T.C. Memo. 2005-216
UNITED STATES TAX COURT
JOSEPH JOHN MARTELLA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7504-04. Filed September 19, 2005.
P failed to file Federal income tax returns for
the 1998 and 2001 years. R determined deficiencies and
additions to tax, which P contested primarily on the
basis of inapplicability of the filing requirement and
tax protester arguments.
Held: P is liable for deficiencies in his income
taxes and additions to tax under secs. 6651(a)(1) and
6654, I.R.C., for 1998 and 2001.
Joseph John Martella, pro se.
Fred E. Green, Jr., for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: For petitioner’s 1998 taxable year,
respondent determined a Federal income tax deficiency in the
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amount of $1,476 and an addition to tax pursuant to section
6651(a)(1) in the amount of $701.10.1 For petitioner’s 2001
taxable year, respondent determined a Federal income tax
deficiency in the amount of $10,872 and additions to tax pursuant
to section 6651(a)(1) in the amount of $3,370.32 and pursuant to
section 6654(a) in the amount of $430.23. After concessions,2
the issues for decision are:
(1) Whether petitioner is liable for a deficiency in the
amount of $1,476 for taxable year 1998;
(2) whether petitioner is liable for a deficiency in the
amount of $9,282 for taxable year 2001;
(3) whether petitioner is liable for additions to tax under
sections 6651(a) and 6654(a); and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
2
Respondent conceded in his pretrial memorandum the sec.
6651(a)(2) addition to tax for both 1998 and 2001 and sought a
correlative increase in the sec. 6651(a)(1) addition to tax for
both years. The appropriate sec. 6651(a)(1) addition to tax for
both years is to be calculated per Rule 155, as it appears that
the sec. 6651(a)(1) additions to tax as shown on the notice of
deficiency are in error as they exceed the 25-percent aggregate
maximum as permitted by this section.
At trial, respondent stated that the parties agreed that
petitioner is liable for Federal income tax deficiencies in the
amounts of $1,476 and $9,282, for the years 1998 and 2001,
respectively. Petitioner at trial sought to discuss only his
liability for additions to tax; however, his main argument on
brief and in his pretrial memorandum was that he was not liable
for an income tax. Given petitioner’s arguments, the Court
considers both the deficiency and the additions to tax issues.
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(4) whether the Court should impose a penalty, sua sponte,
under section 6673.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulations of the parties, with accompanying exhibits, are
incorporated herein by this reference. At the time this petition
was filed, petitioner resided in Henderson, Nevada.
On October 31, 2001, petitioner signed Form 2848, Power of
Attorney and Declaration of Representative, designating Milton H.
Baxley II (Mr. Baxley) and Bryan Malatesta (Mr. Malatesta), a
Texas certified public accountant, as his representatives for tax
matters regarding Form 1040, U.S. Individual Income Tax Return,
before the Internal Revenue Service for the taxable years 1985-
2004.3
Petitioner did not file a Federal income tax return for
either the 1998 or 2001 taxable year. The last time petitioner
filed a tax return was either in the year 1996 or 1997. It was
during 1996 or 1997 that petitioner decided he was not liable for
filing income tax returns.
On April 28, 2003, the Internal Revenue Service (Service)
wrote petitioner a letter entitled: “Request for your Tax
Return”, informing petitioner that respondent did not receive a
3
Mr. Baxley and Mr. Malatesta also represented petitioner
during the levy of his nonemployee income from Beyer
Entertainment Group with respect to petitioner’s 1995 tax year
deficiency.
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Form 1040 for 2001 from petitioner. Petitioner’s representative,
Mr. Malatesta, responded to this letter and requested the
“authority, referencing code and regulation or statute, that
requires Joseph J. Martella to file a Form 1040. I have seen no
documents that require my client to file such a form.” Mr.
Malatesta further informed respondent that his client “will file
any form due, upon receipt of the Verified Statement signed under
the penalty of perjury by someone in the IRS who has the
authority and firsthand knowledge pursuant to 26 USC §§6061 and
6065 or any copy of a judgment ordering my client to file the
form.” Mr. Malatesta drafted and attached to his response letter
a form which he called a “Verified Satement” (sic):
I, __________________, Pocket Commission Serial No.
____________, hereby affirm that Joseph J. Martella is
obligated by law to file a Form ______ tax return. My
demand that Joseph J. Martella file the Form 1040 is
authorized by law. I am an authorized agent of the
United States government and acting within delegated
authority as evidenced by the documents I have produced
for Bryan D. Malatesta CPA. This statement is made
under penalty of perjury, and is true, correct,
complete and not misleading.
__________________________________
Signature and Title
Mr. Malatesta’s closing remarks notified the Service that it had
“a firm offer to file the Form 1040. My client gives his firm
promise to file any form legally required by law upon receipt of
the requested documents.”
On June 24, 2003, the Service responded to Mr. Malatesta’s
letter by informing petitioner and Mr. Malatesta that a search
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for petitioner’s 2001 tax return was unsuccessful. Further, the
Service stated that its records showed that in 2001 petitioner
had nonemployee compensation income of $41,075 and that if
petitioner “had net earnings of $400 or more from non-employee
compensation * * * [he] needed to file a Schedule SE and pay
self-employment tax.”
Petitioner testified that he viewed several Internet Web
sites proclaiming that there was no law that required him to file
a Form 1040 and no law that made him liable for an income tax.
At trial and on brief, petitioner cited the fact that Internal
Revenue Service Commissioner, Mark Everson, during a press
conference on September 16, 2003, did not provide petitioner with
a satisfactory answer for petitioner to determine which law made
petitioner liable for an income tax and which law required
petitioner to file a Federal tax return.
On February 4, 2004, respondent issued petitioner notices of
deficiency determining deficiencies and additions to tax for the
1998 and 2001 taxable years as stated above.
OPINION
I. Contentions of the Parties
Petitioner contends that he should not be liable for any
income taxes or additions to tax because he believes that there
is no law requiring him to file a Federal tax return and no law
that makes him liable for an income tax. He argues that the
information found on various Internet Web sites and the fact that
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no one has answered the questions, “what law requires me to file
a 1040 and what law makes me liable to pay an income tax?” allow
him to conclude that “there is no law that makes him liable for
an income tax”.4
Respondent claims that since petitioner did not file a
Federal income tax return for both the 1998 and 2001 taxable
years, he is liable for an addition to tax under section
6651(a)(1) for 1998 and 2001. Furthermore, as petitioner did not
make any estimated tax payments during 2001, respondent asserts
that petitioner is also liable for an addition to tax under
section 6654 for 2001.
II. Petitioner’s Tax Liability
A. Burden of Proof
Respondent’s determination of petitioner’s tax liability is
presumed correct, and petitioner bears the burden of proving that
the determination is improper. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Although section 7491 may shift the
burden to respondent in specified circumstances, petitioner here
4
The Court informs petitioner that our tax system, the
Code, and the Tax Court have been firmly established as
constitutional. Crain v. Commissioner, 737 F.2d 1417, 1417-1418
(5th Cir. 1984); Ginter v. Southern, 611 F.2d 1226, 1229 (8th
Cir. 1979). Specifically, the Court notes that the “Federal
income tax laws are constitutional. * * * The whole purpose of
the 16th Amendment was to relieve all income taxes when imposed
from apportionment and from a consideration of the source whence
the income was derived.” Abrams v. Commissioner, 82 T.C. 403,
406-407 (1984).
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did not satisfy the prerequisites under section 7491(a)(1) and
(2) for such a shift.
The Commissioner bears the burden of production in any court
proceeding with respect to an individual’s liability for
penalties or additions to tax. Sec. 7491(c). To meet this
burden, the Commissioner must come forward with sufficient
evidence indicating that it is appropriate to impose the relevant
penalty or addition to tax. Higbee v. Commissioner, 116 T.C.
438, 446 (2001). In instances where an exception to the penalty
or addition to tax is afforded upon a showing of reasonable
cause, the taxpayer bears the burden of showing such cause. Id.
at 447.
B. Filing Requirement
The Code imposes a Federal tax on the taxable income of
every individual. Sec. 1. Gross income for the purposes of
calculating taxable income is defined as “all income from
whatever source derived”. Sec. 61(a). This means that
compensations for services, including fees, commissions, and
fringe benefits are considered sources of gross income. Sec.
61(a)(1). Every U.S. resident individual whose gross income for
the taxable year equals or exceeds the exemption amount is (with
enumerated exceptions not applicable here) required to make an
income tax return. Sec. 6012(a)(1)(A). Petitioner had gross
income totaling $8,976 from self-employment for 1998 and gross
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income totaling $41,075 from self-employment for 2001.5 The
filing thresholds for a taxpayer filing as a single person, for
taxable years 1998 and 2001, were $6,950 and $7,450,
respectively. Petitioner’s gross income in 1998 and 2001
exceeded these filing thresholds, and petitioner was, therefore,
required to file an income tax return.
C. Petitioner’s Taxable Income
Petitioner did not present any witnesses in support of his
position, nor did he address his underlying tax liability either
at trial or on brief. Instead, petitioner reiterated his
position that he was not liable for an income tax because he was
not satisfied that there was any law that required him to pay an
income tax.
Presumably, many facts relevant to a determination of
petitioner’s taxable income would be peculiarly within
petitioner’s personal knowledge and purview. The fact that
petitioner did not offer any evidence regarding his taxable
income and did not call any witnesses is an indication that any
facts which could have been presented by him at trial would have
been unfavorable to his position. See McKay v. Commissioner, 886
F.2d 1237, 1238 (9th Cir. 1989), affg. 89 T.C. 1063 (1987);
Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165
5
Although the parties agreed to a lesser deficiency than
the $10,872 amount determined in the notice of deficiency for
2001, this adjustment did not affect petitioner’s total gross
income for 2001.
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(1946) (“The rule is well established that the failure of a party
to introduce evidence within his possession and which, if true,
would be favorable to him, gives rise to the presumption that if
produced it would be unfavorable.”), affd. 162 F.2d 513 (10th
Cir. 1947); see also Little v. Commissioner, T.C. Memo. 1996-270
(“The Wichita Terminal presumption generally applies where the
party failing to produce the evidence has the burden of proof.”).
Petitioner had the opportunity to call witnesses to testify and
present evidence on his behalf. However, petitioner did neither.
The Court therefore sustains the deficiency determined by
respondent.6
III. Additions to Tax
Section 6651(a) provides for a 5-percent addition to tax for
each month or portion thereof that the tax return is filed late,
not to exceed 25 percent in the aggregate, unless such failure to
file is due to reasonable cause and not due to willful neglect.
Although not defined in the Code, “reasonable cause” is viewed in
the applicable regulations as the “exercise of ordinary business
care and prudence”. Sec. 301.6651-1(c)(1), Proced. & Admin.
Regs; see also United States v. Boyle, 469 U.S. 241, 246 (1985).
“Willful neglect” can be interpreted as a “conscious, intentional
failure or reckless indifference.” United States v. Boyle, supra
at 245. With respect to section 6651(a) additions to tax,
6
This is subject to the agreement between the parties to
reduce the deficiency to $9,282 for 2001 due to petitioner’s
substantiation of certain deductions. See also supra note 2.
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reliance on misguided constitutional beliefs is not reasonable.
Edwards v. Commissioner, 680 F.2d 1268, 1271 n.2 (9th Cir. 1982);
see also Ginter v. Southern, 611 F.2d 1226, 1229 (8th Cir. 1979).
On the basis of the record in this case, the Court concludes
that respondent’s burden of production has been met. Petitioner
is not entitled to rely on the advice of unofficial non-
governmental third parties provided on an Internet Web site, and
petitioner did not allege that such third-party information
constituted advice from a tax expert. See United States v.
Boyle, supra at 251 (“one does not have to be a tax expert to
know that tax returns have fixed filing dates and that taxes must
be paid when they are due”); Flahertys Arden Bowl, Inc. v.
Commissioner, 115 T.C. 269 (2000) (holding that reliance on
lawyer with extensive experience in subject area constituted
reasonable cause), affd. 271 F.3d 763 (8th Cir. 2001).
In addition, petitioner stated with respect to the 1996
and/or 1997 taxable years that he “decided in my own mind that I
wasn’t liable for income tax, and I stopped filing returns”.
Petitioner admits that he did not file a tax return for either
the year 1998 or 2001. His unreasonable conclusion that he had
no duty to file a return or pay tax based on his faulty research
and Internet contacts does not constitute reasonable cause.
Therefore, the Court sustains the imposition of additions to tax
under section 6651(a)(1) for 1998 and 2001.
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Section 6654(a) provides for an addition to tax for failure
to pay estimated income tax where there has been an underpayment
of estimated taxes by a taxpayer. Respondent produced evidence
that petitioner did not pay any estimated tax for 2001. Since
the Court finds that petitioner’s situation does not fall within
any of the specified exceptions under section 6654(e), petitioner
is also liable for this addition to tax.
IV. Section 6673 Penalty
Section 6673 allows this Court to award a penalty to the
United States in an amount not in excess of $25,000 for
proceedings instituted by the taxpayer primarily for delay or for
proceedings in which the taxpayer’s position is frivolous or
groundless. “A petition to the Tax Court, or a tax return, 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) (imposing
penalties on taxpayers who made frivolous constitutional
arguments in opposition to the income tax). Courts have ruled
that tax protester arguments and defenses to the filing
requirement, such as petitioner has apparently espoused, are
groundless and wholly without merit. Ginter v. Southern, supra
at 1229; see also Williams v. Commissioner, T.C. Memo. 1999-277;
Morin v. Commissioner, T.C. Memo. 1999-240; Sochia v.
Commissioner, T.C. Memo. 1998-294 (all of which imposed a section
6673 penalty for tax protester arguments).
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Groundless litigation diverts the time and energies of
judges from more serious claims; it imposes needless costs
on other litigants. Once the legal system has resolved a
claim, judges and lawyers must move on to other things.
They cannot endlessly rehear stale arguments. Both
appellants say that the penalties stifle their right to
petition for redress of grievances. But there is no
constitutional right to bring frivolous suits, see Bill
Johnson’s Restaurants, Inc. v. NLRB, 461 U.S. 731, 743, 103
S.Ct. 2161, 2170, 76 L.Ed.2d 277 (1983). People who wish to
express displeasure with taxes must choose other forums, and
there are many available. * * * [Coleman v. Commissioner,
supra at 72.]
Respondent has not sought a section 6673 penalty in this
case. Because petitioner did eventually work cooperatively with
respondent to help resolve the alleged tax deficiencies
themselves and because petitioner was not previously fully warned
of the section 6673 penalties, the Court declines to impose such
a penalty today. Nevertheless, the Court notes petitioner
submitted frivolous documents to the Court in the form of copies
of Internet Web site pages and copies of advertisements, which
provided specious arguments against the filing of an income tax
return. Petitioner, at trial and on brief, contended that no law
made him liable for an income tax or required him to file a Form
1040. The Court explicitly admonishes petitioner that he may, in
the future, be subject to a penalty under section 6673 for any
proceedings instituted or maintained primarily for delay or for
any proceedings which are frivolous or groundless.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
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To reflect the foregoing and concessions made by respondent,
Decision will be entered
under Rule 155.