Reynold Harvey

United States Tax Court

T.C. Memo. 2023-95

REYNOLD HARVEY,
Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

—————

Docket No. 14439-22. Filed July 25, 2023.

—————

Reynold Harvey, pro se.

Karen Y. Leon and Thomas A. Deamus, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LAUBER, Judge: With respect to petitioner’s Federal income tax
for 2018, the Internal Revenue Service (IRS or respondent) determined
a deficiency of $12,058 and additions to tax under sections 6651 and
6654. 1 The principal question presented is whether petitioner is taxable
on wages and a retirement distribution he received during 2018. He
urged that we answer that question in the negative, asserting: “I am
exempt from Federal Income Tax, as defined by The House of Represent-
atives.” Disagreeing with that submission, we will sustain respondent’s
deficiency determinations and impose on petitioner a penalty of $1,000
for advancing frivolous positions in this Court.

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times. We round all monetary amounts
to the nearest dollar.

Served 07/25/23
 2

[*2] FINDINGS OF FACT

The following facts are derived from the parties’ pleadings, docu-
mentary exhibits admitted into evidence at trial, and petitioner’s trial
testimony. Petitioner resided in the Bronx, New York, when his Petition
was timely filed. Absent stipulation to the contrary, appeal of this case
would lie to the U.S. Court of Appeals for the Second Circuit. See
§ 7482(b)(1)(A). We thus follow its precedent. See Golsen v. Commis-
sioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).

During 2018 petitioner was employed by the New York City
Transit Authority. For that year it paid him wages of $80,764, reporting
that amount to him on Form W–2, Wage and Tax Statement. He does
not dispute that he received wages of $80,764 during 2018.

During 2018 petitioner received from the New York City Retire-
ment Systems Trust a distribution of $3,099. It reported that payment
to him on Form 1099–R, Distributions From Pensions, Annuities, Re-
tirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The
Form 1099–R reported that the “taxable amount” of this distribution
was $3,099. Petitioner does not dispute that he received a retirement
distribution of $3,099 during 2018. Nor does he dispute that this
amount was taxable (apart from asserting that he is altogether exempt
from Federal income tax).

Petitioner did not file a Federal income tax return for 2018. Nor
did he remit any tax payments for 2018 beyond the amounts withheld
by his employer. The IRS prepared a substitute for return (SFR) based
on the information returns it received and, on March 14, 2022, mailed
petitioner a notice of deficiency. 2

The notice of deficiency determined that petitioner for 2018 re-
ceived total income of $83,863, consisting of $80,764 in wages and a
$3,099 taxable retirement distribution. Allowing him the standard de-
duction of $12,000, it determined taxable income of $71,863 and a ten-
tative tax of $11,748. To that sum the IRS added tax of $310 under
section 72(t), which imposes a 10% additional tax on early distributions
from qualified retirement plans.

2 Petitioner’s IRS account transcript for 2018, which was admitted into evi-

dence as Exhibit 2–R, references a “substitute for return” opposite the date July 11,
2022. However, respondent did not submit the SFR into evidence or otherwise demon-
strate that it met the requirements of section 6020(b).
 3

[*3] Petitioner timely petitioned this Court. In his Petition he did not
dispute his receipt of the income determined in the notice of deficiency.
Nor did he dispute that his $3,099 retirement distribution was an “early
distribution” within the meaning of section 72(t). The sole argument he
advanced was that he was exempt from Federal income tax.

Petitioner filed a Pretrial Memorandum in which he reiterated
his position that he was not “liable to pay the federal income tax.” In
support of that position he cited section 7701(a)(9), which defines the
term “United States” (when used in a geographical sense) to “include[]
only the States and the District of Columbia.” He asserted that “the
term ‘income’ is defined nowhere in title 26 of the U.S. Code,” that “the
meaning of income did not change after the passage of the 16th Amend-
ment,” and that “the U.S. Supreme Court has ruled, not just once, but
repeatedly, that the federal government cannot levee [sic] a tax on your
property, and ultimately, your labor.”

We tried this case remotely on June 20, 2023, via Zoomgov. At
trial petitioner did not dispute his receipt of the income in question, but
he denied that he was taxable on it. We advised him that this Court and
others have repeatedly characterized as frivolous the argument that
wages are not income. We warned him that, by advancing this argu-
ment, he risked a penalty under section 6673. He nevertheless persisted
in his position, asserting that he intended to take his argument “all the
way to the Supreme Court.”

OPINION

A. Gross Income

The Internal Revenue Code provides that “gross income means all
income from whatever source derived,” including “[c]ompensation for
services.” § 61(a)(1). Gross income likewise includes distributions from
a qualified retirement plan. See §§ 61, 72(a)(1), 408(d)(1). Such distri-
butions are taxable in full unless the taxpayer has acquired a basis in
his account (for example) by making nondeductible contributions to it.
See §§ 72(b), (e)(6), 408(d)(2); Campbell v. Commissioner, 108 T.C. 54,
66–67 (1997).

In cases of unreported income, the Commissioner must establish
an evidentiary foundation connecting the taxpayer to the income-
producing activity, see Llorente v. Commissioner, 649 F.2d 152, 156 (2d
Cir. 1981), aff’g in part, rev’g in part 74 T.C. 260 (1980), or demonstrate
that the taxpayer actually received income, Edwards v. Commissioner,
 4

[*4] 680 F.2d 1268, 1270–71 (9th Cir. 1982). Information supplied to
the IRS by the taxpayer’s employer on Form W–2, or by other payors on
Forms 1099, is sufficient to meet this burden. See Hardy v. Commis-
sioner, 181 F.3d 1002, 1004–05 (9th Cir. 1999), aff’g T.C. Memo. 1997-
97. “Once the Commissioner makes the required threshold showing, the
burden shifts to the taxpayer to prove by a preponderance of the evi-
dence that the Commissioner’s determinations are arbitrary or errone-
ous.” Walquist v. Commissioner, 152 T.C. 61, 67–68 (2019) (citing
Helvering v. Taylor, 293 U.S. 507, 515 (1935)); see Texasgulf, Inc., &
Subs. v. Commissioner, 172 F.3d 209, 214 (2d Cir. 1999), aff’g 107 T.C.
51 (1996).

The IRS may not rely solely on a third-party report of income,
such as a Form 1099, if the taxpayer raises a reasonable dispute con-
cerning the accuracy of the report. See § 6201(d). Petitioner has not
done so. To the contrary, he has admitted that he received during 2018
the wages reported on the Form W–2 and the retirement distribution
reported on the Form 1099–R. He does not contend that he made any
nondeductible contributions to his retirement account. And he does not
dispute the determination, set forth on the Form 1099–R by the New
York City Retirement Systems Trust, that the “taxable amount” of his
distribution was $3,099.

In contending that he is not taxable on the gross income he re-
ceived, petitioner relies solely on the assertion that he is exempt from
tax on the fruits of his labor, including his wages and the retirement
distribution paid with respect to his labor in prior years. His pretrial
memorandum, which is not a model of clarity, appears to allege that his
wages and retirement benefits are tax exempt because he received them
as an equal exchange for labor. He asserts that “[t]he term ‘income’ has
repeatedly been held by the court to indicate ‘gain on capital’ and not
receipt [of] wages or a fee received in exchange for selling an item of
property.”

We have repeatedly rejected such arguments as frivolous. See,
e.g., Rowlee v. Commissioner, 80 T.C. 1111, 1120–22 (1983) (rejecting
the taxpayer’s claim that he did not have taxable income or “gain” be-
cause the wages he received were the product of his labor); Holland v.
Commissioner, T.C. Memo. 2021-129, 122 T.C.M. (CCH) 311, 312–13,
aff’d per curiam, No. 22-1007, 22 WL 1619849 (4th Cir. May 23, 2022).
And the Second Circuit has done the same. See, e.g., Connor v. Commis-
sioner, 770 F.2d 17, 20 (2d Cir. 1985); Schiff v. Commissioner, 751 F.2d
116, 117 (2d Cir. 1984) (ruling that the argument that taxation of wage
 5

[*5] income is unconstitutional is “wholly lacking in merit, is without
any logical basis, and has been rejected countless times by [the Second
Circuit] and others”), aff’g T.C. Memo. 1984-223. We accordingly hold
that petitioner was taxable in 2018 on gross income of $83,863, as deter-
mined in the notice of deficiency.

B. Additional Tax

Section 72(t) imposes a 10% “additional tax” on early distribu-
tions from qualified retirement plans. An early distribution is defined
as one made before “the date on which the employee attains age 59 1/2.”
See § 72(t)(2)(A)(i). Petitioner did not contend, in his Petition, in his
Pretrial Memorandum, or at trial, that he was age 59-1/2 or older when
the $3,099 was distributed to him. Nor does he contend that any other
exception set forth in section 72(t)(2) applies. The sole argument he has
advanced at any point in this case is that he is exempt from Federal
income tax altogether. We accordingly sustain the IRS’s determination
of a $310 additional tax for 2018.

C. Additions to Tax

With respect to the additions to tax under sections 6651 and 6654,
respondent bears the burden of production, but petitioner bears the bur-
den of proof. See § 7491(c). To meet his burden of production, respond-
ent “must come forward with sufficient evidence indicating that it is ap-
propriate to impose the relevant penalty.” See Higbee v. Commissioner,
116 T.C. 438, 446 (2001). As explained below, the evidence required to
meet this burden is not necessarily the same for each addition to tax.
See, e.g., Spurlock v. Commissioner, T.C. Memo. 2003-124, 85 T.C.M.
(CCH) 1236, 1242–45.

1. Failure to File

Section 6651(a)(1) provides for an addition to tax of 5% of the tax
required to be shown on a return for each month (or a fraction thereof)
for which there is a failure to file the return, not to exceed 25% in toto.
Respondent has produced the account transcript for petitioner’s 2018
tax year, which shows that petitioner did not file a return for 2018. This
was sufficient to satisfy respondent’s burden of production. See Murray
v. Commissioner, T.C. Memo. 2017-67, 113 T.C.M. (CCH) 1314, 1317.

Petitioner has supplied no evidence that he filed a Federal income
tax return for 2018. Indeed, by asserting frivolous arguments in support
of his assertion that he had no obligation to file such a return, he has
 6

[*6] effectively admitted that he did not do so. He has alleged no facts
and produced no evidence showing that his failure was “due to reasona-
ble cause and not due to willful neglect.” See § 6651(a)(1). We will ac-
cordingly sustain the failure-to-file addition to tax of $2,713 determined
by the IRS for 2018.

2. Failure to Pay

Section 6651(a)(2) provides for an addition to tax when a taxpayer
fails to pay timely “the amount shown as tax on [a] return” unless the
taxpayer proves that his failure was due to reasonable cause and not
due to willful neglect. To meet his burden of production under section
7491(c) for this addition to tax, the Commissioner must produce evi-
dence of a tax return. Wheeler v. Commissioner, 127 T.C. 200, 208–10
(2006), aff’d, 521 F.3d 1289 (10th Cir. 2008); Gardner v. Commissioner,
T.C. Memo. 2013-67, 105 T.C.M. (CCH) 1433, 1439, aff’d, 845 F.3d 971
(9th Cir. 2017). An SFR prepared by the IRS pursuant to section 6020(b)
is treated as the “return” filed by the taxpayer for this purpose. See
§ 6651(g).

Petitioner’s account transcript for 2018 indicates that the IRS
prepared an SFR on his behalf. But respondent did not include, among
his proposed trial exhibits, a certified copy of an SFR for 2018. Nor does
the record of this case otherwise include a copy of that document. Be-
cause respondent has not met his burden of production by producing ev-
idence of a tax return for 2018, we are unable to sustain the addition to
tax for failure to timely pay. See Gardner, 105 T.C.M. (CCH) at 1439
(holding that the reference in an account transcript to a “substitute tax
return prepared by IRS” was insufficient to satisfy the Commissioner’s
burden of production).

3. Failure to Make Estimated Tax Payments

Section 6654(a) imposes an addition to tax on an individual who
underpays his estimated tax. This addition to tax is calculated with ref-
erence to four required installment payments of the taxpayer’s esti-
mated tax liability. § 6654(c) and (d). Each required installment is
equal to 25% of the “required annual payment.” § 6654(d). Where a
taxpayer has not filed a return for the current tax year or the immedi-
ately preceding tax year, the “required annual payment” is equal to 90%
of the tax due for the current year. § 6654(d)(1)(B).

The Commissioner’s burden of production under section 7491(c)
requires him to produce, for each year for which the addition to tax is
 7

[*7] asserted, evidence that the taxpayer had a “required annual pay-
ment” under section 6654(d). To do so, the Commissioner must establish
the tax shown on the taxpayer’s return for the preceding year or demon-
strate that the taxpayer filed no such return. See Wheeler, 127 T.C.
at 212; Collins v. Commissioner, T.C. Memo. 2020-50, 119 T.C.M. (CCH)
1319, 1330.

Respondent did not include among his proposed trial Exhibits a
copy of petitioner’s Federal income tax return for 2017 or evidence that
petitioner failed to file a return for 2017. No information regarding pe-
titioner’s 2017 tax year is included in the record of this case. Because
respondent has not met his burden of production, we are unable to sus-
tain the addition to tax under section 6654(a).

D. Penalty for Maintaining Frivolous Positions

Section 6673(a)(1) authorizes this Court to require a taxpayer to
pay to the United States a penalty, not in excess of $25,000, “[w]henever
it appears to the Tax Court that—(A) proceedings before it have been
instituted or maintained . . . primarily for delay, [or] (B) the taxpayer’s
position in such proceeding is frivolous or groundless.” The purpose of
section 6673 is to compel taxpayers to conform their conduct to settled
tax principles and to deter the waste of judicial and IRS resources. Cole-
man v. Commissioner, 791 F.2d 68, 71–72 (7th Cir. 1986); Salzer v. Com-
missioner, T.C. Memo. 2014-188, 108 T.C.M. (CCH) 284, 287. “Frivolous
and groundless claims divert the Court’s time, energy, and resources
away from more serious claims and increase the needless cost imposed
on other litigants . . . .” Kernan v. Commissioner, T.C. Memo. 2014-228,
108 T.C.M. (CCH) 503, 512, aff’d, 670 F. App’x 944 (9th Cir. 2016).

Petitioner’s assertion that the income he concedes having re-
ceived is not subject to Federal income tax is a frivolous argument. See
May v. Commissioner, 752 F.2d 1301, 1304 (8th Cir. 1985) (citing
Abrams v. Commissioner, 82 T.C. 403, 406–07 (1984)); see also United
States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993) (“[W]e have held
that wages are within the definition of income under the Internal Reve-
nue Code . . . and are subject to taxation.”); Coleman v. Commissioner,
791 F.2d at 70–71 (same and collecting authorities); Waltner v. Commis-
sioner, T.C. Memo. 2014-35 (same), aff’d, 659 F. App’x 440 (9th Cir.
2016).

The assertion that wages are not income is a time-worn
tax-protester argument. Variations on this theme have been compiled
 8

[*8] by the IRS in The Truth About Frivolous Tax Arguments, a com-
pendium of frivolous positions and the caselaw refuting them. See In-
ternal Revenue Serv., The Truth About Frivolous Tax Arguments 9–13
(Mar. 2022), https://www.irs.gov/pub/irs-utl/2022-the-truth-about-
frivolous-tax-arguments.pdf. In plain English, this document character-
izes as frivolous the arguments that “wages . . . and other compensation
received for personal services are not income” and that “there is no tax-
able gain when a person ‘exchanges’ labor for money.” See id. at 10.
Although petitioner is not a lawyer, had he made even a modest inquiry
using an internet search engine he would have found the copious au-
thorities refuting his stance. See Wnuck v. Commissioner, 136 T.C. 498,
504 (2011) (“Anyone with the inclination to do legal research . . . will
confront such authorities.”).

We warned petitioner at the outset of trial that he was advancing
a frivolous argument that had repeatedly been rejected by the courts.
He nevertheless adhered to his position, asserting that he intended to
take his argument “all the way to the Supreme Court.” We will accord-
ingly require that he pay to the United States a penalty of $1,000.

To reflect the foregoing,

An appropriate order and decision will be entered.