SMETON v. COMMISSIONER

T.C. Memo. 2002-140

UNITED STATES TAX COURT

DAVID AND THERESA SMETON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4671-01L. Filed June 3, 2002.

David and Theresa Smeton, pro sese.

Wendy S. Harris and Sheara L. Gelman, for respondent.

MEMORANDUM OPINION

ARMEN, Special Trial Judge: This matter is before the Court

on respondent’s Motion For Summary Judgment And To Impose A

Penalty Under I.R.C. Section 6673, filed pursuant to Rule 121.1

Respondent contends that there is no dispute as to any material

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
 - 2 -

fact with respect to this levy action, and that respondent’s

determination to proceed with collection of petitioners’

outstanding tax liabilities for 1997 should be sustained as a

matter of law.

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law." Rule 121(a) and (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);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving

party bears the burden of proving that there is no genuine issue

of material fact, and factual inferences will be read in a manner

most favorable to the party opposing summary judgment. Dahlstrom

v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).

As explained in detail below, there is no genuine issue as

to any material fact, and a decision may be rendered as a matter

of law. Accordingly, we shall grant respondent’s motion for
 - 3 -

summary judgment.

Background

A. Petitioners’ Form 1040 for 1997

On or about April 15, 1998, petitioners David and Theresa

Smeton (petitioners) submitted to respondent a Form 1040, U.S.

Individual Income Tax Return, for the taxable year 1997. On

their Form 1040, petitioners listed their filing status as

“married filing joint return” and described their occupations as

“tile setter” and “housewife”, respectively.2

Petitioners entered zeros on applicable lines of the income

portion of their Form 1040, specifically including line 7 for

wages, line 22 for total income, and lines 32 and 33 for adjusted

gross income. Petitioners also entered a zero on line 53 for

total tax. Petitioners then claimed a refund in the amount of

$1,804, which amount was equal to the Federal income tax that had

been withheld from their wages.

Petitioners attached to their Form 1040 four Wage and Tax

Statements, Forms W-2. The first Form W-2 was from Arizona

Charlies, Inc. of Las Vegas, Nevada; it disclosed the payment of

wages to petitioner Theresa Smeton in the amount of $18,160.03

and the withholding of Federal income tax in the amount of

2
Petitioners’ description of Theresa Smeton’s occupation
as a housewife appears to be inconsistent with the Wage and Tax
Statement, Form W-2, that was issued to her. This Wage and Tax
Statement is described infra in the text.
 - 4 -

$20.56. The second Form W-2 was from Carrara Marble Co. of

America of Rosemead, California; it disclosed the payment of

wages to petitioner David Smeton in the amount of $27,072.85 and

the withholding of Federal income tax in the amount of $1,054.23.

The third Form W-2 was from Builders Showcase Interiors of San

Diego, California; it disclosed the payment of wages to

petitioner David Smeton in the amount of $5,324.31 and the

withholding of Federal income tax in the amount of $652.13. The

fourth Form W-2 was from Marbico Marble and Tile Co. of Las

Vegas, Nevada; it disclosed the payment of wages to petitioner

David Smeton in the amount of $3,122.88 and the withholding of

Federal income tax in the amount of $76.75.

Petitioners also attached to their Form 1040 a 2-page

typewritten statement that stated, in part, as follows:

I, David Smeton, am submitting this as part of my 1997
income tax return, even though I know that no section
of the Internal Revenue Code:

1) Establishes an income tax “liability” * * * ;

2) Provides that income taxes “have to be paid on the
basis of a return” * * * .

3) In addition to the above, I am filing even though
the “Privacy Act Notice” as contained in a 1040 booklet
clearly informs me that I am not required to file. It
does so in at least two places:
a) In one place, it states that I need only file a
return for “any tax” I may be “liable” for. Since
no Code Section makes me “liable” for income
taxes, this provision notifies me that I do not
have to file an income tax return.

* * * * * * *
 - 5 -

6) Please note, that my 1997 return also constitutes a
claim for refund pursuant to Code Section 6402.

7) It should also be noted that I had “zero” income
according to the Supreme Court’s definition of income
* * * .

8) I am also putting the IRS on notice that my 1997 tax
return and claim for refund does not constitute a
“frivolous” return pursuant to Code Section 6702.

* * * * * * *

10) In addition, don’t notify me that the IRS is
“changing” my return, since there is no statute that
allows the IRS to do that. You might prepare a return
(pursuant to Code Section 6020(b), where no return is
filed, but as in this case, a return has been filed, no
statute authorizes IRS personal [sic] to “change” that
return.

* * * * * * *

The word “income” is not defined in the Internal
Revenue Code. * * * But, as stated above, it can only
be a derivative of corporate activity. * * *

B. Respondent’s Deficiency Notice and Petitioners’ Response

On October 8, 1999, respondent issued a joint notice of

deficiency to petitioners. In the notice, respondent determined

a deficiency in the amount of $17,471 in petitioners’ Federal

income tax for 1997 and an accuracy-related penalty under section

6662(a) for negligence or disregard of rules or regulations in

the amount of $3,133.40.3 The deficiency was based principally

3
Insofar as petitioners’ ultimate tax liability was
concerned, respondent gave petitioners credit for the amounts
withheld from their wages. However, we note that the
determination of a statutory deficiency does not take such
withheld amounts into account. See sec. 6211(b)(1).
 - 6 -

on respondent’s determination that petitioners failed to report

(1) wage income in the amount of $53,678 (as reported on the four

Forms W-2 described above) and (2) nonemployee compensation in

the amount of $27,941 (as reported by Carpet Max on a Form 1099-

NEC).4

By registered letter dated January 4, 2000, petitioner

Theresa Smeton wrote to the Director of respondent’s Service

Center in Ogden, Utah, acknowledging receipt of the notice of

deficiency dated October 8, 1999, but challenging the Director’s

authority “to send me the Notice in the first place.”

Petitioners sent copies of this letter by registered mail to

Robert Rubin, Secretary of the Treasury, and Charles O. Rossotti,

Commissioner of Internal Revenue.

Petitioners knew that they had the right to contest

respondent’s deficiency determination by filing a petition for

redetermination with this Court.5 However, petitioners chose not

4
Unlike their wage income, petitioners did not disclose
the receipt of nonemployee compensation on their Form 1040 for
1997. In this regard, we note that Federal income tax is not
withheld from nonemployee compensation and that petitioners’ Form
1040 was essentially nothing other than a claim for refund of all
Federal income tax that had been withheld from petitioners’
wages.
5
In this regard, the first sentence of petitioner Theresa
Smeton’s letter dated Jan. 4, 2000, stated as follows:

According to your “Deficiency Notice” of above date
(cover sheet attached), there is an alleged deficiency
with respect to my 1997 income tax of $17,471.00, and
(continued...)
 - 7 -

to do so. Accordingly, on March 27, 2000, respondent assessed

the determined deficiency and accuracy-related penalty, as well

as statutory interest. On that same day, respondent sent

petitioners a notice of balance due, informing petitioners that

they had a liability for 1997 and requesting that they pay it.

Petitioners failed to do so.

On May 1, 2000, respondent sent petitioners a second

notice of balance due for 1997. Once again, petitioners failed

to pay the amount owing.

C. Respondent’s Final Notice and Petitioners’ Response

On August 31, 2000, respondent sent petitioners a Final

Notice-–Notice of Intent to Levy and Notice of Your Right to a

Hearing (the Final Notice). The Final Notice was issued in

respect of petitioners’ outstanding liability for 1997.

On September 14, 2000, petitioners submitted to respondent a

Form 12153, Request for a Collection Due Process Hearing.

Petitioners requested that the Appeals Office demonstrate that

petitioners are required to pay the amount listed as due in the

Final Notice.

5
(...continued)
if I wanted to “contest this deficiency before making
payment,” I must “file a petition with the United
States Tax Court.”
 - 8 -

D. The Appeals Office Hearing

Prior to an Appeals Office hearing, Appeals Officer Tony

Aguiar (the Appeals officer) reviewed Form 4340, Certificate of

Assessments, Payments, and Other Specified Matters, with regard

to petitioners’ taxable year 1997. A copy of the Form 4340,

dated December 27, 2000, is attached to respondent’s Motion for

Summary Judgment, which was served on petitioners.

On February 15, 2001, the Appeals officer conducted an

Appeals Office hearing that petitioners attended. According to a

purported transcript of the hearing prepared by petitioners,

petitioners declined to discuss collection alternatives. Rather,

petitioners stated that they wished to challenge their underlying

tax liability, and they requested that the Appeals officer

provide verification that all applicable laws and administrative

procedures were followed in the assessment and collection

process.

E. Respondent’s Notice of Determination

On March 9, 2001, respondent sent petitioners a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330. The notice stated that the Appeals Office had

determined that it was appropriate for respondent to proceed with

the collection of petitioners’ outstanding tax liability.6

6
The attachment (Form 3193) to the Notice of
Determination, which was authored by the Appeals officer, states
(continued...)
 - 9 -

F. Petitioners’ Petition

On April 5, 2001, petitioners filed with the Court a

petition for lien or levy action seeking review of respondent’s

notice of determination.7 The petition includes allegations

that: (1) The Appeals officer failed to obtain verification from

the Secretary that the requirements of any applicable law or

administrative procedure were met as required under section

6330(c)(1); (2) petitioners never received a notice and demand

for payment; and (3) petitioners were denied the opportunity to

challenge (a) the appropriateness of the collection action; and

(b) the existence or amount of their underlying tax liability.

G. Respondent’s Motion for Summary Judgment

As indicated, respondent filed a Motion For Summary Judgment

And To Impose A Penalty Under I.R.C. Section 6673 asserting that

there is no dispute as to a material fact and that respondent is

entitled to judgment as a matter of law. In particular,

respondent contends that because petitioners received the notice

6
(...continued)
that “During the Collection Due Process Hearing I provided you a
Summary Record of Assessment, which you handed back to me because
the Secretary did not sign it.”
At the hearing on respondent’s motion, respondent’s counsel
represented that what was provided to petitioners at the Appeals
Office hearing was Form 4340, Certificate of Assessments,
Payments, and Other Specified Matters, with regard to
petitioners’ taxable year 1997.
7
At the time that the petition was filed, petitioners
resided in Las Vegas, Nevada.
 - 10 -

of deficiency dated October 8, 1999, they cannot challenge the

existence or amount of their underlying tax liability for 1997 in

this proceeding. Respondent further contends that the Appeals

officer’s review of Form 4340 with regard to petitioners’ account

for 1997 satisfied the verification requirement imposed under

section 6330(c)(1) and demonstrates that petitioners were issued

a notice and demand for payment. Finally, respondent contends

that petitioners’ behavior warrants the imposition of a penalty

under section 6673.

Petitioners filed an Objection to respondent’s motion.

Thereafter, pursuant to notice, respondent’s motion was called

for hearing at the Court's motions session in Washington, D.C.

Discussion

Section 6331(a) provides that if any person liable to pay

any tax neglects or refuses to pay such tax within 10 days after

notice and demand for payment, the Secretary is authorized to

collect such tax by levy on the person’s property. Section

6331(d) provides that at least 30 days before enforcing

collection by levy on the person's property, the Secretary is

obliged to provide the person with a final notice of intent to

levy, including notice of the administrative appeals available to

the person.

Section 6330 generally provides that the Commissioner cannot

proceed with collection by levy until the person has been given
 - 11 -

notice and the opportunity for an administrative review of the

matter (in the form of an Appeals Office hearing) and, if

dissatisfied, with judicial review of the administrative

determination. See Davis v. Commissioner, 115 T.C. 35, 37

(2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000).

Section 6330(c) prescribes the matters that a person may

raise at an Appeals Office hearing. In sum, section 6330(c)

provides that a person may raise collection issues such as

spousal defenses, the appropriateness of the Commissioner's

intended collection action, and possible alternative means of

collection. Section 6330(c)(2)(B) provides that the existence

and amount of the underlying tax liability can be contested at an

Appeals Office hearing only if the person did not receive a

notice of deficiency for the taxes in question or did not

otherwise have an earlier opportunity to dispute the tax

liability. See Sego v. Commissioner, 114 T.C. 604, 609 (2000);

Goza v. Commissioner, supra. Section 6330(d) provides for

judicial review of the administrative determination in the Tax

Court or a Federal District Court, as may be appropriate.

A. Summary Judgment

Petitioners challenge the assessments made against them on

the ground that the notice of deficiency dated October 8, 1999,

is invalid. However, the record shows that petitioners received

the notice of deficiency and disregarded the opportunity to file
 - 12 -

a petition for redetermination with this Court. See sec.

6213(a). It follows that section 6330(c)(2)(B) bars petitioners

from challenging the existence or amount of their underlying tax

liability in this collection review proceeding.

Even if petitioners were permitted to challenge the validity

of the notice of deficiency, petitioners’ argument that the

notice is invalid because respondent’s Service Center director is

not properly authorized to issue notices of deficiency is

frivolous and groundless. See Nestor v. Commissioner, 118 T.C.

162, 165 (2002); Goza v. Commissioner, supra. Further, as the

Court of Appeals for the Fifth Circuit has remarked: "We perceive

no need to refute these arguments with somber reasoning and

copious citation of precedent; to do so might suggest that these

arguments have some colorable merit." Crain v. Commissioner, 737

F.2d 1417 (5th Cir. 1984). Suffice it to say that petitioners

are taxpayers subject to the Federal income tax, see secs.

1(a)(1), 7701(a)(1), (14), and that compensation for labor or

services rendered constitutes income subject to the Federal

income tax, sec. 61(a)(1); United States v. Romero, 640 F.2d

1014, 1016 (9th Cir. 1981).

We likewise reject petitioners’ argument that the Appeals

officer failed to obtain verification from the Secretary that the

requirements of all applicable laws and administrative procedures

were met as required by section 6330(c)(1). The record shows
 - 13 -

that the Appeals officer obtained and reviewed a transcript of

account (Form 4340) with regard to petitioners’ taxable year

1997.

Federal tax assessments are formally recorded on a record of

assessment. Sec. 6203. “The summary record, through supporting

records, shall provide identification of the taxpayer, the

character of the liability assessed, the taxable period, if

applicable, and the amount of the assessment.” Sec. 301.6203-1,

Proced. & Admin. Regs.

Section 6330(c)(1) does not require the Commissioner to rely

on a particular document to satisfy the verification requirement

imposed therein. Roberts v. Commissioner, 118 T.C. n.10

(2002); Weishan v. Commissioner, T.C. Memo. 2002-88; Lindsey v.

Commissioner, T.C. Memo. 2002-87; Tolotti v. Commissioner, T.C.

Memo. 2002-86; Duffield v. Commissioner, T.C. Memo. 2002-53;

Kuglin v. Commissioner, T.C. Memo. 2002-51. In this regard, we

observe that the Form 4340 on which the Appeals officer relied

contained all the information prescribed in section 301.6203-1,

Proced. & Admin. Regs. See Weishan v. Commissioner, supra;

Lindsey v. Commissioner, supra; Tolotti v. Commissioner, supra;

Duffield v. Commissioner, supra; Kuglin v. Commissioner, supra.8

8
To the extent that petitioners may still be arguing that
the Appeals officer failed to provide them with a copy of the
verification, we note that sec. 6330(c)(1) does not require that
the Appeals officer provide the taxpayer with a copy of the
(continued...)
 - 14 -

Petitioners have not alleged any irregularity in the

assessment procedure that would raise a question about the

validity of the assessments or the information contained in the

Form 4340. See Davis v. Commissioner, supra at 41; Mann v.

Commissioner, T.C. Memo. 2002-48. Accordingly, we hold that the

Appeals officer satisfied the verification requirement of section

6330(c)(1). Cf. Nicklaus v. Commissioner, 117 T.C. 117, 120-121

(2001).

Petitioners also contend that they never received a notice

and demand for payment for 1997. The requirement that the

Secretary issue a notice and demand for payment is set forth in

section 6303(a), which provides in pertinent part:

SEC. 6303(a). General Rule.-–Where it is not
otherwise provided by this title, the Secretary shall,
as soon as practicable, and within 60 days, after the
making of an assessment of a tax pursuant to section
6203, give notice to each person liable for the unpaid
tax, stating the amount and demanding payment thereof
* * *.

The Form 4340 that the Appeals officer relied on during the

administrative process shows that respondent sent petitioners a

notice of balance due on the same date that respondent made

assessments against petitioners for the tax and accuracy-related

8
(...continued)
verification at the administrative hearing. Nestor v.
Commissioner, 118 T.C. 162, 166 (2002). In any event, in the
attachment (Form 3193) to the Notice of Determination, the
Appeals officer states that he provided petitioners with a
Summary Record of Assessment, which they declined to accept
“because the Secretary did not sign it.”
 - 15 -

penalty determined in the notice of deficiency. A notice of

balance due constitutes a notice and demand for payment within

the meaning of section 6303(a). See, e.g., Hughes v. United

States, 953 F.2d 531, 536 (9th Cir. 1992); Weishan v.

Commissioner, supra; see also Hansen v. United States, 7 F.3d

137, 138 (9th Cir. 1993).

Petitioners have failed to raise a spousal defense, make a

valid challenge to the appropriateness of respondent’s intended

collection action, or offer alternative means of collection.

These issues are now deemed conceded. Rule 331(b)(4). In the

absence of a valid issue for review, we conclude that respondent

is entitled to judgment as a matter of law sustaining the notice

of determination dated March 9, 2001.

B. Imposition of a Penalty Under Section 6673

We turn now to that part of respondent’s motion that moves

for the imposition of a penalty on petitioners under section

6673.

As relevant herein, section 6673(a)(1) authorizes the Tax

Court to require a taxpayer to pay to the United States a penalty

not in excess of $25,000 whenever it appears that proceedings

have been instituted or maintained by the taxpayer primarily for

delay or that the taxpayer's position in such proceeding is

frivolous or groundless. The Court has indicated its willingness

to impose such penalty in lien and levy cases, Pierson v.
 - 16 -

Commissioner, 115 T.C. 576, 580-581 (2000), and has in fact

imposed a penalty in several such cases, Roberts v. Commissioner,

supra (imposing a penalty in the amount of $10,000); Newman v.

Commissioner, T.C. Memo. 2002- (imposing a penalty in the

amount of $1,000); Yacksyzn v. Commissioner, T.C. Memo. 2002-99

(imposing a penalty in the amount of $1,000); Watson v.

Commissioner, T.C. Memo. 2001-213 (imposing a penalty in the

amount of $1,500); Davis v. Commissioner, T.C. Memo. 2001-87

(imposing a penalty in the amount of $4,000).

We are convinced that petitioners instituted the present

proceeding primarily for delay. In this regard, it is clear that

petitioners regard this proceeding as nothing but a vehicle to

protest the tax laws of this country and to espouse their own

misguided views, which we regard as frivolous and groundless. In

short, having to deal with this matter wasted the Court's time,

as well as respondent's, and taxpayers with genuine controversies

may have been delayed.

Under the circumstances, we shall grant that part of

respondent’s motion that moves for the imposition of a penalty in

that we shall impose a penalty on petitioners pursuant to section

6673(a)(1) in the amount of $1,000.
 - 17 -

In order to give effect to the foregoing,

An appropriate order granting

respondent's motion and decision

for respondent will be entered.