T.C. Memo. 2009-169
UNITED STATES TAX COURT
JOHN B. RICE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21567-07L. Filed July 15, 2009.
John B. Rice, pro se.
Steven M. Webster, for respondent.
MEMORANDUM OPINION
JACOBS, Judge: The dispute between the parties concerns
respondent’s proposed use of a levy to collect frivolous income
tax return penalties against petitioner pursuant to section 6702.
The issue is whether to sustain respondent’s determination to
proceed with the proposed collection activity.
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Unless otherwise indicated, all section references are to
the Internal Revenue Code.
At the time he filed his petition, petitioner resided in
Georgia.
Background
Petitioner is an adherent of the principles espoused by
Robert Clarkson (Clarkson),1 founder of the Patriot Network, a
national organization that advocates tax avoidance activities as
well as the frustration and delay of collection efforts by the
Internal Revenue Service (IRS). Petitioner is no stranger to
this Court. He has appeared before us on two prior occasions,
losing both times. Rice v. Commissioner, an Oral Opinion of this
Court dated Aug. 30, 2006; Rice v. Commissioner, an Oral Opinion
of this Court dated Mar. 19, 2008.
During 2001 petitioner received a distribution from the
Employees’ Retirement System of Georgia pension plan of which
$34,631 was reported to respondent by the payor as taxable
income. He reported $17 as taxable interest.
During 2002 petitioner received a distribution from the
Employees’ Retirement System of Georgia pension plan of which
1
Clarkson had previously been found to have engaged in
activities that interfere with the enforcement of internal
revenue laws including, but not limited to, instructing others to
purposely frustrate and delay collection efforts and was
permanently enjoined from participating in those and other
activities. See United States v. Clarkson, 100 AFTR 2d 2007-
5108, 2007-2 USTC par. 50,558 (D.S.C. 2007).
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$35,688 was reported to respondent by the payor as the taxable
amount. He also reported $17 as taxable interest.
Petitioner submitted undated Federal income tax returns for
2001 and 2002 reporting as taxable income for each year only the
$17 of interest and reporting no tax liability. Form 2555-EZ,
Foreign Earned Income Exclusion, and Form 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., reflecting petitioner’s pension
income, were attached to each return. For each year petitioner
claimed he qualified for the foreign earned income exclusion,
stating he resided in the “American Republic of Georgia” and, as
a retired Georgia State employee, his employer was the “American
Republic of Georgia.” Neither return was signed.
Using information from third-party payors, the IRS computed
petitioner’s 2001 tax to be $4,119 and his 2002 tax to be $3,913.
A notice of deficiency for year 2001 was mailed to petitioner on
January 14, 2004. That notice, in addition to the aforementioned
$4,119 deficiency in income tax, included additions to tax under
section 6651(a)(1) (failure to file a return) and section 6654
(failure to pay estimated tax). A notice of deficiency for year
2002 was mailed to petitioner on October 5, 2004. That notice,
in addition to the aforementioned $3,913 deficiency in income
tax, included additions to tax under sections 6651(a)(1) and
6654.
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On April 7, 2004, petitioner filed a petition at docket No.
6025-04 contesting respondent’s determinations with respect to
year 2001. On December 29, 2004, petitioner filed a petition at
docket No. 24893-04 contesting respondent’s determinations with
respect to year 2002. Pursuant to an Order dated January 3,
2005, on February 22, 2005, petitioner filed an amended petition
with respect to year 2002. By Order dated November 1, 2005, the
cases in docket Nos. 6025-04 and 24893-04 were consolidated for
trial, briefing, and opinion.
A trial with respect to docket Nos. 6025-04 and 24893-04 was
held in Atlanta, Georgia, on August 28, 2006. As stated supra p.
2, a bench opinion was rendered on August 30, 2006, and decisions
were entered in accordance therewith on September 26, 2006.
On a date not specified in the record, respondent assessed
a frivolous income tax return penalty pursuant to section 6702
for both 2001 and 2002.
On October 23, 2006, respondent mailed petitioner a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing
regarding the section 6702 frivolous return penalty for 2002. On
March 8, 2007, respondent mailed petitioner a final levy notice
regarding the section 6702 penalty for 2001. Petitioner timely
submitted a Form 12153, Request for a Collection Due Process or
Equivalent Hearing (section 6330 hearing), challenging each
notice of levy and requesting a face-to-face hearing.
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By letter dated July 25, 2007, respondent informed
petitioner that his request for a hearing had been received and
that his case had been assigned to a settlement officer in
respondent’s Appeals Office in Atlanta. The letter stated that
the issues petitioner raised “are those that Courts have
determined are frivolous or Appeals does not consider.” The
letter advised petitioner that because the only issues he raised
were frivolous, he was not entitled to a face-to-face hearing.
Instead, petitioner was offered a telephone hearing to be held on
August 15, 2007. Petitioner was advised that he would be allowed
a face-to-face conference with respect to any nonfrivolous issue;
however, before doing so respondent had to be informed of the
nonfrivolous issue in writing or by telephone call to
respondent’s Appeals settlement officer by August 8, 2007.
By letter dated August 8, 2007, petitioner stated he did not
want a telephone hearing, and he again asked for a face-to-face
meeting. Petitioner denied raising frivolous issues. Petitioner
appeared unexpectedly in person at respondent’s Appeals Office in
Atlanta along with Clarkson and one or two other witnesses.
Respondent’s Appeals settlement officer refused to see them.
Respondent issued a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330 on August 21,
2007. In that notice respondent sustained the proposed levy.
Respondent noted in the determination notice that no notice of
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deficiency was necessary with respect to the imposition of a
frivolous return penalty under section 6702.
Petitioner timely contested respondent’s levy determination
by filing a petition in this Court. A trial was held on February
3, 2009. At trial petitioner was given the opportunity to
explain why the section 6702 frivolous return penalty should not
be applied with respect to his submissions of his 2001 and 2002
Federal income tax returns. Petitioner gave no adequate
explanation. Collection of the deficiencies in income tax for
2001 and 2002 and additions to tax under sections 6651(a)(1) and
6654 is not before us.
Discussion
A. Section 6702 Frivolous Income Tax Return Penalty
Pursuant to section 6702,2 a frivolous return penalty may be
2
Sec. 6702 as in effect during the relevant period provides
in relevant part:
SEC. 6702. FRIVOLOUS INCOME TAX RETURN.
(a) Civil Penalty.--If–-
(1) any individual files what purports to be a
return of the tax imposed by subtitle A but which–-
(A) does not contain information on which
the substantial correctness of the self-assessment
may be judged, or
(B) contains information that on its face
indicates that the self-assessment is
substantially incorrect; and
(continued...)
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assessed against a taxpayer if three requirements are met.
First, under section 6702(a)(1), the taxpayer must file a
document that purports to be an income tax return. Second, under
section 6702(a)(1)(A), the purported return must lack the
information needed to judge the substantial correctness of the
self-assessment or, under section 6702(a)(1)(B), must contain
information indicating the self-assessment on the purported
return is substantially incorrect. Third, under section
6702(a)(2), the taxpayer’s position must be frivolous or
demonstrate a desire (which appears on the purported return) to
delay or impede the administration of Federal income tax law.
See Callahan v. Commissioner, 130 T.C. 44, 51 (2008). “We
generally look to the face of the documents to determine whether
a taxpayer is liable for a frivolous return penalty as a matter
of law.” Id.; see Yuen v. United States, 290 F. Supp. 2d 1220,
1224 (D. Nev. 2003).
2
(...continued)
(2) the conduct referred to in paragraph (1) is
due to–-
(A) a position which is frivolous, or
(B) a desire (which appears on the purported
return) to delay or impede the administration of
Federal income tax laws,
then such individual shall pay a penalty of $500.
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B. Jurisdiction
The section 6702 frivolous return penalty is governed by the
procedural rules of section 6703,3 which generally removes
section 6702 penalty assessments from the deficiency jurisdiction
of this Court. However, section 6330(d)(1)4 provides this Court
with jurisdiction to review an appeal from the Commissioner’s
determination to proceed with collection activity regardless of
the type of underlying tax involved. We have held that our
jurisdiction includes the right to review the Commissioner’s levy
collection activity regarding the section 6702 frivolous return
penalty. Callahan v. Commissioner, supra. Thus, we have
jurisdiction to review respondent’s notice of determination of
August 21, 2007, issued to petitioner under section 6330.
C. Standard of Review
This case involves a review of respondent’s determination to
proceed with collection of petitioner’s frivolous return
penalties for 2001 and 2002 via levy. Section 6330(a) provides
that no levy may be made on any property or right to property of
any person unless the Secretary has notified that person in
3
Sec. 6703(b) provides that subch. B of ch. 63 of the
Internal Revenue Code (relating to deficiency procedures) does
not apply with respect to the assessment or collection of the
penalties provided by secs. 6700, 6701, and 6702.
4
As amended by the Pension Protection Act of 2006, Pub. L.
109-280, sec. 855, 120 Stat. 1019, effective for determinations
made after Oct. 16, 2006.
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writing of the right to a hearing before the levy is made (the
section 6330 hearing). Section 6330 hearings concerning levies
are conducted in accordance with section 6330(c). After the
Commissioner issues his notice of determination following an
administrative hearing, a taxpayer has the right to petition this
Court for judicial review of the Commissioner’s determination.
Sec. 6330(d)(1).
A taxpayer is precluded from contesting the existence or
amount of the underlying liability if he/she received a notice of
deficiency for the tax year in question or otherwise had an
opportunity to dispute the underlying tax liability. Sec.
6330(c)(2)(B). If the taxpayer did not receive a notice of
deficiency or did not have an opportunity to dispute the
underlying tax liability, we review the matter de novo. Davis v.
Commissioner, 115 T.C. 35, 39 (2000).
Because no notice of deficiency was sent with respect to the
section 6702 frivolous return penalty, petitioner was entitled to
contest the penalty at his section 6330 hearing. Respondent
conceded that no actual meeting or telephone conference between
petitioner and respondent’s Appeals settlement officer took
place. Accordingly, we review the 2001 and 2002 frivolous return
penalties de novo.
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D. Application
With regard to the first element of the section 6702
frivolous return penalty, the documents petitioner filed
purported to be income tax returns for 2001 and 2002. Each
return included a Form 1099-R that was provided by the Employees’
Retirement System of Georgia pension plan reporting petitioner’s
pension income. A relatively insignificant amount of interest
income was also reported on each return. Finally, petitioner
attached a Form 2555-EZ to each return purporting to show that he
was entitled to the foreign earned income exclusion, and as a
consequence he reported zero on the line for total tax on Form
1040, U.S. Individual Income Tax Return, for each year. Thus,
the first element of the section 6702 frivolous return penalty is
met.
With regard to the second element of the section 6702
frivolous return penalty, the returns petitioner filed for 2001
and 2002 are substantially incorrect in that he claimed on each
return a foreign earned income exclusion on Form 2555-EZ, even
though he provided a domestic address and acknowledged that he
lived there throughout each taxable year. Accordingly, the
second element of the section 6702 frivolous return penalty is
met.
Finally, with regard to the third element of the section
6702 frivolous return penalty, petitioner’s position that he
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qualifies as a nonresident nontaxpayer is frivolous on its face.
Petitioner claims on Form 2555-EZ to be a citizen of the
“American Republic of Georgia” and not a resident of the United
States. We have imposed the section 6673 penalty for taking a
frivolous position upon taxpayers who have claimed that they are
not subject to Federal income taxation because they are not
citizens of the United States but instead are citizens of a State
“republic” (e.g., the Republic of Colorado, the Republic of
California). See, e.g., Fisher v. Commissioner, T.C. Memo. 1996-
277; Fox v. Commissioner, T.C. Memo. 1996-79 (applying the
section 6673 penalty for instituting procedures primarily for
delay based on raising frivolous arguments). The third and final
element of the section 6702 frivolous return penalty is thus met.
E. Petitioner’s Position
Petitioner contends that he was entitled to a face-to-face
hearing and that because he was denied one, respondent abused his
discretion in determining to proceed with the collection of the
frivolous income tax return penalties for years 2001 and 2002 by
levy. We disagree.
Petitioner’s arguments disputing the section 6702 frivolous
return penalties, as set forth in his communications with
respondent, themselves were frivolous. Petitioner was given an
opportunity to present nonfrivolous arguments but did not do so.
We are satisfied that a face-to-face conference would not have
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been productive. See Moline v. Commissioner, T.C. Memo. 2009-
110; Summers v. Commissioner, T.C. Memo. 2006-219; Ho v.
Commissioner, T.C. Memo. 2006-41.
F. Conclusion
Respondent’s Appeals settlement officer verified that the
requirements of all applicable law and administrative procedures
were met and that the proposed levy action appropriately balanced
the need for efficient collection of taxes with the petitioner’s
concerns that the levy be no more intrusive than necessary.
We hold that respondent did not abuse his discretion in
determining to proceed with the collection by levy of the
frivolous income tax return penalties owed by petitioner for
years 2001 and 2002.
To reflect the foregoing,
Decision will be entered
for respondent.