TAX COURT OPINION

Case: David Michael Leugers
Docket Number: 6354-09S
Judge: Colvin
Opinion Type: bench
Filed: 06/08/2010
Pages: 12

5 ~. S, Cam' UNITED STATES TAX COURT WASHINGTON , DC 2021 7 DAVID MICHAEL LEUGERS, Petitione r v . ) Docket No . 6354-095 . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule 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 in the above case before Judge Joseph Robert Goeke at Cincinnati, Ohio, on May 25, 2010, containing . his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed) Joseph Robert Goeke Judg e Dated : Washington, D .C . June 8, 2010 SEft b JUN 9 2010 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 Joseph Robert Goek e Leugers v . Commissioner Docket Number : 6354-09 S March 25, 201 0 THE CLERK : All rise . THE COURT : The Court has decided to rende r oral findings of fact and opinion in this case, an d the following represents the Court ' s oral findings o f fact and opinion . The oral findings of fact an d opinion shall not be relied upon as precedent in an y other case . This case was heard pursuant to th e provisions of Section 7463 of the Internal Revenu e Code in effect at the time the petition was filed . Pursuant to Section 7463(b), the decision to b e entered is not reviewable by any other Court . Section references hereafter are to th e Internal Revenue Code in effect during the years a t issue in this case ; and Rule references are to the Ta x Court Rules of Practice and Procedure . This opinio n is rendered pursuant to Section 7459 (b) and Rule 152 . This case comes to the Court pursuant to th e Court's deficiency jurisdiction . Respondent issue d two Notices of Deficiency to the Petitioner, one date d December 31, 2008, and the other, dated January 5 , 2009 . The Petitioner filed a timely ; Heritage Reporting Corporation (202) 628-4888 4 1 petition of these two Notices of Deficiency on Marc h 2 10, 2009 . 3 Respondent ' s Notices of Deficiency determine 4 deficiencies in income tax . The Notice of . Deficiency 5 issued on December 31, 2008, relates to the taxabl e 6 year 2005 , and determines a deficiency in tax o f 7 $14,487, and penalties under I .R .C . Section 6654 in 8 the amount of $581 .10, Section 6651(f) in the amount 9 of $10,503 . 08,, Section 6651 ( a)(2) in the amount o f 10 $2,100 .62 . The Notice of Deficiency issued on January 11 5, 2009, simply determines a deficiency in income tax 12 for the taxable year 2006 in the amount of $ 4,028 , 13 with no additions to tax . All of these amounts are in 14 dispute in the case . 15 The burden of proof regarding the income tax 16 deficiencies in this tax is on the Petitioner unde r 17 Rule 142(a) . The burden of proof regarding the fraud 18 penalty for 2005 and the burden of productio n 19 regarding the other additions to tax is on Respondent 20 under Section 7491 ( c), but the case is not decided on 21 the basis of the burden of proof or production ; 22 rather , the preponderance of the evidence, and clear 23 and convincing evidence relevant to fraud, is th e 24 basis of our factual findings because the record is 25 sufficient to establish --the-receipt--of the income i n Heritage Reporting Corporation (202) 628-4888 5 1 question and the fraudulent failure to file an income 2 tax return for 2005 and Respondent has met the burden 3 of production with respect to the additions to tax . 4 We will begin with a brief summary of the 5 facts of the case . During the years 2005 and 2006 , 6 the Petitioner was employed by ASTAR Air Cargo, Inc ., 7 which is the successor company to DHL . Petitioner was 8 an aircraft mechanic at the Greater Cincinnat i 9 International Airport, which is located in Northern 10 Kentucky . 11 Petitioner received forms W-2 from his 12 employer reflecting amounts of income and th e 13 withholding of Social Security tax and Medicare tax . 14 Petitioner ' s efforts to avoid the withholding o f 15 federal income tax from his employer -- by hi s 16 employer from his wages have been successful and no 17 federal income tax was withheld from his wages during 18 the years 2005 to 2006 . Petitioner does not dispute 19 his receipt of wages in those two years, and the 20 record establishes that he received wages in the 21 amount of $78,286 in 2005, and $29 , 224 in 2006 . 22 The Petitioner submitted Forms 1040 for both A 23 years 2005 and 2006 . For the year 2005, Responden t 24 determined that the form submitted by the Petitioner 25 was not a federal income tax return . Petitioner did Heritage Reporting Corporation (202) 628-4888 6 1 not attach Forms W-2 to either of his 2005 or 2006 2 income tax returns, despite the fact .that he wa s 3 issued those forms by his employer . Instead, h e 4 attached a Form 4852 Substitute for . Form W-2 Wage an d 5 Tax Statement, or Form 1099-R, Distributions from 6 Pensions, Annuities, Retirement, or Profit Sharin g 7 Plans, IRAs, Insurance Contracts, et cetera, to,eac h return . In lieu of reporting anywages .from hi s 10 employer in 2005 or 2006, on the Forms 4852 or on the 11 Forms 1040, the Petitioner listed zero as his wages, 12 tips, and other compensation . He listed federa l 13 income tax withholding on both of these returns, but 14 the amounts he listed were not actually federal income 15 tax withholding, They were, rather, the amounts o f 16 Social Security and Medicare wages that had been 17 withheld from his wages . 18 Respondent treated the 2005 return as a 19 frivolous return and asserted a-frivolous return 20 penalty in the-amount of $50 0 , which was assessed in 21 April 2008, pursuant to Section 6702(a) . 22 In the Notice of Deficiency, whic h 23 Respondent issued to Petitioner .for the year 2005, 24 Respondent allowed a $5,000 standard deduction,- a 25 $3,200 exemption, and determined that Petitioner wa s Heritage, Reporting Corporation (202) 628-4888 7 1 married during the years 2005 to 2006 by his own 2 admission, should be treated as a taxpayer filing a AND 3 married return as a separate taxpayer, not a join t taxpayer . 5 For 2006, in the Notice of Deficiency , 6 Respondent treated the return filed by the Petitione r as a valid return, but obviously, determined that the Petitioner was liable for the amount of unreporte d 9 wages he had received from his employer in the amount 10 of $29,224, and Respondent reversed the claim of 11 income tax withholding in the amount of $2,235 and 12 computed a deficiency based upon those adjustments . 13 The first question we deal with is, as a 14 legal matter, is Petitioner's basic argument that his 15 wages are not subject to federal income taxl(cid:127) He made 16 these arguments both in his petition and in a Motion . 17 for Summary Judgment which was denied prior to trial . 18 Petitioner asserts that there are n o 19 applicable Federal Regulations in the Code of Federal 20 Regulations which create "a duty or obligation upon me 21 to pay federal income taxes on the compensation I 22 received from a private sector company in exchange for 23 my labor . " 24 We find that Petitioner's position . in this 25 regard is completely frivolous . Petitioner picks an d Heritage Reporting Corporation (202) 628-4888 8 1 chooses the regulations upon which he relies and 2 ignores both the Internal Revenue Code provision s 3 itself and other specific regulations which make clear 4 that the wages he received are included in gros s 5 income . Petitioner specifically ignores Section 6 6051(a)(1) and Treasury Regulation Section 1 .61-2, 7 which is contained in 26 C .F .R . 8 We find it unnecessary to cite furthe r 9 authorities in support of our determination that the 10 amounts Petitioner received from his employer ar e 11 wages which are subject to federal income tax, as 12 Petitioner's arguments are akin to many frivolous 13 arguments which have been long-rejected by all the 14 Federal Courts of this country . 15 The other significant issues . to b e 16 determined are the application of the additions to tax 17 for 2005 . The application of the addition to tax 18 under Section 6654 relates to the . underpayment of 19 estimated taxes, and there's no question tha t 20 Petitioner failed to make estimated tax payments and 21 caused his income from his employer to not be subject 22 to federal income tax withholding . 23 So, given his admission that he took the 24 same position in 2004, there is no question that he is 25 subject to the addition to tax under Section 6654 an d Heritage Reporting Corporation (202) 628-4888 9 1 we sustain that addition to tax . 2 The failure to pay penalty under Section 3 6651 ( a)(2) is also applicable for the year 2005 . 4 Petitioner makes no argument that he paid federal 5 income tax , rather, he simply mischaracterizes his 6 payments of Social Security and Medicare taxes as 7 federal income tax withholding . Given thi s 8 determination , we find that the addition to tax under 9 Section 6651 ( a)(2) is applicable . 10 The most complex issue in this case is the 11 application of Section 6651 ( f), which provides for a 12 penalty increasing every month associated with a 13 return for which there was a fraudulent failure t o 14 file an income tax return . The maximum penalty is 75% 15 of the tax which is required to be reported on th e 16 return which was not filed . 17 In this case, we first must determine 18 whether the 1040 Petitioner filed was, in fact, a 19 federal income tax return . Respondent argues in the 20 alternative , that if we find that this document was a 21 federal income tax return,, that the fraud penalt y 22 associated with a filed federal income tax return 23 should be applicable i'n .lieu of the fraud penalty for 24 failure to file a federal income tax return . 25 The question , whether a return showing zer o Heritage Reporting Corporation (202) 628-4888 1 0 1 income on the basis of specious arguments that wages 2 are not income should be treated as a proper federal 3 income tax return is not a novel one . The law i s 4 well-established that there are certain criteria which 5 are required to have a valid federal income ta x 6 return . A leading case in this area is Beard, B-e-a- 7 r-d, v . Commissioner , 82 TC 766 ( 1984 ), affirmed per 8 curiam 793 F 2d 139 ( 6th Cir ., 1986 ) . The criteri a 9 set forth in Beard include the requirement that there 10 must be sufficient data to calculate a tax liability 11 reflected on a return and that there must be an honest 12 and reasonable attempt to satisfy the requirements of 13 the tax law . 14 In the present situation , we find the Form 15 1040 submitted by the Petitioner for 2005 toe fails e C 16 these two requirements , and therefore , we uphol d 17 Respondent ' s determination that the 2005 1040 should 18 not be treated as a federal income tax return, . and I 19 therefore , it's appropriate for us to examine whether 20 the Petitioner ' s situation merits the application of 21 the addition to tax for fraudulent failure to file a 22 return . 23 In a situation like the present case, where 24 the taxpayer makes arguments as to why his wage s 25 should not be deemed to be income , there are several Heritage Reporting Corporation (202) 628-4888 1 1 1 significant precedents about the analysis of the 2 taxpayer ' s arguments in determining whether a penalty 3 for fraud should follow . 4 A leading case in the Tax Court is 5 Niedringhaus , N-i-e-d - r-i-n-g-h - a-u-s, v . 6 Commissioner , 99 TC 2002 ( 1992 ) . The Court i n 7 Niedringhaus framed the question whether an assertion 8 that amounts are not taxable as a contrast between a 9 good faith misunderstanding of the law and a goo d 10 faith belief that the law is invalid , or an argument 11 that the taxpayer ' s analysis of the law should usurp 12 the analysis of the Court ' s and the Internal Revenue 13 Service . 14 In Niedringhaus, we quoted the Supreme Court 15 case of United States v . -- strike that , of Cheek v . 16 United States, 498 US 192, 205 - 206 (1991 ) . In Cheek, 17 the Supreme Court addressed the taxpayer ' s arguments 18 that the Tax Code was unconstitutional , and th e 19 Supreme Court specifically found that such arguments 20 were not a defense to willfulness , which triggered the 21 application of criminal fraud . In Niedringhaus, we 22 analogized that analysis to the determination of civil 23 fraud, which is what we have in the present case . The 24 Supreme Court specifically found that willfulness is 25 not avoided by legal arguments that "do not arise from Heritage Reporting Corporation (202) 628-4888 1 2 1 innocent mistakes caused by the complexity of the 2 Internal Revenue Code ." (498 US at 205) . 3 We find this quotation and the analysis of 4 Niedringhaus to be especially apt in the present case . 5 The Petitioner's arguments and his continue d 6 assertions that he had researched this question do not 7 establish a lack of willfulness to avoid the paymen t 8 of federal income taxes . 9 We find interesting in this regard , 10 Petitioner's specific mischaracterization of th e 11 amount withheld by his employer as federal income tax 12 withholding when he very well knew these amounts were 13 for Social Security and Medicare withholding . These 14 actions, we believe, indicate a lack of good faith and 15 an effort upon the Petitioner's part to obtain refunds 16 for federal tax withholding which, in fact, he did not 17 make . 18 This, in conjunction with the obviou s 19 frivolous nature of his arguments lead us to believe 20 that Respondent has carried the burden of proof with 21 respect to the fraudulent failure to file income tax 22 returns for 2005, and therefore, we sustain that 23 determination . In all other respects, for the reasons 24 described herein, we also sustain Respondent' s 25 determinations in this case . Heritage Reporting Corporation (202) 628-4888 d 13 1 This concludes the Court's oral findings of 2 fact and opinion in this case . We can go off the 3 record . 4 (Whereupon , at 2 :58 p . m ., the bench opinion 5 in the above-entitled matter was closed . ) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888