T.C. Memo. 2004-224
UNITED STATES TAX COURT
LARRY R. JOHNSTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5380-04L. Filed October 5, 2004.
P filed a petition for judicial review pursuant to
secs. 6320 and 6330, I.R.C., in response to a
determination by R to leave in place a filed notice of
Federal tax lien.
Held: Because P has advanced solely groundless
complaints in dispute of the notice of lien, R’s
determination to proceed with collection action is
sustained.
Held, further, damages under sec. 6673, I.R.C.,
are due from P and are awarded to the United States in
the amount of $3,000.
Larry R. Johnston, pro se.
Jonae A. Harrison, for respondent.
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MEMORANDUM OPINION
WHERRY, Judge: This case is before the Court on
respondent’s motion for summary judgment pursuant to Rule 121 and
to impose a penalty under section 6673.1 The instant proceeding
arises from a petition for judicial review filed in response to a
Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330. The issues for decision are:
(1) Whether respondent may proceed with collection action as so
determined, and (2) whether the Court should impose a penalty
under section 6673.
Background
Petitioner did not file a Federal income tax return for the
taxable years 1993, 1994, 1995, 1996, or 1997. Respondent
prepared substitutes for return and on September 14, 2000, issued
to petitioner notices of deficiency with respect to each of the
years 1993 through 1997. The notices were addressed to
petitioner at 1523 East Harmony, Mesa, Arizona 85204,
petitioner’s last known address and the current address reflected
on his Tax Court petition.
Petitioner responded to the notices with a letter dated
December 12, 2000, referencing, inter alia, attempts by the
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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Internal Revenue Service (IRS) “to circumvent taxpayers’ rights
by prompting them to petition the U.S. Tax Court”.2 Petitioner
at no time petitioned this Court for redetermination of the
amounts reflected in the notices. Respondent assessed the tax,
additions to tax, and interest amounts due for each year on
February 12, 2001. These assessments for the 5 years in issue
totaled $1,472,914.84. Respondent also sent notices of balance
due with respect to each year on February 12 and March 19, 2001.
On January 11, 2002, respondent issued to petitioner a Final
Notice - Final Notice of Intent To Levy and Notice of Your Right
To a Hearing with respect to his unpaid income tax liabilities
for 1993 through 1997. Respondent then on February 5, 2002,
issued to petitioner a Notice of Federal Tax Lien Filing and Your
Right to a Hearing Under IRC 6320. A Form 12153, Request for a
Collection Due Process Hearing, signed by petitioner on March 10,
2002, was apparently received by the IRS on March 12, 2002.
Petitioner checked boxes on the Form 12153 indicating
disagreement with both a “Filed Notice of Federal Tax Lien” and a
“Notice of Levy/Seizure”. He also apparently attached a
2
Neither the letter sent by petitioner in response to the
notices of deficiency nor the attachment to his Form 12153,
Request for a Collection Due Process Hearing, has been made a
part of the record in this case. Information regarding the
existence and contents of these documents is derived from
excerpts quoted in the Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330. Petitioner
has not alleged that the notice of determination is in any way
inaccurate in its recitation of such background information.
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statement setting forth frivolous arguments; e.g., “There is no
statute requiring me ‘to pay’ the income taxes at issue.”3
Settlement Officer Thomas L. Tracy (Mr. Tracy), of the IRS
Office of Appeals in Phoenix, Arizona, sent petitioner a letter
dated November 19, 2002, scheduling a hearing for December 10,
2002. The letter briefly outlined the hearing process, advised
that audio or stenographic recording of hearings was not allowed,
and explained the circumstances in which challenges to the
underlying liability would be barred by section 6330(c)(2)(B).
The letter also warned petitioner with respect to frivolous
arguments and sanctions therefor, citing pertinent cases and
administrative materials. Mr. Tracy enclosed with the letter
copies of, among other things, transcripts of petitioner’s
accounts, financial forms for petitioner’s completion, and
Pierson v. Commissioner, 115 T.C. 576 (2000) (discussing the
potential application of penalties where tax protesters persist
in bringing frivolous cases to this Court).
The hearing was subsequently rescheduled for January 7, 2003,
and a face-to-face conference between petitioner and Mr. Tracy
was held on that date. Following the hearing, respondent on
January 23, 2003, issued to petitioner the aforementioned Notice
of Determination Concerning Collection Action(s) Under Section
3
See supra note 2.
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6320 and/or 6330, sustaining the lien action.4 An attached
Collection Due Process Appeals Case Memorandum addressed the
verification of legal and procedural requirements, the issues
raised by the taxpayer, and the balancing of efficient collection
and intrusiveness. In light of the frivolous nature of the
arguments advanced by petitioner, the attachment also contained a
“Litigation Note” reading in part as follows: “At the hearing on
January 7, 2003, the taxpayer acknowledged receipt of the
documents sent with the appointment letter. I gave him another
copy of Pierson and again warned him of the potential for
sanctions upon frivolous litigation.”
Petitioner’s petition disputing the notice of determination
was filed with the Court on March 24, 2004. The petition makes
two assignments of error vis-a-vis respondent’s determination:
a. Error in failing to produce evidence that the
Commissioner certified and transmitted the supplemental
assessments list in accordance with 26 U.S.C. § 6204.
b. Error in failing to prove actual mailing of
the Notice of Assessment upon the Petitioner’s denial
of receipts of the Notice of Assessment.
Petitioner prays that this Court issue an order requiring
respondent to show cause why the determination should not be
4
The Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 also explained that
because petitioner’s Form 12153 was untimely with respect to the
notice of intent to levy, petitioner was entitled only to an
“equivalent hearing”, which is not subject to judicial review.
The resultant decision was that the proposed levy action should
be sustained.
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vacated; find the determination arbitrary, capricious, not
supported by the evidence, and unreasonable; vacate the January
23, 2003, determination; award petitioner costs and fees incurred
in the prosecution of this action; and afford such other relief
as the Court deems just and proper.5
After the pleadings were closed in this case, respondent on
August 26, 2004, filed the subject motion for summary judgment
and to impose a penalty. Petitioner filed a response objecting
to respondent’s motion on September 20, 2004. In the response,
petitioner focuses on contentions that respondent’s failure to
permit recording of the hearing necessitates a remand and that
his allegations and supporting affidavit of nonreceipt of the
“Notice of Assessment” require respondent to produce evidence of
proof of mailing.
Discussion
Rule 121(a) allows a party to move “for a summary
adjudication in the moving party’s favor upon all or any part of
the legal issues in controversy.” Rule 121(b) directs that a
decision on such a motion shall be rendered “if the pleadings,
answers to interrogatories, depositions, admissions, and any
other acceptable materials, together with the affidavits, if any,
5
The Court notes that to the extent that the petition seeks
reasonable administrative and/or litigation costs pursuant to
sec. 7430, any such claim is premature and will not be further
addressed. See Rule 231.
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show that there is no genuine issue as to any material fact and
that a decision may be rendered as a matter of law.”
The moving party bears the burden of demonstrating that no
genuine issue of material fact exists and that he or she is
entitled to judgment as a matter of law. Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994). Facts are viewed in the light most favorable to the
nonmoving party. Id. However, where a motion for summary
judgment has been properly made and supported by the moving
party, the opposing party may not rest upon mere allegations or
denials contained in that party’s pleadings but must by
affidavits or otherwise set forth specific facts showing that
there is a genuine issue for trial. Rule 121(d).
I. Collection Actions
A. General Rules
Section 6321 imposes a lien in favor of the United States
upon all property and rights to property of a taxpayer where
there exists a failure to pay any tax liability after demand for
payment. The lien generally arises at the time assessment is
made. Sec. 6322. Section 6323, however, provides that such lien
shall not be valid against any purchaser, holder of a security
interest, mechanic’s lienor, or judgment lien creditor until the
Secretary files a notice of lien with the appropriate public
officials. Section 6320 then sets forth procedures applicable to
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afford protections for taxpayers in lien situations. Section
6320(a)(1) establishes the requirement that the Secretary notify
in writing the person described in section 6321 of the filing of
a notice of lien under section 6323. This notice required by
section 6320 must be sent not more than 5 business days after the
notice of tax lien is filed and must advise the taxpayer of the
opportunity for administrative review of the matter in the form
of a hearing before the Internal Revenue Service Office of
Appeals. Sec. 6320(a)(2) and (3). Section 6320(b) and (c)
grants a taxpayer, who so requests, the right to a fair hearing
before an impartial Appeals officer, generally to be conducted in
accordance with the procedures described in section 6330(c), (d),
and (e).
Section 6330(c) addresses the matters to be considered at
the hearing:
SEC. 6330(c). Matters Considered at Hearing.--In
the case of any hearing conducted under this section--
(1) Requirement of investigation.--The
appeals officer shall at the hearing obtain
verification from the Secretary that the
requirements of any applicable law or
administrative procedure have been met.
(2) Issues at hearing.--
(A) In general.--The person may raise at
the hearing any relevant issue relating to
the unpaid tax or the proposed levy,
including--
(i) appropriate spousal defenses;
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(ii) challenges to the
appropriateness of collection actions;
and
(iii) offers of collection
alternatives, which may include the
posting of a bond, the substitution of
other assets, an installment agreement,
or an offer-in-compromise.
(B) Underlying liability.--The person
may also raise at the hearing challenges to
the existence or amount of the underlying tax
liability for any tax period if the person
did not receive any statutory notice of
deficiency for such tax liability or did not
otherwise have an opportunity to dispute such
tax liability.
Once the Appeals officer has issued a determination
regarding the disputed collection action, section 6330(d) allows
the taxpayer to seek judicial review in the Tax Court or a
District Court, depending upon the type of tax. In considering
whether taxpayers are entitled to any relief from the
Commissioner’s determination, this Court has established the
following standard of review:
where the validity of the underlying tax liability is
properly at issue, the Court will review the matter on
a de novo basis. However, where the validity of the
underlying tax liability is not properly at issue, the
Court will review the Commissioner’s administrative
determination for abuse of discretion. [Sego v.
Commissioner, 114 T.C. 604, 610 (2000).]
B. Analysis
1. Appeals Hearing
The petition emphasizes petitioner’s claim that he was
denied the collection hearing to which he was entitled and seeks
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a remand to Appeals in order to allow a conference to be held.
Relevant caselaw precedent and regulatory authority, however,
indicate that the circumstances here are not such as to render
remand appropriate.
Hearings conducted under sections 6320 and 6330 are informal
proceedings, not formal adjudications. Katz v. Commmissioner,
115 T.C. 329, 337 (2000); Davis v. Commissioner, 115 T.C. 35, 41
(2000). There exists no right to subpoena witnesses or documents
in connection with these hearings. Roberts v. Commissioner, 118
T.C. 365, 372 (2002), affd. 329 F.3d 1224 (11th Cir. 2003);
Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002); Davis v.
Commissioner, supra at 41-42. Taxpayers are entitled to be
offered a face-to-face hearing at the Appeals Office nearest
their residence. Where the taxpayer declines to participate in a
proffered face-to-face hearing, hearings may also be conducted
telephonically or by correspondence. Katz v. Commissioner, supra
at 337-338; Dorra v. Commissioner, T.C. Memo. 2004-16; sec.
301.6330-1(d)(2), Q&A-D6 and D7, Proced. & Admin. Regs.
Furthermore, once a taxpayer has been given a reasonable
opportunity for a hearing but has failed to avail himself or
herself of that opportunity, we have approved the making of a
determination to proceed with collection based on the Appeals
officer’s review of the case file. See, e.g., Taylor v.
Commissioner, T.C. Memo. 2004-25; Leineweber v. Commissioner,
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T.C. Memo. 2004-17; Armstrong v. Commissioner, T.C. Memo. 2002-
224; Gougler v. Commissioner, T.C. Memo. 2002-185; Mann v.
Commissioner, T.C. Memo. 2002-48. Thus, a face-to-face meeting
is not invariably required.
Regulations promulgated under sections 6320 and 6330
likewise incorporate many of the foregoing concepts, as follows:
Q-D6. How are CDP hearings conducted?
A-D6. * * * CDP hearings * * * are informal in
nature and do not require the Appeals officer or
employee and the taxpayer, or the taxpayer’s
representative, to hold a face-to-face meeting. A CDP
hearing may, but is not required to, consist of a face-
to-face meeting, one or more written or oral
communications between an Appeals officer or employee
and the taxpayer or the taxpayer’s representative, or
some combination thereof. * * *
Q-D7. If a taxpayer wants a face-to-face CDP
hearing, where will it be held?
A-D7. The taxpayer must be offered an opportunity
for a hearing at the Appeals office closest to
taxpayer’s residence or, in the case of a business
taxpayer, the taxpayer’s principal place of business.
If that is not satisfactory to the taxpayer, the
taxpayer will be given an opportunity for a hearing by
correspondence or by telephone. If that is not
satisfactory to the taxpayer, the Appeals officer or
employee will review the taxpayer’s request for a CDP
hearing, the case file, any other written
communications from the taxpayer (including written
communications, if any, submitted in connection with
the CDP hearing), and any notes of any oral
communications with the taxpayer or the taxpayer’s
representative. Under such circumstances, review of
those documents will constitute the CDP hearing for the
purposes of section 6330(b). [Sec. 301.6330-1(d)(2),
Q&A-D6 and D7, Proced. & Admin. Regs.]
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See also sec. 301.6320-1(d)(2) Q&A-D6 and D7, Proced. & Admin.
Regs. (nearly identical language except for final reference to
“section 6320(b)”. This Court has cited the above regulatory
provisions with approval. See, e.g., Taylor v. Commissioner,
supra; Leineweber v. Commissioner, supra; Dorra v. Commissioner,
supra; Gougler v. Commissioner, supra.
With respect to the instant matter, the record reflects that
petitioner and Mr. Tracy participated in a face-to-face hearing
on January 7, 2003. As regards petitioner’s complaints
concerning recording, on July 8, 2003, this Court issued Keene v.
Commissioner, 121 T.C. 8, 19 (2003), in which it was held that
taxpayers are entitled, pursuant to section 7521(a)(1), to audio
record section 6330 hearings. The taxpayer in that case had
refused to proceed when denied the opportunity to record, and we
remanded the case to allow a recorded Appeals hearing. Id.
In contrast, we have distinguished, and declined to remand,
cases where the administrative proceedings took place prior to
our opinion in Keene v. Commissioner, supra; where the taxpayer
had participated in an Appeals Office hearing, albeit unrecorded;
and where all issues raised by the taxpayer could be properly
decided from the existing record. E.g., id. at 19, 20; Frey v.
Commissioner, T.C. Memo. 2004-87; Durrenberger v. Commissioner,
T.C. Memo. 2004-44; Brashear v. Commissioner, T.C. Memo. 2003-
196; Kemper v. Commissioner, T.C. Memo. 2003-195.
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Stated otherwise, cases will not be remanded to Appeals, nor
determinations otherwise invalidated, merely on account of the
lack of a recording when to do so is not necessary and would not
be productive. See, e.g., Frey v. Commissioner, supra;
Durrenberger v. Commissioner, supra; Brashear v. Commissioner,
supra; Kemper v. Commissioner, supra; see also Lunsford v.
Commissioner, 117 T.C. 183, 189 (2001).
A principal scenario falling short of the necessary or
productive standard exists where the taxpayers rely on frivolous
or groundless arguments consistently rejected by this and other
courts. See, e.g., Frey v. Commissioner, supra; Brashear v.
Commissioner, supra; Kemper v. Commissioner, supra. Here,
because the contentions advanced by petitioner throughout the
administrative process and before the Court are of this nature,
and because petitioner in fact received an in-person conference,
this case is closely analogous to those just cited. The record
does not indicate that any purpose would be served by remand. We
conclude that all pertinent issues relating to the propriety of
the collection determination can be decided through review of the
materials before us.
2. Review of Underlying Liabilities
Statutory notices of deficiency for 1993, 1994, 1995, 1996,
and 1997 were issued to petitioner. Petitioner has at no time
alleged that he did not receive these notices, and the record
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indicates that petitioner sent communications referencing the
notices, making clear that these documents were received.
Hence, because petitioner received valid notices of
deficiency and did not timely petition for redetermination, he is
precluded under section 6330(c)(2)(B) from disputing his
underlying tax liabilities in this proceeding. Any remaining
contentions raised during the administrative proceedings
generally challenging the “existence” of any statute imposing or
requiring him to pay income tax warrant no further comment. See
Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) (“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.”)
3. Review for Abuse of Discretion
Petitioner has also made various arguments relating to
aspects of the assessment and collection procedures that we
review for abuse of discretion. Action constitutes an abuse of
discretion under this standard where arbitrary, capricious, or
without sound basis in fact or law. Woodral v. Commissioner, 112
T.C. 19, 23 (1999).
Federal tax assessments are formally recorded on a record of
assessment in accordance with section 6203. The Commissioner is
not required to use Form 23C in making an assessment. Roberts v.
Commissioner, 118 T.C. at 369-371. Furthermore, section
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6330(c)(1) mandates neither that the Appeals officer rely on a
particular document in satisfying the verification requirement
nor that the Appeals officer actually give the taxpayer a copy of
the verification upon which he or she relied. Craig v.
Commissioner, 119 T.C. 252, 262 (2002); Nestor v. Commissioner,
118 T.C. at 166.
A Form 4340, for instance, constitutes presumptive evidence
that a tax has been validly assessed pursuant to section 6203.
Davis v. Commissioner, 115 T.C. at 40 (and cases cited thereat).
Consequently, absent a showing by the taxpayer of some
irregularity in the assessment procedure that would raise a
question about the validity of the assessments, a Form 4340
reflecting that tax liabilities were assessed and remain unpaid
is sufficient to support collection action under section 6330.
Id. at 40-41. We have specifically held that it is not an abuse
of discretion for an Appeals officer to rely on Form 4340, Nestor
v. Commissioner, supra at 166; Davis v. Commissioner, supra at
41, or a computer transcript of account, Schroeder v.
Commissioner, T.C. Memo. 2002-190; Mann v. Commissioner, T.C.
Memo. 2002-48, to comply with section 6330(c)(1).
Here, the record contains Forms 4340 for 1993, 1994, 1995,
1996, and 1997, indicating that assessments were made for the
year and that taxes remain unpaid. Petitioner has cited no
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irregularities that would cast doubt on the information recorded
thereon.
In addition to the specific dictates of section 6330, the
Secretary, upon request, is directed to furnish to the taxpayer a
copy of pertinent parts of the record of assessment setting forth
the taxpayer’s name, the date of assessment, the character of the
liability assessed, the taxable period, if applicable, and the
amounts assessed. Sec. 6203; sec. 301.6203-1, Proced. & Admin.
Regs. A taxpayer receiving a copy of Form 4340 has been provided
with all the documentation to which he or she is entitled under
section 6203 and section 301.6203-1, Proced. & Admin. Regs.
Roberts v. Commissioner, supra at 370 n.7. This Court likewise
has upheld collection action where taxpayers were provided with
literal transcripts of account (so-called MFTRAX). See, e.g.,
Frank v. Commissioner, T.C. Memo. 2003-88; Swann v. Commissioner,
T.C. Memo. 2003-70. The November 19, 2002, letter to petitioner
from Mr. Tracy enclosed copies of transcripts of account for the
relevant years.
Furthermore, petitioner’s argument with regard to section
6204 is groundless. Section 6204(a) addresses supplemental
assessments and specifies: “The Secretary may, at any time
within the period prescribed for assessment, make a supplemental
assessment whenever it is ascertained that any assessment is
imperfect or incomplete in any material respect.” Section
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6204(b) renders supplemental assessment of deficiencies subject
to the restrictions of section 6213. Section 6204 has no bearing
here in that respondent assessed petitioner’s liabilities for
each year in issue on February 12, 2001, after following standard
deficiency procedures. The Court concludes that petitioner’s
complaints regarding the assessments or verification are
meritless.
Petitioner has denied receiving “the Notice of Assessment”,
apparently referring to the notice and demand for payment that
section 6303(a) establishes should be given within 60 days of the
making of an assessment. However, a notice of balance due
constitutes a notice and demand for payment within the meaning of
section 6303(a). Craig v. Commissioner, supra at 262-263. The
Forms 4340 indicate that petitioner was sent such notices of
balance due for each of the tax years involved.
Petitioner argues that his sworn denial of receipt of the
“Notice of Assessment” shifts to respondent the burden of proving
actual mailing of these notices. Yet petitioner has never
addressed, much less denied, receipt of the notices of balance
due reflected in the Forms 4340. Accordingly, he has raised no
genuine issue of material fact as to the accuracy of the Forms
4340 showing compliance with the pertinent statutory
requirements.
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Thus, with respect to those issues enumerated in section
6330(c)(2)(A) and subject to review in collection proceedings for
abuse of discretion, petitioner has not raised any spousal
defenses, valid challenges to the appropriateness of the
collection action, or collection alternatives. As this Court has
noted in earlier cases, Rule 331(b)(4) states that a petition for
review of a collection action shall contain clear and concise
assignments of each and every error alleged to have been
committed in the notice of determination and that any issue not
raised in the assignments of error shall be deemed conceded. See
Lunsford v. Commissioner, 117 T.C. at 185-186; Goza v.
Commissioner, 114 T.C. 176, 183 (2000). For completeness, we
have addressed various points advanced by petitioner during the
administrative process, but the items listed in section
6330(c)(2)(A) were not pursued even during those proceedings.
Accordingly, the Court concludes that respondent’s determination
to proceed with collection of petitioner’s tax liabilities was
not an abuse of discretion. The Court will grant respondent’s
motion for summary judgment.6
6
To the extent that petitioner in his response to
respondent’s motion argues that summary judgment should be
granted sua sponte in his favor as the nonmoving party, any such
action would be unwarranted for the reasons discussed in the
text.
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II. Section 6673 Penalty
Section 6673(a)(1) authorizes the Court to require the
taxpayer to pay a penalty not in excess of $25,000 when it
appears to the Court that, inter alia, 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. In Pierson v Commissioner, 115 T.C. at 581, we
warned that taxpayers abusing the protections afforded by
sections 6320 and 6330 through the bringing of dilatory or
frivolous lien or levy actions will face sanctions under section
6673. We have since repeatedly disposed of cases premised on
arguments akin to those raised herein summarily and with
imposition of the section 6673 penalty. See, e.g., Craig v.
Commissioner, 119 T.C. at 264-265 (and cases cited thereat).
With respect to the instant matter, we are convinced that
petitioner instituted this proceeding primarily for delay.
Throughout the administrative and pretrial process, petitioner
advanced contentions and demands previously and consistently
rejected by this and other courts. He submitted lengthy
communications quoting, citing, using out of context, and
otherwise misapplying portions of the Internal Revenue Code,
regulations, court decisions, and other authorities. Moreover,
petitioner has explicitly been alerted to Pierson v.
Commisssioner, supra, and use of sanctions in analogous
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situations. It is inappropriate that taxpayers who promptly pay
their taxes should have the cost of government and tax collection
improperly increased by frivolous arguments already fully
considered and rejected by the courts.
Hence, petitioner received fair warning but has persisted in
disputing respondent’s determination. The Court concludes that a
section 6673 penalty of $3,000 should be awarded to the United
States in this case. To reflect the foregoing,
An appropriate order
granting respondent’s motion
and decision for respondent
will be entered.