T.C. Memo. 2003-338
UNITED STATES TAX COURT
ISAIAH ISRAEL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 8825-02, 10753-02. Filed December 15, 2003.
Isaiah Israel, pro se.
Thomas D. Yang, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: In these consolidated cases,1 respondent
determined the following deficiencies, additions to tax, and
penalties in petitioner’s Federal income taxes:
1
These cases were consolidated for purposes of trial,
briefing, and opinion.
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Additions to Tax Penalties
Year Deficiency Sec. 6651(a)(1) Sec. 6662
1996 $2,617 $750 $523
1997 6,292 1,605 1,258
2000 5,723 --- 837
The issues for decision are: (1) Whether petitioner is
liable for the deficiencies respondent determined in the notices
of deficiency for 1996, 1997, and 2000 (years in issue); (2)
whether petitioner is liable for additions to tax for failing to
timely file his Federal income tax returns (tax returns) under
section 6651(a)(1)2 for 1996 and 1997; (3) whether petitioner is
liable for accuracy-related penalties under section 6662 for the
years in issue; and (4) whether petitioner engaged in behavior
warranting the imposition of a penalty under section 6673.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time he filed the
petitions, petitioner resided in Chicago, Illinois.
On May 28, 1999, respondent received from petitioner tax
returns for 1996 and 1997 signed by petitioner and purportedly
signed by Lori Israel, petitioner’s former spouse, reporting
wages received by petitioner from the U.S. Postal Service.
2
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. Amounts are rounded to the nearest dollar.
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Petitioner attempted to file these tax returns with the filing
status of “Married filing joint return” by signing Lori Israel’s
name. On or about April 26, 2000, petitioner filed amended tax
returns for 1996 and 1997, reporting taxable income of zero and
requesting a refund of all Federal income taxes withheld for both
years.
Petitioner timely filed his tax return for 2000. On this
tax return, petitioner reported zero taxable income and requested
a refund of all Federal income tax withheld. Petitioner attached
to the tax return: (1) A Form W-2, Wage and Tax Statement,
reporting that petitioner received $36,591 in wages and had
$1,538 of Federal income tax withheld by the U.S. Postal Service;
and (2) a two-page form letter containing tax-protester
boilerplate.
On February 15, 2002, respondent sent petitioner a notice of
deficiency for 2000. Respondent determined that petitioner
failed to report wages from the U.S. Postal Service, gain from
the sale or exchange of assets from National Financial Services
Co., and interest income from National Financial Services Co.
On March 28, 2002, respondent sent petitioner a notice of
deficiency for 1996 and 1997 with regard to the original tax
returns filed on May 28, 1999. Respondent determined that
petitioner failed to report capital gain income and interest
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income from National Finance Services Co. and that petitioner was
not allowed to file a joint return.
On May 16, 2002, petitioner filed a petition with the Court
disputing the notice of deficiency for 2000.3 On October 10,
2002, petitioner filed an amended petition, which stated:
1) Notice of deficiency is not the statutory notice called
for by code section 6303, 6321, 6331. 2) Code sections 6204
6211 6213 only allow for supplemental assessments to be made
when an initial assessment is made by the “Secretary” 3)
Section 6201 only authorizes the Secretary to estimate a tax
or his delegate 4) Section 6501(c) precludes IRS (absent a
court order) that petitioner owe any more in Federal tax
than the zero shown on the return. 5) by definition Section
6211 precludes that a deficiency can exist with respect to a
zero return please see page 11 of petitioner answer to
jurisdiction to hear the matter! 6) 6212 - only “Secretary”
can send a “Notice” of deficiency 7) 6215 - assessment paid
upon notice of demand
On June 26, 2002, petitioner filed a petition with the Court
disputing the notice of deficiency for 1996 and 1997.4 On
September 16, 2002, petitioner filed an amended petition.
3
The petition was originally filed under sec. 6330(d).
Petitioner simultaneously filed with the petition a motion to
dismiss for lack of jurisdiction, arguing that the
“determination” was invalid because a hearing was not conducted
and petitioner was not provided with information that he was
entitled to. Respondent filed a notice of objection, stating
that a notice of determination concerning collection actions for
2000 had not been issued and no attempts to collect the tax by
lien or levy have been made. The Court denied petitioner’s
motion and ordered petitioner to file a proper amended petition
if he wished to contest the notice of deficiency for 2000.
4
The petition was originally filed under sec. 6330(d).
Respondent filed a motion for more definite statement. On Aug.
19, 2002, the Court ordered petitioner to file an amended
petition with respect to the notice of deficiency for 1996 and
1997 by Sept. 19, 2002.
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Petitioner stated:
(1)6020(b) only authorizes IRS to make changes to certain
returns: 941, 940, 942, 943, 11(b), 720, 2290, 4638, 0141,
1065-form 1040 is not applicable. (2) Code section 6212
states “The Secretary of Treasury” determines a deficiency &
the “Secretary” or his delegate shall notify taxpayer. (3)
Code section 6215 makes it known a “notice of demand” form
17A must be sent to taxpayer none was sent by “Secretary”
(4) 6201 doesn’t allow Secretary to estimate a tax based on
a return omitted (5) No statute makes me liable for tax
On July 9, 2003, the Court issued Israel v. Commissioner,
T.C. Memo. 2003-198. Petitioner had filed a petition in that
case in response to a notice of determination concerning
collection action(s) under section 6320 and/or 6330 for taxable
years 1994, 1995, and 1996.5 Id. The Court concluded that
respondent did not abuse his discretion in determining to proceed
with the collection action with respect to 1996. Further, the
Court stated:
Finally, although petitioner did not receive a notice of
deficiency [before the section 6330 hearing] with respect to
petitioner’s unpaid liability for 1995 and 1996, the Court
finds the contentions and arguments which petitioner
advanced at his Appeals Office hearing, in his petition, and
in petitioner’s trial memorandum and which challenge the
existence or the amount of each such unpaid liability to be
frivolous and/or groundless.
5
After petitioner filed a petition with this Court to
review the notice of determination for 1996, on Mar. 28, 2002,
respondent issued to petitioner the notice of deficiency for 1996
and 1997 on the basis of omitted capital gain and interest income
that was not at issue in the sec. 6330 proceeding, but is at
issue in the instant proceeding. Israel v. Commissioner, T.C.
Memo. 2003-198.
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Id. As a result of petitioner’s position and actions with
respect to the unpaid liabilities for 1995 and 1996, the Court
also imposed a penalty on petitioner pursuant to section
6673(a)(1) in the amount of $1,500. Id. Petitioner appealed
this decision to the U.S. Court of Appeals for the Seventh
Circuit, where it is currently pending.
In preparation for the Court’s trial session in Chicago,
Illinois, beginning September 22, 2003, the parties submitted for
each docket a supplemental stipulation of facts, in which
petitioner admitted to receiving all the disputed income. Each
supplemental stipulation, however, contained the following
statement: “It is petitioner’s position that this amount is not
subject to income tax because the statutory notice of deficiency
was not properly issued under federal law by the Secretary of
Treasury.” Further, petitioner filed with the Court trial
memoranda which contained similar frivolous and groundless
arguments.
At trial, the Court warned petitioner on three separate
occasions that the arguments he was making have been deemed
frivolous by the Court and that the Court has imposed penalties
under section 6673 against taxpayers who bring such frivolous
arguments before the Court. Additionally, the Court provided
petitioner with citations of three cases in which the Court
imposed a penalty pursuant to section 6673 because the taxpayers
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brought frivolous and meritless cases before the Court:
Trowbridge v. Commissioner, T.C. Memo. 2003-165, Trowbridge v.
Commissioner, T.C. Memo. 2003-164, and Tornichio v. Commissioner,
T.C. Memo. 2002-291. Despite the Court’s warnings, petitioner
continued with the frivolous and groundless arguments at trial
and in his subsequent brief filed with the Court.
OPINION
I. Notices of Deficiency
Petitioner argues that the person who sent the notices of
deficiency did not have the delegated authority to send them.
Respondent argues that, in light of the stipulations of facts in
which petitioner admits to receiving the disputed income, the
only issues in dispute are the additions to tax and penalties.
The parties stipulated that for 1996 and 1997, petitioner
received payments for the sale of stocks/bonds and interest
income from National Financial Services Co., which form the basis
of the adjustments determined in the notice of deficiency. The
parties also stipulated that for 2000, petitioner received
payments from the U.S. Postal Service for wages and payments for
the sale of stocks/bonds and interest income from National
Financial Services Co., which form the basis of the adjustments
determined in the notice of deficiency.
Rule 91(e) provides that a stipulation is treated “as a
conclusive admission by the parties to the stipulation” and shall
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be binding in the pending case. Further, the Rule provides that
the Court will not permit a party to “qualify, change, or
contradict a stipulation” except that the Court may do so “where
justice requires.” Rule 91(e). For each of the years in issue,
petitioner conceded the amounts of unreported income in the
stipulations of facts. Petitioner did not move to be relieved
from the stipulations or present grounds that he should not be
bound to his admission. See Rule 91(e); Said v. Commissioner,
T.C. Memo. 2003-148. We conclude that the stipulations are
binding.
Further, petitioner’s argument that the person who sent the
notices of deficiency did not have the delegated authority to
send them has been deemed by this Court to be frivolous.
Petitioner bases his argument on the Court’s decision in Everman
v. Commissioner, T.C. Memo. 2003-137. Petitioner misreads the
holding in Everman. In Everman, as in countless other cases, the
Court held that the taxpayer’s argument that the notice of
deficiency was invalid because it was not signed by the Secretary
or an authorized delegate was meritless. Id.; see, e.g., Nestor
v. Commissioner, 118 T.C. 162, 165 (2002); Bethea v.
Commissioner, T.C. Memo. 2003-278; Fink v. Commissioner, T.C.
Memo. 2003-61; Koenig v. Commissioner, T.C. Memo. 2003-40; Snyder
v. Commissioner, T.C. Memo. 2001-255; Browder v. Commissioner,
T.C. Memo. 1990-408. Further, the Court noted that there is no
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requirement that a notice of deficiency be signed. Everman v.
Commissioner, supra. We, therefore, find petitioner’s argument
to be similarly meritless and conclude that petitioner is liable
for the deficiencies respondent determined in the notices of
deficiency for the years in issue.
II. Refund for 2000 Taxable Year
Petitioner also argued that the “refund” requested on his
2000 tax return was incorrectly applied to the tax liabilities
for 2000 rather than being refunded to him. We disagree.
We do not find that petitioner made an overpayment in 2000
that should be refunded to him. In general, if a taxpayer has
made an “overpayment” and the overpayment is not applied against
any of the taxpayer’s outstanding tax liabilities, the Secretary
must refund the payment, including interest. Sec. 6402(a);
Bachner v. Commissioner, 109 T.C. 125, 128 (1997), affd. without
published opinion 172 F.3d 859 (3d Cir. 1998). Section 6512(b)
gives the Court jurisdiction to determine the amount of any
overpayment to be credited or refunded where we have jurisdiction
to redetermine a deficiency. Bachner v. Commissioner, supra at
128.
We look to caselaw to define “overpayment” because there is
no specific definition of the term “overpayment” in the Code
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which applies to the facts of these cases.6 Id. This Court has
interpreted an overpayment as occurring when the taxpayer has
made a payment of tax greater than the amount properly due. Id.
at 129; see Estate of Baumgardner v. Commissioner, 85 T.C. 445,
450 (1985).
As determined above, petitioner is liable for the tax
liability for 2000 which exceeded the withholding payment of
$1,538, as respondent determined in the notice of deficiency. As
a result, there is no overpayment that petitioner is entitled to
because he did not make a payment of tax greater than the amount
properly due.
III. Additions to Tax
Respondent determined that petitioner is liable for
additions to tax pursuant to section 6651(a)(1) for 1996 and
1997. Section 6651(a)(1) imposes an addition to tax for failure
to file a return on the date prescribed (determined with regard
to any extension of time for filing), unless the taxpayer can
establish that such failure is due to reasonable cause and not
due to willful neglect. Section 7491(c) requires respondent to
carry the burden of production with respect to any addition to
6
Sec. 6401(a) provides:
The term “overpayment” includes that part of the amount of
the payment of any internal revenue tax which is assessed or
collected after the expiration of the period of limitation
properly applicable thereto.
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tax for failure to file. The Court has received into evidence
copies of petitioner’s tax returns for 1996 and 1997 stamped as
received by the Internal Revenue Service Center in Kansas City,
Missouri, on May 28, 1999, approximately 2 years and 1 year
delinquent, respectively. Respondent has sustained his burden of
production to show that the section 6651(a)(1) addition to tax is
appropriate. See Higbee v. Commissioner, 116 T.C. 438, 447
(2001).
If petitioner establishes that the failure to file timely
returns was due to reasonable cause and not due to willful
neglect, he can avoid the addition to tax. Sec. 6651(a)(1).
Petitioner offered no evidence showing that his failure to file
was due to reasonable cause and not due to willful neglect.
Accordingly, we hold that petitioner is liable for the additions
to tax under section 6651(a).
IV. Penalties
A. Section 6662
Respondent determined that petitioner is liable for
accuracy-related penalties under section 6662(a) and (b)(1) for
1996, 1997, and 2000. Section 6662(a) imposes a penalty in the
amount of 20 percent on the portion of the underpayment to which
the section applies. As relevant to these cases, the penalty
applies to any portion of the underpayment that is attributable
to negligence or disregard of rules or regulations. Sec.
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6662(b)(1). Negligence is any failure to make a reasonable
attempt to comply with the provisions of the internal revenue
laws. Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.
Moreover, negligence has been described as the failure to
exercise due care or the failure to do what a reasonable and
prudent person would do under the circumstances. Neely v.
Commissioner, 85 T.C. 934, 947 (1985). Disregard includes any
careless, reckless, or intentional disregard of rules or
regulations. Sec. 6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.
Section 7491(c) requires respondent to carry the burden of
production because he seeks to impose an accuracy-related penalty
pursuant to section 6662(a). With respect to the returns for
1996 and 1997, respondent and petitioner stipulated that
petitioner attempted to file those returns “as joint returns by
signing his former spouse’s name as well as his own name”,
thereby claiming an additional exemption and calculating the
income tax under the more favorable rates of section 1(a)(1).
The parties also stipulated that interest income and income from
the sale of stocks were omitted from the 1996 and 1997 returns.
The 2000 return petitioner filed reported zero on all income
entries and no taxable income even though respondent and
petitioner stipulated that petitioner received $3,209 in 2000
from the sale of stock, $17 interest on an account with National
Financial Services Co., and $36,591 as wages from the U.S. Postal
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Service. Respondent has met his burden of production for his
determination of the accuracy-related penalty under section
6662(a) on the basis of negligence or disregard of rules or
regulations for 1996, 1997, and 2000.
Even though respondent has met his burden of production, the
accuracy-related penalty will not be imposed if petitioner can
establish that he acted with reasonable cause and in good faith.
See sec. 6664(c)(1). The record is devoid of any evidence of
reasonable cause and good faith on the part of petitioner. No
attempt has been made to comply with applicable rules and
regulations, and accordingly, we hold that petitioner is liable
for the accuracy-related penalties under section 6662(a). See
Higbee v. Commissioner, supra.
B. Section 6673
Respondent does not ask the Court to impose a penalty on
petitioner under section 6673(a)(1). The Court may sua sponte
determine whether to impose such a penalty. See Frank v.
Commissioner, T.C. Memo. 2003-88; Robinson v. Commissioner, T.C.
Memo. 2003-77; Keene v. Commissioner, T.C. Memo. 2002-277;
Schmith v. Commissioner, T.C. Memo. 2002-252; Schroeder v.
Commissioner, T.C. Memo. 2002-190; Williams v. Commissioner, T.C.
Memo. 2002-111.
Section 6673(a)(1) authorizes the Court to require a
taxpayer to pay to the U.S. a penalty in an amount not to exceed
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$25,000 whenever it appears to the Court that the taxpayer’s
position in the proceeding is frivolous or groundless. Sec.
6673(a)(1)(B).
In Israel v. Commissioner, T.C. Memo. 2003-198, we imposed a
penalty on petitioner pursuant to section 6673(a)(1) in the
amount of $1,500 because petitioner had:
advanced, we believe primarily for delay, frivolous
and/or groundless contentions, arguments, and requests
with respect to petitioner’s unpaid liabilities for
1995 and 1996, thereby causing the Court to waste its
limited resources in addressing such matters. * * *
At trial in the instant cases, the Court warned petitioner on
three separate occasions that the Court has penalized taxpayers
under section 6673 for bringing frivolous and meritless cases
before the Court, giving petitioner the citations of cases in
which the Court imposed the penalty.
Despite the warnings of the Court, petitioner has continued
to assert groundless arguments. Under the circumstances, we
shall, on our own motion, impose a penalty on petitioner pursuant
to section 6673(a)(1) in the amount of $5,000.
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We have considered all of petitioner’s contentions,
arguments, and requests that are not discussed herein, and we
conclude that they are without merit or irrelevant.
To reflect the foregoing,
Decisions will be
entered for respondent.