Court Opinion

ID: 9352057
Source: CourtListenerOpinion
Date Created: 2023-01-04 20:01:02.673079+00
Date Added: 2024-06-11T16:57:51.163701
License: Public Domain

United States Tax Court

                                T.C. Memo. 2023-1

                          RYAN CHARLES MINNIG,
                                Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 4989-20.                                         Filed January 4, 2023.

                                     —————

Ryan Charles Minnig, pro se.

Jeri L. Acromite and Matthew A. Houtsma, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       MARSHALL, Judge: In a notice of deficiency dated December 18,
2019, respondent determined a deficiency of $23,075 and a section
6662(a) accuracy-related penalty of $4,615 for the 2016 tax year. 1 On
March 13, 2020, petitioner timely filed a Petition disputing the notice of
deficiency. At trial, respondent made an oral Motion requesting that we
impose a section 6673 penalty against petitioner for making frivolous
arguments.

     The issues for decision are whether petitioner (1) underreported
income of $116,000 for the 2016 tax year, (2) is liable for a section

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
All monetary amounts are rounded to the nearest dollar.

                                 Served 01/04/23
                                          2

[*2] 6662(a) accuracy-related penalty, and (3) is liable for a section 6673
penalty for making frivolous arguments.

                              FINDINGS OF FACT

       Some of the facts have been stipulated and are so found. The
stipulation of facts and the accompanying exhibits are incorporated
herein by this reference. Petitioner resided in Colorado when he filed
his Petition.

       During 2016, petitioner was employed by Tasco, Inc. (Tasco), and
it issued him Form W–2, Wage and Tax Statement, reporting wages of
$116,000, no federal income tax withheld, Social Security tax withheld
of $7,192, and Medicare tax withheld of $1,682 for the 2016 tax year.
Petitioner sent to the Internal Revenue Service a signed Form 1040,
U.S. Individual Income Tax Return, for the 2016 tax year dated
September 15, 2017. On the return, petitioner reported zero income and
federal income tax withheld of $8,797, and claimed a refund of that
amount. Petitioner attached to his return Form 4852, Substitute for
Form W–2, Wage and Tax Statement, or Form 1099–R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc. On that form, petitioner stated that the
“[r]ecords provided by company on line 5 ‘wage’ classification were
erroneous per IRC Section 3121 & 3401.”

         During the course of this case petitioner asserted several
arguments that have routinely been discredited as frivolous in this and
other courts, such as (1) the notice of deficiency is invalid because the
signer of the notice lacked proper delegated authority to sign and issue
it; 2 (2) respondent has no proof that petitioner received wages and

         2 Petitioner primarily pursued this argument in his Motion to Dismiss for Lack

of Jurisdiction filed June 1, 2021. The Court of Appeals for the Tenth Circuit has
identified this argument as frivolous. See Lonsdale v. United States, 919 F.2d 1440,
1448 (10th Cir. 1990) (“To this short list of rejected tax protester arguments we now
add as equally meritless the additional arguments made herein that (1) the
Commissioner of Internal Revenue and employees of the Internal Revenue Service
have no power or authority to administer the Internal Revenue laws . . . because of
invalid or nonexistent delegations of authority . . . .”); see also, e.g., Palmer v.
Commissioner, 488 F. App’x 278, 279–80 (10th Cir. 2012). This Court and others have
done the same. Harriss v. Commissioner, T.C. Memo. 2021-31, at *14–15 (collecting
cases where “courts have consistently rejected, in a variety of contexts, challenges to
delegated authority to sign and issue notices of deficiency”). We denied this Motion on
June 29, 2021.
                                          3

[*3] reliance on a Form W–2 is hearsay; 3 and (3) the wages listed on the
Form W–2 issued by Tasco do not meet the definition of wages under
sections 3121 and 3401.

       This is not the first time that petitioner has made frivolous
arguments in this Court. In his deficiency proceeding for the 2014 tax
year, this Court issued a bench opinion sustaining a deficiency of
$17,493 and a section 6651(a)(1) addition to tax of $1,574. Minnig v.
Commissioner, T.C. Dkt. No. 22864-18 (Mar. 9, 2020) (bench opinion).
The facts of this case are similar to those of petitioner’s previous case:
(1) petitioner’s employer issued a Form W–2 reporting wages for the
year at issue; (2) petitioner submitted a Form 1040 reporting zero
income; and (3) during the course of the case, petitioner asserted
substantially similar, frivolous arguments. Id.

        At the trial of this case, we warned petitioner against making
further frivolous arguments. Although petitioner did not abandon his
frivolous arguments, he was cooperative at trial and worked
collaboratively with respondent’s counsel in the stipulation process. He
stated: “I certainly don’t want to make any other frivolous points as
they’re called, but I’m just trying to do what I think is right and not sort
of ruffle any feathers.”

                                    OPINION

I.     Burden of Proof

      In general, the Commissioner’s determination of a deficiency is
presumed correct, and the taxpayer has the burden of proving
otherwise. 4 See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). In unreported income cases, however, the Tenth Circuit requires
the Commissioner to establish “[s]ome reasonable foundation for the

       3  Petitioner pursued this hearsay argument in a Motion in Limine filed June 1,
2021, which we denied as moot on June 29, 2021. This argument has also been rejected
as frivolous. See Hendrickson v. Commissioner, T.C. Memo. 2019-10, at *19, aff’d per
order, No. 19-2139, 2020 U.S. App. LEXIS 10543 (6th Cir. Apr. 2, 2020).
        4 Under section 7491(a), the burden of proof may shift to the Commissioner as

to certain factual issues relevant to a taxpayer’s tax liability if the taxpayer meets
certain conditions. See Higbee v. Commissioner, 116 T.C. 438, 440–43 (2001).
Petitioner does not contend that the burden of proof should shift to respondent under
section 7491(a), nor has he established that the requirements for shifting the burden
of proof have been met. Accordingly, the burden of proof remains on petitioner. See
§ 7491(a)(2).
                                           4

[*4] assessment” in order to preserve the presumption of correctness. 5
Erickson v. Commissioner, 937 F.2d 1548, 1551 (10th Cir. 1991), aff’g
T.C. Memo. 1989-552. Once the Commissioner introduces substantive
evidence linking the taxpayer with the income, the presumption of
correctness applies and the burden shifts to the taxpayer to produce
substantial evidence overcoming it. United States v. McMullin, 948 F.2d
1188, 1192 (10th Cir. 1991); see also Bolles v. Commissioner, T.C. Memo.
2019-42, at *13. The Commissioner may not rely solely on a third-party
report of income, such as a Form W–2, if the taxpayer raises a
reasonable dispute concerning the accuracy of the report. Muhammad
v. Commissioner, T.C. Memo. 2021-77, at *6; see § 6201(d).

      Respondent introduced into evidence a Form W–2 from Tasco
showing that petitioner received wages of $116,000 for the 2016 tax
year. Petitioner does not allege that he did not receive payments from
Tasco during the year at issue or that he received payments in a lower
amount. Because petitioner has not raised a reasonable dispute
concerning the accuracy of the Form W–2, section 6201(d) does not
apply. We hold that the Form W–2 from Tasco establishes a reasonable
foundation and that the presumption of correctness attaches to
respondent’s income adjustment. See Silver v. Commissioner, T.C.
Memo. 2021-98, at *5; Oman v. Commissioner, T.C. Memo. 2010-276,
2010 WL 5209360, at *4–5. Petitioner bears the burden of proving that
the deficiency determination for the 2016 tax year is incorrect.

II.    Reporting of Income

       Section 61(a)(1) defines gross income as “all income from
whatever source derived,” including “[c]ompensation for services.”
Wages and salaries are compensation for services that are includible in
gross income. See Treas. Reg. § 1.61-2(a).

       Petitioner did not advance any nonfrivolous arguments or offer
any credible evidence showing that the wages he received were not gross
income. For example, petitioner’s argument that the wages listed on the
Form W–2 issued by Tasco are not taxable because they do not meet the
definition of wages under sections 3121 and 3401 is of a type that we
have repeatedly rejected as frivolous. See Wnuck v. Commissioner, 136
T.C. 498, 499 (2011); Muhammad, T.C. Memo. 2021-77, at *6–12; Smith

        5 Absent a stipulation to the contrary, this case is appealable to the Tenth

Circuit, and we follow the precedent of that court that is squarely on point. See
§ 7482(b)(1); Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th
Cir. 1971).
                                    5

[*5] v. Commissioner, T.C. Memo. 2019-111, at *9–10, aff’d without
published opinion, No. 20-70698, 2022 WL 576011 (9th Cir. Feb. 25,
2022). We will not address each argument in detail. Crain v.
Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) (“We perceive no
need to refute these arguments with somber reasoning and copious
citation of precedent; to do so might suggest that these arguments have
some colorable merit.”); Wnuck, 136 T.C. at 499 (explaining why we do
not address frivolous arguments). We hold that petitioner received
$116,000 of gross income for the 2016 tax year.

III.   Section 6662(a) Accuracy-Related Penalty

      Section 6662(a) and (b)(2) imposes a 20% penalty on the portion
of an underpayment of tax that is attributable to a “substantial
understatement of income tax.” Section 6662(d)(2) generally defines an
“understatement” as the excess of the tax required to be shown on the
return over the amount shown on the return as filed.                An
understatement of income tax is “substantial” if it exceeds the greater
of 10% of the tax required to be shown on the return or $5,000.
§ 6662(d)(1)(A).

      The Commissioner generally bears the burden of production with
respect to the liability of an individual for any penalty. § 7491(c). This
includes showing compliance with section 6751(b), which provides that
“[n]o penalty under this title shall be assessed unless the initial
determination of such assessment is personally approved (in writing) by
the immediate supervisor of the individual making such determination
or such higher level official as the Secretary may designate.” See Graev
v. Commissioner, 149 T.C. 485, 492–93 (2017), supplementing and
overruling in part 147 T.C. 460 (2016).

      For the 2016 tax year, petitioner reported zero tax due on his
return and requested a refund of amounts withheld, but his correct tax
was $23,075. Petitioner failed to report $116,000 of wages. There was
an underpayment of income tax, all of which was attributable to a
substantial understatement.

       To satisfy his burden of production under section 6751(b),
respondent offered into evidence a case history report which noted
manager approval of the accuracy-related penalty on October 8, 2019,
and a 30-day letter issued on October 11, 2019. Respondent has thus
“come forward with evidence of penalty approval,” and therefore
petitioner “must come forward with contrary evidence.” Frost v.
                                    6

[*6] Commissioner, 154 T.C. 23, 34 (2020). Petitioner has offered no
contrary evidence or otherwise challenged compliance with section
6751(b). Respondent has therefore satisfied his burden of production
under section 7491(c).

       Once the Commissioner satisfies his burden of production with
respect to the accuracy-related penalty, the taxpayer then bears the
burden of proving that the Commissioner’s determination is incorrect or
that he has an affirmative defense, such as reasonable cause and good
faith under section 6664(c)(1). See Rule 142(a); Higbee, 116 T.C.
at 446–47. Petitioner has not shown that he acted with reasonable
cause and in good faith with respect to any portion of the underpayment.
In fact, petitioner’s actions indicate an intentional effort not to comply
with his tax obligations. We hold that petitioner is liable for a section
6662(a) accuracy-related penalty of $4,615.

IV.   Section 6673 Penalty

       Under section 6673(a)(1)(B), we may impose a penalty not to
exceed $25,000 if the taxpayer’s position is “frivolous or groundless.” “A
taxpayer’s position is frivolous if it is contrary to established law and
unsupported by a reasoned, colorable argument for change in the law.”
Rader v. Commissioner, 143 T.C. 376, 392 (2014) (quoting Goff v.
Commissioner, 135 T.C. 231, 237 (2010)), aff’d in part, appeal dismissed
in part, 616 F. App’x 391 (10th Cir. 2015). Furthermore, “[t]he purpose
of section 6673 is to compel taxpayers to think and to conform their
conduct to settled principles before they file returns and litigate.”
Takaba v. Commissioner, 119 T.C. 285, 295 (2002) (citing Coleman v.
Commissioner, 791 F.2d 68, 71 (7th Cir. 1986)). Given the public policy
interest in deterring abuse and waste of judicial resources, the Court is
given considerable latitude in determining whether to impose a penalty
and in what amount. Smith, T.C. Memo. 2019-111, at *13.

       At the beginning of the trial we informed petitioner that, on the
basis of our reading of his Petition and Motion papers, he appeared to
be proceeding with only frivolous or groundless positions. We warned
petitioner that we could impose a penalty of up to $25,000 for such
conduct. Although petitioner did not abandon his frivolous arguments
or acknowledge his liability for income tax, he did cease to make
frivolous arguments at that time. Because of his restraint, we will not
sanction petitioner at this time. We do caution him, however, against
asserting frivolous positions in any future appearance before the Court.
                                   7

[*7] V.    Conclusion

       For the foregoing reasons, we will sustain the $23,075 deficiency
and the $4,615 accuracy-related penalty. We have considered all other
arguments made and facts presented in reaching our decision, and, to
the extent not discussed above, we conclude that they are moot,
irrelevant, or without merit.

      To reflect the foregoing,

      Decision will be entered for respondent.