TAX COURT OPINION

Case: Thomas Ralph Young
Docket Number: 4664-12
Judge: Kroupa
Opinion Type: bench
Filed: 03/20/2013
Pages: 15

UNITED STATES TAX COURT WASHINGTON, D.C. 20217 THOMAS RALPH YOUNG, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. rn ) ) ) ) ) Docket No. 4664-12 ) ) ) ) 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 this case before Judge Diane L. Kroupa in Dallas, Texas on March 5, 2013, containing her 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, an appropriate decision will be entered. (Signed) Diane L. Kroupa Judge Date: Washington, D.C. March 20, 2013 SERVED NAR 2 2 2013 Capital Reporting Company 3 1 Bench Opinion by Judge Diane L. Kroupa 2 March 5, 2013 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Thomas Ralph Young Docket No. 4664-12 THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN TH IS CASE, AND THE FOLLOWING REPRESENTES THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THESE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. All section references are to the Internal Revenue Code for 2000 through 2008, the years at issue, and all Rule references are to the Tax Court Rules óf Practice and Procedure. Petitioner appeared pro se and Christopher Kippes appeared on behalf of respondent. FINDINGS OF FACT The facts are derived from the statements that were deemed admitted under Rule 91(f). The stipulation of facts and accompanying exhibits to the Rule 91(f) motion are incorporated by this reference. 21 Petitioner resided in Texas when he filed the 22 23 24 25 petition. Petitioner has defied the tax laws for nine years or more by failing to file a valid Federal income tax return for any of the years at issue. For 2000 to 2003, petitioner filed zero returns. For 2004 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 to 2008, he was employed and gave an incorrect social security number to his employer that hindered respondent from collecting the correct taxes. 4 Petitioner also submitted Forms W-4 to his employer 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 asserting that he was "exempt" from withholding as he had no tax liability. Respondent prepared substitutes for return (SFRs) based upon bank deposits, cash payments and third-party information. Respondent issued petitioner a statutory deficiency notice. Respondent determined deficiencies in petitioner's Federal income tax for each of the years at issue, late payment additions under section 6651(a) (2), fraudulent failure to file additions under section 6651(f) and estimated tax additions under section 6654. Petitioner timely filed a petition raising a statute of limitations defense and otherwise raising only tax-protester arguments. Respondent filed a Motion for Summary Judgment And To Impose A Penalty Under IRC Section 6673 (respondent's motion). Petitioner filed an objection to respondent's motion, raising only tax- protestor arguments in opposition. The Court set respondent's motion for a hearing at the March 4, 2013, Dallas, Texas trial calendar. Respondent filed a Motion to Quash Subpoena 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 asking the Court to quash the subpoena issued to Revenue Agent Lloyd Kinlaw. The Court issued an order on February 7, 2013 granting respondent's motion to quash. Petitioner filed a motion asking the Court to reconsider its ruling (reconsideration motion). The 6 Court scheduled petitioner's reconsideration motion 7 8 9 for hearing on the Court's March 4, 2013 trial session in Dallas, Texas. In addition, despite several attempts, 10 petitioner failed to stipulate to any facts as 11 12 13 14 15 16 17 18 required by the Court's standing pretrial. order and Rule 91. Respondent then filed a Motion to Show Cause Why Proposed Facts In Evidence Should Not be Accepted as Established (show cause motion). Respondent attached a proposed stipulation of facts to the show cause motion. The Court issued an order granting respondent's show cause motion under Rule 91(f) and ordered petitioner to comply by the start of the 19 March 4, 2013 trial session. The court reviewed 20 21 22 23 24 petitioner's response to the show cause order and determined that petitioner's response was evas1ve ln whole part because it contained only meritless arguments. Therefore, petitioner's response failed to comply with the provisions of Rule 91(f) (2). 25 Consequently, the Court will issue an Order making 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 absolute the show cause motion and deeming established the facts and evidence set forth in respondent's proposed stipulation of facts attached to respondent's show cause motion. As previously mentioned, the Court scheduled respondent's motion and the reconsideration 7 motion for a hearing. Petitioner again raised only 8 9 10 11 12 13 14 15 16 tax-protester arguments at the hearing. OPINION We first address whether to grant respondent's motion for summary judgment. Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. See, e.g., FPL Group, Inc. v. Commissioner, 116 T.C. 73, 74 (2001). A motion for summary judgment will be granted if the pleadings and other acceptable materials, together 17 with the affidavits, if any, show that there is no 18 19 20 21 22 23 24 25 genuine issue as to any material fact and that a decision may be rendered as a matter of law. See Rule 121(b); Elect. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). We are satisfied that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. We find no merit to any of petitioner's assertions. We therefore shall grant respondent's motion for summary 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 judgment. The Court will also issue an order denying the reconsideration motion because petitioner raised only frivolous arguments. We briefly discuss petitioner's misguided arguments. Petitioner asserts that he is not "liable" for any tax, yet he received payments while he was self employed from 2000 to 2003 and he received wages from an employer from 2004 to 2008. It is a fundamental tax principle that gross income includes 10 all income from whatever source derived, including 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 wages, nonemployee compensation, interest and dividends. Sec. 61(a) (1). Petitioner does not dispute that he received payments. Petitioner argues, however, that he is not a person required to file a return and pay Federal income tax. Simply put, he is. See secs. 1(a) (1), 61(a) (1), 7701(a) (1)', (14); United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981); Craig v. Commissioner, 119 T.C. 252, 263 (2002). These sections are also the sections that provide petitioner is required to file a return and pay the required taxes. We therefore refute petitioner's argument that he would file returns and pay taxes only if someone would show him which Code section requires him to do so. We find petitioner has instituted and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 maintained this case as a protest against the Federal 2 3 4 income tax system. Petitioner's arguments are familiar to this Court and other Federal courts and have been soundly rejected on numerous occasions. 5 Petitioner cites, out of context, selected text from 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 statutes and cases. Petitioner follows in the footsteps of numerous others who have unsuccessfully attempted to avoid paying Federal income taxes. He apparently believes that he is smarter than the average person and that his interpretation of the Code is correct even though no court has agreed with his position. In fact, every court that has been faced with the type of arguments petitioner advances has consistently and uniformly found such arguments to be frivolous. See, e.g., Abdo v. United States, 234 F. Supp. 2d 553, 563 (M.D.N.C. 2002), aff'd 63 Fed. Appx. 163 (4th Cir. 2003) (court noted claim that wages are not income has been rejected as many times as it has been asserted"); Wnuck v. Commissioner, 136 T.C. at 503-504 ("[C]ourts have addressed and rejected many of the recurring frivolous anti-tax arguments, including ... the general argument that wages are not subject to the income tax."). We need not discuss petitioner's erroneous and frivolous positions at length. See 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 Wnuck v. Commissioner, 136 T.C. at 499. To refute 2 3 4 5 petitioner's arguments with somber reasoning and conspicuous citation of precedent might suggest that these arguments have some colorable merit. Crain v. Commissioner, 737 F.2d 1417, 1418 (5th Cir. 1984). 6 Accordingly, we sustain the deficiencies respondent 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 determined in the deficiency notice for the years at issue. We now turn to the additions to tax. We first address the fraudulent failure to file additions respondent determined under section 6651(f) for the years at issue. When determining whether a failure to file is fraudulent, the Court considers the same elements that are considered in imposing the fraud penalty under section 6663. Clayton v. Commissioner, 102 T.C. 632, 653 (1994). Fraud is an intentional wrongdoing designed to evade tax known or believed to be owing. Edelson v. Commissioner, 829 F.2d 828, 833 (9th Cir. 1987), aff'g T.C. Memo. 1986- 223. An addition to tax equal to 75 percent of the underpayment may be imposed if any part of the taxpayer's underpayment of Federal income tax is due to fraud. See sec. 6663(b) (1). Further, if any portion of the underpayment is attributable to fraud, the entire underpayment will be treated as 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 attributable to fraud unless the taxpayer establishes otherwise. Sec. 6663(b) (2). Respondent has the burden of proving by clear and convincing evidence that an underpayment exists for the years in issue and that some portion of the underpayment is due to fraud. Sec. 7454 (a); Rule 142(b). Respondent established that petitioner received unreported income, and that petitioner's failure to file a valid income tax return resulted in an underpayment for each of the years at issue. Respondent must also prove that petitioner had fraudulent intent. Direct evidence of fraud is rarely available. Thus, it may be proven by circumstantial evidence. Spies v. United States, 317 U.S. 492 (1943). Courts have developed several indicia, or "badges of fraud," from which fraudulent intent can be inferred. They include: (1) failing to file income tax returns; (2) understating income: (3) failing to maintain adequate records; (4) failing to cooperate with taxing authorities; (5) failing to make estimated tax payments; and (6) asserting frivolous arguments and objections to the tax laws. Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff'g T.C. Memo. 1984-601; Runkle v. Commissioner, T.C. Memo. 2005-112. Although no single 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 factor is necessarily sufficient to establish fraud, a combination of several of these factors may be persuasive evidence of fraud. Bradford v. Commissioner, 796 F.2d at 307-308. All of these badges of fraud apply to petitioner. We are convinced therefore that petitioner fraudulently failed to file. a valid Federal income tax return for each of the years at issue with an intent to evade tax. Petitioner failed to file valid returns. He failed to cooperate with the Service's reasonable requests for information concerning his earnings. He failed to report taxable income. His arguments questioning his obligatioñ to file returns and pay tax are meritless and absurd. These badges demonstrate that petitioner's failure to file valid Federal income tax returns was both deliberate and with the intent to evade taxes he knew he owed. Respondent has proven by clear and convincing evidence that petitioner fraudulently failed to file returns under section 6651(f) for each of the years at issue. We now focus on the late payment additions to tax imposed under section 6651(a) (2) for the late payment of tax shown as due on the SFRs that 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1.8 19 20 21 22 23 24 25 respondent prepared for petitioner. SFRs made by the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 Secretary under section 6020(b) are treated as the returns filed by the taxpayer for purposes of determining whether the late payment addition to tax applies. Sec. 6651(g) (2). Respondent showed that petitioner failed to pay any of the income tax he owed for each of the years at issue. Accordingly, respondent has satisfied his burden of production 8 with respect to the late payment additions. As 9 already mentioned, petitioner has advanced several 10 meritless frivolous arguments as to why he should not 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have to pay tax. None of his arguments establish that he had "reasonable cause." Petitioner therefore is liable for the late payment additions. We next address the additions to tax under section 6654 (a) for failure to pay estimated tax. Respondent showed that petitioner failed to pay any estimated income tax he owed for any of the years at issue. Moreover, there are certain mechanical exceptions to the addition to tax under section 6654 (a) that petitioner has -failed to prove. Consequently, petitioner is liable for the additions to tax under section 6654 (a) for failure to pay estimated tax for the years at issue. We now consider petitioner's contention in the petition that the time lapsed for respondent to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 assess tax for 2000, 2001, 2002 and 2003. Put simply, petitioner's contention is incorrect. Tax may be assessed, or a proceeding in Court for the collection of such tax may be begun without assessment, at any time in the case of failure to file a return. Sec. 6501(c) (3). Petitioner never filed a valid Federal income tax return for any of the years at issue. 8 Accordingly, petitioner's statute of limitation 9 argument lacks merit. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Finally, we address whether it is appropriate to impose a penalty against petitioner under section 6673, which authorizes the Tax Court to require a taxpayer to pay to the United States a penalty up to $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceedings is frivolous or groundless. See sec. 6673; Scruggs v. Commissioner, T.C. Memo. 1995-355, aff'd without published opinion 117 F.3d 1433 (11th Cir. 1997). In this proceeding now before the Court, petitioner asserts nothing but frivolous and groundless arguments. It is apparent from the entire record that petitioner instituted or maintained this proceeding primarily, if not exclusively, as a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 protest against the Federal income tax system. We are convinced that no purpose would be served in repeating all that has been said about his frivolous and misguided arguments. We note that the type of arguments petitioner raises have been deemed by this Court to be frivolous and/or sanctionable under section 6673. The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled tax principles. Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); see also Grasselli v. Commissioner, T.C. Memo. 1994-581. Petitioner's tactics have consumed valuable Government resources. These tactics should not be condoned. They damage the integrity of the Federal tax litigation system because the time and attention the Court and respondent must devote to these frivolous arguments deprives other taxpayers with genuine tax controversies. See Abrams v. Commissioner, 82 T.C. 403,· 412 (1984). When the Court has been faced with groundless arguments that waste the Court's and respondent's limited time and resources, we have consistently found that the taxpayer deserves a penalty under section 6673(a) (1), and that penalty should be substantial if it is to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 have the desired deterrent effect. See Wnuck v. Commissioner, 136 T.C. at 513-514. Petitioner 1s pro se and may not be familiar with all the rules and procedures. Pro se status, however, is not a license to litter the dockets of the Federal courts with ridiculous allegations. Parker v. Commissioner, 117 F.3d 785 (5th Cir. 1997). Petitioner has failed to satisfy his tax obligations for nine years or more. In addition, respondent and this Court have warned petitioner numerous times that he was at risk of having the penalty imposed against him. Despite these warnings, petitioner defied these admonishments and persisted in making meritless and frivolous assertions. We therefore shall require petitioner to pay the maximum penalty of $25,000 pursuant to section 6673(a) (1). To reflect the foregoing, decision will be entered for respondent and an appropriate order will be issued addressing respondent's summary judgment 20 motion including imposing the penalty under section 21 22 23 24 25 6673, petitioner's motion to reconsider and respondent's show cause motion. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 12:16 p.m., the above-entitled 866.488.DEPO www.CapitalReportingCompany.com 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Capital Reporting Company 16 matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com