T.C. Memo. 2001-148
UNITED STATES TAX COURT
CHARLES J. AND FRANCESCA C. SIGERSETH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18998-99. Filed June 21, 2001.
Charles J. and Francesca C. Sigerseth, pro sese.
Jeremy L. McPherson, for respondent.
MEMORANDUM OPINION
VASQUEZ, Judge: Respondent determined deficiencies of
$384,998 and $445,463 in and section 6662(a) accuracy-related
penalties of $77,000 and $89,093 on petitioners’ 1995 and 1996
Federal income taxes, respectively.1 After having orally
1
Unless otherwise provided, 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.
- 2 -
dismissed this case for lack of prosecution as to the
deficiencies in petitioners' income taxes, we have remaining for
decision whether petitioners are liable for the accuracy-related
penalties and whether to impose a penalty under section 6673 on
petitioners.
Background
At the time the petition was filed, petitioners resided in
El Macero, California.
On September 23, 1999, respondent determined that for the
1995 and 1996 tax years, petitioners failed to report income with
regard to the activities of three trusts and capital gain from
the sale or exchange of assets, and petitioners were not entitled
to a deduction with regard to certain personal exemptions.
Further, respondent determined that petitioners were liable for
self-employment taxes but allowed a partially offsetting
deduction for the self-employment taxes determined. Respondent
additionally determined accuracy-related penalties based on a
substantial understatement of tax or negligence or disregard of
rules or regulations. On December 27, 1999, petitioners filed a
petition in this Court, averring that respondent’s determinations
were erroneous, the notice of deficiency was issued improperly,
and respondent had the burden of proof with regard to the
determinations made by him. On March 8, 2000, after we allowed
an extension of time in which respondent could answer, respondent
- 3 -
filed his answer with the Court. On May 16, 2000, this case was
calendared for the Court’s trial session in San Francisco,
California, beginning on October 16, 2000. On June 12, 2000,
respondent’s Appeals Office contacted petitioners in an attempt
to resolve the disputed issues. There is no evidence in the
record indicating that petitioners responded to the Appeals
Office.
On July 10, 2000, respondent’s counsel wrote petitioners to
obtain informal discovery, prepare a stipulation of facts,
explain the consequences of not appearing at trial, and inform
them of respondent’s anticipated motion to seek a section 6673
penalty. In addition, respondent’s counsel suggested that the
parties meet on July 20, 2000, to address the above matters.
Petitioners did not provide respondent with the requested
information, but, on July 24, 2000, Mr. Sigerseth wrote
respondent to suggest a meeting on September 3, 4, or 5, 2000.
In the correspondence, Mr. Sigerseth stated that “Cal: Avila”
would be petitioners’ counsel and would attend the meeting.
On July 26, 2000, respondent’s counsel stated in a letter to
petitioners that he would be willing to meet on September 5,
2000, with petitioners and Mr. Avila. He informed them, however,
that Mr. Avila could not represent petitioners at the Tax Court
unless he was an attorney (or other person) admitted to practice
before the Tax Court. He reminded petitioners again that
- 4 -
respondent was planning to move that the Court impose a section
6673 penalty.
On that same day, respondent served petitioners with a
request for production of documents and a request for
interrogatories. Additionally, respondent served petitioners
with a request for admissions and filed a copy with the Court.
On July 31, 2000, respondent filed a second request for
admissions with the Court, which was also served on petitioners.
Petitioners did not respond to the requests for admissions.
Therefore, each matter to which respondent requested admission is
deemed admitted. See Rule 90(c). Some of those deemed
admissions were:
(1) Petitioners created the Sigerseth Family Trust on August
6, 1992;
(2) In 1995 and 1996, petitioners Charles J. Sigerseth and
Francesca C. Sigerseth were the only two trustees of the
Sigerseth Family Trust;
(3) On page 3 of the declaration of trust of the Sigerseth
Family Trust, it states in the “Trustees' Declaration of Purpose”
that the “Creator” transferred property to the trustees,
including “the exclusive use of His [the creator's] lifetime
services and ALL of His EARNED REMUNERATION ACCRUING THEREFROM,
from any current source whatsoever, so the CHARLES J. SIGERSETH
can maximize His lifetime efforts through the utilization of His
- 5 -
Constitutional Rights; for the protection of His family in the
pursuit of His happiness through His desire to promote the
general welfare, all of which CHARLES J. SIGERSETH feels He will
achieve because they are sustained by His RELIGIOUS BELIEFS.”;
(4) Petitioners did not report the sale of their half
interest in the Tahoe City condominium on their 1996 Federal
income tax return;
(5) During all of 1995 and 1996, the Sigerseth Family Trust
was a beneficiary of Trust Management Services, a trust;
(6) In 1995 and 1996, Trust Management Services, a trust,
was engaged in marketing abusive trusts and providing services to
investors in abusive trusts;
(7) During respondent's examination of petitioners' 1995 and
1996 Federal tax returns, petitioners refused to cooperate with
respondent, to provide any of the documents requested by
respondent, or to provide any explanations or documents to
support the information reported on the tax returns; and
(8) After the petition was filed in this case, petitioners
refused to respond to any communication from respondent's Appeals
Office.
On August 2, 2000, petitioners in a letter to respondent
suggested alternative dates (September 19 or 21, 2000) to meet,
but they again did not respond to respondent’s discovery
requests. On September 5, 2000, respondent filed motions with
- 6 -
the Court to compel production of documents and responses to
interrogatories.
On September 6, 2000, the Court granted respondent’s motions
to compel production of documents and responses to
interrogatories, ordering that the production and responses occur
on or before September 18, 2000. The Court warned petitioners
that if they failed to comply with the Court’s order, it would
impose sanctions under Rule 104, including dismissal of the case
or a decision against petitioners. Petitioners failed to respond
to the Court’s order.
On September 19, 2000, respondent’s counsel met with Mr.
Sigerseth, but petitioners still refused to provide the requested
information and documents. Mr. Sigerseth however provided
respondent’s counsel with a proposed letter to the Court
requesting that petitioners be allowed to withdraw their
petition.
On October 2, 2000, respondent filed a motion to dismiss for
failure to prosecute and for a penalty under section 6673. On
October 11, 2000, petitioners responded to respondent’s motion by
filing a motion to dismiss for lack of jurisdiction claiming that
the notice of deficiency was improper and making protester type
arguments. Petitioners’ motion to dismiss for lack of
jurisdiction was denied.
On October 16, 2000, this case was called for trial in San
- 7 -
Francisco, California. Due to petitioners’ failure to appear, we
orally dismissed the case for lack of prosecution as to
petitioners' liability for the income tax deficiencies, and
respondent’s motion for a section 6673 penalty was taken under
advisement. On November 24, 2000, petitioners filed a document
with the Court continuing to make protester type arguments.
Based upon those types of arguments, petitioners asserted that
they were not liable for any taxes, respondent had not proven
that they owed any taxes, and this Court, in any event, lacked
jurisdiction with regard to the dispute.
Discussion
Rule 123(b) provides that the Court may dismiss a case at
any time and enter a decision against a petitioner if he fails to
properly prosecute his case or to comply with the Rules or any
order of the Court. Rule 123(b) generally applies in situations
where a petitioner bears the burden of proof; see also Rule
142(a) (providing that the burden of proof is on a petitioner
unless otherwise provided by statute or determined by the Court);
Welch v. Helvering, 290 U.S. 111, 115 (1933).
We note that when this case was called for trial, respondent
represented that the examination in the instant case commenced
after the effective date of section 7491. See Internal Revenue
Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L.
105-206, sec. 3001(c), 112 Stat. 685, 727 (providing that sec.
- 8 -
7491 is applicable to court proceedings arising in connection
with examinations commenced after July 22, 1998). Under section
7491(a), Congress provided that if a taxpayer presents credible
evidence and meets certain other prerequisites, the Commissioner
shall bear the burden of proof with regard to factual issues
relating to the liability of the taxpayer for a tax imposed under
subtitle A or B. Because petitioners failed to appear and
present credible evidence, the burden of proof is not placed on
respondent under section 7491(a).
As to the accuracy-related penalties imposed by respondent,
Congress provided in section 7491(c) that the Commissioner bears
the burden of production in any court proceeding with regard to
the liability of the taxpayer for such penalties. In Higbee v.
Commissioner, 116 T.C. ___, ___ (2001) (slip op. at 15), we
stated that this provision requires that the Commissioner come
forward with sufficient evidence indicating that it is
appropriate to impose the relevant penalties. However, the
Commissioner does not have the obligation to introduce evidence
regarding elements such as reasonable cause or substantial
authority. See id.
Petitioners failed to appear at trial and submitted only tax
protester type material to the Court. During the litigation,
respondent attempted to obtain informal and formal discovery from
petitioners without success. As noted in our background
- 9 -
discussion, petitioners are deemed to have admitted certain
facts. The deemed admissions were made pursuant to Rule 90(c).
By the deemed admissions, petitioners are deemed to admit certain
facts, which when taken together, establish that they failed to
exercise the due care of a reasonable and ordinarily prudent
person under like circumstances. For example, petitioners are
deemed to admit that they invested in abusive trusts and that
they refused to cooperate or provide documents to respondent
during the examination of petitioners' 1995 and 1996 Federal
income tax returns. We conclude that respondent met his burden
of production under section 7491(c) with regard to the accuracy-
related penalties determined based on negligence or disregard of
rules or regulations.2 See Rule 90(c); Nis Family Trust v.
Commissioner, 115 T.C. 523, 542-543 (2000). Because respondent
met his burden of production through the deemed admissions and
petitioners failed to disprove respondent’s determinations (e.g.,
by proving reasonable cause), we hold that petitioners are liable
for the accuracy-related penalties in issue. See secs.
6662(b)(1), 6664(c); Higbee v. Commissioner, supra. In that
respect, respondent's motion to dismiss for failure to prosecute
insofar as it relies on the deemed admissions will be treated and
granted as a motion for partial summary judgment.
2
We therefore need not address respondent’s determination
of the accuracy-related penalties based on a substantial
understatement of tax.
- 10 -
Finally, section 6673(a) authorizes this Court to penalize a
taxpayer who (1) institutes or maintains a proceeding primarily
for delay, (2) pursues a position in this Court which is
frivolous or groundless, or (3) unreasonably fails to pursue
available administrative remedies. Petitioners’ conduct in this
case has convinced us that all of the above factors are present
in this proceeding. Petitioners’ repeated failure to comply with
respondent’s discovery requests, even in the face of orders from
the Court directing them to do so, has resulted in a waste of
limited judicial and administrative resources that could have
been devoted to resolving bona fide claims of other taxpayers.
See Cook v. Spillman, 806 F.2d 948 (9th Cir. 1986). Further,
petitioners have failed to seek settlement at the administrative
level. Lastly, petitioners’ insistence on making protester type
arguments even after we have summarily dismissed them indicates
an unwillingness on the part of petitioners to respect the tax
laws of the United States. Accordingly, we shall grant
respondent’s motion and require petitioners to pay a penalty to
the United States pursuant to section 6673 in the amount of
$15,000.
To reflect the foregoing,
An appropriate order and
decision will be entered.