TAX COURT OPINION

Case: Roger W. & Soledad E. Knipp
Docket Number: 18667-10L
Judge: Kroupa
Opinion Type: bench
Filed: 10/24/2011
Pages: 13

CA U -ßvvah OP Jd knkrp-Q UNITED STATES TAX COURT WASHINGTON, D.C. 20217 ROGER W. & SOLEDAD E . KNIPP, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) O R D E R Docket No. 18667-10L Pursuant to Rule 152(b), Tax Cou Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to the pages of the petitioners and to respondent a copy of transcript of Diane L. Kroupa at Los Angeles, Califofnia, on October 6, 2011, containing her oral findings of fact and opinion. the above case before Judge the proceedings of In accordance with the oral findings of fact and opinion decision will be entered for respondent. (Signed) Diane L. Kroupa Judge Dated: Washington, D. C. October 24, 2011 $$RVED OCT 2 ü2011 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 DIANE L . KROUPA OCTOBER 6, 2011 KNIPP V. COMMISSIONER DOCKET NO. : 18667-10L 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. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PÉ.ECEDENT IN ANY OTHER CASE . This bench opinion is made pursuant to the authority granted in section 7459(b) and. Rule 152. All section references are to the Internal Revenue Code as amended and in effec for 2005, and all Rule references are to the Tax Cou -t Rules of Practice and Procedure. This is a collection revlew case involving a proposed levy to collect pet ioners' unpaid liabilities for friivolous re rn penalties under section 6702 for 2005. This collection review matter is before the Court on respor ent's Motion for Summary Judgment And To Impose A Penalty Under I.R.C. § 6673. Petitioner filed an objection to respondent's motion. Mr. Knipp appeared ro se, and Mindy Meigs appeared on behalf of respondent . // 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 I FINDINGS OF FACT 4 The record establishes or the parties do not dispute the following facts. Petitioners, wife and husband, resided in Californ a at the time they filed the collection review petitián. Petitioner Roger Kriipp (Mr. Knipp) worked for the Golden Orange Broadcasting Company, Inc. (GOBC) as a head engineer in 2005. Mr. Knipp was paid for his work and GØBC withheld amounts from Mr. Knipp' s paychecks for Federal income tax, social security taxes and Medicare taxes. GOBC issued Mr. Knipp a Form W-2 Wage and Tax Statement . Petitioners filed a joint income tax return for 2005. They reported $129,032 in wages, $15,817 of Federal income tax withheld and $3,708 due. Mr. Knipp' s extensive tax research, however, led him to a different view of petitioners' tax obligations over time. Petitioners filed a Fòrm 1040X amended return for taxable year 2005 in 2009 On the amended return, they eliminated the wages that Mr. Ehipp received from GOBC and sought a refund of $25,753. Petitioners attached to the amended return a Form 4852, the standard fare by which tax p otestors reduce or zero out their income, claiming th t Mr. Knipp received zero wages from GOBC in 2005. 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 Petitioners enclosed two letters to the amended return. The first was from Calvin Brack (Mr. Brack), chief executive offi er of GOBC, to Mr. Knipp. Mr Brack stated that amounts Òaid to Mr. Knipp were compensation for labor but that GOBC did not presume that the payments to Mr. Kni15Ó were for a taxable activity. The other enclosed letter was from Mr. Knipp to the Internal Revenu Service (IRS) . In the letter, Mr. Knipp stated that the wages received from GOBC were unprivileged, private sector receipts not constituting wages ;and not cónnected with a trade or business. Mr. Knipp acknowledged at trial that these arguments are similar to those espoused in Peter Hendrickson' s Cracking The Code : The Fascinating Truth About Taxation in America (Cracking the Code), but claimed that he preceded Peter Hendrickson in these arguments. Respondent advised petitioners in writing that they had submitted a frivolous tax return for 2005 and provided 30 days to withdraw their frivolous return. Petitioners declined to withdraw their return and continued to make frivolous arguments in support of their position. Accordinc)1y, respondent assessed a $5,000 frivolous return penalty under section 6702 against each petitioner and sent notices advising them Heritage Reporting Corporation (202) 62814888 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 of the assessments. When petitioners failed. to pay their liabilities, respondent sent to petitioners a Final Notice of Intent to Levy and Notice of Your Right to a Hearing under Section 6330. Petitioners timely requested a hearing. At the collection due process hearing, Mr. Knipp disputed petitioners' liability for the frivolous return penalties. He did not request a collection alternative. Respondent subsequently issued the Determination Notices upholding respondent's proposed collection action with respect to petitioners' liabilities for 2005. Petitioners timely filed a petition with this Court. As mentioned previously, respondent filed a summary judgment motion and the Court scheduled a hearing on respondent's motion at our Los Angeles, California trial session on October 3, 2011. At the hearing, Mr. Knipp focused on the frivolous return penalties and respondent's motion to impose a penalty under section 6673. He told.the Court that he has done a lot of research, especially when he has been unemployed. Being "cursed with an engineer's mind," he could not accept the penalties on faith, but instead must be shown why amounts are due. He further argued that respondent does not have the authority to 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 assess penalties under section 6702 nor does the Court have authority to impose a penalty under section 6673 because no one has been able to tell him the enactment date of Subtitle F of the Code. He tells us that he would withdraw the petition and pay the penalty amounts if he were given the,date. OPINION Petitioners have followed in the footsteps of numerous others who have unsuccessfully attempted to avoid paying Federal income taxes. Petitioners want only to contest their liability for the frivolous return penalties in this collection review matter. We begin by noting that we have jurisdiction to review a determination notice issued under section 6330 where the underlying tax liability consists of frivolous return penalties. See Callahan v. Commissioner, 130 T.C. 44, 47-49 (2008). We also note that petitioners may contest the frivolous return penalties before this Court. See id. at 49- 50. We next review the general rules that apply to summary judgment. The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming and unnecessary trials. Fla. Peach Corp. v. 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 Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted if the pleadings and other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a.decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner,98 T C. 518, 520 (1992), affd. 17F.3d 965 (7* Cir. 1994). We fin , based upon the record as a whole, that there are no material issues in dispute and that summary judgment is appropriate. We next consider the standard of review under which we evaluate respondent's summary judgment motion. Where the validity of the underlying tax liability is properly at issue, as the case is here, we will review the matter de novo. See Callahan v. Commissioner, supra at 50; Sego v. Commissioner, 114 T.C. 604, 610 (2000). We review all other matters for an abuse of discretion.' See Callahan v. Commissioner, supra at 50-51; Sego v.. Commissioner, supra at 610. We now focus on the frivolous return penalties. A civil penalty for filing frivolous returns may be assessed against a taxpayer if three requirements are met. First, the taxpayer must file a document that purports to' be.an income tax 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 9 Sec. 6702(a) (1).. Second, th'e purported return must lack the information needed to gauge the substantial correctness of the self-assessment or contain. information indicating the elf-assessment is substantially incorrect. Id. Third, the taxpayer's position must be frivolous or demonstrate a desire to delay or impede the administration of Federal income tax laws. Sec. 6702(a) (2). We generally look to the face of the documents to determine whether a taxpayer is liable for a frivolous return penalty as a matter of law. See Yuen v. UnitedtStates, 290 F. Supp. 2d 1220, 1224 (D. Nev. 2003). Petitioners' Form 040X purported to be income tax return filed to obtain a tax refund. See Callahan v. Commissioner, supra at 53. Petitioners attached a Form 4852 showink zero wages from GOBC in 2005. Respondent has thus s'atisfied the first requirement. Respondent has satisfied the second element as well. Petitioners claimed on the purported return and on the attached Form 4852 that Mr. Knipp received no wages from GOBC in 2005. The same Form 4852, however, indicated.that GOB had withheld certain taxes in wages to Mr. Knipp. Petitioners attached an explanatory letter making påtently erroneous 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 assertions, including that the wages received from GOBC were unprivileged, pri ate sector receipts not constituting wages and not connected with a trade or business . The purported return did not contain information on which the substantial correctness of the self -assessment might be determined. . Finally, respondend has satisfied the third element by showing that the purported return reflected frivolous positions. Courts have found arguments frivolous when taxpayers argue, as do petitioners, that wages are not income. See, e.g. Tornichio v. United States, 263 F.Supp.2d 1090 (N.D. Ohio 2002). Petitioners advanced meritless tax- protestor arguments that are not worthy of further analysis. See Wnuck v. Commissioner, 136 T.C. No. 24 (2011); Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) . We therefore find that petitioners are liable for the frivolous return penalties under section 6702 because all of the elements have been met. Mr . Knipp argued that respondent does not have the authority to assess penalties under section 6702. He tells us that he would withdraw the petition and pay the penalty amounts if he were given the enactment date for Subtitle F. The provisions of 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 11 Subtitle F generally took e fect on the day after the date of enactment of the 1954 .Code . Sec. 7851 (a) (6) (A) . The Internal; Revenue Code of 1954 was enacted by the 83d Congress on August 16, 1954, ch. 736, 68A Stat. 3. We will take Mr. Knipp at his word and assume he will pay the rivolous return penalties at issue here now that he has the relevant date . Petitioners have failed to advance arguments or present evidence allowing us to conclude that the determination to sustain th proposed collection action was arbitrary, capricious, or without sound basis in fact or otherwise n abuse of discretion. See, e.g. Giamelli v. Commissioner, 129 T.C. 107, 112, 115 (2007) . Petitioners did not provide any collection alternatives or present any other defenses . The record ind1cates that the only issues petitioners raised throughout the administrative process, in their petition and at the summary judgment hearing were frivolous tax-protestor arguments and groundless ariguments about assessment authority. We therefore conclude that respondent's determination to proceed with the proposed collection action is not an abuse of discretion. Accordingly, we shall grant respondent's summary judgment motion. We now address whether it is appropriate to 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 impose a penalty against petitioners under section 6673. This section authorizes the Tax Court to require a taxpayer to pay to the United States a penalty of up to $25,000 whenever it appears that proceedings have been instituted or maintained primarily for delay or that the taxpayer's position in such proceedings is frivolous or groundless. See sec. 6673; Scruqqs v. Commissioner, T.C. Memo. 1995- 355, affd. without published opinion 117 F.3d 1433 (11* Cir. 1997). The purpo e of section 6673, like that of section 6702, is to compel taxpayers to think and to conform their conduct to settled tax principles. See Coleman v. Commissioner, 791 F.2d 68, 71 (7* Cir. 1986). We note that the type of argument petitioners raised, especially that Mr. Knipp's wages are not taxable, is the type of argument that has been deemed by this Court to be frivolous and/or sanctionable under section 6673. We are mindful that petitioners are representing themselves and may not be familiar with all the Court's Rules and Procedures. Pro se status, however, is not a license to litter the dockets of the Federal courts with ridiculous allegations concerning the Code. Parker v. Commissioner, 117 F.3d 785 (5* Cir. 1997). 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 It is apparent fron the record that petitioners instituted this proceeding in continuation of their refusál to acknowledge and satisfy their tax lobligatioùs. Such proceedings waste the Court's and respondent's limited resources, taking time away from taxpaýers with legitimate disputes . We accept Mr . Knipp' s acknowledgment that he will pay the frivolous return penalties at issue once he receives the relevant date of enactment . We therefore reluctantly will hot impose a section 6673 penalty at this time. We tak.e this opportunity, however, to admonish petitioners that the Court will consider imposing a substantial penalty if petitioners return to the Còurt and advance similar arguments in the future . [· To reflect the forègoing, decision will be entered for respondent and an appropriate order will be issued sustaining the determinations set forth in the two Notices of Determinhtion Concerning Collection Action (s) Under Section 6320 and/or 6330 upon which this case is based, regarding the unpaid liabilities for 2005. The order will also grant respondent's motion for suminary judgment, but will not impose penalties under section 6673. We deem petitioners' Motion to Strike 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 14 declaration of Mr. Simon withdrawn as reflected in. the transcript for these proceedings. THIS CONCLUDES THE COURT' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE . (Whereupon, at 9:02 a.m., the bench opinion in the above-entitled matteF was concluded. ) // // // // // // // // // // // // // // // // // // // Heritage Reportin Corporation (202) 628 4888