T.C. Memo. 2010-201
UNITED STATES TAX COURT
DANIEL GERARD CALLAHAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12907-08. Filed September 14, 2010.
Daniel Gerard Callahan, pro se.
James M. Klein, for respondent.
MEMORANDUM OPINION
PARIS, Judge: On February 25, 2008, respondent determined a
deficiency of $2,261 in petitioner’s Federal income tax and
additions to tax of $508.73 under section 6651(a)(1)1 for failure
to file a return, $237.41 under section 6651(a)(2) for failure to
1
All section references are to the Internal Revenue Code of
1986, as amended.
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pay tax, and $90.69 under section 6654 for failure to make
estimated tax payments for tax year 2005.2 Petitioner timely
petitioned this Court for redetermination of the tax deficiency
as well as the additions to tax for tax year 2005.
The principal issue for decision is whether the payments
petitioner received in exchange for services he provided are
gross income on which taxes should be paid.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts is incorporated herein by this
reference. During tax year 2005 petitioner worked as an
assistant supervisor and clinician for the Midwest College of
Oriental Medicine in Racine, Wisconsin, an institution owned by
Acupuncture Center, Inc. (ACI). Petitioner was paid $13,150 with
checks issued by ACI for services he provided to ACI pursuant to
a contract which stated that ACI would file a Form 1099-MISC,
Miscellaneous Income, with the Internal Revenue Service and that
petitioner would be responsible for paying any tax liability
which resulted from the payments. Petitioner has a B.S. degree
in economics, a master’s degree in industrial relations, a B.S.
degree in nutrition, and a master’s degree in nutrition and is
currently working on a doctorate in nutrition. Petitioner,
2
Respondent has conceded the $237.41 addition to tax
determined under sec. 6651(a)(2).
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although not an attorney, also has 4 years of experience as a
municipal court judge in Sturtevant, Wisconsin.
Petitioner did not file a tax return for tax year 2005. He
did not pay any Federal income tax or make any payments of
estimated tax for that year. On February 25, 2008, respondent
mailed to petitioner a notice of deficiency setting forth
respondent’s determination of a deficiency in petitioner’s income
tax for tax year 2005 and additions to tax under sections
6651(a)(1) and (2) and 6654(a). The notice of deficiency
reflected a filing status of married filing separately.
Petitioner filed a timely petition with this Court on May 27,
2008. At the time of filing petitioner resided in Wisconsin.
Petitioner’s marital status was not further addressed by the
parties.
Discussion
Tax Deficiency
Petitioner argues that he is a citizen of the “Republic of
Wisconsin” and not a citizen of the State of Wisconsin or of the
United States. Consequently, petitioner argues that he does not
have to pay Federal income taxes.
Petitioner’s argument that he is not a citizen of Wisconsin
or of the United States is a frivolous argument of the sort that
this Court and other courts have consistently rejected. See
United States v. Hilgeford, 7 F.3d 1340, 1342 (7th Cir. 1993);
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United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993);
United States v. Sileven, 985 F.2d 962 (8th Cir. 1993); Bland-
Barclay v. Commissioner, T.C. Memo. 2002-20; Solomon v.
Commissioner, T.C. Memo. 1993-509, affd. without published
opinion 42 F.3d 1391 (7th Cir. 1994).
Petitioner claims that the compensation he received during
tax year 2005 is not income for Federal taxation purposes.
Petitioner admits that he was “associated” with ACI and was
monetarily compensated for services he performed for ACI.
However, petitioner contends that his time and talent are a like-
kind exchange for the money received, akin to an exchange of
property. ACI’s Dean of Faculty testified for respondent that
ACI made payments to petitioner in 2005 for the work he performed
that year under a contract with ACI. ACI reported the payments
made to petitioner on Form 1099-MISC.
Wages and other compensation received in exchange for
personal services are taxable income. Casper v. Commissioner,
805 F.2d 902, 904-905 (10th Cir. 1986), affg. T.C. Memo. 1985-
154; Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982),
affg. T.C. Memo. 1981-506. For Federal income tax purposes,
“gross income” means all income from whatever source derived and
includes compensation for services. Sec. 61(a). Petitioner
performed services for ACI and was compensated for those
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services. Therefore, the compensation petitioner received for
those services is taxable as gross income under section 61(a).
Section 6651(a)(1) and (2) and 6654(a) Additions to Tax
Respondent determined that petitioner is liable for
additions to tax for failure to file a return and failure to pay
estimated income tax under sections 6651(a)(1) and 6654(a),
respectively.3 Respondent bears the burden of production; i.e.,
the burden of producing evidence that it is appropriate to impose
the additions to tax. See sec. 7491(c); Higbee v. Commissioner,
116 T.C. 438, 446-447 (2001). Once the Commissioner meets his
burden of production under section 7491(c), the taxpayer bears
the burden of proof regarding reasonable cause or similar
provisions. Higbee v. Commissioner, supra at 447.
Petitioner received a Form 1099-MISC from ACI which
reflected the amount of money he received for the services he
performed. However, petitioner did not file a tax return for tax
year 2005. Petitioner did not offer a cognizable defense for his
failure to file a Federal income tax return. The failure to file
addition to tax under section 6651(a)(1) is sustained.
Respondent determined that petitioner is liable for a
section 6654(a) addition to tax for failure to pay estimated
income taxes for tax year 2005. Absent a statutory exception, an
3
As previously noted, respondent conceded the sec.
6651(a)(2) addition to tax before trial.
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addition to tax for failure to pay estimated income tax is
mandatory once an underpayment of a required installment of the
tax is established. Bagby v. Commissioner, 102 T.C. 596, 613
(1994); Stoddard v. United States, 664 F. Supp. 2d 774, 792 (E.D.
Mich. 2009); United States v. Cowan, 535 F. Supp. 2d 1135, 1145
(D. Haw. 2008). Respondent has the burden of production to show
that an addition to tax is appropriate. See sec. 7491(c);
Wheeler v. Commissioner, 127 T.C. 200, 206 (2006), affd. 521 F.3d
1289 (10th Cir. 2008). Respondent met his burden of production
by presenting evidence that petitioner paid no estimated tax for
2005 and provided the same services to ACI the previous year but
filed no income tax return for the previous year. Petitioner has
not argued that any of the statutory exceptions apply. See Bagby
v. Commissioner, supra at 613. Therefore, the addition to tax
under section 6654(a) is sustained.
Section 6673 Penalty
Section 6673(a)(1) authorizes the Court to require a
taxpayer to pay to the United States a penalty not in excess of
$25,000 whenever it appears that the taxpayer has instituted or
maintained the proceedings primarily for delay or that the
taxpayer’s position in such proceeding is frivolous or
groundless. Respondent has filed a motion to impose on
petitioner a penalty under section 6673. On the basis of the
record presented, the Court is convinced that petitioner’s
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position is frivolous. While petitioner is not an attorney,
petitioner is a sophisticated individual who holds advanced
degrees and has 4 years of experience as a municipal judge.
Petitioner argued that he does not have citizenship in the State
of Wisconsin or in the United States but he is a citizen of the
“Republic of Wisconsin”, an argument that this Court and other
courts have consistently rejected. United States v. Hilgeford, 7
F.3d 1340 (7th Cir. 1993); United States v. Gerads, 999 F.2d 1255
(8th Cir. 1993); United States v. Sileven, 985 F.2d 962 (8th Cir.
1993); Bland-Barclay v. Commissioner, supra; Solomon v.
Commissioner, supra. Petitioner’s alternative argument that he
did not “work” or provide “services” but instead exchanged his
talents and property for tax-free payment has also been
consistently found by this Court and other courts to be frivolous
and without merit. United States v. Sloan, 939 F.2d 499, 500
(7th Cir. 1991); United States v. Connor, 898 F.2d 942, 943-944
(3d Cir. 1990); Lonsdale v. Commissioner, 661 F.2d 71, 72 (5th
Cir. 1981), affg. T.C. Memo. 1981-122.
This opinion does not undertake to address petitioner’s
other frivolous arguments such as: The Form 1099-MISC reflecting
his compensation is “unsworn to under bounds of perjury [sic]
under the laws of either the United States of America, or the
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United States”;4 the “‘factual notion’ that the payments received
were ‘income’ and a basis of the actions taken by respondent have
created a ‘legal fiction based on color of law’”; that the Tax
Court may not use other Tax Court cases as precedent; that “there
is a difference between the United States (a Corporation created
under the District of Columbia Organic Act of 1869) and the
United States of America”; that the only applicable section of
the Code authorizing tax petitioner’s income is section 1.61-15,
Income Tax Regs.; and that the terms “wages” and “compensation”
are defined under other United States Code titles and are
unrelated to income tax.
Petitioner made similar frivolous arguments before this
Court and a penalty of $1,500 was imposed under section 6673(a).
See Callahan v. Commissioner, T.C. Memo. 2007-301, affd. 334 Fed.
Appx. 754 (7th Cir. 2009).5 On appeal, the Court of Appeals for
the Seventh Circuit affirmed this Court’s decision and imposed a
“presumptive” $4,000 sanction for filing a frivolous appeal.6
4
Petitioner makes this argument while claiming that he is
not a citizen of the United States.
5
Perhaps this is the reason petitioner argues that the Tax
Court may not use other Tax Court cases as precedent.
6
See Callahan v. Commissioner, 334 Fed. Appx. 754, 755 (7th
Cir. 2009) (where the Seventh Circuit imposed a “presumptive”
$4,000 sanction for filing a frivolous appeal in a tax case),
affg. T.C. Memo 2007-301; see also Szopa v. United States, 460
F.3d 884, 887 (7th Cir. 2006) (noting that “the presumptive award
will be doubled for a recidivist litigator”).
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Therefore, this Court finds that petitioner was aware of the
consequences of making frivolous arguments, yet he continued to
assert them. The Court is also aware that the tax liability in
this case without accrued interest is approximately $3,000.
Accordingly, the Court grants respondent’s motion in that it
imposes on petitioner a $3,000 penalty pursuant to section
6673(a).
Finally, in reaching the conclusions herein, the Court has
considered all arguments made, and to the extent not mentioned
above, concludes they are moot, irrelevant, or without merit.
To reflect the foregoing, including respondent’s concession,
An appropriate order and
decision will be entered.