TAX COURT OPINION

Case: Gregory Q. Teeters
Docket Number: 24853-08
Judge: Halpern
Opinion Type: memo
Filed: 11/08/2010
Pages: 12

T.C. Memo. 2010-244 UNITED STATES TAX COURT GREGORY Q. TEETERS, Petitioner 1. COMMISSIONER OF INTERNAL REVENUE; Respondent Docket No. 24853-08. Filed November 8, 2010. Gregory Q. Teeters, pro se. John M. Wall, for respondent. MEMORANDUM OPINION HALPERN, Judge: Respondent determined deficiencies in, and additions to, petitioner's Federal income tax for 2002, 2003, and 2005. Unless otherwise stated, section references are to the Internal Revenue Code in effect for the years -:ba issue. We -round all dollar amounts to the nearest dollar. The amounts respondent determined are as follows: sEav6D NOV -8208 ! - 2 - Sec. Year 2002 2003 2005 Deficiency 6651(a) (2) $6,100 10,140 12,071 $1,525 2,484 1,161 Additions to Tax Sec. 6654 $204 262 360 Sec. 6651(f) $4,423 7,352 6,731 At trial, petitioner conceded the deficiencies (the result of unreported income) and the additions to tax under sections 6651(a) (2) and 6654. (In section I of this report, we shall discuss the effect of petitioner's denial on brief that he had any "unreported income".) Ne need decide only whether petitioner is liable for the additions to tax under section 6651(f) for the fraudulent failure to file tax returns for the years in issue. We find that he is liable for those additions.1 Background Some facts are stipulated and are so found. The three stipulations of facts, with accompanying exhibits, are incorporated herein by this reference. When he filed the petition, petitioner lived in California. In all 3 years in issue, petitioner worked for Golden Gate Bridge Highway and Transportation District (Golden Gate). In 2002, he also worked for MV Transportation, Inc. (bel Transportation), and Urban Park Concessionaires (Urban Park). In the alternative, respondent argues that petitioner is for failure to liable for additions to tax under sec. -6651.(a) file tax returns. additions under sec. 6651(f), we need not address that Because we find petitioner liable for the issue. 2002 - 3 - Petitioner submitted Forms W-4, Employee'÷s Withholding Allowance Certificate, to Golden Gate, MV Transportation, and a Urban Park reporting that he was exempt from withholding for 2002 because .he expected to have no Federal tax liabilitys for 2002 and had a right to a refund of all Federal .income tax withheld for 2001 because he had no Federal tax liability for 2001. Golden. Gate issued petitioner a Form W-2, Wage and Tax, Statement, reporting that, for 2002, Golden Gate paid petitioner $38,317 and did not withhold any Federal income tax from that amount . Petitioner also received wages of $3, 336 and $1, 961 from MV Transportation and Urban Park, respectively. 2003 Petitioner submitted a Form W-.4 to Golden Gate reporting that he was exempt from ,withholding for. 2003 because he expected to have no Federal .tax liability for 2003 and--had a right tocas refund of all Federal i-ncome tax withheald for 2002 because he had no Federal tax liabi-lity for 2002. Golden Gate issued petitioner a Form W-2 .reporting that, for 2003, Golden Gate paid petitioner $58,909 and did not withhold any Federal income tax from that amount . 2005 - 4 - Petitioner submitted a Form W-4 to Golden Gate reporting that he was exempt from witÉholding for 2005 because he expected to have no Federal tax liability for 2005 and had a right to a refund of all Federal income tax withheld for 2004 because he had no Federal tax liability fot 2004. Golden Gate issued petitioner a Form W-2 reporting that, for 2005,.Golden Gate paid petitioner $62,540 and withheld Federal income tax of $2,787 from that amount. Golden Gate withheld Federal income tax from petitioner's wages because, 3:ba the fall of 2005, respondent had directed Golden Gate to disregard petitioner's Forms W-4 and to withhold at the highest rate. In response, in October, petitioner submitted to Golden Gate a "sworn affidavit" stating that Golden Gate would "'not be required to deduct and withhold any tax'" from his wages if|he provided Golden Gate with the "certified statement contained in this affidavit.". When Golden Gate refused to stop withholding, petitioner submitted a new Form W-4 signed and dated December 31, 2005, not reporting that he was exempt but rather claiming 10 withholding allowances. Petitioner was not entitled to 10 allowances Petitioner's Tax Returns In September 2005, respondent mailed petitioner two letters requesting that petitioner file his 2002 and 2003 Federal income tax returns. On October 27, 2005, respondent received - 5 - petitioner's Form 1040, U.S. Individual Income Tax Return, for 2002 signed and dated October 25, 2005 (the 2002 return).~ On that, return, petitioner reported $34 of interest income, $154 of taxable refunds;2 and zero wagesa That return also reported zero Federal incóme tax withheld and zero total Federal income tax. Petitioner attached to the 2002 return three: Forms 4852, Substitute for Form W-2, -Wage and Tax Statement, <nr Form 1099-R, Distributions From.Pensións, Annuities, Retirement or Profit- Sharing Plans, IRAs, Insurance Contracts, etc., for Golden Gate, MV Transportation, and Urban Park, each signed and dated October 25, 2005. Those Forms 48'52 all listed zero wages. On each Form 4852, petitioner stated that, although he had requested a Form W- 2c, Statement of Corréated'Incoine and Tax Amounta, the - company refuses to issue forms correctly 'listing payments of -3401(a) and 3121(a) The amounts listed as withheld on the [Form] W-2 it submitted are correct, however. 'wages' as defined in [sections) for fear of IRS retaliation. Respondent did not file the 2002 return and did not' accept it as a valid return. On November 17, 2005, respondent^ received petitioner's Form 1040 for 2003 si'gned and dated November 15, 2005 (the 2003 return). On that return, petitioner reported $103 of interest 2Petitioner incorrectly reported dividend income as a taxable refund. Form 1040 a taxpayer reports "Ordinary dividends" and "Taxable refunds" on consecutive lines. likely inadvertent:. On The mistake was most - 6 - income, $306 of dividend income, $1,850 of unemployment - compensation, and zero wages. That return also reported zero Federal income tax withheld,j zero total Federal income tax, $4,507 of Social Security tax withheld, and a claimed refund of $4,507. Petitioner attached to the 2003 return a Form 4852 for Golden Gate listing zero wa es signed and dated November 15, I 2005. That Form 4852, had t e same statement regarding "'wages'" as the Forms 4852 attached o the 2002 return. Respondent did not file the 2003 return an did not accept it as a valid return. On February 28, 2006, respondent mailed a letter to- petitioner regarding the 2002 and 2003 returns. In part, that letter stated: We have determined that the information you sent is frivolous and your position has no basis in law. If you intend to persist in making such arguments, we encourage you to seek advice from a reputable tax practitioner or, attorney. * * * On March 9, 2006, petitioner replied to respondent's letter. Petitioner's letter stated: i You do not claim that my Returns for 2002 and 2003 You state that the information I sent I have no contradictory information in are frivolous. is frivolous. the above returns, which is my testimony, signed under penalties of perjury, and to the best of my knowledge and belief, is true, córrect, and complete. * * * * * * * * * * * from tax, "wages" are not "income". What I reported was * I did not claim that "income" * nor that that, as a private sector worker, not "wages" as defined0in IRC Sec. 3401(a) and IRC Sec. some of my pay was is exempt - 7 - 3121(a). Also that I' was not an "employee" as defined in IRC Sec. 3-401(c). On May 4, 2006, respondent received petitioner's Form 1040 for 2005 signed and dated April 15, 2006 (the 2005 return). On that return petitioner reported $538 of interest income, $2,400 of capital gain, and zero wages. That return also reported zero total Federal income tax, $2,787 of Federal income tax withheld, $4,784 of Social Security tax withheld, and a claimed refund of $7,572. Petitioner attached to the 2005 return a Form 4852 for Golden Gate listing zero wages signed and dated April 11, 2006. That Form 4852 had the same statement regarding "'wages'" as the Forms 4852 attached to the 2002 and 2003 returns. Respondent did not file the 2005 return and did not accept it as a valid return. On January 22, 2007, respondent mailed a letter to petitioner with respect to his 2005 return. In substance, that letter was identical to the letter respondent sent petitioner regarding the 2002 and 2003 returns. On January 27, 2007, petitioner replied to respondent's letter about his 2005 return. The letter, titled "An Affidavit", stated: From 1995 to 2007: * who earned."wages" * * I have not been an "employee" § 3401(c)) U.S.C. (as defined in 26 U.S.C. in a "trade or business["] 7701 (a) (26) ) § 3401(a)) . (as defined in 26 U.S.C. (as defined in 26 2 that were paid to me by an "employer" § 3401(d)). (as defined in 26 U.S.C. I have not been § I have not been in the "employment" U.S.C. § 3121(b)) of an "American employer" (as defined in 26 (as defined - 8 - § 3121(h)) * * * [and have not] earned = in 26 U.S.C. "wages" [therefrom]. (as defined in 26 U.S.C. § 3121(a)) I. Petitioner's Concession Discussion At trial, petitioner conceded the deficiencies and the additions to tax under sections 6651(a) (2) and 6654 for all years. On brief, however, petitioner states that he "did not concede that he had unreporded income * * * in 2002, 2003, and 2005". Petitioner, however, cannot disavow his concession at trial. See Church of Scientology v. Commissioner, 83 T.C. 381, 524 (1984) ("[a] concession in open court * * * [is) the equivalent of a stipulation"), affd. 823 F.2d 1310 (9th Cir. 1987). Moreover, even if we allowed petitioner to disavow his concession, he would still not prevail. Nowhere does petitioner argue about facts; nowhere does he deny that his employers paid him for his services. Rather, petitioner relies on legal arguments to show that the money he received from his employers did not constitute taxable income. Because his arguments (which we discuss below) are frivolous, petitioner would not prevail even had he challenged the deficiencies. II. Fraudulent Failure To File A. Introduction I Section 6651(f) provides an addition to tax of up to 75 percent of the amount requifed to be shown as tax on an unfiled 6 - 9 - return if the failure to file the 'return was traudulent. Petitioner^ stipulated that he failed to file timely returns and that the returns he did 'file were invalid. Respondent bears the burden* of proving fraud, and'he must carry that burden by clear and convincing evidence. See sec. 7454(a)." "Fraud is established by proving that a taxpayer intended to evade tax' i believed to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of such tax." Clayton v5 Commissioner, 102 T.C. 632, 647 (1994). We find that respondent has carried his burden; therefore, petitioner is liable for the section 6651(f) additions. B. Evidence of Fraud When a taíbayer's failure to file tax returns is predicated on frivolous arguments and when the Commissioner has shown substantial amounts of unreported income on which withholding has been reduced or prevented'by the submission of false Forms W-4, we have repeatedly held that fraud has been e'stablished- by clear and convincing evidence. See Clayton v. Commissioner, supra at 652-653 (the Court considers the same elements to-determine the fraudulent failure to file addition under section 6651(f) as the Court did to determine- the fraud penalty under former section 6653 (b) (present section 6663)); Castillo v. Commissioner, 84 T.C. 405,' 410 (1985) (determining fraud penalty under former sec. 6653 (b)-) . - 10 - 1. Failure To Report Substantial Income The record reflects that petitioner failed to report - substantial income--i.e., agl his wages--during the years in issue. Indeed, petitioner goes not deny that he failed to report substantial remuneration for his services; he denies only that he received income from wages. a 2. Submission ofnFalse Forms W-4 In all 3 years in issue, petitioner filed Forms W-4 claiming that he was exempt from Federal income tax, and, in 2005, petitioner filed a Form W-4 claiming 10 withholding allowances when he knew he was not so entitled. Notwithstanding petitioner's purported belief that he is exempt from- tax, filing false Forms W-4 is inexcusable. See Rowlee v. Commissioner, 80 T.C. 1111, 1125. (1983). Petitioner effectively conceded that the Form W-4 claiming 10 withholding allowances was fraudulent; the other Forms W-4 were fraudulent because petitioner relied on frivolous arguments in claièing to be exempt from Federal income tax. - See id. (filing "false certificates claiming an excessive number of exemptions or claiming that the taxpayer is exempt from income tax is evidence of fraud"). 3. Assertion of Frivolous Arguments To support his objection to the deficiencies and additions to tax, petitioner relies pÿedominantly on a single frivolous legal argument; viz, that he did not receive wages under section 1 - 11 - - 3401(a). Petitioner- is wrong. The companies that issued him Forms W-2 were his employers under section 3401(d) and he was their employee under section 3401(c). Thus, the remuneration those companies paid him for his services was wages-under section 3401(a). Those provisions are clear on their face. See, e.g., United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) (the argument that "under 26 U.S.C. § 3401(c) the category of 'employee' does not include privately employed wage earners is a prepoèterous reading of the statute"). Moreover, petitioner received several letters from respondent explaining that his position was frivolous and suggesting that he seek advice. At trial, although petitioner acknowledged that seeking advice would have been reasonable, he conceded that he did not do so. Instead, petitioner persisted in advancing the same frivolous argument. We find that petitioner did not have a good faith misunderstanding of the law. Petitioner timely filed Federal income tax returns for 1990, 1991, 1992, 1993, 1994, 1995, 1997, and 1998. Petitioner knew of his legal duty and sought to avoid it. Petitioner has no defense to the fraud additions. See Niedringhaus v. Commissioner, 99 T.C. 202, 217-218 (1992). C. Conclusion We find that respondent has established fraud for all the years in issue by clear and convincing evidence. Petitioner is liable for the fraudulent failure to file addition under section - 12 - 6651(f) for 2002, 2003, and 2005. III. Conclusion - Petitioner is liable for the deficiencies and additions, to tax that respondent determined. Decision will be entered for respondent.