Court Opinion

ID: 6353079
Source: CourtListenerOpinion
Date Created: 2022-06-23 19:01:27.708739+00
Date Added: 2024-06-11T09:13:53.390824
License: Public Domain

United States Tax Court

                               T.C. Memo. 2022-64

                              DAVID GILMARTIN,
                                  Petitioner

                                          v.

              COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

                                    —————

Docket No. 21604-18.                                          Filed June 23, 2022.

                                    —————

David Gilmartin, pro se.

Melissa Jane Hedtke, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       VASQUEZ, Judge: For taxable years 1997, 1998, 1999, 2000,
2001, 2002, 2004, 2005, 2006, 2008, 2009, and 2010 (years in issue),
respondent determined federal income tax deficiencies and additions to
tax as follows: 1

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

Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references
are to the Tax Court Rules of Practice and Procedure.

                                 Served 06/23/22
                                         2

[*2]
                                                      Additions to tax
        Year        Deficiency
                                      § 6651(f)         § 6651(a)(2)     § 6654

 1997                    $33,163       $24,043.18          $8,290.75      $1,763.53

 1998                      9,971         7,228.98           2,492.75         452.59

 1999                     34,586        25,074.85           8,646.50       1,661.08

 2000                     43,357        31,433.83          10,839.25       2,331.92

 2001                     31,173        22,600.43           7,793.25       1,245.79

 2002                     13,779         9,989.78           3,444.75         460.45
                          10,095         1,565.28             539.75       -0-
 2004
                          36,599        24,060.58           8,296.75       1,315.95
 2005
                           3,448             898.28           309.75       -0-
 2006
                          21,831         2,201.10             759.00       -0-
 2008
                          26,797         4,183.97           1,442.75       -0-
 2009
                          24,363         3,675.03           1,267.25       -0-
 2010

The issues for decision are whether (1) petitioner failed to report taxable
income for the years in issue; (2) petitioner is liable for self-employment
tax on nonemployee compensation received during taxable years 1997,
1998, 1999, 2000, 2001, 2002, 2004, 2005, and 2006; (3) petitioner is
liable for additions to tax under section 6651(a)(2) for the years in issue;
(4) petitioner is liable for additions to tax under section 6654 for taxable
years 1997, 1998, 1999, 2000, 2001, 2002, and 2005; and (5) the Court
should impose a penalty on petitioner under section 6673(a)(1).

                             FINDINGS OF FACT

       Some of the facts have been stipulated and are so found. We
incorporate the parties’ First Stipulation of Facts, First Supplemental
Stipulation of Facts, Second Supplemental Stipulation of Facts, and
accompanying exhibits by this reference.         Petitioner resided in
California when he filed his Petition.

Compensation for services and other economic activities

     Petitioner has a doctorate in economics. During the years in issue
he worked as an economist for various employers and clients. 2

        2 Petitioner performed a variety of services, including (1) analyzing and

reconstructing clinical databases, (2) forecasting potential bad debt, (3) performing
                                          3

[*3] Petitioner’s clients, for which he performed consulting work,
included General Electric Capital Corp., Pfizer, Inc., WCI Financial
Corp., NU Skin International, Inc., the Builders Association, Inc.,
National Economic Research Associates, Allegiance Group, and Atlantic
Search Group, Inc. Those businesses compensated petitioner for his
services and issued him Forms 1099–MISC, Miscellaneous Income.
Petitioner’s employers included Klein Management Systems, Software
Guidance & Assistance, Inc., Trans Action Information, Aerotek, Inc.,
Network Integration, and Eliassen Group, LLC. Those businesses paid
wages to petitioner and issued him Forms W–2, Wage and Tax
Statement.

       In 1997 petitioner received interest income of $29 and $31 from
Chase Manhattan Bank and First National Bank, respectively. Those
entities issued petitioner Forms 1099–INT, Interest Income, reporting
those payments. The following year, petitioner received $671 for the
sale of stocks and bonds. In connection therewith, First Chicago Trust
Co. of New York issued petitioner Form 1099–B, Proceeds From Broker
and Barter Exchange Transactions, reporting the sales proceeds. In
2005 and 2006 petitioner received distributions of $17,063 and $11,045,
respectively, from an investment account held at Sungard Business
Systems (Sungard).       Sungard issued petitioner Forms 1099–R,
Distributions From Pensions, Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc., reporting that those
distributions were taxable.

Tax noncompliance and criminal conviction

        Petitioner failed to file federal income tax returns for taxable
years 1989 through 2010. On June 25, 2012, a grand jury returned an
indictment with respect to those taxable years, charging petitioner with
(1) corruptly endeavoring to obstruct and impede the due administration
of the internal revenue laws under section 7212(a), (2) tax evasion under
section 7201, and (3) mail fraud under 18 U.S.C. § 1341. 3 On July 16,
2013, after a jury trial, the U.S. District Court for the Southern District
of New York entered a judgment of guilty as to each count set forth in

profitability analyses, (4) updating a trading system for over-the-counter options on
government securities for a large brokerage firm, (5) conducting statistical analyses,
and (6) analyzing and preparing testimony for companies involved in various patent
and antitrust litigation.
        3 The grand jury also charged petitioner with failing to file an income tax

return and failing to pay tax under section 7203 with respect to taxable year 2005.
                                         4

[*4] the indictment. The district court imposed a prison sentence of 4
years, supervised release of 3 years, and restitution of $1,672,399.62.
After petitioner appealed, the U.S. Court of Appeals for the Second
Circuit affirmed the conviction on May 10, 2017.

       In both the district court and appellate proceedings, petitioner
advanced arguments that this Court and others have found to be
frivolous. In a summary order affirming petitioner’s conviction, the
Second Circuit rejected those arguments, stating: “We have consistently
rejected [petitioner’s] arguments, and they do not provide a basis for
[petitioner] to challenge his conviction.” United States v. Gilmartin, 684
F. App’x 8, 12 (2d Cir. 2017).

Substitutes for returns, notice of deficiency, and proceedings in this Court

       Having received no returns from petitioner for the years in issue,
respondent prepared substitutes for returns (SFRs) on the basis of third-
party reporting. 4 See § 6020(b). On July 30, 2018, respondent issued
petitioner a notice of deficiency determining that he had taxable income
as follows:

 Tax year         1997        1998       1999       2000      2001       2002

 Wages           $87,998      $37,009     $1,518     -0-       -0-        -0-

 Gross            38,844       11,600    102,450   $129,044   $93,500   $49,760
 receipts

 Interest                60    -0-           -0-     -0-       -0-        -0-

 Taxable           -0-         -0-           -0-     -0-       -0-        -0-
 distribution

 Short-term        -0-           671         -0-     -0-       -0-        -0-
 capital gain

  Total         $126,902      $49,280   $103,968   $129,044   $93,500   $49,760

       4 Each of the SFRs includes Form 4549–A, Income Tax Examination Changes

(Unagreed and Excepted Agreed), Form 886–A, Explanation of Items, and Form 13496,
IRC Section 6020(b) Certification.
                                           5

[*5] Tax year       2004        2005        2006        2008        2009        2010

 Wages             $31,500       -0-           -0-    $108,442    $127,481    $118,828

 Gross              20,000     $99,043     $12,240       -0-         -0-         -0-
 receipts

 Interest            -0-         -0-           -0-       -0-         -0-         -0-

 Taxable             -0-        17,063      11,045       -0-         -0-         -0-
 distribution 5

 Short-term          -0-         -0-           -0-       -0-         -0-         -0-
 capital gain

  Total            $51,500   $116,106      $23,285   $108,442    $127,481     $118,828

       The notice of deficiency also includes a determination that
petitioner is liable for self-employment tax on the nonemployee
compensation he had received during 1997 through 2002 and 2004
through 2006. 6 Moreover, respondent determined additions to tax
under section 6651(a)(2) and (f) for all years in issue. 7 For 1997, 1998,
1999, 2000, 2001, 2002, and 2005, respondent also determined additions
to tax under section 6654.

       After petitioner timely petitioned this Court, this case was set for
trial at a Los Angeles, California, Trial Session of the Court. Before
trial, petitioner stipulated that he had received all of the wages and
gross receipts determined by respondent. He advanced only frivolous
arguments at trial—namely, that individuals are not liable for income
tax on their wages and/or compensation for services.

        The notice of deficiency characterizes the 2005 and 2006 distributions from
         5

Sungard as distributions from an individual retirement account (IRA).
         6For each year he determined self-employment tax, respondent allowed
petitioner a deduction for one-half of the self-employment tax to be paid.
         7 On November 26, 2019, respondent filed a Motion for Partial Summary

Judgment. Therein respondent argued that petitioner’s criminal conviction under
section 7201 collaterally estopped him from contesting that he had fraudulently failed
to file his federal income tax returns under section 6651(f) for the years in issue. See
George v. Commissioner, T.C. Memo. 2015-158, at *26 (“[A] conviction under section
7201 based upon failure to file a return will constitute collateral estoppel for the
fraudulent failure to file penalty under section 6651(f).”), aff’d, 837 F.3d 79 (1st Cir.
2016).     By Order dated January 21, 2020, we granted respondent’s motion.
Accordingly, we do not further address herein petitioner’s liability for the section
6651(f) additions to tax.
                                          6

[*6] At the conclusion of trial, respondent made an oral motion to
impose a section 6673(a)(1) penalty against petitioner. The Court told
petitioner that there was extensive caselaw rejecting his arguments and
sanctioning taxpayers who made similar arguments. The Court also
read the text of section 6673(a)(1) to petitioner before taking
respondent’s Motion under advisement.

       Petitioner subsequently filed a 147-page Simultaneous Opening
Brief expounding the frivolous arguments he had raised at trial.

                                     OPINION

I.     Unreported income

       A.      Burden of proof

       Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer bears the burden of
proving that the Commissioner’s determinations are erroneous. 8 See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In cases of
unreported income, the Commissioner must establish an evidentiary
foundation connecting the taxpayer to the income-producing activity,
Weimerskirch v. Commissioner, 596 F.2d 358, 361 (9th Cir. 1979), rev’g
67 T.C. 672 (1977), or demonstrate that the taxpayer actually received
income, Edwards v. Commissioner, 680 F.2d 1268, 1270–71 (9th Cir.
1982). Information supplied to the Internal Revenue Service on Forms
W–2 and 1099 is sufficient to meet this burden. See Hardy v.
Commissioner, 181 F.3d 1002, 1005 (9th Cir. 1999), aff’g T.C. Memo.
1997-97; Holland v. Commissioner, T.C. Memo. 2021-129, at *5, aff’d per
curiam without published opinion, 2022 WL 1619849 (4th Cir. May 23,
2022). Once the Commissioner makes the required threshold showing,
the burden shifts to the taxpayer to prove by a preponderance of the
evidence that the Commissioner’s determinations are arbitrary or
erroneous. See Williams v. Commissioner, 999 F.2d 760, 763 (4th Cir.

         8 Section 7491(a) provides that if, in any court proceeding, a taxpayer

introduces credible evidence with respect to any factual issue relevant to ascertaining
the liability for tax and meets other prerequisites, the burden of proof rests on the
Commissioner as to that factual issue. See Higbee v. Commissioner, 116 T.C. 438, 440–
41 (2001). Petitioner has neither claimed nor shown that he satisfied the requirements
of section 7491(a) to shift the burden of proof to respondent.
                                           7

[*7] 1993), aff’g T.C. Memo. 1992-153; Holland, T.C. Memo. 2021-129,
at *5.

       Respondent has established an evidentiary foundation linking
petitioner to the unreported income at issue. Petitioner stipulated that
he received the wages and gross receipts determined by respondent.
Petitioner also stipulated the existence of Forms 1099 reporting his
interest income for 1997 and stock sales for 1998. With respect to
respondent’s determinations of taxable distributions for 2005 and 2006,
the record includes Forms 1099–R reporting those distributions.
Accordingly, respondent’s determinations of unreported income for the
years in issue are presumed correct, and petitioner bears the burden of
proving that those determinations are erroneous. 9 See Rule 142(a)(1);
Welch v. Helvering, 290 U.S. at 115.

       B.      Wages and gross receipts

      Respondent determined that petitioner had unreported wages
and/or nonemployee compensation from employers and/or clients for the
years in issue. Petitioner, as best we can understand from his
Simultaneous Opening Brief, contends that he is not liable for tax on
compensation for his services.

       Section 1 imposes an income tax on taxable income, and section
63 defines taxable income as gross income minus deductions. Section
61(a) defines gross income to include “income from whatever source
derived.” More specifically, section 61(a)(1) includes in an individual’s
gross income any compensation for services. Clearly, the wages and
nonemployee compensation petitioner received from his employers and
clients is gross income for federal income tax purposes.             See
Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955) (stating
that gross income includes all accessions to wealth that are clearly
realized and under the control of the taxpayer); McNair v. Eggers, 788
F.2d 1509, 1510 (11th Cir. 1986) (describing the taxpayer’s argument
that his wages were not income as “patently frivolous”); Grimes v.

        9 Under section 6201(d), if a taxpayer asserts a reasonable dispute with respect

to an item of income reported on an information return filed by a third party and the
taxpayer meets certain other requirements, the Commissioner bears the burden of
producing reasonable and probative evidence, in addition to the information return,
concerning the deficiency attributable to the income item. However, section 6201(d) is
not applicable here because petitioner’s frivolous arguments do not constitute a
“reasonable dispute” with respect to an item of income. See, e.g., Nelson v.
Commissioner, T.C. Memo. 2012-232, at *7–8, aff’d, 540 F. App’x 924 (11th Cir. 2013).
                                          8

[*8] Commissioner, 82 T.C. 235, 237 (1984), aff’d per curiam, 806 F.2d
1451 (9th Cir. 1986); Reiff v. Commissioner, 77 T.C. 1169, 1173 n.7
(1981).

       Petitioner’s assertion to the contrary—i.e., that the payments
made to him for his services are not taxable—is frivolous and
characteristic of rhetoric that has been universally rejected by this and
other courts. See Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988),
aff’g T.C. Memo. 1987-225; Samples v. Commissioner, T.C. Memo. 2009-
167. The Court need not address petitioner’s assertions “with somber
reasoning and copious citation of precedent; to do so might suggest that
these arguments have some colorable merit.”               See Crain v.
Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); Wnuck v.
Commissioner, 136 T.C. 498 (2011). Consequently, we uphold
respondent’s determinations with respect to petitioner’s wage income
and nonemployee compensation for the years in issue.

       C.      Other income

       Respondent determined that petitioner did not report interest
income for 1997, short-term capital gain income for 1998, and IRA
distributions for 2005 and 2006. Section 61(a)(3) and (4) includes in an
individual’s gross income interest payments and gains derived from
dealings in property. Subject to certain exceptions, amounts distributed
from an IRA are includible in a taxpayer’s gross income as provided in
section 72. § 408(d)(1).

      Petitioner has directed us to no evidence showing respondent’s
determinations of unreported income to be arbitrary or erroneous. 10 We
therefore sustain respondent’s determinations in full.

II.    Self-employment tax

      Respondent determined that petitioner is liable for self-
employment tax on the nonemployee compensation he had received
during 1997 through 2002 and 2004 through 2006.

       10 With respect to the 2005 and 2006 distributions, the parties’ First

Supplemental Stipulation of Facts characterizes the Sungard account as an
investment account rather than an IRA. Respondent determined that the distributions
were taxable on the basis of Forms 1099–R filed by Sungard. Petitioner has not offered
any evidence to establish a basis in that account or otherwise refute respondent’s
determination that the distributions were taxable.
                                     9

[*9] Section 1401(a) imposes, in addition to other taxes, a tax “on the
self-employment income of every individual.” Self-employment income
generally consists of the gross income derived by an individual from any
trade or business carried on by such individual, less the allowable
deductions attributable to such trade or business, during any taxable
year. See § 1402(a) and (b).

       Petitioner performed consulting services for several businesses
and received compensation therefrom at various times during the years
in issue. Income received as an independent contractor falls within the
definition of “self-employment income.”        See, e.g., Delgado v.
Commissioner, T.C. Memo. 2021-84, at *5. Other than the meritless
argument mentioned above, petitioner has made no other arguments as
to why that income should be excluded from self-employment income.
We accordingly sustain respondent’s determination that petitioner is
liable for self-employment tax in the amounts set forth in the notice of
deficiency.

III.   Section 6651(a)(2) additions to tax

        For each year in issue, respondent determined that petitioner is
liable for an addition to tax under section 6651(a)(2) for failure to timely
pay his tax liability. Section 6651(a)(2) provides for an addition to tax
of 0.5% per month up to 25% for failure to pay the amounts shown on a
return unless it is shown that the failure is due to reasonable cause and
not due to willful neglect.

       Section 7491(c) provides that the Commissioner bears the burden
of production in any court proceeding with respect to the liability of any
individual for any penalty, addition to tax, or additional amount. See
Higbee, 116 T.C. at 446. To satisfy the burden of production, respondent
must produce sufficient evidence that returns showing tax liabilities
were filed for the years in issue. See Wheeler v. Commissioner, 127 T.C.
200, 210 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). A return prepared
by the Commissioner in accordance with section 6020(b) is treated as
the return filed by the taxpayer for the purpose of determining the
amount of the addition under section 6651(a)(2). § 6651(g)(2); Wheeler,
127 T.C. at 208–09.

      Respondent has the burden of proving that SFRs satisfying the
requirements of section 6020(b) were submitted. See Cabirac v.
Commissioner, 120 T.C. 163, 170–71, 173 (2003), aff’d per curiam
without published opinion, 2004 U.S. App. LEXIS 28852 (3d Cir. Feb.
                                   10

[*10] 10, 2004); Gleason v. Commissioner, T.C. Memo. 2011-154, 2011
Tax Ct. Memo LEXIS 151, at *38–39; see also Wheeler, 127 T.C. at 210.
To constitute a section 6020(b) SFR, “the return must be subscribed, it
must contain sufficient information from which to compute the
taxpayer’s tax liability, and the return form and any attachments must
purport to be a ‘return.’” Rader v. Commissioner, 143 T.C. 376, 382
(2014) (quoting Spurlock v. Commissioner, T.C. Memo. 2003-124, 2003
Tax Ct. Memo LEXIS 123, at *42), aff’d, 616 F. App’x 391 (10th Cir.
2015). The Court has held that the requirements of section 6020(b) have
been met where the SFRs consist of Forms 4549–A, Forms 886–A, and
Forms 13496. See id.; Gleason, 2011 Tax Ct. Memo LEXIS 151, at *39–
40.

      Petitioner’s SFRs include Forms 4549–A, Forms 886–A, and
Forms 13496 showing unpaid tax liabilities for the years in issue.
Further, each SFR purports to be a “section 6020(b) return,” contains
the information necessary to calculate petitioner’s liability, and is
subscribed. Petitioner’s SFRs constitute valid section 6020(b) returns
deemed to have been filed by petitioner for purposes of section
6651(a)(2).   Accordingly, respondent has satisfied the burden of
production.

      Once the Commissioner meets the burden of production, the
burden of proof is with the taxpayer to show that the additions to tax
should not be imposed. See Higbee, 116 T.C. at 446–47. Petitioner’s
burden requires that he prove that his failure to timely pay his federal
income tax was due to reasonable cause and was not due to willful
neglect. See § 6651(a)(2).

      Petitioner has failed to present any evidence that would establish
that his failure to pay timely was due to reasonable cause, and instead
he has sought to rely on unreasonable and unsupportable arguments.
Accordingly, petitioner is liable for the additions to tax under section
6651(a)(2) for the years in issue.

IV.   Section 6654 additions to tax

       Respondent determined additions to tax under section 6654 for
1997, 1998, 1999, 2000, 2001, 2002, and 2005. Section 6654 imposes an
addition to tax on an individual who underpays his or her estimated tax.
The addition to tax is calculated with reference to four required
installment payments of the taxpayer’s estimated tax liability. § 6654(c)
and (d). Each required installment is equal to 25% of the “required
                                   11

[*11] annual payment.” § 6654(d). The burden of production under
section 7491(c) requires the Commissioner to produce, for each year for
which the addition is asserted, evidence that the taxpayer had a
“required annual payment.” See Wheeler, 127 T.C. at 211. Where the
taxpayer filed no return for the current tax year or the immediately
preceding tax year, the “required annual payment” is equal to 90% of
the tax due for the current year. § 6654(d)(1)(B).

       We conclude that respondent has met his burden of production.
Petitioner stipulated that he did not file returns for taxable years 1989
through 2010. His “required annual payment” thus equaled 90% of the
tax due for each of 1997, 1998, 1999, 2000, 2001, 2002, and 2005. See
§ 6654(a), (d)(1)(B). The record includes SFRs showing tax due for those
years. Petitioner has neither argued nor shown that he made the
“required annual payment” for any of those years. We will therefore
sustain respondent’s determination of additions to tax under section
6654.

V.    Frivolous position penalty

       We now consider respondent’s oral motion to impose a penalty
against petitioner pursuant to section 6673(a)(1).         That section
authorizes the Court to require a taxpayer to pay a penalty to the United
States in an amount not to exceed $25,000 whenever it appears to the
Court that the taxpayer instituted or maintained the proceeding
primarily for delay or that the taxpayer’s position in the proceeding is
frivolous or groundless. Respondent contends that a penalty is
appropriate because petitioner advanced frivolous arguments
throughout this proceeding. We agree.

       Petitioner was aware that the arguments he advanced in this case
have been universally rejected by this and other courts. Before trial he
was convicted of, among other things, tax evasion under section 7201.
In a summary order affirming his conviction, the Second Circuit stated
that it has “consistently rejected” petitioner’s arguments.            See
Gilmartin, 684 F. App’x at 12. After petitioner advanced the same
arguments at trial, this Court advised him of our longstanding caselaw
rejecting his arguments. The Court also read the text of section
6673(a)(1) to petitioner. Despite our warning, petitioner filed a 147-page
brief expounding his frivolous arguments. We will therefore impose a
penalty of $5,000 against petitioner pursuant to section 6673(a)(1).
                                  12

[*12] We have considered the parties’ arguments and, to the extent not
addressed herein, conclude that they are moot, irrelevant, or without
merit.

      The foregoing considered,

       An appropriate order will be issued, and decision will be entered
for respondent.