T.C. Summary Opinion 2011-19
UNITED STATES TAX COURT
JAMES STEPHEN FENNEL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Docket Nos. 5360-09S, 16313-09S, Filed February 28, 2011.
16315-09S.
James Stephen Fennel, pro se.
Randall B. Childs, for respondent.
MORRISON, Judge: These cases were heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
at the time the petition was filed. Pursuant to section 7463(b),
the decisions to be entered are not reviewable by any other
Court, and this opinion shall not be treated as precedent for any
other case. Unless otherwise indicated, section references are
to the Internal Revenue Code in effect for the years in issue.
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James Stephen Fennel worked as a server at Carrabba’s
Italian Grill in Tallahassee, Florida. For his services to
Carrabba’s, Fennel was paid $17,049.79 in 2004, $16,978.08 in
2005, and $22,655.73 in 2006. OS Restaurant Services, Inc.,
reported paying wages to Fennel in these same amounts for 2004,
2005, and 2006.1 Payment for services is income that must be
included in gross income. Sec. 61(a)(1). However, Fennel filed
Forms 1040, U.S. Individual Income Tax Return, for the 2004,
2005, and 2006 tax years showing zero taxable wages and zero
taxable income. Instead of attaching the Forms W-2, Wage and Tax
Statement, issued by OS Restaurant Services, Inc., showing his
actual income, Fennel attached Forms 4852, Substitute for Form W-
2, Wage and Tax Statement, on which he reported zero wages, tips
and other compensation (on line 7a) and zero income tax withheld
(on line 7f). Question 9 of the Forms 4852 asked: “How did you
determine the amounts on lines 7 and 8 above?” Fennel wrote:
“Company provided records and the statutory language behind IRC
sections 3401 and 3121 and others”. Question 10 of the Forms
4852 asked: “Explain your efforts to obtain Form W-2, Form 1099-
R, or Form W-2c, Corrected Wage and Tax Statement.” Fennel
wrote: “None. Most companies will refuse to issue forms
1
The Internal Revenue Service (IRS) claims that OS
Restaurant Services, Inc., is the parent company of Carrabba’s
Italian Grill. The relationship of OS Restaurant Services, Inc.,
to Carrabba’s Italian Grill is not important.
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correctly listing payments of ‘wages as defined in 3401(a) and
3121(a)’ for fear of IRS retaliation. However, the amounts
listed as withheld on the W-2 it submitted are correct.”
The IRS issued notices of deficiency to Fennel. The notices
determined, on the basis of his unreported income from
Carrabba’s, that Fennel had deficiencies of $1,004 in 2004, $951
in 2005, and $1,756 in 2006. The IRS also determined that Fennel
was liable for section 6651(a)(1) additions to tax of $251 for
2004, $237.75 for 2005, and $439 for 2006 for failing to file
timely tax returns. The IRS also determined that Fennel was
liable for section 6662 accuracy-related penalties of $200.80 for
2004, $190.20 for 2005, and $351.20 for 2006. Fennel filed
petitions with the Tax Court to redetermine the deficiencies.
The Court consolidated the three cases for trial. At the end of
trial, the IRS moved for the imposition of a penalty under
section 6673.
OPINION
1. Deficiencies in Tax
The first issue for decision is whether Fennel earned and
failed to report income of $17,049.79 in 2004, $16,978.08 in
2005, and $22,655.73 in 2006. We find that he did. Fennel
admitted that he received payments in these amounts for his
services.
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2. Additions to Tax for Filing Late Returns
The second issue for decision is whether Fennel is liable
for additions to tax pursuant to section 6651(a)(1) of $251 for
2004, $237.75 for 2005, and $439 for 2006. Fennel is a calendar-
year taxpayer. Income tax returns made on the basis of a
calendar year must be filed on or before April 15 of the
following year. Sec. 6072(a). The IRS may extend this deadline
by up to 6 months. Sec. 6081(a). Fennel received a 6-month
extension of the filing deadline for his 2005 and 2006 returns.
None of Fennel’s Forms 1040 for 2004, 2005, and 2006 were filed
by October 15 of the following year. Fennel’s Forms 1040 for
2004 and 2005 were filed on or after August 7, 2007. Fennel’s
Form 1040 for 2006 was filed on or after November 3, 2007. If a
person required to file a return fails to do so timely and such
failure is not due to reasonable cause, then the person is
required by section 6651(a)(1) to pay an additional 5 percent of
the amount of tax required to be shown on the return. An
additional 5 percent is added for each additional month that
passes without a return’s being filed. Id. The maximum amount
is 25 percent. Id. Fennel failed to show any reasonable cause
for failing to file tax returns on time. He is therefore liable
for the additions to tax.
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3. Penalties for Inaccurate Returns
The third issue for decision is whether Fennel is liable for
penalties pursuant to section 6662(a) of $200.80 for the 2004 tax
year, $190.20 for the 2005 tax year, and $351.20 for the 2006 tax
year. Section 6662(a) imposes a penalty “on any portion of an
underpayment of tax required to be shown on a return” to which
section 6662(a) applies. Section 6664(b) provides that the
penalty applies only if “a return of tax is filed”. Fennel’s
Forms 1040, filled with zeros, were not valid returns.
Therefore, the section 6662 penalty cannot be imposed. See
Turner v. Commissioner, T.C. Memo. 2004-251 (Form 1040 that
contained zero entries for every line regarding income was not
valid for purposes of imposing the section 6662(a) penalty).
4. Penalty for Frivolous Litigation
The fourth issue for decision is whether Fennel should be
penalized under section 6673. Section 6673(a)(1) authorizes the
Tax Court to impose a penalty of up to $25,000 if the taxpayer
instituted the proceedings primarily for delay or if the
taxpayer’s position is frivolous or groundless. Fennel’s main
argument, which is that he is not subject to tax on his wage
income because “OS Restaurant Services, Inc. is a private
corporation organized under the laws of Delaware and has no
connection with the United States government, its territories, or
possessions”, is frivolous. In addition, we believe that these
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proceedings were instituted for delay, not to resolve a genuine
dispute. Although we held that Fennel was not liable for the
section 6662 penalty, we did so only because we found the Forms
1040 he filed to be so frivolous as to not be valid returns. We
shall impose a $750 penalty under section 6673 in each case.
To reflect the foregoing,
Appropriate orders and
decisions will be entered.