T.C. Memo. 2010-86
UNITED STATES TAX COURT
DAAWUD-EL WAAMIQ-ALI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24108-08. Filed April 21, 2010.
Daawud-El Waamiq-Ali, pro se.
James P.A. Caligure, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: For 2004 and 2005 respondent determined
deficiencies in petitioner’s Federal income taxes and additions
to tax as follows:
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
2004 $3,193 $718.42 $606.67 ---
2005 3,188 717.30 414.44 $127.87
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All section references are to the Internal Revenue Code (Code),
and all Rule references are to the Tax Court Rules of Practice
and Procedure. The issues for decision are whether petitioner
is: (1) liable for the deficiencies in his Federal income taxes;
(2) liable for the additions to tax under sections 6651(a)(1) and
(2) and 6654(a); and (3) liable for a penalty pursuant to section
6673(a).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the accompanying exhibits are
incorporated by this reference. At the time the petition was
filed, petitioner resided in New York.
During 2004 petitioner worked for Barton Protective
Services, Inc. (Barton), and Allied-Barton Security Services
(Allied) and received wages of $20,171 and $11,716 from Barton
and Allied, respectively. In 2005 petitioner worked for Allied
and received $31,893 in wages. Neither Barton nor Allied
withheld any Federal income tax from petitioner’s wages because
he filed a Form W-4, Employee’s Withholding Allowance
Certificate, for both years claiming that he was exempt from
Federal income tax withholding. Petitioner filed several
documents with his employers claiming that his submission of Form
W-4 was involuntary, he was exempt from withholding, and he
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incurred no Federal income tax liability. Petitioner failed to
file Federal income tax returns for 2004 and 2005.
Pursuant to section 6020(b), respondent filed substitutes
for returns (SFR) for petitioner for 2004 and 2005. For 2004
respondent determined that petitioner’s filing status was single
and that petitioner’s taxable income was $31,627.1 For 2005
respondent determined that petitioner’s filing status was single
and that petitioner’s taxable income was $31,893.
Petitioner stipulated that he received wages from Barton and
Allied as determined by respondent. However, petitioner claims
that he is not liable for tax on the amounts included in his
gross income by respondent because: (1) Employers are liable for
Federal income taxes on employee wages; (2) wages are not taxable
income; and (3) respondent does not have the authority to prepare
SFRs.
OPINION
I. Deficiencies in Federal Income Tax
Section 61(a)(1) defines gross income as all income from
whatever sources derived, including compensation for services.
As a general rule, the taxpayer bears the burden of proving
the Commissioner’s deficiency determinations incorrect. Rule
1
Respondent listed petitioner’s wages on the 2004 SFR as
$31,627, which is $260 less than the stipulated amount of
$31,887. This discrepancy has no effect on the outcome of this
case.
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142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section
7491(a), however, provides that if the taxpayer introduces
credible evidence and meets certain other prerequisites, the
Commissioner shall bear the burden of proof with respect to
factual issues relating to the taxpayer’s liability for a tax
imposed under subtitle A or B of the Code.
Petitioner does not dispute receiving the wages or
respondent’s calculation of tax. Rather, petitioner disagrees
only with respondent’s legal conclusions (i.e., that petitioner’s
wages are taxable; that petitioner, not his employer, is liable
for the income tax; and that respondent has the authority to
prepare the SFRs). Since the facts are undisputed and petitioner
has failed to introduce credible evidence, section 7491(a) does
not apply. See Davenport v. Commissioner, T.C. Memo. 2009-248.
In his petition, at trial, and on brief, petitioner advanced
shopworn arguments characteristic of tax-protester rhetoric that
have been universally rejected by this and other courts. See
Ledford v. United States, 297 F.3d 1378, 1381 (Fed. Cir. 2002);
United States v. Connor, 898 F.2d 942, 943 (3d Cir. 1990); Connor
v. Commissioner, 770 F.2d 17, 19-20 (2d Cir. 1985); Sawukaytis v.
Commissioner, T.C. Memo. 2002-156, affd. 102 Fed. Appx. 29 (6th
Cir. 2004). We shall not painstakingly address petitioner’s
assertions “with somber reasoning and copious citation of
precedent; to do so might suggest that these arguments have some
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colorable merit.” See Crain v. Commissioner, 737 F.2d 1417, 1417
(5th Cir. 1984). Accordingly, we sustain respondent’s
deficiency determinations for 2004 and 2005.
II. Additions to Tax
Section 7491(c) provides that the Commissioner has the
burden of production with respect to the liability of any
individual for additions to tax. “The Commissioner’s burden of
production under section 7491(c) is to produce evidence that it
is appropriate to impose the relevant penalty, addition to tax,
or additional amount”. Swain v. Commissioner, 118 T.C. 358, 363
(2002); see also Higbee v. Commissioner, 116 T.C. 438, 446
(2001). Once the Commissioner satisfies this burden of
production, the taxpayer must persuade the Court that the
Commissioner’s determination is in error by supplying sufficient
evidence of an applicable exception. Higbee v. Commissioner,
supra at 446.
A. Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed (determined with regard to
any extension of time for filing), unless such failure is due to
reasonable cause and not due to willful neglect.2
2
If the Secretary makes a return for the taxpayer under
sec. 6020(b), it is disregarded for purposes of determining the
amount of the addition to tax under sec. 6651(a)(1), but it is
treated as a return filed by the taxpayer for purposes of
(continued...)
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Petitioner failed to file Federal income tax returns for
2004 and 2005. Accordingly, we find that respondent has met his
burden of production with regard to the additions to tax under
section 6651(a)(1). Petitioner has presented no evidence of a
reasonable cause defense. Therefore, petitioner is liable for
additions to tax under section 6651(a)(1) for 2004 and 2005.
B. Section 6651(a)(2)
Section 6651(a)(2) provides for an addition to tax where
payment of the amount reported as tax on a return is not timely
“unless it is shown that such failure is due to reasonable cause
and not due to willful neglect”.
With respect to the section 6651(a)(2) addition to tax, the
Commissioner must introduce evidence that the tax was shown on a
Federal income tax return to satisfy his burden of production
under section 7491(c). Cabirac v. Commissioner, 120 T.C. 163
(2003). When a taxpayer has not filed a return, the section
6651(a)(2) addition to tax may not be imposed unless the
Secretary has prepared a substitute for return (SFR) that meets
the requirements of section 6020(b). Wheeler v. Commissioner,
127 T.C. 200, 208-209 (2006), affd. 521 F.3d 1289 (10th Cir.
2008).
2
(...continued)
determining the amount of the addition to tax under sec.
6651(a)(2). Sec. 6651(g).
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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
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.
Respondent provided the Court with copies of the SFRs
prepared for petitioner for 2004 or 2005. The SFRs satisfy the
requirements of section 6020(b). See Nino v. Commissioner, T.C.
Memo. 2009-293; Carver v. Commissioner, T.C. Memo. 2009-279;
Hawkins v. Commissioner, T.C. Memo. 2008-168. Petitioner did not
timely pay his 2004 or 2005 Federal income taxes as shown on the
SFRs. Respondent has produced sufficient evidence that
petitioner is liable for the section 6651(a)(2) addition to tax.
Petitioner provided no evidence of a reasonable cause defense.
Therefore, petitioner is liable for additions to tax under
section 6651(a)(2) for 2004 and 2005.
C. Section 6654(a)
Section 6654(a) imposes an addition to tax “in the case of
any underpayment of estimated tax by an individual”. A taxpayer
has an obligation to pay estimated tax for a particular year only
if he has a “required annual payment” for that year. Sec.
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6654(d). A required annual payment generally is equal to the
lesser of: (i) 90 percent of the tax shown on the return for the
taxable year (or, if no return is filed, 90 percent of the tax
for the year); or (ii) 100 percent of the tax shown on the return
of the individual for the preceding taxable year. Sec.
6654(d)(1)(B); Wheeler v. Commissioner, supra at 210-211; Heers
v. Commissioner, T.C. Memo. 2007-10. Clause (ii) does not apply,
however, if the individual did not file a return for the
preceding year. Sec. 6654(d)(1)(B). Respondent’s burden of
production under section 7491(c) requires him to produce evidence
that petitioner had a required annual payment for 2005.
Petitioner failed to file Federal income tax returns for
2004 and 2005. Accordingly, his required annual payment was 90
percent of the tax for 2005. Petitioner did not make any
estimated income tax payments for 2005. Therefore, respondent
has produced sufficient evidence that petitioner is liable for
the section 6654(a) addition to tax. None of the defenses
enumerated in section 6654(e) apply. Therefore, petitioner is
liable for an addition to tax under section 6654(a) for 2005.
III. Section 6673(a)(1) Penalty
At the conclusion of the trial, respondent filed a motion
for sanctions pursuant to section 6673. Section 6673(a)(1)
authorizes the Court to impose a penalty not to exceed $25,000 if
the taxpayer took frivolous or groundless positions in the
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proceeding or instituted the proceeding primarily for delay. 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.” Coleman v. Commissioner, 791 F.2d 68, 71
(7th Cir. 1986).
In his petition petitioner claimed that his wages were not
taxable because he was not engaged in any “excise taxable
activities.” During a face-to-face meeting, respondent warned
petitioner that his argument was frivolous. Through written
correspondence, respondent advised petitioner that his argument
was frivolous and that he would seek sanctions under section
6673(a) if petitioner presented this argument to the Court. As a
final attempt to discourage petitioner from making a frivolous
argument at trial, respondent provided petitioner with a copy of
this Court’s decision in Sawukaytis v. Commissioner, T.C. Memo.
2002-156.3
Undeterred, petitioner in his pretrial memorandum raised
various issues, including whether subtitle C of the Code should
be considered in determining petitioner’s tax liability. At
trial petitioner argued that under subtitle C, employers rather
than employees, are liable for Federal income taxes on employee
wages. We warned petitioner that his arguments were frivolous
3
In Sawukaytis v. Commissioner, T.C. Memo. 2002-156, the
Court imposed a $12,500 penalty under sec. 6673(a) against the
taxpayer for advancing the frivolous argument that the income tax
is an excise tax and therefore his wages were not taxable income.
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and have been universally rejected by this and other courts. We
further advised petitioner that the Court has the discretion to
impose a penalty of up to $25,000 if he were to proceed with such
arguments.
Despite repeated warnings from respondent and this Court,
petitioner advanced patently frivolous arguments at trial and in
his postrial brief. In doing so, petitioner has wasted the
limited time and resources of the Court. The Court of Appeals
for the Second Circuit, the court to which this case would be
appealable, has characterized petitioner’s subtitle C argument as
“baseless”. See Church v. Commissioner, 810 F.2d 19, 20 (2nd
Cir. 1987). Furthermore, the argument that wages are not taxable
“has been rejected so frequently that the very raising of it
justifies the imposition of sanctions.” Connor v. Commissioner,
770 F.2d at 20. Accordingly, we are well within our discretion
to impose a penalty under section 6673(a).
We are convinced, however, that petitioner’s frivolous
arguments were made at the suggestion of a woefully misinformed
adviser. In response to questions from the Court, petitioner was
unable to articulate certain positions raised in his pretrial
memorandum. This is the first time petitioner has engaged in
conduct sanctionable under section 6673(a). Therefore, we shall
not impose a penalty under section 6673(a).
Though we decline to impose a penalty at this time, we take
this opportunity to warn petitioner that we will impose a section
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6673 penalty if he returns to the Court and proceeds in a similar
manner in the future. See Pierson v. Commissioner, 115 T.C. 576
(2000).
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
moot, irrelevant, or without merit.
To reflect the foregoing,
An appropriate order will
be issued and decision will be
entered for respondent.