T.C. Memo. 1999-135
UNITED STATES TAX COURT
JESSE S. FREDERICK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6907-96. Filed April 22, 1999.
Jesse S. Frederick, pro se.
G. Michelle Ferreira, for respondent.
MEMORANDUM OPINION
GALE, Judge: Respondent determined the following
deficiencies in, and additions to, petitioner’s Federal income
taxes:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1989 $85,477 $21,369 $808
1990 160,895 40,224 10,595
1991 20,170 5,043 1,162
1992 67,450 16,863 2,940
1993 86,128 21,408 3,606
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.
We must decide whether petitioner is liable for Federal
income taxes and additions to tax. We hold that he is, to the
extent set out below.
Some of the facts have been stipulated and are so found. We
incorporate by this reference the stipulation of facts,
supplemental stipulation of facts, second supplemental
stipulation of facts, and attached exhibits. At the time of
filing the petition, petitioner resided in Soquel, California.
The facts are not in dispute. Petitioner failed to report
any income during the years in issue. Respondent’s
determinations in the notice of deficiency were based on
petitioner’s unreported income comprising the following:
Dividends and interest, wages, self-employment compensation, and
capital gain. At trial, respondent presented substantial
evidence in support of the determinations. Petitioner has
admitted to receiving the ordinary income. With respect to the
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capital gain, petitioner had not provided evidence of basis to
respondent before the issuance of the notice of deficiency, and
thus respondent’s determinations accounted for gross proceeds
from sales of capital assets. Before the record in this case was
closed, petitioner presented evidence from which the parties were
able to stipulate petitioner’s cost basis in, and, where
relevant, costs of sale of, almost all of the capital assets.
The parties likewise stipulated that petitioner received capital
gains in various amounts during the years in issue.
We find that petitioner had income (and loss) in the
following amounts during the years in issue, based on the fact
that petitioner has stipulated, admitted, or failed to dispute
respondent’s evidence with respect to those amounts:
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1989 1990 1991 1992 1993
Ordinary Income
Dividends $613 $262 $141 $27 ---
Interest 3,569 5,074 77 --- ---
Wages --- --- --- --- $15,219
Nonemployee 32,066 22,036 55,443 --- 230,952
compensation
Capital Gain
Short-term capital 231 20,230 --- --- ---
gain from sales
of stock/options
Short-term capital 1,191 19,653 1,770 --- ---
loss from sales
of stock/options
Long-term capital --- --- --- --- ---
gain from sales
of stock/options
Long-term capital --- 17,139 7,546 460 ---
loss from sales
of stock/options
1
Short-term capital 64,000 55,351 --- --- ---
gain from sales
of real property
Long-term capital --- --- --- 59,555 ---
loss from sales
of real property
1
The parties were unable to agree on petitioner’s costs of sale
for this property. Because there is no evidence in the record as
to petitioner’s costs of sale, petitioner’s capital gain is
computed as the difference between the sale price and basis.
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Petitioner failed to file Federal income tax returns, and
failed to make payments of estimated tax, for all the years in
issue.
Rather than disputing the facts in the case, petitioner
presents various legal arguments, seeking to establish that he is
not liable for Federal income taxes and additions to tax.
Petitioner concedes that Congress has the power to levy taxes and
that the Internal Revenue Service generally has the authority to
enforce the Internal Revenue Code. However, petitioner argues
that the Secretary has not complied with the laws of Congress in
attempting to enforce the Code in his case. We address each
argument in turn.
Petitioner first argues that respondent did not comply with
the laws of Congress in issuing the notice of deficiency in the
instant case. Petitioner is incorrect. The Secretary or his
delegate is authorized to issue a notice of deficiency. See
secs. 6212(a), 7701(a)(11)(B) and (12)(A)(i). The Secretary’s
authority to issue a notice of deficiency was properly delegated
to the District Director who issued the notice of deficiency in
this case. See Kellogg v. Commissioner, 88 T.C. 167, 172 (1987);
sec. 301.7701-9(b), Proced. & Admin. Regs.; see also Stamos v.
Commissioner, 95 T.C. 624 (1990), affd. without published opinion
956 F.2d 1168 (9th Cir. 1992).
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Petitioner next argues that respondent acted in a quasi-
judicial manner in determining deficiencies and additions to tax
against him and that respondent did not comply with all laws
before issuing the notice of deficiency. This argument must also
fail. In general, we do not look behind the notice of
deficiency, see Greenberg’s Express, Inc. v. Commissioner, 62
T.C. 324, 327-328 (1974), and there is no reason to do so here.
Petitioner makes a vague claim that the notice of deficiency was
arbitrary or erroneous. But the notice was not arbitrary or
erroneous, since petitioner does not dispute the facts upon which
the determinations were based. See, e.g., Weimerskirch v.
Commissioner, 596 F.2d 358 (9th Cir. 1979), revg. 67 T.C. 672
(1977). Moreover, it is well established that the Commissioner
need not give a taxpayer the opportunity to appeal at the
administrative level before issuing a notice of deficiency. See
Estate of Barrett v. Commissioner, T.C. Memo. 1994-535, affd.
without published opinion 87 F.3d 1318 (9th Cir. 1996).
Next, petitioner argues that any Treasury regulation that
does not cite the statute under which the regulation was issued
is invalid. Petitioner bases this argument on a provision from
the Code of Federal Regulations, which states: “Each section in
a document subject to codification must include, or be covered
by, a complete citation of the authority under which the section
is issued”. 1 C.F.R. sec. 21.40 (1999). A “document” for this
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purpose includes a regulation. 1 C.F.R. sec. 1.1 (1999).
Petitioner points out that the regulations under title 27 of the
Code of Federal Regulations, containing regulations pertaining to
the Bureau of Alcohol, Tobacco, and Firearms, comply with this
provision, but the regulations under title 26 of the Code of
Federal Regulations, containing regulations pertaining to the
Internal Revenue Service and the Internal Revenue Code, do not.
However, the Code of Federal Regulations specifically provides
that the rules governing citations of authority, and similar
matters of form, are not intended to affect the validity of
regulations filed and published under law. See 1 C.F.R. sec. 5.1
(1999). Thus, the Treasury regulations are valid irrespective of
any failure to include citations of authority. Moreover,
1 C.F.R. sec. 21.40 provides that each section of a document
“must include, or be covered by, a complete citation of
authority”. (Emphasis added.) The regulations under which
respondent issued the notice of deficiency generally cross-
reference a Treasury Decision which itself cites the statutory
authority upon which the regulation is based.1
Next, petitioner argues that Form 1040 is invalid. This
argument has no merit. See McDougall v. Commissioner, T.C. Memo.
1992-683 (citing United States v. Hicks, 947 F.2d 1356 (9th Cir.
1
Moreover, in general the numbering of the regulations
makes it obvious under which statute each is issued.
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1991)), affd. without published opinion 15 F.3d 1087 (9th Cir.
1993); see also Aldrich v. Commissioner, T.C. Memo. 1993-290,
n.3.
Finally, petitioner argues that the Court does not have
jurisdiction over additions to tax. Petitioner is incorrect.
Our jurisdiction in this case is based on the valid notice of
deficiency issued by respondent and the timely filed petition.
See Rule 13(a), (c); Normac, Inc. v. Commissioner, 90 T.C. 142,
147 (1988). Section 6214(a) gives the Court “jurisdiction to
redetermine the correct amount of the deficiency * * * and to
determine whether any additional amount, or any addition to the
tax should be assessed”. Further, section 6665(a) provides that
in general additions to tax are to be paid, assessed, and
collected in the same manner as taxes. There is an exception to
section 6665(a) in section 6665(b), but the exception does not
apply in the two situations present in the instant case; namely,
the portion of the addition to tax under section 6651(a) that is
attributable to the deficiency, and the entire addition to tax
under section 6654 where no return is filed. See sec. 6665(b)(1)
and (2); Estate of DiRezza v. Commissioner, 78 T.C. 19 (1982);
Reese v. Commissioner, T.C. Memo. 1997-346.
Petitioner has the burden of proof. See Rule 142(a); Welch
v. Helvering, 290 U.S. 111, 115 (1933). As noted, petitioner
does not dispute the facts in this case. Thus, we find that
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petitioner is liable for the deficiencies resulting from
unreported ordinary income as determined by respondent and from
unreported capital gain in accordance with our findings. In
addition, we find that petitioner is liable for self-employment
taxes as determined by respondent and for additions to tax for
failure to file and failure to pay estimated tax in accordance
with our findings.
To reflect the foregoing,
Decision will be entered
under Rule 155.