Stang v. Comm'r

T.C. Memo. 2005-154

UNITED STATES TAX COURT

ALAN D. STANG, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 6371-03, 19150-03. Filed June 27, 2005.

R determined deficiencies and additions to tax for
P’s 1999, 2000, and 2001 taxable years.

Held: P received unreported income in the form of
wages and nonemployee compensation during 1999, 2000,
and 2001, upon which he is liable for Federal income
taxes.

Held, further, P is liable for self-employment
taxes pursuant to sec. 1401, I.R.C., on income earned
in the form of nonemployee compensation during 2000 and
2001.

Held, further, P 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, P is liable for the sec. 6654,
I.R.C., addition to tax for failure to pay estimated
tax for the years 1999 through 2001.
 - 2 -

Held, further, a penalty under sec. 6673, I.R.C.,
is due from P and is awarded to the United States in
the amount of $5,000

Alan D. Stang, pro se.

Stephen S. Ash, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: Respondent determined the following

deficiencies and additions to tax with respect to petitioner’s

Federal income taxes for the taxable years 1999 through 2001:1

Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654

1999 $3,596 $899.00 $174.01
2000 15,137 3,784.25 808.54
2001 7,501 1,875.25 299.77

The issues for decision in these consolidated cases are:

1) Whether petitioner received unreported income in the form

of wages and nonemployee compensation from The Gem City

Engineering Company (GCE) during 1999, 2000, and 2001, upon which

he is liable for Federal income taxes;

(2) whether petitioner is liable for self-employment taxes

pursuant to section 1401 on income earned in the form of

nonemployee compensation during 2000 and 2001;

1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
 - 3 -

(3) whether petitioner is liable for the section 6651(a)(1)

addition to tax for failure timely to file income tax returns for

the taxable years 1999 through 2001;

(4) whether petitioner is liable for the section 6654

addition to tax for 1999, 2000, and 2001 on account of failure to

pay estimated income taxes; and

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

6673.

FINDINGS OF FACT

Some of the facts have been deemed stipulated pursuant to

Rule 91(f). The deemed stipulations, with accompanying exhibits,

are incorporated herein by this reference. At the time the

petition was filed in these cases, petitioner resided in Arizona.

Petitioner was hired by GCE, a firm providing engineering

services, with a starting date of January 8, 1996. Petitioner

had a background in electronics and was employed as a field

service technician. In conjunction with his employment,

petitioner on January 4, 1996, signed a Form W-4, Employee’s

Withholding Allowance Certificate, claiming he was exempt from

Federal income tax withholding requirements.

Respondent’s administrative file further reflects that

petitioner subsequently, in January of 1997, executed a statement

asserting that he was a sovereign citizen of Arizona; a Form W-8,

Certificate of Foreign Status; another Form W-4 claiming
 - 4 -

exemption from Federal income tax withholding; a document

entitled “AFFIDAVIT OF CITIZENSHIP AND DOMICILE”; and a document

entitled “AFFIDAVIT OF CLAIMS FOR EXEMPTION AND EXCLUSION FROM

GROSS INCOME OF REMUNERATION, WAGES AND WITHHOLDING”. The

affidavits enumerated a litany of typical tax-protester

assertions, including that the Internal Revenue Code was Federal

legislation inapplicable to him as a citizen of one of the 50

States and therefore not within the territorial jurisdiction of

the United States, that wages and remuneration for labor were

property not subject to indirect taxation, and that the income

tax was voluntary.

During 1999, petitioner received $31,0272 in wages from GCE,

from which no Federal income tax was withheld. GCE issued to

petitioner and filed with the Internal Revenue Service (IRS) a

Form W-2, Wage and Tax Statement, reflecting these wages. During

2000, petitioner received total compensation of $60,930 from GCE,

comprising $32,054 in wages for which a Form W-2 was issued and

$28,876 in nonemployee compensation for which a Form 1099-MISC,

Miscellaneous Income, was issued.3 No Federal income tax was

2
For consistency with the notices of deficiency and the
deemed stipulation of facts, the monetary amounts of the
compensation received by petitioner have been rounded to the
nearest dollar.
3
It appears from the record that, on or about June 5, 2000,
GCE treated petitioner’s employment status as having changed from
that of an employee to that of an independent contractor.
 - 5 -

withheld from these amounts. Similarly, during 2001, petitioner

received $31,779 in nonemployee compensation from GCE for which a

Form 1099-MISC was issued and from which no Federal income tax

was withheld.

Petitioner did not file Federal income tax returns for the

years 1999, 2000, and 2001. On January 22, 2003, respondent

issued to petitioner a notice of deficiency with respect to 1999,

and on August 8, 2003, respondent likewise issued to petitioner a

separate notice of deficiency for each of the years 2000 and

2001. Therein respondent determined the deficiencies and

additions to tax referenced above. The deficiencies were based

solely on the compensation paid to petitioner by GCE.

Petitioner’s petitions disputing these determinations,

having been postmarked timely, were filed with the Court on

April 28, 2003, as to 1999, and on November 10, 2003, as to 2000

and 2001. The petitions are substantially identical, each

asserting that petitioner “did not receive any taxable income

from any taxable source” during the subject years and that, even

if income can be attributed to him, he “would still be entitled

to the deductions, allowances and credits that the examining

Revenue Officer failed to even request from the Petitioner.”

Petitioner then prays that the Court dismiss the notices of
 - 6 -

deficiency, determine that there is a zero deficiency for each

year, and award petitioner costs and fees.4

The case for 1999 was initially set for trial at the Court’s

March 1, 2004, session in Phoenix, Arizona. Prior to the

session, the parties on January 13, 2004, held a conference

pursuant to Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).

At the conference, counsel for respondent urged petitioner to

abandon his positions regarding nonliability for Federal income

tax and provided him with copies of cases rejecting such

arguments. Petitioner responded to subsequent attempts by

respondent to prepare a stipulation of facts with objections on

Fifth Amendment grounds.

At the call of the calendar in Phoenix on March 1, 2004,

petitioner filed a motion to continue describing a recent heart-

related medical condition. Counsel for respondent voiced

concerns stemming from the arguments and Fifth Amendment

assertions advanced by petitioner. Counsel further informed the

Court that he had consulted with the IRS Criminal Investigation

Division and had ascertained that petitioner was not under

criminal investigation. The Court granted petitioner’s motion

but warned petitioner that “your position is somewhat extreme”

4
The Court notes that to the extent that the petitions seek
reasonable administrative and/or litigation costs pursuant to
sec. 7430, any such claims are premature and will not be further
addressed. See Rule 231.
 - 7 -

and that the Court would entertain any motions either side wished

to make, including “a motion under Rule 91(f) to force

stipulation”. The two cases were later consolidated and

calendared for trial at the Court’s October 18, 2004, session in

Phoenix.

On August 10, 2004, respondent sent to petitioner a letter

scheduling a second pretrial conference pursuant to Branerton

Corp. v. Commissioner, supra, for August 18, 2004.5 Respondent

also cautioned petitioner to review and consider the information

he had previously been provided regarding his legal arguments and

Fifth Amendment assertions. Petitioner responded with a letter

dated August 18, 2004, stating that his health problems prevented

a face-to-face meeting and that respondent was in error with

regard to the validity of petitioner’s Fifth Amendment

objections. Petitioner indicated that he would continue to

assert the Fifth Amendment in response to proposed stipulations

of fact and that if respondent should seek an order to show cause

under Rule 91(f), petitioner would request appropriate sanctions

for unnecessarily multiplying the litigation.

On August 19, 2004, respondent sent to petitioner a letter

enclosing a proposed stipulation of facts. This letter was

5
The Court notes that respondent’s motion to impose a sec.
6673 penalty refers, in an apparent typographical error, to this
letter as having been sent on Aug. 19, 2004. The copy of the
letter itself contained in the record is dated Aug. 10, 2004.
 - 8 -

eventually followed on September 3, 2004, with the filing by

respondent of a motion under Rule 91(f) for an order to show

cause why proposed facts in evidence should not be accepted as

established. Therein respondent also updated the Court that as

of the date of the motion, no criminal investigation of

petitioner was being pursued. The Court granted respondent’s

motion and on September 7, 2004, issued to petitioner an order to

show cause in writing on or before September 27, 2004, why the

matters set forth in respondent’s proposed stipulation of facts

and accompanying exhibits should not be accepted as established.

On October 4, 2004, the Court received from petitioner a

response, postmarked timely, to the order to show cause. The

response reflected that petitioner objected to each stipulation,

other than the perfunctory statements identifying the notices of

deficiency and petitioner’s address, on grounds of the Fifth

Amendment. Petitioner also made the further objection that

copies of checks from GCE payable to petitioner were hearsay and

secondary evidence. In advocating the propriety of his Fifth

Amendment stance, petitioner placed particular reliance on United

States v. Nipper, 210 F. Supp. 2d 1259 (N.D. Okla. 2002). After

reviewing petitioner’s submissions, the Court on October 6, 2004,

issued an order making absolute the order to show cause and

deeming established for purposes of these cases the matters set
 - 9 -

forth in the proposed stipulation of facts and accompanying

exhibits.

Prior to trial, on October 1, 2004, respondent served on

petitioner a copy of respondent’s pretrial memorandum. The

memorandum discussed issues raised in the notices of deficiency

and additionally, among other things, noted an intention on the

part of respondent to request imposition of a penalty under

section 6673 and potentially to address certain evidentiary

concerns through presentation of a declaration at trial pursuant

to rules 803(6) and 902(11) of the Federal Rules of Evidence.

The cases were tried on October 20, 2004. At the outset of

the proceedings, counsel for respondent sought to move into

evidence the exhibits accompanying the deemed stipulation of

facts. Petitioner repeated his Fifth Amendment and hearsay

objections. The Court overruled these objections and admitted

the exhibits, cautioning petitioner that frivolous arguments made

for purposes of delay could result in the imposition of

additional penalties. Petitioner declined to offer any testimony

or evidence, stating: “I have no witnesses. I have no

documents. And basically as I’ve stated, I believe that the

Internal Revenue Service has the initial burden of proof. And

they haven’t met that so I may remain silent until they have met

that.”
 - 10 -

Counsel for respondent then sought to enter additional

corroborative evidence in support of respondent’s position.

Respondent first offered the declaration of Missy Wittman, the

human resources and payroll manager for GCE, with attached

documents relating to petitioner’s employment and pay, under

rules 803(6) and 902(11) of the Federal Rules of Evidence.

Respondent indicated that the materials had been provided to

petitioner prior to trial, and petitioner corroborated that he

had been given the documents “two weeks ago”. Petitioner,

however, objected to their admission, complaining that the timing

had not permitted him a fair opportunity to challenge the

materials and that various documents constituted hearsay, were

incomplete, and were secondary evidence. The Court overruled the

objection and admitted the exhibit.

Respondent next sought to enter under rule 902(1) of the

Federal Rules of Evidence a Certificate of Official Record,

Information Returns Processing File (IRP) On-Line Transcript, for

petitioner’s taxable years 1999, 2000, and 2001. The document

was an original signed and under seal. Petitioner objected that

the document was created from hearsay, but the Court again

overruled the objection.

Respondent then called to the stand Wayne Johnson, a revenue

agent, who testified with regard to maintenance of computer

records and transcripts within the IRS. On the basis of this
 - 11 -

testimony, respondent offered computer transcripts of account for

petitioner’s 1998 through 2001 years under rule 803(6) or (8) of

the Federal Rules of Evidence.6 Petitioner once more objected

that the transcripts were hearsay and were created from hearsay,

but these complaints were overruled and the exhibit was received

into evidence.

Following the trial, respondent on October 22, 2004, filed a

motion to impose a penalty under section 6673. Each party also

filed a posttrial brief.

OPINION

I. Contentions of the Parties

On brief, petitioner’s essential premise is that respondent

bears the burden of proving receipt of unreported income, and

respondent failed to meet that burden here. Petitioner argues

that because the business records accompanying the declaration of

GCE’s human resources and payroll manager are inadmissible, no

evidence supports the determinations made in the notices of

deficiency. Specifically, petitioner contends that these

materials are inadmissible because: (1) The documents were

untimely provided under rule 902(11) of the Federal Rules of

Evidence; (2) the records are incomplete; and (3) the records are

6
Although the transcript indicates that counsel for
respondent inadvertently referred to rule “802(6) or (8)”, it is
clear that rule 803(6) or (8) of Federal Rules of Evidence was
intended.
 - 12 -

secondary evidence. He also makes a brief reference to Rule

143(b) as a basis for excluding the declaration of Ms. Wittman.

In contrast, it is respondent’s position that the record in

these cases establishes petitioner’s receipt of unreported income

from GCE and consequent liability for income taxes, self-

employment taxes, and additions to tax thereon. For the reasons

detailed below, the Court agrees with respondent.

II. Fifth Amendment

As previously indicated, certain of the facts for purposes

of these cases were deemed stipulated pursuant to Rule 91(f).

The Court determined petitioner’s objections to the proposed

stipulations of fact, premised principally on the Fifth

Amendment, to be without merit. Because petitioner reiterated at

trial that he believed such objections were “a proper application

of the Fifth Amendment rights”, a few preliminary remarks on this

issue are in order.

In the words of the U.S. Supreme Court: “It is well

established that the [Fifth Amendment] privilege protects against

real dangers, not remote and speculative possibilities.”

Zicarelli v. New Jersey State Comm. of Investigation, 406 U.S.

472, 478 (1972); see also McCoy v. Commissioner, 696 F.2d 1234,

1236 (9th Cir. 1983) (“A valid Fifth Amendment objection may be

raised only to questions which present a real and appreciable
 - 13 -

danger of self-incrimination.” (internal quotations omitted)),

affg. 76 T.C. 1027 (1981).

Having reviewed relevant caselaw on the matter, the Court is

satisfied that this litigation is not materially distinguishable

from cases such as Wheelis v. Commissioner, T.C. Memo. 2002-102,

affd. 63 Fed. Appx. 375 (9th Cir. 2003); Lee v. Commissioner,

T.C. Memo. 2002-95, affd. 61 Fed. Appx. 471 (9th Cir. 2003); and

Ruocco v. Commissioner, T.C. Memo. 2002-91, affd. 346 F.3d 223

(1st Cir. 2003). In the foregoing cases, all involving

contentions nearly identical to those raised here, the Court

rejected the taxpayers’ Fifth Amendment arguments as follows:

The phrase that comes readily to mind was first used by
the U.S. Supreme Court in United States v. Sullivan,
274 U.S. 259, 264 (1927), to wit, a taxpayer may not
“draw a conjurer’s circle around the whole matter” of
his or her tax liability. * * * In a civil tax case,
the taxpayer must accept the consequences of asserting
the Fifth Amendment and cannot avoid the burden of
proof by claiming the privilege and attempting to
convert “the shield * * * which it was intended to be
into a sword”. United States v. Rylander, 460 U.S.
752, 758 (1983) * * * [Wheelis v. Commissioner, supra.]

See also Lee v. Commissioner, supra; Ruocco v. Commissioner,

supra.

In contrast, cases relied upon by petitioner, in particular

United States v. Nipper, 210 F. Supp. 2d 1259 (N.D. Okla. 2002),

are distinguishable. The court in that case reiterated that the

constitutional standard required a “substantial and real” risk of

incrimination. Id. at 1260. The court, noting that the
 - 14 -

Government had already alleged that Mr. Nipper engaged in

fraudulent conveyances to conceal income and assets, further

concluded as a factual matter that Mr. Nipper had shown more than

“just a fanciful possibility of prosecution”. Id. at 1262.

Here, respondent has repeatedly affirmed that no criminal

investigation is pending with respect to petitioner and has never

asserted fraud on petitioner’s part. The Court remains convinced

that petitioner has established no real and reasonable fear of

incrimination and that Rule 91(f) was properly applied

notwithstanding his Fifth Amendment objections.

III. Unreported Income

The Internal Revenue Code imposes a Federal tax on the

taxable income of every individual. Sec. 1. Section 61(a)

defines gross income for purposes of calculating taxable income

as “all income from whatever source derived”. This broad

definition encompasses “Compensation for services, including

fees, commissions, fringe benefits, and similar items”. Sec.

61(a)(1); see also sec. 1.61-2(a)(1), Income Tax Regs.

Respondent has determined that petitioner received unreported

wages and nonemployee compensation from GCE.

As a general rule, the Commmissioner’s determinations are

presumed correct, and the taxpayer bears the burden of proving

error therein. Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). Although section 7491(a) may shift the burden to the
 - 15 -

Commissioner with respect to factual issues where the taxpayer

introduces credible evidence, the provision operates only where

the taxpayer establishes that he or she has complied with all

substantiation requirements, has maintained all required records,

and has cooperated with reasonable requests for witnesses,

information, documents, meetings, and interviews. Here, as

indicated above, petitioner introduced no evidence and failed to

cooperate in the stipulation process or trial preparation.

Section 7491(a) therefore effects no shift of burden in the

instant cases.

However, two additional limitations on the general rule bear

upon the case at bar. First, the Court of Appeals for the Ninth

Circuit, to which appeal in the instant case would normally lie,

has indicated that before the presumption of correctness will

attach in an unreported income case, the determination must be

supported by at least a “minimal” factual predicate or foundation

of substantive evidence linking the taxpayer to income-generating

activity or to the receipt of funds. Palmer v. United States,

116 F.3d 1309, 1312-1313 (9th Cir. 1997); see also Rapp v.

Commissioner, 774 F.2d 932, 935 (9th Cir. 1985); Weimerskirch v.

Commissioner, 596 F.2d 358, 361 (9th Cir. 1979), revg. 67 T.C.

672 (1977); Petzoldt v. Commissioner, 92 T.C. 661, 689 (1989).

Second, section 6201(d) states:

SEC. 6201(d). Required Reasonable Verification of
Information Returns.--In any court proceeding, if a
 - 16 -

taxpayer asserts a reasonable dispute with respect to
any item of income reported on an information return
filed with the Secretary under subpart B or C of part
III of subchapter A of chapter 61 by a third party and
the taxpayer has fully cooperated with the Secretary
(including providing, within a reasonable period of
time, access to and inspection of all witnesses,
information, and documents within the control of the
taxpayer as reasonably requested by the Secretary), the
Secretary shall have the burden of producing reasonable
and probative information concerning such deficiency in
addition to such information return.

Here, respondent initially, in determining the disputed

deficiencies, relied upon third-party information returns.

Respondent also introduced at trial, through the declaration of

Ms. Wittman, copies of the information returns and of checks and

invoices showing payment by GCE to petitioner. Additional copies

of checks from GCE payable to petitioner for 1999 had been deemed

stipulated pursuant to Rule 91(f). Petitioner makes various

arguments as to why these materials are inadmissible and thus

insufficient to satisfy any pertinent burden born by respondent.

A. Rule 902(11) of the Federal Rules of Evidence

Petitioner alleges that the declaration and accompanying

documents are inadmissible as self-authenticating business

records under rules 902(11) and 803(6) of the Federal Rules of

Evidence (hereinafter individual rules generally abbreviated in

text Fed. R. Evid. 902, Fed. R. Evid. 803, etc.). Specifically,

petitioner maintains that the materials were untimely provided

for purposes of the notice requirement contained in Fed. R. Evid.

902(11). Fed. R. Evid. 902 enumerates forms of documentary
 - 17 -

evidence as to which extrinsic evidence of authenticity is not a

precondition to admissibility, including the following:

(11) Certified Domestic Records of Regularly
Conducted Activity.--The original or a duplicate of a
domestic record of regularly conducted activity that
would be admissible under Rule 803(6) if accompanied by
a written declaration of its custodian or other
qualified person, in a manner complying with any Act of
Congress or rule prescribed by the Supreme Court
pursuant to statutory authority, certifying that the
record--

(A) was made at or near the time of the
occurrence of the matters set forth by, or from
information transmitted by, a person with
knowledge of those matters;

(B) was kept in the course of the regularly
conducted activity; and

(C) was made by the regularly conducted
activity as a regular practice.

A party intending to offer a record into evidence under
this paragraph must provide written notice of that
intention to all adverse parties, and must make the
record and declaration available for inspection
sufficiently in advance of their offer into evidence to
provide an adverse party with a fair opportunity to
challenge them.

The Advisory Committee Notes accompanying the 2000 Amendments to

the Federal Rules of Evidence, which added paragraphs (11) and

(12) to Fed. R. Evid. 902, state: “The notice requirement in

Rules 902(11) and (12) is intended to give the opponent of the

evidence a full opportunity to test the adequacy of the

foundation set forth in the declaration.”

Petitioner admits that the disputed declaration evidence was

provided “a couple of weeks before calendar” but argues that he
 - 18 -

was nevertheless deprived of a fair opportunity to challenge the

underlying third-party records. He submits that the meaning of a

fair opportunity must be interpreted in light of the procedural

rules governing a particular proceeding, which in these cases

would be the Tax Court Rules of Practice and Procedure. He

further maintains that to be afforded an adequate opportunity to

challenge the evidence, he would need to have been in receipt of

the declaration with sufficient time under our Rules to conduct

discovery, possibly a deposition, with respect thereto.

Petitioner notes for example that Rule 70(a)(2) requires all

discovery to be completed no later than 45 days prior to the call

of the calendar.

The situation before the Court here is indistinguishable on

this point from those addressed in Rodriguez v. Commissioner,

T.C. Memo. 2005-12, and Spurlock v. Commissioner, T.C. Memo.

2003-124.7 In postures nearly identical to that in the case at

bar, the taxpayers in those case relied, inter alia, upon the

notice requirement of Fed. R. Evid. 902(11) as a basis for

exclusion of proffered declarations and business records (i.e.,

Forms W-2, Forms 1099, employee time reports, payroll records,

paychecks, etc.). Rodriguez v. Commissioner, supra; Spurlock v.

Commissioner, supra. The Court was unpersuaded by their

7
See also Clough v. Commissioner, 119 T.C. 183, 188-191
(2002).
 - 19 -

arguments for reasons that ring equally true here. See Rodriguez

v. Commissioner, supra; Spurlock v. Commissioner, supra.

For instance, in Spurlock v. Commissioner, supra, the

Commissioner had indicated possible use of the declarations in a

trial memorandum provided a little more than 2 weeks before trial

and had provided the affidavits and records to the taxpayer 2 and

3 days before trial. Id. We concluded in those circumstances

that the Commissioner had met the notice requirement of Fed. R.

Evid. 902(11), stating: “Petitioner was adequately apprised of

this information in advance of trial. Petitioner had sufficient

time to contact the witnesses named in respondent’s trial

memorandum, and she could have called those witnesses to testify

at trial.” Id.

The same observation applies to the instant litigation.

Petitioner’s complaints regarding the various time limits

applicable to discovery provisions fail to take into account the

straightforward expedient of calling Ms. Wittman as a witness.

The Court is satisfied that admission into evidence of the

declaration of Ms. Wittman and the attached business records did

not run afoul of the notice requirement of Fed. R. Evid. 902(11).

B. Rule 803(6) of the Federal Rules of Evidence

Petitioner further argues that even if the declaration was

timely and provided him with a fair opportunity to challenge the

underlying documents, the materials are nonetheless inadmissible
 - 20 -

under the business records exception to hearsay rule. His

objection is that the records are “incomplete”; i.e., “If they

were in fact prepared in the normal course of business a copy of

the transmittal document would have also been included.”

Petitioner refers to the Forms W-3, Transmittal of Wage and Tax

Statements, and Forms 1096, Annual Summary and Transmittal of

U.S. Information Returns, that entities transmitting Forms W-2 to

the Social Security Administration and Forms 1099 to the IRS,

respectively, are required to file. These transmittal documents

contain a jurat clause with a declaration under penalties of

perjury that the accompanying materials are true, correct, and

complete.

Fed. R. Evid. 803 provides, in relevant part:

RULE 803. Hearsay Exceptions; Availability of
Declarant Immaterial

The following are not excluded by the hearsay
rule, even though the declarant is available as a
witness:

* * * * * * *

(6) Records of regularly conducted activity.-
-A memorandum, report, record, or data
compilation, in any form, of acts, events,
conditions, opinions, or diagnoses, made at or
near the time by, or from information transmitted
by, a person with knowledge, if kept in the course
of a regularly conducted business activity, and if
it was the regular practice of that business
activity to make the memorandum, report, record or
data compilation, all as shown by the testimony of
the custodian or other qualified witness, or by
certification that complies with Rule 902(11),
Rule 902(12), or a statute permitting
 - 21 -

certification, unless the source of information or
the method or circumstances of preparation
indicate lack of trustworthiness. The term
“business” as used in this paragraph includes
business, institution, association, profession,
occupation, and calling of every kind, whether or
not conducted for profit.

Similar to petitioner here, the taxpayer in Spurlock v.

Commissioner, supra, complained that failure to produce Forms W-3

and 1096, among other things, rendered the declarations in that

case and records introduced thereunder inherently untrustworthy

and unreliable. The Court dismissed that contention summarily.

Id. Likewise, here suffice it to say that Forms W-2 and 1099 do

not cease to be complete and distinct records prepared in the

ordinary course of business merely because additional business

records, such as Forms W-3 and 1096, are not proffered as

evidence. See also Major v. Commissioner, T.C. Memo. 2005-141.

C. Rules 1002 and 1004 of the Federal Rules of Evidence

Petitioner also alleges that the Forms W-2 and 1099 are

secondary evidence inadmissible without proper foundation under

Fed. R. Evid. 1002 and 1004. He goes on to state: “Without that

foundation by the Respondent showing why the paychecks themselves

were not used by the Respondent to prove the actual receipt of

the income or findings by this Court that the original paychecks

were lost or destroyed, the secondary evidence used by the

Respondent should not be considered.”
 - 22 -

As a threshold observation, we note that an apparently

identical “secondary evidence” claim was rejected in Rodriguez v.

Commissioner, T.C. Memo. 2005-12, without further discussion.

Petitioner’s application here is likewise without merit. In

general, Fed. R. Evid. 1001 through 1008 address the

admissibility of originals and/or duplicates to show the contents

of a writing or record. The Forms W-2 and 1099 were at minimum

properly introduced as duplicates of business records under Fed.

R. Evid. 803(6), 902(11), and 1003, and quite possibly other

rules as well. Moreover, because respondent also properly

introduced under these rules copies (of both the front and back)

of paychecks endorsed by petitioner, we fail to see any surprise,

unfairness, or questions of accuracy or genuineness that could

lend credibility to petitioner’s complaints of secondary

evidence. See Spurlock v. Commissioner, T.C. Memo. 2003-124

(discussing alternative bases for admission of various of the

disputed documents in that case).

D. Rule 143 of the Tax Court Rules of Practice and

Procedure

Finally, petitioner makes a brief reference to Rule 143(b)

of our Rules and states that it should “trump” Fed. R. Evid.

902(11). Rule 143(b) provides that ex parte affidavits do not

constitute evidence. Again, petitioner’s reliance is misplaced.

Respondent has not attempted to proffer an ex parte affidavit as
 - 23 -

evidence in this proceeding. The declaration of Ms. Wittman is

the affidavit of a third-party witness, not the affidavit of

respondent as the opposing party. Rule 143(b) has no application

in these circumstances.

E. Conclusion

In conclusion, the Court affirms the admission into evidence

at trial of the declaration of Ms. Wittman and the underlying

business records. The Court further is satisfied that the

totality of the evidence in the record is sufficient to satisfy

any pertinent burden of production placed on respondent with

respect to the unreported income at issue here. Moreover, the

documents in the record provide more than ample support for

respondent’s determinations in this regard, and petitioner has

offered no evidence or argument tending to show any error

whatsoever in the determinations. The Court holds that

petitioner received from GCE unreported income in the amounts

alleged in the notices of deficiency, i.e., wages of $31,027 and

$32,054 in 1999 and 2000, respectively, and nonemployee

compensation of $28,876 and $31,779 in 2000 and 2001,

respectively.

III. Self-Employment Tax

Section 1401 imposes an additional tax on the self-

employment income of every individual, both for old age,

survivors, and disability insurance and for hospital insurance.
 - 24 -

The term “self-employment income” denotes “net earnings from

self-employment”. Sec. 1402(b). “Net earnings from self-

employment”, in turn, means “the gross income derived by an

individual from any trade or business carried on by such

individual, less the deductions allowed by this subtitle which

are attributable to such trade or business”. Sec. 1402(a).

Because, as explained above, the burden has not shifted to

respondent under section 7491(a) with respect to the deficiency

determinations, petitioner bears the burden of proving error in

the statutory notices as regards the self-employment tax issue.

Rule 142(a). Respondent determined that petitioner is liable for

self-employment taxes in the amounts of $4,080 and $4,490 by

virtue of the nonemployee compensation received from GCE in 2000

and 2001, respectively. Again, petitioner has offered no

evidence or argument pertaining to the self-employment tax.

Hence, to the extent that we have sustained respondent’s

determinations of unreported nonemployee compensation, we

likewise sustain the imposition of the corresponding self-

employment tax thereon.

IV. 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,
 - 25 -

116 T.C. 438, 446 (2001). On the record presented in this case,

respondent has carried the requisite burden of production with

respect to the additions to tax under sections 6651(a)(1) and

6654.

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.

Through the testimony of the revenue agent, along with

transcripts and other documents admitted as evidence, respondent

showed that petitioner was required to file a return for each of

the subject years and failed to do so. Petitioner has offered no

legitimate explanation for this failure. The Court holds that

petitioner is liable for additions to tax under section 6651 for

1999, 2000, and 2001.

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 each year in issue, and we do not find that any

of the referenced exceptions is applicable. Imposition of an
 - 26 -

addition to tax under section 6654 is sustained with respect to

1999, 2000, and 2001.

V. Section 6673 Penalty

Section 6673(a)(1) authorizes the Tax Court to require a

taxpayer to pay a penalty not in excess of $25,000 whenever it

appears that proceedings have been instituted or maintained

primarily for delay or that the taxpayer’s position in such

proceeding is frivolous or groundless.

At trial in the instant case, the Court repeatedly warned

petitioner about the possibility of sanctions for frivolous

arguments advanced for purposes of delay. Counsel for respondent

likewise in his trial memorandum and during the proceedings

indicated an intent to file motions under section 6673 and did so

on October 22, 2004.

As noted in the preceding discussion, the meritless

procedural contentions put forth throughout this litigation are

indistinguishable from those rejected by the Court in cases such

as Rodriguez v. Commissioner, T.C. Memo. 2005-12; Spurlock v.

Commissioner, T.C. Memo. 2003-124; Wheelis v. Commissioner, T.C.

Memo. 2002-102; Lee v. Commissioner, T.C. Memo. 2002-95; and

Ruocco v. Commissioner, T.C. Memo. 2002-91.8 In each of the

just-cited rulings, we characterized the positions maintained

8
A number of these cases were expressly called to
petitioner’s attention, along with the corresponding citations,
during the trial in the instant matters.
 - 27 -

therein as frivolous and imposed a penalty under section 6673.

Rodriguez v. Commissioner, supra; Spurlock v. Commissioner,

supra; Wheelis v. Commmissioner, supra; Lee v. Commissioner,

supra; Ruocco v. Commissioner, supra. Petitioner’s actions here

are equally insupportable, and a like treatment should obtain.

The Court concludes that a penalty of $2,500 should be awarded to

the United States in each of these two consolidated cases, for a

total penalty amount of $5,000.

To reflect the foregoing,

Appropriate orders and

decisions for respondent will

be entered.