TAX COURT OPINION

Case: David R. & Morena I. Mills
Docket Number: 3441-08
Judge: Colvin
Opinion Type: bench
Filed: 04/15/2009
Pages: 10

UNITED STATES TAX COURT WASHINGTON, D.C . 2021 7 DAVID R . AND MORENA I . MILLS, Petitioners , v . Docket No . 3441-0 8 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 petitioners and to respondent a copy of the pages of the transcript of the trial-of the above case before Judge-Diane L . Kroupa at Los Angeles, California on March 5, 2009, containing her oral findings of fact and opinion rendered after the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be entered for respondent .- (Signed) Diane L . Kroupa Judg e Dated : Washington, D .C . April 15, 2009 SERVED Apr 15 2009 3 1 - Bench Opinion by Judge Diane L . Kroupa March 5, 200 9 2 MILLS v . COMMISSIONER Docket No . : 3441-0 8 3 The Court has decided to render oral findings of 4 fact and opinion in this case and the following represents 5 the Court's oral findings of fact and opinion . These oral 6 findings of fact and opinion shall not be relied upon a s 7 precedent in any other case . This bench opinion is made pursuant to th e 9 authority granted by section 7459(b) and Rule 152 . All 10 section references are to the Internal Revenue Code as 11 amended and in effect for 2004 and 2005, the years at issue, 12 and all Rule references are to the Tax Court Rules o f 13 Practice and Procedure . 14 This is a deficiency case in which petitioners 15 contest that amounts petitioner husband (who shall b e 16 referred to individually as petitioner in this bench 17 opinion) received for performing services for Keyes Acura, a 18 non-Federal entity, are-not "wages" as defined in the Code, 19 principles articulated by Peter Eric Hendrickson in his book 20 entitled " Cracking the Code : The Fascinating Truth abou t 21 Taxation in America . " 22 David Mills appeared on-petitioners' behalf, and 23 Ron Chun appeared on behalf of respondent . 24 FINDINGS OF FAC T 25 Some of the facts have been stipulated and are so Heritage Reporting Corporatio n (202) 628-4888 4 1 found . The stipulation of facts and accompanying exhibits 2 are incorporated by this reference . Petitioners resided in 3 California at the time they filed the petition . 4 Petitioner worked at Keyes Acura during each of 5 the years at issue . Each year petitioner earne d 6 approximately $80,000 at Keyes Acura and from whic h 7 petitioner's employer, Keyes Acura ; withheld Federal income 8 tax as required by law . Also required by law, petitioner's 9 employer issued petitioner a Form W-2 entitled "Wage and Ta x 10 Statement" reflecting that petitioner received approximately 11 $80,000 of wages, tips and other compensation during each of 12 the years at issue . 13 Petitioners filed an amended return, Form 1040X, 14 for each of the years at issue that eliminated the wages 15 previously reported as income on Forms 1040 and sought a 16 refund for all the Federal income taxes paid on those wages . 17 In addition, petitioners attached ,a Form 4852 entitle d 18 "Substitute, for Form W-2, Wage and Tax Statement ." 19 Petitioners prepared the substitute to report tha t 20 petitioner's employer paid him zero in wages while keeping 21 the withholding credits the same as reported on the Forms 22 W-2 prepared by Keyes Acura, petitioner's employer . 23 Petitioners signed these forms (Forms 1040X and 4852) under 24 penalties of perjury . 25 Petitioner seems to argue in a 2-page status Heritage Reporting Corporatio n (202) 628-4888 5 1 report presented at trial that he is not .a tax protestor . 2 He is only a concerned citizen that questions why the IRS 3 ignored petitioners' amended returns and therefore did not 4 make a valid assessment against petitioners for either o f 5 the years at issue . Petitioner was very careful at trial to 6 avoid answering direct questions from the Court . H e 7 cleverly responded that he did not know Peter Hendrickson 8 personally . The Court finds as a fact that petitioners are 9 followers of Mr . Hendrickson's Cracking the Code book in 10 which the author takes the position that "income" is no t 11 defined in the Code and that wages earned by non-Federal 12 employees are not subject to Federal income tax . 13 Petitioners timely filed a petition with thi s 14 Court asserting that they not only do not owe any taxes but 15 they are entitled to a refund of amounts collected . 16 Petitioners ignored the expenses respondent disallowed in 17 the deficiency notice preferring instead to contest the 18 broader issue that wages from a privately held company as 19 Keyes Acura are . not taxable . 20 Respondent warned petitioners' that their arguments 21 have been repeatedly rejected by the courts . The Court also 22 warned petitioner at calendar call and during the trial that 23 they were at risk that this Court might impose a penalty 24 under section 6673 up to $25,000 if they continued t o 25 maintain such arguments . The Court earlier warned petitioner Heritage Reporting Corporatio n (202) 628-4888 6 1 in a telephone conference call with the Court and 2 respondent's counsel that he needed to comply with the 3 Court's Rules and procedures, including the Court' s 4 discovery procedures . Petitioner failed to heed the Court's 5 warning and failed to comply with the Court's Rules . 6 Petitioner failed to provide the requested documentatio n 7 regarding expenses claimed on the originally filed returns 8 that respondent disallowed in the deficiency notice . 9 Instead, petitioner raised only arguments and positions this 10 and other 'courts have .found to be frivolous, such that wages 11 were not income . Respondent filed a motion for sanction s 12 for compliance with discovery that the Court granted . 13 Petitioners were precluded from introducing any testimony or 14 documents regarding the . interrogatories-or production o f 15 documents that petitioners failed to provide respondent 16 before trial . 17 After trial, petitioners submitted a document 18 styled as pretrial memorandum that the Court . filed a s 19 petitioners' brief as it came.in .after trial . Petitioners 20 explain in petitioners' brief how petitioner has long and 21 arduously studied the relevant statues .and law to insure 22 that income from a privately held company, Keyes Acura, is 23 not taxable under the Code . Petitioners also state in their 24 brief that petitioners filed the amended returns to correct 25 the incorrect amounts previously listed as income . Heritage Reporting Corporation (202) 628-4888 1 Petitioners asserted that the correct taxable income on the 2 amended returns was $15 for 2004 (consisting of onl y 3 interest because it was received from a Federal entity) and 4 zero for 2005 .. Petitioners' brief establishes tha t 5 petitioners filed amended returns to "zero out their 6 returns . " 7 OPINION 8 This is an example of taxpayers who instituted or 9 maintained this case as a protest against the Federal incom e 10 tax system . Petitioners do not want to be "members of the 11 herd" blindly following the "involuntary" nature of our tax 12 system . Petitioner begs for leniency that they are no t 13 well-versed in the law, yet he proclaims he is smarter than 14 the average person and has determined that he is a concerned 15 citizen, not-a tax protestor, that'questions why the IRS 16 ignored their amended returns seeking a-refund of all taxes 17 withheld . Petitioner responded that he did not know Peter 18 Hendrickson personally when asked specifically from the 19 Court . Petitioners are followers of the Cracking The Code ; 20 book, in which the author takes the position that "income" 21 is not-defined in the Code .and that wages earned by 22 non-Federal employees are not subject to Federal income tax . 23 Courts have found arguments frivolous when taxpayers argue 24 as did petitioners and other followers of Mr . Hendrickson's 25 Cracking the Code book, that wages are not income, e .g . Heritage Reporting Corporation (202) 628-4888 1 Tornichio v . United States , 263 F .Supp .2d 1090 (N .D . Ohi o 2 2002) : Petitioners' argument that withholding applies only 3 to government workers is also frivolous and false . See e .g . 4 United States v . Sullivan , 788 F .2d 813, 815 (1st Cir . 5 1986) . A Federal district court has also found Peter 6 Hendrickson, the author of the book, to be an employee 7 within the meaning of section 3401(-c) . United States v . 8 Hendrickson , 2007 WL 238501 (E .D . Mich .), 100 A .F .T .R .2d 9 2007-5395 . Petitioners are blindly following the work o f 10 Mr . Hendrickson even though his arguments have been soundly 11 rejected . United States v . Latham , 754 F .2d 747, 750 (7th 12 Cir . 1985) (court characterized argument that category o f 13 'employee' does not include privately employed wage earners 14 is a preposterous reading of the statute .") ; Abdo v . United 15 States , 234 F .Supp .2d 553, 563 (M .D .N .C . 2002), affd . 6 3 16 Fed . Appx . 163 (4th Cir . 2003) (court noted claim that wages 17 are not income "has been rejected .as_many times as it ha s 18 been asserted .") We therefore sustain respondent's 19 determination in the deficiency notice . 20 We now address whether it is appropriate to impose 21 a penalty against petitioners under section 6673, whic h 22 authorizes the Tax Court to require a taxpayer to pay to the 23 United States a penalty up to-$25,000 whenever it appear s 24 that proceedings have been instituted or maintained by the 25 taxpayer primarily for delay or that the taxpayer's position Heritage Reporting Corporatio n (202) 628-4888 a 9 1 in such proceedings is frivolous or groundless . 2 We note that the type of arguments petitioner s 3 raise have been deemed by this Court to be frivolous and/or 4 sanctionable under section 6673 . The Court warne d 5 petitioner during the telephone conference with respondent's 6 counsel on discovery matters, at calendar call and als o 7 during trial that they risked being subject to the penalt y if petitioners continued to raise only frivolous argument s 9 and waste the Court's and respondent's limited time and 10 resources . 11 The Court senses that petitioner husband seeks t o 12 "protect" his spouse from his ridiculous arguments or 13 "clarifications of the law ." This he cannot do . The 14 returns and amended returns for the years at issue are joint 15 returns and therefore petitioners have joint and several 16 liability . -Sec . 6013 . We only wish that petitioner would 17 have spared the Court from his arguments that he learned 18 only through his "long and arduous research of the relevant 19 law and statutes . " 20 Petitioners deserve a penalty under sectio n 21 6673(a)(1), and that penalty should be substantial, if it is 22 to have the desired deterrent effect . Cf . Talmage v . 23 Commissioner , T .C . Memo . 1996-114, affd . without published 24 opinion 101 F .3d 695 (4th Cir . 1996) . The purpose of section 25 6673 is to compel taxpayers to think and to conform their . Heritage Reporting Corporation (202) 628-4888 10 1 conduct to settled tax principles . Coleman v . Commissioner , 2 791 F .2d 68, 71 (7th Cir . 1986) . 3 In this proceeding now before the Court , 4 petitioners assert nothing but frivolous and groundless 5 arguments . It is apparent from the entire record that 6 petitioners instituted or maintained this proceedin g 7 primarily, if not exclusively, as a protest against the 8 Federal income tax system and their proceeding in this Court 9 is merely a continuation of petitioners' refusal t o 10 . acknowledge and satisfy their tax obligations . We ar e 11 convinced that no purpose would be served in repeating all 12 that has been said about their frivolous and misguided 13 arguments . 14 We .are also convinced that petitioners blindly 15 ignored the warnings this Court has given to taxpayers wh o 16 provide the type of arguments petitioners provided in this 17 case ; yet, petitioners persisted and wasted this Court' s 18 limited time and resources . We are mindful that respondent 19 declined to recommend the amount of the penalty to b e 20 imposed against petitioners . We are also mindful that 21 petitioners are-representing themselves and may not be 22 familiar with all the Court's Rules and procedures . Pro se 23 status, however, is not a license to litter the dockets of 24 the Federal courts with ridiculous allegations concerning 25 the Code . Parker v . Commissioner , 117 F .3d 785 (5th Cir . Heritage Reporting Corporatio n (202) 628-4888 1 1 1 1997 ) 2 We think that any amount less than $10,000 is too 3 small given the number of times this Court and other courts 4 have rejected the type of arguments . petitioners assert . 5 Petitioners cannot continue to blindly follow thes e 6 arguments without severe consequences . They must think and 7 conform their conduct to settled tax principles . W e 8 therefore shall require petitioners to pay a penalty o f 9 $20,00-0 pursuant to section 6673(a)(1) considering the two 10 years-at issue . In addition, we take this opportunity to . 11 admonish petitioners . that the Court will consider -imposing a 12 larger penalty if petitioners return to the Court an d 13 advance similar arguments in the future . 14 To reflect-the foregoing, decision will be entered 15 for respondent and an appropriate order will be issue d 16 imposing a $20,000 penalty against petitioners under sectio n 17 6673 .=' 18 This concludes the Court's oral findings of fact 19 and opinon in this case . 20 (Whereupon, at 1 :00 p .m ., the bench opinion in the 21 above-entitled matter was concluded . ) 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888