Turner v. Comm'r

T.C. Memo. 2004-251

UNITED STATES TAX COURT

DAVID G. TURNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1219-03. Filed November 4, 2004.

David G. Turner, pro se.

Linda J. Wise, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Respondent determined a deficiency in

petitioner’s 1999 Federal income tax of $12,869, a $2,573.80

addition to tax under section 6651(a)(1),1 and a $2,573.80

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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penalty under section 6662(a) and (b)(1). After concessions,2

the issues remaining for decision are:

(1) Whether petitioner received income during 1999. We hold

that petitioner received income in 1999 and consequently is

liable for Federal income taxes;

(2) whether petitioner is entitled to an additional personal

exemption for his spouse under section 151(b). We hold that

petitioner is not entitled to an additional personal exemption

for his wife because she had income during 1999;

(3) whether petitioner is entitled to deductions for

charitable contributions, mortgage interest, and real property

taxes. We hold that petitioner cannot deduct his claimed

charitable contributions, but hold that petitioner can deduct the

portion, as so found, of mortgage interest and real property

taxes he paid in 1999; and

(4) whether petitioner is liable for the addition to tax for

failing to file a return under section 6651(a)(1) and for the

accuracy-related penalty under section 6662(a) and (b)(1). We

hold that petitioner is liable for the addition to tax under

section 6651(a), but hold that petitioner is not liable for the

2
The parties stipulated at trial that petitioner did not
receive wages from Sunshine Cos. or River Branch Corp. although
the notice of deficiency included wages from each.
 - 3 -

accuracy-related penalty under 6662(a) and (b)(1) because

petitioner’s Form 1040, U.S. Individual Income Tax Return, did

not constitute a valid return.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of

facts and the attached exhibits are incorporated herein by this

reference. Petitioner resided in Atlanta, Georgia, at the time

his petition was filed.

During 1999, petitioner was employed by Primerica Financial

Services, Inc. (PFS). At some point before 1999 petitioner

submitted Form W-4, Personal Allowances Worksheet, to PFS

instructing that PFS not withhold Federal income taxes from his

compensation.

Petitioner filed Form 1040 for the 1999 tax year.3

Petitioner did not enter on the form any financial information

for the tax year but instead entered zeros on every line

regarding income and reported his total income for 1999 as zero.

Petitioner’s 1999 filing status was married filing separately,

and he claimed the standard deduction on the basis of his filing

status. Petitioner also claimed personal exemptions for himself

and his spouse, and a dependency exemption for his daughter.

3
We are unable to discern from the record whether
petitioner’s Form 1040 was timely filed, because it was stamped
“Received” by an Internal Revenue Service on July 20, 2000, even
though petitioner signed and dated it Apr. 15, 2000.
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Petitioner submitted a typewritten document, attached to his

Form 1040, that attempted to explain many other reasons why he

was not subject to Federal income taxes. On August 4, 2000, in

response to petitioner’s document, the Internal Revenue Service

(IRS) issued a letter which stated that petitioner’s Form 1040

and the attachment were frivolous. The letter also stated that

the IRS would not respond to any future correspondence regarding

these claims and provided petitioner with an opportunity to

correct his return to prevent the imposition of a frivolous

return penalty under section 6702.

On August 10, 2000, petitioner in a letter responded to the

IRS’s August 4, 2000, letter. Petitioner claimed, among other

things, that he was entitled to an administrative hearing before

a section 6702 penalty could be imposed, and that his Form 1040

was not frivolous since he relied on caselaw and the Internal

Revenue Code. Petitioner continued to send written

communications to the IRS repeating these same arguments. On

July 11, 2002, the IRS sent a letter to petitioner and enclosed,

among other things, two copies of examination reports and

requested a response before July 30, 2002. Petitioner was

informed that if he failed to respond, a notice of deficiency

would be issued. On July 22, 2002, petitioner filed with the IRS

Form 12203, Request for Appeals Review, requesting an Appeals

Office conference.
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On October 30, 2002, respondent issued a notice of

deficiency to petitioner with respect to his 1999 taxable year.

Respondent computed petitioner’s 1999 income using third-party

information returns. After concessions, the adjustments to

petitioner’s income include:

Form and Payor Amount Paid
W-2, PFS $60,331.68
1099B, CitiBank, N.A. 25.00
1099-DIV, Hershey 162.97
Foods Corp.
1099-DIV, SouthTrust 1,973.70
Corp.
1099-DIV, Colonial 1,793.52
BancGroup, Inc.1
1099-DIV, CitiCorp 73.00
Preferred Series
1099-INT, Colonial 65.00
Bank 22
Total 64,424.87

1
The notice of deficiency indicated that
Colonial BancGroup filed two separate Form
1099-DIV information returns, but attached to
petitioner’s 1999 Form 1040 was a copy of a
single Form 1099-DIV which aggregated the
amounts on the two received by respondent.

The notice of deficiency also determined the addition to tax

under section 6651(a)(1) and the penalty under section 6662(a)

and (b)(1).
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OPINION

I. Petitioner’s Protester Arguments

Petitioner has asserted frivolous arguments to support his

contention that he did not have to pay Federal income taxes for

the 1999 tax year. To educate petitioner, we shall briefly

address his arguments.

A. Petitioner Received Income

Petitioner argues that he did not receive “income” in 1999.

This argument relies on petitioner’s assertion that the Internal

Revenue Code does not define the term “income”. This Court has

consistently rejected this argument.

Section 61(a) defines gross income to include “income from

whatever source derived”. More specifically, section 61(a)

includes in an individual’s gross income any compensation for

services, interest payments, dividend payments, and gains derived

from dealings in property. Clearly, petitioner’s compensation

from PFS, interest payments from banks where he maintained

accounts, and dividend payments from corporations in which he

held stock are gross income for Federal income tax purposes. See

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955)

(stating that gross income includes all accessions to wealth that

are clearly realized and under the control of the taxpayer);

Grimes v. Commissioner, 82 T.C. 235, 237 (1984); Reiff v.

Commissioner, 77 T.C. 1169, 1173 (1981). Additionally,
 - 7 -

petitioner’s receipt of sale proceeds from his sale of CitiGroup,

Inc. stock is gross income to the extent the amount realized

exceeded his basis. See sec. 1.61-7, Income Tax Regs.

Petitioner failed to offer any evidence of his basis in the sold

stock, and respondent correctly included the full amount in

petitioner’s gross income. Petitioner also failed to show the

date on which he purchased the stock and thus cannot benefit from

the applicable long-term capital gains rate.

B. Compliance With the Federal Income Tax Is Not
Voluntary

A Federal income tax is imposed on the taxable income of

every married individual who does not make a single joint return

with his spouse. Sec. 1(d). Section 6011(a) provides that any

person liable “for any tax imposed by this title * * * shall make

a return or statement according to the forms and regulations

prescribed by the Secretary.” Section 6012, entitled “Persons

Required To Make Returns Of Income”, provides that an individual

possessing gross income for a taxable year in excess of a

specified amount shall file a tax return. Numerous courts have

held that the payment of Federal income taxes is not voluntary.

United States v. Schiff, 876 F.2d 272, 275 (2d Cir. 1989)

(stating the “average citizen knows that the payment of income

taxes is legally required”); Wilcox v. Commissioner, 848 F.2d

1007, 1008 (9th Cir. 1988), affg. T.C. Memo. 1987-225; McLaughlin
 - 8 -

v. Commissioner, 832 F.2d 986, 987 (7th Cir. 1987); Newman v.

Schiff, 778 F.2d 460, 467 (8th Cir. 1985).

C. Respondent’s Determinations Were Correct

Generally, absent application of special statutory

provisions or principles, the Commissioner's determinations in a

notice of deficiency are presumptively correct, and the taxpayer

has the burden of proving that those determinations are

erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). However, section 6201(d) provides that the Secretary

shall have the burden of producing, in addition to any

information returns, reasonable and probative information

concerning a deficiency where a taxpayer has asserted a

"reasonable dispute" regarding an item of income reported on a

third-party information return and has "fully cooperated" with

the Secretary. See Miner v. Commissioner, T.C. Memo. 2003-39;

Gussie v. Commissioner, T.C. Memo. 2001-302.

Respondent conceded at trial certain amounts determined in

the notice of deficiency he had issued to petitioner. Petitioner

acknowledged receiving the amounts indicated on the remaining

third-party information returns but argued that the payments did

not constitute income. We find that petitioner’s argument does

not raise a reasonable dispute with respect to the items of

income reported in the information returns. See Parker v.

Commissioner, 117 F.3d 785, 787 (5th Cir. 1997) (noting that the
 - 9 -

Commissioner has no duty to investigate a third-party information

return that is not disputed by the taxpayer). We are also unable

to conclude, on the basis of the record, that petitioner has

fully cooperated with respondent. A failure to cooperate would

also seem to render section 7491(a) inapplicable. Petitioner

asserted frivolous arguments to the IRS through numerous

submissions, all of which relied on erroneous information. The

IRS informed petitioner that his claims were groundless, but

instead of remitting the tax he owed, petitioner decided to

embark on this painstaking journey.

II. Exemptions and Deductions

A. Exemptions

Petitioner claimed two personal exemptions, one for himself

and one for his wife, and a dependency exemption for his

daughter. Respondent permitted the exemptions for petitioner and

his daughter but disallowed the exemption for his wife.

The pertinent part of section 151(b) provides a taxpayer

with an exemption for a spouse if the taxpayer and the spouse do

not file a joint return, and the spouse had no gross income and

is not dependent on another taxpayer during the calendar year in

which the taxpayer’s tax year began. Any income the taxpayer’s

spouse received during the applicable tax year precludes the

taxpayer from taking an additional personal exemption. See sec.

1.151-1(b), Income Tax Regs.
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Petitioner contends that his wife did not receive income

during 1999. Respondent argues that petitioner’s wife had gross

income for the 1999 tax year. Respondent provided evidence in

the form of third-party information returns indicating

petitioner’s wife was the sole recipient of dividend and interest

income. Therefore, we find that petitioner is not entitled to

claim an exemption under section 151(b) for his wife.

B. Deductions

As a general rule, deductions are a matter of legislative

grace. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

It is incumbent upon a taxpayer to maintain records and

substantiate any deductions claimed. Sec. 1.6001-1(a), (e),

Income Tax Regs.

1. Donations to Goodwill and the Salvation Army

Petitioner claims he made donations to Goodwill and the

Salvation Army. Petitioner did not offer any evidence

substantiating these donations. Therefore, petitioner is not

entitled to any deductions for these claimed donations.

2. Mortgage Interest and Real Property Taxes

Petitioner’s petition appears to request a redetermination

of his tax liability taking into account itemized deductions,

mainly mortgage interest and real property taxes paid. There is

not a precise record before us regarding real property taxes and

mortgage interest.
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However, in cases where we have some basis to estimate a

taxpayer’s expenses, we are permitted to make an approximation.

Williams v. United States, 245 F.2d 559 (5th Cir. 1957) (stating

that the trier of fact must be satisfied by the evidence that the

estimated amount was spent or incurred for the stated purpose);

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). The

approximation may bear heavily upon the taxpayer “whose

inexactitude is of his own making.” Id. at 544.

The record establishes that petitioner paid real estate

taxes and mortgage interest in connection with his residence in

the 1999 tax year. We can infer from the information returns and

the record that petitioner paid the two liabilities personally,

as he was the only member of his family with sufficient income to

cover these costs. Respondent did not argue that the mortgage

was never paid, nor did he present any evidence that someone

other than petitioner paid the mortgage. Instead, at trial,

respondent agreed to the amount of the mortgage interest paid in

1999. Petitioner is thus entitled to a deduction for his

mortgage interest paid. Turning to the real property taxes, the

only figure respondent and petitioner presented at trial related

to petitioner’s 2003 real property taxes. It is quite possible

that from 1999 (the year in issue) to 2003 petitioner’s home was

reappraised, altering his real property tax liability. Because

petitioner’s lack of diligence created this inexactitude, we find
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that he should receive a deduction for only one-half of the

amount of the 2003 liability. Id.

III. Addition to Tax

Respondent determined a section 6651(a)(1) addition to tax

against petitioner. As an initial matter, section 7491(c) places

the burden of production on the Commissioner to show that the

imposition of an addition to tax or a penalty on an individual is

appropriate. To satisfy this burden, respondent must proffer

sufficient evidence indicating that the imposition of the

addition or penalty is appropriate. See Higbee v. Commissioner,

116 T.C. 438, 445 (2001). Respondent satisfied his burden with

respect to the addition to tax by introducing at trial copies of

petitioner’s 1999 Form 1040, third-party information returns

relating to petitioner’s income, and documents containing tax-

protester rhetoric petitioner submitted to the IRS.

Section 6651(a)(1) generally provides that a taxpayer’s

failure to file a timely Federal income tax return, taking into

account extensions, requires the imposition of an addition to

tax, unless the taxpayer shows that such failure was due to

reasonable cause and not due to willful neglect. Petitioner

contends that he is not liable for an addition to tax under

section 6651(a) since he filed a Form 1040. Respondent argues

that petitioner’s Form 1040 does not constitute a valid tax

return for section 6651(a)(1) purposes because it failed to
 - 13 -

provide sufficient information the IRS could rely on to calculate

and assess petitioner’s tax liability. See, e.g., Kartrude v.

Commissioner, 925 F.2d 1379, 1383-1384 (11th Cir. 1991), affg. in

part, revg. in part and remanding T.C. Memo. 1989-75 and T.C.

Memo. 1988-498; Cabirac v. Commissioner, 120 T.C. 163 (2003).

As we have stated previously, a taxpayer who received income

beyond a certain amount during the taxable year is required to

file an income tax return for that taxable year. See secs. 6011

and 6012. To determine whether a taxpayer has filed a valid tax

return, we follow the test enunciated in Beard v. Commissioner,

82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986). To

be a valid return under Beard:

First, there must be sufficient data to calculate tax
liability; second, the document must purport to be a
return; third, there must be an honest and reasonable
attempt to satisfy the requirements of the tax law; and
fourth, the taxpayer must execute the return under
penalties of perjury.

A majority of the Courts of Appeals, including the Court of

Appeals for the Eleventh Circuit,4 have determined that a filed

Form 1040 devoid of financial data is not a valid return. United

States v. Pilcher, 672 F.2d 875, 877 (11th Cir. 1982) (finding

that a return showing no financial information is not a return

4
The caselaw of the Court of Appeals for the Eleventh
Circuit is controlling in this case because it appears to be the
proper Court of Appeals to review this decision. See Golsen v.
Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th
Cir. 1971).
 - 14 -

for section 7203 purposes); United States v. Smith, 618 F.2d 280,

281 (5th Cir. 1980) (the Court of Appeals for the Eleventh

Circuit, in Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.

1981), adopted as precedent the decisions of the former Court of

Appeals for the Fifth Circuit).5 Additionally, petitioner’s

attachment of information returns to his Form 1040 does not make

his otherwise invalid return valid. Kartrude v. Commissioner,

supra at 1384; Reiff v. Commissioner, 77 T.C. at 1177-1178;

Halcott v. Commissioner, T.C. Memo. 2004-214; Cumming v.

Commissioner, T.C. Memo. 1992-329.

Petitioner’s Form 1040 contained zero entries for every line

regarding his 1999 income. Petitioner attached to his Form 1040

documents containing tax-protester rhetoric and third-party

information returns. Given these facts, petitioner’s Form 1040,

with attachments, was not a valid return. Petitioner also did

not argue, nor do we find, that his failure to file was due to

reasonable cause. Consequently, we hold that petitioner is

liable for an addition to tax under section 6651(a)(1).

5
Taylor v. United States, 87 AFTR 2d 2001-2518, 2001-2 USTC
par. 50,479 (D.C. Cir. 2001); United States v. Mosel, 738 F.2d
157 (6th Cir. 1984); United States v. Grabinski, 727 F.2d 681
(8th Cir. 1984); United States v. Rickman, 638 F.2d 182 (10th
Cir. 1980); United States v. Moore, 627 F.2d 830 (7th Cir. 1980);
United States v. Edelson, 604 F.2d 232, 234 (3d Cir. 1979);
Cabirac v. Commissioner, 120 T.C. 163, 168-169 (2003). The sole
case that stands for the idea that a zero return is a valid
return is United States v. Long, 618 F.2d 74, 75 (9th Cir. 1980).
 - 15 -

IV. Accuracy-Related Penalty

Respondent’s notice of deficiency imposed an accuracy-

related penalty on petitioner pursuant to section 6662(a) because

petitioner’s underpayment of tax was attributable to negligence

or disregard of rules or regulations. See sec. 6662(b)(1).

However, section 6664(b) provides that an accuracy-related

penalty under section 6662 is applicable only where a return has

been filed. In Williams v. Commissioner, 114 T.C. 136, 143

(2000), we held that a taxpayer is not liable for a section

6662(a) penalty if we find that the taxpayer’s return was

invalid. See Hart v. Commissioner, T.C. Memo. 2001-306.

In support of respondent’s determination that petitioner was

liable for an addition to tax under section 6651(a)(1),

respondent argued petitioner’s Form 1040 was not a valid return.

After carefully considering the issue supra, we agreed.

Respondent now contends that petitioner is liable for an

accuracy-related penalty with respect to the same Form 1040. It

is illogical and inconsistent with Williams for respondent to

argue that petitioner’s Form 1040 was not a valid return for

section 6651(a)(1) purposes, but that very same return was valid

for purposes of imposing an accuracy-related penalty under

section 6662(a). Therefore, we find that petitioner is not

liable for the accuracy-related penalty under section 6662(a) and

(b)(1).
 - 16 -

To reflect the foregoing,

Decision will entered

under Rule 155.