T.C. Memo. 2006-253
UNITED STATES TAX COURT
WILLIAM M. LEGGETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24854-04. Filed November 21, 2006.
P failed to file a Federal income tax return for
2002. R determined a deficiency and additions to tax
pursuant to secs. 6651(a)(1) and 6654(a), I.R.C.
Held: P is liable for the deficiency determined
by R and additions to tax pursuant to secs. 6651(a)(1)
and 6654(a), I.R.C.
Held, further, a penalty pursuant to sec. 6673,
I.R.C., is due from P and awarded to the United States
in the amount of $6,000.
William M. Leggett, pro se.
Monica J. Miller, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: Respondent determined a Federal income tax
deficiency for petitioner’s 2002 taxable year in the amount of
$8,716, and additions to tax pursuant to sections 6651(a)(1) and
6654(a) of $2,614.80 and $291.26, respectively.1 The issues for
decision are: (1) Whether petitioner is liable for a deficiency
and additions to tax on unreported income for the 2002 taxable
year; and (2) 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), and additional facts have been stipulated by the
parties.2 The stipulations, with accompanying exhibits, are
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the year in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
2
The Court found petitioner’s objection to the proposed
stipulation of facts, based primarily on Fifth Amendment
assertions, to be meritless. Respondent assured petitioner and
the Court that “To the best of respondent’s knowledge, petitioner
has not currently, nor has he ever been, the subject of any
criminal tax or other criminal investigation by respondent, that
no criminal tax or other criminal investigation of petitioner is
contemplated or anticipated by respondent, and that there are no
indications that respondent ever even considered the imposition
of civil fraud penalties in petitioner’s several cases.” The
Fifth Amendment “protects against real dangers, not remote and
speculative possibilities.” Zicarelli v. N.J. State Commn. of
Investigation, 406 U.S. 472, 478 (1972). Furthermore, “In a
civil tax case, the taxpayer must accept the consequences of
(continued...)
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incorporated herein by this reference. At the time the petition
was filed, petitioner resided in Sorrento, Florida.
Petitioner failed to file a Federal income tax return for
his 2002 taxable year. During 2002, petitioner was self-employed
and installed residential and commercial heating and air-
conditioning units. Petitioner received compensation from
Maronda Homes, Inc. and Victoria Investment Properties, Inc. in
the amounts of $4,585 and $22,247, respectively. Petitioner also
received $14,544 in Social Security benefits. During 2002,
petitioner was married to Martha Leggett.
Respondent issued to petitioner a notice of deficiency on
October 5, 2004, for the above-mentioned deficiency and additions
to tax.3 Petitioner filed a timely petition disputing the
deficiency and additions to tax. Petitioner argued at trial and
in documents submitted to the Court that he “does not and has not
engaged in an activity that produces ‘TAXABLE INCOME’, but only
2
(...continued)
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’.” Lee v.
Commissioner, T.C. Memo. 2002-95 (citing United States v.
Rylander, 460 U.S. 752, 758 (1983)), affd. 61 Fed. Appx. 471 (9th
Cir. 2003); see also Stang v. Commissioner, T.C. Memo. 2005-154,
affd. Fed. Appx. (9th Cir., Sept. 15, 2006).
3
The parties filed posttrial a supplemental stipulation of
facts which stipulated that petitioner had additional income of
$7,601.48 and was entitled to deduct expenses of $5,944.47.
Respondent conceded that the deficiency and additions to tax
determined in the notice of deficiency would remain unaffected.
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an exchange of intellectual and physical property for an agreed
upon perceived value in the only medium of exchange of the day
i.e. FRN’s [Federal Reserve Notes]”. Petitioner also contended
that he is “a ‘native born American national’, not to be mistaken
as a ‘U.S. CITIZEN’” or taxpayer.
Petitioner is no stranger to the Court. Petitioner has
litigated two cases very similar to this instant case in which
petitioner did not file Federal income tax returns, respondent
determined deficiencies and additions to tax, and petitioner
presented arguments similar to those asserted here. In a 2001
trial (2001 trial) that resulted in a bench opinion, the Court
explained to petitioner that taxable income includes money and
other goods received in exchange for services and urged
petitioner to file returns. In a 2005 trial (2005 trial), the
Court again rejected petitioner’s arguments and awarded the
United States a penalty pursuant to section 6673 in the amount of
$5,000. Leggett v. Commissioner, T.C. Memo. 2005-185.
OPINION
I. Deficiency
In general, respondent’s determination of a deficiency in
the notice of deficiency is presumed correct, and petitioner
bears the burden of showing that such determination was in error.
See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Pursuant to section 7491(a), the burden of proof on factual
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issues that affect the taxpayer’s tax liability may be shifted to
the Commissioner where the “taxpayer introduces credible evidence
with respect to any factual issue”. The burden will shift only
if the taxpayer has, inter alia, complied with substantiation
requirements pursuant to the Internal Revenue Code, and
“cooperated with reasonable requests by the Secretary for
witnesses, information, documents, meetings, and interviews”.
Sec. 7491(a)(2). Section 7491(a) does not apply in this case
because petitioner did not produce any credible evidence.
In unreported income cases, the Commissioner must come
forward with evidence establishing a minimal foundation, which
may consist of evidence linking the taxpayer to an income-
producing activity. Weimerskirch v. Commissioner, 596 F.2d 358,
360-361 (9th Cir. 1979), revg. 67 T.C. 672 (1977); Petzoldt v.
Commissioner, 92 T.C. 661, 689 (1989). If the Commissioner
introduces some evidence that the taxpayer received unreported
income, then the burden shifts to the taxpayer to show by a
preponderance of the evidence that the deficiency was arbitrary
or erroneous. Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th
Cir. 1999), affg. T.C. Memo. 1997-97. The Court concludes, based
on the stipulated facts, that respondent has established a
minimal foundation. Accordingly, the burden shifts to
petitioner.
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In petitioner’s previous cases the Court specifically
rejected as meritless petitioner’s argument that taxable income
does not include an exchange of personal services for property.
The Court shall not further address petitioner’s repeated
argument “with somber reasoning and copious citation of
precedent; to do so might suggest that these arguments have some
colorable merit.” Crain v. Commissioner, 737 F.2d 1417, 1417
(5th Cir. 1984). Therefore, the Court sustains respondent’s
determination of petitioner’s 2002 tax deficiency.
II. Additions to Tax
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 present “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 substantial
authority, reasonable cause, or similar provisions, the taxpayer
bears the burden of raising and prevailing on these issues. Id.
at 446-447.
Section 6651(a)(1) imposes a 5-percent addition to tax for
each month or portion thereof a required return is filed after
the prescribed due date, not to exceed 25 percent in the
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aggregate, unless such failure to file timely is due to
reasonable cause and not due to willful neglect. Although not
defined in the Code, “reasonable cause” is described by 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).
“[W]illful neglect” is interpreted as a “conscious, intentional
failure or reckless indifference.” United States v. Boyle, supra
at 245. Respondent has met the burden of production as
petitioner admitted he never filed a Federal income tax return
for 2002. Petitioner did not present any evidence to suggest
that his failure to file was due to reasonable cause. Therefore,
the Court sustains respondent’s determination of the addition to
tax pursuant to section 6651(a)(1).
Section 6654(a) imposes an addition to tax for failure to
pay estimated income tax where there has been underpayment of
estimated tax by the taxpayer.4 Petitioner did not remit any
payment as he did not file a Federal income tax return. The
record reflects that no taxes were withheld, as petitioner was
self-employed, and that no payments of estimated tax were made.
Any burden of production on the part of respondent is satisfied.
4
The Court takes judicial notice of Leggett v. Commissioner,
T.C. Memo. 2005-185, which together with the holding in this case
establishes that estimated tax was due. See sec. 6654(d)(1)(B)
and the flush language where, as here, no return was filed for
the previous tax year 2001.
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The Court also concludes that petitioner does not fit within any
of the exceptions enumerated in section 6654(e).5 Therefore, the
Court sustains respondent’s determination of the addition to tax
pursuant to section 6654(a).
III. Section 6673 Penalty
Section 6673(a)(1) authorizes the Tax Court to impose a
penalty not in excess of $25,000 on a taxpayer for proceedings
instituted primarily for delay or 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).
Respondent, on brief, has asked the Court to impose a
penalty under section 6673(a)(1). In petitioner’s 2005 trial,
petitioner was ordered to pay $5,000 to respondent for asserting
meritless and frivolous arguments. Leggett v. Commissioner,
5
Sec. 6654(e) provides two mechanical exceptions to the
addition to tax. First, the addition is not applicable if the
tax shown on the taxpayer’s return for the year in question (or,
if no return is filed, the taxpayer’s tax for that year), reduced
for these purposes by any allowable credit for wage withholding,
is less than $1,000. Sec. 6654(e)(1). Second, the addition is
not applicable if the taxpayer’s tax for the full 12-month
preceding taxable year was zero and the taxpayer was a citizen or
resident of the United States. Sec. 6654(e)(2). The Court has
concluded that petitioner is liable for a deficiency for 2002
that net of withholding exceeds $1,000. Petitioner’s tax
liability for 2001 was greater than zero. See Leggett v.
Commissioner, supra.
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supra. Petitioner asserted similar arguments in the instant case
despite repeated warnings by the Court that his arguments were
meritless and frivolous. Therefore, the Court concludes that a
penalty of $6,000 should be imposed on petitioner.
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,
An appropriate decision
will be entered.