T.C. Memo. 1995-540
UNITED STATES TAX COURT
SCOTT R. PHILIPS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10078-94. November 14, 1995.
Scott R. Philips, pro se.
Ronald J. Aiani, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
FOLEY, Judge: By notices dated March 11, 1994, March 18,
1994, April 12, 1994, and June 15, 1994, respondent determined
deficiencies in and additions to petitioner's Federal income
taxes as follows:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1987 $25,096 $6,274.00 $1,355
1988 19,548 4,887.00 1,248
1989 28,462 7,116.00 1,926
1990 33,185 8,296.25 2,178
1991 30,884 7,721.00 1,771
This case presents the following issues:
1. Whether petitioner is liable for the deficiencies
determined by respondent. We hold that petitioner is liable.
2. Whether petitioner is liable for additions to tax
pursuant to section 6651(a)(1)1 for failing to file Federal
income tax returns. We hold that petitioner is liable.
3. Whether petitioner is liable for additions to tax
pursuant to section 6654 for failing to make estimated Federal
income tax payments. We hold that petitioner is liable.
4. Whether petitioner has asserted frivolous and groundless
arguments that warrant the imposition of a penalty pursuant to
section 6673. We hold that petitioner has asserted frivolous and
groundless arguments, and the Court shall impose a penalty.
FINDINGS OF FACT
The parties have stipulated all relevant facts, and these
facts are so found.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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Petitioner resided in San Clemente, California, at the time
he filed his petition. Petitioner has acknowledged that he
received income from several sources in taxable years 1987
through 1991 yet did not file individual income tax returns for
those years. In 1987, petitioner received $70,500 from Ronco
Plastics, Inc., and $809 from Buckhorn, Inc. In 1988, petitioner
received $60,000 from Ronco Plastics, Inc. In 1989, petitioner
received $76,100 from Ronco Plastics, Inc., $10,250 from American
Telephone & Telegraph Co., $160 from ADAC Laboratories, and $10
from American Transtech. In 1990, petitioner received $100,738
from Ronco Plastics, Inc., $40 from ADAC Laboratories, and $14
from U.S. Clearing Corp. In 1991, petitioner received $93,600
from Ronco Plastics, Inc. The amounts received from Ronco
Plastics, Inc., were compensation; the other amounts were
dividends and returns on stock and bond investments.
In answering respondent's notice of deficiency, petitioner
on June 9, 1994, filed a defective petition with this Court. The
petition submitted did not comply with the form and content rules
set forth in Rule 34(b). Petitioner presented typical tax
protester arguments and claimed that he is not subject to the
income tax. He also challenged respondent's "SUBJECT MATTER
JURISDICTION", questioned whether he could "BE LIABLE FOR AN
INCOME TAX" on his wages, and asserted that wages "ARE NOT A
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REVENUE TAXABLE EVENT WITHIN THE PURVIEW OF THE INTERNAL REVENUE
CODE."
On June 14, 1994, the Court ordered petitioner to file an
amended petition by August 15, 1994. In response, petitioner
submitted on August 11, 1994, the same defective petition that
had been rejected by the Court on June 14, 1994 (except that it
bore a new date). On October 13, 1994, respondent filed a Motion
to Dismiss for Failure to State a Claim upon Which Relief Can Be
Granted. In its motion, respondent also asked the Court to
impose a penalty pursuant to section 6673.
On October 14, 1994, the Court issued an order directing
petitioner to file a written objection setting forth clear and
concise reasons why respondent's motion to dismiss should not be
granted or, in the alternative, setting forth clear and concise
allegations of error and facts concerning the merits of the
specific adjustments contained in the notices of deficiency. In
its order, the Court also advised petitioner that penalties have
been imposed under section 6673 in similar cases.
On November 14, 1994, petitioner filed a second amended
petition that complied with the Court's form and content
requirements. Accordingly, the Court denied respondent's Motion
to Dismiss on November 21, 1994.
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On September 11, 1995, respondent filed a Motion for
Sanctions Pursuant to I.R.C. § 6673. A trial was held in Los
Angeles, California, on September 12, 1995.
OPINION
The Internal Revenue Code provides that gross income means
all income from whatever source derived. Sec. 61(a). The
Supreme Court has held that income includes "gain derived from
capital, from labor, or from both combined." Eisner v. Macomber,
252 U.S. 189, 207 (1920). The Court of Appeals for the Ninth
Circuit, to which any appeal in this case would lie, has
expressly held that wages are income and are subject to taxation.
United States v. Romero, 640 F.2d 1014, 1016 (9th Cir. 1981).
In affirming this Court's decision in a tax protester case,
the Court of Appeals for the Seventh Circuit aptly noted: "Some
people believe with great fervor preposterous things that just
happen to coincide with their self-interest. 'Tax protesters'
have convinced themselves that wages are not income, that only
gold is money, that the Sixteenth Amendment is unconstitutional,
and so on." Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir.
1986).
In this case, petitioner advanced a variety of
constitutional arguments that the courts have uniformly rejected.
Generally, he argued that: (1) He is not a "taxpayer" as defined
in the Internal Revenue Code; (2) the Tax Court lacks
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jurisdiction to decide this case; and (3) an income tax violates
the Sixteenth Amendment because it is an impermissible "direct
tax". We see no need to fully describe each of petitioner's
constitutional arguments or to address them individually. To do
so might imply that the arguments have some colorable merit when
in fact they are groundless.
It is sufficient to note that petitioner readily
acknowledges that he received income yet refuses to pay tax on
it. Accordingly, we hold that petitioner is liable for the
deficiencies determined by respondent.
Respondent determined additions to tax under sections
6651(a)(1) and 6654. Section 6651(a)(1) imposes an addition to
tax for failure to file a timely return unless it is shown that
such failure to file was due to reasonable cause and not due to
willful neglect. Petitioner bears the burden of proving that he
had reasonable cause for failing to file tax returns for the
years in issue. Rule 142(a); Larsen v. Commissioner, 765 F.2d
939, 941 (9th Cir. 1985). Petitioner's tax protester rhetoric
does not establish reasonable cause. Accordingly, we hold that
petitioner is liable for additions to tax under section
6651(a)(1).
Section 6654(a) generally imposes an addition to tax if the
total tax withheld and any estimated tax payments made during a
year do not equal or exceed the threshold set forth in section
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6654(d). During the 5 years in issue, petitioner received income
totaling $412,221. His tax liability totaled $137,175, yet his
tax payments totaled zero. Petitioner offered no evidence
showing that he qualified under an exception to section 6654(a).
Accordingly, we hold that petitioner is liable for additions to
tax under section 6654(a).
Finally, we consider whether a penalty should be imposed
under section 6673. Section 6673(a)(1) provides that, whenever
it appears to the Tax Court that the taxpayer's position in a
proceeding is frivolous or groundless, the Court may impose a
penalty not in excess of $25,000. This Court has often imposed
such penalties on taxpayers who make frivolous tax protester
arguments. See, e.g., Coulter v. Commissioner, 82 T.C. 580, 584-
586 (1984); Abrams v. Commissioner, 82 T.C. 403, 408-413 (1984);
Wilkinson v. Commissioner, 71 T.C. 633, 639-643 (1979);
Santangelo v. Commissioner, T.C. Memo. 1995-468; McNeel v.
Commissioner, T.C. Memo. 1995-211; Devon v. Commissioner, T.C.
Memo. 1995-206; Carr v. Commissioner, T.C. Memo. 1995-138; cf.
Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985) (noting
that the argument that wages are not income "has been rejected so
frequently that the very raising of it justifies the imposition
of sanctions").
In this case, petitioner knew that courts have repeatedly
rejected his constitutional arguments and repeatedly imposed the
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section 6673 penalty on taxpayers who have made such arguments.
Indeed, the Court so advised petitioner in its October 14, 1994,
order.
In his trial memorandum, however, petitioner continued to
assert the same groundless claims. Petitioner stated, for
example, that "the free exercise and enjoyment of the God-given
and constitutionally secured right to lawfully acquire property
or compensatory income, by lawfully contracting one's own labor
in innocent and harmless activities, for lawful compensation,
cannot be (and therefore has not been) taxed for revenue
purposes." Petitioner made similar assertions in his request for
admissions, in his proposed joint stipulation of facts, and in a
list of 21 "Special Questions for the Tax Court" that served no
function but to restate petitioner's antitax views.
At the beginning of the trial, the Court warned petitioner
that it would impose a penalty, up to $25,000, if it found
his position to be frivolous and groundless. During the trial,
the Court admonished petitioner several times to set forth a
legitimate argument for not paying the taxes due. Ignoring these
admonitions, petitioner consumed all of his trial time asserting
that his income is not subject to taxation, contending that this
Court did not have jurisdiction, and asking extraneous questions.
Among his inquiries, he asked: "Am I here under common law?",
"Is this a Court of Admiralty?", and "Does this Court have
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anything to do with the Uniform Commercial Code?" He also stated
that he did not "see a corpus delicti" in this case.
In sum, petitioner has advanced trite constitutional
arguments in his submissions to this Court and at trial.
Petitioner has received $412,221 during the tax years in issue
yet has steadfastly refused to honor his obligation to pay taxes.
Indeed, his actions have wasted the time and resources of the
Internal Revenue Service and this Court. Accordingly, we hold
that petitioner's position in these proceedings is frivolous and
groundless, and the Court shall impose a penalty of $10,000.
Respondent's motion for sanctions
will be granted, and decision will be
entered for respondent.