Reichenbach v. Commissioner

T.C. Memo. 1998-42

UNITED STATES TAX COURT

WILLIAM C. REICHENBACH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27706-96. Filed February 5, 1998.

William C. Reichenbach, pro se.

Lynn M. Brimer, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LARO, Judge: On September 30, 1996, respondent issued a

notice of deficiency to petitioner based on his failure to file

Federal income tax returns for 1993 and 1994 and report income

from the receipt of wages, gain from the sale of property, and

taxable distributions from qualified retirement plans.
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Respondent determined deficiencies and additions to tax as

follows:

Additions to Tax
Sec. Sec.
Year Deficiency 6651(a)(1) 6654

1993 $37,428 $6,397 $1,017
1994 41,918 8,829 1,782

Petitioner petitioned the Court on December 30, 1996, to

redetermine respondent's determination of these deficiencies and

additions to tax.

We must decide: (1) Whether petitioner is liable for the

deficiencies determined by respondent; (2) whether petitioner is

liable for the additions to tax determined by respondent under

section 6651(a)(1); (3) whether petitioner is liable for the

additions to tax determined by respondent under section 6654; and

(4) whether petitioner is liable for a penalty under section

6673. We hold for respondent on all issues. We also hold that

petitioner is liable for a penalty under section 6673 and require

him to pay to the United States a penalty of $5,000. Unless

otherwise stated, section references are to the Internal Revenue

Code in effect for the years in issue, and Rule references are to

the Tax Court Rules of Practice and Procedure. Dollar amounts

are rounded to the nearest dollar.
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FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Lake, Michigan, when he petitioned the Court.

During 1993 and 1994, petitioner was employed by and

received wages from General Motors Corp. totaling $69,805 and

$33,183, respectively. On September 16, 1993, petitioner sold

property located in Essexville, Michigan, for $79,900.

Petitioner had purchased this property in or around 1962 for

$15,500. During 1994, petitioner received two distributions from

qualified retirement plans: $69,079 from his individual

retirement account maintained by Merrill Lynch, and $15,380 from

General Motors Hourly-Rate Employees' Pension Trust.1 During

1993 and 1994, petitioner did not file Federal income tax returns

or make any estimated tax payments; petitioner had $11,842 and

$6,603, respectively, in Federal income taxes withheld from his

wages.

Respondent determined that petitioner should have reported

income as follows: For 1993, $69,805 in wages and $73,140 in net

capital gains;2 for 1994, $33,183 in wages and $84,459 in taxable

1
At the end of 1994, petitioner was 58 years old. See
sec. 72(t)(2)(A)(i).
2
The notice of deficiency identifies petitioner's net
(continued...)
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distributions. Respondent also determined that petitioner was

liable for additional tax under section 72(t). After an

adjustment for the standard deduction of a

married-filing-separate individual, respondent calculated

petitioner's 1993 and 1994 tax liabilities at $37,428 and

$41,918, respectively. Respondent credits petitioner for $11,842

and $6,603 in Federal income taxes withheld for 1993 and 1994,

respectively, to be applied against the determined deficiencies.

OPINION

As an initial matter, petitioner moved during trial to have

his case dismissed for lack of jurisdiction. He contends that

the Court lacks jurisdiction to hear cases involving withholding

taxes and that withholding taxes are in issue in this case. We

disagree. Petitioner failed to file Federal income tax returns

and report income. Petitioner's Federal income tax liabilities

are in issue. Respondent issued a valid notice of deficiency,

and petitioner filed a timely petition with the Court.

Consequently, the Court has jurisdiction over this case, and we

shall deny petitioner's motion. See secs. 6212, 6213, and 6214;

see also Cross v. Commissioner, 98 T.C. 613, 615 (1992); Pyo v.

Commissioner, 83 T.C. 626, 632 (1984).

2
(...continued)
capital gain as $73,140, based on petitioner's sale of property
at a sale price of $79,900 and a basis of $6,760. Respondent now
concedes that petitioner's basis in the property is $15,500, and
that his net capital gain is $64,400.
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As to all issues, respondent's determinations are presumed

correct, and the burden is on petitioner to show that the

determinations are wrong. Rule 142(a); Welch v. Helvering, 290

U.S. 111 (1933).

I. Respondent's Deficiency Determination

The first issue for decision is whether petitioner is liable

for the deficiencies determined by respondent. Respondent's

deficiency determinations are based on petitioner's receipt of

wages, gain from the sale of property, taxable distributions from

qualified retirement plans, and the section 72(t) 10-percent

additional tax for early distributions from qualified retirement

plans. Instead of attempting to challenge the merits of

respondent's determinations, petitioner raises numerous "tax

protester" arguments.3 We shall not address petitioner's

assertions as to the validity of the Federal income tax system

"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).

Section 61(a) defines an individual's gross income as "all

income from whatever source derived". Respondent determined that

compensation for services, gains derived from dealings in

3
Among other things, petitioner makes the following
arguments: That wages are not taxable income, and that the Forms
W-2 show only "employment taxes withheld" and not any kind of tax
owed by him.
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property,4 and distributions from qualified retirement plans5

were includable in petitioner's gross income for the years in

issue, and that the distributions from qualified retirement plans

were subject to additional tax under section 72(t). Petitioner

presented neither evidence nor argument that showed error in

respondent's determinations. Consequently, with the one

modification to reflect respondent's concession as to

petitioner's increased basis in the property sold, we sustain the

deficiencies determined by respondent.

II. Section 6651 -- Failure To File

Respondent determined that petitioner is liable for

additions to tax under section 6651(a)(1). Section 6651(a)(1)

imposes an addition to tax for failure to file a return timely

unless the taxpayer shows that the failure was due to reasonable

cause and not willful neglect. See Kotmair v. Commissioner,

86 T.C. 1253, 1263 (1986). A failure to file timely is due to

reasonable cause if the taxpayer exercised ordinary business care

and prudence and, nevertheless, was unable to file the return

4
At trial, petitioner testified that he had an additional
$21,000 basis in the property due to a corresponding payment made
to his ex-wife as part of their divorce settlement. Petitioner
submitted no documentation or additional evidence in support of
his claim, and we do not find his testimony credible. Therefore,
petitioner realized gain in the amount of $64,400, and because
petitioner has failed to show any exemption from the recognition
of that gain, it is fully includable in his gross income for
1993. See secs. 61(a)(3), 1034, 1221.
5
See secs. 72, 402(a), 408(d)(1).
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within the prescribed time. Sec. 301.6651-1(c)(1), Proced. &

Admin. Regs. Willful neglect means a conscious, intentional

failure or reckless indifference. United States v. Boyle, 469

U.S. 241, 245 (1985). Petitioner admittedly filed no returns

for 1993 and 1994 although the amount of income he received

required him to do so. See sec. 6012. We find that petitioner's

failure to file was not due to reasonable cause. We sustain

respondent's determination on this issue.

III. Section 6654 -- Failure To Pay Estimated Income Tax

Respondent determined that petitioner underpaid his

estimated income tax and is liable for additions to tax under

section 6654. Where payments of tax, either through withholding

or by making estimated tax payments, do not equal the percentage

of the total liability required under the statute, imposition of

the addition to tax under section 6654 is automatic, absent a

showing that the taxpayer has met one of the exceptions contained

therein. See Recklitis v. Commissioner, 91 T.C. 874, 913 (1988);

Tillman v. Commissioner, T.C. Memo. 1996-8. Because petitioner

has not shown that any one of the exceptions applies, we sustain

respondent's determination on this issue.

IV. Section 6673--Penalty Awarded by Court

We decide sua sponte to impose a penalty upon petitioner

under section 6673(a). Section 6673(a)(1) authorizes the Court

to require a taxpayer to pay to the United States a penalty not
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in excess of $25,000 whenever it appears that proceedings have

been instituted or maintained by the taxpayer primarily for delay

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

or groundless. A position is frivolous "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).

Petitioner persisted in maintaining his frivolous arguments

throughout this proceeding, even after being warned by the Court

and after having received notice from the Court in a prior case.6

On the basis of the record, we conclude that the proceedings

herein were instituted primarily for delay and that petitioner's

position is both frivolous and groundless. Accordingly, we

exercise our discretion and award a penalty to the United States

under section 6673 in the amount of $5,000. See Coulter v.

Commissioner, 82 T.C. 580, 584-586 (1984); Abrams v.

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

We have reviewed petitioner's other arguments and find them

to be without merit.

To reflect the foregoing,

6
Petitioner was before this Court in Reichenbach v.
Commissioner, T.C. Memo. 1995-369, affd. without published
opinion 99 F.3d 1139 (6th Cir. 1996). In that case, we found
petitioner's "shopworn tax-protester type arguments" to be
without merit.
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An appropriate order will

be issued, and decision will

be entered under Rule 155.