T.C. Memo. 2005-155
UNITED STATES TAX COURT
WILBUR T. HAWKS, SR., AND BETTY W. HAWKS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12080-04. Filed June 27, 2005.
Wilber T. Hawks, Sr. and Betty W. Hawks, pro se.
Ric D. Hulshoff, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined deficiencies in
petitioners’ Federal income tax of $14,829 for 2000 and $40,761
for 2001, and that petitioners are liable for an accuracy-related
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penalty under section 6662(a)1 of $2,965.80 for 2000 and
$8,152.20 for 2001.
The issues for decision are:
1. Whether petitioners are entitled to more itemized
deductions than respondent allowed. We hold that they are not.
2. Whether petitioners may claim net operating losses
(NOLs) of $183,455 for 2000 and $110,367 for 2001. We hold that
they may not.
3. Whether petitioners may deduct partnership losses of
$32,065 claimed on Schedule E, Supplemental Income and Loss, for
2001. We hold that they may not.
4. Whether petitioners are liable for the accuracy-related
penalty under section 6662(a) for 2000 and 2001. We hold that
they are.
5. Whether petitioners are liable for a penalty under
section 6673 for instituting proceedings primarily for delay and
for maintaining frivolous or groundless positions. We hold that
they are not.
Computational adjustments will be required to resolve the
taxable amounts of petitioners’ Social Security benefits in 2000,
the amounts of petitioners’ standard deductions for 2000 and
2001, and the amounts of petitioners’ exemptions for 2001.
1
Section references are to the Internal Revenue Code in
effect for the taxable years in issue. Rule references are to
the Tax Court Rules of Practice and Procedure.
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FINDINGS OF FACT
Petitioners lived in Richmond, Virginia, when they filed
their petition in this case.
From 1998 through at least 2001, petitioners were involved
in transactions with Anderson Ark & Associates,2 pursuant to
which they purported to create a TEFRA partnership and
purportedly incurred a liability so as to create basis and cause
large losses to be shown on their income tax returns for several
years. Petitioners offset their income with net operating losses
of $183,455 for 2000 and $110,367 for 2001 from the purported
partnership. They also claimed a loss of $32,065 on the Schedule
E attached to their 2001 Federal income tax return. Petitioners
claimed itemized deductions of $31,893 for 2000 and $21,875 for
2001, including medical and dental expenses, real estate taxes,
other taxes, home mortgage interest, cash contributions, noncash
contributions, and miscellaneous expenses.
Respondent audited petitioners’ returns for 2000 and 2001
and determined deficiencies and additions to tax. Respondent
also determined that petitioners overreported capital gain income
by $9,894 for 2001.
Petitioners provided no documents or other evidence to
support their claimed deductions or to show that respondent’s
2
An organization named Anderson Ark & Associates was
engaged in facilitating income tax evasion and bankruptcy fraud.
See United States v. Anderson, 391 F.3d 970, 972 (9th Cir. 2004).
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determinations were incorrect. Instead, petitioners have
responded, and continue to respond, to respondent’s attempts to
verify their deductions by making numerous frivolous arguments.
Petitioners timely filed a petition with this Court in which
they made numerous frivolous arguments, such as: (1) Income is
limited to foreign earned income, war profits, and windfall
profits, (2) income tax laws are in effect only in Guam, (3)
income tax returns and payments are gifts to the United States,
(4) Form 1040, U.S. Individual Income Tax Return, and Form 1040A,
U.S. Individual Income Tax Return, are to be filed only by self-
employed residents of the Virgin Islands, Puerto Rico, Guam, or
American Samoa, (5) estimated tax and interest are matters within
the exclusive jurisdiction of the Bureau of Alcohol, Tobacco, and
Firearms, (6) no statute requires anyone to file a tax return,
(7) there is no organization in the Department of the Treasury
known as the Internal Revenue Service (IRS), (8) the IRS is not
an agency of the United States, (9) the IRS is an unlawful
organization, (10) title 26 of the United States Code is not
positive law, and (11) the Tax Court lacks jurisdiction because
petitioners have not received income subject to income tax.
Petitioners did not stipulate facts as required by Rule
91(a). This Court granted respondent’s motion under Rule 91(f)
to show cause why proposed facts should not be accepted as
established and made that order absolute after petitioners failed
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to file a response as ordered. Thus, matters in respondent’s
proposed stipulation of facts are deemed admitted.
Petitioners did not identify or exchange any documents,
identify witnesses, or file a pretrial memorandum as required by
the standing pretrial order. They did not appear at the calendar
call of this case. Respondent filed motions to dismiss for
failure to properly prosecute and to impose a penalty under
section 6673. Petitioners filed a statement with the Court in
lieu of appearing at trial. In it, petitioners stated that they
would be unable to attend trial on May 23, 2005. Petitioners
also made numerous frivolous arguments that this Court has
previously rejected, such as that their income was not taxable
because it was not from a taxable source, and that they are not
liable for tax because a Form 23C, Assessment Certificate--
Summary Record of Assessments, does not exist.
OPINION
A. Burden of Proof
The burden of proof for a factual issue may shift to the
Commissioner under certain circumstances. Sec. 7491(a).
Petitioners do not contend that section 7491(a) applies in this
case. They did not substantiate their deductions, keep records
of their income and expenses, or cooperate with respondent’s
agents. Thus, the burden of proof does not shift to respondent.
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Respondent’s determinations are presumed correct, and
petitioners bear the burden of proof. See Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
B. Whether Petitioners Are Entitled to More Itemized Deductions
Than Respondent Allowed for 2000 and 2001
A taxpayer must keep records that are sufficient to enable
the Commissioner to determine his or her tax liability. See sec.
6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec.
1.6001-1(a), Income Tax Regs. A taxpayer must substantiate the
payments which give rise to claimed deductions. Hradesky v.
Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d
821 (5th Cir. 1976); see sec. 6001. Petitioners have the burden
of establishing that they are entitled to the deductions claimed.
See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Petitioners were given numerous opportunities to submit
documentation to substantiate their deductions, but they did not
do so. We have long held that where the taxpayer does not
substantiate claimed deductions, the Commissioner’s disallowance
of them will be sustained. Roberts v. Commissioner, 62 T.C. 834,
836-837 (1974); Pfluger v. Commissioner, T.C. Memo. 1986-78,
affd. 840 F.2d 1379 (7th Cir. 1988). The record in this case
provides no basis for estimating deductions under Cohan v.
Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). See Lerch v.
Commissioner, 877 F.2d 624, 628-629 (7th Cir. 1989), affg. T.C.
Memo. 1987-295; Lutheran Mut. Life Ins. Co. v. United States, 816
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F.2d 376, 379 (8th Cir. 1987); Bay Sound Transp. Co. v. United
States, 410 F.2d 505, 511 (5th Cir. 1969).
Petitioners contend that they paid $26,435 in 2000 and
$29,354 in 2001 for medical and dental expenses, $3,073 in 2000
and $3,225 in 2001 for real estate taxes, $833 in 2000 and $419
in 2001 for other taxes, $99 in 2000 for home mortgage interest,
$3,515 in 2001 for cash contributions, and $1,453 in 2000 for
miscellaneous expenses, and made noncash contributions worth $500
in 2000 and $100 in 2001. Petitioners offered no evidence.
We conclude that petitioners are not entitled to more
itemized deductions than respondent allowed for 2000 and 2001.
C. Whether Petitioners May Deduct Net Operating Loss
Carryforwards and Carrybacks
Petitioners contend that they may deduct NOL carryforwards
and carrybacks. We disagree.
To carry forward or carry back NOLs, petitioners must prove
the amount of the NOL carryforward or carryback. See Jones v.
Commissioner, 25 T.C. 1100, 1104 (1956), revd. and remanded on
other grounds 259 F.2d 300 (5th Cir. 1958). Tax returns alone do
not establish that a taxpayer is entitled to NOL carryforwards or
carrybacks. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979);
Roberts v. Commissioner, supra at 837, 839. Petitioners offered
no evidence about their NOL carryforwards or carrybacks. We
conclude that petitioners are not entitled to NOL carryforward or
carryback deductions in the years in issue.
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D. Whether Petitioners May Deduct Partnership Losses of $32,065
for 2001
Petitioners contend that they may deduct partnership losses
of $32,065 for 2001. We disagree. There is no evidence to
support petitioners’ partnership loss deduction for 2001.
E. Whether Petitioners Are Liable for the Accuracy-Related
Penalty
Section 7491(c) places on the Commissioner the burden of
producing evidence that it is appropriate to impose additions to
tax. To meet this burden, the Commissioner must produce evidence
showing that it is appropriate to impose the particular addition
to tax but need not produce evidence relating to defenses such as
reasonable cause or substantial authority. Higbee v.
Commissioner, 116 T.C. 438, 446 (2001); H. Conf. Rept. 105-599,
at 241 (1998), 1998-3 C.B. 747, 995.
Petitioners failed to keep records and substantiate their
deductions. Petitioners offered no evidence to show that they
are entitled to NOLs or partnership losses or other claimed
deductions. Thus, respondent has met the burden of production,
and petitioners are liable for the accuracy-related penalty for
2000 and 2001.
F. Penalty for Frivolous Positions or Instituting Proceedings
Primarily for Delay Under Section 6673
Respondent moved at trial to impose a penalty under section
6673. The Court may impose a penalty of up to $25,000 if the
position or positions asserted by the taxpayer in the case are
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frivolous or groundless or the proceedings were instituted
primarily for delay. Sec. 6673(a)(1)(B). A position maintained
by the taxpayer is frivolous if it is “contrary to established
law and unsupported by a reasoned, colorable argument for change
in the law.” Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.
1986); Gilligan v. Commissioner, T.C. Memo. 2004-194.
Petitioners made numerous frivolous arguments during the
administrative proceedings, in these proceedings, and in the
petition. In lieu of appearing at trial, petitioners submitted a
statement in which they made more frivolous arguments.
We will deny respondent’s motion to impose a penalty under
section 6673. However, we warn petitioners that the Court may
impose this penalty in the future if petitioners make frivolous
arguments or institute proceedings primarily for delay.
To reflect the foregoing and concessions by respondent and
because of computational adjustments,
An appropriate order will
be issued, and decision will
be entered under Rule 155.