24 25 of the latter two Forms 4852, petitioners listed gross distributions from retirement plans, such as pensions and IRAs, as zero. On the first two Forms 4852, petitioners wrote in line 10, in explanation of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company their efforts to obtain W-2s from their employers, the following sentence: 6 "It is not my responsibility to educate the Payor on what is 'unprivileged' pay and 'privileged' wages and when notified of this the Payors routinely refuse to change the W-2s, 1099s, etc." On the second two Forms 4852, petitioners 1 2 3 4 5 6 7 8 9 wrote in line 10, in explanation of their efforts to 10 11 12 13 14 15 16 17 18 19 20 21 obtain 1099-Rs from their payors, the following sentence: "It is not my responsibility to educate the Payor and when notified of this the Payors routinely refuse to change the W-2s, 1099s, etc." In further purported support of certain of the zero income entries made on their 2008 return, petitioners attached to their Form 1040 several altered, i.e., "corrected", Forms 1099-Misc that purport to reflect either zero nonemployee compensation or zero other income. 22 Petitioners' Income Tax Return for 2009 23 24 25 Petitioners timely filed their 2009 return on or about April 15, 2010. On their return, petitioner Gary Will again listed his occupation as 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 management and petitioner Janet Will again listed her 7 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 occupation as teacher. On their 2009 return, petitioners reported no taxable income, placing zeroes on most every income line of their Form 1040. Thus, for example, petitioners placed a zero on line 7 for wages and a zero on line 12 for business income. Although petitioners acknowledged the receipt of pensions of $25,113 and Social Security benefits of $14,515 on lines 16a and 20a, respectively, petitioners placed zeroes on lines 16b and 20b for the taxable amounts. Petitioners then reported zero total tax. Notably once again, petitioners claimed an overpayment of $2,915 based on Federal income tax withheld from their wages. Petitioners attached a Schedule C, Profit or Loss From Business, to their 2009 return. The Schedule C identified petitioner Gary Will as the proprietor, described the principal business of the proprietorship as management, and listed the business name as Global Communications. Petitioner placed a zero on every line of Part I of the Schedule C relating to income. In purported support of certain of the zero income entries made on their 2009 return, petitioners attached to their 2009 Form 1040, as they did with 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 their 2008 Form 1040, several self-prepared Forms 4852 identifying as employers Woodland School 3 District and LM Operations Support, Inc., and as 4 payors the Comptroller of the State of Illinois and 5 Fidelity Investments. As before, petitioners again 6 wrote in line 10 of such forms: "It is not my 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 responsibility to educate the Payor on what is 'unprivileged' pay and 'privileged' wages and when notified of this the Payors routinely refuses to change the W-2s, 1099s, etc." Again in further purported support of a zero income entry on their 2009 return, petitioners attached to their Form 1040 an altered, i.e., "corrected", Form 1099-Misc to reflect zero "other income". Respondent's Notice of Deficiency for 2008 By notice dated August 3, 2011, respondent determined a deficiency in petitioners' Federal income tax for 2008 of $9,070, as well as an addition to tax under section 6651(a) (1) of $942.25 for failure to timely file return and an accuracy-related penalty under section 6662(a) of $753.80. (Parenthetically we note that in the notice of deficiency respondent credited petitioners with 25 withholding tax of $5,301 as an offset against the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 deficiency; however, we note further that the determination of a statutory deficiency does not take such withheld amount into account. See sec. 6211(b) (1).) The deficiency in income tax is based on respondent's determination that petitioners received, but failed to properly report, several specific items of income, principally wages, retirement income, Social Security benefits, and non-employee compensation. The addition to tax under section 6651(a) (1) is based on respondent's determination that petitioners failed to timely file their 2008 return. Finally, the accuracy-related penalty under sec. 6662 (a) is based on respondent's determination that petitioners' failure to properly report income was due to negligence and/or constituted a substantial understatement of income tax. See sec. 6662 (c) and (d). 21 Respondent's Notice of Deficiency for 2009 22 23 24 25 By notice dated October 24, 2011, respondent determined a deficiency in petitioners' Federal income tax for 2009 of $6,346, as well as an accuracy-related penalty under section 6662 (a) of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 $1, 269. The deficiency in income tax is based on respondent's determination that petitioners received, but failed to properly report, wages, retirement income, and Social Security benefits. The accuracy-related penalty under section 6662(a) is based on respondent's determination that petitioners' failure to properly report income constituted a substantial understatement of income 10 tax. See sec. 6662(d). 11 Petitioners' Petition 12 13 14 15 16 17 18 19 20 21 22 23 24 Petitioners timely filed a petition in respect of both of respondent's aforementioned notices of deficiency. See secs. 6213(a), 7502. Although the petition is lengthy, petitioners do not assign justiciable error nor allege relevant facts in respect of the determinations made by respondent in the notices of deficiency. In particular, other than engaging in definitional legerdemain, petitioners do not deny receiving wages or the other types of income identified in the notices of deficiency, nor do petitioners allege receiving wages and the other types of income in amounts less than those determined by respondent in the notices of deficiency. 25 Petitioners' Own Motion For Summary Judgment and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 Aftermath On May 2, 2012, petitioners filed a Motion For Summary Judgment. Subsequently, after respondent had filed a Response and after petitioners filed a Reply to respondent's Response,· the Court denied petitioners' motion by Order dated July 19, 2012. The preamble to that Order included the following: "Further, petitioners' arguments that, inter alia, they are not taxpayers, they are not "persons", and Illinois is not part of the United States, are patently frivolous and groundless, and if pursued further may subject them to a substantial penalty under I.R.C. section 6673(a), which authorizes this 14 Court to require a person to pay a penalty, not to 15 16 17 18 19 20 exceed $25,000, to the United States if such person commences or prosecutes an action in this Court principally for delay or if such person advances frivolous or groundless arguments before this Court." Following the issuance of the Court's July 19, 2012 Order, petitioners filed a Motion To Strike 21 Orders on August 6, 2012, in which they physically 22 returned to the Court, inter alia, the July 19, 2012 23 Order on the ground that such order did not "meet the 24 requisites of orders of a court of the United 25 States." Petitioner's Motion To Strike Orders was 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 summarily denied by the Court on August 22, 2012. Respondent' s Summary Judgment Motion and Petitioners' Response On December 10, 2012, after this case had been calendared for trial, respondent filed his 6 Motion For Summary Judgment And To Impose A Penalty 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Under I.R.C. section 6673. Respondent supplemented his motion on January 8, 2013, to include an exhibit that had been inadvertently omitted from the December 10, 2012 filing. On February 5, 2013, petitioners filed their Response to respondent's motion. Although lengthy, the crux of the Response reflects petitioners' argument that they are not taxpayers and therefore not subject to Federal income tax. Thus, for example, petitioners allege that: "Neither petitioner considers themselves to be 'taxpayers' by any definition of that term found in the IRC [Internal Revenue Code]. The only reason petitioners filed a return was because money had been illegally withheld from their earnings, and they wanted to get it back." [Emphasis added.] In similar vein, "petitioners submit that there isn't a section in the IRC that makes 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 petitioners liable for the income tax, period." Further, petitioners expound the following view regarding employment and wages: "So, to recap, wages are paid to an employee for performing employment for an employer within the United States. The fifty states of the Union, by definition of the IRC and the implementing regulations, are excluded from that definition. Petitioners live and work within the confines of at least one of the fifty states of the Union, and do not work at any time outside of the fifty states of the Union. Therefore, petitioners do not engage in employment, nor are they considered 'employees', nor do they receive 'wages .'" Notably, in their Response to respondent's summary judgment motion petitioners do not assign justiciable error nor allege relevant facts specifically in respect of the income determinations made by respondent in the notices of deficiency. And, other than engaging in the type of definitional legerdemain as quoted above, petitioners do not deny receiving wages or the other types of income identified in the notices of deficiency, nor do petitioners allege receiving wages and the other 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 14 1 2 3 4 5 6 7 types of income in amounts less than those determined by respondent in the notices of deficiency. Hearing Pursuant to notice, respondent's·motion was called for hearing in Dallas, Texas, on February 13, 2013. Petitioner Gary Will and counsel for respondent appeared and presented argument. 8 Petitioner Gary Will stated that in his view the 9 central issue is what constitutes "income" for tax 10 11 12 13 14 15 16 17 18 19 purposes, and he introduced a lengthy document setting forth his views regarding the concept of income. He also stated that he "is not a taxpayer and has never been one" and that he "is not within the United States" for tax purposes. Summary Judgment Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted 20 with respect to all or any part of the legal issues 21 22 23 24 25 in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 be rendered as a matter of law." Rule 121(a) and (b) . After carefully reviewing the record, we are satisfied that there is no genuine issue as to any material fact, and a decision may be rendered as a matter of law. Accordingly, we· shall grant summary judgment in respondent's favor. Respondent's Deficiency-related Determinations There is no question that petitioners, residents of the State of Illinois, are taxpayers subject to the Federal income tax who are obliged to file Federal income tax returns and pay Federal income tax on their wages and other income. See, e.g., secs. 1, 61(a), 86, 408(d), 6012(a) (1), 7701(a) (1) and (14); United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981) ("COmpensation for labor or services, paid in the form of wages or salary, has been universally held by the courts of this republic to be income, subject to the income tax laws currently applicable.") . See also Monaco v. Commissioner, T.C. Memo. 1998-284, categorically rejecting the argument that the Commissioner may not determine a deficiency without first making an assessment, and affirming the principle that a taxpayer's failure to report tax on a return does not 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 16 1 2 3 4 5 prevent the Commissioner from determining a deficiency in that taxpayer's income tax. Respondent has supported his income determinations with wage and income transcripts reflecting data provided by third-party payors. 6 Petitioners, by their self-prepared Forms 4852 and 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 similar documents, as well as by their admission regarding earnings, have essentially conceded the receipt of wages and the other types of income determined by respondent. See Rule 121(d), providing in relevant part that: "When a motion for summary judgment is made and supported as provided in this Rule, an adverse party may not rest upon the mere allegations or denials of such party's pleading, but such party's response, by affidavits or declarations or as otherwise provided in this Rule, must set forth specific facts showing that there is a genuine dispute for trial. If the adverse party does not so respond, then a decision, if appropriate, may be entered against such party." The record demonstrates that petitioners filed their 2008 return on or about April 13, 2010, virtually one year after the statutory due date of 25 April 15, 2009. See sec. 6072(a). And petitioners 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 have never alleged any reason for late-filing that 2 might arguably constitute reasonable cause and not 3 willful neglect. See sec. 6651(a) (1); see also Funk 4 5 6 7 8 9 v. Commissioner, 123 T.C. 213, 217-218 (2004). To the extent that the accuracy-related penalty may be at issue in this case, see Swain v. Commissioner, 118 T.C. 358, 364-365 (2002), respondent' s motion demonstrates, at the ver·y least, that petitioners understated their tax liability, 10 within the meaning of section 6662(d), for each of 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the two years in issue. And, clearly, petitioners did not act with reasonable cause in eliminating virtually every penny of their income on their "zero returns". See sec. 6664 (c) . In sum, petitioners' arguments do not suffice to defeat respondent's well-founded summary judgment motion. Accordingly, we shall grant that portion of respondent's motion seeking to hold petitioners liable for the deficiencies in income tax for 2008 and 2009, the addition to tax under section 6651(a) (1) for 2008, and the accuracy-related penalty for 2008 and 2009, as determined by respondent in the notices of deficiency. Imposition of Penalty Under Section 6673(a) We turn now to that part of respondent's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 18 1 motion, as supplemented, that seeks the imposition of 2 3 4 5 6 7 8 9 10 11 a penalty against petitioners under section 6673(a). As relevant herein, 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. The record in this case convinces us that petitioners were not interested in disputing the 12 merits of either the deficiencies in income tax·or 13 14 15 16 17 18 19 20 21 22 23 24 25 the addition to tax or the accuracy-related penalties determined by respondent in the notices of deficiency. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986). Rather, the record demonstrates that petitioners regard this case as a vehicle to protest the tax laws of this country and espouse their own misguided views. A petition to the Tax Court is frivolous "if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Commissioner, supra. Petitioners' position, as set forth in their petition, in their summary judgment motion, in their Response to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 1 2 respondent's summary judgment motion, and at the hearing consists of pseudo-legal babel. Based on 3 well-established law, petitioners' position is 4 5 6 7 8 frivolous and groundless. We are also convinced that petitioners instituted and maintained this proceeding primarily, if not exclusively, for purposes of delay. Having to deal with this matter wasted the Court's time, as 9 well as respondent's. Moreover, taxpayers with 10 11 12 13 14 15 genuine controversies may have been delayed. Petitioners were expressly warned by the Court in the July 19, 2012 Order about the frivolous nature of certain of their arguments and told about the Court's authority to impose a penalty under section 6673. In short, petitioners had fair 16 warning. 17 Many years ago, Supreme Court Justice 18 Oliver Wendell Holmes said: "Taxes are what we pay 19 20 21 22 23 24 25 for civilized society." Petitioners undoubtedly feel themselves to be entitled to every benefit that civilized society has to offer, such as the receipt of Social Security benefits that are funded by the payment of taxes by other taxpayers; unfortunately, petitioners feel no obligation to pay their fair share. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 20 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 In view of the foregoing, we shall grant that portion of respondent's motion that seeks the imposition of a penalty and require petitioners to pay a penalty to the United States pursuant to section 6673 (a) (1) . See Coleman v. Commissioner, supra at 71-72; Crain v. Commissioner, 737 F.2d 1417, 1417-1418 (5th Cir. 1984). We think a penalty of $5,000 is appropriate; however, we shall impose only a penalty of $2,500 here, as petitioners have another docket before the Court and a section 6673 penalty in a similar amount has been imposed .on them in that other docket. In order to reflect the foregoing, an Order And Decision will be entered (1) granting respondent' s Motion For Summary Judgment And To Impose A Penalty Under I.R.C. § 6673, filed December 10, 2012, and supplemented January 8, 2013; (2) finding petitioners liable for the deficiencies in income tax, the addition to tax under section 6651(a) (1), and the accuracy-related penalties under section 6662 (a), as determined by respondent in the August 3, 2011 notice of deficiency for 2008 and in the October 24, 2011 notice of deficiency for 2009; and (3) imposing on petitioners a penalty under section 6673(a) (1) in the amount of $2,500.. As this 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 21 1 2 3 4 5 action by the Court obviates the need for trial, the Court will deny as moot respondent's motion, filed February 8, 2013, to quash the subpoena dated February 1, 2013, that petitioners attempted to serve on the Commissioner of Internal Revenue, which 6· subpoena is yet another example of the anti-tax agenda that petitioners have pursued in this case. This concludes the court's oral findings of fact and opinion in this case. (Whereupon, at 1:37 p.m., the above- entitled matter was concluded). 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