TAX COURT OPINION

Case: Rodney W. Gattie
Docket Number: 7077-15
Judge: Gustafson
Opinion Type: bench
Filed: 11/03/2016
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 CLC RODNEY W. GATTIE, Petitioner, v. ) ) ) ) Docket No. 7077-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b) of the 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 the undersigned judge at Columbia, South Carolina, on October 19, 2016, 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, decision will be entered for respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. November 3, 2016 SERVED Nov 03 2016 Capital Reporting Company 3 1 Bench Opinion by Judge David Gustafson 2 October , 2016 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Rodney W. Gattie v. Commissioner Docket No. 7077-15 The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By a statutory notice of deficiency dated December 10, 2014, the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioner Rodney W. Gattie for the year 2011, plus additions to tax. For the reasons explained hereafter, we will sustain the deficiency and additions determined against Mr. Gattie. Trial of this case was conducted on October 17, 2016, in Columbia, South Carolina. Mr. Gattie represented himself, and Corey R. Clapper represented respondent. We find the following facts: FINDINGS OF FACT 23 Prior case 24 25 Mr. Gattie was the petitioner in Docket No. 2782-15. By order dated March 3, 2016, this Court 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company issued an opinion in that case, which concluded (Tr. at 14): 4 Section 6673(a) authorizes the Court to require the taxpayer to pay the United States a penalty whenever it appears to the Court that the taxpayer instituted or maintained the proceeding before the Court primarily for delay or that the taxpayer's position in the proceeding is frivolous or groundless. Gattie took frivolous positions in this case. The Court explained this to Gattie at trial. Gattie is advised that if he takes similar positions in the future, the Court may impose the penalty. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Mr. Gattie's 2011 income 15 Mr. Gattie worked for a period of years as a 16 Methodist minister, during which time he accrued 17 18 19 20 21 22 23 24 certain pension rights. For another period of time, he worked as an insurance salesman, and in that capacity he earned the right to receive commissions from the premiums paid on the insurance policies he sold. During 2011 Mr. Gattie received from four insurance companies a total of $23,664 of renewal premiums or residual premiums on business that he had 25 written when he was an insurance agent. (Stip. 4-7.) 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 During 2011 he also received a pension distribution of $27,595 from UMC Benefit Board, Inc. (Stip. 8.) From that distribution the UMC entity withheld $4,949 of income tax withholding. Each of the four insurance companies and the UMC entity issued to Mr. Gattie and sent to the Government a Form 1099 that reported the income it had paid to Mr. Gattie (and, in the case of the 1099 issued by the UMC entity, also reported the $4,949 that had been withheld as income tax withholding). IRS determination Mr. Gattie did not timely file a return for 2011, which return was due in April 2012. Based on the reporting on the five Forms 1099, the IRS prepared a "substitute for return" ("SFR") dated August 25, 2014, pursuant to section 6020(b), which included all the reported income. On the same date, the IRS sent Mr. Gattie a letter (Ex. 16-J) asking him to file a return within 30 days. In response, Mr. Gattie mailed the IRS a Form 1040EZ dated August 25, 2014, on which he reported none of his 2011 income reported on Forms 1099. 23 Rather, on the Form EZ he put zeroes on all the 24 25 lines, except that on lines 7, 9, and 11 he reported the $4,949 of income tax withholding that the UMC 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 entity had withheld (for which he requested a refund). With the Form 1040EZ Mr. Gatti submitted purported "corrected" versions of the Forms 1099 (Exs. 5-J to 8-J), on which he rendered all the amounts as zero (except for the UMC withholding). On these forms he wrote a narrative explanation that "no payments were made by payer to recipient in the course of a trade or business or other taxable 9 activity". 10 On December 10, 2014, the IRS issued to Mr. 11 Gattie the notice of deficiency ("NOD"), consistent 12 with the previously issued SFR. (Ex. 2-J.) The NOD 13 14 15 16 17 18 19 20 21 22 23 24 determined a deficiency in income tax and additions to tax under section 6651(a)(1) and (a)(2) for failure to file a return and failure to pay tax shown on a return. On March 7, 2015, he timely mailed his petition commencing this suit; and in the request for relief on the form petition, he gave citations to various legal opinions and statutes, in support of various contentions to the effect that money he receives is not subject to Federal income tax. At the time that Mr. Gattie filed his petition, he resided in South Carolina. (Stip. 1.) By order dated September 8, 2016, we warned Mr. 25 Gattie that the contentions he was making are 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 frivolous, and that frivolous positions can make a litigant liable for penalty under section 6673 of as much as $25,000. At trial on October 17, 2016, Mr. 4 Gattie nonetheless persisted with his frivolous 5 6 7 8 9 10 11 contentions, despite multiple admonitions. I. Tax liability OPINION The IRS's determination reflected on a notice of deficiency is presumed correct, and the taxpayer bears the burden to prove his entitlement to the exemptions and credits he claimed. Rule 142(a); 12 Welch v. Helvering, 290 U.S. 111, 115 (1933). 13 Consequently, except to the extent that Mr. Gattie 14 15 16 17 18 19 20 21 22 23 24 25 proves that the determination is incorrect, the deficiency determined in the notice must be sustained. Taxable income plainly includes "commissions", sec. 61(a) (1), and "[p]ensions", sec. 61(a)(11)--the two kinds of income at issue here. Mr. Gattie's only contentions to the contrary are frivolous. For good reason, see Wnuck v. Commissioner, 136 T.C. 498, 501-513 (2011), we will refrain from addressing his frivolous arguments. II. Additions to tax A. Failure to file 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 8 1 2 Section 6651(a)(1) imposes an addition to tax for failure to file a timely return. The addition is 3 warranted here. Mr. Gattie filed no purported return 4 5 6 7 8 9 for 2012 before August 2014. The purported return that he then did file was not a return at all but was a list of zeroes. To determine whether a taxpayer has filed a valid tax return, we follow the test enunciated in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986), under 10 which, "First, there must be sufficient data to 11 12 13 14 calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer 15 must execute the return under penalties of perjury." 16 See also Oman v. Commissioner, T.C. Memo. 2010-276. 17 Mr. Gattie's Form 1040EZ fails the first and third of 18 19 20 21 22 23 24 25 these tests: His zero return does not have "sufficient data to calculate a tax liability", and it does not constitute "an honest and reasonable attempt to satisfy the requirements of the tax law". On the contrary, it omits all of Mr. Gattie's income and reports only the withholding (for which he sought a refund). His document constitutes some sort of a protest against the tax law, not an attempt to comply 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 with it. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 B. Failure to pay tax Section 6651(a)(2) imposes an addition to tax for failure "to pay the amount shown as tax on any return". Mr. Gattie's unpaid 2011 liability was "shown on a return"--i.e., on the SFR prepared by the IRS. See sec. 6651(g)(2). He has shown no error in the IRS's computation. He is therefore liable for the (a)(2) addition. III. Penalty under section 6673(a) Congress enacted the penalty provision in section 6673 in order to deter frivolous litigation and to induce taxpayers to conform their conduct to settled principles of law before pursuing litigation. Under section 6673(a)(1), the Court may impose a penalty of up to $25,000 when a taxpayer pursues an action in the Tax Court and the Court determines that either: (1) the taxpayer instituted or maintained litigation in the Court primarily for delay; (2) the taxpayer's litigation position is frivolous or groundless; or (3) the taxpayer unreasonably failed to pursue administrative remedies before pursuing judicial relief in the Court. It is clear that Mr. 24 Gattie's position is frivolous and that, because he 25 knew it was foredoomed to fail in litigation, his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 maintenance of that position was primarily for delay. 2 3 4 5 6 7 8 9 10 11 His culpability is aggravated by the following facts (see Leyshon v. Commissioner, T.C. Memo. 2015-104, at *24-*30): Mr. Gattie has raised frivolous arguments in prior proceedings before this Court and is thus a "repeat offender". He was warned that his arguments were frivolous and that raising such arguments could lead to the imposition of penalties--warned not only by the IRS but also by this Court in his prior case and in this very case; but he ignored or defied those 12 warnings. He did not raise any non-frivolous 13 14 15 arguments in addition to his frivolous arguments. His conduct imposed on the IRS and the Court a substantial undue burden to adjudicate his case. 16 Until the 11th hour he refused to stipulate facts 17 18 19 20 21 22 that in fact he could not dispute. And he has made no pretense of intending to comply with tax laws in the future. Taking into account all the facts and circumstances, we impose a penalty of $12,500--half of the maximum possible penalty--and we warn Mr. 23 Gattie that if he should repeat this conduct in the 24 25 future, the penalty can go up to $25,000. CONCLUSION 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 The deficiency and additions to tax determined by the IRS will be sustained, and decision will be entered in favor of respondent. A penalty of $12,500 4 will be imposed on Mr. Gattie under section 6673(a). 11 This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 9:33 a.m., the above- entitled matter was concluded.) 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