T.C. Memo. 2000-78
UNITED STATES TAX COURT
PHILIP LEWIS HART, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 10398-98, 16155-98. Filed March 7, 2000.
Philip Lewis Hart, pro se.
Julie L. Payne, for respondent.
MEMORANDUM OPINION
PAJAK, Special Trial Judge: Respondent determined
deficiencies in petitioner's Federal income taxes, additions to
taxes, and penalties in the following amounts:
Additions to tax Penalty
Year Deficiency Sec. 6651(a)(1) Sec. 6654 Sec. 6662(a)
1994 $5,352 - - $1,070
1995 7,822 - $424 1,564
1996 12,497 $3,124 665 -
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Unless otherwise indicated, 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.
After a concession by respondent, this Court must decide:
(1) Whether wages, rental income, interest, and individual
retirement account distributions received by petitioner are
taxable; (2) whether petitioner is liable for the addition to tax
under section 72(t) for the early distributions from qualified
retirement plans during the 1996 taxable year; (3) whether
petitioner is liable for an addition to tax under section
6651(a)(1) for the failure to file a tax return for the 1996
taxable year; (4) whether petitioner is liable for additions to
tax under section 6654 for the failure to pay estimated taxes for
the 1995 and 1996 taxable years; (5) whether petitioner is liable
for accuracy-related penalties under section 6662(a) for the
underpayment of taxes for the 1994 and 1995 taxable years; and
(6) whether a penalty should be awarded to the United States
under section 6673.
For clarity and simplicity, we have combined the findings of
fact and conclusions of law. Some of the facts in this case have
been stipulated and are so found. Petitioner resided in Coeur
d'Alene, Idaho, at the time he filed his petitions in this
consolidated case.
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Petitioner was employed as an engineer during 1994 and 1995.
He received wages as compensation for the services he provided as
an engineer in the amounts of $34,775 and $42,106 in 1994 and
1995, respectively. Petitioner received rental income of $9,250
and $10,500 in 1994 and 1995, respectively. In 1994 and 1995,
petitioner received interest income of $125 and $144,
respectively. In 1996, petitioner received $284 of interest
income from two different sources, $34,936 as a distribution from
an individual retirement account (IRA) held by National Financial
Services Co., and $8,933 as a distribution from an IRA held by
Charles Schwab and Co., Inc. Petitioner had not reached the age
of 59½ as of December 31, 1996, nor was he disabled as of this
date.
Petitioner timely filed his 1994 and 1995 tax returns. In
an attachment to the 1994 return, petitioner stated: "The wages
I earned as reflected on my W-2 form are nontaxable personal
property." The attachment also contained other typical tax
protester arguments. The 1995 return contained a similar
attachment. In 1994, $4,777 in Federal income tax was withheld
from petitioner's wages. There is no evidence that tax was
withheld in 1995. Yet, on both returns, petitioner claimed
refunds of $4,777. Petitioner did not file a 1996 tax return.
Respondent determined that petitioner had tax liabilities
for all 3 years in the amounts of the deficiencies listed above,
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together with the additions to tax and penalties. Respondent's
determinations in the statutory notices of deficiency are
presumed correct, and petitioner bears the burden to disprove the
determinations. Rule 142(a); Welch v. Helvering, 290 U.S. 111
(1933). Respondent concedes that petitioner did not receive
refunds of California State income tax in the amounts of $774 and
$1,431 in 1994 and 1995, respectively, which had been included in
the calculations of the deficiencies for those years.
Petitioner first argues that the statutory notices of
deficiency were not authentic. At trial, we found that all
requirements of the notice of deficiency had been satisfied for
all 3 years. Petitioner next argued: "when I read the statutes
and the regulations, I do not find in them where there is a tax
on the wages, that's payable by me. It's conceivable there could
be a tax payable by somebody else, but it's not payable by me."
Petitioner makes tax protester arguments that have been
repeatedly rejected by this Court and others as inapplicable or
without merit. Rowlee v. Commissioner, 80 T.C. 1111 (1983);
McCoy v. Commissioner, 76 T.C. 1027 (1981), affd. 696 F.2d 1234
(9th Cir. 1983). We see no need to repeat these discussions
here.
Suffice it to say that petitioner is not exempt from having
to pay Federal income taxes. Abrams v. Commissioner, 82 T.C.
403, 407 (1984). Payments of compensation for services performed
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are included in gross income and subject to the Federal income
tax. Sec. 61(a)(1). Likewise, interest, rental income, and IRA
distributions are included in gross income and subject to Federal
income tax. Secs. 1, 61(a)(4), 61(a)(5), 61(a)(9), 61(a)(11),
408(d). Petitioner's income from wages, interest, rent, and IRA
distributions is taxable. We sustain respondent's determinations
on these issues.
We next consider whether petitioner is liable for the
section 72(t) additional tax. Distributions from a qualified
retirement plan are subject to a 10-percent tax unless an
exception applies. Sec. 72(t). A qualified retirement plan
includes an IRA. Secs. 4974(c), 408(a). Petitioner has offered
no evidence that any exception applies in his case. Sec.
72(t)(2). Because petitioner received two distributions in 1996
from two IRA's, he is liable for the additional tax under section
72(t).
We now decide whether petitioner is liable for an addition
to tax pursuant to section 6651(a)(1). Section 6651(a)(1)
imposes an addition to tax for failure to file a Federal income
tax return by its due date, unless the taxpayer establishes that
the failure was due to reasonable cause and not willful neglect.
Petitioner must prove both reasonable cause and a lack of willful
neglect. Crocker v. Commissioner, 92 T.C. 899, 912 (1989).
"Reasonable cause" requires the taxpayer to demonstrate that he
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exercised ordinary business care and prudence. United States v.
Boyle, 469 U.S. 241, 246 (1985). Willful neglect is defined as a
"conscious, intentional failure or reckless indifference." Id.
at 245.
Petitioner admitted that he did not file a tax return for
1996, and he did not provide any reason for his failure to file.
Because petitioner presented no reasonable cause for his failure
to file, we sustain respondent’s determination of the addition to
tax under section 6651(a)(1).
Because the 1995 tax return was timely filed, we do not have
jurisdiction over the section 6654 addition to tax for 1995.
Fujita v. Commissioner, T.C. Memo. 1999-164.
We now consider whether petitioner is liable for the
addition to tax under section 6654 for the failure to pay
estimated taxes for 1996. Section 6654(c) imposes a requirement
that estimated taxes be paid in installments. If a taxpayer
fails to pay a sufficient amount of estimated taxes, section
6654(a) provides for a mandatory addition to tax in the absence
of exceptions not applicable here. Grosshandler v. Commissioner,
75 T.C. 1, 20-21 (1980). Petitioner failed to pay estimated
taxes in 1996, and no Federal income tax was withheld from his
income. Accordingly, petitioner is liable for the addition to
tax under section 6654 for the 1996 taxable year.
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Section 6662(a) provides for an accuracy-related penalty in
the amount of 20 percent of the portion of an underpayment of tax
attributable to, among other things, negligence or disregard of
rules or regulations. Sec. 6662(a) and (b)(1). Negligence is
defined to include any failure to make a reasonable attempt to
comply with the provisions of the internal revenue laws. Sec.
6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. Moreover,
negligence is the failure to exercise due care or the failure to
do what a reasonable and prudent person would do under the
circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
Disregard is defined to include any careless, reckless, or
intentional disregard of rules or regulations. Sec. 6662(c);
sec. 1.6662-3(b)(2), Income Tax Regs.
Clearly, by purposely not paying his taxes, petitioner has
not behaved as a reasonable and prudent person. Petitioner has
shown an intentional disregard of the rules and regulations. We
uphold the imposition of the accuracy-related penalties under
section 6662(a) for the underpayments of the 1994 and 1995 tax
liabilities.
We grant respondent’s motion for a penalty under section
6673. Under section 6673, this Court may award a penalty to the
United States of up to $25,000 when the proceeding has been
instituted or maintained by the taxpayer primarily for delay or
if the taxpayer’s position in such proceeding is frivolous or
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groundless. Sec. 6673. Based on the record, we conclude that
such an award is appropriate in this case.
Petitioner has pursued a frivolous and groundless position
throughout this proceeding. At the beginning of this trial,
petitioner was clearly warned that if he proceeded with the
arguments contained in his written submission, then he would be
subject to penalties. Petitioner knew or should have known that
his position was groundless and frivolous, yet he persisted in
maintaining this proceeding primarily to impede the proper
workings of our judicial system and to delay the payment of his
Federal income tax liabilities. Accordingly, a penalty is
awarded to the United States under section 6673 in the amount of
$10,000 in each docket.
To the extent we have not addressed petitioner's arguments,
we have considered them and find them to be without merit.
Decision will be entered under
Rule 155 in docket No. 10398-98
and decision will be entered for
respondent in docket No. 16155-98,
and a penalty will be awarded to
the United States under section
6673.