Curtis v. Commissioner

T.C. Memo. 1996-484

UNITED STATES TAX COURT

LAUREL ANN CURTIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11125-95. Filed October 28, 1996.

R determined deficiencies in and additions to P's
Federal income tax. P failed to address substantively
the pertinent issues in this case and resorted instead
to making absurd, discredited, and misguided tax-
protester arguments.
1. Held: R's deficiency determinations are
sustained.
2. Held, further, sec. 6651(a)(1), I.R.C.,
additions to tax are sustained against P.
3. Held, further, sec. 6654(a), I.R.C., additions
to tax are sustained against P.
4. Held, further, sec. 6673(a)(1), I.R.C.,
penalty in the amount of $15,000 is imposed, P's tax-
protester arguments being considered frivolous and
groundless, and this proceeding having been instituted
primarily for delay.
 - 2 -

Laurel Ann Curtis, pro se.

Brenda M. Fitzgerald, for respondent.

MEMORANDUM OPINION

HALPERN, Judge: By four separate notices of deficiency,

each dated March 20, 1995, respondent determined deficiencies in

petitioner’s Federal income tax and additions to tax under

sections 6651(a)(1) (failure to file tax return) and 6654(a)

(failure to pay estimated tax) as follows:

Additions to Tax
Sec. Sec.
Year Deficiency 6651(a)(1) 6654(a)
1983 $4,533 $1,133 $277
1984 5,098 1,275 321
1985 5,863 1,466 336
1986 10,619 2,655 513
1987 11,578 2,895 624
1988 11,156 2,789 713
1989 12,748 3,187 865
1990 13,969 3,492 920
1991 12,141 3,035 698
1992 22,074 5,519 964
1993 17,493 4,373 732

In addition to determining whether these deficiencies in tax and

additions to tax should be sustained, we must determine whether

petitioner must pay to the United States a penalty under section

6673(a)(1) on account of instituting or maintaining proceedings

primarily for delay or taking positions that are frivolous or

groundless.
 - 3 -

Unless otherwise noted, 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.

Background

Petitioner filed a petition on June 22, 1995. At that time

petitioner resided in Portland, Oregon. In the petition,

petitioner states the basis of her disagreement with respondent

for each year in issue. Petitioner claims that respondent has

attributed to her more income than she has earned and has allowed

her far less expense than she has incurred and is allowed to

deduct. In the petition, petitioner states that the relevant

notices of deficiency are attached thereto. In the answer,

respondent denies for lack of knowledge that complete copies of

the notices of deficiency are attached to the petition. There

are four separate pages attached to the petition, each dated

March 20, 1995, each titled “NOTICE OF DEFICIENCY”, and each

setting forth the amounts of deficiencies and penalties

(additions to tax) for two or more of the years in issue. Each

page carries at the bottom the notation “(continued next page)”,

but no additional pages are attached to the petition.

Prior to the trial in this case, which was held in Portland,

Oregon, on May 21, 1996, petitioner filed, among other motions, a

motion to dismiss, a motion for sanctions against respondent for

failure to litigate in good faith, and a motion for continuance
 - 4 -

of trial pending U.S. District Court decision on petitioner’s

motion to quash 90-day deficiency notice. All of those motions

were denied.

At the trial in this case, petitioner offered no stipulation

of any agreed facts, nor did she offer any stipulated exhibits.

She offered no other documentary evidence. She testified on her

own behalf, but she did not rebut the adjustments giving rise to

respondent’s determinations of deficiencies in tax. The

substance of her testimony was an argument that the Government

has no authority to tax her income and that the Court has no

authority to decide this case. Indeed, petitioner testified that

she had stated to respondent’s counsel in this case that she

would “pay every dime, anything you say, if you [respondent’s

counsel] will show me in the tax code what section makes me

liable for an income tax.” Petitioner concedes that she has

failed to file returns for the years in question or make any

payments of tax.

Subsequent to the trial of this case, petitioner moved for

sanctions, pursuant to rule 11 of the Federal Rules of Civil

Procedure, against respondent. We denied that motion.

Discussion

I. Deficiencies In Tax

A. Adjustments In Issue

Rule 34(b) deals with the content of petitions in deficiency

actions. Subdivision (8) of Rule 34(b) requires that a copy of
 - 5 -

the notice of deficiency be appended to the petition and that

there shall be included so much of any statement accompanying the

notice as is material to the issues raised by the assignments of

error. Petitioner received four notices of deficiency, and she

attached to the petition only the first page of each. Those

pages contain no explanation of the adjustments giving rise to

respondent’s determinations of deficiencies. Petitioner’s

testimony and portions of her brief filed June 20, 1996

(petitioner’s brief), make it clear that there was more than one

page to each of the notices of deficiency received by her.

Indeed, attached to her brief is an “Exhibit A” (Exhibit A),

which states that it is an explanation of adjustments for 1992

and 1993. Petitioner offers Exhibit A as a portion of the

deficiency notice received by her for 1992 and 1993 that,

according to her contention, contains a mathematical error.

Petitioner has violated our Rules by not attaching to her

petition the portions of respondent’s notices that explain

respondent’s adjustments.

We have deduced, however, from Exhibit A and from

petitioner’s testimony and briefs that respondent’s adjustments

leading to the deficiencies in question result from respondent’s

claim that petitioner failed to report certain rental income from

real estate in each of the years in issue. Exhibit A states:

It is determined that you received gross income from
rental income as shown above. The gross income amounts
have been determined according to the information
 - 6 -

available, including information provided by the payers
of rental income and/or third party recordkeepers.

Moreover, in petitioner’s brief, she states: “The alleged

deficiency notices admit petitioner’s only source of income was

in the form of real estate rents including rents from property

not owned or otherwise controlled by petitioner.” (Emphasis

added.)

Further, from petitioner’s testimony, we deduce that the

essential point of petitioner’s disagreement with respondent over

the real estate income concerns whether petitioner still owns the

real property in question. Petitioner testified:

In our meeting [petitioner with respondent’s
counsel] I pointed out that they [the IRS] were
attributing real estate rents from property that I’ve
not owned, controlled or had any interest, no financial
interest in whatsoever, for at least a decade. * * *

Thus, we shall determine whether petitioner has proven that

she no longer owns the real estate in question.

B. Burden Of Proof

The general rule is that the burden of proof is upon

petitioner, Rule 142(a), which she must carry by a preponderance

of the evidence, e.g., Schaffer v. Commissioner, 779 F.2d 849,

858 (2d Cir. 1985), affg. in part and remanding Mandina v.

Commissioner, T.C. Memo. 1982-34. This case involves unreported

income, however, and it is likely that any appeal will lie to the

Court of Appeals for the Ninth Circuit. Under Weimerskirch v.

Commissioner, 596 F.2d 358 (9th Cir. 1979), revg. 67 T.C. 672
 - 7 -

(1977), to which we defer in accordance with the doctrine of

Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985

(10th Cir. 1971), we must examine the record to determine whether

there is a minimal evidentiary foundation supporting respondent’s

determination of unreported income.1 If there is not,

respondent’s determination will be deemed arbitrary and,

consequently, she will lose her presumption of correctness and

will be forced to go forward with the evidence. Weimerskirch v.

Commissioner, supra. The record, however, does contain evidence

supporting respondent’s determination of unreported income, and,

therefore, the burden of proof remains entirely with petitioner.

1
Although Weimerskirch v. Commissioner, 596 F.2d 358 (9th
Cir. 1979), revg. 67 T.C. 672 (1977), dealt specifically with
illegal unreported income, it is now well established that the
Court of Appeals for the Ninth Circuit applies the Weimerskirch
rule in all cases of unreported income where the taxpayer
challenges the Commissioner’s determination on the merits. E.g.,
Edwards v. Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982) (in
that case, involving unreported income from an income-generating
auto repair business owned by the taxpayer, the court stated:
“We note, however, that the Commissioner’s assertion of
deficiencies are presumptively correct once some substantive
evidence is introduced demonstrating that the taxpayer received
unreported income. Weimerskirch v. Commissioner, 596 F.2d 358,
360 (9th Cir. 1979).”); Petzoldt v. Commissioner, 92 T.C. 661,
689 (1989) ("the Ninth Circuit requires that respondent come
forward with substantive evidence establishing a ‘minimal
evidentiary foundation’ in all cases involving the receipt of
unreported income to preserve the statutory notice's presumption
of correctness. Weimerskirch v. Commissioner, 596 F.2d at 362."
(Emphasis added.)); Roat v. Commissioner, 847 F.2d 1379, 1382
(9th Cir. 1988) (Commissioner can rely on the presumption that
his determination is correct if taxpayer does not contest the
determination on the merits).
 - 8 -

Respondent determined unreported income from real estate

that petitioner concedes she once owned, but claims she no longer

owns. Petitioner cannot credibly maintain that she does not know

what real estate respondent has in mind. Moreover, ownership of

real estate is a matter that is commonly proved in courts of law.

Indeed, attached as exhibits to petitioner’s brief are affidavits

that petitioner claims prove just that issue. Petitioner has the

burden to prove that she no longer owns the real estate in

question. Petitioner, however, has failed to carry that burden.

C. Ownership of Real Estate

In the petition, petitioner avers nothing with respect to

the ownership of any real estate. Petitioner’s brief contains

sections titled “Petitioner’s Sworn Statement of Facts” and

“Proposed Findings of Fact”. Neither section, if intended to be

petitioner’s proposed findings of fact, complies with Rule

151(e)(3).2 The first section, “Petitioner’s Sworn Statements of

2
Rule 151(e)(3) provides:

(e) Form and Content: All briefs shall contain
the following in the order indicated:

* * * * * * *

(3) Proposed findings of fact (in the opening
brief or briefs), based on the evidence, in the form of
numbered statements, each of which shall be complete
and shall consist of a concise statement of essential
fact and not a recital of testimony nor a discussion or
argument relating to the evidence or the law. In each
such numbered statement, there shall be inserted
references to the pages of the transcript or the
(continued...)
 - 9 -

Facts”, is a narrative concerning certain portions of

petitioner’s life, with particular reference to income tax

difficulties. It does not relate to the evidence in this case;

it contains no references to the transcript, exhibits, or other

sources relied upon to support statements. It does not address

ownership of the real estate in question. The second section,

“Proposed Findings of Fact”, contains no proposed findings, but

contains petitioner’s proposals for the Court to take particular

actions and for the Court to accept her arguments concerning the

law. Attached to petitioner’s brief are various exhibits,

including exhibits that appear to be attempts at affidavits

addressing ownership of certain real estate. Those exhibits are

not evidence, and we shall not consider them.

Petitioner testified that the deficiencies in question were

attributable to real estate rents from property that she no

longer owned. Petitioner offered no corrobative evidence, either

testimonial or written, to support that assertion. Indeed, she

failed even to identify the properties in question. Given

petitioner’s failure to corroborate her assertions, we need not,

and decline to, take them at face value. See, e.g., Day v.

2
(...continued)
exhibits or other sources relied upon to support the
statement. In an answering or reply brief, the party
shall set forth any objections, together with the
reasons therefor, to any proposed findings of any other
party, showing the numbers of the statements to which
the objections are directed; in addition, the party may
set forth alternative proposed findings of fact.
 - 10 -

Commissioner, 975 F.2d 534, 538 (8th Cir. 1992), affg. in part,

revg. in part T.C. Memo. 1991-140; Liddy v. Commissioner, 808

F.2d 312 (4th Cir. 1986), affg. T.C. Memo. 1985-107. We

disbelieve petitioner’s testimony that she did not own the

properties in question and accord it no weight. Petitioner has

failed to carry her burden of proving that she did not own the

real estate in question.

D. Rents Includable In Gross Income

Petitioner has not argued that the real estate in question

was not rent producing, nor has she produced evidence to that

effect. Rents are includable in gross income. Sec. 61(a)(5).

Petitioner has failed to convince us that there is any error in

respondent’s adjustments increasing her gross income on account

of the omission of certain rental income.

E. Petitioner’s Legal Arguments

Petitioner’s principal legal arguments in this case are

directed to the authority of the Government to tax her income and

the authority of the Court to hear her case. Petitioner’s brief

contains a section titled “Petitioner’s Statement on Points of

Law”, which contains a list of petitioner’s legal arguments. In

pertinent part, that list is as follows:

6. Petitioner had no income within the meaning of the
law.

7. Petitioner's real estate rents are not subject to
an income tax as a matter of law.

8. An income tax on petitioner's rents pursuant to
Pollock is an unapportioned direct tax.
 - 11 -

9. No statute makes Petitioner legally "liable" for an
income tax.

10. No statute authorizes the Secretary to estimate an
amount of tax based on a return. The Secretary has
statutory authority only to estimate a tax omitted to
be paid by stamp.

11. No assessment exists, therefore, no deficiency can
arise as a matter of law.

12. If a return is not filed the Secretary is limited
by law to either assessing the tax or bringing an
action in court for collection. The Secretary has done
neither in this case.

13. By law all Internal Revenue Code sections require
an implementing regulation to become enforceable or
mandatory.

14. Code section 6211 is totally without implementing
regulation.

15. By law, no penalties can be imposed under a Code
section lacking legislative regulation.

16. By law, no tax is due until an assessment is made
and the date for payment arrives.

17. The income tax laws are based on voluntary self-
assessment not upon distraint.

18. The 16th Amendment did not give Congress any new
taxing power.

19. Code section 6651 has no legislative regulation
having the force and effect of law to apply penalties
for failure to file or pay an income tax.

20. Code section 6654 requires an original estimated
assessment of the tax and underpayment before penalties
can apply.

21. Code section 6673 has absolutely no legislative
implementing regulation and is without the force and
effect of law.

22. Code section 6214 limits the jurisdiction of Tax
Court to redetermining a deficiency when a return is
deficient.
 - 12 -

23. By law, Tax Court has no authority to decide
matters of law or Constitutional issues.

24. The deficiency notices are null and void because
they were issued in violation of procedures required by
law.

25. By law, Tax Court cannot acquire jurisdiction if
petition is coerced or compelled under duress.

26. It is fact that a civil case is decided based upon
a preponderance of the evidence. Petitioner gave
evidence in sworn testimony that the deficiency notices
were not true. All of this evidence and all of the
other issues raised by petitioner went undenied,
unchallenged and unrefuted by respondent and,
therefore, must be considered by the Court to be true.

Petitioner's contentions are typical tax-protester

arguments, which have been rejected repeatedly by the courts.

For example, the Tax Court has jurisdiction to decide

constitutional questions. E.g., Rager v. Commissioner, 775 F.2d

1081, 1083 (9th Cir. 1985) (finding taxpayer’s argument to the

contrary to be frivolous), affg. T.C. Memo. 1984-563. An

unapportioned income tax on real estate rents does not violate

the taxing clauses of the U.S. Constitution. See Brushaber v.

Union Pac. R.R., 240 U.S. 1, 17-18 (1916); see also New York ex

rel. Cohn v. Graves, 300 U.S. 308, 314 (1937) (stating that a tax

on income from real property is different from a tax on the real

property itself, distinguishing Pollock v. Farmers' Loan & Trust

Co., 157 U.S. 429, on rehearing 158 U.S. 601 (1895)); United

States v. Nelson (In re Becraft), 885 F.2d 547, 550 (9th Cir.

1989) (imposing, sua sponte, sanctions on attorney for raising

unapportioned direct tax argument on appeal); Ficalora v.
 - 13 -

Commissioner, 751 F.2d 85, 87 (2d Cir. 1984) (holding that an

unapportioned income tax on wages is constitutional). A tax

return is not a prerequisite of a valid notice of deficiency.

See Schiff v. United States, 919 F.2d 830, 832 (2d Cir. 1990);

Roat v. Commissioner, 847 F.2d 1379, 1381-1382, 1384 (9th Cir.

1988) (denying Government’s request for sanctions, but warning

that the rejected arguments “have no place in this court.”);

Hartman v. Commissioner, 65 T.C. 542, 546 (1975). Petitioner's

other arguments are equally frivolous and without merit. All of

petitioner’s legal arguments are rejected as without merit.

F. Conclusion

Respondent’s determinations of deficiencies are sustained in

full.

II. Additions to Tax

A. Section 6651(a)(1)

Section 6651(a)(1) imposes an addition to tax for failure to

file a timely return, unless it is shown that such failure is due

to reasonable cause and not due to willful neglect. Petitioner

bears the burden of proof as to reasonable cause and the absence

of willful neglect. See Rule 142(a).

Petitioner has conceded that she consciously decided not to

file returns for the taxable years in issue. Petitioner only

offers unreasonable tax-protester arguments to justify her

failure to file. Petitioner has not carried her burden of proof.
 - 14 -

Respondent's determinations of additions to tax under section

6651(a)(1) are sustained.

B. Section 6654(a)

Section 6654(a) imposes an addition to tax for failure to

make timely estimated income tax payments. Section 6654(e)

contains exceptions to application of the addition to tax.3

Petitioner bears the burden of proving that she paid estimated

tax or that any of the exceptions apply. See Rule 142(a).

Petitioner concedes that she paid no tax, and she has not

proven that any of the exceptions apply. Again, petitioner only

offers unreasonable tax-protester arguments to justify her

failure to comply. Petitioner has not carried her burden of

proof. Respondent's determinations of additions to tax under

section 6654(a) are sustained.

III. Penalty

Respondent orally moved that we impose a penalty on

petitioner pursuant to section 6673(a)(1). Section 6673(a)(1)

provides that we may impose a penalty of up to $25,000 where,

among other things, a taxpayer has instituted or maintained

proceedings primarily for delay or where the taxpayer takes

positions that are 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

3
For some of the years in issue, different subsections of
sec. 6654 contain the exceptions.
 - 15 -

law * * * The inquiry is objective. If a person should have

known that his position is groundless, a court may and should

impose sanctions." Coleman v. Commissioner, 791 F.2d 68, 71 (7th

Cir. 1986); Booker v. Commissioner, T.C. Memo. 1996-261; see also

Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th Cir. 1987)

(apparent finding that petitioner should have known that claim

was frivolous allows for section 6673 penalty).

Based on the record in this case, we conclude that

petitioner's position in this proceeding is both frivolous and

groundless and that petitioner undertook certain actions

primarily for delay. Petitioner has never substantively

addressed the pertinent issues in this case, which relate to the

correct determination of income and deductions for the years in

issue and various additions to tax. Instead, petitioner has

asserted absurd, discredited, and misguided tax-protester

arguments such as the following: (1) the Internal Revenue Code

does not make anyone "liable" for an income tax, (2) the Internal

Revenue Code contains no mandatory provisions, and therefore,

compliance is voluntary, (3) the Tax Court has no authority to

decide matters of law or Constitutional issues, and (4) an income

tax on petitioner’s rents pursuant to Pollock v. Farmers’ Loan &

Trust Co., supra, is an unapportioned direct tax.

Petitioner has maintained her frivolous and groundless

positions not only by way of her testimony and on brief, but also

in numerous additional written submissions to the Court, all of
 - 16 -

which have required consideration and response by the Court.

Petitioner’s pretrial motions--her motion to dismiss, her motion

for sanctions against respondent for failure to litigate in good

faith, and her motion for continuance of trial pending

U.S. District Court decision on petitioner’s motion to quash 90-

day deficiency notice--run 24 pages, 59 pages, and 53 pages,

respectively. Her posttrial motion for rule 11 sanctions against

respondent runs 26 pages. Petitioner’s motions repeat many of

the same arguments made by her on brief and at trial. In

addition, they contain new propositions that are equally without

merit. We cannot escape the conclusion that some or all of

petitioner’s actions have been taken to delay the final

resolution of her case.

Petitioner’s filings have been both numerous and lengthy.

Notwithstanding the lack of merit to her arguments, she has

caused both the Court and respondent to expend scarce resources

to respond to those filings and to conduct a trial that barely

touched the grounds of respondent’s determinations of

deficiencies. Although this appears to be petitioner’s first

trip to the Tax Court, she is deserving of a significant penalty

because of the persistence of her frivolous assault.

Accordingly, respondent’s oral motion for damages will be

granted and petitioner will be required to pay to the United

States a penalty in the amount of $15,000.

An appropriate order and

decision will be entered.