T.C. Memo. 2004-234
UNITED STATES TAX COURT
GREG OLSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21529-03. Filed October 13, 2004.
Respondent determined deficiencies and additions
to tax for petitioner’s 1999 and 2000 taxable years.
Held: Petitioner received taxable income during
1999 and 2000, and a portion thereof is subject to
self-employment tax. Sec. 861, I.R.C., and regulations
thereunder, do not exempt his compensation from tax.
Held, further, petitioner is liable for the sec.
6651(a)(1), I.R.C., addition to tax for failure timely
to file income tax returns for each of the years in
issue.
Held, further, petitioner is liable for the sec.
6654, I.R.C., addition to tax for failure to pay
estimated tax for the year 2000.
Greg Olson, pro se.
Cameron M. McKesson, for respondent.
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MEMORANDUM OPINION
WHERRY, Judge: This case is before the Court on cross-
motions by the parties for summary judgment pursuant to Rule
121.1 The instant proceeding arises from notices of deficiency
in which respondent determined the following deficiencies and
additions to tax with respect to petitioner’s Federal income
taxes:
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1999 $4,107 $427.25 --
2000 9,772 1,908.50 $395.08
After a concession by respondent with respect to 2000, the
recalculated amounts for the deficiency, section 6651(a) addition
to tax, and section 6654 addition to tax for that year are
$6,921, $1,195.75, and $242.81, respectively. The issues for
decision are:
(1) Whether petitioner received taxable income during 1999
and 2000, a portion of which is subject to self-employment tax;
(2) whether petitioner is liable for the section 6651(a)(1)
addition to tax for failure timely to file income tax returns for
each of the years at issue; and
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986 as amended and in effect for the
years in issue, and Rule references are to the Tax Court Rules of
Practice and Procedure.
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(3) whether petitioner is liable for the section 6654
addition to tax for failure to pay estimated tax for 2000.
Background
During the taxable year 1999, petitioner received $18,521 in
wages from University Medical Center Corp. and $8,122 in
nonemployee compensation from Southwest Sleep Diagnostics.
During the taxable year 2000, petitioner received wages of
$16,719 from University Medical Center Corp. and nonemployee
compensation of $17,181 from American Sleep Diagnostics.
Petitioner did not file a Federal income tax return for 1999 or
2000.
On September 12, 2003, respondent issued the underlying
notices of deficiency referenced above. The determined
deficiencies and additions to tax were computed on the basis of
information returns submitted to the Internal Revenue Service by
third-party entities.
Petitioner’s petition challenging the notices of deficiency
was filed with the Court on December 18, 2003, having been
postmarked December 11, 2003, and reflected an address for
petitioner in Tucson, Arizona. The petition reflected
petitioner’s position that his income, being “domestic” and not
from any taxable source identified by regulations, did not
constitute taxable income. Respondent’s answer was filed on
February 4, 2004, and petitioner filed a reply, with multiple
attachments, on March 22, 2004. The attachments set forth at
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some length petitioner’s argument that section 861 and
regulations promulgated thereunder excluded his income from the
definition of taxable income.
After the pleadings were closed, petitioner on August 30,
2004, filed a motion for summary judgment. Respondent then filed
an opposing motion for summary judgment on September 20, 2004,
and a response to petitioner’s motion on September 23, 2004. On
September 30, 2004, a supplement to respondent’s motion for
summary judgment was filed, setting forth the adjusted
computations for the 2000 deficiency and additions to tax
engendered by respondent’s concession as to a portion of the
income for that year. By order dated September 21, 2004,
petitioner was directed to file any response to respondent’s
motion on or before October 1, 2004. Petitioner filed a response
largely reiterating the position expressed in his own motion.
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,
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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. Petitioner’s Motion for Summary Judgment
Petitioner’s motion for summary judgment summarizes his
position as follows:
this is what must happen in order for there to be
taxable domestic income: 1)One must receive a taxable
“item” of income (e.g. compensation, interest, rents,
etc.) per 26 USC §§ 61 and following. I stipulate that
my income appears to be a taxable item. 2) The “source
rules” must categorize the income as domestic income
per 26 USC §§ 861(a) and 26 CFR §§§§ 1.861-2 through
1.861-7. I stipulate that my income appears to be
domestic. 3) The income must derive from a “specific
source or activity” which is taxable. My income does
not appear to be derived from a taxable specific source
or taxable activity.
As to the third point enumerated, petitioner explained:
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There are specific rules (mainly in 26 CFR §§
1.861-8) describing when domestic income is
taxable (non-exempt), and describing when
foreign income is taxable. Those rules only
show income to be taxable when derived from
certain specific sources and activities, all
of which are connected to international or
foreign commerce (including, among other
things, foreigners receiving income from the
U.S., and Americans receiving certain foreign
income). Those rules do not show the
domestic income of most Americans to be
taxable.
As to the substance of petitioner’s motion, analogous
arguments premised on section 861 and the regulations promulgated
thereunder have been repeatedly rejected. E.g., Takaba v.
Commissioner, 119 T.C. 285, 294-295 (2002); Williams v.
Commissioner, 114 T.C. 136, 138-139 (2000); Dashiell v.
Commissioner, T.C. Memo. 2004-210; Corcoran v. Commissioner, T.C.
Memo. 2002-18, affd. 54 Fed. Appx. 254 (9th Cir. 2002). In
Williams v. Commissioner, supra at 138, for instance, the
taxpayer contended that his income, because not from any of the
sources listed in section 1.861-8(a), Income Tax Regs., was not
taxable. This Court observed:
Petitioner’s arguments are reminiscent of tax-
protester rhetoric that has been universally rejected
by this and other courts. We shall not painstakingly
address petitioner’s assertions “with somber reasoning
and copious citation of precedent; to do so might
suggest that these arguments have some colorable
merit.” Crain v. Commissioner, 737 F.2d 1417, 1417
(5th Cir. 1984). * * * [Id. at 138-139.]
Suffice it to say that we direct petitioner to this Court’s
recent detailed explanation and analysis in Dashiell v.
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Commissioner, supra, which explicitly addresses petitioner’s
contentions by pointing out, inter alia, that section 61
“prefaces its use of the word ‘source’ by the word ‘whatever’,
thereby making the particular source of a U.S. taxpayer’s income
(and the income sourcing rules of sections 861-865) irrelevant
for purposes of the definition of income under section 61.”
Accordingly, the contentions raised in petitioner’s motion
do not provide a basis upon which summary judgment may be granted
in his favor. We also caution petitioner that similar arguments
have led to the imposition of penalties under section 6673 for
maintaining frivolous positions. E.g., Takaba v. Commissioner,
supra at 295-296; Williams v. Commissioner, supra at 144;
Corcoran v. Commissioner, supra. Petitioner is hereby forewarned
that any arguments pressed in the future should be carefully
tailored and limited to nonfrivolous matters.
II. Respondent’s Motion for Summary Judgment
A. Deficiencies
Respondent determined that petitioner was liable for
deficiencies generated by his failure to report and pay taxes on
income earned in 1999 and 2000. As a general rule, the Internal
Revenue Code imposes a Federal tax on the taxable income of every
individual. Sec. 1. Section 61(a) specifies that “Except as
otherwise provided”, gross income for purposes of calculating
taxable income means “all income from whatever source derived”.
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The scope of this definition is broad, typically reaching any
accretions to wealth. Commissioner v. Schleier, 515 U.S. 323,
327 (1995); Commissioner v. Glenshaw Glass Co., 348 U.S. 426,
429-431 (1955). Among the items expressly classified as income
under section 61(a) is “Compensation for services, including
fees, commissions, fringe benefits, and similar items”. Sec.
61(a)(1).
Petitioner conceded in signed stipulations that he received
wage income during 1999 and 2000 in the amounts of $18,521, and
$16,719, respectively. He similarly admitted that he received
nonemployee compensation of $8,122 in 1999 and $17,181 in 2000.
As previously indicated, petitioner’s arguments as to why this
income is nontaxable are meritless. The Court concludes that
petitioner is liable for income tax deficiencies on the above
compensation. Similarly, given petitioner’s concession that the
$8,122 and $17,181 amounts constitute nonemployee compensations,
these amounts are subject to self-employment tax under section
1401.
B. Additions to Tax
Section 7491(c) places on the Commissioner the burden of
production regarding additions to tax. The burden with respect
to “reasonable cause, substantial authority, or similar
provisions” then shifts to the taxpayer. Higbee v. Commissioner,
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116 T.C. 438, 446 (2001). On the record presented in this case,
respondent has carried the requisite burden of production.
Section 6651(a)(1) imposes an addition to tax for failure to
file a required return on or before the prescribed filing date,
unless it is shown that such failure is due to reasonable cause
and not due to willful neglect. “Willful neglect” denotes “a
conscious, intentional failure or reckless indifference.” United
States v. Boyle, 469 U.S. 241, 245 (1985). “Reasonable cause”
correlates to “ordinary business care and prudence”. Id. at 246
& n.4; sec. 301.6651-1(c)(1), Proced. & Admin. Regs.
Petitioner here conceded that he did not file a Federal
income tax return for 1999 and 2000. He has offered no
explanation for this failure beyond his frivolous assertions that
his income was not subject to tax. The Court holds that
petitioner is liable for additions to tax under section 6651 for
both years in issue.
Section 6654 imposes an addition to tax for underpayment of
estimated tax, subject to limited exceptions enumerated in
subsection (e). The record here reflects an underpayment of
estimated tax for 2000 and does not reflect that any of the
referenced exceptions is applicable. Imposition of an addition
to tax under section 6654 is sustained with respect to 2000.
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To reflect the foregoing and the concession by respondent,
An appropriate order will
be issued denying petitioner’s
motion for summary judgment
and granting respondent’s
motion for summary judgment as
supplemented, and an
appropriate decision,
incorporating respondent’s
concession, will be entered
for respondent.