TAX COURT OPINION

Case: Daawud-El Waamiq-Ali
Docket Number: 24108-08
Judge: Vasquez
Opinion Type: memo
Filed: 04/21/2010
Pages: 11

T .C . Memo . 2010-86 UNITED STATES TAX COURT DAAWUD-EL WAAMIQ-ALI, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 24108-08 . Filed April 21, 2010 . Daawud-El Waamiq-Ali, pro se . James P .A . Caligure , for respondent . MEMORANDUM FINDINGS OF FACT AND OPINIO N VASQUEZ, Judge : For 2004 and 2005 respondent determined deficiencies in petitioner's Federal income taxes and additions to tax as follows : Year Deficiency Sec . 6651(a)(1) Sec . 6651( a)(2) Sec . 6654(a ) Additions t o Ta x 2004 $3,193 $718 .42 $606 .67 --- 2005 3,188 717 .30 414 .44 $127 .8 7 SERVED APR 212010 4 All section references are to the Internal Revenue Code (Code), and all Rule references are to the Tax Court Rules of Practice and Procedure . The issues for decision are whether petitioner is : (1) liable for the deficiencies in his Federal income taxes ; (2) liable for the additions to tax under sections 6651(a)(1) and (2) .and 6654(a) ; and (3) liable for a penalty pursuant to section 6673(a) . FINDINGS OF FAC T Some of the facts have been stipulated and are so/found . The stipulation of facts and the accompanying exhibits are incorporated by this reference . At the time the petition was filed, petitioner resided in New York . During 2004 petitioner worked for Barton Protective Services, Inc . (Barton), and Allied-Barton Security Services (Allied) and received wages of $20,171 and $11,716 from Barton . and Allied, respectively . In 2005 petitioner worked for Allied and received $31,893 in wages . Neither Barton nor Allied withheld any Federal income tax from petitioner's wages because he filed a Form W-4, Employee's Withholding Allowance Certificate, for both years claiming that he was exempt from Federal income tax withholding . Petitioner filed several documents with his employers claiming that his submission of Form W-4 was involuntary, he was exempt from withholding, and h e 11 11 4 - 3 - incurred no Federal income tax liability . Petitioner failed to file Federal income tax returns for 2004 and 2005 . Pursuant to section 6020(b), respondent filed substitutes for returns (SFR) for petitioner for 2004 and 2005 . For 2004 respondent determined that petitioner's filing status was single and that petitioner's taxable income was .$31,627 .' For 2005 respondent determined that petitioner's filing status was single and that petitioner''s taxable income was $31,893 . Petitioner stipulated that he received wages from Barton and Allied as determined by respondent . However, petitioner claims that he is not liable for tax on the amounts included in his gross income by respondent because : (1) Employers are liable for Federal income taxes°on employee wages ; (2) wages are not taxable income ; and (3) respondent does not have the authority to prepare SFRs . I . Deficiencies in Federal Income Ta x OPINION Section 61(a)(1) defines gross income as all income from whatever sources derived, including compensation for services . As a general rule, the taxpayer-bears the burden of provin g the Commissioner's deficiency determinations incorrect . Rul e 1 Respondent listed petitioner's wages on the 2004 SFR as $31,627, which is $260 less than the stipulated amount of $31,887 . This discrepancy has no effect on the outcome of this case . ii 11 11 4 - 142(a) ; Welch v . Helverina , 290 U .S . 111, 115 (1933) . Section 7491(a), however, provides that if the taxpayer introduces credible evidence and meets certain other prerequisites, the Commissioner shall . bear the burden of proof with respect to factual issues relating to the taxpayer's liability for a tax imposed under subtitle A or B of the Code . Petitioner does not dispute receiving the wages or respondent's calculation of tax . Rather, petitioner disagrees only with respondent's legal conclusions (i .e ., that petitioner's wages are taxable ; that petitioner, not his employer, .is liable for the income tax ; and that respondent has the authority to .prepare the SFRs) . Since the facts are undisputed and petitioner has failed to introduce credible evidence, section 7491(a) does not apply . See Davenport v . Commissioner , T .C . Memo . 2009-248 . In his petition, at trial, and on brief, petitioner advanced shopworn arguments characteristic of tax-protester rhetoric that have been universally rejected by this and other courts . See . Ledford v .. United States , 297 F .3d 1378, 1381 (Fed . Cir . 2002) ; United States v . Connor , 898 F .2d 942, 943 (3d Cir . 1990) ; Connor v . Commissioner , 770 F .2d 17, 19-20 (2d Cir . 1985) ; Sawukaytis v . Commissioner , T .C . Memo . 2002-156, affd . 102 Fed . Appx . 29 (6th Cir . 2004) . We shall not painstakingly address petitioner's, assertions "with somber reasoning and copious citation of precedent ; to do so might suggest that these arguments have som e colorable merit ." See Crain v . Commissioner , 737 F .2d 1417, 1417 (5th Cir . 1984) . Accordingly, we sustain respondent's deficiency determinations for 2004 and 2005 . II . Additions to Ta x Section 7491(c) provides that the Commissioner has the burden of production with respect to the liability of any individual for additions to tax . "The Commissioner's burden of production under section(cid:127)7491(c) is to produce evidence that it is appropriate to impose the relevant penalty, addition to tax ; or additional amount" . Swain v . Commissioner , 118 T .C . 3.58, 363 (2002) ; see also Higbee v . Commissioner , 116 T .C . 438, 446 (2001) . Once the Commissioner satisfies this burden o f production, the taxpayer must persuade the Court that the Commissioner's determination is in error by supplying sufficient evidence of an applicable exception . Higbee v . Commissioner , supra at 446 . I A . Section 6651(a)(1 ) Section 6651(a)(1) imposes an addition to tax for 'failure to file a return on the date prescribed (determined with regard to any extension of time for filing), unless such failure is due to reasonable cause and not due to willful neglect . ' 2 If the Secretary makes a return for the taxpayer under sec . 6020(b), it is disregarded for purposes of determining the amount of the addition to tax under sec . 6651(a)(1), but it is treated as a return filed by the taxpayer for purposes o f (continued'. . .) - 6 - Petitioner failed to file Federal income tax returns for 2004 and 2005 . Accordingly, we find that respondent has met his burden of production with regard to the additions to tax under section 6651(a)(1) . Petitioner has presented no evidence of a reasonable cause defense . Therefore, petitioner is liable for additions to tax under section 6651(a)(1) for 2004 and 2005 . B . Section 6651(a)(2 ) Section 6651(a)(2) provides for an addition to tax where 11 payment of the amount reported as tax on a return is not timely "unless it is shown that such failure is due to reasonable cause and not due to willful neglect" . With respect to the section 6651(a)(2) addition to tax, the Commissioner must introduce evidence that the tax was shown on a Federal income tax return to satisfy his burden of production under section 7491(c) . Cabirac v . Commissioner , 12'0 T .C . 163 (2003) . When a taxpayer has not filed a return, the section 6651(a)(2) addition to tax may not be imposed unless the Secretary has prepared a substitute for return (SFR) that meets the requirements of section 6020(b) . Wheeler v . Commissioner , 127 T .C . 200, 208-209 (2006), affd . 521 F .3d 1289 (10th Cir . 2008) . 2 ( . . . continued ) determining the amount of the addition to tax under sec . 6651(a)(2) . Sec . 6651(g) . Section 6020(b) provides : - 7 - SEC . 6020(b) . Execution of Return by Secretary .-- (1) Authority of Secretary to execute return .--If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor , or makes , willfully or otherwise, a false or fraudulent return , the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or *otherwise . (2) Status of returns .--Any return so made . and subscribed by the Secretary shall be prima facie good and sufficient .for all legal purposes . Respondent provided the Court with copies of the SFR .s prepared for' petitioner for 2004 or 2005 . . The SFRs satisfy the requirements of section 6020(b) . See Nino v . Commissioner , T .C . Memo . 2009-293 ; Carver v . Commissioner , T .C . Memo . 2009-279 ; Hawkins v . Commissioner , T .C . Memo . 2008-168 . Petitioner did not timely pay his 2004 or 2005 Federal income taxes as shown on the SFRs . Respondent has produced sufficient evidence that petitioner is liable for the section 6651(a)(2) addition to tax . Petitioner provided no evidence of a reasonable cause defense . Therefore, petitioner is liable for additions to tax under section 6651(a)(2) for 2004 and 2005 . ' C . Section 6654(a ) Section 6654(a) imposes an addition to tax "in the case of any underpayment of estimated tax by an individual" . A taxpayer has an obligation to pay estimated tax for a particular year only if he has a "required annual payment" for that year . Sec . 8 - d 6654(d) . A required annual payment generally is equal to the lesser of : (i) 90 percent of the tax shown on the return for . the taxable year (or, if no . return is filed, 90 percent of the tax forthe year) ; or (ii) 100 percent of the tax shown on the return of the individual for the preceding taxable year . Sec . 6654(d)(1)(B) ; Wheeler v . Commissioner , supra at 210-211 ; Heers v . Commissioner , T .C . Memo .'2007-10 . Clause (ii) does not apply, however, if the individual did not file a return for the preceding year . Sec . 6654(d)(1)(B) . Respondent's burden of production under section 7491(c) requires him to produce evidence that petitioner had a required annual payment for 2005 . Petitioner failed to file Federal income tax returns for 2004 and 2005 . Accordingly, his required annual payment was 90 percent of the tax for 2005 . Petitioner did not make any estimated income tax payments for 2005 . Therefore, respondent has produced sufficient evidence that petitioner is liable for the section 6654(a) addition to tax . None of the defenses enumerated in section 6654(e) apply . . Therefore, petitioner is liable for an addition to tax under section 6654(a) for 2005 . III . Section 6673(a)(1) Penalt y At the conclusion of the trial, respondent filed a motion for sanctions pursuant to section 6673 . Section 6673(a)(1) authorizes the Court to impose a penalty not to exceed $25,000 if the taxpayer took frivolous or groundless positions in the 9 - proceeding or instituted the proceeding primarily for delay . A taxpayer's position is "frivolous" if it is "contrary . t o I established law and unsupported by a reasoned, colorable argument for change in the law ." Coleman v . Commissioner , 791 F .2d 68, 71 (7th Cir . 1986) . In his petition petitioner claimed that his wages were not taxable because he was not engaged-in any "excise taxable activities ." During a face-to-face meeting, respondent warned petitioner that his argument was frivolous . Through written correspondence, respondent advised petitioner that his argument was frivolous and that he would seek sanctions under section 6673(a) if petitioner presented this argument to the Court . As a final attempt to discourage petitioner from making a frivolous argument at trial, respondent provided petitioner with a copy of this, Court's decision in Sawukaytis v . Commissioner , T .C . Memo . 2002-156 . 3 Undeterred, petitioner in his pretrial memorandum raised various issues, including whether subtitle C of the Code should be considered in .determining petitioner's tax liability . At trial petitioner argued that under subtitle C, employers rather than employees, are liable for Federal income taxes on employee wages . We warned petitioner that his arguments were frivolou s 3 In Sawukaytis v . Commissioner , T .C . Memo . 2002-156, the Court imposed a $12,500 penalty under sec . 6673(a) against the taxpayer for advancing the frivolous argument that the income tax is an excise tax and therefore his wages were not taxable income . A 10 - and have been universally rejected by this and other courts . further advised petitioner that the Court has the discretion to impose a penalty of up to $25,000 if he were to proceed with such arguments . Despite repeated warnings from respondent and this Court, petitioner advanced patently frivolous arguments at trial and in his postrial brief . In doing so, petitioner has wasted the limited time and resources of the Court . The Court of Appeals for the Second Circuit, the court to which this case would be appealable, has characterized petitioner's subtitle C argument as "baseless" . See Church v . Commissioner , 810 F .2d 19, 20 (2nd Cir . 1987) . Furthermore, the argument that wages are not taxable "has been rejected so frequently that the very raising of it justifies the imposition of sanctions ." Connor v . Commissioner , 770 F .2d at 20 . Accordingly, we are well within our discretion to impose a penalty under section 6673(a) . We are convinced, however, that petitioner's frivolous arguments were made at the suggestion of a,woefully misinformed adviser . In response to questions from the Court, petitioner was unable to articulate certain positions raised in his pretrial memorandum . This is the first time petitioner has engaged in conduct sanctionable under section 6673(a) . Therefore, we shall not impose a penalty under section 6673(a) . Though we'decline to impose a penalty at this time, we take this opportunity to warn petitioner that we will impose a section - 11 - 6673 penalty if he returns to the Court and proceeds in a similar manner in the future . See Pierson v . Commissioner , 115 T .C . 576 (2000) . In reaching our holdings, we have considered all arguments .made, and, to the extent not mentioned, we conclude that they are moot, irrelevant, or without merit . To reflect the foregoing, An appropriate order will be issued and decision will be entered for respondent .