T.C. Memo. 2003-128
UNITED STATES TAX COURT
ERYCK C. ASTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6763-00L. Filed May 2, 2003.
Eryck C. Aston, pro se.
Joan E. Steele, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Pursuant to section 6330(d),1 petitioner
seeks review of respondent’s determination to proceed with
collection of his 1987, 1988, 1989, and 1992 income tax
liabilities.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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FINDINGS OF FACT
None of the facts have been stipulated. At the time he
filed the petition, petitioner resided in Billings, Montana.
Petitioner timely filed Federal income tax returns for 1987,
1988, and 1989. Petitioner did not file a Federal income tax
return for 1992.
On April 25, 1991, petitioner filed a Form 872-A, Special
Consent to Extend the Time to Assess Tax for 1988.
On May 14, 1993, respondent sent notices of deficiency for
1987, 1988, and 1989 to petitioner’s last known address.
On January 14, 1994, respondent filed a Notice of Federal
Tax Lien Under Internal Revenue Laws regarding petitioner’s
assessed income tax liabilities for 1987, 1988, 1989, and 1990
with the County Recorder of Utah County, Provo, Utah.
On December 19, 1997, respondent sent a notice of deficiency
for 1992 to petitioner’s last known address.
On March 6, 2000, respondent filed a Notice of Federal Tax
Lien regarding petitioner’s assessed income tax liability for
1992 with the Clerk and Recorder of Yellowstone County, Billings,
Montana.
On March 15, 2000, respondent sent petitioner a Final
Notice, Notice of Intent to Levy and Notice of Your Right to a
Hearing (collection notice) with respect to petitioner’s 1987,
1988, 1989, and 1992 taxable years. Respondent listed the total
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amount owed (including unpaid taxes, penalties, and interest) for
1987, 1988, 1989, and 1992 as of the date of the collection
notice as $1,522,588.25.
On March 17, 2000, petitioner sent respondent a Request for
a Collection Due Process Hearing for 1987, 1988, 1989, and 1992
(hearing request).
Appeals Officer Keith Fessenden was assigned to petitioner’s
case. Appeals Officer Fessenden sent petitioner two letters
scheduling a telephone hearing with petitioner. Petitioner sent
Appeals Officer Fessenden a letter stating that he (petitioner)
did not have a phone. In this letter, petitioner did not raise
any collection alternatives; he raised frivolous and groundless
arguments regarding his underlying tax liabilities.
On June 8, 2000, respondent sent petitioner a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 (notice of determination) for 1987, 1988, 1989, and
1992 concluding that respondent could proceed with the proposed
collection action because “the proposed collection action
balances the need for efficient collection of taxes with * * *
[petitioner’s] legitimate concern that any collection action be
no more intrusive than necessary.”
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OPINION
I. Evidentiary Issue
As a preliminary matter, we must decide whether certain
documents respondent submitted during the trial of this case
should be admitted into evidence. At trial, respondent sought to
introduce a Form 4665, Report Transmittal, a Form 886-A,
Explanation of Items, and workpapers prepared by Revenue Agent
Wesley Bayles. Petitioner made a hearsay objection to the
admission of these documents. We reserved ruling on their
admissibility.
Respondent argues that the documents are admissible because
they were offered merely to show what information was available
and considered by Revenue Agent Bayles during the audit of
petitioner’s returns. Revenue Agent Bayles testified that (1) he
prepared these documents in connection with the audit of
petitioner’s 1987, 1988, 1989, and 1990 returns, (2) he had
petitioner’s bank records when he prepared the report, and (3)
the report reflects the explanation of adjustments made for 1987,
1988, and 1989.
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
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of that business activity to make the memorandum, report, record,
or data compilation, shown by the testimony of a qualified
witness, unless the source of information or the method or
circumstances of preparation indicate a lack of trustworthiness,
is not excluded by the hearsay rule. Fed. R. Evid. 803(6); see
Clough v. Commissioner, 119 T.C. 183, 188-189 (2002). The
documents in question are business records prepared by Revenue
Agent Bayles. There is no indication that the method or
circumstances of preparation indicate a lack of trustworthiness.
Accordingly, we admit these documents into evidence.
II. Determination To Proceed With Collection
Respondent concedes that the amount he originally assessed
for 1992 was in error. Respondent originally assessed additional
taxes due of $303,306 instead of $30,306 (the amount of tax
determined in the notice of deficiency for 1992). On July 15,
2002, respondent abated $273,000 in tax and $174,493.09 in
interest associated with this typographical error.
Section 6320 provides that the Secretary shall furnish the
person described in section 6321 with written notice (i.e., the
hearing notice) of the filing of a notice of lien under section
6323. Section 6320 further provides that the taxpayer may
request administrative review of the matter (in the form of a
hearing) within a prescribed 30-day period. The hearing
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generally shall be conducted consistent with the procedures set
forth in section 6330(c), (d), and (e). Sec. 6320(c).
Section 6330(a) provides that the Secretary shall furnish
taxpayers with written notice of their right to a hearing before
any property is levied upon. Section 6330 further provides that
the taxpayer may request administrative review of the matter (in
the form of a hearing) within a prescribed 30-day period. Sec.
6330(a) and (b).
Pursuant to section 6330(c)(2)(A), a taxpayer may raise at
the section 6330 hearing any relevant issue with regard to the
Commissioner’s collection activities, including spousal defenses,
challenges to the appropriateness of the Commissioner’s intended
collection action, and alternative means of collection. Sego v.
Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114
T.C. 176, 180 (2000). If a taxpayer received a statutory notice
of deficiency for the years in issue or otherwise had the
opportunity to dispute the underlying tax liability, the taxpayer
is precluded from challenging the existence or amount of the
underlying tax liability. Sec. 6330(c)(2)(B); Sego v.
Commissioner, supra at 610-611; Goza v. Commissioner, supra at
182-183.
Respondent concedes that (1) petitioner did not receive the
statutory notices of deficiency for 1987, 1988, 1989, and 1992,
(2) petitioner raised the issue of his underlying liability for
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1987, 1988, 1989, and 1992 in his hearing request and in his
correspondence hearing, and (3) petitioner’s underlying
liabilities for 1987, 1988, 1989, and 1992 are properly before
the Court. On the basis of the aforementioned concessions, we
shall review petitioner’s underlying tax liabilities for 1987,
1988, 1989, and 1992. See Goza v. Commissioner, supra. Where
the underlying tax liability is properly at issue, we review that
issue de novo. Sego v. Commissioner, supra at 610; Goza v.
Commissioner, supra at 181. We review the remainder of the
Commissioner’s determination for an abuse of discretion. Sego v.
Commissioner, supra.
A. Underlying Liabilities
1. Deficiencies and Additions to Tax Excluding Civil Fraud
The Commissioner's determinations generally are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous.2 Rule 142(a); Welch v. Helvering,
2
Sec. 7491 is inapplicable to this case. See Warbelow’s
Air Ventures, Inc. v. Commissioner, 118 T.C. 579, 582 n.8 (2002)
(sec. 7491 is effective for court proceedings arising in
connection with examinations commencing after July 22, 1998).
The U.S. Court of Appeals for the Ninth Circuit, to which an
appeal of this case would lie, has held that in order for the
presumption of correctness to attach to a notice of deficiency in
unreported income deficiency cases, the Commissioner must come
forward with substantive evidence establishing some “evidentiary
foundation” linking the taxpayer with the income-producing
activity, Weimerskirch v. Commissioner, 596 F.2d 358, 361-362
(9th Cir. 1979), revg. 67 T.C. 672 (1977), or “demonstrating that
the taxpayer received the unreported income”, Edwards v.
(continued...)
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290 U.S. 111, 115 (1933); Durando v. United States, 70 F.3d 548,
550 (9th Cir. 1995).
In numerous motions, at trial, and on brief, petitioner
advanced shopworn arguments characteristic of tax-protester
rhetoric that has been universally rejected by this and other
courts. Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988),
affg. T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006,
1009 (9th Cir. 1986). We shall not painstakingly address
petitioner’s assertions “with somber reasoning and copious
citation of precedent; to do so might suggest that these
2
(...continued)
Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982); see also Rapp
v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985). Although
Weimerskirch was a case regarding illegal source income, it is
now well established that the Court of Appeals for the Ninth
Circuit applies the Weimerskirch rule in all deficiency cases
involving the receipt of unreported income. See Edwards v.
Commissioner, supra at 1270-1271; Petzoldt v. Commissioner, 92
T.C. 661, 689 (1989). The Court of Appeals for the Ninth Circuit
has described the required evidentiary foundation as “minimal”.
Palmer v. IRS, 116 F.3d 1309, 1312-1313 (9th Cir. 1997).
It is unclear whether Weimerskirch is applicable to the case
at bar. See Rivera v. Commissioner, T.C. Memo. 2003-35
(questioning whether Weimerskirch is applicable in the sec. 6330
context); Curtis v. Commissioner, T.C. Memo. 2001-308 n.2
(questioning whether Weimerskirch has been legislatively
overruled by Congress’s enactment of sec. 7491). We note,
however, that on the basis of the evidence presented at trial--
including petitioner’s testimony, Revenue Agent Bayles’s
testimony, and the documentary evidence (including petitioner’s
tax returns for 1987, 1988, and 1989)--respondent presented
adequate evidence connecting petitioner with an income-producing
activity. Therefore, even if the Weimerskirch rule were
applicable, respondent’s determination would be entitled to the
presumption of correctness.
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arguments have some colorable merit.” Crain v. Commissioner, 737
F.2d 1417, 1417 (5th Cir. 1984).
Petitioner also appears to argue that he is entitled to a
loss deduction related to (1) property seized by the Government,
and (2) theft of his property by his ex-wife, Lonnie Probst.
Petitioner does not explain in what year he is entitled to these
deductions.
In the case at bar, petitioner presented the same
documentary evidence regarding the aforementioned losses as he
presented in Aston v. Commissioner, T.C. Memo. 2003-104 (Aston
I). In the case at bar, however, petitioner did not offer any
testimony in support of these losses.
Even if we were to consider petitioner’s testimony from
Aston I, the evidence does not establish that any of the alleged
losses (from the seizure of the firearms or the alleged theft of
property) occurred in 1987, 1988, 1989, or 1992. On the basis of
the foregoing, we sustain respondent’s deficiency determinations
for 1987, 1988, 1989, and 1992, and his determinations regarding
petitioner’s liability for the additions to tax pursuant to
section 6661 for 1988 and sections 6651(a) and 6654(a) for 1992.
2. Additions to Tax and Penalties for Civil Fraud
Respondent determined additions to tax and penalties for
fraud for 1987, 1988, and 1989. The Commissioner has the burden
of proving fraud by clear and convincing evidence. Sec. 7454(a);
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Rule 142(b). To satisfy this burden, the Commissioner must show:
(1) An underpayment exists; and (2) the taxpayer intended to
evade taxes known to be owing by conduct intended to conceal,
mislead, or otherwise prevent the collection of taxes. Parks v.
Commissioner, 94 T.C. 654, 660-661 (1990). The Commissioner must
meet this burden through affirmative evidence because fraud is
never imputed or presumed. Beaver v. Commissioner, 55 T.C. 85,
92 (1970).
Over the years, courts have developed a nonexclusive list of
factors that demonstrate fraudulent intent. These badges of
fraud include: (1) Understating income, (2) maintaining
inadequate records, (3) implausible or inconsistent explanations
of behavior, (4) concealment of income or assets, (5) failing to
cooperate with tax authorities, (6) engaging in illegal
activities, (7) an intent to mislead which may be inferred from a
pattern of conduct, (8) lack of credibility of the taxpayer's
testimony, (9) filing false documents, (10) failing to file tax
returns, and (11) dealing in cash. Spies v. United States, 317
U.S. 492, 499 (1943); Douge v. Commissioner, 899 F.2d 164, 168
(2d Cir. 1990); Bradford v. Commissioner, 796 F.2d 303, 307-308
(9th Cir. 1986), affg. T.C. Memo. 1984-601; Recklitis v.
Commissioner, 91 T.C. 874, 910 (1988). Mere suspicion, however,
does not prove fraud. Katz v. Commissioner, 90 T.C. 1130, 1144
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(1988); Shaw v. Commissioner, 27 T.C. 561, 569-570 (1956), affd.
252 F.2d 681 (6th Cir. 1958).
In order to sustain his heavy burden of proof, respondent
relies on the testimony of Revenue Agent Bayles and the report
Revenue Agent Bayles prepared in connection with the audit of
petitioner’s returns. The report contains merely the revenue
agent’s conclusions. Notably, Revenue Agent Bayles concluded
that petitioner was liable for the addition to tax/penalty for
fraud for 1988 and 1989 but not for 1987. Furthermore, Revenue
Agent Bayles’s testimony was conclusory--he merely stated which
badges of fraud he felt were present. Respondent provided no
evidence to corroborate Revenue Agent Bayles’s conclusory
statements.
In light of respondent’s document retention/destruction
policy, we understand why respondent did not have any additional
documentary evidence to present at trial. This policy, however,
does not relieve respondent of his burden of proof. On the basis
of the evidence, we conclude that respondent has failed to
sustain his heavy burden of proving by clear and convincing
evidence that petitioner is liable for the additions to tax and
penalties for fraud. Accordingly, we do not sustain any of the
additions to tax or penalties for fraud.
B. Remaining Issues
Petitioner admitted that he did not raise collection
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alternatives as part of his correspondence hearing. Petitioner
has failed to raise a spousal defense or make a valid challenge
to the appropriateness of respondent’s intended collection
action. These issues are now deemed conceded. See Rule
331(b)(4). Accordingly, we conclude that respondent did not
abuse his discretion, and we sustain respondent’s determination
to proceed with collection.
III. Section 6673(a)
Section 6673(a)(1) authorizes this Court to require a
taxpayer to pay to the United States a penalty not to exceed
$25,000 if the taxpayer took frivolous positions in the
proceedings or instituted the proceedings primarily for delay. A
position maintained by the taxpayer is “frivolous” where 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).
At trial, the Court advised petitioner that to address the
issue of his underlying liability he needed to focus on the
issues in the notices of deficiency; i.e., whether he earned the
income determined, whether he had the gross receipts determined,
and whether he could prove entitlement to the deductions he
claimed. The Court advised petitioner, as we had in Aston I
(which petitioner tried immediately before this case), that the
arguments he was advancing were frivolous and groundless and had
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been rejected by the U.S. Court of Appeals for the Ninth Circuit,
the court to which this case is appealable. The Court further
advised petitioner that he was wasting the Court’s time with his
frivolous arguments.
In Pierson v. Commissioner, 115 T.C. 576, 581 (2000), we
issued an unequivocal warning to taxpayers concerning the
imposition of penalties pursuant to section 6673(a) on those
taxpayers who abuse the protections afforded by sections 6320 and
6330 by instituting or maintaining actions under those sections
primarily for delay or by taking frivolous or groundless
positions in such actions. Petitioner filed voluminous frivolous
documents and motions with the Court. Furthermore, the Court
warned petitioner that he was wasting the Court’s time.
Petitioner’s position, based on stale and meritless contentions,
is manifestly frivolous and groundless, and he has wasted the
time and resources of this Court. We are convinced that
petitioner instituted and maintained these proceedings primarily
for delay. Accordingly, we shall impose a penalty of $25,000
pursuant to section 6673.
To reflect the foregoing,
An appropriate decision
will be entered.