T.C. Memo. 2003-237
UNITED STATES TAX COURT
JAMES AND TERRI CARSKADON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 356-00. Filed August 11, 2003.
James and Terri Carskadon, pro sese.
Robert S. Scarbrough, for respondent.
MEMORANDUM OPINION
GOLDBERG, Special Trial Judge: This case is before the
Court on respondent’s motion to dismiss for failure to state a
claim upon which relief may be granted, filed pursuant to Rule
40.1
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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By notice of deficiency, respondent determined a deficiency
in petitioners’ Federal income tax for the taxable year 1997 of
$6,495, and an accuracy-related penalty of $655.80 pursuant to
section 6662(a) and (b)(1).
In the notice of deficiency, respondent determined that
petitioners failed to report $50,847 of taxable wages petitioner2
received during 1997. Petitioner’s wages were reported by five
separate employers on Forms W-2, Wage and Tax Statement, as
follows:
ALIC $411
Department of the Air Force 3,264
The Boeing Company 39,295
Volt Management 7,678
Morning Sun, Inc. 199
Total $50,847
When petitioners filed their 1997 tax return, they attached
a statement explaining their position for the difference between
the amounts reported as gross income on their tax return and the
amounts reported on the Forms W-2. Evidently, petitioners raised
arguments that wages were not includable in gross income. In the
attachment, petitioners requested advice from the Commissioner as
to the validity of their position. On June 23, 1998, the
Commissioner sent petitioners a correspondence notifying them
that the position taken on their 1997 tax return was frivolous
and without merit. The June 23, 1998, correspondence commenced
2
References to petitioner in the singular are to James
Carskadon.
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the examination of petitioners’ 1997 tax return.
At the time the petition was filed, petitioners resided in
Tacoma, Washington. In their petition, petitioners dispute the
entire amount of the deficiency and penalty for 1997. Further,
they state that the Commissioner’s determination is erroneous
based on the following: (1) Time is a right, not a privilege;
thus, the exchange of time is not a taxable transaction; (2)
petitioners are not liable for the additions to tax; and (3)
respondent’s determinations in the notice of deficiency are
arbitrary and capricious.
The facts upon which petitioners rely as a basis for the
assigned errors are as follows: (1) The Internal Revenue Code
(Code) does not contain a provision including “time reimbursement
transactions” as taxable wages, salaries, or gross income; (2)
time is a right that Congress cannot tax, because Congress can
only tax a privilege; (3) Congress did not supply petitioners
with an entry visa or green card; therefore, Congress has no
control over petitioners’ time; and (4) since time is transferred
in return for money, the transaction is a reimbursement or equal
exchange of property and is not a taxable transaction.
Respondent filed the subject motion to dismiss on March 13,
2000. By order dated March 15, 2000, the Court: (1) Directed
petitioners to file, on or before May 5, 2000, an Amended
Petition which complies with our Rules; and (2) calendared
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respondent’s motion for hearing at the Seattle, Washington trial
session beginning June 5, 2000. Defying the Court’s order,
petitioners failed to file an Amended Petition in this case. On
June 5, 2000, when the case was called from the calendar,
respondent’s counsel appeared and was heard. However,
petitioners did not appear at the proceeding, nor did anyone
appear on their behalf.
Thereafter, respondent filed the present motion to dismiss
on the grounds that the petition fails to allege any justiciable
error with respect to respondent’s determinations and fails to
allege any facts in support of the alleged errors. Respondent
asks the Court to grant the motion, to enter a decision in favor
of respondent, and to require petitioners to pay a penalty to the
United States pursuant to section 6673.
Prior to the Court ruling on respondent’s motion to dismiss,
petitioners, on September 8, 2000, filed a petition with the
United States Bankruptcy Court. The filing of a bankruptcy
petition operates as a stay of the commencement or continuation
of proceedings in this Court. See Allison v. Commissioner, 97
T.C. 544, 545 (1991). The stay is lifted upon the earlier of the
closing of the case, the dismissal of the case, or upon the
granting or denial of a discharge. 11 U.S.C. sec. 362(c)(2)
(2000); see Guerra v. Commissioner, 110 T.C. 271, 275 (1998).
On November 17, 2000, this Court ordered that all proceeding
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relating to this case were automatically stayed pursuant to 11
U.S.C. sec. 362(a)(8). On May 28, 2003, the Bankruptcy Court
issued an order granting petitioners a discharge under 11 U.S.C.
sec. 727, which served to terminate the automatic stay. See 11
U.S.C. sec. 362(c)(2)(C). Accordingly, on July 8, 2003, this
Court ordered that the stay of proceedings in this case is
lifted.
Rule 34(b)(4) provides that a petition filed in this Court
shall contain clear and concise assignments of each and every
error which petitioners allege to have been committed by
respondent in the determination of the deficiencies and additions
to tax in dispute. Rule 34(b)(5) provides that the petition
shall contain clear and concise lettered statements of the facts
on which petitioners base the assignments of error. No
justiciable error has been alleged in the petition filed by
petitioners. By order dated March 15, 2000, we provided
petitioners an opportunity to file an amended petition which
would comply with Rule 34(b)(4) and (5). Petitioners, however,
chose not to file the amended petition. Further, petitioners did
not appear at the June 5, 2000, motion to dismiss hearing.
Rule 40 provides that a party may file a motion to dismiss
for failure to state a claim upon which relief can be granted.
Generally, we may dismiss a petition for failure to state a claim
upon respondent’s motion when it appears beyond doubt that
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petitioner can prove no set of facts in support of his claim
which would entitle him to relief. Conley v. Gibson, 355 U.S.
41, 45-46 (1957); Price v. Moody, 677 F.2d 676, 677 (8th Cir.
1982).
The determinations of the Commissioner in a notice of
deficiency are presumed correct, and the burden is on the
taxpayer to show that the determinations are incorrect. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).3 In
addition, any issue not raised in the pleadings is deemed
conceded. Rule 34(b)(4); Jarvis v. Commissioner, 78 T.C. 646,
658 n.19 (1982); Gordon v. Commissioner, 73 T.C. 736, 739 (1980).
Because petitioners failed to raise any justiciable facts or
issues in their petition, failed to file an amended petition, and
failed to appear for hearing, we grant respondent’s motion to
dismiss. See Klein v. Commissioner, 45 T.C. 308 (1965);
Goldsmith v. Commissioner, 31 T.C. 56 (1958); Weinstein v.
Commissioner, 29 T.C. 142 (1957).
Finally, we turn to the portion of respondent’s motion that
moves for a penalty pursuant to section 6673. Section 6673(a)(1)
authorizes the Tax Court to require a taxpayer to pay to the
3
Sec. 7491 does not apply in this case to place the burden
of proof on respondent because, among other reasons, the
examination was commenced prior to July 22, 1998. Further, the
burden of proof is irrelevant in this case because there are no
material facts in dispute. See Nis Family Trust v. Commissioner,
115 T.C. 523, 537-538 (2000); Corcoran v. Commissioner, T.C.
Memo. 2002-18, affd. 54 Fed. Appx. 254 (9th Cir. 2002).
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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 proceedings is frivolous or groundless.
Petitioner has not denied that he received $50,847 from his
employers during 1998. Further, in their petition, petitioners
concede that the $411 received from ALIC and the $3,264 received
from the Department of the Air Force are taxable wages.
Petitioners theorize that since petitioner did not expend any
time in exchange for the funds from ALIC and the Air Force, these
wages are taxable. Conversely, petitioners argue that the funds
received from petitioner’s other employers are not taxable
because petitioner obtained the funds in exchange for his time.
Petitioners assert that petitioner’s wages are not taxable
because the Code, which states exactly what is taxable, does not
specifically state that “time reimbursement transactions”, a term
of art coined by petitioners, are taxable. However, the Code
does not limit gross income to the list provided in section
61(a). Gross income means all income from whatever source
derived. Sec. 61(a). Petitioners’ arguments completely
disregard the definition of gross income.
Petitioners have failed to raise any bona fide dispute as to
the amounts reported by petitioner’s various employers as wages.
Petitioners’ arguments that petitioner’s wages are not taxable
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are without merit and are groundless. Petitioners’ contentions
are patently absurd, based on mere semantics, and are unsupported
by the law. Petitioners’ assertions have been considered and
consistently rejected by this and other courts. See Eisner v.
Macomber, 252 U.S. 189, 207-208 (1920); United States v. Romero,
640 F.2d 1014, 1016 (9th Cir. 1981); Abrams v. Commissioner, 82
T.C. 403, 407-408 (1984), and cases cited therein; Rowlee v.
Commissioner, 80 T.C. 1111, 1119-1122 (1983); Bumgarner v.
Commissioner, T.C. Memo. 1997-48.
Gross income means all income from whatever source derived,
including (but not limited to) compensation for services. Sec.
61(a). Gross income includes income realized in any form,
whether in money, property, or services. Sec. 1.61-1(a), Income
Tax Regs. Income as defined under the 16th Amendment is “gain
derived from capital, from labor, or from both combined”. Eisner
v. Macomber, supra at 207. Even if wages could be characterized
as the product of an exchange, the amount received in the
exchange is still income within the Code. Rice v. Commissioner,
T.C. Memo. 1982-129. Although the wages received by petitioner
“may represent no more than the time-value of his work, they are
nonetheless the fruit of his labor, and therefore represent gain
derived from labor which may be taxed as income.” Id. Clearly,
the $50,847 petitioner received as compensation from his
employers during 1997 is taxable income.
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A petition to the Tax Court is frivolous if it is contrary
to established law and unsupported by a reasoned, colorable
argument for change in the law. Coleman v. Commissioner, 791
F.2d 68, 71 (7th Cir. 1986). As set forth in their petition,
petitioners have raised only frivolous arguments which can be
characterized as tax protester rhetoric. Based on well-
established precedent, petitioners’ arguments are frivolous and
groundless.
Further, the record in this case establishes that
petitioners had no interest in disputing either the deficiency or
the penalty determined by respondent. Petitioners’ failure to
file an amended petition in compliance with the Court’s order of
March 15, 2000, coupled with their failure to appear at the June
5, 2000, hearing, convinces us that these proceedings were
instituted primarily for delay. Petitioners with genuine
controversies were delayed while we considered this case.
Based on our findings that (1) petitioners’ arguments are
frivolous and groundless, and (2) these proceedings were
instituted primarily for delay, we require petitioners to pay a
penalty to the United States in the amount of $2,000. See sec.
6673(a)(1); Abrams v. Commissioner, supra at 412-413.
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To reflect the foregoing,
An appropriate order of
dismissal and decision will be
entered.