Earl v. Commissioner

T.C. Memo. 1998-16

UNITED STATES TAX COURT

Franklin Earl, Kish, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27493-96. Filed January 13, 1998.

Franklin Earl, Kish, pro se.

Eric R. Skinner, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LARO, Judge: Franklin Earl, Kish petitioned the Court to

redetermine respondent's determination of deficiencies in and

additions to his 1992 through 1994 Federal income taxes.

Respondent determined the following deficiencies and additions

thereto:
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Additions to Tax
Sec. Sec.
Year Deficiency 6651(f) 6654

1992 $12,153 $7,214 $123
1993 36,489 26,892 1,499
1994 55,518 41,639 2,860

Respondent also determined that petitioner is liable for

additions to each year's tax under section 6651(a), to the extent

that he is not liable for the additions to tax under section

6651(f).

We must decide the following issues:

1. Whether petitioner received $25,742 and $6,540 of wages

in 1992 and 1993, respectively, as determined by respondent. We

hold he did.

2. Whether petitioner received $23,892, $101,164, and

$151,548 of gross receipts in 1992 through 1994, respectively, as

determined by respondent. We hold he did.

3. Whether petitioner is liable for the additions to tax

for fraudulent failure to file determined by respondent under

section 6651(f). We hold he is.1

4. Whether petitioner is liable for the additions to tax

for failure to pay estimated tax determined by respondent under

section 6654. We hold he is.

1
Thus, we do not decide respondent's alternative
determination under sec. 6651(a).
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5. Whether petitioner is liable for a sanction under

section 6673(a). We hold he is and require him to pay to the

United States a penalty of $5,000.

Section references are to the Internal Revenue Code in

effect for the subject years. Rule references are to the Tax

Court Rules of Practice and Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated. These stipulations

and the exhibits submitted therewith are incorporated herein by

this reference. Petitioner did not file a Federal income tax

return for any of the subject years. He claims not to have had a

Social Security number during these years because he "rescinded"

the Social Security number that was given to him many years

before. Petitioner lived in West Olive, Michigan, when he

petitioned the Court.

In 1992 and 1993, petitioner worked as an employee of the

Grand Rapids Area Transit Authority, f.k.a. Grand Rapids City

Coach Lines (the Authority), and the Authority paid him wages of

$25,742 and $6,540 during the respective years. Petitioner also

marketed biomagnetic devices in each subject year through his

sole proprietorship known as Universal Magnetics.

Petitioner and his wife have at least two joint bank

accounts at ATL Employees Credit Union (the Credit Union). These

accounts are numbered 17075-2-01 and 17075-2-10. Petitioner also
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has two bank accounts at the Credit Union which are titled in the

name "Universal Magnetics". These accounts are numbered

17076-5-01 and 17076-2-10. During the subject years, the

following total deposits were made into these four accounts:

Account Numbers 1992 1993 1994

17075-2-01 $25,770 $27,069 $32,011
17075-2-10 10,226 39,952 8,628
17076-5-01 17,734 76,927 123,916
17076-5-10 280 6,119 900
Total 54,010 150,067 165,455

After these total deposits were reduced by petitioner's net

wages, transfers, interest, and redeposits, the net deposits into

these accounts totaled $23,892, $101,164, and $151,548 during the

respective years.

Petitioner submitted a letter dated July 13, 1994, to the

Director of Foreign Operations District, Internal Revenue

Service, stating that petitioner is not a "citizen of the

United States" and is not a 'person', nor an 'individual', nor a

'taxpayer' as those terms are defined at 26 U.S.C. 7701."

Petitioner also submitted a letter dated November 7, 1995, to the

Office of Regional Commissioner stating that petitioner was not a

"taxpayer" as that term is defined in the Code, and that the

Sixteenth Amendment to the United States Constitution does not

give the Federal Government the right to tax him.
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During respondent's audit of the subject years, respondent

issued a summons to the Credit Union on August 4, 1995,

requesting financial information on petitioner. Respondent did

so after his revenue agent had attempted unsuccessfully to get

the information from petitioner. Petitioner moved the U.S.

District Court of Michigan, Western District, on August 23, 1995,

to quash respondent's summons, asserting primarily frivolous

claims of constitutional violations. Petitioner stated in his

affidavit accompanying his motion that "We have no source of

income from within the United States or a State. Nor are we

engaged in a 'trade or business' within the United States". On

January 30, 1996, the District Court dismissed petitioner's

motion as frivolous and sanctioned him $250 for filing a petition

and brief as "nonsensical attempts to interfere with compliance

with a valid summons". The District Court also stated that

petitioner raised "barely intelligible claims of the kind

generally advanced in 'tax protestor' cases".

Before the subject years, petitioner had a history of filing

Federal income tax returns.

OPINION

Petitioner did not file an income tax return for any of the

subject years, and respondent determined that petitioner was

liable for the above-mentioned deficiencies and additions

thereto. Except for the additions to tax for fraudulent failure
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to file, petitioner must prove respondent's determinations wrong.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Respondent must prove the determinations of fraud by clear and

convincing evidence. Sec. 7454; Rule 142(b); Castillo v.

Commissioner, 84 T.C. 405, 408 (1985).

Petitioner has not introduced any evidence that rebuts the

evidence submitted in support of respondent's determination of

the income tax deficiencies and additions thereto for which

petitioner has the burden of proof. Instead of attempting to

challenge the merits of respondent's determinations, petitioner

chooses to rely on shopworn assertions as to the validity of the

Federal income tax system and the authority of this Court to

conduct this proceeding. All of petitioner's arguments are

similar to rejected arguments of other taxpayers who have

previously petitioned this Court in protest of their liability

for Federal income tax. Petitioner's assertions in this case are

characteristic of the tax-protester rhetoric that has been

universally rejected by this and other courts. We will not

painstakingly address petitioner's assertions as to the validity

of the Federal income tax system or the authority of this Court

"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, 1417 (5th Cir. 1984).

Suffice it to say that petitioner is subject to Federal income
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tax during the relevant years, that we have the authority to

conduct this proceeding, and that we sustain respondent's

determinations for which petitioner has the burden of proof.

Accord Minguske v. Commissioner, T.C. Memo. 1997-573.

With respect to the additions to tax for fraudulent failure

to file, respondent argues that petitioner is liable for these

additions because: (1) He failed to file his required tax

returns, (2) he refused to cooperate with respondent's agents

during the administrative and judicial proceedings, (3) he

refused to disclose his books and records needed to calculate his

income tax liability, (4) he refused to file returns after

respondent advised him of his duty to do so, (5) he submitted

numerous letters, motions, and pleadings attempting to raise a

litany of shop-worn tax protester arguments, and (6) he took

affirmative steps to conceal his income-producing activities by

moving frivolously to quash the summons served on the Credit

Union for financial information on him.

For returns the due date for which is after December 31,

1989, determined without regard to extensions, section 6651(f)

imposes a 75-percent addition to tax where a failure to file a

return is fraudulent. See also Clayton v. Commissioner, 102 T.C.

632, 653 (1994) (inquiry into fraud under section 6651(f) is

similar to inquiry into fraud under former section 6653(b)(1)).

Fraud is the intentional wrongdoing on the part of a taxpayer to
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evade a tax believed to be owing, Miller v. Commissioner, 94 T.C.

316, 332 (1990); Petzoldt v. Commissioner, 92 T.C. 661, 698

(1989), and is shown by proof that the taxpayer intended to

conceal, mislead, or otherwise prevent the collection of his or

her tax, Spies v. United States, 317 U.S. 492, 499 (1943);

Douge v. Commissioner, 899 F.2d 164, 168 (2d Cir. 1990);

Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968);

Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg.

T.C. Memo. 1966-81; Rowlee v. Commissioner, 80 T.C. 1111, 1123

(1983).

Direct proof of a taxpayer's intent is rarely available;

thus, fraud may be proven by circumstantial evidence, and

reasonable inferences may be drawn from the relevant facts.

Spies v. United States, supra at 499; Stephenson v. Commissioner,

79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984).

The following indicia of fraud are examples of circumstantial

evidence of fraudulent intent: (1) Understating income;

(2) maintaining inadequate records; (3) failing to file tax

returns; (4) giving implausible or inconsistent explanations of

behavior; (5) concealing assets; (6) failing to cooperate with

tax authorities; (7) engaging in illegal activities;

(8) attempting to conceal illegal activities; (9) dealing in

cash; and (10) failing to make estimated tax payments.

Recklitis v. Commissioner, 91 T.C. 874, 910 (1988). These
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"badges of fraud" are nonexclusive, and none of them is

dispositive in and of itself. Niedringhaus v. Commissioner,

99 T.C. 202, 211 (1992). A taxpayer's education and business

background are also relevant to a finding of fraud, see

Wheadon v. Commissioner, T.C. Memo. 1992-633, as is a taxpayer's

refusal to cooperate with the Commissioner's summons authority

and a taxpayer's initiation of frivolous proceedings to quash a

summons issued pursuant to this authority, see Wedvik v.

Commissioner, 87 T.C. 1458 (1986).

The facts and circumstances of this case clearly and

convincingly support respondent's determination of fraud for each

year in issue. First, petitioner knew that he had an obligation

to file tax returns for the subject years, and he intentionally

failed to honor this obligation. Second, petitioner has

submitted tax protester documents during both the judicial and

administrative proceedings that were undertaken to determine his

tax liability, he was previously warned by the District Court of

the frivolity of his tax protester positions, and he was

previously sanctioned by the District Court for his frivolous

positions. Third, petitioner would not cooperate with the

revenue agent's requests for petitioner's books, records, and

other financial information, and he attempted frivolously to

quash a summons that was issued to the Credit Union for that

information. Fourth, petitioner attempted to conceal his
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moneymaking sole proprietorship by refusing to cooperate with

respondent during the audit. Fifth, petitioner misstated the

facts of his case in the affidavit, when he stated that he had no

source of income, and that he was not involved in a trade or

business. We conclude that petitioner failed to file Federal

income tax returns for each of the subject years with the intent

to conceal, mislead, or otherwise prevent the collection of

Federal income tax due and owing from him, and we sustain

respondent's determinations of the same.

As to respondent's motion for imposition of sanctions under

section 6673, section 6673(a)(1) allows this Court to award a

penalty not in excess of $25,000 when proceedings have been

instituted or maintained primarily for delay, or where the

taxpayer's position is frivolous or groundless. A taxpayer's

position is frivolous or groundless if it is contrary to

established law and unsupported by a reasoned, colorable argument

for change in the law. Coleman v. Commissioner, 791 F.2d 68, 71

(7th Cir. 1986); Sicalides v. Commissioner, T.C. Memo. 1989-164.

In our opinion, such is the case here, and we believe that a

penalty is appropriate. We will require petitioner to pay a

$5,000 penalty to the United States under section 6673(a).

To reflect the foregoing,

An appropriate order and

decision will be entered.