T.C. Memo. 2009-167
UNITED STATES TAX COURT
WILLIAM GREGORY SAMPLES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22527-08. Filed July 14, 2009.
William Gregory Samples, pro se.
Lynette Mayfield, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case is before the Court on a petition
for redetermination of a deficiency and additions to tax for the
year 2004. In a notice dated June 30, 2008, respondent
determined a deficiency of $4,539 in petitioner’s Federal income
tax for 2004 and additions to tax pursuant to section 6651(a)(1)
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of $740.02 and section 6651(a)(2) of $592.02.1 In an amendment
to answer filed May 18, 2009, respondent alleged and claimed for
2004 an increased deficiency of $7,136 and an increased addition
to tax under section 6651(a)(1) of $1,324.
The issues for decision are: (1) Whether petitioner
received in 2004 wages and other compensation of $39,159.67 and
business income of $6,938, all of which is includable in his
gross income and subject to tax; (2) whether petitioner is liable
for an addition to tax pursuant to section 6651(a)(1) for failing
to file a Federal income tax return for 2004; (3) whether
petitioner is liable for an addition to tax pursuant to section
6651(a)(2) for failing to pay Federal income tax for 2004; and
(4) whether petitioner should be required to pay a penalty to the
United States pursuant to section 6673(a).
Background
There is no stipulation of facts. However, respondent’s
Exhibits 1-R through 5-R were received in evidence and are
incorporated herein by this reference. Petitioner resided in
Tennessee at the time he filed his petition. In 2004 petitioner
was employed by Bluegreen Corp. (Bluegreen) of Boca Raton,
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended and in effect for the tax
year at issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure. The failure to pay addition is at the
rate of 0.5 percent for each month or fraction thereof that the
failure to pay continues, not exceeding 25 percent in the
aggregate.
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Florida. As provided by section 6041(a) and (d), Bluegreen
reported to respondent that it paid wages and other compensation
to petitioner during 2004. It issued to petitioner a Form W-2,
Wage and Tax Statement, for 2004 showing wages and other
compensation of $39,159.67, Federal income tax withheld of
$1,250.54, Social Security tax withheld of $2,427.90, and
Medicare tax withheld of $567.82. Petitioner did not timely file
a Form 1040, U.S. Individual Income Tax Return, for 2004 and did
not report the income received for that year from Bluegreen.
On or about June 13, 2008, petitioner submitted to
respondent’s Fresno Service Center for filing as a purported 2004
Form 1040 a document to which petitioner attached a letter and a
7-page affidavit of frivolous arguments. The purported return
showed $39,159 as wages received, income of $6,938 from Schedule
C, Profit or Loss From Business, and total income of $46,097.
Petitioner reported his adjusted gross income as zero and his
total tax as zero. The Fresno Service Center determined that the
purported return was “unprocessible” and rejected it as a
frivolous document.
On September 8, 2008, respondent sent a letter to petitioner
cautioning him that, if the frivolous document was not withdrawn
and a proper return was not filed within 30 days, a civil penalty
for filing a frivolous tax return would be imposed.
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Petitioner did not withdraw his document submitted on June
13, 2008. Accordingly, a civil penalty of $5,000 for filing a
frivolous tax return was imposed pursuant to section 6702(a), and
it was assessed by respondent on December 15, 2008.
Respondent then prepared a substitute for return for
petitioner pursuant to section 6020(b) and the return was
audited. Upon audit, since the parties did not agree, respondent
issued a notice of deficiency.
On September 12, 2008, petitioner filed his petition and
made the same frivolous arguments that caused the civil penalty
for filing a frivolous tax return to be imposed for 2004.
On March 6, 2009, respondent’s counsel sent petitioner a
letter cautioning him that, if he continued to make the same
frivolous and groundless arguments at trial, respondent would
request the Court to impose sanctions pursuant to section
6673(a).
On or about May 1, 2009, petitioner sent to the Court and to
respondent his pretrial memorandum in which he cited the same
authorities for his previously rejected frivolous and groundless
arguments. He continued to repeat them in his statements and
testimony at trial. Consequently, respondent filed at trial a
motion to impose sanctions under section 6673(a).
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Discussion
Throughout this case petitioner presented tax-protester
arguments, stating that he is not liable for the Federal income
tax deficiencies and additions to tax determined in respondent’s
notice and asserted in his amendment to answer.
I. Parties’ Contentions
In summary, petitioner argues that the income tax is an
indirect excise tax; excise taxes can be laid only upon certain
specified events or on privileges; the labor and income of a
natural person are his property and a natural right, not a
privilege granted by government; and, since none of his income
was produced from taxable activity (i.e., the manufacture, sale,
or consumption of commodities) and he is a natural person, not a
corporation, none of the income he earned in 2004 is taxable.
To the contrary, respondent points out that petitioner’s
arguments are erroneous for several reasons. First, petitioner’s
reliance on the historical discussion contained in Brushaber v.
Union Pacific Railroad Co., 240 U.S. 1, 17-19 (1916), of direct
versus indirect taxes as supporting his position is misguided and
does not sustain it. As explained by the Supreme Court in
Brushaber, the purpose of the 16th Amendment to the Constitution
was to eliminate the source from which taxed income was derived
as the criterion by which to determine the applicability of the
constitutional requirement for the apportionment of taxes. Thus,
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the Brushaber holding negates petitioner’s attempt to
recharacterize his wages and other compensation income as
property on which no income tax may be imposed. Second,
petitioner’s contention that his wages and other compensation are
not taxable because they are property and that an indirect income
tax on property is impermissible under the Constitution is merely
a variation on the frivolous argument that wages are not income.
Third, Courts of Appeals have consistently rejected as frivolous
the argument that wages are not income. E.g., United States v.
Becker, 965 F.2d 383, 389 (7th Cir. 1992); United States v.
Connor, 898 F.2d 942, 943-944 (3d Cir. 1990). We agree with
respondent. In Rowlee v. Commissioner, 80 T.C. 1111, 1119-1122
(1983), this Court thoroughly analyzed, explained, and rejected
the same frivolous and groundless arguments made by petitioner.
II. Wages and Other Compensation
Section 61(a)(1) defines gross income for purposes of
calculating taxable income as “all income from whatever source
derived, including (but not limited to) the following items: (1)
Compensation for services, including fees, commissions, fringe
benefits, and similar items”. Section 61(a)(2) provides for
gross income derived from business. Section 1 imposes a tax on
taxable income received by an individual. The liability for the
payment of the income tax is on the individual earning the
income. Lucas v. Earl, 281 U.S. 111, 114-115 (1930).
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The evidence clearly shows that petitioner received wages
and other compensation totaling $39,159.67 as an employee of
Bluegreen in 2004. He also received $6,938 as gross income, with
no claimed expenses, in his business as an alternative health
educator.
In Perkins v. Commissioner, 746 F.2d 1187 (6th Cir. 1984),
affg. T.C. Memo. 1983-474, the U.S. Court of Appeals for the
Sixth Circuit decided in a per curiam opinion the same issues
involved in the instant case by rejecting the taxpayer’s claims
that (1) wages paid for his labor were nontaxable receipts, and
(2) the 16th Amendment does not permit an imposition of tax on
wages. The Court of Appeals stated:
These assertions are totally without merit.
First, gross income means all income from whatever
source derived including compensation for services. 26
U.S.C. sections 61(a) and 61(a)(1); Commissioner v.
Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct. 473, 99
L.Ed. 483 (1955); Brushaber v. Union Pacific Railroad,
240 U.S. 1, 12, 36 S.Ct. 236, 239, 60 L.Ed. 493 (1916);
Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982)
(wages received for services are taxable as income).
Second, 26 U.S.C. section 61(a) is in full accordance
with Congressional authority under the Sixteenth
Amendment to the Constitution to impose taxes on income
without apportionment among the states. * * *
Id. at 1188.
The decision of the Court of Appeals in the Perkins case
controls the disposition of the issues in this case. In
addition, there are, of course, numerous decisions by other
Courts of Appeals holding that wages received for services are
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taxable as income. See, e.g., Wilcox v. Commissioner, 848 F.2d
1007, 1008 (9th Cir. 1988); Motes v. United States, 785 F.2d 928
(11th Cir. 1986), Stelly v. Commissioner, 761 F.2d 1113, 1115
(5th Cir. 1985).
Accordingly, on the basis of this record, we sustain
respondent’s determination of the deficiency and the asserted
increased deficiency.
III. Additions to Tax
A. Burden of Production
Respondent bears the burden of production with respect to
petitioner’s liability for the additions to tax. See sec.
7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). To
meet his burden of production, respondent must come forward with
sufficient evidence indicating it is appropriate to impose the
additions to tax. See Higbee v. Commissioner, supra at 446.
Once respondent meets his burden of production, petitioner must
come forward with evidence sufficient to persuade the Court that
respondent’s determinations are incorrect. See id. at 447.
B. Section 6651(a)(1)
Respondent determined that petitioner is liable for an
addition to tax pursuant to section 6651(a)(1) for 2004. Section
6651(a)(1) imposes an addition to tax for failure to file a
return on the date prescribed (determined with regard to any
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extension of time for filing) unless such failure is due to
reasonable cause and not due to willful neglect.
Petitioner did not file a return for 2004. Thus, respondent
has met his burden of production. Petitioner must come forward
with evidence sufficient to persuade the Court that respondent’s
determination is incorrect or that an exception applies. See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); see
also Higbee v. Commissioner, supra at 447. Petitioner alleged no
error in his petition with respect to the section 6651(a)(1)
addition to tax. Furthermore, he presented no evidence that his
failure to file was due to reasonable cause and not due to
willful neglect. Therefore, we hold that petitioner is liable
for the addition to tax pursuant to section 6651(a)(1).
C. Section 6651(a)(2)
Section 6651(a)(2) provides for an addition to tax where
payment of tax is not timely “unless it is shown that such
failure is due to reasonable cause and not due to willful
neglect”. Respondent prepared a substitute for return for 2004
that satisfied section 6020(b). After the substitute return was
audited and the parties failed to agree, respondent determined a
deficiency of $4,538 which was later increased to $7,136 in an
amended answer. Petitioner has paid only a portion of the tax
due.
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On the basis of the evidence, we find that petitioner did
not pay on time some of his tax due for 2004. Petitioner also
did not present evidence indicating that his failure to pay was
due to reasonable cause and not due to willful neglect. See
Higbee v. Commissioner, supra at 446-447 (stating that the
taxpayer bears the burden of proof regarding reasonable cause).
Accordingly, we sustain respondent’s determination on this issue
and hold that petitioner is liable for the addition to tax
pursuant to section 6651(a)(2).
IV. Penalty Under Section 6673(a)(1)
Section 6673(a)(1) authorizes the Court to require a
taxpayer to pay to the United States a penalty in an amount not
to exceed $25,000 if (1) the taxpayer has instituted or
maintained a proceeding primarily for delay, or (2) the
taxpayer’s position is “frivolous or groundless”. We think
petitioner obviously brought this proceeding to delay payment of
the income tax he owes. Moreover, his case is groundless, and
his arguments are frivolous. A taxpayer’s position is frivolous
if it is contrary to established law and unsupported by a
reasoned, colorable argument for change in the law. E.g., Nis
Family Trust v. Commissioner, 115 T.C. 523, 544 (2000).
Petitioner has offered no plausible argument that he is exempt
from Federal income tax. His arguments simply employ familiar
tax-protester rhetoric that has been universally rejected by this
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and other courts. See, e.g., Crain v. Commissioner, 737 F.2d
1417 (5th Cir. 1984); Williams v. Commissioner, 114 T.C. 136
(2000); see also Rodriguez v. Commissioner, T.C. Memo. 2009-92;
Wagenknecht v. Commissioner, T.C. Memo. 2008-288.
During the present difficult economic situation, when the
courts are confronted with resolving an increasing number of
legitimate tax controversies, what we stated 32 years ago in
Hatfield v. Commissioner, 68 T.C. 895, 899 (1977), bears
repeating:
In recent times, this Court has been faced with
numerous cases, such as this one, which have been
commenced without any legal justification but solely
for the purpose of protesting the Federal tax laws.
This Court has before it a large number of cases which
deserve careful consideration as speedily as possible,
and cases of this sort needlessly disrupt our
consideration of those genuine controversies. * * *
Many citizens may dislike paying their fair share
of taxes; everyone feels that he or she needs the money
more than the Government. On the other hand, as
Justice Oliver Wendell Holmes so eloquently stated:
“Taxes are what we pay for civilized society.”
Compania de Tabacos v. Collector, 275 U.S. 87, 100
(1927). The greatness of our nation is in no small
part due to the willingness of our citizens to honestly
and fairly participate in our tax collection system
which depends upon self-assessment. Any citizen may
resort to the courts whenever he or she in good faith
and with a colorable claim desires to challenge the
Commissioner’s determination; but that does not mean
that a citizen may resort to the courts merely to vent
his or her anger and attempt symbolically to throw a
wrench at the system. * * *
Petitioner’s actions and arguments have resulted in a waste
of limited judicial and administrative resources that could have
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been devoted to resolving bona fide claims of other taxpayers.
And his insistence on making such discredited and meritless
contentions has shown an unwillingness to comply with the tax
laws of the United States.
Accordingly, we shall grant respondent’s motion to impose
sanctions, and we shall require petitioner to pay a penalty of
$5,000 to the United States pursuant to section 6673(a)(1).
To reflect the foregoing,
An appropriate order and
decision will be entered for
respondent.