Storaasli v. Comm'r

T.C. Memo. 2005-59

UNITED STATES TAX COURT

PETER T. STORAASLI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9836-03. Filed March 29, 2005.

Peter T. Storaasli, pro se.

Robert V. Boeshaar, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: In separate notices of deficiency,

respondent determined the following income tax deficiencies and

additions to tax with respect to petitioner’s Federal income

taxes:1

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
(continued...)
 - 2 -

Addition to tax Addition to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654(a)

1996 $492,138 $123,035 $26,194
1998 941 235 -0-
1999 78,215 19,554 3,785

Petitioner did not file Federal income tax returns for 1996,

1998, and 1999. As a result, respondent determined the 1996,

1998, and 1999 income tax deficiencies from information reported

to him by third parties. Based on records petitioner submitted

after the notices of deficiency were issued, respondent

recomputed the deficiencies and additions to tax as follows:

Addition to tax Addition to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654(a)

1996 $220,934 $55,234 $11,759
1998 -0- -0- -0-
1999 4,839 1,210 232

After additional concessions,2 the issues for decision are:

(1) Whether petitioner had capital gain from the sale of

real property in the taxable years 1996 and 1999 and, if so, the

amount of that gain;

1
(...continued)
all Rule references are to the Tax Court Rules of Practice and
Procedure. All monetary amounts have been rounded to the nearest
dollar.
2
Petitioner concedes that in 1996 he received $71 of
interest income and $117 of capital gain from the sale or
exchange of stock.
 - 3 -

(2) whether petitioner is liable for additions to tax under

section 6651(a)(1) for failure to file Federal income tax

returns;

(3) whether petitioner is liable for additions to tax under

section 6654(a) for failure to pay estimated taxes; and

(4) whether the Court should impose a penalty under section

6673.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and supplemental stipulation of facts

are incorporated herein by this reference. Petitioner resided in

Woodinville, Washington, when the petition was filed in this

case.

Capital Gain on Sale of Real Property

In 1996, petitioner sold real estate located at 1018 Market

Street, Kirkland, Washington (hereinafter, the Market Street

property), and 2033 Rose Point Lane, Kirkland, Washington

(hereinafter, the Rose Point Lane property). In 1999, petitioner

also sold real property located at 16103 167th Avenue Northeast,

Woodinville, Washington (hereinafter, the Hollywood Hill lot).

On November 20, 2003,3 petitioner met with Appeals Officer

Jeffrey Sherrill and produced documentation establishing: (1)

3
The notices of deficiency were mailed to petitioner on Mar.
26, 2003.
 - 4 -

The cost basis of each property at issue; (2) the costs he

incurred to purchase, refinance, and sell the properties; and (3)

the expenditures he incurred for improvements he made to certain

of the properties. Petitioner, however, did not provide the

Appeals officer with any documentation to substantiate any of the

other expenses petitioner claimed with respect to the properties

at issue. After reviewing the information provided by

petitioner, respondent recomputed petitioner’s income tax

deficiencies for 1996, 1998, and 1999. The pertinent facts

regarding petitioner’s ownership of each property, and

respondent’s revised position with respect to each property’s

adjusted basis and the gain petitioner recognized on each sale,

are set forth below.4

Market Street Property

In June 1992, petitioner purchased the Market Street

property for $143,500. The Market Street property was a single-

4
In addition to the three properties petitioner sold in 1996
and 1999, in October 1998, petitioner sold his interest in a
time-share condominium for $12,500. The time-share condominium
was located at L-16-C Ellowee, Manson, Washington (hereinafter,
the Ellowee Time-share), and petitioner had purchased it in
August 1992, for $19,750. After taking into account acquisition
and disposition costs, respondent determined that petitioner
sustained a loss of $9,892 on the sale of the Ellowee Time-share.
Because respondent conceded that there is no deficiency in 1998,
and petitioner did not dispute respondent’s determination with
respect to the Ellowee Time-share property in his petition or
trial memorandum or advance any arguments regarding the Ellowee
Time-share at trial, we do not decide any issues relating to
petitioner’s 1998 taxable year. See Rule 34(b)(4).
 - 5 -

family residence that petitioner remodeled and converted into

office space.5 In January 1996, petitioner sold the property for

$212,500.

Respondent added $1,671 for acquisition costs and $41,743,

the cost of capital improvements,6 to petitioner’s cost basis in

the Market Street property. In computing the amount realized on

the sale, respondent subtracted $4,373 from the sale price to

account for selling costs. Using an adjusted sale price of

$208,127 and an adjusted basis of $186,914, respondent concluded

that petitioner must recognize gain of $21,213 on the sale of the

Market Street property.

Respondent did not include any of the following expenses,

which petitioner claims should increase the Market Street

property’s adjusted basis, in computing petitioner’s gain:

5
Petitioner testified that he used the office space to
conduct his business of importing shoes and leather goods and
that he never resided at the Market Street property.
6
Petitioner originally claimed in his petition an amount of
$62,500 for capital improvements, but he maintained in his trial
memorandum and at trial that he incurred expenses of $47,500 to
improve the Market Street property. We assume, therefore, that
petitioner has waived any argument regarding the difference
between the two figures.
 - 6 -

Item Cost

Maintenance for 42 mos. at $150/mo. $6,300
Utilities for 42 mos. 5,985
Mortgage interest for 42 mos. 41,679
Insurance for 42 mos. 4,200
Property taxes for 42 mos. 7,059
Personal labor of 798 hrs. at $20/hr. 15,960
Payment to settle asbestos claim 1,750
Remodeling expenses in excess of $41,743 5,757

Respondent disallowed any deductions or basis adjustments for

these items on the grounds that petitioner failed to substantiate

the expenses or establish that they were incurred in the course

of his trade or business.

Rose Point Lane Property

In January 1987, petitioner purchased the Rose Point Lane

property for $495,000. In March 1996, petitioner sold the

property for $1,065,000. The Rose Point Lane property was a

waterfront residence in which petitioner and his spouse resided

from January 1988 through March 1996.

Respondent increased petitioner’s cost basis in the Rose

Point Lane property by $1,311 for certain acquisition costs and

$2,782 for costs related to refinancing the property and

decreased the basis by $66,027 to account for deferred gain from

the sale of petitioner’s previous residence.7 In computing the

7
Petitioner purchased his previous residence, located at 332
4th Ave. S., Kirkland, Washington, in August 1978 for $57,000,
and petitioner sold it in January 1988 for $134,500. In
computing petitioner’s gain on the sale of the residence,
respondent increased petitioner’s basis by $140 for acquisition
(continued...)
 - 7 -

amount realized on the sale, respondent subtracted $60,516 from

the sale price to account for selling costs. Using an adjusted

sale price of $1,004,484 and an adjusted basis of $433,066,

respondent concluded that petitioner must recognize gain of

$571,418 on the sale of the Rose Point Lane property.

Respondent did not include any of the following expenses,

which petitioner claims should increase the adjusted basis of the

Rose Point Lane property, in computing petitioner’s gain:8

Item Cost

Landscaping and repairs $21,750
Maintenance for 100 mos. at $150/mo. 15,000
Refinancing expenses (three times) 26,500
Mortgage interest 325,100
Insurance for 100 mos. 11,150
Property taxes for 100 mos. 104,167
Personal labor of 1500 hrs. at $20/hr. 30,000
Settlement charges for utilities 200

Respondent concluded that the costs petitioner allegedly incurred

for landscaping and repairs, maintenance, utilities, and personal

labor did not constitute capital improvements that must be added

to the property’s basis. Respondent disallowed any basis

7
(...continued)
costs and adjusted the sale price downward by $11,333 to account
for disposition costs.
8
In the petition, petitioner claimed he incurred improvement
expenses of $75,000, but he did not argue in his trial
memorandum, at trial, or in his posttrial memoranda that he was
entitled to any deductions or basis adjustments for improvements.
Petitioner also failed to produce any evidence on this point at
trial. We conclude, therefore, that petitioner has abandoned
this argument. See Leahy v. Commissioner, 87 T.C. 56, 73-74
(1986).
 - 8 -

adjustments for the remaining expenses for lack of

substantiation.

Hollywood Hill Lot

In April 1996, petitioner purchased two adjacent parcels of

real property, one of which had a home situated on it, for

$732,500.9 Petitioner and his spouse resided in the home,

located at 16109 167th Avenue Northeast, Woodinville, Washington,

after selling the Rose Point Lane property. Petitioner improved

the empty lot adjacent to the home, the Hollywood Hill lot, by

constructing a fence around the property. In October 1999,

petitioner sold the Hollywood Hill lot for $235,000.

Respondent concluded that petitioner’s cost basis in the

Hollywood Hill lot was $185,000, approximately 25 percent of the

total purchase price of both lots.10 Respondent added to

petitioner’s cost basis $431, which represented 25 percent of the

costs incurred in the purchase of both lots, and $5,974 for the

cost of constructing a fence on the Hollywood Hill lot. In

computing the amount realized on the sale, respondent subtracted

$9,957 from the sale price to account for selling costs. Using

9
The cost of purchasing the residence, taking into account
$1,294 of acquisition costs, was $548,794.
10
The parties stipulated that respondent had determined that
petitioner’s basis in the Hollywood Hill lot was $185,000 and
that it was 25 percent of the combined purchase price of the two
adjacent lots. In fact, the amount respondent allowed as basis
is 25.26 percent of the combined purchase price.
 - 9 -

an adjusted sale price of $225,043 and an adjusted basis of

$191,405, respondent concluded that petitioner must recognize

gain of $33,638 on the sale of the Hollywood Hill lot.

Respondent did not include the following expenses, which

petitioner claims should increase the adjusted basis of the

Hollywood Hill lot, in computing petitioner’s gain on the sale:11

Item Cost

Settlement charges for property taxes due $4,582
Maintenance for 43 mos. at $100/mo.1 4,300
Personal labor of 430 hrs. at $20/hr. 8,600
Property taxes for 43 mos. 6,987
1
According to petitioner, the maintenance performed on the
Hollywood Hill lot was routine, such as mowing, and was not part
of the development of the property for ultimate resale.

Respondent disallowed any deduction or basis adjustment for the

11
In the petition, petitioner also claimed expenses of
$31,500 for mortgage interest and $12,000 for “improvements”, but
he did not argue that he was entitled to any deductions or basis
adjustments for these expenses in his trial memorandum, at trial,
or in his posttrial memoranda. We conclude, therefore, that
petitioner has abandoned these arguments. See Leahy v.
Commissioner, supra.

Petitioner argued for the first time at trial that in
addition to the cost of the fence, which respondent added to the
property’s adjusted basis, he expended approximately $7,000 for
the services of the engineer who designed a septic system for the
Hollywood Hill lot, which was never installed. Petitioner
offered no documentary evidence to substantiate the expense, did
not otherwise amend his petition to reflect any change in the
nature or amount of the expenses he claims, and did not present
any arguments regarding the expenses in his posttrial memoranda.
As a result, we do not consider petitioner’s argument.
 - 10 -

settlement charges for property taxes because petitioner failed

to substantiate the expense, and respondent disallowed any

adjustments for the remaining items.

Petitioner’s Failure To File Income Tax Returns and Related
Correspondence

Petitioner failed to file Federal income tax returns for

1996, 1998, and 1999. On April 2, 1997, petitioner mailed an 11-

page letter to the Department of the Treasury in Washington,

D.C., requesting that it provide him with the “taxing statutes”

that impose on him any Federal income tax liability or require

him to file a Federal income tax return. The letter also

contained typical tax-protester arguments regarding the

constitutionality of the Federal tax laws and quotations from the

Code, Income Tax Regulations, and caselaw relating to the

authority of the Federal Government to impose an income tax. On

June 16, 1997, petitioner mailed the same letter requesting the

taxing statutes to the Internal Revenue Service’s (IRS) Ogden,

Utah, office.

On May 15, 2002, respondent sent petitioner a 30-day notice

stating that the IRS had not received petitioner’s 1999 Federal

income tax return. In the letter, respondent also proposed an

income tax deficiency and additions to tax for petitioner’s 1999

taxable year and advised petitioner of the Code sections that

required him to file a return and provide certain information to

the IRS. In response to respondent’s 30-day notice, on June 14,
 - 11 -

2002, petitioner mailed to the IRS’s Ogden, Utah, office another

copy of the 1997 letter requesting the taxing statutes. In

addition, petitioner mailed a 15-page letter dated June 14, 2002,

to the IRS’s Ogden, Utah, office requesting an administrative

appeal and reiterating his tax-protester arguments.

By letter dated November 6, 2002, respondent informed

petitioner that the U.S. Supreme Court has consistently held that

the Federal income tax laws are constitutional and that persons

who fail to comply with those laws may be subject to civil and

criminal penalties. In addition, respondent notified petitioner

of respondent’s intent to issue notices of deficiency for

petitioner’s 1996, 1998, and 1999 taxable years. On March 26,

2003, respondent issued three separate notices of deficiency for

petitioner’s 1996, 1998, and 1999 taxable years. Because

petitioner had not filed Federal income tax returns or produced

any basis documentation before respondent issued the notices of

deficiency, respondent computed the gain petitioner must

recognize on the sale of each property without allowing

petitioner any basis in the properties at issue.

Petitioner’s Conduct During Litigation

On June 24, 2003, the petition in this case was filed. In

the petition, petitioner contested the notices of deficiency for

1996, 1998, and 1999 and included several pages of typical tax-

protester arguments. On July 31, 2003, respondent filed a motion
 - 12 -

to strike portions of the petition on the grounds that it

contained immaterial, frivolous, and nonjusticiable arguments and

that it did not contain clear and concise assignments of error or

lettered statements of the facts upon which to base assignments

of error, as required by Rule 34(b)(4) and (5). On August 21,

2003, we granted respondent’s motion to strike.

By letter dated February 5, 2004, respondent advised

petitioner that he considered several of the arguments in the

petition to be immaterial and frivolous and that he would request

that the Court award damages under section 6673 in an amount not

to exceed $25,000 if petitioner persisted, at trial, in advancing

groundless arguments that did not pertain to the amount of tax

due. On February 26, 2004, at the beginning of trial,

respondent’s motion for sanctions under section 6673(a)(1)(B) was

filed. We reserved ruling on the motion and address it in the

opinion that follows.

At trial, we warned petitioner on several occasions that we

would not entertain any arguments at trial or on brief regarding

the source of the Federal taxing authority or the basis for

respondent’s contention that income from the sale of property is

taxable under the laws of the United States. We further

explained to petitioner that personal labor is neither includable

in basis nor deductible as an expense, that any arguments

regarding the tax treatment of personal labor are frivolous,
 - 13 -

inappropriate, and a waste of time, and that we would consider

any such arguments in deciding the motion to impose sanctions

under section 6673.

Following the trial, we directed the parties to prepare and

submit a supplemental stipulation of facts and to address the

application of section 1034. Although the supplemental

stipulation of facts makes no mention of section 1034, and

neither party made any arguments regarding section 1034 in their

posttrial memoranda, we address the effect of section 1034 on

petitioner’s sale of property in the opinion that follows because

section 1034 affects the computation of gain from the sale of

petitioner’s Rose Point Lane property.

On June 28, 2004, petitioner’s posttrial memorandum was

filed. In the posttrial memorandum, petitioner argued that

“respondent has refused at all times verbally or upon documents

to set forth any laws which authorizes [sic] him to take the

actions or make claims for his process of income tax assessments”

and that “it is self evident that nothing within the language of

the respondent’s Supplemental Stipulations of Facts is based upon

any United States tax law, statutes or regulations.” Petitioner

also continued to advance arguments regarding the tax treatment

of personal labor in his posttrial memorandum. On July 28, 2004,

we filed petitioner’s answering posttrial memorandum, which

contained 27 pages of tax-protester arguments similar to those
 - 14 -

that he had been warned against making at trial and which had

been stricken from his petition.

OPINION

I. Income From Petitioner’s Sale of Real Property

A. Gain From the Sale of Real Property in General

Gross income means all income from whatever source derived,

including gains derived from dealings in property. Sec.

61(a)(3). Gain from the sale of property is defined as the

excess of the amount realized on the sale of the property over

the adjusted basis of the property sold or exchanged. Sec. 1001;

sec. 1.61-6(a), Income Tax Regs.

The amount realized is the sum of any money received plus

the fair market value of any other property received, reduced by

the expenses of selling the property. Sec. 1001(b); Chapin v.

Commissioner, 12 T.C. 235, 238 (1949), affd. 180 F.2d 140 (8th

Cir. 1950). Section 1011 provides that a taxpayer’s adjusted

basis for determining the gain or loss from the sale or other

disposition of property shall be its cost, adjusted to the extent

provided by section 1016. See also sec. 1012. Under section

1016(a)(1), the basis of property must be adjusted for

expenditures, receipts, losses, or other items, properly

chargeable to capital account. The cost of improvements and

betterments made to a taxpayer’s property are among the items
 - 15 -

properly chargeable to capital account. Sec. 1.1016-2(a), Income

Tax Regs.

A taxpayer is also required to keep permanent books of

account or records that are sufficient to establish the amount of

gross income, deductions, and other information required to be

shown on an income tax return. Sec. 6001; sec. 1.6001-1(a),

Income Tax Regs. The Commissioner’s determination is presumed

correct; the taxpayer has the burden of proving the adjusted

basis of his property.12 Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).

B. Section 1034

Section 103413 provides for nonrecognition of gain on the

sale of a principal residence:

If property (in this section called “old residence”)
used by the taxpayer as his principal residence is sold
by him and, within a period beginning 2 years before
the date of such sale and ending 2 years after such
date, property (in this section called “new residence”)
is purchased and used by the taxpayer as his principal
residence, gain (if any) from such sale shall be
recognized only to the extent that the taxpayer’s
adjusted sales price (as defined in subsection (b)) of
the old residence exceeds the taxpayer’s cost of
purchasing the new residence.

12
Petitioner has not established that he meets the
requirements of sec. 7491(a), and, therefore, the burden of proof
does not shift to respondent.
13
Sec. 1034 applies to the sale or exchange of a principal
residence occurring on or before May 6, 1997. Sec. 1034 was
repealed by the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec.
312(b), 111 Stat. 839.
 - 16 -

The “adjusted sales price” is the amount realized reduced by

expenses for work performed on the old residence to assist in its

sale. Sec. 1034(b); sec. 1.1034-1(b)(3), Income Tax Regs. The

“amount realized” is the consideration received with respect to

the old residence, reduced by selling expenses. Sec. 1.1034-

1(b)(4), Income Tax Regs. The taxpayer’s cost of purchasing the

new residence includes commissions and other purchasing expenses.

Sec. 1.1034-1(c)(4)(i), Income Tax Regs. In addition, the basis

of the new residence must be reduced by the amount of any gain on

the sale of the old residence that is not recognized pursuant to

section 1034. Sec. 1034(e).

C. Petitioner’s Arguments

Petitioner argues that for purposes of calculating the

amount of gain, if any, he must recognize on the sale of each

property, he is entitled to increase his adjusted basis in each

property for expenses related to his ownership and use of the

properties. Other than petitioner’s own testimony, the only

evidence petitioner offered to substantiate the expenses

respondent disallowed were the settlement statements from the

purchase and sale of each property and various receipts for

improvements he made to the Market Street property and the

Hollywood Hill lot. These settlement statements and receipts,

however, do nothing more than affirm respondent’s revised

position as to each property’s adjusted basis and sale price.
 - 17 -

Petitioner made no effort whatsoever at trial to prove the

existence or amount of the expenses he argues should be added to

each property’s adjusted basis.14 In the absence of any

corroborating evidence, we are not required to accept

petitioner’s self-serving testimony. Tokarski v. Commissioner,

87 T.C. 74, 77 (1986). Further, the failure to produce evidence,

in support of an issue of fact as to which a party has the burden

of proof and which has not been conceded by such party’s

adversary, may be a ground for deciding the issue against that

party. Rule 149(b).

In addition, petitioner cites no authority to support his

position that the expenses he allegedly incurred for landscaping,

routine maintenance and repairs, utilities, and insurance, with

respect to either the Rose Point Lane property or Hollywood Hill

lot, may be added to the adjusted basis of either property.

Petitioner did not prove that these expenses were for permanent

improvements that have a useful life or that they increased the

value of the property substantially beyond the taxable years in

question. Secs. 263, 1016; secs. 1.263(a)-1 and -2, 1.1016-2,

Income Tax Regs. Consequently, there is no basis for concluding

that the expenses claimed by petitioner were capital expenditures

14
Petitioner did not allege alternatively or prove that any
of the expenses in question were business expenses deductible
under sec. 162.
 - 18 -

that may be added to the adjusted basis of either property and

recovered upon sale.

With respect to petitioner’s argument that the cost of his

personal labor should increase his adjusted basis in the

properties at issue, no provision of the Code authorizes an

increase in basis for the cost of a taxpayer’s personal labor,

and we have consistently held that the cost of a taxpayer’s

personal labor shall not be considered in computing adjusted

basis, regardless of whether the property is held for the

production of income or as a principal residence. Cox v.

Commissioner, T.C. Memo. 1982-667; Bayly v. Commissioner, T.C.

Memo. 1981-549; Erwin v. Commissioner, T.C. Memo. 1978-10; Miller

v. Commissioner, T.C. Memo. 1975-8. Consequently, we reject

petitioner’s argument.

D. Basis Adjustment Under Section 1034

Respondent concluded that petitioner must recognize gain of

$571,418 on the sale of the Rose Point Lane property. In

arriving at that figure, respondent adjusted petitioner’s cost

basis in the Rose Point Lane property to account for acquisition

and refinancing costs and deferred gain from the sale of

petitioner’s previous residence, and adjusted the sales price to

account for the cost of selling the property. Because petitioner

reinvested a portion of the sale proceeds from the Rose Point

Lane property in a new residence, however, petitioner must
 - 19 -

recognize gain on the sale of the Rose Point Lane property only

to the extent that its adjusted sales price exceeds the cost of

purchasing the residence adjacent to the Hollywood Hill lot.

Sec. 1034(a).

The adjusted sales price of the Rose Point Lane property was

$1,004,484, and the cost of purchasing the residence adjacent to

the Hollywood Hill lot was $548,794. See sec. 1034(b); secs.

1.1034-1(b)(3) and (4), (c)(4)(i), Income Tax Regs. The adjusted

sale price of the old residence exceeds the cost of purchasing

the new residence by $455,690. We conclude, therefore, that,

pursuant to section 1034, petitioner must recognize gain on the

sale of the Rose Point Lane property in the amount of $455,690.15

E. Conclusion

Petitioner has failed to produce any evidence to prove the

existence or amount of the expenses he argues should be added to

each property’s adjusted basis or to prove that respondent’s

revised adjusted basis calculations were in error. We conclude,

therefore, that upon selling the properties at issue petitioner

is not entitled to recover any expenses in excess of those

15
Accordingly, petitioner’s basis in his new residence must
be reduced by $115,728, the amount of unrecognized gain on the
sale of the Rose Point Lane property. Sec. 1034(e). Because
petitioner did not sell the home next to the Hollywood Hill lot,
the unrecognized gain from the sale of the Rose Point Lane
property does not affect respondent’s conclusion that petitioner
must recognize gain of $33,638 on the sale of the Hollywood Hill
lot.
 - 20 -

allowed by respondent as adjustments to basis. Based on the

Court’s review of the evidence, however, we further conclude that

petitioner is entitled to an adjustment under section 1034(a)

with respect to the Rose Point Lane property. Consequently, we

hold that petitioner realized and must recognize capital gain of

$21,213, $455,690, and $33,638 on the sale of the Market Street

property, Rose Point Lane property, and Hollywood Hill lot,

respectively.

II. Section 6651(a)(1) Addition to Tax

Respondent determined that petitioner is liable for an

addition to tax under section 6651(a)(1) because he failed to

file returns for the taxable years 1996 and 1999.16 Petitioner

argues that he did not file returns for these years because the

IRS did not provide him with the statutory provisions he

requested indicating the tax rate and type of tax he was required

to pay and that, without such information, he would be in danger

of filing a fraudulent return. Petitioner further argues that

the IRS’s November 6, 2002, letter informing him that the tax

laws are constitutional was generic, did not pertain to him

personally, and did not address the questions he had presented to

16
Because respondent has now conceded that petitioner does
not owe any income tax deficiency or addition to tax for 1998, we
do not address respondent’s original 1998 determination.
 - 21 -

the IRS in his protest letters. Finally, petitioner asserts

that, based on his research of the Code, no tax statute applies

to him.

Section 6651(a) imposes an addition to tax for failure to

file a return in the amount of 5 percent of the tax liability

required to be shown on the return for each month during which

such failure continues, but not exceeding 25 percent in the

aggregate, unless it is shown that such failure is due to

reasonable cause and not due to willful neglect. See sec.

6651(a)(1); United States v. Boyle, 469 U.S. 241, 245 (1985);

United States v. Nordbrock, 38 F.3d 440, 440 (9th Cir. 1994);

Harris v. Commissioner, T.C. Memo. 1998-332.

Respondent has met his burden of production under section

7491(c) because petitioner admits, and the record clearly

establishes, that petitioner failed to file his 1996 and 1999

income tax returns. Consequently, petitioner is obligated to

prove that he is not liable for the addition to tax under section

6651(a)(1). Because petitioner introduced no evidence of any

legitimate reason for his failure to file timely returns, we

sustain respondent’s determination that petitioner is liable for

the section 6651(a)(1) additions to tax for 1996 and 1999.

III. Section 6654 Addition to Tax

Section 6654(a) imposes an addition to tax in the case of

any underpayment of estimated tax by an individual. Section
 - 22 -

6654(d) sets forth the amount of the required estimated tax

payments an individual must make to avoid the addition to tax

imposed by section 6654(a).

Respondent determined that petitioner is liable for an

addition to tax under section 6654(a) for the taxable years 1996

and 1999. Petitioner contends that since the repeal of former

section 6015 in 1984, there is no “authority” to impose an

addition to tax for failure to make estimated tax payments but

makes no other argument regarding the application of section

6654.

We rejected an identical argument in Rogers v. Commissioner,

T.C. Memo. 2001-20, affd. without published opinion 281 F.3d 1278

(5th Cir. 2001). Former section 6015(d) required individual

taxpayers to file annual declarations of estimated income tax in

certain circumstances and was repealed by the Deficit Reduction

Act of 1984 (DEFRA), Pub. L. 98-369, sec. 412(a)(1), 98 Stat.

792, for taxable years beginning after 1984. The obligation to

make estimated tax payments and the addition to tax for

underpayment of the estimated tax remained in effect, however,

for subsequent taxable years pursuant to sections 411 and 412 of

DEFRA, 98 Stat. 788-793, which consolidated the rules pertaining

to the payment of estimated income tax into section 6654.

Petitioner admits that he failed to make any payments of

estimated tax for 1996 or 1999, and no exception relieving him of
 - 23 -

liability for the section 6654 addition to tax applies.

Consequently, we hold petitioner liable for the section 6654(a)

additions to tax.

IV. Section 6673 Penalty

Section 6673(a)(1) authorizes this Court to require a

taxpayer to pay the United States a penalty, not to exceed

$25,000, if it appears that the taxpayer has instituted or

maintained a proceeding primarily for delay or that the

taxpayer’s position is frivolous or groundless. A taxpayer’s

position is frivolous or groundless if it is contrary to

established law and unsupported by a reasoned, colorable argument

for change in the law. Williams v. Commissioner, 114 T.C. 136,

144 (2000) (citing Coleman v. Commissioner, 791 F.2d 68, 71 (7th

Cir. 1986)).

Petitioner’s arguments regarding the constitutionality of

the Federal tax laws, the authority of the Federal Government to

impose an income tax, and the tax treatment of personal labor are

contrary to well-established law. We shall not address these

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). Although we struck similar tax-protester

arguments from the petition and repeatedly admonished petitioner

at trial that by making these arguments he risked incurring a
 - 24 -

monetary penalty, petitioner insisted on pursuing such frivolous

and groundless arguments at trial and ignored the Court’s

warnings in drafting his posttrial memoranda. By making the

arguments petitioner has unduly wasted the time and resources of

this Court. See Smith v. Commissioner, T.C. Memo. 2000-290.

Petitioner’s conduct deserves an appropriate sanction.

Accordingly, we shall require petitioner to pay to the United

States a penalty under section 6673(a)(1) of $5,000.

To reflect the foregoing and concessions of the parties,

An appropriate order will

be issued granting

respondent’s motion for

sanctions, and an appropriate

decision will be entered under

Rule 155.