T.C. Memo. 2002-30
UNITED STATES TAX COURT
DREW ALLEN RAYNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5749-00. Filed January 28, 2002.
Drew Allen Rayner, pro se.
Linda J. Wise, for respondent.
MEMORANDUM OPINION
COLVIN, Judge: Respondent determined that petitioner has an
income tax deficiency of $92,384 for 1998 and is liable for an
addition to tax under section 6654 of $3,941.12 for failure to
pay estimated tax. The matter is before the Court on
respondent’s motion for summary judgment and motion for a penalty
under section 6673.
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Background
A. Petitioner
Petitioner was retired and lived in Mississippi when he
filed the petition.
In 1998, petitioner received $217,331.44 in retirement
distributions and $920.09 in nonemployee compensation. In 1998,
Primerica Life Insurance Co. issued to petitioner three Forms
1099-MISC, Miscellaneous Income, which state that he received
$920.09 of taxable nonemployee compensation. Petitioner also
received five Forms 1099-R, Distribution From Pensions,
Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc., which state that he received in 1998 retirement
account distributions totaling $217,331.44, of which $214,756.96
is taxable.
B. Petitioner’s 1998 Income Tax Return
Petitioner submitted a Form 1040, Individual Income Tax
Return, for 1998 on which he reported zero income, $5,629 in
income tax withholding, and an overpayment for which he sought a
$5,629 refund. He attached to his Form 1040 a signed statement
consisting of two typewritten pages in which he made various
arguments denying his duty to file a return and defending his
return.
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C. Respondent’s Determination
Respondent determined that petitioner received taxable
income of $920 in nonemployee compensation and $214,756 in
retirement distributions in 1998, and that petitioner was liable
for income tax of $70,778 for that year. Respondent also
determined that petitioner was liable for self-employment tax of
$130 for nonemployee compensation, the 10-percent additional tax
of $21,476 under section 72(t)(1) on distributions from
retirement accounts, for a total deficiency of $92,384 ($70,778 +
$130 + $21,476), and an addition to tax of $3,941.12 under
section 6654 for failure to pay estimated tax.
D. The Petition
In his petition, petitioner disputes that he has a
deficiency or is liable for any addition to tax for 1998. The
following is the only fact petitioner alleged in the petition:
That the amount of the alleged taxable income,
penalties and interest thereon are erroneous.
Petitioner asserts that the IRS [sic] distribution is
not a taxable event.
E. Petitioner’s Pretrial Memo and Our April 2, 2001, Order
Our standing pretrial order served on petitioner on October
27, 2000, requires the parties to exchange documents to be used
at trial at least 15 days before trial. Materials not provided
in compliance with our standing pretrial order may be excluded
from evidence. Rule 131(b); Moretti v. Commissioner, 77 F.3d
637, 644 (2d Cir. 1996).
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In his trial memorandum, petitioner alleged: (1) Income
from sources not listed in section 861 is exempt from taxation;
(2) income earned by U.S. citizens in the United States is not
listed, and thus is exempt; and (3) petitioner is a U.S. citizen
and has income only from domestic sources. On April 2, 2001, we
ordered petitioner to give to respondent within 30 days all
evidence on which he relies to show that respondent’s
determination is incorrect, including a copy of documents which
petitioner contends supports his position, and a detailed
statement from petitioner that explains each of petitioner’s
claims. Despite our issuance of that order, petitioner has not
given respondent any evidence relating to respondent’s
determination. He provided only a document in which he repeated
the arguments described above that he made in his pretrial
memorandum.
Discussion
A. Respondent’s Motion for Summary Judgment
Respondent filed a motion under Rule 121(b) seeking summary
judgment upholding the determination in the notice of deficiency.
We may grant summary judgment if there is no genuine issue of
material fact and a decision may be rendered as a matter of law.
Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520
(1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v.
Commissioner, 90 T.C. 753, 754 (1988). The moving party bears
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the burden of proving that there is no genuine issue of material
fact. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985);
Jacklin v. Commissioner, 79 T.C. 340, 344 (1982).
Petitioner contends that summary judgment is not proper,
that respondent is incorrect as a matter of law, and that trial
on the merits is required. Petitioner contends that respondent
does not dispute many tax returns that are similar to
petitioner’s return. Petitioner points out that section
1.61-1(a), Income Tax Regs., states that gross income includes
all income from whatever source derived unless excluded by law
and contends that respondent erred in not citing it. Petitioner
contends that he can prove through cross-examination of
Government witnesses that the deficiency is incorrect because
U.S.-source income is exempt from income tax. Petitioner
contends that postings on the Internet show that respondent
accepts returns similar to petitioner’s return. We disagree.
Petitioner’s contention that his income is not taxable is
incorrect as a matter of law. Petitioner’s Form 1040 for 1998
and the Forms 1099-MISC and Forms 1099-R attached to the Form
1040 show that petitioner is liable for additional tax under
section 72(t)(1) of $18,4801 and the addition to tax under
1
The Forms 1099-R attached to petitioner’s Form 1040 for
1998 show early IRA distributions of $184,802.32 (not
$214,756.96, as determined by respondent) for which no exceptions
to the 10-percent penalty imposed by sec. 72(t)(1) apply. Thus,
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section 6654 of $3,546.47.2 See sec. 7491(c). The Forms 1099-
MISC show that petitioner received $920 of taxable income in
1998. The Forms 1099-R show that petitioner received taxable
distributions of $214,756.96. One Form 1099-R shows that he
received an early distribution of $184,802 from an IRA account
for which no exceptions to the 10-percent penalty imposed by
section 72(t)(1) apply. Petitioner’s Form 1040 for 1998 and the
Forms 1099 show that he only paid $5,629 (withheld) in tax for
1998; thus, he paid no estimated tax. Petitioner did not provide
respondent with any evidence showing that respondent’s
determination of his tax liability is incorrect, or give any
reason for not doing so; thus, there is no genuine issue for
trial within the meaning of Rule 121(d). We conclude that
respondent is entitled to summary judgment and that petitioner is
liable for a total deficiency of $89,388 ($70,778 + $130 +
$18,480) and an addition to tax of $3,546.47 under section 6654.
B. Respondent’s Motion for Imposition of a Penalty Under
Section 6673
The Court may require the taxpayer to pay a penalty to the
United States of not more than $25,000 if the taxpayer instituted
or maintained proceedings primarily for delay, if the taxpayer's
the additional tax under sec. 72(t)(1) is $18,480, not $21,476.
2
This amount is less than the amount respondent determined
because the sec. 72(t)(1) penalty is less than respondent
determined, thereby reducing the total tax due on which the sec.
6654 addition to tax is calculated.
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position is frivolous or groundless, or if the taxpayer
unreasonably failed to pursue administrative remedies. Sec.
6673. 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). Petitioner
contends that his argument is not frivolous and that he is not
using this case for delay. We disagree. Respondent told
petitioner by letter dated June 3, 1999, that his return included
frivolous arguments that had no basis in law. Petitioner
responded by letter dated July 2, 1999, in which he repeated his
legal position. In letters dated January 17 and 29, 2001,
respondent asked petitioner for his legal and factual basis for
excluding amounts reported on the Forms 1099 attached to
petitioner’s 1998 income tax return. Petitioner responded with a
document in which he contends that only income from international
or foreign commerce is taxable. Respondent gave copies of 18
cases to petitioner in which courts had rejected his argument and
warned him of the potential for liability under section 6673.
Despite this, petitioner persisted in maintaining frivolous
positions in his pretrial memorandum and other documents filed
with the Court.
Petitioner took frivolous positions in a prior case. See
Rayner v. United States, 2001-1 USTC par. 50,342, 87 AFTR 2d
2001-1649 (5th Cir. 2001). In that case, the U.S. Court of
Appeals for the Fifth Circuit affirmed dismissal of petitioner’s
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claims against the United States, the Internal Revenue Service
(IRS), and various IRS officials “Because Rayner’s requests are
patently frivolous”. The Court of Appeals for the Fifth Circuit
warned:
Rayner’s appeal surpasses mere frivolity and
registers an extraordinary score on the appellate scale
of vexation. Mr. Rayner is given notice that future
frivolous appeals will be subject to the full panoply
of sanctions authorized by Federal Rules of Appellate
Procedure 38. We encourage the government to consider
moving for such sanctions if faced with frivolous
actions like this one in the future. [Id.]
We conclude that petitioner is liable for a penalty of
$5,000 under section 6673.
Accordingly,
An order will be entered
granting respondent’s motions for
summary judgment and for a penalty, and
decision will be entered for
respondent in amounts consistent
with the foregoing.