Santangelo v. Commissioner

T.C. Memo. 1995-468

UNITED STATES TAX COURT

WILLIAM SANTANGELO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8766-95. Filed October 2, 1995.

William Santangelo, pro se.

Blaise Gately Dusenberry and Dean H. Wakayama, for respondent.

MEMORANDUM OPINION

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years in
(continued...)
 This case is before the Court on respondent's Motion To

Dismiss For Failure To State A Claim Upon Which Relief Can Be

Granted And To Award Damages, filed pursuant to Rule 40 and

section 6673(a).

Petitioner resided in Custer, Washington, at the time the

petition was filed in this case.

Respondent's Notice of Deficiency

By notice dated March 3, 1995, respondent determined

deficiencies in, and additions to, petitioner's Federal income

taxes for the taxable years 1992 and 1993 as follows:

Addition to tax
Year Deficiency Sec. 6651(a)(1)

1992 $7,369 $100
1993 2,981 102

The deficiencies in income taxes are based on respondent's

determination that petitioner, an employee of the Boeing Company,

failed to report the following income on tax returns for the

years in issue:

Taxable Year
Income Payor 1992 1993

Wages Boeing $41,521 $18,276
Interest IRS 630 ---
Interest U.S. Bank 36 15
Interest 1st Interstate Bank --- 240
Unemploy- Washington Employ-
ment Comp. ment Security Dept. --- 7,371

1
(...continued)
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 3 -

The additions to tax under section 6651(a)(1) are based on

respondent's determination that petitioner's failure to file

income tax returns for the years in issue was not due to

reasonable cause.

Petitioner's Petition

Petitioner filed an eight page typewritten petition for

redetermination on May 26, 1995. The crux of petitioner's

position is that wages are not income, apparently because of the

provisions of sections 83 and 7701(e) and the notion that a

person's labor is property in which the person has a basis equal

to its fair market value. Thus, the petition includes the

following allegations:

When a lessee disposes of, or damages, property
belonging to the lessor, is the amount needed to
compensate the lessor to be included in the lessor's
gross income when paid to him by the lessee? NO. The
Respondent cannot tax as gross income, therefore, the
amount received for labor or services of an employee or
contractor, disposed of by an employer or customer of a
contractor, without violating § 7701(e)[2] which says
that service contracts shall be treated as leases of

2
Sec. 7701(e) provides in part as follows:

(e) Treatment of Certain Contracts for Providing
Services, Etc.--For purposes of chapter 1--

(1) In General.--A contract which purports to
be a service contract shall be treated as a lease of
property if such contract is properly treated as a
lease of property, taking into account all relevant
factors including whether or not--

(A) the service recipient is in physical
possession of the property * * *
 - 4 -

property. Until a statutorily supported rebuttal to
this allegation can be mounted by the Respondent,
Petitioner is due a full return of all amounts imposed
upon Petitioner's compensation which was received under
contract.

* * * * * * *

To comply with § 7701(e) therefore, the value or
cost of the services (FMV) should be allowed as a
deduction under § 212. * * * When Petitioner performs
this deduction, he has no taxable income. How has the
Respondent allowed the Petitioner this deduction? Why
is this "cost" not deductible?

Internal Revenue Code section 83[3] applies to ANY
compensation income * * * . It serves to deduct the
taxpayer's cost, the value of the labor, from that
which can be treated as gross income * * * .

* * * * * * *

Knowing that services (labor) are property * * * ,
nothing excludes services from the provisions of §
1012[4] as a cost that must be restored to the

3
Sec. 83 provides in part as follows:

SEC. 83. PROPERTY TRANSFERRED IN CONNECTION WITH
PERFORMANCE OF SERVICES.

(a) General Rule.--If, in connection with the
performance of services, property is transferred to any
person other than the person for whom such services are
performed, the excess of--

(1) the fair market value of such property *
* * over

(2) the amount (if any) paid for such
property,

shall be included in the gross income of the person who
performed such services * * * . [Emphasis added.]
4
Sec. 1012 provides in part as follows:

(continued...)
 - 5 -

Petitioner. The provisions of § 1012 extend to every
species of valuable right or interest, just as the term
"property" does * * * .

If the amount realized from the sale of labor is
only that which is under contract (FMV), the
transaction is one of non-recognition * * * .

* * * * * * *
If Petitioner earns only the FMV of his services,
chapters 1, 2, 21, and 24 are of no consequence to him;
he is not a "taxpayer" * * * .

* * * * * * *

United States Tax Court has no jurisdiction to
hear this controversy or enter a decision about it.
* * *

About § 6673: Said statute reads in part: * * * .
Before this statute is applied to the Petitioner, it is
necessary for the Respondent to fully illustrate and
explain how § 83, 1012, and 7701(e) have been applied
and complied with OR, it should be fully illustrated
and explained what precludes the Petitioner from the
provisions of said statutes. * * *

Petitioner attached to his petition over 125 pages of

typewritten materials expanding on the arguments set forth in his

petition. These materials include several pages devoted to

section 6673 and a number of cases that have applied it.

Respondent's Rule 40 Motion and Subsequent Developments

As indicated, respondent filed a Motion To Dismiss For

Failure To State A Claim Upon Which Relief Can Be Granted And To

Award Damages.

4
(...continued)
SEC. 1012. BASIS OF PROPERTY--COST.

The basis of property shall be the cost of such
property, except as otherwise provided * * * .
 - 6 -

On July 19, 1995, shortly after respondent filed her motion

to dismiss, the Court issued an order calendaring respondent's

motion for hearing and also directing petitioner to file a proper

amended petition in accordance with the requirements of Rule 34.

In particular, the Court directed petitioner to file a proper

amended petition setting forth with specificity each error

allegedly made by respondent in the determination of the

deficiencies and separate statements of every fact upon which the

assignments of error are based.

On July 20, 1995, petitioner filed an Opposition to

Respondent's Motion to Dismiss and the following 6 motions: (1)

Motion for Equal Protection and Uniform Procedure; (2) Motion for

Re-Determination; (3) Motion to Compel Performance; (3) Motion

for More Definite Statement; (4) Motion to Strike Respondent's

Motion to Dismiss; (5) Motion for Summary Judgment; and (6) a

second Motion for Summary Judgment. All of petitioner's motions

were denied. Petitioner's Opposition includes the following

statement:

While Petitioner has not denied receiving
compensation for services, the Petitioner DOES deny
that the Law makes said compensation includible in
[gross] "income." Regardless of whether or not such
amounts are gross income or, because Congress chose to
not so include the FMV of Petitioner's personal
property, the Law does not permit the inclusion in
income now attempted by the Respondent; how have ALL
applicable statutes operated?

On August 2, 1995, petitioner filed the following 3 motions:

(1) Motion for More Definite Statement; (2) Motion for Calendar
 - 7 -

Appointment; and (3) Motion for Continuance. All of petitioner's

motions were denied.5

On August 10, 1995, petitioner submitted the following 10

documents: (1) "Amended Petition under Tax Court Order", which

was filed as petitioner's Amended Petition; (2) "Assignment of

Errors", which was filed as petitioner's Amendment to Amended

Petition; (3) "Statement in Lieu of Appearance; Motion for

Summary Judgment", which was filed as (a) petitioner's Rule 50(c)

Statement and separately as (b) petitioner's Motion for Summary

Judgement; (4) "Motion for Leave of the Court", which was filed

as petitioner's Motion for Leave to File Brief in Support of Rule

50(c) Statement; (5) "Brief in Support of Amended Petition",

which was lodged as petitioner's Brief in Support of Rule 50(c)

Statement; (6) "Tables for Brief in Support", which was lodged as

petitioner's Appendix to Brief in Support of Rule 50(c)

Statement; (7) "Clarification of Petitioner's Claims of Statutory

Deprivations", which was filed as petitioner's Supplement to Rule

50(c) Statement; (8) "Demand for Relief", which was filed as

petitioner's Second Supplement to Rule 50(c) Statement; (9)

"Demand for Relief: Amended Petition", which was filed as

petitioner's Third Supplement to Rule 50(c) Statement; and (10)

5
In its Order denying petitioner's motions filed Aug. 2,
1995, the Court specifically reminded petitioner of the
applicability of Rule 50(c) providing for the submission of a
written statement in lieu of (or in addition to) a party's
appearance at a Motions Session.
 - 8 -

"Motion for More Definite Statement", which was filed as

petitioner's Second Motion for More Definite Statement.

Regarding the documents received August 10, 1995, the Court

granted petitioner's Motion for Leave to File Brief in Support of

Rule 50(c) Statement, and then filed (a) petitioner's Brief in

Support of Rule 50(c) Statement and (b) petitioner's Appendix to

Brief in Support of Rule 50(c) Statement. The Court denied

petitioner's Motion for Summary Judgment and petitioner's Second

Motion for More Definite Statement.

In his Amended Petition and Amendment thereto, as well as in

his other most recently filed documents, petitioner repeats many

of the allegations set forth in his original petition,

particularly his argument that section 83 shields his

compensation from taxation.6 Thus, the Amendment to the Amended

Petition includes the following allegation:

Code § 83 applies to all compensation for services
and allows only for the excess over the "amount paid"
(value of the Labor) to be included in gross income;
NOT the "amount paid" (cost). Respondent is in
violation of 26 USC § 83.

Respondent's motion to dismiss was called for hearing in

Washington, D.C., on August 16, 1995. Counsel for respondent

appeared at the hearing and presented argument on the pending

motion, including the argument that section 83 is inapplicable to

6
Petitioner appears to have abandoned, however, his
argument that sec. 7701(e) shields his compensation from
taxation.
 - 9 -

wages by virtue of the provisions of section 1.83-3(e), Income

Tax Regs.7 Petitioner did not appear at the hearing.

Discussion

Rule 40 provides that a party may file a motion to dismiss

for failure to state a claim upon which relief can be granted.

We may grant such a motion when it appears beyond doubt that the

party's adversary can prove no set of facts in support of a claim

which would entitle him or her to relief. Conley v. Gibson, 355

U.S. 41, 45-46 (1957); Price v. Moody, 677 F.2d 676, 677 (8th

Cir. 1982).

Rule 34(b)(4) requires that a petition filed in this Court

contain clear and concise assignments of each and every error

which the taxpayer alleges to have been committed by the

Commissioner in the determination of the deficiency and the

additions to tax in dispute. Rule 34(b)(5) further requires that

the petition contain clear and concise lettered statements of the

facts on which the taxpayer bases the assignments of error. See

Jarvis v. Commissioner, 78 T.C. 646, 658 (1982). The failure of

a petition to conform with the requirements set forth in Rule 34

may be grounds for dismissal. Rules 34(a)(1), 123(b).

7
Sec. 1.83-3(e), Income Tax Regs., provides in
part as follows:

(e) Property. For purposes of section 83 and the
regulations thereunder, the term "property" includes
real and personal property other than either money or
an unfunded and unsecured promise to pay money or
property in the future. * * * [Emphasis added.]
 - 10 -

In general, the determinations made by the Commissioner in a

notice of deficiency are presumed to be correct, and the taxpayer

bears the burden of proving that those determinations are

erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Moreover, any issue not raised in the pleadings is

deemed to be conceded. Rule 34(b)(4); Jarvis v. Commissioner, 78

T.C. 646, 658 n.19 (1982); Gordon v. Commissioner, 73 T.C. 736,

739 (1980).

Neither the petition nor the amended petition filed in this

case satisfies the requirements of Rule 34(b)(4) and (5). There

is neither assignment of error nor allegation of fact in support

of any justiciable claim. Rather, there is nothing but tax

protester rhetoric and legalistic gibberish, as demonstrated by

the passages from the petition and the amendment to amended

petition previously quoted. See Abrams v. Commissioner, 82 T.C.

403 (1984); Rowlee v. Commissioner, 80 T.C. 1111 (1983); McCoy v.

Commissioner, 76 T.C. 1027 (1981), affd. 696 F.2d 1234 (9th Cir.

1983).

The Court's order dated July 19, 1995, provided petitioner

with an opportunity to assign error and allege specific facts

concerning his liability for the taxable years in issue.

Unfortunately, petitioner failed to properly respond to the

Court's order. Rather, petitioner elected to continue to proceed

with time-worn tax protester rhetoric. See Abrams v.
 - 11 -

Commissioner, supra; Rowlee v. Commissioner, supra; McCoy v.

Commissioner, supra; Karlin v. Commissioner, T.C. Memo. 1990-496.

We see no need to catalog petitioner's arguments regarding

section 83, or section 7701(e) for that matter, and painstakingly

address them. As the Court of Appeals for the Fifth Circuit has

remarked: "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."

Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984).

Petitioner's arguments are nothing other than a variation on the

theme that wages are not income. Suffice it to say that both

this and other Federal courts have consistently and uniformly

held for many years that wages are income and that a taxpayer has

no basis in his or her labor. E.g., Beard v. Commissioner, 793

F.2d 139 (6th Cir. 1986), affg. per curiam 82 T.C. 766 (1984);

Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986); Carter

v. Commissioner, 784 F.2d 1006, 1009 (9th Cir. 1986); Olson v.

United States, 760 F.2d 1003, 1005 (9th Cir. 1985); United States

v. Burton, 737 F.2d 439, 441 (5th Cir. 1984); Gattuso v.

Pecorella, 733 F.2d 709, 710 (9th Cir. 1984); Funk v.

Commissioner, 687 F.2d 264, 265 (8th Cir. 1982), affg. T.C. Memo.

1981-506; Lonsdale v. Commissioner, 661 F.2d 71, 72 (5th Cir.

1981), affg. T.C. Memo. 1981-122; United States v. Romero, 640

F.2d 1014, 1016 (9th Cir. 1981) ("Compensation for labor or

services, paid in the form of wages or salary, has been
 - 12 -

universally, held by the courts of this republic to be income,

subject to the income tax laws currently applicable."); United

States v. Buras, 633 F.2d 1356, 1361 (9th Cir. 1980); Abrams v.

Commissioner, supra at 407; Rowlee v. Commissioner, supra at

1119-1122; Reiff v. Commissioner, 77 T.C. 1169, 1173 (1981);

Reading v. Commissioner, 70 T.C. 730 (1978), affd. 614 F.2d 159

(8th Cir. 1980); McNeel v. Commissioner, T.C. Memo. 1995-211;

Fischer v. Commissioner, T.C. Memo. 1994-586; Zyglis v.

Commissioner, T.C. Memo. 1993-341, affd. without published

opinion 29 F.3d 620 (2d Cir. 1994); Fox v. Commissioner, T.C.

Memo. 1993-277; Williams v. Commissioner, T.C. Memo. 1988-368;

Allen v. Commissioner, T.C. Memo. 1987-242; Hebrank v.

Commissioner, T.C. Memo. 1982-496; see sec. 61(a)(1).

Because the petition and the amended petition fail to state

a claim upon which relief can be granted, we shall grant so much

of respondent's motion that moves to dismiss. See Scherping v.

Commissioner, 747 F.2d 478 (8th Cir. 1984).

We turn now to that part of respondent's motion that moves

for an award of a penalty against petitioner under section

6673(a).

As relevant herein, section 6673(a)(1) authorizes the Tax

Court to require a taxpayer to pay to the United States a penalty

not in excess of $25,000 whenever it appears that proceedings

have been instituted or maintained by the taxpayer primarily for
 - 13 -

delay or that the taxpayer's position in such proceeding is

frivolous or groundless.

The record in this case convinces us that petitioner was not

interested in disputing the merits of either the deficiencies in

income taxes or the additions to tax determined by respondent in

the notice of deficiency. Rather, the record demonstrates that

petitioner regards this case as a vehicle to protest the tax laws

of this country and espouse his own misguided views.

A petition to the Tax Court is frivolous "if it is contrary

to established law and unsupported by a reasoned, colorable

argument for change in the law." Coleman v. Commissioner, supra

at 71. Petitioner's position, as set forth in the petition and

the amended petition, as well as in the other documents that

petitioner submitted, consists solely of tax protester rhetoric

and legalistic gibberish. Based on well established law,

petitioner's position is frivolous and groundless.

We are also convinced that petitioner instituted and

maintained this proceeding primarily, if not exclusively, for

purposes of delay. Having to deal with this matter wasted the

Court's time, as well as respondent's. Moreover, taxpayers with

genuine controversies may have been delayed.

Finally, we are convinced that petitioner is, and was at the

time that he filed his petition, well aware of the provisions of

section 6673(a), as demonstrated by the references to that

section in the petition and the attachments thereto.
 - 14 -

Nevertheless, petitioner chose to ignore well-established

precedent of this and other Federal courts and pursue instead his

protest agenda.

In view of the foregoing, we will exercise our discretion

under section 6673(a)(1) and require petitioner to pay a penalty

to the United States in the amount of $2,500. Coleman v.

Commissioner, supra at 71-72; Crain v. Commissioner, supra at

1417-1418; Coulter v. Commissioner, 82 T.C. 580, 584-586 (1984);

Abrams v. Commissioner, 82 T.C. 403, 408-411 (1984).

In order to reflect the foregoing,

An order of dismissal and

decision will be entered.