LEE v. COMMISSIONER

T.C. Memo. 2002-95

UNITED STATES TAX COURT

ROBERT LEE, JR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6655-00. Filed April 9, 2002.

Robert Lee, Jr., pro se.

Erin K. Huss, for respondent.

MEMORANDUM OPINION

COHEN, Judge: In separate notices of deficiency for each

year, respondent determined the following deficiencies and

additions to tax:
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Additions to Tax, I.R.C.
Year Deficiency Sec. 6651(a)(1) Sec. 6654(a)

1995 $2,864 $716.00 $155.29
1996 2,592 648.00 137.96
1997 2,737 684.25 146.43
1998 3,666 916.50 167.75

The only bona fide issue for decision is whether a penalty

should be imposed on petitioner under section 6673.

Unless otherwise indicated, 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.

Background

The relevant facts have been deemed stipulated pursuant to

Rule 91(f). Petitioner resided in Tempe, Arizona, at the time he

filed his petition.

During the years in issue, petitioner was a retired Federal

employee. He received a pension paid by the U.S. Office of

Personnel Management in the amounts of $19,272, $19,782, $20,484,

and $20,904 for 1995, 1996, 1997, and 1998, respectively.

During the years in issue, petitioner also received payments

as follows:
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Payor Year Amount

Enrich International 1995 $2,461.21
1996 1,051.82
1997 868.58

Scottsdale Camelback Resort 1996 382.20

Kyrene School District 1997 427.71

Petitioner received other items of income during the years in

issue that were included in respondent’s determination based on

third-party records received by respondent. Petitioner failed to

file Federal income tax returns for 1995, 1996, 1997, and 1998.

Respondent has now conceded that the income that petitioner

received in 1996 as reflected on the notice of deficiency from

Scottsdale Camelback Resort should be reduced by $382 to the

amount shown in the above table.

The first numbered paragraph of the Amended Petition filed

August 16, 2000, alleged that “The Petitioner is a single man”.

Paragraph 5 b alleged the following error: “Error in failing to

account for deductions the Petition would be entitled to as a

person who is married filing jointly.” Paragraph 6 alleged:

6. The facts upon which the Petitioner relies, as the
basis for his case, are as follows:

a. The Petitioner did not receive any of the income
alleged in the Notices of Deficiency.

b. The Petitioner is married. Arizona Law
establishes a joint indivisible half interest in
all property and income owned and held in the
State of Arizona by the marital community. No
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deficiency can lawfully issue that is not a
joint Notice of Deficiency addressed to both
spouses jointly.

Attached to the Amended Petition was a verification under penalty

of perjury signed by petitioner.

By notice served August 24, 2001, this case was set for

trial in Phoenix, Arizona, on January 28, 2002. Attached to the

Notice Setting Case for Trial was a Standing Pre-Trial Order that

provided in part:

ORDERED that all facts shall be stipulated to the
maximum extent possible. All documentary and written
evidence shall be marked and stipulated in accordance
with Rule 91(b), unless the evidence is to be used to
impeach the credibility of a witness. Objections may
be preserved in the stipulation. If a complete
stipulation of facts is not ready for submission at
trial, and if the Court determines that this is the
result of either party’s failure to fully cooperate in
the preparation thereof, the Court may order sanctions
against the uncooperative party. Any documents or
materials which a party expects to utilize in the event
of trial (except for impeachment), but which are not
stipulated, shall be identified in writing and
exchanged by the parties at least 15 days before the
first day of the trial session. The Court may refuse
to receive in evidence any document or material not so
stipulated or exchanged, unless otherwise agreed by the
parties or allowed by the Court for good cause shown.
* * *

On November 8, 2001, Respondent’s Request for Admissions was

filed. Petitioner’s Response to Requests for Admissions was

filed December 4, 2001. Petitioner’s responses included

assertions such as the following: “Admit the Petitioner lived in

Phoenix, Arizona, but denies he resided.” With respect to each
 - 5 -

notice of deficiency attached to the Request for Admissions,

petitioner’s response was: “Admit this a copy of the Notice of

Deficiency. Deny that there has been a taxable year.”

In response to the balance of the requested admissions,

petitioner asserted the following:

OBJECTION: Because the request could be used as
evidence to incriminate the Petitioner, the Petitioner
can neither admit nor deny this fact.

On December 13, 2001, respondent filed a Motion to Show

Cause Why Proposed Facts in Evidence Should Not Be Accepted as

Established. The proposed Stipulation of Facts attached to the

motion set forth facts that should not reasonably have been

disputed, in accordance with Rule 91. The documents that were

attached included copies of third-party records provided to

respondent that were the basis of the notices of deficiency.

Also attached to respondent’s motion were copies of

correspondence between the parties. In a letter to petitioner

dated September 28, 2001, respondent’s counsel enclosed the

proposed stipulation and supplemental stipulation. Respondent’s

counsel reminded petitioner of the Tax Court Rule that facts and

documents about which there should be no disagreement should be

stipulated. Respondent also attached a copy of the notice of

trial and Standing Pre-Trial Order. Respondent’s counsel letter

also stated:
 - 6 -

Lastly, although you were vague about your theory
of the case during our last meeting, it is my
understanding that you are planning to argue to the Tax
Court that the money you received for your retirement
and the work you did during the years at issue, is not
taxable. Please be advised that should you advance
such frivolous arguments before the Tax Court, I will
ask the Tax Court to impose a sanction against you.
The authority for such a sanction is at I.R.C. sec.
6673, and allows the Tax Court to impose a penalty of
up to $25,000.00.

Petitioner’s response to the above letter was erroneously dated

May 22, 2001, and stated:

I am writing in response to your letter of
September 28, 2001.

It is clear from the tone of your letter that you
do not comprehend the issues of this case. Either that
or I am left with no alternative but to treat your
letter as an idle and improper threat against me and my
property. If it is such a threat, I don’t think I need
to remind you of the consequences of 26 U.S.C. sec.
7214 which provide criminal sanctions for such threats
and intimidation under color of law.

This is a case of unreported income. I have
denied receipt of that income. Under the current state
of the law you have the burden of proving receipt of
that income and that the income was from a taxable
source. United States v. Janis, 428 U.S. 433, 441-442
(1976); Portillo v. Commissioner, 932 F.2d 1128 (5th
Cir., 1991); Weimerskirch v. Commissioner, 596 F.2d
358, 360 (9th Cir., 1979); Gerardo v. C.I.R., 552 F.2d
549, 552 (3rd Cir., 1977).

Given the tone of your letter, I cannot sign the
Stipulation of Facts as proposed. I am going to have
to go over them thoroughly and amend them. In the
interim, you must do the following. Produce all
documents you intend to use at trial to prove that I
received the income alleged in the Notices of
Deficiency and identify all witnesses you intend to
call to introduce and authenticate those documents.
 - 7 -

You have until October 25, 2001 to produce the evidence
and list of witnesses.

If you fail to do so, then I will have no
alternative but to use formal discovery methods to
compel you to provide the information. In addition, I
will file a Motion for Summary Judgment. Since you
will be the one who has the burden of proof, all I have
to do is establish that there is an absence of evidence
to prove an essential element of your case.

I hope we now understand each other. If you
persist in continuing with your idle threats, then I
will take appropriate action to inform the court that
you are unnecessarily delaying the proceedings and if
possible I will seek sanctions against you.

In a letter dated October 18, 2001, respondent’s counsel

responded to petitioner’s letter. The response included the

following paragraphs:

Furthermore, I am attaching a letter written by
you in 1996. This letter indicates your frivolous
positions regarding the federal income tax. These
positions include that you were unable to determine
that you are a citizen or resident of the United States
and that there is no evidence of “gross income from a
source within, or from a trade or business which is
effectively connected with the United States.” You
made these frivolous statements even though you live in
Arizona and received numerous Forms 1099 for the 1995
taxable year (one of them even from the federal
government’s Office of Personnel Management Retirement
and Insurance).

These arguments have failed repeatedly before the
Tax Court. Your arguments will fail. Furthermore, I
believe the Tax Court will impose a sanction on you for
wasting their time with these frivolous positions. It
really is in your best interest to try and settle this
case. I would be happy to look at any deductions you
may have that would decrease your tax.

I am looking forward to receiving a proposed
Stipulation of Facts from you. If I do not receive one
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from you by November 9, 2001, I will file a motion
under Tax Court Rule 91(f) to compel you to stipulate
to facts.

On December 14, 2001, the Order to Show Cause Under Rule

91(f) was issued to petitioner. Petitioner responded to that

order, attempting to condition his stipulation on recognition of

his assertion of the Fifth Amendment privilege, but he showed

neither reasonable fear of incrimination nor reasonable doubt as

to the accuracy of the proposed stipulations. By Order dated

January 10, 2002, the matters set forth in the proposed

stipulation were deemed established for purposes of this case.

The case was called from the calendar in Phoenix, Arizona,

on January 28, 2002. The respective trial memoranda of the

parties were filed. Petitioner’s trial memorandum set forth

inapplicable legal authorities dealing with illegal income in

support of his argument that respondent had the burden of proof.

Under evidentiary problems, petitioner set forth the following:

Evidentiary Problems: The evidence the Respondent
apparently intends to use the W-2's or 1099's. The
W-2's are jurisdictionally barred as they are reports
from “Wages” alleged to have been paid under
Subtitle C. This Court is without jurisdiction to
determine the Petitioner’s ‘employment’ status absent a
self-employment tax claim. The W-2's or 1099's are
otherwise invalid because they must be submitted to the
IRS by the preparer under penalty of perjury. 26
U.S.C. sec. 6065.

Trial was set for January 30, 2002.
 - 9 -

At the time of trial, respondent presented copies of Form

4340, Certificate of Assessments, Payments, and Other Specified

Matters, under seal, for each year. Petitioner objected to the

exhibits as hearsay. Rule 803(10) of the Federal Rules of

Evidence provides:
Rule 803(10).

ABSENCE OF PUBLIC RECORD
OR ENTRY

The following are not excluded by the hearsay
rule, even though the declarant is available as a
witness:

* * * * * * *

(10) Absence of public record or entry. To
prove the absence of a record, report, statement,
or data compilation, in any form, or the
nonoccurrence or nonexistence of a matter of which
a record, report, statement, or data compilation,
in any form, was regularly made and preserved by a
public office or agency, evidence in the form of a
certification in accordance with Rule 902, or
testimony, that diligent search failed to disclose
the record, report, statement, or data
compilation, or entry.

Rule 902 of the Federal Rules of Evidence sets forth rules for

self-authentication of various types of records.

Respondent also presented copies of third-party records

accompanied by declarations under rule 902(11) of the Federal

Rules of Evidence. Those records satisfied the conditions of

rule 803(6) of the Federal Rules of Evidence, which provides:
 - 10 -

Rule 803(6).

RECORDS OF REGULARLY
CONDUCTED ACTIVITY

The following are not excluded by the hearsay
rule, even though the declarant is available as a
witness:

* * * * * * *

(6) Records of regularly conducted activity.
A memorandum, report, record, or data compilation,
in any form, of acts, events, conditions,
opinions, or diagnoses, made at or near the time
by, or from information transmitted by, a person
with knowledge, if kept in the course of a
regularly conducted business activity, and if it
was the regular practice of that business activity
to make the memorandum, report, record, or data
compilation, all as shown by the testimony of the
custodian or other qualified witness, or by
certification that complies with Rule 902(11),
Rule 902(12), or a statute permitting
certification, unless the source of information or
the method or circumstances of preparation
indicate lack of trustworthiness. The term
“business” as used in this paragraph includes
business, institution, association, profession,
occupation, and calling of every kind, whether or
not conducted for profit.

Petitioner presented no evidence or argument suggesting that any

of the records received in evidence were not reliable. While

generally asserting that he had not received the amounts stated,

petitioner relied on his Fifth Amendment privilege and refused to

answer questions or to testify about his income.

Petitioner did testify that he was married during the years

in issue, but he refused to answer any questions about whether

his wife earned any income or filed a tax return for the years in
 - 11 -

issue. He refused to answer questions about whether he had a

community property or premarital agreement with his wife. He

refused to answer questions concerning who prepared the documents

filed by him in this case, which documents contained inconsistent

and frivolous claims and spurious threats, as set forth above.

Respondent called as a witness a revenue agent who explained how

respondent determined petitioner’s receipt of income from the

third-party records in the file.

Discussion

The stipulation proposed by respondent, the motion for order

to show cause, the order to show cause, and the order deeming

facts stipulated for purposes of this case were all consistent

with Rule 91. The statements made in the stipulation and the

documents attached to it were all matters “which fairly should

not be in dispute.” See Rule 91(a). Petitioner did not raise at

any time a dispute as to the factual accuracy of the stipulation.

His objections relate solely to his erroneous theory about

respondent’s burden of proof and his Fifth Amendment privilege.

Petitioner’s assertion that respondent has the burden of

proof is not a sufficient objection to a proposed stipulation.

Rule 91(a) specifically states that “The requirement of

stipulation applies under this Rule without regard to where the

burden of proof may lie with respect to the matters involved.”

See, e.g., Console v. Commissioner, T.C. Memo. 2001-232.
 - 12 -

Petitioner’s argument that Rule 91(f) could not be applied

without violating his Fifth Amendment privilege must be rejected.

The phrase that comes readily to mind was first used by the U.S.

Supreme Court in United States v. Sullivan, 274 U.S. 259, 264

(1927), to wit, a taxpayer may not “draw a conjurer’s circle

around the whole matter” of his or her tax liability. See also

Steinbrecher v. Commissioner, 712 F.2d 195, 198 (5th Cir. 1983),

affg. T.C. Memo. 1983-12; McCoy v. Commissioner, 696 F.2d 1234

(9th Cir. 1983), affg. 76 T.C. 1027 (1981); Edwards v.

Commissioner, 680 F.2d 1268 (9th Cir. 1982), affg. an unreported

decision of this Court; United States v. Carlson, 617 F.2d 518,

523 (9th Cir. 1980). In a civil tax case, the taxpayer must

accept the consequences of asserting the Fifth Amendment and

cannot avoid the burden of proof by claiming the privilege and

attempting to convert “the shield * * * which it was intended to

be into a sword”. United States v. Rylander, 460 U.S. 752, 758

(1983); see Steinbrecher v. Commissioner, supra; Traficant v.

Commissioner, 89 T.C. 501 (1987), affd. 884 F.2d 258 (6th Cir.

1989).

Petitioner also contends that respondent erroneously relied

on third-party information to determine that he had unreported

income for the years in issue. He has not, however, raised any

bona fide dispute as to the amounts reported on the third-party

documents. His arguments, as he was advised by respondent during
 - 13 -

pretrial preparation, have been consistently and thoroughly

rejected and may be the basis for sanctions. See also Rowlee v.

Commissioner, 80 T.C. 1111, 1119-1122 (1983). Petitioner’s

response to counsel’s letters was premised on faulty and totally

unfounded factual and legal assertions.

In these circumstances, respondent was entitled to rely on

the third-party information. See Parker v. Commissioner, 117

F.3d 785 (5th Cir. 1997); see also sec. 6201(d). In any event,

the facts and documents that were deemed stipulated establish

petitioner’s receipt of taxable income. Petitioner had the

burden of identifying and proving any deductions to which he

might be entitled. See, e.g., Rockwell v. Commissioner, 512 F.2d

882 (9th Cir. 1975), affg. T.C. Memo. 1972-133. He failed to do

so and has not shown that respondent’s determination is in any

way erroneous.

The stipulated facts also satisfy respondent’s burden of

production with respect to the additions to tax in issue. See

sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-449

(2001).

Section 6673(a)(1) provides:

SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS.

(a) Tax Court Proceedings.--

(1) Procedures instituted primarily for
delay, etc.--Whenever it appears to the Tax Court
that–-
 - 14 -

(A) proceedings before it have been
instituted or maintained by the taxpayer
primarily for delay,

(B) the taxpayer’s position in such
proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably failed to
pursue available administrative remedies,

the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not
in excess of $25,000.

The various arguments that petitioner made in this case have

been long discredited and patently were asserted for purposes of

delay. His inconsistent pleadings show disregard for

truthfulness and for the seriousness of these proceedings. We

conclude that a penalty under section 6673(a) should be awarded

to the United States in the amount of $10,000.

To reflect the foregoing,

An appropriate order

and decision will be entered.