T.C. Memo. 2010-258
UNITED STATES TAX COURT
JOHN LASZLOFFY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8015-09. Filed November 24, 2010.
John Laszloffy, pro se.
Erin K. Salel, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined the following
deficiencies in and additions to petitioner’s Federal income tax:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
2004 $4,966 $1,117.35 $1,067.69 $142.29
2005 6,330 1,424.25 981.15 253.90
2006 4,477 1,007.33 425.32 211.85
The issues for decision are: (1) Whether petitioner
received taxable income in 2004, 2005, and 2006; (2) whether
petitioner is liable for self-employment taxes for 2004, 2005,
and 2006; (3) whether petitioner is liable for additions to tax
under section 6651(a)(1)1 for failure to timely file his 2004,
2005, and 2006 Federal income tax returns; (4) whether petitioner
is liable for additions to tax under section 6651(a)(2) for
failure to timely pay his 2004, 2005, and 2006 Federal income
taxes; (5) whether petitioner is liable for additions to tax
under section 6654(a) for failure to make estimated tax payments
for 2004, 2005, and 2006; and (6) whether the Court should impose
on petitioner a penalty under section 6673(a)(1) for advancing
frivolous arguments.
FINDINGS OF FACT
The facts have been deemed stipulated under Rule 91(f) and
are so found.2 The stipulated facts and accompanying exhibits
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as in effect for the years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
2
Under Rule 91(f), respondent moved the Court to issue an
order requiring petitioner to show cause why the facts and
(continued...)
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are incorporated herein by this reference. Petitioner resided in
California at the time the petition was filed.
Petitioner failed to file Federal income tax returns for
2004, 2005, and 2006. During this period petitioner, doing
business as JL Masonry, completed construction and/or masonry
projects for Hal Hays Construction, Inc., Striano Construction
Co., and Joshua Bailey Construction (the companies). The
companies filed Forms 1099-MISC, Miscellaneous Income, with
respondent reporting the following amounts paid to petitioner:
Year Hal Hays Striano Joshua Bailey
2004 $18,963 $4,250 -0-
2005 -0- 26,795 $1,450
2006 21,808 -0- -0-
Petitioner does not dispute receiving these payments.3
Pursuant to section 6020(b)(1) respondent executed substitutes
for returns for the years at issue using the Forms 1099-MISC
2
(...continued)
evidence set forth in respondent’s proposed stipulations of facts
should not be accepted as established for the purposes of this
case. The Court granted respondent’s motion and ordered
petitioner to file a response in compliance with Rule 91(f)(2).
Although petitioner timely filed his response, the Court found it
evasive and not fairly directed to respondent’s proposed
stipulations of fact, and as a result, the Court ordered that
pars. 1 through 32 of the proposed stipulations are deemed
established for purposes of this case.
3
At trial petitioner invoked the Fifth Amendment when
respondent and the Court questioned him about his income-
producing activities during the years at issue.
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filed by the companies.4 Respondent issued three separate
notices of deficiency to petitioner in which he determined the
above Federal income tax deficiencies and additions to tax, and
petitioner filed a timely petition with the Court challenging
respondent’s determinations for all 3 years.
Petitioner has sent respondent volumes of correspondence
throughout the proceeding. Therein petitioner asserts, among
other arguments, that: (1) Federal law is inapplicable to him;
(2) he is not a Federal taxpayer obligated to pay Federal income
tax; and (3) the Federal income tax system is purely voluntary.
Petitioner also alleges that respondent acted fraudulently.
Respondent advised petitioner that his arguments were
frivolous and could result in a penalty under section 6673,5 but
petitioner continued to make the same arguments in his pretrial
memorandum and at trial. At trial the Court warned petitioner
that his arguments were frivolous and should not be placed in his
posttrial brief. However, petitioner disregarded the Court’s
warning and asserted the same frivolous arguments.
This is not the first time petitioner has made frivolous
arguments in this Court. In 1993 petitioner challenged
4
The substitutes for returns meet the requirements of sec.
6020(b).
5
Sec. 6673(a)(1)(B) provides that the Court may require a
taxpayer to pay a penalty if the taxpayer’s position in the
proceeding is frivolous or groundless.
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respondent’s deficiency determinations for tax years 1984, 1985,
1988, and 1989 that resulted from petitioner’s failure to file
Federal income tax returns. Laszloffy v. Commissioner, docket
No. 2687-93. At the calendar call preceding the trial date the
Court warned petitioner that he would be subject to a penalty if
he continued to advance frivolous arguments. On March 9, 1994,
the Court entered an order of dismissal for lack of prosecution
because petitioner failed to appear at trial.6
In Laszloffy v. Commissioner, T.C. Memo. 2007-31, affd. 297
Fed. Appx. 628 (9th Cir. 2008), the Court granted summary
judgment for respondent after petitioner challenged respondent’s
Appeals Office’s determination to proceed with a proposed levy
action against petitioner’s property related to tax years 1992
and 1993. As in the current case, petitioner had failed to file
Federal income tax returns for the years at issue and was warned
by the Court that he was asserting frivolous arguments.7
6
No penalty under sec. 6673(a)(1) was imposed.
7
In Laszloffy v. Commissioner, T.C. Memo. 2007-31, affd.
297 Fed. Appx. 628 (9th Cir. 2008), petitioner argued, among
other things, that he “is not a taxpayer within the purview of
the Internal Revenue Code” and “is not located in any area of
jurisdiction subject to the United States Congress”.
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OPINION
I. Deficiency Determinations
A. Receipt of Unreported Taxable Income
Generally, the Commissioner’s determination of a deficiency
is presumed correct, and the taxpayer has the burden of proving
it wrong. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). However, in an unreported income case appealable to the
Court of Appeals for the Ninth Circuit, such as this one, the
presumption of correctness does not attach unless the
Commissioner first establishes some evidentiary foundation
linking the taxpayer with the alleged income-producing activity.
See Weimerskirch v. Commissioner, 596 F.2d 358 (9th Cir. 1979),
revg. 67 T.C. 672 (1977); Golsen v. Commissioner, 54 T.C. 742,
756-757 (1970), affd. 445 F.2d 985 (10th Cir. 1971); Rodriguez v.
Commissioner, T.C. Memo. 2009-92. If respondent meets his burden
of connecting petitioner with the income determined in the
statutory notice of deficiency, the burden then shifts to
petitioner to prove that respondent’s determination is
erroneous.8 See George v. Commissioner, T.C. Memo. 2002-163.
Respondent has established a sufficient evidentiary
foundation linking petitioner with the income determined in the
8
Petitioner has neither claimed nor shown that he
satisfied the requirements of sec. 7491(a) to shift the burden
of proof to respondent with regard to any factual issue affecting
the deficiencies in his tax.
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notices of deficiency; i.e., the stipulations of fact establish
that petitioner received the unreported income as determined in
the notices of deficiency. See Mandeville v. Commissioner, T.C.
Memo. 2007-332 (finding taxpayer’s stipulation as to receipt of
unreported income sufficient to attach presumption of correctness
to notices of deficiency). Consequently, respondent has met his
burden of connecting petitioner with the income determined in the
notices of deficiency and respondent’s deficiency determinations
are presumed to be correct.
Petitioner presented no evidence that respondent erroneously
determined the amounts of taxable income petitioner received in
2004, 2005, and 2006. When asked about his income-producing
activities during the years at issue petitioner invoked the Fifth
Amendment. Accordingly, we sustain respondent’s determinations
regarding the amounts of taxable income petitioner received in
2004, 2005, and 2006.
B. Self-Employment Taxes
Section 1401 imposes self-employment tax on self-employment
income. Section 1402 defines net earnings from self-employment
as the gross income derived by an individual from the carrying on
of any trade or business by such individual less allowable
deductions attributable to such trade or business.
Respondent determined that petitioner’s income during 2004,
2005, and 2006 is subject to self-employment tax. Petitioner
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presented no evidence that respondent’s determinations are
erroneous. Petitioner did business as JL Masonry, and the income
he received was classified as nonemployee compensation on the
Forms 1099-MISC filed by the companies. Accordingly, we sustain
respondent’s determinations regarding petitioner’s liability for
self-employment taxes for 2004, 2005, and 2006.
II. Additions to Tax
A. Burden of Proof and Production
Section 7491(c) provides that the Commissioner will bear 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). If a taxpayer files a petition alleging some error in
the determination of an addition to tax or penalty, the
taxpayer’s challenge will succeed unless the Commissioner
produces evidence that the addition to tax or penalty is
appropriate. Swain v. Commissioner, supra at 363-365. The
Commissioner, however, does not have the obligation to introduce
evidence regarding reasonable cause. Higbee v. Commissioner,
supra at 446-447.
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B. 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 the taxpayer can
establish that such failure is due to reasonable cause and not
willful neglect.
Petitioner failed to file Federal income tax returns for the
years at issue. The Court finds respondent has met his burden of
production with regard to the additions to tax under section
6651(a)(1). Petitioner has presented no evidence indicating his
failures to file were due to reasonable cause and not willful
neglect or that respondent’s determinations are otherwise
incorrect. Accordingly, petitioner is liable for additions to
tax under section 6651(a)(1) for 2004, 2005, and 2006 as
respondent determined.
C. Section 6651(a)(2)
Section 6651(a)(2) imposes an addition to tax for failure to
timely pay the amount shown as tax on a return, unless the
taxpayer can establish that such failure is due to reasonable
cause and not willful neglect.
The Commissioner’s burden of production requires him to
introduce evidence that the tax was shown on a Federal income tax
return. Cabirac v. Commissioner, 120 T.C. 163 (2003). When a
taxpayer has not filed a return, the section 6651(a)(2) addition
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to tax may not be imposed unless the Secretary has prepared a
substitute for return 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).
Petitioner failed to make income tax payments for the years
at issue. Respondent introduced into evidence valid substitutes
for returns for the years at issue, thereby satisfying his burden
of production. Petitioner has presented no evidence indicating
that his failures to pay were due to reasonable cause and not
willful neglect or that respondent’s determinations are otherwise
incorrect. We therefore hold that petitioner is liable for the
additions to tax under section 6651(a)(2) for 2004, 2005, and
2006 as respondent determined.
D. 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.
6654(d). A required annual payment generally is equal to the
lesser of (1) 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 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. Sec. 6654(d)(1)(B); Wheeler v. Commissioner,
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supra at 210-211; Heers v. Commissioner, T.C. Memo. 2007-10.
Respondent’s burden of production under section 7491(c) requires
him to produce evidence that petitioner had required annual
payments for 2004, 2005, and 2006 under section 6654(d).
Petitioner made no payments of estimated tax for any of the
years 2004 through 2006. The record establishes that petitioner
had a required annual payment for each of those years.
Petitioner did not file Federal income tax returns for tax years
2003 through 2006. Thus, petitioner’s required annual payment
for each year at issue was equal to 90 percent of the tax for
that year, and respondent has carried his burden of production
with respect to the section 6654 additions to tax for the years
at issue.
Petitioner has not argued that any of the exceptions to the
section 6654 addition applies. We therefore hold that petitioner
is liable for the additions to tax under section 6654 for 2004,
2005, and 2006 as respondent determined.
III. Penalty Under Section 6673
Respondent moved the Court to impose a penalty on petitioner
under section 6673(a)(1). Section 6673(a)(1) authorizes the
Court to impose a penalty not to exceed $25,000 if the taxpayer
took frivolous positions in the proceeding or instituted the
proceeding primarily for delay.
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A 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). This Court has ruled that arguments such as those
petitioner asserts here are frivolous and wholly without merit.
See Williams v. Commissioner, T.C. Memo. 1999-277 (imposing
section 6673 penalty for tax-protester arguments).
In addition, petitioner has advanced frivolous arguments
before the Court on two prior occasions. Section 6673 “was
intended to apply to situations where a taxpayer repeatedly
brings the same appeal * * * after having been informed that his
basis * * * is groundless.” Greenberg v. Commissioner, 73 T.C.
806, 814 (1980). In Laszloffy v. Commissioner, docket No. 2687-
93, the Court warned petitioner that his arguments were frivolous
and would result in the imposition of a penalty if he continued
to raise them. In Laszloffy v. Commissioner, T.C. Memo. 2007-31,
the Court again advised petitioner that many of his arguments
were frivolous.
Accordingly, we shall grant respondent’s motion and require
petitioner to pay a penalty of $2,500 to the United States
pursuant to section 6673(a)(1). We also warn petitioner that we
will consider imposing a larger penalty if he returns to the
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Court and advances frivolous or groundless arguments in the
future.
To reflect the foregoing,
An appropriate order and
decision will be entered.