TAX COURT OPINION

Case: Adolfo Sandor Montero
Docket Number: 23166-07L
Judge: Colvin
Opinion Type: bench
Filed: 10/28/2008
Pages: 16

UNITED STATES TAX COURT WASHINGTON, D .C . 2021 7 ADOLFO SANDOR MONTE O, Petitioner , V . COMMISSIONER OF INTERNAL REVENUE, Respondent . Docket No . 23166-07 L 0 R D E R Pursuant to Rul~ 152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Judge Diane L . Kroupa at San Antonio, Texas on October 15, 2008, containing her, oral findings of fact and opinion rendered after the conclusion of trial . In accordance w th the oral findings of fact and opinion, decision will be ent red for respondent . (Signed ) Diane L. Kroupa Judge Dated : Washington, I .C . October 28, 008 SERVED OCT 2 9 2008 3 1 Bench Opin4on by Judge Kroupa October 15, 200 8 2 Montero v . Commissioner Docket No . 23166-07 L 3 HE COURT : The Court has decided to render 4 oral findi gs of fact and opinion in this case, an d 5 the following represents the Court's oral findings of 6 fact and opinion . These oral findings of fact and 7 opinion sha l not be relied upon as precedent in any 8 other case . 9 TZis bench opinion is made pursuant to the 10 authority g -anted by § 7459(b) and Rule 152 . Al l 11 section ref rences are to the Internal Revenue Code as 12 amended and in effect for 2003 and 2004, the years at 13 issue,, and 11 rule references are to the Tax Cour t 14 Rules of Pr ctice and Procedure . 15 T is is a collection review case in which 16 Petitioner ontests that he is liable for a frivolous 17 return pena ty under § 6702 when he asserts he is not 18 an "employe " and did not receive "wages" as defined 19 in the Code, principles articulated by Pete r 20 Hendrickson in his book, Cracking the Code . 21 Ad lfo Montero appeared on his own behalf, 22 and Bruce Wi pon appeared on behalf of the Respondent . 23 - Fi dings of fact . Some of the facts have 24 been stipula ed and are so found . The stipulation of 25 facts and ac ompanying exhibits are incorporated by eritage Reporting Corporation (202) 628-4888 4 1 this refer nce . 2 etitioner resided in Texas at the time he 3 filed the etition . Petitioner worked at Del l 4 Products, .P ., otherwise known as Dell for purposes 5 of this be ch opinion, during each of the years a t 6 issue . Ea h year Petitioner earned more than $150,000 7 at Dell an from which Petitioner's employer, Dell , 8 withheld federal income tax as required by law . 9 Also required by law, Petitioner's employer 10 issued Peti ioner a Form W-2 entitled Wage and Ta x 11 Statement r flecting that Petitioner received more 12 than $150,0 0 of wages, tips and other compensatio n 13 during each of the years at issue . The federal income 14 taxes withh ld from Petitioner's wages each year were 15 sufficient o full pay any taxes due and create a n 16 overpayment which was refunded to Petitioner . 17 P titioner filed an amended return on Form 18 1040X for e ch of the years at issue that eliminated 19 the wages p eviously reported as income on Form 1040 20 and sought refund for all the federal income taxes 21 paid on those wages . 22 I addition, Petitioner attached a Form 4852 23 entitled Sub titute for Form W-2, Wage and Tax 24 Statement . etitioner prepared the substitute t o 25 report that etitioner's employer, Dell, paid him zero eritage Reporting Corporatio n (202) 628-4888 5 ile keeping the withholding credits the orted on the Forms W-2 that Dell, his repared . Petitioner signed these forms , and 4852, under penalties of perjury . etitioner asserts that the funds h e om Dell for his services are not "wages" a s § 3401(a) and 3121(a) in that private ings are not " wages" as so defined . 9 P titioner informed Respondent that he is a 10 follower of the book entitled Cracking the Code : The 11 Fascinating Truth About Taxation in America, by Peter 12 Eric Hendri kson, in which the author takes th e 13 position th t "income" is not defined in the Code and 14 that wages arned by non-federal employees are not 15 subject t o ederal income tax . 16 R spondent mailed a letter to Petitione r 17 informing him that the positions taken on the Forms 18 1040X and 4 52 for the years 2003 and 2004 wer e 19 frivolous a d had no basis in law . Petitioner was 20 given time to return a waiver of statutor y 21 notification and an acceptance of propose d 22 disallowance of claim for refund or credit . If h e 23 failed to return the forms, however, Respondent warned 24 Petitioner t at the frivolous return penalty woul d 25 apply . eritage Reporting Corporation (202) 628-4888 1 etitioner failed to return the forms 2 Accordingl Respondent assessed the frivolous retur n 3 penalties gainst Petitioner for each of the years a t 4 issue . Pe itioner failed to pay the frivolous return 5 penalties . Respondent sent Petitioner a Form 105 8 6 entitled N tice of Intent to Levy seeking to collec t 7 the frivol us return penalties assessed against 8 Petitione r for each of the years . 9 P titioner timely filed a request for a 10 hearing . A the hearing, Petitioner only conteste d 11 the frivolo s return penalties . Petitioner did not 12 address col ection alternatives . Petitioner was 13 unable to a dress collection alternatives becaus e 14 Petitioner d not filed federal income tax return s 15 for 2005 o r 2006 . 16 Respondent issued Petitioner a Notice .o f n Concerning Collection Action(s) Under and/or 6330 dated September 11, 2007 (th e determinati n notice) . The appeals officer determine d in the dete mination notice that Petitioner's Forms 1040X and 4 8 52 were frivolous and that the assessment of the friv lous return penalties was appropriate . The appeal s fficer also determined in th e determinati o notice that the levy was the appropriat e eritage Reporting Corporation (202) 628-4888 7 1 etitioner timely filed a petition with this 2 Court asse ting that he not only does not owe any 3 taxes, but he is entitled to a refund of amount s 4 collected . 5 1 espondent warned Petitioner that his 6 arguments, including those based upon Mr . 7 Hendrickso 's arguments, have been repeatedly rejected 8 by the Cou ts . The Court also warned Petitioner a t 9 calendar call and during the trial that he was at risk 10 that this C urt might impose a penalty under § 6673 up 11 to $25,000 f he continued to maintain such frivolous 12 arguments . 13 P titioner questions whether this . Court has 14 jurisdictio to hear this case, determine whether he 15 is liable f r the frivolous return penalty and whether 16 Respondent ay proceed with the proposed levy action 17 to collect he frivolous return penalties for each of . 18 the years a issue . We address each issue in turn . 19 O inion . We begin with whether we hav e 20 jurisdictio to review the imposition of the frivolous 21 return penalties against Petitioner for each of th e 22 years at iss e . 23 This Court lacked jurisdiction over § 6702 24 frivolous re urn penalties before amendments made to 25 § 6330 gave he Tax Court exclusive jurisdiction in eritage Reporting Corporation (202) 628-4888 1 all collection review matters regardless of the typ e 8 of underlying tax involved . Perkins v . Commissioner , 103 , 3 129 T .C . 5 , n .7 (2007) ; Pension Protection Act of 4 2006, Pub . L . 109-280, Sec . 855(b), 120 Stat . 1019 . 5 This amend ent is effective for determinations made 6 after Octo er 16, 2006 . Id . 7 ere, the determination notice was issued o n 8 September 31, 2007, which is after the effective date . 9 We therefore have jurisdiction to decide this case . 10 Callahan v . Commissioner, 130 T .C . 44, 48 (2008) 11 (citing cas s where we lacked jurisdiction ove r 12 frivolous r turn penalties before the amendment mad e 13 in 2006 ) 14 S andard of review . The Tax Court will 15 review the Latter on a de novo basis where, as here, 16 the validit of the underlying tax liability i s 17 properly at issue . Sego v . Commissioner , 114 T .C . 18 604, 610 (2000) . We therefore must determine whether 19 Petitioner 's liable for the frivolous return penalt y 20 under § 67 0 2 1 r this purpose, a $500 civil penalty may 22 be assessed against a taxpayer under § 6702 if thre e 23 requirement s are met . Different rules apply for 24 frivolous po itions taken after March 15, 2007, base d 25 upon amendme eritage Reporting Corporation (202) 628-4888 9 1 Health Car Act of 2006, Pub . L . 109-432, Div . A, Sec . 2 407(a), 1 2 Stat . 2960 . 3 irst, the taxpayer must file a documen t 4 that purpo is to be an income tax return . Sec . 5 6702(a)(1 ) . 6 7 8 9 1 0 11 1 2 1 3 1 4 15 1 6 17 lecond, the purported return must lack th e informatio needed to judge the substantial correctness of the self-assessment or contain information indicating the self-assessment is substantial y incorrect . Id . T ird, the taxpayer's position on the return must be fri olous or demonstrate a desire (whic h appears on he purported return) to delay or impede the adminis ration of federal income tax laws . Sec . 6702(a)(2) . W generally look to the face of the document s U determine whether a taxpayer is liabl e 18 for a frivo ous return penalty as a matter of law . 19 Yuen v . Uni ed States ,. 290 F . Supp . 2d 1220, 1224 (D . 20 Nev . 2003) . 21 P titioner's Forms 1040X are income tax 22 returns . Petitioner's returns are substantiall y 23- incorrect if they are based on a frivolous position or 24 reflect a de ire to delay or impede the administration 25 of the feder 1 income tax laws . eritage Reporting Corporation (202) 628-4888 1 0 1 he frivolous return penalty has bee n 2 imposed upon taxpayers who have taken one or more of a 3 variety of positions . For example, the frivolou s 4 return pen ity has been imposed on taxpayers wh o 5 argue, as id Petitioner and other followers of Mr . 6 Hendrickso 's Cracking the Code book, that wages are 7 not income, e .g . Tornichio v . United States , 263 F . 8 Supp . 2d 1090 (N .D . Ohio 2002) . 9 etitioner argues that his income is no t 10 taxable because he is not an employee of Dell, and he 11 did not ea wages as defined by the Code . 12 Petitioner's argument that withholding applies only to 13 government orkers is frivolous and false . See e .g . 14 United Stat s v . Sullivan, 788 F .2d 813, 815 (1st Cir . 15 1986) . 16 C urts consistently have upheld tha t 17 taxpayers i'ke Hendrickson, the author of the book, 18 was an empi yee within the meaning of § 3401 . United 19 States v . Hendrickson, 2007 WL 238501 (E .D . Mich), 100 20 A .F .T .R .2d 007-5395 . 21 M re specifically with respect t o 22 Petitioner' argument gained from Mr . Hendrickson in 23 his book, w find, as do other Courts, where taxpayer s 24 like Petitioner argue that earnings are not taxable, 25 he is not a employee of Dell and that he did not ear n Heritage Reporting Corporation (202) 628-4888 1 1 11 frivolous and false . United States v . F .2d 747, 750 (7th Cir . 1985) (Cour t d argument that category of employee does privately employed wage earners is a s reading of the statute) ; do v . United States , 234 F . Supp . 2d 553 , 7 563 (M .D .N . C . 2002 ) affd . 63 Fed . App . 163 (4th Cir . 8 2003) (Cou t noted claim that wages are not incom e 9 "has bee n ected as many times as it has bee n 10 asserted ." ) therefore find that Petitioner is liable olous return penalty for each of the year s 1 4 now give an overview of collectio n 15 proceedings If any person liable for federal tax 16 liability n glects or refuses to make payment within, 17 10 days of otice and demand, the Commissioner i s 18 authorized o collect the tax by levy on that person's 19 property . ee § 6331(a ) 20 A least 30 days before enforcing collection 21 by levy o n he person's property, the Secretary is 22 obliged to rovide the person with a final notice o f 23 intent t o vy, including notice of the administrative 24 appeals av a lable to the person . See § 6331(d) . 25 e person is entitled, upon request, to a n eritage Reporting Corporation (202) 628-4888 1 2 1 administrative review hearing before Appeals . Sec . 2 6330(b)(1) If the taxpayer requests a hearing, he or 3 she may raise at that hearing any relevant issue s 4 relating t the unpaid tax or the proposed levy . Sec . 5 6330(c)(2 ) 6 7 8 9 1 0 1 1 12 1 3 1 4 1 5 16 1elevant issues include any appropriat e spousal de enses, challenges to the appropriateness of collection and possible alternative means o f collection such as an installment agreement or an offer 'in c mpromise . Sec . 6330(c) (2) (A) . he existence and amount of the underlying tax liabili ty can be contested only if the person did not receive a notice of deficiency for the taxes in question or did not otherwise have an opportunity to dispute the tax liability . See § 6330(c)(2)(B), Sego v . Commiss i , ner , supra at 609 ; Goza v . Commissioner , 17 114 T .C . 17~, 181 (200) . 18 A ter the hearing, the appeals officer is 19 required to make a determination that addresses issue s 20 the taxpayer raised, verifies that all requirements of 21 applicable law and administrative procedures have been 22 met and balances the need for the efficient collection 23 of taxes with the legitimate concern of the person 24 that any collection action be no more intrusive than 25 necessary . Sec . 6330 (c) (3) (C) . Heritage Reporting Corporation (202) 628-4888 13 1 he record demonstrates that the Appeal s 2 Office pro erly verified that all applicable laws and 3 administra ive procedures were followed in thi s 4 collection review matter . The appeals office r 5 confirmed, using a transcript of Petitioner's account, 6 that asses ments were properly made for each of th e 7 years at issue, that appropriate'and timely notices 8 were sent regarding the assessments and tha t 9 Petitioner was properly informed of his rights with 10 respect to the proposed collection action . 11 he appeals officer also explained tha t 12 Petitioner's arguments that he did not receive wages 13 were frivolous . Thus, the appeals officer addressed 14 the sole issue Petitioner raised . 15 Finally, the record reflects that the 16 appeals officer properly balanced the need for 17 efficient collection of taxes with Petitioner's 18 legitimate concern that any collection be no more 19 intrusive than necessary . 20 Petitioner has not raised any challenges to 21 the appropriateness of collection, did not assert any 22 spousal def nses or otherwise offer any collection 23 alternative . See § 6330(c)(2) . Accordingly, these 24 issues are ow deemed conceded . Rule 331(b)(4) . 25 P titioner has not presented any Heritage Reporting Corporation (202) 628-4888 0 1 4 1 nonfrivolo s arguments . We therefore uphold th e 2' collection action regarding the outstanding frivolous 3 return penalties for each year at issue . 4 e now address whether it is appropriate to 5 impose a penalty against Petitioner under § 6673 , 6 which authorizes the Tax Court to require a taxpayer 7 to pay to he United States a penalty up to $25,000 8 whenever appears that the proceedings have bee n 9 instituted or maintained by the taxpayer primarily for 10 delay-or that the taxpayer's position in suc h 11 proceeding is frivolous or groundless . 12 ee Scruggs v . Commissioner , T .C . Memo 13 1995-355, ffd . without published opinion, 117 F .3d 14 1433 (11th Cir . 1997) ; Zyglis v . Commissioner , T .C . 15 Memo, 1993 341, affd . without published opinion, 29 16 F .3d 620 (2nd Cir . 1994) . 17 e note that the type of argument s 18 Petitioner raises have been deemed by this Court to be 19 frivolous nd/or sanctionable under § 6673 . The Court 20 is aware that Petitioner has pursued the same 21 frivolous argument in this case as he does for 2005 22 and 2006 . pparently, .Respondent asserting th e 23 frivolous return penalty under § 6702 agains t 24 Petitioner as not deterred Petitioner from wasting 25 the Court's and Respondent's limited time and Heritage Reporting Corporatio n (202) 628-4888 1 5 2 Jetitioner deserves a penalty unde r 4 if it is t have the desired deterrent effect . Cf . 5 Talma e v . Commissioner, T .C . Memo 1996-114, affd . 6 without published opinion, 101 F .3d 695 (4th .Cir . 7 1996) . 8 e purpose of § 6673 is to compel taxpayers 9 to think an to conform their conduct to settled tax 10 principles . Coleman v . Commissioner , 791 F .2d 68, 7 1 11 (7th Cir . 1 86) 1 2 this proceeding now before the Court , 13 Petitioner sserts nothing but frivolous and 14 groundles s rguments . It is apparent from the entire 15 record tha t Petitioner instituted or maintained this 16 proceeding rimarily, if not exclusively, as a protest 17 against the federal income tax system, and hi s 18 proceedin g n this Court is merely a continuation of 19 Petitioner's refusal to acknowledge and satisfy hi s 20 tax obligat i ns . 21 We are convinced that no purpose would be 22 served in r e eating all that has been said about hi s 23 - frivolous an t misguided arguments . We are als o 24 convinced t h t Petitioner is aware of the warning s 25 this Court h s given to taxpayers who provide the typ e eritage Reporting Corporation (202) 628-4888 0 It. 1 6 1 of arguments Petitioner provided in this case, ye t 2 Petitioner persisted and wasted this Court's limited 3 time and resources . 4 e are mindful that Respondent recommended 5 that we im ose a penalty of $400 per hour times the 25 6 hours Respondent has spent dealing with this matter . 7 That would make the penalty $10,000 . 8 e think that amount is too small given the 9 number of cars Petitioner has made these arguments 10 and the wa es he has earned during this period o f 11 time . We therefore shall require Petitioner to pay a 12 penalty of $20,000 pursuant to § 6673(a)(1) . 13 I addition, we take this opportunity to 14 admonish Petitioner that the Court will conside r 15 imposing a larger penalty if Petitioner returns to the 16 Court and a vances similar arguments in the future . 17 T reflect the foregoing, decision will be 18 entered for Respondent and an appropriate order will 19 be issued sustaining the collection action in th e 20 Notice of Determination Concerning Collection 21 Action(s) Under Section 6320 and/or 6330 date d 22 September 1 , 2007, upon which this case is based, as 23 to theyearcs, 2003 and 2004 and imposing a-$20,00 0 24 penalty against Petitioner under § 6673 . 25 This concludes the Court's oral findings of eritage Reporting Corporatio n (202) 628-4888 1 2 3 4 5 6 7 8 9 10 1 1 1 2 13 14 1 5 1 6 1 7 18 . 1 9 20 2 1 22 23 24 25 fact and o inion in th is case . Whereupon , at 1 :40 p .m . the bench opinion in the abo e-entitled matter was concluded . ) 1 7 / / / / / / / / / / / / / / / / eritage Reporting Corporation 1 (202) 628-4888