T.C. Memo. 2003-164
UNITED STATES TAX COURT
JOHN PARKS TROWBRIDGE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
SABRINA MARTIN, f.k.a. SABRINA L. TROWBRIDGE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 473-01, 474-01. Filed June 4, 2003.
R determined deficiencies in tax with respect to
Ps (H and W) for the years 1991-95, as well as
additions to tax under secs. 6651(a)(1) and 6654,
I.R.C., with respect to various of those years. Ps
filed petitions for redetermination but failed to
appear at trial. R moved for default judgment with
respect to the deficiencies in tax determined against
Ps for all years and the additions to tax determined
against H for the years 1991-93. R proceeded to trial
on the issues of (1) the additions to tax determined
against W for all years, and (2) the additions to tax
determined against H for 1994 and 1995.
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1. Held: R’s motion for default judgment is granted.
2. Held, further, Forms 1040 and 1040EZ filed by
Ps do not constitute valid Federal income tax returns.
3. Held, further, Ps are liable for the additions
to tax at issue in the amounts determined by R, with
minor adjustments.
4. Held, further, H and W are liable for
penalties under sec. 6673, I.R.C., in the amounts of
$25,000 and $15,000, respectively.
John Parks Trowbridge and Sabrina Martin, pro sese.
M. Kathryn Bellis, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, Judge: These cases have been consolidated for
purposes of trial, briefing, and opinion. By notices of
deficiency dated October 11, 2000 (the notices of deficiency),
respondent determined deficiencies in, and additions to, each
petitioner’s Federal income taxes as follows:
John Parks Trowbridge (Dr. Trowbridge)
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1991 $6,533 -- $4
1992 9,492 $1,380 222
1993 83,478 20,870 3,498
1994 121,075 30,269 6,283
1995 130,699 32,595 7,068
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Sabrina L. Trowbridge (Ms. Martin1)
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1991 $6,197 $105 --
1992 8,740 1,198 $190
1993 74,612 18,653 3,126
1994 102,588 25,647 5,323
1995 111,266 27,679 6,000
Respondent has moved that petitioners be held in default
with respect to the deficiencies in tax determined against them
for all years and that Dr. Trowbridge be held in default with
respect to the additions to tax determined against him for 1991,
1992, and 1993. In addition, respondent has moved for partial
summary judgment in his favor with respect to the additions to
tax determined against Dr. Trowbridge for 1994 and 1995 and the
additions to tax determined against Ms. Martin for all years.
Respondent has also asked the Court to impose a penalty on each
petitioner under section 6673(a)(1) in the amount of $25,000.
For the reasons that follow, we shall grant respondent’s motions
for default judgment, sustain (with minor adjustments) the
additions to tax that are the subject of his motions for partial
summary judgment, and impose penalties under section 6673(a)(1).
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue, and
all Rule references are to the Tax Court Rules of Practice and
1
During the years at issue, Ms. Martin was married to Dr.
Trowbridge and was known as Sabrina L. Trowbridge. She is now
known as Sabrina Martin, and we shall refer to her as Ms. Martin
for all purposes in this report.
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Procedure. For the sake of convenience, all dollar amounts are
rounded to the nearest dollar.
FINDINGS OF FACT
Preliminary Facts
At the time the petitions were filed in these cases, each
petitioner resided in Harris County, Texas.
Petitioners were married to each other during the years at
issue but filed separate returns for those years.
Dr. Trowbridge is a physician, and Ms. Martin is a nurse and
administrative assistant who, during the years at issue, was
sometimes employed by Dr. Trowbridge’s professional corporation.
Both petitioners are calendar year taxpayers.
Respondent’s examination with respect to Dr. Trowbridge’s
1991, 1992, and 1993 taxable years commenced before 1998.
Respondent’s examinations with respect to Dr. Trowbridge’s 1994
and 1995 taxable years and Ms. Martin’s 1991 through 1995 taxable
years commenced after July 1998.
Dr. Trowbridge’s 1993, 1994, and 1995 Forms 1040
1993 Form 10402
On November 26, 1996, Dr. Trowbridge mailed to the Internal
Revenue Service (IRS) a Form 1040, U.S. Individual Income Tax
Return 1993 (Dr. Trowbridge’s 1993 Form 1040), which the IRS
2
As discussed infra, Dr. Trowbridge’s 1993 Form 1040 is
relevant to the determination of whether he is liable for the
sec. 6654 addition to tax with respect to his 1994 taxable year.
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received on December 3, 1996. On page 2 of Dr. Trowbridge’s 1993
Form 1040, he reported tax of $92,494 but stated: “SEE ATTACHED
DISCLAIMER STATEMENT-–ADMITTED TAX LIABILITY IS ZERO”. The
attached disclaimer statement (the 1993 disclaimer) reads in part
as follows:
The assessment and payment of income taxes is voluntary
* * * John respectfully declines to volunteer
concerning assessment and payment of any tax balance
due on the return or any redetermination of said tax.
Be it known that we, separately and together,
therefore, deny tax liability and do not admit that the
stated amount of tax on return, as calculated solely by
reference to provided tables, is due and collectible.
The tax return read as a whole shows no amount as being
the tax and shows the tax to be zero and zero is the
starting point in determining a deficiency or any other
action involving this return. * * *
John has provided payment in the amount of $1,000 as a
voluntary contribution.
The 1993 disclaimer is signed by Dr. Trowbridge and “Acknowledged
in full agreement” by Ms. Martin.
Respondent determined a deficiency in Dr. Trowbridge’s tax
for 1993 of $83,478.
1994 Form 1040
On January 16, 1997, Dr. Trowbridge mailed to the IRS a Form
1040, U.S. Individual Income Tax Return 1994 (Dr. Trowbridge’s
1994 Form 1040), which the IRS received on January 21, 1997. On
page 2 of Dr. Trowbridge’s 1994 Form 1040, he reported tax of
$170,144 but stated: “SEE ATTACHED DISCLAIMER STATEMENT-–ADMITTED
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TAX LIABILITY IS ZERO”. In substance, the attached disclaimer is
identical to the 1993 disclaimer.
Dr. Trowbridge submitted to the IRS no other document
purporting to be a return for 1994.
Respondent determined a deficiency in Dr. Trowbridge’s tax
for 1994 of $121,075. The only payment made by Dr. Trowbridge
for 1994 was $1,000 paid on January 21, 1997, with his 1994 Form
1040.
1995 Form 1040
On January 20, 1997, Dr. Trowbridge mailed to the IRS a Form
1040, U.S. Individual Income Tax Return 1995 (Dr. Trowbridge’s
1995 Form 1040), which the IRS received on January 27, 1997. On
page 2 of Dr. Trowbridge’s 1995 Form 1040, he reported tax of
$133,977 but stated: “SEE ATTACHED DISCLAIMER STATEMENT-–ADMITTED
TAX LIABILITY IS ZERO”. In substance, the attached disclaimer is
identical to the 1993 disclaimer.
Dr. Trowbridge submitted to the IRS no other document
purporting to be a return for 1995.
Respondent determined a deficiency in Dr. Trowbridge’s tax
for 1995 of $130,699. The only payment made by Dr. Trowbridge
for 1995 was $1,000 paid on January 27, 1997, with his 1995 Form
1040.
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Ms. Martin’s 1991 Through 1995 Income Tax Filings
1991 Form 1040
On or around November 1, 1996, Ms. Martin mailed to the IRS
a Form 1040, U.S. Individual Income Tax Return 1991 (Ms. Martin’s
1991 Form 1040), which the IRS received on November 4, 1996. On
page 2 of Ms. Martin’s 1991 Form 1040, she reported tax of $5,203
and withholding of $19,640. She also stated: “SEE ATTACHED
DISCLAIMER STATEMENT-–ADMITTED TAX LIABILITY IS ZERO”. The
attached disclaimer refers to her but, in substance, is identical
to the 1993 disclaimer.
Ms. Martin submitted to the IRS no other document purporting
to be a return for 1991.
Respondent determined a deficiency in Ms. Martin’s tax for
1991 of $6,197. The only payment made by Ms. Martin for 1991 was
$100 paid on November 4, 1996, with her 1991 Form 1040.
1992 Form 1040
On or around November 1, 1996, Ms. Martin mailed to the IRS
a Form 1040, U.S. Individual Income Tax Return 1992 (Ms. Martin’s
1992 Form 1040), which the IRS received on November 4, 1996. On
page 2 of Ms. Martin’s 1992 Form 1040, she reported tax of $1,805
and withholding of $7,944. She also stated: “SEE ATTACHED
DISCLAIMER STATEMENT-–ADMITTED TAX LIABILITY IS ZERO”. The
attached disclaimer refers to her but, in substance, is identical
to the 1993 disclaimer.
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Ms. Martin submitted to the IRS no other document purporting
to be a return for 1992.
Respondent determined a deficiency in Ms. Martin’s tax for
1992 of $8,740. The only payment made by Ms. Martin for 1992 was
$100 paid on November 4, 1996, with her 1992 Form 1040.
1993 and 1994 Tax Obligations
Ms. Martin did not file Federal income tax returns for
either 1993 or 1994. She did not make any estimated tax payments
for those years.
Respondent determined deficiencies of $74,612 and $102,588
in Ms. Martin’s taxes for 1993 and 1994, respectively.
1995 Form 1040EZ
On or about January 20, 1997, Ms. Martin mailed to the IRS a
Form 1040EZ, Income Tax Return for Singles and Joint Filers With
No Dependents 1995 (Ms. Martin’s 1995 Form 1040EZ), which the IRS
received on January 21, 1997. On Ms. Martin’s 1995 Form 1040EZ,
she reported tax of $0, an earned income credit of $234, and
withholding of $635. She also stated: “SEE ATTACHED DISCLAIMER
STATEMENT-–ADMITTED TAX LIABILITY IS ZERO”. The attached
disclaimer refers to her but, in substance, is identical to the
1993 disclaimer.
Ms. Martin submitted to the IRS no other document purporting
to be a return for 1995.
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Respondent determined a deficiency in Ms. Martin’s tax for
1995 of $111,266. The only payment made by Ms. Martin for 1995
was $100 paid on January 21, 1997, with her 1995 Form 1040EZ.
The Pleadings and Related Matters
The Petitions
In response to the notices of deficiency, both petitioners
filed petitions on January 9, 2001. In many respects, the
petitions are identical. Dr. Trowbridge’s petition is 74 pages
long, and Ms. Martin’s petition is 75 pages long. Although the
petitions do assign error to respondent’s determinations, for the
most part, they make a convoluted argument that subjecting
petitioners to the same rate of tax as Federal employees
constitutes impermissible “disparate treatment”. Petitioners
cite a variety of Code sections and regulatory materials to show
that public employees and certain others receive benefits from
the Federal Government that are not available to petitioners as
“private independent contractors” or “private sector workers”.
They state:
In direct contrast to the private independent
contractor, or non-government workers whose economic
position, and rate of personal earnings are not fixed
and guaranteed by statute, the rate instead is
controlled by what the market place will bear and
without any position fixed by statute. This gives the
government employees or officers a great personal and
economic advantage over that afforded to the private
independent contractor, or non-government workers, and
as such creates a disparate or unequal treatment under
the law, because the Internal Revenue Service
administratively states that the private independent
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contractors, or private sector workers pay [sic] must
pay the same rate or percentage of tax on net income as
do the government employees under Title 26 USC §§ 1, or
3, without affording these same government privileges,
services, benefits, contributions, or funds.
They argue that either respondent has to afford them a lower,
special tax rate or they must be afforded the same benefits as
Federal Government employees:
it is the position of this petitioner, that there is
within the Internal Revenue Code (IRC), a separate
taxing statute with a reduced or compensatory rate of
tax for the taxpayers who are “private independent
contractors”, or “private sector workers”. If not,
then this petitioner is entitled to receive the same
compensation in benefits and economic protections as
the federal employee, appointed or elected official, or
corporate or partnership individuals.
Respondent’s Motions for a More Definite Statement
In response to the petitions, respondent moved in each case
for a more definite statement or to dismiss for failure to state
a claim upon which relief can be granted. Following a hearing on
respondent’s motions, we declined to dismiss but concluded that
the petitions contained frivolous and groundless allegations. We
struck from the petitions all such allegations, which constituted
the bulk of the petitions.
The Answers
On May 17, 2001, respondent filed his answers to the
abridged petitions, denying all material allegations of fact made
in support of the lone remaining assignment of error contained
therein.
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Standing Pretrial Order and Notice
On May 29, 2001, the Court issued its Standing Pretrial
Order and Notice in each case, setting the cases for trial at the
trial session of the Court commencing on December 3, 2001, in
Houston, Texas.
Petitioners’ Discovery Requests
On September 20 and 25, 2001, Ms. Martin and Dr. Trowbridge,
respectively, served on respondent a request for admissions.
Each request is over 140 pages in length (without attachments)
and requests over 600 admissions.
On September 27, 2001, each petitioner served on respondent
interrogatories and a request for production of documents. Each
set of interrogatories is over 125 pages in length and contains
over 500 interrogatories.
On October 4, 2001, respondent filed motions for protective
orders with respect to the requests for admissions,
interrogatories, and requests for production of documents served
by petitioners. Respondent argued that such requests were not
timely, addressed improper issues, and were intended to burden
respondent unduly, waste his resources, and divert him from trial
preparation. We asked petitioners to respond and, after
considering their responses, granted respondent relief
“substantially for the reasons stated in respondent’s motions.”
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Petitioners’ Dismissal Efforts
Motions To Dismiss for Lack of Jurisdiction
On November 21, 2001, Dr. Trowbridge submitted “for the
petitioners” a motion styled “Petitioner’s Verified Challenge to
Jurisdiction of the Court”, which we filed in each case as a
motion to dismiss for lack of jurisdiction. The motion “denies
the existence of any contracts or commercial agreements which
create an attachment of an equity relationship between the
‘United States’ and/or The State of Texas and Petitioner.” The
motion also states: “Petitioner has specifically forfeited,
waived, rejected, declined, and refused to voluntarily accept any
and all benefits, especially admiralty and limited debt liability
benefits, from the ‘United States’ and its instrumentalities.”
Apparently on those bases, the motion then states: “Petitioner
hereby gives formal notice to the Court of Petitioner’s status as
a nonjuristic person, a Texas state Citizen, and that, in such
status, Petitioner squarely challenges and voids the jurisdiction
of this Court.” Petitioners claimed in the motion that we lack
“in personam” jurisdiction and subject matter jurisdiction. We
denied the motion.
Motions To Dismiss
On November 23, 2001, Dr. Trowbridge submitted (and Ms.
Martin signed “in full agreement”) a motion styled “Petitioner’s
Notice of Withdrawal of Petition”, which we filed in each case as
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a motion to dismiss (the motions to dismiss) and denied.3 In
those motions, petitioners reiterated their claims that we lack
jurisdiction and stated that they wished to withdraw their
petitions: “Petitioner hereby gives Notice of WITHDRAWAL of the
petition for review by the United States Tax Court. This Notice
of Withdrawal of petition makes moot, voids, and cancels all
proceedings previously scheduled by this Court for action upon
the petition filed in error.”
Trial Session
These cases were called from the calendar at the Court’s
trial session commencing on Monday, December 3, 2001, in Houston,
Texas. On Friday, November 30, 2001, an employee of the Court
Clerk’s Office contacted petitioners and reminded them that they
were expected to appear at the call of the calendar on Monday,
December 3. When, on that date, the cases were called from the
calendar, petitioners failed to appear. Counsel for respondent
appeared and announced ready for trial. The Court set the cases
for trial on Tuesday, December 4, 2001, at 9:00 a.m., and
directed the deputy trial clerk to contact petitioners by
telephone and notify them of the date and time of the trial.
When the cases were recalled from the calendar on December 4, for
3
To the extent petitioners were relying on grounds other
than jurisdiction, a decision dismissing the proceedings would
have been considered a decision sustaining the deficiencies
determined by respondent. See sec. 7459(d). Since we did not
believe that was the result petitioners intended, we denied the
motions to dismiss.
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trial, petitioners failed to appear. Counsel for respondent
appeared and announced ready for trial. The deputy trial clerk
reported that he had left messages for both petitioners as to the
date and time of the trial. Respondent moved to dismiss for
default in both cases and the Court set those motions for a
hearing on Friday, December 7, 2001. The Court instructed
respondent’s counsel to arrange personal service of the
petitioners, to inform them of the hearing. The Court heard one
witness in support of respondent’s case.
On Friday, December 7, 2001, the cases were recalled from
the calendar for a hearing on respondent’s motions to dismiss for
default. Petitioners failed to appear. Counsel for respondent
appeared and announced ready for the hearing. Internal Revenue
Agent Marilyn MacIness testified that she had served each
petitioner personally with notice of the hearing. The Court took
respondent’s motions to dismiss for default under advisement.
OPINION
I. Motions To Dismiss for Default
Respondent has moved (1) that Dr. Trowbridge be held in
default with respect to, and that a decision be entered in
respondent’s favor in the full amount of, the deficiencies in tax
determined by respondent against Dr. Trowbridge for the years
1991 through 1995 and the additions to tax determined by
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respondent against Dr. Trowbridge for the years 1991 through
1993, and (2) that Ms. Martin be held in default with respect to,
and that a decision be entered in respondent’s favor in the full
amount of, the deficiencies in tax determined by respondent
against Ms. Martin for the years 1991 through 1995. Petitioners
object, respectively, to those motions (collectively, the default
motions).4
In pertinent part, Rule 123(a) provides:
(a) Default: If any party has failed to plead or
otherwise proceed as provided by these Rules or as
required by the Court, then such party may be held in
default by the Court either on motion of another party
or on the initiative of the Court. Thereafter, the
Court may enter a decision against the defaulting
party, upon such terms and conditions as the Court may
deem proper * * *
Respondent argues that petitioners’ failures to appear for
the call of these cases on December 3, 2001, and at the trial of
the cases on December 4, 2001, constitute defaults and that it is
appropriate for the Court to enter default judgments against each
with respect to the deficiencies and additions to tax that are
the subject of the default motions.
4
Although petitioners failed to appear at the hearing on
the default motions, they did submit a document to the Court that
day styled “Mandatory Judicial Notice of Petitioner’s Refusal for
Cause of Respondent’s Motion for Default Judgment”, which we
filed in each case as an objection to the respective default
motions.
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Petitioners object to the default motions principally on the
ground that each had withdrawn his or her petition (by the
motions to dismiss, which we had denied).
We have no doubt that petitioners had knowledge of the call
of these cases on December 3, 2001, and the recall of the cases
on December 4 and 7, 2001. We assume that petitioners failed to
answer those calls because they no longer wished to continue
their cases in this Court; that is the position taken by them in
the motions to dismiss (which we denied). We shall, therefore,
hold each of them in default. We shall enter a decision against
each petitioner that includes the full amount of the deficiencies
in tax and additions to tax that are the subject of the default
motions. That is appropriate since respondent had denied all
material allegations of fact set forth in the petitions in
support of the assignments of error and none of petitioners’
filings has otherwise convinced us that respondent in any way
erred in determining the deficiencies in tax and additions to tax
that are the subject of the default motions.
II. Remaining Additions to Tax
A. Introduction
Respondent proceeded to trial on the issues of the additions
to tax determined against Dr. Trowbridge for the years 1994 and
1995 and the additions to tax determined against Ms. Martin for
the years 1991 through 1995 (collectively, the remaining
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additions to tax) on account of the burden of production imposed
on the Secretary by current section 7491(c) (hereafter section
7491(c).5 As will be discussed, respondent has carried that
burden.
B. Summary Adjudication Unnecessary
Respondent has moved for partial summary judgment in his
favor with respect to the remaining additions to tax.
Petitioners object, respectively, to those motions (collectively,
the summary judgment motions).
A party may move for “summary adjudication in the moving
party’s favor upon all or any part of the legal issues in
controversy.” Rule 121(a). “Summary judgment is a device used
to expedite litigation and is intended to avoid unnecessary and
expensive trials of ‘phantom factual questions.’” Espinoza v.
Commissioner, 78 T.C. 412, 416 (1982). “The party moving for
summary judgment has the burden of showing the absence of a
genuine issue as to any material fact.” Id.; see Rule 121(b).
“The opposing party is to be afforded the benefit of all
reasonable doubt, and any inference to be drawn from the
underlying facts contained in the record must be viewed in a
light most favorable to the party opposing the motion for summary
judgment.” Espinoza v. Commissioner, supra at 416.
5
We do not decide whether respondent was required to
satisfy sec. 7491(c) in this default setting.
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Respondent has moved for partial summary judgments, but,
since there was a trial in these cases, at which respondent
presented evidence pertaining to the remaining additions to tax,
we need not determine whether the summary judgment motions
satisfy the standards for summary adjudication. We shall,
therefore, deny the summary judgment motions (although we largely
sustain respondent’s substantive positions therein, as discussed
below).
C. Substantive Provisions
1. Section 6651(a)(1)
Section 6651(a)(1) provides for an addition to tax in the
event a taxpayer fails to file a timely return (determined
with regard to any extension of time for filing), unless it is
shown that such failure is due to reasonable cause and not due
to willful neglect. The amount of the addition is equal to
5 percent of the amount required to be shown as tax on such
return for each month or fraction thereof during which such
failure continues, up to a maximum addition of 25 percent for
returns more than 4 months delinquent. For these purposes, the
amount required to be shown as tax on the return is reduced by
any timely payments of the tax6 and any credits which may be
claimed on the return. Sec. 6651(b)(1).
6
In general, payment of income tax is due on the due date
of the corresponding return, determined without regard to any
filing extensions. Sec. 6151(a).
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2. Section 6654
Section 6654 provides for an addition to tax in the event of
an underpayment of a required installment of individual estimated
tax. As relevant to these cases, each required installment of
estimated tax is equal to 25 percent of the “required annual
payment”, which in turn is equal to the lesser of (1) 90 percent
of the tax shown on the individual’s return for that year (or, if
no return is filed, 90 percent of his or her tax for such year),
or (2) if the individual filed a return for the immediately
preceding taxable year, 100 percent of the tax shown on that
return. Sec. 6654(d)(1)(B)(i) and (ii). The due dates of the
required installments for a calendar taxable year are April 15,
June 15, and September 15 of that year and January 15 of the
following year. Sec. 6654(c)(2). For purposes of section 6654,
an individual’s tax consists of income tax and self-employment
tax and is determined before the application of any wage
withholding credit7 (but after the application of other allowable
credits). Sec. 6654(f); see sec. 31.
There are two mechanical exceptions to the applicability of
the section 6654 addition to tax. First, as relevant to these
cases, the addition is not applicable if the tax shown on the
individual’s return for the year in question (or, if no return is
filed, the individual’s tax for that year), reduced for these
7
Under sec. 6654(g)(1), wage withholding credits are
treated as payments of estimated tax.
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purposes by any allowable credit for wage withholding, is less
than $500.8 Sec. 6654(e)(1). Second, the addition is not
applicable if the individual’s tax for the preceding taxable year
was zero. Sec. 6654(e)(2).
D. Section 7491(c)
Section 7491(c) imposes the burden of production in any
court proceeding (i.e., the burden of moving forward with
evidence) on the Commissioner with respect to the liability of
any individual for penalties and additions to tax.9 In order to
meet the burden of production under section 7491(c), the
Commissioner need only make a prima facie case that imposition of
the penalty or addition to tax is appropriate; he need not negate
the existence of any circumstantial defense such as reasonable
cause. Higbee v. Commissioner, 116 T.C. 438, 446 (2001); H.
Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.
Furthermore, section 7491(c) has no effect on the burden of proof
(i.e., the burden of persuasion), Higbee v. Commissioner, supra
at 446-447, which remains on petitioners in these cases, Rule
8
Effective for taxable years beginning after Dec. 31,
1997, the threshold amount is $1,000. Taxpayer Relief Act of
1997, Pub. L. 105-34, sec. 1202(a), 111 Stat. 994.
9
Sec. 7491(c) applies to court proceedings arising in
connection with examinations commencing after July 22, 1998.
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 727. As referenced
in our findings of fact, the additions to tax not included in the
default motions (collectively, the remaining additions to tax)
pertain to examinations commenced after July 1998.
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142(a); cf. current sec. 7491(a) (shifting the burden of proof to
the Commissioner in certain circumstances).
E. Discussion
1. Petitioners’ Forms 1040 and 1040EZ
Respondent contends that the Forms 1040 and 1040EZ filed by
petitioners with respect to the years at issue do not constitute
valid returns.10 In Williams v. Commissioner, 114 T.C. 136, 143
(2000), we held that a disclaimer statement similar to the ones
at issue in these cases rendered the Form 1040 to which it was
attached invalid. We see no reason to depart from the reasoning
of that case here. Accordingly, we conclude that Dr.
Trowbridge’s 1993-95 Forms 1040, and Ms. Martin’s 1991-92 Forms
1040 and 1995 Form 1040EZ, are not valid returns.
2. Respondent’s Section 6651(a)(1) Determinations
As relevant to his section 6651(a)(1) determinations,
respondent produced evidence that petitioners did not file valid
Federal income tax returns for any of the years at issue.
Respondent also produced evidence that neither petitioner made
any timely payments of tax with respect to the years at issue.11
10
We address that contention separately because it is
relevant to our analysis of both the sec. 6651(a)(1) and the sec.
6654 additions to tax asserted by respondent.
11
In his sec. 6651(a)(1) computations, respondent properly
credited each petitioner with one-half of petitioners’ aggregate
wage withholding credit where applicable. See sec. 6651(b)(1);
sec. 1.31-1(a), Income Tax Regs. (rule for wage withholding
credits of separately filing spouses domiciled in a community
(continued...)
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Based on the foregoing, we conclude that respondent
established a prima facie case that the determination of 25-
percent additions to tax under section 6651(a)(1) with respect to
Dr. Trowbridge for the years 1994 and 1995, and with respect to
Ms. Martin for the years 1991-95, is appropriate, thereby
satisfying section 7491(c). In the absence of any evidence
refuting that prima facie case (such as reasonable cause or lack
of willful neglect on the part of either petitioner), we conclude
that petitioners are liable for such additions to tax. Except as
noted below,12 we also accept respondent’s computation of the
amounts of those additions as set forth in the notices of
deficiency.
3. Respondent’s Section 6654 Determinations
As relevant to his section 6654 determinations, respondent
introduced into evidence Dr. Trowbridge’s invalid return for 1993
in addition to the evidence of invalid and nonexistent returns
discussed above in the context of his section 6651(a)(1)
determinations. Respondent also produced evidence that, aside
11
(...continued)
property State). Respondent also properly credited Ms. Martin
with her earned income credit for 1995. See sec. 6651(b)(1).
12
Respondent inexplicably based his 1992 sec. 6651(a)(1)
computation for Ms. Martin on tax of $8,764 rather than the
$8,740 amount of tax that appears elsewhere in the notice of
deficiency issued to her. The correct amount of such addition
shall be the subject of a Rule 155 computation.
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from amounts withheld from wages,13 neither petitioner made any
timely payments of tax that could be applied against his or her
required annual payments for the years at issue.
In the absence of valid returns, the applicability of the
$500 de minimis exception to the section 6654 addition to tax
discussed above is determined on the basis of each petitioner’s
tax (within the meaning of section 6654(f)) for the years at
issue. See sec. 6654(e)(1). In light of the deficiency
decisions that we shall enter against petitioners pursuant to our
disposition herein of the default motions, neither petitioner
qualifies for the $500 de minimis exception for any of the years
at issue. The impending entry of those deficiency decisions also
precludes the applicability of the section 6654(e)(2) exception
(zero tax for preceding year) with respect to any of the years at
issue.
Based on the foregoing, we conclude that respondent
established a prima facie case that the determination of
additions to tax under section 6654 with respect to Dr.
Trowbridge for the years 1994 and 1995, and with respect to Ms.
Martin for the years 1992-95, is appropriate, thereby satisfying
section 7491(c). Absent any evidence refuting that prima facie
13
As is the case with his sec. 6651(a)(1) computations,
respondent properly credited each petitioner with one-half of
petitioners’ aggregate wage withholding credit where applicable.
See sec. 6654(g)(1), supra note 7; sec. 1.31-1(a), Income Tax
Regs., supra note 11.
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case, we conclude that petitioners are liable for such additions
to tax. Except as noted below,14 we also accept respondent’s
computation of the amounts of those additions as set forth in the
notices of deficiency.
III. Section 6673(a)(1) Penalties
Respondent asks that we impose a penalty against each
petitioner under section 6673(a)(1) in the amount of $25,000.
In pertinent part, 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--
(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
* * * * * * *
the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not in
excess of $25,000.
14
Respondent inexplicably based his 1992 sec. 6654
computation for Ms. Martin on tax of $8,764 rather than the
$8,740 amount of tax that appears elsewhere in the notice of
deficiency issued to her. In his 1995 sec. 6654 computation for
Ms. Martin, rather than reducing her 1995 tax by the amount of
her 1995 earned income credit, respondent improperly treated that
credit as a payment of estimated tax. See sec. 6654(f)(3) and
(g)(1). The correct amounts of those additions to tax shall be
the subject of Rule 155 computations.
- 25 -
The purpose of section 6673 “is to compel taxpayers to think
and to conform their conduct to settled principles before they
file returns and litigate.” Coleman v. Commissioner, 791 F.2d
68, 71 (7th Cir. 1986); see also Grasselli v. Commissioner, T.C.
Memo. 1994-581 (quoting Coleman). A taxpayer’s position is
frivolous if it is contrary to established law and unsupported by
a reasoned, colorable argument for change in the law. E.g., Nis
Family Trust v. Commissioner, 115 T.C. 523, 544 (2000). We need
not find specific damages to invoke section 6673(a)(1); rather,
that section is a penalty provision, intended to deter and
penalize frivolous claims and positions in deficiency
proceedings. Bagby v. Commissioner, 102 T.C. 596, 613-614
(1994).
Petitioners do not here argue for any change in the law, and
there is no plausible argument that, as maintained in the
disclaimers attached to their Forms 1040 and 1040EZ, the payment
of income taxes is voluntary. E.g., Woods v. Commissioner, 91
T.C. 88, 90 (1988). Similarly, there is no plausible argument
that, as maintained in the petitions, subjecting petitioners to
the same rate of tax that applies to Federal employees
constitutes impermissible disparate treatment. See Rogers v.
Commissioner, T.C. Memo. 2001-20, affd. without published opinion
281 F.3d 1278 (5th Cir. 2001). Whatever legitimate arguments may
underlie their assignments of error, petitioners have emphasized
- 26 -
frivolous arguments and, for that reason alone, deserve to have
section 6673(a)(1) penalties imposed against them.
We are also convinced by petitioners’ conduct that they both
instituted and maintained these proceedings for delay, which is a
separate basis for imposing a section 6673(a)(1) penalty. We
struck all but minimal portions of their 74- and 75-page
petitions. Their discovery requests ran to hundreds of pages,
and we granted respondent’s motions for protective orders with
respect thereto, in part on the ground that we agreed with
respondent that the discovery was intended to burden respondent
unduly, waste his resources, and divert him from trial
preparation. Petitioners actively, indeed, forcefully,
prosecuted these cases until 2 weeks before trial. At that
point, they attempted to withdraw their petitions, asserting a
jurisdictional challenge premised on their disavowal of any
commercial relationship with, and any enjoyment of benefits from,
the United States. They refused to appear for trial or for a
hearing on respondent’s motions to dismiss for default, despite
notice thereof in both instances. We interpret petitioners’
actions in prosecuting (and not prosecuting) these cases as
evidence of their intent to delay these proceedings. There are
numerous years and, for some years, large dollar amounts involved
in these cases. There is before us another case, involving Dr.
Trowbridge and his 1996 and 1997 tax years. That case involves
- 27 -
conduct similar to that in this case. See Trowbridge v.
Commissioner, T.C. Memo. 2003-165. We think that both
petitioners deserve large penalties under section 6673(a)(1). It
is clear to us that Dr. Trowbridge took the lead in the
sanctionable activity here. Therefore, we shall impose on him a
penalty of $25,000. We shall impose on Ms. Martin, who filed her
own petition and submitted documents and took actions that
matched those submitted and taken by Dr. Trowbridge, a penalty of
$15,000.
To reflect the foregoing,
Appropriate orders will
be issued, and decisions will
be entered under Rule 155.