127 T.C. No. 14
UNITED STATES TAX COURT
CHARLES RAYMOND WHEELER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15720-05. Filed December 6, 2006.
P failed to file his Federal income tax return for
2003. R issued a notice of deficiency in which he
determined that P was liable for an income tax
deficiency and for additions to tax under secs. 6651
and 6654, I.R.C. At trial, R, who had the burden of
production under sec. 7491(c), I.R.C., with respect to
the additions to tax, produced evidence that P did not
file a Federal income tax return for 2003 and that P
did not make any estimated tax payments for 2003, but R
did not introduce any evidence regarding P’s 2002
taxable year. Specifically, R failed to introduce
evidence as to whether P had filed a Federal income tax
return for 2002 and, if so, whether P had any reported
Federal income tax liability for 2002. R also failed
to introduce evidence that the Secretary had made a
return for 2003 satisfying the requirements of sec.
6020(b), I.R.C.
1. Held: In order to satisfy his burden of
production under sec. 7491(c), I.R.C., with respect to
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the sec. 6651(a)(2), I.R.C., addition to tax, R must
introduce evidence that the tax was shown on a return.
When a taxpayer has not filed a return, the sec.
6651(a)(2), I.R.C., addition to tax may not be imposed
unless the Secretary has prepared a substitute for
return (SFR) that meets the requirements of sec.
6020(b), I.R.C. Because R failed to introduce evidence
that the Secretary had prepared an SFR for 2003 that
met the requirements of sec. 6020(b), I.R.C., R did not
satisfy his burden of production under sec. 7491(c),
I.R.C., with respect to the sec. 6651(a)(2), I.R.C.,
addition to tax.
2. Held, further, in order to satisfy his burden
of production under sec. 7491(c), I.R.C., with respect
to the sec. 6654, I.R.C., addition to tax, R must
introduce evidence that P failed to make a required
annual payment under sec. 6654(d), I.R.C., for 2003.
Because R failed to introduce evidence showing whether
P had filed a return for 2002 (the immediately
preceding taxable year) and, if so, whether P had any
reported income tax liability for that year, R failed
to demonstrate that P was required to make any
estimated tax payments for 2003. Consequently, R did
not satisfy his burden of production under sec.
7491(c), I.R.C.
3. Held, further, P’s liability for income tax,
for the sec. 6651(a)(1), I.R.C., addition to tax, and
for a penalty under sec. 6673, I.R.C., determined.
Charles Raymond Wheeler, pro se.
Joan E. Steele, for respondent.
OPINION
MARVEL, Judge: Respondent determined a deficiency in
petitioner’s 2003 Federal income tax of $9,507 and additions to
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tax under section 6651(a)(1)1 of $2,037, under section 6651(a)(2)
of $498, and under section 6654 of $245. Petitioner petitioned
for a redetermination of the deficiency and the additions to tax.
After concessions,2 the issues for decision are:
(1) Whether respondent issued a valid notice of deficiency
for petitioner’s 2003 taxable year;
(2) whether petitioner is liable for an addition to tax
under section 6651(a)(1) for failing to file his 2003 Federal
income tax return;
(3) whether petitioner is liable for an addition to tax
under section 6651(a)(2) for failing to pay the amount shown as
tax on a return;
(4) whether petitioner is liable for an addition to tax
under section 6654 for failing to pay estimated taxes; and
(5) whether the Court should impose a penalty under section
6673.
1
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. All
monetary amounts are rounded to the nearest dollar.
2
Respondent concedes that petitioner had allowable
deductions and credits as follows: Mortgage interest of $9,032,
real estate taxes of $1,791, and a withholding credit of $452.
Respondent also concedes that petitioner is not liable for
additional tax under sec. 72(t), and he is entitled to married
filing separate status with one exemption. Respondent further
concedes that, after taking the above-listed deductions and
exemptions into account, petitioner’s income tax deficiency for
2003 is reduced to $3,854.
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Background
Petitioner resided in Colorado Springs, Colorado, when he
petitioned the Court in this case.
Petitioner did not file a Federal income tax return for
2003. Respondent issued a notice of deficiency to petitioner
determining that petitioner failed to report taxable retirement
distributions of $41,657, dividend income of $241, and interest
income of $3; that petitioner was liable for an income tax
deficiency of $9,507; and that petitioner was liable for
additions to tax under sections 6651(a)(1) and (2) and 6654.
On August 24, 2005, petitioner timely petitioned for
redetermination of the deficiency and the additions to tax. In
his petition, petitioner disputed the full amount of the
deficiency and the additions to tax3 and alleged that there was a
multitude of errors in respondent’s determinations. However,
most of the allegations in the petition either were
unintelligible or, if intelligible, were frivolous.4 Petitioner
3
Petitioner alleged in his petition that respondent had
determined “deficiencies” in income tax for 2003 of $12,368, all
of which is in dispute. The amount represents the total tax,
penalties, and interest (computed to Apr. 24, 2005) due from
petitioner as shown on Form 4549, Income Tax Examination Changes
(included as part of the notice of deficiency).
4
For example, petitioner argued that he was not required to
file an information request for 2003, that he was not required to
file a return because respondent’s form violated the provisions
of the Paperwork Reduction Act, and that he was not liable for
any increase in tax for 2003 “pursuant to 44 U.S.C. § 3512.”
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did not assign any error as required by Rule 34(b)(4)5 to
respondent’s determinations that petitioner received income from
a retirement distribution,6 interest, or dividends during 2003.7
With respect to the additions to tax respondent determined,
petitioner prayed in his petition that this Court find that “The
Petitioner is not liable for any determination of penalties
and/or interest in the notice of deficiency” and that “The
Petitioner is not liable for a penalty at 26 U.S.C. § 6654.”
At a pretrial conference held on April 17, 2006, we warned
petitioner several times that he had not raised any nonfrivolous
issue regarding respondent’s deficiency determination and that,
should he continue with similar arguments at trial, we would
consider imposing a penalty under section 6673. At trial,
respondent moved for the imposition of a penalty under section
5
Rule 34(b)(4) provides that a petition shall contain clear
and concise assignments of each and every error which the
petitioner alleges that the Commissioner made in the
determination of the deficiency. Rule 34(b)(4) further provides
that “Any issue not raised in the assignments of error shall be
deemed to be conceded.”
6
In his pretrial memorandum and at trial, petitioner
conceded that he received military retirement payments during
2003 in the amount determined in the notice of deficiency.
7
Petitioner did not specifically assign error to the income
adjustments involving interest and dividends, and he did not
contest these adjustments at trial. Consequently, we conclude
that petitioner has conceded these adjustments. See, e.g., Rule
34(b)(4); Derksen v. Commissioner, 84 T.C. 355, 360 (1985).
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6673(a)(1), and we again warned petitioner of the risk he would
assume by pursuing frivolous arguments.
This is not the first time that petitioner has made
frivolous arguments in this Court. In two consolidated cases
involving petitioner’s 1994-2001 taxable years decided after this
case was heard, this Court imposed on petitioner a penalty of
$3,000 under section 6673 for instituting proceedings based upon
a frivolous position.8 See Wheeler v. Commissioner, T.C. Memo.
2006-109.
Discussion
I. Validity of the Notice of Deficiency
Petitioner did not offer any testimony or argument at trial
regarding most of the assignments of error in the petition.9
Petitioner argued only that the notice of deficiency was not
statutory and, therefore, was invalid. Specifically, petitioner
8
In Wheeler v. Commissioner, T.C. Memo. 2006-109, petitioner
argued, for example, that notices of deficiency were not valid,
that he is not an individual required to pay an income tax, and
that there is no law requiring him to file an income tax return.
9
The assignments of error in the petition pertaining to
respondent’s income adjustments and deficiency determination,
including allegations that petitioner was not required to file a
tax return for 2003 and that the requirement to file a tax return
is in violation of the Paperwork Reduction Act, are contrary to
well-established law. “We perceive no need to refute these
arguments 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). Moreover, many of petitioner’s assignments of
error duplicate those he made in an earlier case, and this Court
has already rejected them. See Wheeler v. Commissioner, supra.
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argued that a valid notice of deficiency must reference the
particular statute upon which the Commissioner’s determination is
based. We address petitioner’s argument in order to clarify that
the notice of deficiency in question satisfied the requirements
of sections 6212 and 7522.
Section 6212(a) authorizes the Secretary10 to send a notice
of deficiency to a taxpayer by certified mail or registered mail
if the Secretary determines that the taxpayer is liable for a
deficiency in income tax. Ordinarily, a notice of deficiency
involving income tax is sufficient if it is mailed to a
taxpayer’s last known address. Sec. 6212(b)(1). A notice of
deficiency described in section 6212 must also comply with
section 7522. Sec. 7522(b)(1). Section 7522(a) provides that
“Any notice to which this section applies shall describe the
basis for, and identify the amounts (if any) of, the tax due,
interest, additional amounts, additions to the tax, and
assessable penalties included in such notice.” However, section
7522(a) also provides that an inadequate description “shall not
invalidate such notice.”
Petitioner does not dispute that respondent addressed the
notice of deficiency to petitioner at his last known address, see
sec. 6212(b)(1), and that respondent mailed the notice by
10
The term “Secretary” is defined by sec. 7701(a)(11)(B) to
mean the Secretary of the Treasury or his delegate.
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certified or registered mail as authorized by section 6212(a).
Petitioner also does not dispute that the notice of deficiency
described the income adjustments as unreported income, listed the
specific items of unreported income, and identified the additions
to tax, pursuant to section 7522(a). Petitioner’s argument at
trial focused solely on the fact that the notice of deficiency
did not identify the specific Code section requiring respondent’s
income adjustments.
Petitioner’s argument assumes a requirement for a valid
notice of deficiency that neither section 6212 nor section
7522(a) imposes. Although the notice of deficiency did not cite
the section of the Code requiring a taxpayer to include pension,
dividend, and interest income in gross income, see sec. 61(a),11
a notice’s failure to include a statutory citation for each
adjustment does not invalidate the notice under section 6212,
see Jarvis v. Commissioner, 78 T.C. 646, 655-656 (1982) (neither
section 6212 nor any other provision of the Code prescribes the
11
Sec. 61(a) defines gross income generally as “all income
from whatever source derived,” including, but not limited to,
interest, dividends, and pensions. See sec. 61(a)(4), (7), (11).
Military retirement pay is pension income within the meaning of
sec. 61(a)(11). See Weir v. Commissioner, T.C. Memo. 2001-184;
Eatinger v. Commissioner, T.C. Memo. 1990-310 (“A military
retirement pension, like other pensions, is simply a right to
receive a future income stream from the retiree’s employer.”);
sec. 1.61-11(a), Income Tax Regs. (“Pensions and retirement
allowances paid either by the Government or by private persons
constitute gross income unless excluded by law.”).
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form of a notice or the specifics to be contained therein);
Rogers v. Commissioner, T.C. Memo. 2001-20, affd. without
published opinion 281 F.3d 1278 (5th Cir. 2001). Likewise, a
failure to include a statutory citation for each adjustment in a
notice does not invalidate a notice under section 7522. Sec.
7522(a). Section 7522(a) requires a notice of deficiency to
describe the bases for, and identify the amounts of, tax and
additions to tax, but it contains no requirement that a notice of
deficiency identify the specific statutory provision supporting
each adjustment.
The notice of deficiency described the income adjustments in
sufficient detail to put petitioner on notice of the adjustments
against him. See Jarvis v. Commissioner, supra at 655. We hold,
therefore, that the failure to identify the statutory provision
requiring respondent’s income adjustments in the notice of
deficiency does not render the notice invalid.
II. Additions to Tax
A. Respondent’s Burden of Production Under Section 7491(c)
Section 7491(c) was enacted by section 3001(a) of the
Internal Revenue Service Restructuring and Reform Act of 1998
(RRA 1998), Pub. L. 105-206, 112 Stat. 726, and applies to court
proceedings arising in connection with examinations commencing
after July 22, 1998. RRA 1998 sec. 3001(c)(1), 112 Stat. 727.
Section 7491(c) provides:
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SEC. 7491(c). Penalties.--Notwithstanding any other
provision of this title, the Secretary shall have the
burden of production in any court proceeding with
respect to the liability of any individual for any
penalty, addition to tax, or additional amount imposed
by this title.
In order to satisfy his burden of production under section
7491(c), the Commissioner must produce evidence that it is
appropriate to impose the relevant penalty, addition to tax, or
additional amount (collectively, penalty). Higbee v.
Commissioner, 116 T.C. 438, 446 (2001). However, section 7491(c)
does not require the Commissioner to introduce evidence regarding
reasonable cause, substantial authority, or similar provisions.
Id.; H. Conf. Rept. 105-599, at 241 (1998), 1998-3 C.B. 747, 995.
The conference report explained the respective obligations of the
Commissioner and a taxpayer under section 7491(c) as follows:
Further, the provision provides that, in any court
proceeding, the Secretary must initially come forward
with evidence that it is appropriate to apply a
particular penalty to the taxpayer before the court can
impose the penalty. This provision is not intended to
require the Secretary to introduce evidence of elements
such as reasonable cause or substantial authority.
Rather, the Secretary must come forward initially with
evidence regarding the appropriateness of applying a
particular penalty to the taxpayer; if the taxpayer
believes that, because of reasonable cause, substantial
authority, or a similar provision, it is inappropriate
to impose the penalty, it is the taxpayer’s
responsibility (and not the Secretary’s obligation) to
raise those issues.
H. Conf. Rept. 105-599, supra at 241, 1998-3 C.B. at 995.
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In a proceeding before this Court, the Commissioner’s
obligation under section 7491(c) initially to come forward with
evidence that it is appropriate to apply a particular penalty to
a taxpayer is conditioned upon the taxpayer’s assigning error to
the Commissioner’s penalty determination. In Swain v.
Commissioner, 118 T.C. 358 (2002), we held that a taxpayer who
failed to assign error to a penalty is deemed under Rule 34(b)(4)
to have conceded the penalty, notwithstanding that the
Commissioner failed to produce evidence that the imposition of
the penalty is appropriate. We explained that Rule 34(b)(4) and
section 7491(c) are consistent and described the
interrelationship of Rule 34(b)(4) and section 7491(c) as
follows:
An individual must first challenge a penalty by filing
a petition alleging some error in the determination of
the penalty. If the individual challenges a penalty in
that manner, the challenge generally will succeed
unless the Commissioner produces evidence that the
penalty is appropriate. If an individual does not
challenge a penalty by assigning error to it (and is,
therefore, deemed to concede the penalty), the
Commissioner need not plead the penalty and has no
obligation under section 7491(c) to produce evidence
that the penalty is appropriate.
Id. at 364-365.
Respondent has determined that petitioner is liable for
additions to tax under sections 6651(a)(1) and (2) and 6654. We
examine the record to decide whether petitioner assigned error to
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each addition to tax and, if so, whether respondent has satisfied
his burden of production with respect to each addition to tax.
In the petition, petitioner contested his liability for the
additions to tax. Although the petition is unclear in many
respects and does not follow the format that Rule 34(b) requires
for a properly prepared petition, petitioner nevertheless
asserted in the petition that he was not liable for the additions
to tax, and respondent was put on notice that petitioner’s
liability for the additions to tax was an issue. We conclude,
therefore, that petitioner assigned error to the additions to
tax, see Swain v. Commissioner, supra at 364-365, and respondent
had the burden of production under section 7491(c) to come
forward with evidence that it is appropriate to hold petitioner
liable for the additions to tax. Therefore, we must review the
record with respect to each addition to tax to ascertain whether
respondent met his burden of production.
B. Section 6651(a)(1) Addition to Tax
Section 6651(a)(1) authorizes the imposition of an addition
to tax for failure to file a timely return unless the taxpayer
proves that such failure is due to reasonable cause and is not
due to willful neglect. Sec. 6651(a)(1); see United States v.
Boyle, 469 U.S. 241, 245 (1985); Harris v. Commissioner, T.C.
Memo. 1998-332.
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Respondent introduced evidence showing that petitioner did
not file his 2003 income tax return or an application for
additional time to file his 2003 return by the original due date
of the return. The evidence is sufficient to satisfy
respondent’s burden of production under section 7491(c), and we
so find.
Petitioner offered no evidence at trial regarding any of the
adjustments, including the addition to tax under section
6651(a)(1). The only argument petitioner made that could
conceivably be addressed to his failure to file a timely return
is contained in the petition. There, petitioner contends that he
is not liable for any increase in tax because of the Paperwork
Reduction Act.12 The Paperwork Reduction Act is not a defense to
12
The Paperwork Reduction Act was enacted by Congress as a
“comprehensive scheme designed to reduce the federal paperwork
burden.” United States v. Dawes, 951 F.2d 1189, 1191 (10th Cir.
1991). Under the act, the Office of Management and Budget (OMB)
is given authority to review an agency “collection of
information” and to assign a control number to each collection of
information it approves. See 44 U.S.C. secs. 3502, 3504, 3507(a)
(2000 & Supp. III, 2003); see also United States v. Dawes, supra
at 1191. If an agency collection of information does not display
a current control number or fails to state that the request is
not subject to the act, the act provides that no person shall be
subject to any penalty for failure to maintain or provide
information pursuant to the collection request. See 44 U.S.C.
sec. 3512 (2000). Taxpayers have sometimes argued that, because
tax regulations and instructions do not contain control numbers,
the act protects taxpayers from failure to file prosecutions and
penalties for failure to file tax returns. These arguments
consistently have been rejected by the Federal courts that have
considered them. See United States v. Dawes, supra at 1191 (and
cases cited thereat).
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the addition to tax under section 6651(a)(1), nor does it create
a loophole in the Code. See United States v. Dawes, 951 F.2d
1189, 1193 (10th Cir. 1991).
Petitioner had the burden of producing evidence to prove
that he had reasonable cause for his failure to file his 2003
return. Sec. 6651(a)(1); Rule 142(a)(1). The record is devoid
of such evidence. We conclude, therefore, that petitioner is
liable for the section 6651(a)(1) addition to tax.
C. Section 6651(a)(2) Addition to Tax
Section 6651(a)(2) imposes an addition to tax for failure to
pay the amount of tax shown on a return. The addition to tax
under section 6651(a)(2) applies only when an amount of tax is
shown on a return. Cabirac v. Commissioner, 120 T.C. 163, 170
(2003). Petitioner did not file a return for 2003.
Nevertheless, respondent contends that he made a substitute for
return (SFR) for 2003 pursuant to section 6020(b) that qualifies
as a return for purposes of section 6651(a)(2).
A return made by the Secretary under section 6020(b) is
treated as “the return filed by the taxpayer for purposes of
determining the amount of the addition” under section 6651(a)(2).
Sec. 6651(g)(2). However, the return must satisfy the
requirements of section 6020(b). Section 6020(b) provides:
SEC. 6020(b). Execution of Return by Secretary.--
(1) Authority of secretary to execute return.--If
any person fails to make any return required by any
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internal revenue law or regulation made thereunder at
the time prescribed therefor, or makes, willfully or
otherwise, a false or fraudulent return, the Secretary
shall make such return from his own knowledge and from
such information as he can obtain through testimony or
otherwise.
(2) Status of returns.--Any return so made and
subscribed by the Secretary shall be prima facie good
and sufficient for all legal purposes.
We have addressed on several occasions what constitutes a
section 6020(b) return. In Phillips v. Commissioner, 86 T.C.
433, 437-438 (1986), affd. in part and revd. in part on another
issue 851 F.2d 1492 (D.C. Cir. 1988), we held that a “dummy
return”, i.e., page 1 of a Form 1040, U.S. Individual Income Tax
Return, showing only the taxpayer’s name, address, and Social
Security number, was not a section 6020(b) return. In Millsap v.
Commissioner, 91 T.C. 926, 930 (1988), we held that unsubscribed
Forms 1040 containing the taxpayer’s name, address, Social
Security number, and filing status but no information regarding
income or tax, to which were attached subscribed revenue agent’s
reports containing sufficient information from which to compute
the taxpayer’s tax liability, were returns under section 6020(b).
In Cabirac v. Commissioner, supra at 170-173, we held that
unsubscribed SFRs showing zeros on the relevant lines for
computing a tax liability and no tax liability did not meet the
requirements of section 6020(b). We rejected the Commissioner’s
contention that we should evaluate the SFRs filed on February 23,
2000, in conjunction with a notice of proposed adjustments dated
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May 31, 2000, in deciding whether the SFRs were section 6020(b)
returns. We distinguished Millsap because in Millsap the revenue
agent’s report was attached to the SFR. In Cabirac, there was no
evidence that the notice of proposed adjustments was attached to
the SFRs. We noted that the SFRs, which were stipulated
exhibits, appeared to have been prepared several months before
the notice of proposed adjustments, and there was no evidence
that the SFRs were ever put together with the notice of proposed
adjustments and filed as section 6020(b) returns. Id. at 172.
We specifically rejected the Commissioner’s suggestion “that the
presence of what are essentially ‘dummy returns’ and a revenue
agent’s report somewhere in the record meets the requirements of
section 6020(b)”, and we emphasized that our decisions in
Phillips and Millsap “mandate a greater degree of formality” for
section 6020(b) returns. Id.
In each of the cases discussed above, the record included
the SFRs that the Commissioner contended met the requirements of
section 6020(b) and/or stipulations that the SFRs had been filed.
In this case, however, although respondent alleged that an SFR
meeting the requirements of section 6020(b) was prepared and
filed, respondent did not introduce the SFR into evidence and did
not otherwise prove that an SFR meeting the requirements of
section 6020(b) had been made for 2003. The only evidence
regarding the SFR is a cryptic and summary reference to a
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“Substitute for Return” contained in Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, for
petitioner’s 2003 taxable year.
The Commissioner’s burden of production with respect to the
section 6651(a)(2) addition to tax requires that the Commissioner
introduce evidence that a return showing the taxpayer’s tax
liability was filed for the year in question. In a case such as
this where the taxpayer did not file a return, the Commissioner
must introduce evidence that an SFR satisfying the requirements
of section 6020(b) was made. See Cabirac v. Commissioner, supra.
Respondent did not do so.
Because the record does not contain evidence that petitioner
failed to pay tax shown on a return for 2003, we conclude that
respondent has failed to satisfy his burden of production under
section 7491(c) with respect to the section 6651(a)(2) addition
to tax.
D. Section 6654(a) Addition to Tax
Section 6654 imposes an addition to tax on an individual
taxpayer who underpays his estimated tax. The addition to tax is
calculated with reference to four required installment payments
of the taxpayer’s estimated tax liability. Sec. 6654(c)(1).
Each required installment of estimated tax is equal to 25 percent
of the required annual payment. Sec. 6654(d)(1)(A). The
required annual payment is equal to the lesser of (1) 90 percent
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of the tax13 shown on the individual’s return for that year (or,
if no return is filed, 90 percent of his or her tax for such
year), or (2) if the individual filed a return for the
immediately preceding taxable year, 100 percent of the tax shown
on that return.14 Sec. 6654(d)(1)(B). The due dates of the
required installments for a calendar year taxpayer are April 15,
June 15, and September 15 of the calendar year in question and
January 15 of the following year. Sec. 6654(c)(2).
Respondent introduced evidence to prove that petitioner
was required to file a Federal income tax return for 2003, that
petitioner did not file a 2003 return, and that petitioner did
not make any estimated tax payments for 2003. However,
respondent did not introduce evidence sufficient to prove that
petitioner had an obligation to make any estimated tax payments
for 2003. Specifically, respondent’s burden of production under
section 7491(c) required him to produce evidence that petitioner
had a required annual payment for 2003 under section 6654(d), and
respondent failed to do so.
13
For purposes of sec. 6654, an individual’s tax consists of
his income tax and self-employment tax and is determined before
the application of any wage withholding credit but after the
application of other allowable credits. Sec. 6654(f).
14
If an individual’s adjusted gross income shown on the
previous year’s return exceeds $150,000, a higher percentage may
apply. See sec. 6654(d)(1)(C).
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Under section 6654(d)(1)(B), the required annual payment,
which dictates the amount, if any, of a taxpayer’s required
estimated tax installments, see sec. 6654(d)(1), is the lesser of
90 percent of the tax shown for the subject taxable year (or, if
no return was filed, 90 percent of the tax for such year), sec.
6654(d)(1)(B)(i), or a fixed percentage (usually 100 percent but
can be higher, see sec. 6654(d)(1)(C)(i)) of the tax shown on the
taxpayer’s return for the preceding taxable year, sec.
6654(d)(1)(B)(ii). In order to satisfy his burden of production
under section 7491(c) regarding petitioner’s liability for the
section 6654 addition to tax, respondent, at a minimum, must
produce evidence necessary to enable the Court to conclude that
petitioner had a required annual payment under section
6654(d)(1)(B).
Respondent produced evidence establishing that petitioner
did not file a return for 2003 and that, after concessions,
petitioner had a revised income tax liability of $3,854 for 2003,
the year at issue. This evidence was sufficient to permit this
Court to make the analysis required by section 6654(d)(1)(B)(i).
However, in order to permit this Court to make the analysis
required by section 6654(d)(1)(B)(ii)15 and to conclude that
respondent had met his burden of producing evidence that
15
Sec. 6654(d)(1)(B)(ii) does not apply if the preceding
taxable year was not a taxable year of 12 months or if the
individual did not file a return for the preceding taxable year.
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petitioner had a required annual payment for 2003 payable in
installments under section 6654, respondent also had to introduce
evidence showing whether petitioner filed a return for the
preceding taxable year and, if he did, the amount of tax shown on
that return. Respondent did not do so. Without that evidence,
we cannot identify the number equal to 100 percent of the tax
shown on petitioner’s 2002 return, we cannot complete the
comparison required by section 6654(d)(1)(B), and we cannot
conclude that petitioner had a required annual payment for 2003
that was payable in installments under section 6654.
We recognize that section 6654 is a complex provision. It
sets forth the requirements for calculating and making
installment payments of estimated tax, see sec. 6654(c) and (d),
it contains special rules for estimated tax payments by certain
classes of taxpayers, see sec. 6654(i), (j), (l), it contains
exceptions to the general requirement that estimated tax payments
be made, see sec. 6654(e), and it imposes an addition to tax on
an individual who underpays his estimated tax that is calculated
with reference to the underpayment rate under section 6621, the
underpayment amount, and the underpayment period, see sec.
6654(a) and (b). We do not attempt in this Opinion to answer all
of the questions that may arise regarding the interrelationship
of section 7491(c) and section 6654. We hold only that the
Commissioner’s burden of production under section 7491(c) with
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respect to the section 6654 addition to tax requires the
Commissioner, at a minimum, to produce evidence that a taxpayer
had a required annual payment under section 6654(d). Respondent
did not do so. Consequently, respondent’s determination
regarding the section 6654 addition to tax is not sustained.
III. Section 6673 Penalty
Section 6673(a)(1) authorizes this Court to require a
taxpayer to pay the United States a penalty, not to exceed
$25,000, if it appears that the taxpayer has instituted or
maintained a proceeding primarily for delay or that the
taxpayer’s position is frivolous or groundless. 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.’” Williams v. Commissioner, 114 T.C. 136,
144 (2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th
Cir. 1986)).
Petitioner’s arguments regarding such things as his
obligation to file a Federal income tax return and the effects of
the Paperwork Reduction Act on his tax reporting and payment
obligations are contrary to well-established law and are
frivolous. Although we provided petitioner with ample warning of
the potential implications of continuing to assert those
frivolous and groundless arguments, petitioner did not abandon
his arguments or acknowledge his liability for income tax on the
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income he received during 2003. Instead, petitioner chose to
appear at trial, where he presented no evidence and argued that
the notice of deficiency was not statutory or valid. Moreover,
this is not the first time that petitioner has wasted the time
and resources of this Court. See Wheeler v. Commissioner, T.C.
Memo. 2006-109.
While it is true that petitioner has prevailed with respect
to two of the additions to tax, his success is not attributable
to any meaningful effort on his part. Rather, his limited
success in this case is the result of respondent’s failure to
satisfy his burden of production under section 7491(c) regarding
the section 6651(a)(2) and section 6654 additions to tax. With
the exception of petitioner’s allegation that he was not liable
for the additions to tax, petitioner’s assignments of error in
the petition, his arguments in his pretrial memorandum,16 and his
argument at trial were either unintelligible or meritless.
Moreover, petitioner did not abandon his frivolous arguments
despite repeated warnings. At trial, petitioner, while
courteous, did not testify regarding any disputed factual
matters, and he persisted in arguing that the notice of
deficiency was not valid.
16
Petitioner’s pretrial memorandum was filled with
unintelligible and/or frivolous arguments reminiscent of tax-
protester rhetoric.
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The record convincingly demonstrates that petitioner
maintained these proceedings primarily for delay and that
petitioner’s positions regarding respondent’s deficiency
determination were frivolous and groundless. We believe that
petitioner’s conduct deserves an appropriate sanction under
section 6673. In setting the amount of the penalty, we recognize
that petitioner was courteous at trial and that he made a flawed
attempt to cooperate.17 We also recognize that this Court’s
opinion in Wheeler v. Commissioner, supra, was not released until
after the trial in this case. However, petitioner was warned
repeatedly by respondent and by this Court that his arguments in
this case could expose him to liability for the section
6673(a)(1) penalty, and he did not heed those warnings.
Accordingly, we shall require petitioner to pay to the United
States a penalty under section 6673(a)(1) of $1,500.
17
During a pretrial conference, respondent confirmed that
petitioner had been cooperative in that he did not dispute the
amounts of the income adjustments, but the record demonstrates
that petitioner’s cooperation was extremely limited.
Petitioner’s limited cooperation is insufficient to counteract
his stubborn insistence on arguing positions consistently
rejected by this Court and others. See Wheeler v. Commissioner,
T.C. Memo. 2006-109.
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To reflect the foregoing and concessions of the parties,
An appropriate order will
be issued, and decision will
be entered under Rule 155.