T.C. Memo. 2006-154
UNITED STATES TAX COURT
PATRICK J. MCGOWAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24699-04. Filed July 27, 2006.
Patrick J. McGowan, pro se.
Michael A. Pesavento, for respondent.
MEMORANDUM OPINION
WELLS, Judge: Respondent determined deficiencies in income
tax and additions to tax pursuant to sections 6651(a)(1) and 6654
for petitioner’s taxable years 1997 and 2002 as follows:
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Year Deficiency Sec. 6651(a)(1) Sec. 6654
1997 $1,991 $497.75 $106.50
2002 7,666 479.50 N/A
Unless otherwise indicated, all section references are to the
Internal Revenue Code, as amended, and all Rule references are to
the Tax Court Rules of Practice and Procedure. The issues we
must decide are:
1. Whether petitioner received $6,531 in wages from Sprint
Management Co. (Sprint) and $13,526 in wages from Janus Service
Corp. (Janus) during taxable year 1997.1
2. Whether petitioner received $47,074 in wages from
Merrill Lynch, Pierce, Fenner, & Smith Inc. (Merrill Lynch) and
$2,534 in unemployment compensation from the Colorado Division of
Unemployment and Training (unemployment compensation) during
taxable year 2002.
3. Whether petitioner is liable for an addition to tax
under section 6651(a)(1) for failure to file tax returns for
taxable years 1997 and 2002.
1
At the conclusion of trial, respondent moved to amend the
pleadings to conform to the record in order to assert an addition
to tax under sec. 6651(f)(1) for fraudulent failure to file for
taxable year 1997 based on petitioner’s admission that he claimed
nine personal exemptions on his Forms W-4, Employee’s Withholding
Allowance Certificate. Although petitioner’s actions and
testimony clearly show that he is a tax protester, the record
fails to persuade us by clear and convincing evidence that
petitioner’s actions were fraudulent. Sec. 7454(a); Rule 142(b);
Clayton v. Commissioner, 102 T.C. 632 (1994). Accordingly,
respondent’s motion will be denied.
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4. Whether petitioner is liable for an addition to tax
under section 6654 for failure to pay estimated income tax for
taxable year 1997.
5. Whether the Court should impose a section 6673 penalty
on petitioner.
Background
At the time of filing the petition in the instant case,
petitioner resided in Jacksonville, Florida. Petitioner has a 15
year history of not filing Federal income tax returns and did not
file returns for the years in issue. Respondent determined that
petitioner received $6,531 in wages from Sprint and $13,526 in
wages from Janus during taxable year 1997 and $47,074 in wages
from Merrill Lynch and $2,534 in unemployment compensation during
taxable year 2002. Accordingly, respondent sent petitioner
separate notices of deficiency for each year in issue, and
petitioner petitioned this Court.
Discussion
As a general rule, the Commissioner’s determinations in the
notice of deficiency are presumed correct, and the burden of
proving an error is on the taxpayer.2 Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). Under section 7491(c), the
2
Sec. 7491(a)(1) does not apply in the instant case to shift
the burden of proof to respondent because petitioner did not
introduce credible evidence or comply with the substantiation and
record keeping requirements of sec. 7491(a)(2).
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Commissioner’s burden of production is to produce evidence that
it is appropriate to impose the relevant penalty, addition to
tax, or additional amount. Higbee v. Commissioner, 116 T.C. 438,
446 (2001). The Commissioner, however, does not have the
obligation to introduce evidence regarding reasonable cause. Id.
at 446-447.
Gross income means income from whatever source derived
including compensation for services and unemployment
compensation. Sec. 61(a)(1); George v. Commissioner, T.C. Memo.
2006-121. At trial, petitioner’s contentions consisted of
nothing but frivolous tax protester arguments. Petitioner
repeatedly asked what section of the Internal Revenue Code
required him to pay tax. Petitioner testified that he worked for
Sprint, Janus, and Merrill Lynch, that he earned wages from each
of those employers, and that he applied for unemployment
compensation. Petitioner further testified: “I’m assuming, in
hindsight, that I must have been paid.” Petitioner disputed,
however, that he ever received income. When respondent asked
petitioner how he supported himself, petitioner testified: “I
worked for a company that paid me wages that were not part of any
income as I know income.” Petitioner’s argument that there is no
Code section requiring him to pay tax has been rejected by every
court that has addressed the issue and is the type of frivolous
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tax protester argument that wastes the Court’s time and
resources.
We do not address petitioner’s argument with somber
reasoning and copious citations of precedent, as to do so might
suggest that petitioner’s arguments possess some degree of
colorable merit. See Crain v. Commissioner, 737 F.2d 1417, 1417
(5th Cir. 1984). Accordingly, we hold that petitioner is liable
for the amounts of the deficiencies in his income tax set forth
in the notices of deficiency for taxable years 1997 and 2002.
Section 6651(a)(1) imposes an addition to tax for a failure
to file an income tax return. A taxpayer may be relieved of the
additions to tax, however, if he can demonstrate that the failure
is “due to reasonable cause and not to willful neglect”. Higbee
v. Commissioner, supra at 447. Willful neglect means intentional
failure or reckless indifference. United States v. Boyle, 469
U.S. 241, 245 (1985). Section 301.6651-1(c)(1), Proced. & Admin.
Regs., provides that, if a taxpayer exercises ordinary business
care and prudence and is nevertheless unable to file on time,
then the delay is due to reasonable cause. Petitioner did not
timely file tax returns during the years in issue because he does
not believe that there is a Code section requiring him to pay
income tax. Misguided interpretations of the Constitution or
other typical tax protester arguments are not reasonable cause.
See Yoder v. Commissioner, T.C. Memo. 1990-116. Accordingly, we
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hold that petitioner is liable for the additions to tax under
section 6651(a)(1) for taxable years 1997 and 2002.
Section 6654(a) imposes an addition to tax for failure to
pay estimated income tax. Section 6654 applies where prepayments
of tax, either through withholdings or by making estimated
quarterly payments, do not equal the percentage of total
liability required under the statute,3 unless one of the several
statutory exceptions under section 6654(e) applies. Niedringhaus
v. Commissioner, 99 T.C. 202, 222 (1992). In his petition,
petitioner only raised typical tax protester arguments that he
did not owe tax and did not specifically assign error to the
section 6654 penalty. Accordingly, petitioner is deemed to have
conceded the section 6654 penalty. Rule 34(b); Funk v.
Commissioner, 123 T.C. 213, 218 (2004); Swain v. Commissioner,
118 T.C. 358, 365 (2002); We therefore hold that petitioner is
liable for the addition to tax under section 6654 for taxable
year 1997.
3
Sec. 6654(d) requires quarterly installment payments of 25
percent of the required annual payment. Sec. 6654(d)(1)(A). In
cases where no return was filed for the year in issue and the
preceding taxable year, the required annual payment is 90 percent
of the tax due for the year in issue. Sec. 6654(d)(1)(B)(i),
(flush language).
The record in the instant case demonstrates that petitioner
failed to make quarterly payments of 90 percent of the tax due
for taxable year 1997 and did not file a tax return for taxable
year 1996. Accordingly, sec. 6654 applies.
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Section 6673(a)(1) provides that this Court may require the
taxpayer to pay a penalty not in excess of $25,000 whenever it
appears to this Court: (a) The proceedings were instituted or
maintained by the taxpayer primarily for delay; (b) the
taxpayer’s position is frivolous or groundless; or (c) the
taxpayer unreasonably failed to pursue available administrative
remedies. Respondent has moved that the Court impose a penalty
in the instant case because petitioner’s arguments are frivolous
and groundless. Petitioner received several warnings, including
one at the beginning of trial, that this Court could impose a
penalty if petitioner persisted in raising frivolous arguments.
Despite being warned, petitioner nonetheless raised frivolous
arguments and wasted the Court’s time. Accordingly, we shall
impose a penalty on petitioner of $5,000 pursuant to section
6673.
To reflect the foregoing,
An appropriate order and
decision will be entered.