TAX COURT OPINION

Case: Jesse J. Jutkowitz
Docket Number: 9897-13
Judge: Marvel
Opinion Type: bench
Filed: 06/27/2014
Pages: 14

SYM UNITED STATES TAX COURT WASHINGTON, DC 20217 JESSE J. JUTKOWITZ, Petitioner(s), v. ) ) ) ) ) Docket No. 9897-13 COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORD ER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before Judge L. Paige Marvel at Hartford, Connecticut, on May 22, 2014, containing the Court's oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the Court's oral findings of fact and opinion, decision will be entered for respondent. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. June 27, 2014 SERVED Jun 30 2014 Capital Reporting Company 3 1 Bench Opinion by Judge L. PAIGE MARVEL 2 May 22, 2014 3 JESSE J. JUTKOWITZ v. Commissioner 4 Docket No. 9897-13 5 THE COURT: The Court has decided to render 6 oral findings of fact and opinion in this case, and 7 8 the following represents the Court's oral findings of fact and opinion. The oral findings of fact and 9 opinion shall not be relied upon as precedent in any 10 other case. 11 This bench opinion is made pursuant to the 12 authority granted by section 7459(b) of the Internal 13 Revenue Code of 1986 (Code) as amended and Rule 152 14 of the Tax Court Rules of Practice and Procedure. 15 Unless otherwise indicated, subsequent section 16 references made in this bench opinion are to the Code 17 as amended in effect for the years at issue, and Rule 18 references are to the Tax Court Rules of Practice and 19 Procedure. Some monetary amounts have been rounded to 20 the nearest dollar. 21 Petitioner Jesse J. Jutkowitz appeared pro 22 se. Debra L. Reale appeared on behalf of respondent. 23 24 25 Respondent determined deficiencies of $63,398 and $53,655 in petitioner's Federal income tax for 2007 and 2008 respectively, additions to tax (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 4 1 2 under section 6651(a)(1) of $15,850 and $13,414 for 2007 and 2008, respectively, and accuracy-related 3 penalties under section 6662(a) of $12,680 and 4 5 6 7 8 $10,731 for 2007 and 2008, respectively. The issues for decision are: (1) whether petitioner is liable for Federal income tax deficiencies for 2007 and 2008; (2) whether petitioner is liable for additions to tax under section 6651(a)(1); (3) whether 9 petitioner is liable for accuracy-related penalties 10 under section 6662(a); and (4) whether petitioner is 11 12 liable for a penalty under section 6673 for instituting proceedings primarily for delay or for 13 asserting frivolous or groundless positions. 14 15 FINDINGS OF FACT. Some of the facts have been stipulated. 16 The stipulation of facts is incorporated herein by 17 this reference. Petitioner resided in Connecticut 18 when he petitioned this Court. 19 During the years at issue petitioner, an 20 unlicensed chiropractor whose previous license in the 21 State of Connecticut was revoked in 1996, was self- 22 employed as a self-proclaimed teacher and provider of 23 unspecified "manipulation" services to customers. 24 Petitioner filed a Form 1040EZ, Income Tax Return for 25 Single and Joint Filers With No Dependents, for 2007 (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 1 2 on August 3, 2009. He filed a Form 1040EZ for 2008 on December 13, 2011. Petitioner did not file a 3 Schedule C, Profit Or Loss From Business, with his Form 5 4 1040EZ for either 2007 or 2008. With the exception 5 of lines 5 and 6 (showing the standard deduction as a 6 positive amount and taxable income as a negative 7 8 amount, respectively) each line on petitioner's Forms 1040EZ was filled in with a zero. Petitioner reported 9 negative taxable income for 2007 and zero taxable 10 11 12 13 income for 2008. He did not make any tax payments for either of the years at issue. Respondent audited petitioner's 2007 and 2008 returns and, as part of the audit, analyzed 14 petitioner's bank deposits to determine whether 15 petitioner had unreported income for 2007 and 2008. 16 Petitioner maintained accounts at Kinecta Federal 17 Credit Union and Bank of America. After adjusting 18 for inter-account deposits, respondent determined 19 that petitioner had net combined business deposits 20 for his accounts at Bank of America and Kinecta 21 Federal Credit Union of $198,409 and $169,287 in 2007 22 23 24 and 2008 respectively. Respondent subsequently issued to petitioner a notice of deficiency in which respondent determined on the basis of the deposits 25 analysis that petitioner was liable for the (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 1 deficiencies and penalties at issue in this case. 6 2 3 4 5 ANALYSIS I. Unreported Income. The record establishes, and petitioner concedes, that he received payments for services he 6 provided during 2007 and 2008. Petitioner does not 7 dispute respondent's bank deposits analysis or 8 9 respondent's determinations of the amount of his income. Petitioner disputes only the characterization 10 of the payments as taxable income. Because 11 petitioner raises only legal issues, we decide 12 whether he is liable for the deficiencies at issue 13 without regard to the burden of proof. 14 Section 61(a) defines gross income as "all 15 income from whatever source derived" including gross 16 income from business and compensation paid for 17 18 services, whether furnished by the taxpayer as an employee, a self-employed person or an independent 19 contractor. See sec. 61(a)(1) and (2); Commissioner 20 v. Glenshaw Glass Company, 348 U.S. 426, 431 (1955). 21 The petitioner contends that the income he received 22 from services he provided to the payors of the income 23 is not income subject to Federal taxation. 24 Petitioner supports his position by 25 contending, among other things, that he was not (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 7 1 involved in a trade or busiñess as defined by the 2 Code. Petitioner defines a trade or business to 3 include only the performance of the function of a 4 public office and not his private sector activities 5 6 7 8 for which he received only private sector money. He therefore contends that he has no "net earnings from self-employment" or "self-employment income" under section 1401 because those definitions depend on 9 petitioner first being involved in a trade or 10 business. Petitioner also contends that the income 11 12 tax is an excise tax, he did not have income within the meaning of the Sixteenth Amendment, and the 13 Sixteenth Amendment is not the basis for the Federal 14 income tax. Finally, petitioner raises issues of 15 statutory construction regarding the meaning of the 16 words "includes" and "including". 17 Without exception, petitioner has raised 18 only frivolous and groundless arguments. See e.g. 19 United States v. Morgan, 419 Fed. Appx. 958, 959 20 (11th Cir. 2011) (holding that the taxpayers' 21 argument that they were not involved in a trade or 22 business was frivolous); Wnuck v. Commissioner,136 23 T.C. 498, 506 (2011) ("Anyone fluent in English knows 24 that the word 'includes' cannot be assumed to mean 25 'includes only'."); Abrams v. Commissioner, 8 , T.C. (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 8 1 403, 406-407 (1984) ("Since the ratification of the 2 Sixteenth Amendment, it is immaterial with respect to 3 4 5 income taxes, whether the t: :c irect or indirect tax. The whole purpose of the Sixteenth Amendment was to relieve all income taxes when imposed from 6 apportionment and from a consideration of the source 7 whence the income was derived."); O'Boyle v. 8 Commissioner, T.C. Memo, 2010-149 (rejecting as 9 frivolous the taxpayers' argument that they were not 10 engaged in a trade or business and therefore did not 11 have self-employment income). 12 Indeed, petitioner's frivolous and 13 groundless arguments warrant no further discussion. 14 See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th 15 Cir. 1984) ("We perceive no need to refute these 16 arguments with somber reasoning and copious citation 17 of precedent; to do so might suggest these arguments 18 have some colorable merit."); see also Wnuck v. 19 Commissioner, 136 T.C. 501-513. Because self- 20 employment income must be included in petitioner's 21 income under section 61, we sustain respondent's 22 determinations with respect to the deficiencies. 23 II. Additions to Tax 24 If a taxpayer assigns error to the Commissioner's 25 determination that the taxpayer is liable for an (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 9 1 addition to tax, the Commissioner has the burden, 2 3 under section 7491(c), of producing evidence with respect to the liability of the taxpayer for the 4 additions to tax. See Higbee v. Commissioner, 116 5 T.C. 438, 446-447 (2001). To meet his burden of 6 production, the Commissioner must come forward with 7 sufficient evidence showing that it is appropriate to 8 impose the addition to tax. Id. Once the 9 Commissioner meets his burden, the taxpayer must come 10 forward with sufficient evidence to persuade this 11 Court that the determination is incorrect. Id. 12 13 14 Respondent determined that petitioner is liable for the additions to tax under section 6651(a)(1) for failure to timely file a return for 15 2007 and 2008. Section 6651(a)(1) authorizes the 16 imposition of an addition to tax for failure to 17 18 timely file a return, unless it is shown that such failure is due to reasonable cause and not due to 19 willful neglect. See United States v. Boyle, 469 20 U.S. 241, 245 (1985). 21 Petitioner failed to assign error in his 22 petition to respondent's determination that he is 23 liable for additions to tax under section 6651(a)(1). 24 Any issue not raised in the assignments of error is 25 deemed conceded. See Rule 34(b)(4). However, even (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 10 1 if petitioner had assigned error to respondent's 2 determination that he is liable for additions to tax 3 4 5 under section 6651(a)(1), we would conclude that respondent has met his burden of proof under section 7491(c), and petitioner has not presented any 6 evidence that respondent's determination was 7 8 9 incorrect. Petitioner concedes that he did not timely file either his 2007 or 2008 Federal income tax return, and he has not proven that he had reasonable 10 cause for his failure to timely file. Accordingly, 11 we sustain respondent's determination of the section 12 13 6651(a)(1) addition to tax for 2007 and 2008. III. Accuracy-Related Penalties 14 Section 6662 authorizes the imposition of a 20 15 percent penalty on the portion of an underpayment of 16 tax that is attributable to, among other things, (1) 17 negligence or disregard of rules or regulations; or 18 (2) any substantial understatement of income tax. 19 Sec. 6662(a) and (b)(1) and (2). The Commissioner 20 bears the initial burden of production with respect 21 to a taxpayer's liability for the section 6662 22 penalty. Sec. 7491(c). At trial the Commissioner 23 must introduce sufficient evidence "indicating that 24 it is appropriate to impose a relevant penalty." 25 Higbee v. Commissioner, 116 T.C. at 446. If (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 11 1 the Commissioner satisfies his initial burden of 2 production, the burden of producing evidence to 3 4 refute the Commissioner's evidence shifts to the taxpayer, and the taxpayer must prove that the 5 penalty does not apply. Id. at 447. Respondent A 6 determined that petitioner is liable for an accuracy- 7 8 9 related penalty under section 6662(a) for 2007 and 2008 for negligence or disregard of rules or regulations or, alternatively, a substantial 10 understatement of income tax. 11 12 For purposes of section 6662, negligence is any failure to make a reasonable attempt to comply 13 with the provisions of the Code, and disregard 14 includes any careless, reckless, or intentional 15 disregard. Section 6662(c); see also Neely v. 16 Commissioner, 85 T.C. 934, 947 (1985) (negligence is 17 lack of due care or failure to do what a reasonably 18 prudent person would do under the circumstances); 19 sec. 1.6662-3, Income Tax Regs. Negligence also 20 includes any failure to exercise ordinary and 21 reasonable care in the preparation of a tax return, 22 sec. 1.6662-3(b)(1), Income Tax Regs., and ignorance 23 of the tax law is not an excuse for failure to comply 24 with it, see Carlebach v. Commissioner, 139 T.C. 1, 25 17 (2012). (866) 448 - DEPO www.Capita1ReportingCompany.com 2014 Capital Reporting Company Section 6664(c)(1) provides an exception to 12 the section 6662(a) accuracy-related penalty with respect to any portion of an underpayment if the taxpayer shows that there was reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion. The 1 2 3 4 5 6 7 determination of reasonable cause and good faith is 8 made on a case-by-case basis, taking into account all 9 pertinent facts and circumstances. Sec. 1.6664- 10 4(b)(1), Income Tax Regs. The most important factor 11 is the extent of the taxpayer's effort to assess his 12 proper tax liability. Id.; see also Woodson v. 13 Commissioner, 136 T.C. 585, 596 (2011). 14 15 Petitioner failed to assign error to respondent's determination that he is liable for 16 accuracy-related penalties under 6662(a). Any issue 17 not raised in the assignments of error is deemed 18 conceded. See Rule 34(b)(4). However, even if 19 petitioner had assigned error to respondent's 20 determination that he is liable for the section 6662(a) 21 accuracy-related penalties, we would conclude that 22 23 respondent has met his burden of production under section 7491(c), and petitioner has not presented any 24 evidence that respondent's determination was 25 incorrect. Petitioner concedes that he received (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 13 1 income for 2007 and 2008 but disputes that the income 2 was subject to Federal taxation. We have already 3 4 determined that petitioner's positions were frivolous and his returns show a reckless or intentional 5 disregard of rules and regulations. Furthermore, 6 petitioner has not demonstrated reasonable cause for 7 his underpayment of tax. Accordingly, we sustain 8 respondent's determination of the section 6662(a) 9 penalty for 2007 and 2008. Because the penalties are 10 sustained on the grounds of negligence, we need not 11 consider whether respondent has proven that there is 12 13 14 15 a substantial understatement of income tax for 2007 and 2008. IV. Section 6673 Penalty Under section 6673(a)(1), this Court may 16 require a taxpayer to pay a penalty not in excess of 17 $25,000 whenever it appears that: (1) the 18 taxpayer has instituted or maintained proceedings 19 primarily for delay; (2) the taxpayer's position is 20 frivolous or groundless; or (3) the taxpayer 21 unreasonably failed to pursue available 22 administrative remedies. A taxpayer's position is 23 frivolous or groundless if it is 6'contrary to 24 established law and unsupported by a reasonable, 25 colorable argument for a change in the law.' (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 1 Williams v. Commissioner, 114 T.C. 136, 144 (2000) 14 2 3 4 5 (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986)). Throughout these proceedings, petitioner repeatedly asserted arguments that are contrary to 6 well-established law and are frivolous. At trial 7 petitioner persisted in asserting frivolous and 8 groundless arguments. Prior to trial, respondent 9 mailed to petitioner a document entitled "The Truth 10 About Frivolous Tax Arguments". This document is a 11 12 compendium of frivolous positions and some of the caselaw refuting them. At trial we repeatedly warned 13 petitioner that his positions were frivolous and 14 groundless. Nevertheless, petitioner did not abandon 15 his arguments or acknowledge his liability for income 16 tax on the income he received in 2007 and 2008. 17 18 Petitioner has wasted the time and resources of this Court. The record demonstrates 19 that petitioner's asserted positions were frivolous 20 21 and groundless. At trial respondent's counsel urged this Court to impose the maximum penalty of $25,000. 22 In the exercise of our discretion we conclude that a 23 substantial but lower penalty under section 24 6673(a)(1) is appropriate, but we warn petitioner 25 that if he continues to assert frivolous arguments in (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company support of his failure to report and pay tax on his income, he can expect a much more substantial penalty in the future. We conclude that petitioner must pay to the United States a penalty of $10,000 under 15 section 6673(a)(1). We have considered the remaining arguments 1 2 3 4 5 6 7 made by the parties and, to the extent not discussed 8 9 10 above, conclude those arguments are irrelevant, moot or without merit. To reflect the foregoing, decision will be 11 entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:15 a.m., the above entitled matter was concluded) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2014