TAX COURT OPINION

Case: James Michael Blaga
Docket Number: 8101-09
Judge: Colvin
Opinion Type: bench
Filed: 04/09/2010
Pages: 11

UNITED STATES TAX COURT WASHINGTON, D.C. 2021 7 JAMES MICHAEL BLAGA, Petitioner , v . ) Docket No . 8101-0 9 COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Judge Diane L . Kroupa at Detroit, Michigan, on March 25, 2010, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed) Diane L. Kroupa Judg e Date : Washington, D .C . April 9, 2010 SERVED APR 13 2010 1 Bench Opinion by Judge Diane L . Kroupa 2 March 25, 201 0 3 James Michael Blaga Docket No . 8101-0 9 5 The court has decided to render oral findings of 6 fact and opinion in this case and the followin g 7 represents the Court's Oral Findings of Fact and Opinion . 8 These oral findings of Fact and opinion shall not be 9 relied upon as precedent in any other case . 10 This bench opinion is made pursuant to th e 11 authority granted by section 7459(b) and Rule 152 . All 12 section references are to the Internal Revenue Code as 13 amended and in effect for 2005, the year at issue, and 14 all Rule references are to the Tax Court Rules o f 15 Practice and Procedure . 16 This is a deficiency case in which petitione r 17 asserts he did not receive 'wages' as defined in the Code 18 although he acknowledges that he received earnings in 19 exchange for his services in 2005 . 20 James Michael Blaga appeared pro se . Kevin 21 Erskine and Alexandra Nicholaides appeared on behalf of 22 respondent . 23 FINDINGS OF FAC T 24 The facts are derived from the statements that 25 were deemed admitted under Rule 91(f) . The stipulatio n Heritage Reporting Corporation (202) 628-4888 1 of facts and accompanying exhibits to the Rule 91(f ) 2 motion are incorporated by this reference . Petitioner 3 resided in Michigan at the time he filed the petition . 4 Petitioner received a bachelor ' s degree in 1975 5 from Oakland University in biology with a minor in 6 chemistry . During the year at issue, petitioner provided 7 services to St . John ' s Health Corporation ( St . John's) as 8 a lab technician and received $ 68,797 .82 as 'wages, tips, 9 other compensation .' St . John's withheld $ 4,171 .07 o f 10 Federal income tax from these wages as well as withheld 11 amounts for social security taxes, Medicare taxes and 12 other withholdings from wages . Petitioner and his wife 13 also received $ 693 of non-employee compensation fro m 14 Young Living Essential oils and $83 of interest income . 15 St . John ' s issued petitioner a Form W-2 entitled 'Wage 16 and Tax Statement' reflecting the amount of wage s 17 petitioner received during 2005 . Young Living Essentials 18 Oils also issued a 1099 to petitioner and his wif e 19 reflecting the non-employee compensation . 20 Petitioner filed a joint return for 2005 . He 21 reported the $83 of interest income and 'zero' on the 22 line specified for 'wages, salaries, tips, etc . ' 23 Petitioner also claimed a $9,346 overpayment . In 24 addition , petitioner attached a Form 4852 entitle d 25 'Substitute for Form W-2, Wage and Tax Statement, or Form Heritage Reporting Corporation (202) 628-4888 4 1 1099-R, Distributions from Pensions, Annuities , 2 Retirement or Profit-,Sharing Plans, IRAs, Insuranc e 3 Contracts, Etc .' claiming that the amount of income for 4 2005 was zero, not the amount reflected on the W-2s and 5 1099s submitted by third party payors . 6 Petitioner included a letter dated April 10, 2006, 7 with the return stating that 'The income tax is an excise 8 tax on the exercise of federal privilege' and that he did 9 not receive 'wages .' By citing, out of context, selected 10 text from the withholding tax provisions, petitione r 11 concludes that only Federal employees are subject to the 12 Federal income tax on their wages . These are the same 13 principles articulated by Peter Hendrickson in his book 14 ' Cracking the Code The Fascinating Truth About Taxation 15 in America . Petitioner signed the return under penalties 16 of perjury . 17 Respondent and petitioner exchanged severa l 18 correspondences regarding petitioner's return for 2005 . 19 Petitioner continued to assert that he had no wages for 20 2005 and that he was not an employee as defined i n 21 sections 3401 and 3121 . It was sometime in 2005 that 22 petitioner adopted the position that his earnings were 23 not wages as defined in these withholding tax provisions . 24 Petitioner filed amended returns for the three previous 25 years seeking a refund of previously paid taxes on wage s Heritage Reporting Corporation (202) 628-4888 5 1 he received in 2002, 2003 and 2004 . Petitioner also 2 asserted in 2005 and after that he is exempt fro m 3 withholding by submitting a W-4 to St . John's claiming 4 his exempt status . 5 Respondent informed petitioner that the Internal 6 Revenue Service (IRS) was charging him a $500 penalty 7 under section 6702 for filing a frivolous return for 8 2005 . Petitioner has a separate petition with thi s Court, in docket no . 19391-08.L, to contest the frivolou s 10 return penalty for 2005 . Respondent prepared a return 11 for petitioner for 2005 with the information provided by 12 third party payors and issued petitioner a statutor y 13 deficiency notice for 2005 . Respondent determined in the 14 deficiency notice that petitioner was liable for a 15 $11,619 deficiency in Federal income tax as well as a 16 $5,399 .80 penalty for fraudulent failure to file unde r 17 section 6651(f), a $1,042 .72 late payment addition to tax 18 under section 6651(a)(2) and a $280 .17 addition to tax 19 for failure to timely pay estimated taxes under section 20 6654 . 21 Petitioner timely filed a petition with this Court 22 asserting that he did not receive 'wages' as defined in 23 sections 3401 and 3121 . He asserts in his petition that 24 '(he] submitted under penalty of perjury and i n 25 accordance with the law as mandated in the Internal Heritage Reporting Corporatio n (202) 628-4888 6' 1 Revenue Code, Sections 3401 and 3121, that, not only doe s 2 he NOT owe $11,619 in taxes plus interest and penalties 3 for 2005, but he is OWED A REFUND OF $9,346 as per hi s 4 submitted Forms 1040 and 4852 .' He seeks a refund of the 5 amounts withheld for income tax, social security an d 6 other withholding taxes because no 'wages' were paid to 7 him in 2005 . Respondent on numerous occasions ha s 8 informed petitioner that his arguments have been deemed 9 by the Tax Court and other courts to be frivolous . The 10 Court has also warned petitioner in various order s 11 including at calendar call and at the beginning of trial 12 that he was at risk of subjecting himself to a penalty if 13 he continued to make the type of arguments he has bee n 14 making in this matter . Despite these numerous warnings, 15 petitioner persisted in asserting that his wages were not 16 taxable . 17 OPINION 18 Petitioner has instituted and maintained this case, 19 as a protest against the Federal income tax system . 20 Petitioner's arguments are familiar to this Court and 21 other Federal courts and have been soundly rejected on 22 numerous occasions . By citing, out of context, selected 23 text from the withholding tax provisions, petitione r 24 concludes that only Federal employees are subject to the 25 Federal income tax on their wages . Petitioner has Heritage Reporting Corporatio n (202) 628-4888 7 1 followed in the footsteps of numerous others who have 2 unsuccessfully attempted to find a way to avoid paying 3 Federal income tax . We find petitioner's arguments to 4 lack merit and not worthy of further analysis . 5 We note that petitioner's arguments are very 6 similar to the positions promulgated in the Cracking The 7 Code book, in which the author takes the position tha t 8 'income' is not defined in the Code and that wages earned 9 by non-Federal employees are not subject to Federa l 10 income tax . Courts have found arguments frivolous when 11 taxpayers argue as do petitioner and other followers of 12 Mr . Hendrickson's Cracking the Code book, that wages are 13 not income, e .g . Tornichio v . United States , 26 3 14 F .Supp .2d 1090 (N .D . Ohio 2002) ; Montero v . Commissioner , .15 docket no . 23166-07L, affirmed by 5th Circuit in a n 16 unpublished order dated Nov . 19, 2009 ; Scott v . 17 Commissioner , docket no . 26392-06 affirmed by 2d Circuit 18 in an unpublished order dated Nov . 5, 2009 ; Elias v . 19 20 Commissioner , docket no . 24624-06L ; Mills v . Commissioner , docket no . 3441-08 . Petitioner's argument 21 that withholding applies only to government workers is 22 also frivolous and false . See e .g . United States v . 23 Sullivan , 788 F .2d 813, 815 (1st Cir . 1986) . 24 In addition, the Court notes that a Federal 25 district court has also found Peter Hendrickson, the Heritage Reporting Corporatio n (202) 628-4888 8 1 1 author of the book, to be an employee within the meaning 2 of section 3401(c) . United States v . Hendrickson , 200 7 3 WL 238501 (E .D . Mich .), 100 A .F .T .R .2d 2007-5395 . In his 4 testimony, petitioner was aware that Mr . Hendrikson had 5 been criminally indicted . He attempted to diminish the 6 significance of Mr . Hendrickson's criminal indictment, 7 however, which the Court finds incredible . Petitioner 8 blindly follows the work of Mr . Hendrickson even though 9 his arguments have been soundly rejected . United State s 10 v . Latham , 754 F .2d 747, 750 (7th Cir . 1985)(cour t 11 characterized argument that category of 'employee' does 12 not include privately employed wage earners is a 13 preposterous reading of the statute .') ; Abdo v . United 14 States , 234 F .Supp .2d 553, 563 (M .D .N .C . 2002), affd 63 15 Fed . Appx . 163 (4th Cir . 2003)(court noted claim the that 16 wages are not income 'has been rejected as many times as 17 it has been asserted .') We therefore find tha t 18 petitioner is liable for the deficiency in Federal income 19 taxes for 2005 . 20 We now focus on the additions to tax . The 21 petition contains no specific allegations or supporting 22 statements of facts regarding any of the additions to tax 23 that respondent determined in the deficiency notic e 24 pursuant to section 6651(a)(2), section 6651(f) and 25 section 6654(a) . Petitioner's frivolous challenges to Heritage Reporting Corporation (202) 628-4888 9' 1 his obligation to pay tax do not specifically address any 2 issue regarding the additions to tax . We deem petitioner 3 to have conceded these issues and hold that responden t 4 has no burden of production under section 7491(c) as to 5 the additions to tax . See Funk v . Commissioner , 123 T .C . 6 213 (2004) ; Swain v . Commissioner , 118 T .C . 358 (2002) . 7 Petitioner asserts that he is not a tax protestor . 8 He honestly believes that he is smarter than the average 9 person and that his interpretation of the Code is correc t 10 even though there is no court that has found that wages 11 from private sector employers are not taxable . Moreover, 12 we remind petitioner that this Court has found tha t 13 filing purported returns to advance frivolous ta x 14 arguments is not an honest and reasonable attempt to 15 comply with the tax law . Dunham v . Commissioner , T .C . 16 Memo . 1998-52 . 17 We now address whether it is appropriate to impose 18 a penalty against petitioner under section 6673, whic h 19 authorizes the Tax Court to require a taxpayer to pay to 20 the United States a penalty up to $25,000 whenever i t 21 appears that proceedings have been instituted o r 22 maintained by the taxpayer primarily for delay or that 23 the taxpayer's position in such proceedings is frivolous 24 or groundless . We note that the type of argument s 25 petitioner raises have been deemed by this Court to be Heritage Reporting Corporatio n (202) 628-4888 1 0 .1 frivolous and/or sanctionable under section 6673 . The 2 Court warned petitioner that he was at risk of subjecting 3 himself to the penalty if he continued to raise onl y 4 frivolous arguments and waste the Court's and 5 respondent's limited time and resources . 6 Petitioner's tactics have consumed valuable 7 Government resources . These tactics should not b e 8 condoned . They damage the integrity of the Federal tax 9 litigation system because of the time and attention the 10 Court and respondent must devote to these frivolou s 11 arguments deprives other taxpayers with genuin e 12 controversies . See Abrams v . Commissioner , 82 T .C . 403, 13 412 (1984) . When the Court has been faced with meritless 14 arguments that waste the Court's and respondent's limited 15 time and resources, we have consistently found that the 16 taxpayer deserves a penalty under section 6673(a)(1), and, 17 that penalty should be substantial if it is to have the 18 desired deterrent effect. The purpose of section 6673 is 19 to compel taxpayers to think and to conform their conduct 20 to settled tax principles . Coleman v . Commissioner , 791 21 F .2d 68, 71 (7th Cir . 1986) ; see also, Grasselli v . 22 Commissioner . T .C . Memo . 1994-581 . 23 Respondent does not seek to impose a penalty 24 against petitioner in this case at this time . Perhaps 25 respondent gives him . the benefit of the doubt because Heritage Reporting Corporatio n (202) 628-4888 i 1 1 1 2005 is the first year that petitioner started assertin g 2 that his earnings were not wages . We therefore 3 reluctantly do not impose a penalty against petitioner at 4 this time . We strongly caution petitioner, however, that 5 should he bring similar arguments before this Court i n 6 the future, the Court is likely to impose such a penalty, 7 up to $25,000, against him . 8 To reflect the foregoing, decision will be entered 9 for respondent . 10 This concludes the Court's Oral Findings of Fact 11 and opinion in this case . 12 (Whereupon, at 10 :43 a .m ., the bench opinion i n 13 the above-entitled matter was concluded .) 1 4 15 16 17 1 8 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888