T.C. Memo. 2005-211
UNITED STATES TAX COURT
THIELE L. WETZEL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20579-03L. Filed September 12, 2005.
Thiele L. Wetzel, pro se.
Lorraine D. Massano, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent sent petitioner a Notice of
Determination Concerning Collection Action Under Section 6320
(the lien determination) in which respondent determined that the
notice of Federal tax lien regarding petitioner’s income tax
liabilities for 1994-99 was appropriate and would not be
withdrawn.
- 2 -
The issues for decision are:
1. Whether petitioner may dispute the existence or amount
of his tax liability for 1994-99. We hold that he may not.
2. Whether respondent’s determination was an abuse of
discretion. We hold that it was not.
3. Whether petitioner is liable for a penalty under
section 6673 for instituting proceedings primarily for delay and
for maintaining frivolous or groundless positions. We hold that
he is.
Section references are to the Internal Revenue Code.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioner
Petitioner lived in Daytona Beach, Florida, when he filed
the petition. In 1994-99, petitioner was a professional income
tax return preparer who did business through an S corporation
called Diversified Accounting Services. Petitioner was its sole
officer and shareholder. Petitioner filed no Federal income tax
returns for 1994-99.
B. Respondent’s Examination of Petitioner’s 1994-99 Tax Years
Respondent’s revenue agent notified petitioner that he had
not filed Federal income tax returns for 1994-99 and asked for
information to determine his tax liability for those years.
- 3 -
To reconstruct petitioner’s income, respondent’s revenue
agent sent letters to petitioner’s accounting clients and asked
them to provide copies of canceled checks written to petitioner.
The revenue agent also sent copies of those letters to
petitioner. Petitioner demanded that the revenue agent stop
contacting his clients. Petitioner contended that the requests
to his clients were an unconstitutional invasion of his privacy.
The revenue agent issued summonses to petitioner’s banks.
Petitioner wrote letters to the revenue agent stating that the
summonses were invalid for several reasons, including: (1)
Issuance of the summonses violated (a) the U.S. Constitution; (b)
the Internal Revenue Manual; and (c) the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998); and (2) the
revenue agent failed to provide petitioner with (a) a Privacy Act
statement; (b) a certificate of service of summons; (c) proof of
delegation of authority; and (d) notice stating whether the
documents sought by the revenue agent were for a civil or
criminal investigation.
Respondent sent petitioner proposed adjustments to his
income tax for 1994-99, letters, notice of amounts due, and
statements of account. Those notices and statements showed
amounts respondent had concluded petitioner owed for 1994-99.
Petitioner stamped those letters, notices, and statements of
account “Refused for Fraud F.R.C.P. 9(b)” and returned them to
- 4 -
respondent, with an attachment in which he raised numerous
frivolous contentions, such as he was not a taxpayer, he had
engaged in no taxable activity, and respondent had not prepared
proper substitute for returns. Petitioner asked respondent to
show him the statute that made him liable for Federal income tax.
C. Notice of Deficiency
Respondent sent and petitioner received a notice of
deficiency for 1994-99 dated September 12, 2001. In it,
respondent determined, based on information that respondent
obtained from petitioner’s clients and banks, that petitioner had
the following amounts of unreported income from Diversified
Accounting Services:
Year Income
1994 $34,067
1995 27,848
1996 30,639
1997 35,579
1998 30,772
1999 43,284
Respondent determined that petitioner had income tax deficiencies
and liability for additions to tax as follows:
Additions to tax
Year Deficiencies Sec. 6651(f) Sec. 6654(a)
1994 $4,834 $3,625.50 $250.84
1995 3,214 2,410.50 174.26
1996 3,621 2,625.22 192.71
1997 4,853 3,518.42 259.63
1998 3,574 2,591.15 163.53
1999 6,796 4,927.10 328.88
Respondent also determined that petitioner was liable for the
addition to tax for failure to pay under section 6651(a)(2) in
- 5 -
amounts that could not be computed at the time of the
determination. Petitioner did not file a petition with this
Court.
Petitioner stamped the notice of deficiency “Refused for
Fraud F.R.C.P. 9(b)” and returned it to respondent with an
attachment in which petitioner alleged: (1) The notice of
deficiency was fraudulent; (2) he did not receive notice of the
examination; (3) he is not liable for tax; and (4) respondent
failed to prepare proper substitutes for returns.
D. Notice of Federal Tax Lien
On January 22, 2003, respondent filed a notice of Federal
tax lien relating to petitioner’s unpaid income tax liabilities
of $14,777.63 for 1994, $9,035.91 for 1995, $9,316.57 for 1996,
$11,563.38 for 1997, $7,871.54 for 1998, and $13,809.37 for 1999.
On January 27, 2003, respondent sent petitioner a notice that the
notice of Federal tax lien for 1994-99 had been filed.
Petitioner timely requested a hearing under sections 6320
and 6330 on February 25, 2003. In the hearing request,
petitioner claimed that he was not a “taxpayer” as defined in the
Internal Revenue Code or by any regulation thereunder, and he
asked: (1) What, if any Federal tax liability does he have? (2)
for which Federal tax is he liable? (3) what action made him
liable for Federal tax? (4) why was he not told that he owed
Federal tax? and (5) who assessed the Federal tax?
- 6 -
Petitioner attached a letter to his hearing request in which
he alleged: (1) He had received no taxable income and had no
taxable activity and thus had no filing requirement; (2)
respondent had not prepared proper substitute for returns under
section 6020(b) in that they were not signed by the Secretary and
were not on a form approved by the Office of Management and
Budget (OMB); (3) the lien was fabricated; and (4) the assessment
was unlawful.
On May 29, 2003, respondent sent petitioner copies of Forms
4340, Certificates of Assessment, Payments, and Other Specified
Matters, for 1994-99. Petitioner sent numerous letters to
respondent replete with the arguments described above and
additional arguments including: (1) Respondent failed to provide
him with Form 23C, Assessment Certificate - Summary Record of
Assessments; (2) imposition of the lien was a denial of due
process; and (3) respondent’s agents who worked on petitioner’s
case should be prosecuted.
On October 31, 2003, respondent sent petitioner a Notice of
Determination Concerning Collection Actions under section 6320
and/or 6330, in which respondent stated that all applicable laws
and administrative procedures had been met and that collection
from petitioner of his tax liability for 1994-99 would proceed.
Respondent determined that petitioner had raised only frivolous
issues and warned petitioner that he may be held liable for a
- 7 -
penalty of up to $25,000 for instituting or maintaining an action
primarily for delay or for taking frivolous or groundless
positions.
OPINION
A. Whether Petitioner May Dispute the Underlying Tax Liability
Petitioner contends that he had no taxable income or
activities in 1994-99, and thus he had no tax liability for those
years.
A taxpayer may dispute the existence or amount of his or her
tax liability at a section 6330(b) hearing if he or she did not
receive a notice of deficiency or did not otherwise have an
opportunity to dispute the tax liability. Sec. 6330(c)(2)(B).
Petitioner received the notice of deficiency for 1994-99. Thus,
petitioner may not dispute the existence or amount of his tax
liabilities for those years under sections 6320 and 6330. Id.
B. Whether Respondent’s Determination Was an Abuse of
Discretion
Petitioner contends that respondent’s determination was an
abuse of discretion because: (1) He had no taxable income or
activities; (2) payment of Federal income tax is voluntary; (3)
the assessment was not proper; (4) the lien was premature; and
(5) the conduct of respondent’s employee was fraudulent and
subject to sanctions.1 We disagree because: (1) Petitioner had
1
Petitioner does not contend that the burden of proof
shifts to respondent under sec. 7491(a) in this case.
- 8 -
taxable income; (2) payment of Federal income tax is not
voluntary; (3) respondent’s settlement officer verified that the
requirements of applicable law and administrative procedures had
been met; (4) the certified transcripts of petitioner’s tax
account for 1994-99 show that assessment was proper and the lien
was not premature; and (5) there is no evidence that the
conclusions of the settlement officer are incorrect or that any
sanctions against IRS personnel are warranted.
We conclude that respondent’s determination not to withdraw
the notice of Federal tax lien was not an abuse of discretion.
C. Whether Petitioner Is Liable for a Penalty Under Section
6673
Respondent moved at trial to impose a penalty under section
6673 on grounds that petitioner made only frivolous arguments and
instituted these proceedings primarily for delay. Petitioner
responded to respondent’s motion with frivolous arguments.
The Court may impose a penalty of up to $25,000 if the
taxpayer’s position or positions are frivolous or groundless or
the proceedings were instituted primarily for delay. Sec.
6673(a)(1)(B). 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. Coleman v.
Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); Gilligan v.
Commissioner, T.C. Memo. 2004-194.
- 9 -
Petitioner took frivolous positions at trial, including that
(1) he was not a taxpayer as defined by the Internal Revenue
Code; (2) income from his tax return preparation business was not
taxable; (3) payment of Federal income tax is voluntary; (4) he
can only be taxed based on substitutes for returns that qualify
under section 6020(b) and that are on forms approved by OMB and
signed by the Secretary; and (5) no proper assessment was made
because respondent did not provide Form 23C. Respondent’s
settlement officer warned petitioner that he might be held liable
for a penalty under section 6673. Petitioner continued to make
frivolous arguments in his petition, during pretrial proceedings,
at trial, and in his brief.
A taxpayer may be liable for a penalty under section 6673 if
the taxpayer knew or should have known that his or her claim or
argument was frivolous. Hansen v. Commissioner, 820 F.2d 1464,
1470 (9th Cir. 1987); Nis Family Trust v. Commissioner, 115 T.C.
523, 544 (2000); Corcoran v. Commissioner, T.C. Memo. 2002-18,
affd. 54 Fed. Appx. 254 (9th Cir. 2002). Petitioner is a
professional tax return preparer who knew or should have known
that his arguments are frivolous. We conclude that petitioner
instituted and maintained these proceedings primarily for delay.
- 10 -
We will impose a penalty under section 6673 in the amount of
$15,000.
To reflect the foregoing,
Respondent’s motion to
impose a penalty under section
6673 will be granted, and
decision will be entered for
respondent.