TAX COURT OPINION

Case: Howard M. Barash
Docket Number: 25606-10
Judge: Marvel
Opinion Type: bench
Filed: 05/22/2012
Pages: 13

UNITED STATES TAX COURT WASHINGTON, DC 20217 HOWARD M. BARASH, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, ) ) ) ) ) Docket Nos. ) 25606-10, 11176-11. Respondent. ) ORDER 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 of the above cases before Judge L. Paige Marvel at Portland, Oregon, on May 3, 2012, containing her oral findings of fact and opinion. In accordance with the oral findings of fact and opinion, the decision line is amended and will read, decisions entered for respondent except with respect to § 6654(a) for taxable year 2007. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. May 22, 2012 SERVED MAY 2 4 2012 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 3 BENCH OPINION BY JUDGE L. PAIGE MARVEL HOWARD M. BARASH V. COMMISSIONER DOCKET NOS.: 25606-10 AND 11176-11 MAY 3, 2012 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. 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. Unless otherwise indicated, subsequent section references made in this bench opinion are to the Internal Revenue Code of 1986 (Code) as amended in effect for the relevant period, and Rule references are to the Tax Court Rules of Practice and Procedure (Rules). Monetary amounts have been rounded to the nearest dollar. Petitioner appeared pro se. Amy B. Ulmer appeared on behalf of respondent. Petitioner resided in Oregon when he filed his petitions in these consolidated cases. Petitioner was employed in 2007 and 2008 and received wages of $60,161 and $65,611 in 2007 and Heritage Reporting Corporation (202) 628-4888 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 4 2008, respectively. In 2007 petitioner also received a $434 refund for 2006 from the Oregon Department of Revenue. In 2008 petitioner also received interest income of $1,018. Petitioner failed to file his Federal income tax returns for 2007 008. On the basis of third- party payor information, respondent prepared substitutes for returns for petitioner under section 6020(b). On August 30, 2010, and February 14, 2011, respondent mailed petitioner notices of deficiency for 2007 and 2008, respectively. In the first notice of deficiency respondent determined a deficiency of $9,380 in petitioner's Federal income tax for 2007 and additions to tax of $858 for failure to file a return timely under section 6651(a) (1), $515 for failure to pay tax timely under section 6651(a) (2), and $146 for failure to pay estimated tax under section 6654 (a). In the second notice of deficiency respondent determined a deficiency of $10,763 in petitioner's Federal income tax for 2008 and additions to tax of $2,422 under section 6651(a) (1), $1,076 under section 6651(a) (2), and $346 under section 6654 (a). Petitioner timely filed petitions contesting respondent's determinations. We consolidated these cases. Respondent concedes that petitioner is not Heritage Reporting Corporation (202) 628-4888 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 liable for the section 6654 (a) addition to tax for 2007. Throughout these proceedings and at t 1 L petitioner consistently and stubbornly maintained that there is no provision in the Code that states he is liable for income tax on his income from compensation and other sources. Despite warnings from both respondent's counsel and this Court that petitioner's arguments were frivolous and could subject him to penalties if asserted at trial, petitioner continued to assert his arguments. At the end of the trial, respondent filed a motion for penalties under section 6673 and a motion to dismiss the case for failure to properly prosecute, and petitioner filed an objection to respondent's motion for penalties. Petitioner failed to abide by the Rules in preparing his case for trial. Specifically, he failed to stipulate as required by Rule 91, he failed to respond to respondent's requests for admissions as required by Rule 90, resulting in deemed admissions, and he failed to cooperate in the preparation of the case for trial as required by Rule 70. Petitioner's Income The Commissioner's determinations in a notice of deficiency are presumed correct, and the Heritage Reporting Corporation (202) 628-4888 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 6 taxpayer generally bears the burden of showing that they are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The U.S. Court of Appeals for the Ninth Circuit, to which an appeal in this case would lie, absent a stipulation to the contrary, see sec. 7482(b) (1) (A), has held that for the presumption of correctness to attach to the notice of deficiency in unreported income cases, the Commissioner must establish "some evidentiary foundation" connecting the taxpayer with the income-producing activity, see Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979)3 rev'q 67 T.C. 672 (1977), or L demonstrating that the taxpayer actually received unreported income, Edwards v. Commissioner, 680 F.2d 1268, 1270-1271 (9th Cir. 1982). If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer, who must establish by a preponderance of the evidence that the deficiency was arbitrary or erroneous. See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff'q T.C. Memo. 1997-97. Petitioner admitted during trial that he received compensation income during 2007 and 2008 in the amounts reflected on information returns filed with the Internal Revenue Service by his employer and Heritage Reporting Corporation (202) 628-4888 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 7 that he did not file returns for 2007 and 2008. Accordingly, the burden of production shifted to petitioner to prove that respondent's adjustments in the notices of deficiency were arbitrary or erroneous. Consequently, petitioner bears the burden of proof and the burden of production with respect to all adjustments affecting his liability for the tax deficiencies. In addition, petitioner does not contend that section 7491(a) shifts the burden of proof to respondent, and the record establishes that petitioner does not satisfy the section 7491(a) (2) requirements. Petitioner did not contest at trial that he received compensation income or the other income items shown on the substitutes for return prepared by respondent pursuant to section 6020(b), and he specifically admitted that he was paid compensation by his employer during 2007 and 2008. In his pretrial memorandum and at trial petitioner frames the'issue as "who do the statutes of the US Code actually make liable for the payment of the rate of tax imposed in Section 1 * * *?" Petitioner asserts that the structure of Federal income taxation contemplates that it is the payor of taxable income, such as a withholding agent, rather than the income earner, who Heritage Reporting Corporation (202) 628-4888 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 8 is liable for income tax. Petitioner cites sections 3402, 3403, 1441, 1442, and others to support the propositions that only those sections establish liability for the collection and payment of taxes and that those sections apply to withholding agents only. Petitioner's unfounded and vague assertions lead him to the conclusion that no provision of the Code makes him liable for income tax and that he is therefore not required to file a return. We have rejected such shopworn arguments in the past. See, e.g., Garber v. Commissioner, T.C. Memo 2012-47; Schroeder v. Commissioner, T.C. Memo. 2002-190; Everett v. Commissioner, T.C. Memo. 1989-605. The Code imposes a tax on the taxable income of every individual. See sec. 1. For purposes of calculating taxable income, section 61(a) (1) defines gross income as all income from whatever source derived, including compensation for services. Petitioner's argument that it is the withholding agent who is liable for taxes has no merit. It is the taxpayer who is subject to Federal income tax. See secs. 1, 7701(a) (1), (14); sec. 1.1- 1(a) (1) and (b), Income Tax Regs. Moreover, courts have consistently held that the true earner of income is liable for income tax, see Lucas v. Earl, Heritage Reporting Corporation (202) 628-4888 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 9 281 U.S. 111, 114-115 (1930)., and therefore the argument that the Code imposes tax liability upon withholding agents only has no merit. We also reject petitioner's argument that the Code does not require him to file a Federal income tax return. Section 6011 provides that any person liable "for any tax imposed by this title * * * shall make a return or statement according to the forms and regulations prescribed by the Secretary [of the Treasury]." Section 6012, entitled "Persons required to make returns of income", provides that an individual possessing gross income for a taxable year in excess of a specified amount shall file a tax return. "Shall-" as used in section 6012, means that a taxpayer must file an income tax return when required to do so by such section, United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983). The return that the taxpayer must file, if required to do so under sections 6011 and 6012, must conform to the forms and regulations prescribed by the Secretary of the Treasury (Secretary). See sec. 1.6011-1(a), Income Tax Regs. The Form 1040, U.S. Individual Income Tax Return, is the form prescribed by the Secretary for use by individual taxpayers in filing returns. Heritage Reporting Corporation (202) 628-4888 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 10 Petitioner's gross income in both years exceeded the amounts specified in section 6012. Therefore, he was required to file return, i.e. Forms 1040, and pay taxes imposed in accordance with section 1(a) for 2007 and 2008. See sec. 6012. We need not refute petitioner's logic any further with somber reasoning and citation of precedent because doing so might suggest it might have some colorable merit. See Wnuck v. Commissioner, 136 T.C. , (slip op. at 5) (May 31, 2011). As we have recently stated, taxpayers who present frivolous arguments in this Court should not expect to see them addressed in opinions of this Court. Idm at ___(slip op. at 24). We sugtain respondent's determinations. Additions to Tax Section 6651(a).(1) imposes an addition to tax for failure to file a return timely in the amount of five percent of the tax required to be shown on the return for each month during which such failure continues, not to exceed 25 percent in the aggregate, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. Respondent satisfied his burden of production under section 7491(c) by introducing an excerpt from petitioner's transcript that contained third-party Heritage Reporting Corporation (2.02) 628-4888 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 11 information returns data relating to petitioner's income, and petitioner acknowledges that he failed to file the returns. Petitioner did not argue that his failure to file returns was due to reasonable cause, and he presented no credible evidence on the issue. Accordingly, we hold that petitioner is liable for the additions to tax under section 6651(a) (1) for 2007 and 2008. Section 6651(a) (2) imposes an addition to tax for failure to pay timely the amount of tax shown on a return. The section 6651(a) (2) addition to tax applies only when an amount of tax is shown on a return. Cabirac v. Commissioner, 120 T.C. 163, 170 (2003). Petitioner did not file 2007 and 2008 returns. However, respondent prepared substitutes for returns under section 6020(b). A return made by the Secretary under section 6020(b) is treated as the return filed by the taxpayer for purposes of determining whether the section 6651(a) (2) addition to tax applies. Sec. 6651(g) (2); Wheeler v. Commissioner, 127 T.C. 200, 208-209 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008). Where the taxpayer did not file a return, to satisfy his burden of production for the section 6651(a) (2) addition to tax the Commissioner must Heritage Reporting Corporation (202) 628-4888 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 12 introduce evidence that he prepared a substitute for return satisfying the requirements under section 6020(b). Wheeler v. Commissioner, 127 T.C. at 209. Respondent satisfied this burden by introducing into evidence an IRC Section 6020(b) Certification for each of the years in dispute. Consequently, petitioner had the burden of introducing evidence to show that his failure to pay was due to reasonable cause. He did not do so. Petitioner did not advance any argument regarding the section 6651(a) (2) addition to tax and introduced no credible evidence to show reasonable cause for his failure to pay tax shown on the returns. Accordingly, we sustain respondent's determination with respect to the additions to tax under section 6651(a) (2) for 2007 and 2008. Section 6654 imposes an addition to tax for underpayment of a required installment of estimated tax. Each required installment of estimated tax is equal to 25 percent of the "required annual payment," which in turn is equal to the lesser of (1) 90 percent of the tax shown on the taxpayer's return for that year (or, if no return is filed, 90 percent of his or her tax for such year), or (2) if the taxpayer filed a return for the immediately preceding taxable year, 100 percent of the tax shown on that return. Heritage Reporting Corporation (202) 628-4888 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 13 Sec . 6654 (d) (1) (A) and (B) . Respondent concedes that petitioner is not liable for the section 6654 (a) addition to tax for 2007. With respect to 2008, respondent satisfied his burden of production under section 7491(c) by showing that petitioner had a required annual payment of estimated tax. Petitioner presented no argument with respect to section 6654. Therefore, we sustain respondent's determination that petitioner is liable for the addition to tax under section 6654 (a) for 2008. Section 6673(a) Penalty 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 when it appears that the taxpayer instituted or maintained proceedings pri arily for delay or that the taxpayer's position in roceeding is frivolous or groundless. See also L7*C A Burke v. Commissioner, 124 T.C. 189, 195 (2005). Respondent asks us to.impose the section 6673(a) penalty in the amount of $5,000. Despite several prior warnings, at trial petitioner advanced arguments that we have rejected on numerous occasions as frivolous. We shall impose the penalty in the amount recommended and requested by Heritage Reporting Corporation (202) 628-4888 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 14 respondent, $5,000, in our discretion because petitioner was warned repeatedly about the nature of his arguments yet refused to consider that his arguments were frivolous and wasteful, unduly extending the trial and prolonging these proceedings. We warn petitioner, however, that if he continues to maintain frivolous positions in future cases, we will impose a penalty under section 6673(a) again, most likely in a substantially larger amount up to and including the maximum amount, $25,000. . We have considered the remaining arguments made by the parties and, to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit. Because we decide this case on the merits, we shall deny as moot respondent's motion to dismiss for failure to properly prosecute. To reflect the foregoing, decision will be entered under Rule 155, and appropriate orders will be entered. This concludes the court's oral findings of fact and opinion in this case. (Whereupon, at 12:16 p.m., the bench opinion in the above-entitled matter was concluded.) // // Heritage Reporting Corporation (202) 628-4888