Wheeler v. Comm'r

T.C. Memo. 2006-109

UNITED STATES TAX COURT

CHARLES RAYMOND WHEELER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 14430-03, 7206-04. Filed May 22, 2006.

P failed to timely file Federal income tax returns
for the 1994, 1995, 1996, 1997, 1998, 1999, 2000, and
2001 taxable years. R determined deficiencies and
additions to tax, which P then contested on the basis
of tax protester arguments.

Held: P is liable for the deficiencies determined
by R, for additions to tax under secs. 6651(a)(1) and
6654, I.R.C., and for a penalty under sec. 6673, I.R.C.

Charles Raymond Wheeler, pro se.

Joan E. Steele, for respondent.
 - 2 -

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: In these consolidated cases, respondent

determined the following deficiencies and additions to tax with

respect to petitioner’s Federal income taxes:

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

1994 $ 15,345.00 $ 3,341.25 $ 682.09
1995 22,888.00 4,501.00 946.78
1996 128,008.00 30,519.50 6,462.58
1997 37,376.00 7,010.50 1,444.79
1998 40,669.00 7,175.00 1,252.40
1999 11,093.00 2,266.75 427.92
2000 11,662.00 2,306.00 478.24
2001 9,666.90 2,755.55 382.54

The parties stipulated petitioner’s filing status, number of

exemptions, gross income, allowable deductions, taxable income,

and in some instances allowable credits. After concessions by

the parties,2 the remaining issues for decision are:

(1) Whether respondent issued valid notices of deficiency

for the 1994 through 2001 taxable years;3

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
For all the years in issue, respondent conceded the sec.
72(t) tax and for 2001, the sec. 6651(a)(2) addition to tax. The
notices of deficiency for the taxable years 1994 through 2000 did
not indicate sec. 6651(a)(2) additions to tax.
3
Petitioner contends that the issue in this case is whether
the notices of deficiency were validly signed. The Court assumes
this is also an argument contesting the deficiency and additions
(continued...)
 - 3 -

(2) whether petitioner is liable for deficiencies for the

1994 through 2001 taxable years;

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

section 6651(a)(1) for the 1994 through 2001 taxable years;

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

section 6654 for the 1994 through 2001 taxable years; and

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

6673.

FINDINGS OF FACT

Background

Petitioner did not timely file income tax returns for the

taxable years 1994 through 2000, but he eventually submitted

completed returns for those years on October 4, 2004, to the

Appeals officer assigned to his case but only after notices of

deficiency had been issued. Petitioner did not file an income

tax return for 2001.

Respondent issued to petitioner notices of deficiency on

June 4, 2003, determining income tax deficiencies and additions

to tax for taxable years 1994 through 2000. Petitioner timely

filed a petition for these years on August 28, 2003. Respondent

issued to petitioner a notice of deficiency on January 28, 2004,

determining an income tax deficiency and additions to tax for

3
(...continued)
to tax as determined by respondent even though the parties have
stipulated the amounts underlying the deficiencies.
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taxable year 2001. Petitioner timely filed a petition for this

year on April 30, 2004. Both petitions disputed the deficiencies

and additions to tax and included lengthy tax protester

arguments. These cases were consolidated for purposes of trial,

briefing, and opinion. At the time these petitions were filed,

petitioner resided in Colorado Springs, Colorado.

At trial, respondent orally stipulated a decreased

deficiency for 2001 of $2,336 and revised sections 6651(a)(1) and

6654(a) additions to tax of $389.50 and $58.83, respectively.

Petitioner agreed with these revised amounts.

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.

Petitioner’s Correspondences

Throughout the administrative process, the record reveals

that petitioner, as trustee of the Charles R. Wheeler Trust

(trust) or in his individual capacity, sent at least three

frivolous documents to respondent challenging his and the trust’s

obligation to file an income tax return and to pay income taxes.

Petitioner sent a letter dated November 8, 2000, to respondent’s

counsel in St. George, Utah, and the Internal Revenue Service

(IRS) Service Center in Ogden, Utah. That letter concluded as

follows:

Having studied Title 26 and various IRS manuals and
documents extensively, we have determined that the IRS
 - 5 -

is in error, neither the trust nor I are taxpayers.
Additionally, the IRS has through various unlawful
means and deceptive practices caused funds to be
illegally converted to the IRS. Therefore, we request
that the IRS return those converted funds with interest
to the trust and/or me immediately, correct your
database for past years and remove any data referencing
the trust and me from any and all databases maintained
by the IRS in the future.

Petitioner sent a letter dated September 6, 2002, to the IRS

Service Center in Ogden, Utah, declaring that he is “not in

receipt of any document that verifies that CHARLES R WHEELER is a

taxpayer owing a tax to the treasury”.

Petitioner sent a lengthy letter dated September 30, 2004,

to the IRS Appeals Office in Denver, Colorado. In that letter,

he stated he had been researching tax issues “for almost fourteen

years”. He contended that actions taken with respect to the

notices of deficiency issued in these cases represent violations

of the

Constitution of the United States with Supreme Court
decisions, Statutes at Large, Delegated authority,
Federal Debt Collection Procedure, Administrative
Procedures Act, Paperwork Reduction Act, Ethics in
Government Act, and most importantly the Laws of the
Almighty, the Highest Authority, it is evident * * *
the Notices of Deficiency * * * represent violations of
them all.

It is evident that the Internal Revenue Service uses
Form W-2s from private sector employers and false
reporting of “wages” * * * to create dummy Substitutes
for Return (SFR) per the IRS’ Internal Revenue Manual
instructions. * * * Since it is just that, [a “dummy
SFR”] the straw man so created * * * cannot and does
not lawfully exist as it was created “to accomplish
some purpose otherwise not allowed”, i.e. forced and
 - 6 -

unlawful takings from our God given, constitutionally
protected rights to the property of our labor.

The Court agrees with respondent that this correspondence, and

the assertions raised therein, are frivolous.

OPINION

I. Contentions of the Parties

Petitioner argues that he does not owe any tax or addition

thereto for the 1994 through 2001 taxable years because: (1) The

statutory notices of deficiency issued to him by respondent were

not valid; (2) the notices of deficiency for the years in issues

were not signed by an authorized signer;4 (3) the Form 4549,

4
The notices of deficiency for 1994 through 2000 were
signed by Timothy A. Towns, and the notice of deficiency for 2001
was signed by Thomas D. Mathews. Both Mr. Towns and Mr. Mathews
signed the notices on behalf of the “Compliance Center, Ogden
Service Center”. Under the Internal Revenue Manual, the
authority “to sign and send to the taxpayer by registered or
certified mail, any notice of deficiency” is delegated to, among
other individuals, “Directors, Customer Service Centers” and the
later individuals may redelegate the authority “directly to
selected individuals within their functional area.” I.R.S.
Deleg. Order No. 77 (Rev. 28) (May 17, 1996). This delegation
order applied to Mr. Towns and Mr. Mathews. See also discussion
infra p. 9. Petitioner did not provide any evidence that Mr.
Towns or Mr. Mathews was not an individual to whom the authority
to sign notices of deficiency could have been delegated.
Generally, the Court does not look behind the notice of
deficiency to determine or examine the evidence used, the
propriety of the Commissioner’s motives in making the
determinations, or to question the administrative policies and
procedures leading to a determination. Kantor v. Commissioner,
998 F.2d 1514, 1521 (9th Cir. 1993), affg. and revg. on another
issue T.C. Memo. 1990-380; Pasternak v. Commissioner, 990 F.2d
893, 898 (6th Cir. 1993), affg. Donahue v. Commissioner, T.C.
Memo. 1991-181; Greenberg’s Express, Inc. v. Commissioner, 62
T.C. 324, 327 (1974); Corcoran v. Commissioner, T.C. Memo. 2002-
(continued...)
 - 7 -

Income Tax Examination Changes, was not signed; (4) the

Individual Master File (IMF) for each year per the Forms 4340,

Certificate of Assessment, Payments, and Other Specified Matters,

shows no tax was ever assessed, no amounts due, and lacks a “code

494”;5 (5) Title 27, U.S.C., not Title 26, contains the

implementing regulation for section 6020;6 and (6) he is not an

individual required to pay an income tax.

Respondent replies that the statutory notices of deficiency

were valid when issued. Petitioner is liable for the income tax

and sections 6651(a)(1) and 6654 additions to tax because

petitioner stipulated the income underlying the notices of

4
(...continued)
18, affd. 54 Fed. Appx. 254 (9th Cir. 2002).
5
An IMF is a computer-generated transcript of a taxpayer’s
account with the Internal Revenue Service showing by numeric
codes the dates certain transactions occurred, including the
identification of the taxpayer, the type of tax, the tax period,
the dates of assessment, and the amounts of assessment. Klawonn
v. Commissioner, T.C. Memo. 2002-27; Wiley v. United States, 71
AFTR 2d 93-1333 (S.D. Ohio 1992), affd. in part and revd. in part
on another issue 20 F.3d 222 (6th Cir. 1994). A code 494
normally records that a notice of deficiency has been sent.
Wiley v. United States, 20 F.3d 222, 224 (6th Cir. 1994).
6
Petitioner’s contention is unfounded as the implementing
regulation for sec. 6020 is sec. 301.6020-1, Proced. & Admin.
Regs. In any event, this Court has held such an argument to be
frivolous. See Richards Asset Mgmt. Trust v. Commissioner, T.C.
Memo. 2002-213; Stafford v. Commissioner, T.C. Memo. 1997-50 n.12
(“the absence of implementing regulations would not, generally
speaking, preclude the Commissioner from enforcing sections of
the Internal Revenue Code. Provisions of the Internal Revenue
Code generally do not require implementing regulations as a
prerequisite to enforcement.”), affd. without published opinion
146 F.3d 868 (5th Cir. 1998).
 - 8 -

deficiency and the additions to tax. In his pretrial memorandum

and during trial, respondent also argued that petitioner should

be subject to a penalty under section 6673 for raising frivolous

arguments.

II. Burden of Proof

Petitioner stipulated the receipt of the income underlying

the notices of deficiency for all the taxable years. We do not

discuss the burden of proof because the outcome of this case

turns on the preponderance of the evidence and is unaffected by

section 7491. See Estate of Bongard v. Commissioner, 124 T.C.

95, 111 (2005) (citing Blodgett v. Commissioner, 394 F.3d 1030,

1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212); Estate of Stone

v. Commissioner, T.C. Memo. 2003-309).

III. 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). Thus, the definition of

gross income under section 61(a) broadly encompasses any

accession to a taxpayer’s wealth.

Every U.S. resident individual whose gross income for the

taxable year equals or exceeds the exemption amount, subject to

exceptions not applicable here, is required to make an income tax
 - 9 -

return.7 Sec. 6012(a)(1)(A). Petitioner’s gross income amounts

exceeded the filing threshold for each year in issue.8

IV. Validity of the Notices of Deficiency

A valid notice of deficiency need not be signed at all.

Tavano v. Commissioner, 986 F.2d 1389, 1390 (11th Cir. 1993),

affg. T.C. Memo. 1991-237; Commissioner v. Oswego Falls Corp., 71

F.2d 673, 677 (2d Cir. 1934); Perlmutter v. Commissioner, 44 T.C.

7
Sec. 7701(a)(30)(A) defines the term “United States
person” as, inter alia, a “citizen or resident of the United
States”. As petitioner claimed he was “domiciled in El Paso
County, Colorado,” he is a resident of the United States.
8
In petitioner’s petition, he references the validity of
the filing requirement. 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); Rev. Rul. 2005-19,
2005-14 I.R.B. 819. 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); see also Brunner v. Commissioner,
T.C. Memo. 2004-187 (discussing the constitutionality of the
Federal income tax filing requirement), affd. per curiam 142 Fed.
Appx. 53 (3d Cir. 2005).

For the years in issue, the filing thresholds for the
married filing separate filing status were:

Year Threshold Amount
1994 $2,450
1995 $2,500
1996 $2,550
1997 $2,650
1998 $2,700
1999 $2,750
2000 $2,800
2001 $2,900
 - 10 -

382, 399-400 (1965), affd. 373 F.2d 45 (10th Cir. 1967); Urban v.

Commissioner, T.C. Memo. 1991-220, affd. per curiam 964 F.2d 888

(9th Cir. 1992). Section 6212 requires that the notice be sent.

Even if the signature block does not comply with the

Internal Revenue Manual, the rules of the Manual have been held

to be merely directory and not mandatory.9 See Urban v.

Commissioner, 964 F.2d 888, 890 (9th Cir. 1992). The

Commissioner sent petitioner the notices of deficiency for the

taxable years in issue, and petitioner confirmed his receipt of

them. Thus, even if the notices of deficiency were signed by

using an overprint or a machine-imprinting process, as petitioner

contends, rather than hand-signed, they would still be valid

notices of deficiency. Likewise, the Forms 4549 accompanying the

notices of deficiency are valid for the purpose of informing

petitioner of his income tax examination changes. They need not

be signed.

V. Petitioner’s Taxable Income

Petitioner stipulated the receipt of the income underlying

the notices of deficiency and did not introduce any evidence to

establish that he was entitled to any deductions or credits not

9
The Internal Revenue Manual was designed to aid in the
internal administration of the Internal Revenue Service, not for
the protection of taxpayers; thus, it is not binding upon and
confers no rights to taxpayers. Fargo v. Commissioner, __ F.3d__
n.9 (9th Cir., May 9, 2006), affg. T.C. Memo. 2004-13; United
States v. Mapp, 561 F.2d 685, 690 (7th Cir. 1977); United States
v. Lockyer, 448 F.2d 417, 421 (10th Cir 1971).
 - 11 -

stipulated by the parties. Petitioner failed to call any

witnesses on his behalf. Petitioner failed to carry his burden

of proof by a preponderance of the evidence that the amounts

underlying the notices of deficiency were not taxable to him.

VI. Additions to Tax

The Commissioner bears the burden of production in any court

proceeding arising from an examination begun after July 22, 1998,

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 of tax is afforded upon a showing of reasonable cause,

the taxpayer bears the burden of showing such cause. Id. at 447.

A. Section 6651(a)(1)

Section 6651(a)(1) provides for a 5-percent addition to tax

for each month or portion thereof that the return is filed late,

not to exceed 25 percent in the aggregate, unless such failure to

file on time 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
 - 12 -

(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, reliance on misguided constitutional beliefs is not

reasonable. Edwards v. Commissioner, 680 F.2d 1268, 1271 n.2

(9th Cir. 1982).

The Court concludes that respondent’s burden of production

has been met. Respondent provided Forms 4340,10 showing that

petitioner did not file a return for the 2001 taxable year and

that returns for 1994, 1995, 1996, 1997, 1998, 1999, and 2000

were not filed until October 4, 2004. Petitioner has not

provided any evidence that his failure to file was due to

reasonable cause. Therefore, the Court sustains the imposition

of an addition to tax under section 6651(a)(1).

10
Petitioner contends that the Forms 4340, Certificate of
Assessment, Payments, and Other Specified Matters, which were
stipulated by both respondent and petitioner, show that
petitioner’s tax liability is zero for each of the taxable years
in issue. However, petitioner’s interpretation of the
information on a Form 4340 is incorrect. In a deficiency case,
where a tax return has not been timely filed, as in the instant
case, a Form 4340 would not show the amount of any assessments,
which by statute generally may not be made until the time to
petition this Court has expired or this Court’s decision in the
case has become final or is appealed without posting of an appeal
bond. Sec. 6213(a).
 - 13 -

B. Section 6654

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. In general, taxes withheld on

wages will be deemed a payment of estimated tax with an equal

part of such amount withheld deemed paid on each due date of a

required installment of estimated tax for such taxable year.

Sec. 6654(g)(1). The record indicates that petitioner had

amounts withheld from his compensation for 1994, 1995, 1996,

1997, 1998, 1999, and 2000; however, petitioner still had an

underpayment of estimated taxes. At trial, petitioner did not

make any arguments or offer any evidence to demonstrate that his

situation falls within any of the specified exceptions under

section 6654(e). For taxable year 2001, petitioner conceded at

trial the amount of the section 6654 addition to tax. Therefore,

petitioner is liable for this addition to tax for all the years

in issue.

VII. 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
 - 14 -

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 espoused, are groundless and

wholly without merit. Ginter v. Southern, 611 F.2d 1226, 1229

n.2 (8th Cir. 1979); see also Brunner v. Commissioner, T.C. Memo.

2004-187, affd. 142 Fed. Appx. 53 (3d Cir. 2005); 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).

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 informed petitioner at trial and by pretrial

memorandum of the Court’s ability to impose sanctions upon

petitioner for frivolous arguments pursuant to section 6673.

Furthermore, the Court warned petitioner that arguments against
 - 15 -

the constitutionality of the income tax, the validity of the

Sixteenth Amendment, or the legality of the income tax were

frivolous and would likely result in the imposition of a section

6673 penalty. Although, at trial, petitioner repeatedly stated

he was not attempting to make frivolous arguments, on brief, he

continued to present frivolous arguments.

Petitioner contended that there was no law that made him

liable for an income tax or required him to file an income tax

return. Petitioner submitted frivolous documents to respondent

and the Appeals Office, which provided specious arguments against

the filing of an income tax return and the Internal Revenue Code.

On the basis of the entire record, petitioner has instituted

proceedings primarily for delay and has advanced arguments that

are frivolous and groundless and warrant no further discussion.

See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)

(“We perceive no need to refute these arguments with somber

reasoning and copious citation of precedent; to do so might

suggest these arguments have some colorable merit.”). A penalty

in these cases is appropriate. Accordingly, the Court imposes a

section 6673 penalty on petitioner in the amount of $1,500 for

each of these cases for a total penalty of $3,000.

VIII. Conclusion

The Court found petitioner’s arguments regarding the

validity of the notices of deficiency to be frivolous.
 - 16 -

Petitioner is liable for section 6673 penalties together with

deficiencies and additions to tax as modified by the stipulations

and concessions.

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.

To reflect the foregoing and concessions made by respondent,

Decisions will be entered

under Rule 155.