So Frivolous Not Even Worth Discussing

[The Observer]

PEDRO JUAN RIVERA,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

Release Date: SEPTEMBER 16, 2009


UNITED STATES TAX COURT

Filed September 16, 2009

P failed to report wage income that he received in
2000. R determined a deficiency and additions to
tax pursuant to secs. 6651(a)(1) and (2) and 6654(a),
I.R.C.

Held: P is liable for the deficiency and the additions
to tax. P is also liable for a penalty under sec.
6673(a)(1), I.R.C.

Pedro Juan Rivera, pro se.

Lauren B. Epstein, Robert W. Dillard, and Lynn M. Curry, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: This case is before the Court on a petition for redetermination of an alleged $ 2,952 Federal income tax deficiency and additions to tax that respondent determined for petitioner's 2000 tax year. The issues for decision are:

(1) Whether petitioner was required to include $ 26,881 in wages in his 2000 gross income;

(2) whether petitioner is liable under section 6651(a)(1) 1 for a $ 549.22 addition to tax;

(3) whether petitioner is liable under section 6651(a)(2) for a $ 610.25 addition to tax;

(4) whether petitioner is liable under section 6654(a) for a $ 128.19 addition to tax; and

(5) whether the Court should impose a penalty on petitioner under section 6673(a)(1).

FINDINGS OF FACT

At the time petitioner filed his petition, he resided in Florida. In 2000 petitioner worked for Terminix International Co., LP (Terminix), and received $ 26,881.26 in wages. He did not file a Federal income tax return for 1999 or 2000 and did not make any estimated tax payments in 2000. In November 2007 respondent prepared a section 6020(b) substitute for return for petitioner's 2000 tax year. Respondent issued a notice of deficiency on February 25, 2008, and petitioner filed a timely petition with this Court on May 23, 2008. A trial was held on January 13 and 16, 2009, in Tampa, Florida.

OPINION

I. Whether Petitioner Had Unreported Income

Generally the Commissioner's determination of a deficiency is presumed correct, and the taxpayer has the burden of proving it wrong. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). However, the Court of Appeals for the Eleventh Circuit, to which an appeal in this case would lie absent stipulation to the contrary, has held that the presumption of correctness does not attach unless the Commissioner introduces some evidence linking the taxpayer to the alleged income-producing activity. See Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir. 1993), affg. T.C. Memo. 1991-636.

Respondent has sufficiently linked petitioner to an income-producing activity by introducing into evidence (1) a 2000 Form W-2, Wage and Tax Statement, reflecting that Terminix paid petitioner $ 26,881.26 in wages, (2) copies of paychecks that Terminix sent to petitioner in 2000 and that petitioner endorsed, and (3) payroll registers reflecting the wages Terminix paid petitioner in 2000. Thus petitioner has the burden to prove that the deficiency was arbitrary or erroneous. 2 See Blohm v. Commissioner, supra at 1549.

Petitioner has not met his burden. He did not testify at trial, did not present any witnesses or evidence, and did not file a brief despite being given the opportunity to do so. Although he argues that respondent failed to prove he is the Pedro Juan Rivera to whom Terminix paid $ 26,881.26 in wages, he admits that his Social Security number appears on the Form W-2, the paychecks, and the payroll registers that respondent introduced into evidence. Petitioner's argument is without merit as are his other arguments, which are so frivolous that they do not warrant discussion. 3 See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) ("We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit."). Because petitioner has not met his burden of proof, we sustain respondent's deficiency determination.

II. Additions to Tax

Respondent determined that petitioner is liable for additions to tax under sections 6651(a)(1) and (2) and 6654(a). Pursuant to section 7491(c), respondent has the burden of production with respect to these additions to tax and is therefore required to "come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty." See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). However, "once the Commissioner meets his burden of production, the taxpayer must come forward with evidence sufficient to persuade a Court that the Commissioner's determination is incorrect." Id. at 447.

A. Section 6651(a)(1) Addition to Tax

Section 6651(a)(1) imposes an addition to tax for failure to file a timely return unless the taxpayer proves that such failure is due to reasonable cause and not willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985). Respondent satisfied the burden of production by introducing into evidence a Form 3050, Certification of Lack of Record, reflecting that respondent has no record of petitioner having filed a Federal income tax return for 2000. See Davis v. Commissioner, T.C. Memo. 2005-160 n.10, affd. 244 Fed. Appx. 532 (4th Cir. 2007). Petitioner has not shown that the Form 3050 was irregular and has not presented any evidence to suggest that his failure to file was due to reasonable cause. Accordingly, we sustain respondent's imposition of the addition to tax under section 6651(a)(1).

B. Section 6651(a)(2) Addition to Tax

Section 6651(a)(2) imposes an addition to tax for failure to timely pay the amount of tax shown on a return.

The Commissioner's burden of production with respect
to the section 6651(a)(2) addition to tax requires
that the Commissioner introduce evidence that a return
showing the taxpayer's tax liability was filed for
the year in question. In a case such as this where
the taxpayer did not file a return, the Commissioner
must introduce evidence that an SFR [substitute
for return] satisfying the requirements of section
6020(b) was made. See Cabirac v. Commissioner,
* * * [120 T.C. 163 (2003)]. * * *

Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), affd. 521 F.3d 1289 (10th Cir. 2008). The section 6651(a)(2) addition to tax is not imposed if the taxpayer proves that the failure to pay is due to reasonable cause and not willful neglect.

Under section 6651(g)(2), a return prepared by the Secretary pursuant to section 6020(b) is treated as a return filed by the taxpayer for the purpose of determining the amount of an addition to tax under section 6651(a)(2). To constitute a section 6020(b) return, "the return must be subscribed, it must contain sufficient information from which to compute the taxpayer's tax liability, and the return form and any attachments must purport to be a 'return'." Spurlock v. Commissioner, T.C. Memo. 2003 124.

Although petitioner did not file a Federal income tax return for 2000, respondent introduced into evidence a document that qualifies as a section 6020(b) return for that year. See Wheeler v. Commissioner, supra at 208-210. The document contains a November 19, 2007, "Proposed Individual Income Tax Assessment", which lists petitioner's name, address, and Social Security number and which provides sufficient information to compute his tax liability. The document also contains an "IRC Section 6020(b) ASFR Certification", which states that the certification along with the information identified in it "shall be treated as the return filed by the taxpayer for purposes of determining the amount of the additions to tax under paragraphs (2) and (3) of section 6651(a)."

Because petitioner did not pay the entire tax liability as shown on the section 6020(b) return, respondent has met the burden of production with respect to the section 6651(a)(2) addition to tax. Further, petitioner has not demonstrated or introduced any evidence that his failure to pay is due to reasonable cause and not willful neglect. We therefore sustain respondent's imposition of the addition to tax under section 6651(a)(2).

C. Section 6654(a) Addition to Tax

Section 6654(a) imposes an addition to tax on individual taxpayers who underpay their estimated income tax. The Commissioner's burden of production under section 7491(c) with respect to that addition to tax requires the Commissioner, at a minimum, to produce evidence that a taxpayer was required to make an annual payment under section 6654(d)(1)(B). See Wheeler v. Commissioner, supra at 211. The amount of any required annual payment is the lesser of (1) 90 percent of the tax shown on the individual's return for the year or, if no return is filed, 90 percent of the individual's tax for such year, or (2) if the individual filed a return for the immediately preceding tax year, a fixed percentage of the tax shown on that return. Sec. 6654(d)(1)(B).

Respondent has met the burden of production with respect to the section 6654(a) addition to tax. Because petitioner failed to file Federal income tax returns for 1999 and 2000 as shown by the two Forms 3050 respondent introduced into evidence, his required annual payment of estimated tax for 2000 was 90 percent of his tax for that year. See Wheeler v. Commissioner, supra at 211-212. Petitioner did not make his required estimated tax payment for 2000. 4 Moreover, he does not fit within any of the exceptions listed in section 6654(e). 5 We therefore sustain respondent's imposition of the addition to tax under section 6654(a).

III. Section 6673(a)(1) Penalty

Section 6673(a)(1) authorizes the Tax Court to impose a penalty not in excess of $ 25,000 on a taxpayer for proceedings instituted primarily for delay or in which the taxpayer's position is frivolous or groundless. "A position maintained by the taxpayer is 'frivolous' where it is 'contrary to established law and unsupported by a reasoned, colorable argument for change in the law.'" Williams v. Commissioner, 114 T.C. 136, 144 (2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986)).

On March 3, 2009, respondent moved the Court to penalize petitioner under section 6673(a)(1). Respondent cites petitioner's failure to cooperate before and during trial as well the frivolous positions petitioner has taken throughout the proceeding. Respondent also points to petitioner's refusal to stipulate that he is the Pedro Juan Rivera who worked for Terminix in 2000. Petitioner studiously avoided introducing any evidence at all on this issue. This forced respondent to subpoena and call a witness, Greg Harmer, vice president of transaction services, from Terminix's parent corporation, Service Master, to present evidence to prove that fact. 6 The out-of-pocket cost to the Government with respect to Mr. Harmer, including airfare from Memphis, Tennessee, was at least $ 1,068. 7 On April 15, 2009, petitioner filed a response, which contains a variety of frivolous arguments that we need not mention. See Crain v. Commissioner, 737 F.2d at 1417.

Petitioner's conduct in this case warrants a penalty under section 6673(a)(1). His failure to acknowledge even the most basic facts, such as where he worked and when he worked there, and his repeated assertion of frivolous arguments, particularly his failure to acknowledge that he is the Pedro Juan Rivera who worked at Terminix, were intended to delay and wasted hours of the Court's, respondent's, and respondent's witness's time. These actions also substantially and unjustifiably increased the monetary cost borne by taxpayers who obey the law and promptly pay their taxes. To make matters worse, the Court repeatedly warned petitioner that he could be penalized under section 6673(a)(1) for his conduct. 8 He did not heed those warnings. As a result, we shall impose upon petitioner a $ 3,000 penalty pursuant to section 6673(a)(1).

The Court has considered all of petitioner's contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing,

An appropriate order will be issued, and decision will be entered under Rule 155.

FOOTNOTES:


/1/ All section references are to the Internal Revenue Code of 1986, as amended and in effect for the tax year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.


/3/ Although sec. 7491(a) may shift the burden of proof to the Commissioner in specified circumstances, petitioner has not satisfied the prerequisites under sec. 7491(a)(1) and (2) for such a shift.


/3/ For example, petitioner argues that (1) the notice of deficiency was invalid because it was not properly authorized, (2) he was not a taxpayer, and (3) that respondent failed to validate that he had a tax debt. None of these arguments has any merit.


/4/ Petitioner's 2000 Form W-2 reflects $ 511.52 of Federal income tax withheld. In the notice of deficiency respondent rounded this figure down to $ 511 but should have rounded it up to $ 512. In respondent's Rule 155 computations respondent should either correct this rounding error or explain why $ 511 is the correct figure.


/5/ Sec. 6654(e) provides two exceptions to the sec. 6654(a) addition to tax. First, the addition is not applicable if the tax shown on the taxpayer's return for the year in question (or, if no return is filed, the taxpayer's tax for that year), reduced for these purposes by any allowable credit for wage withholding, is less than $ 1,000. Sec. 6654(e)(1). Second, the addition is not applicable if the taxpayer's tax for the full 12-month preceding taxable year was zero and the taxpayer was a citizen or resident of the United States. Sec. 6654(e)(2). In light of our earlier conclusion regarding petitioner's wage income, petitioner is liable for a deficiency for 2000 that net of withholding exceeds $ 1,000. And, because petitioner failed to file a 1999 Federal income tax return, he has not shown that he had no tax liability in 1999.


/6/ Mr. Harmer testified that


our records show that a person who claimed to be
Pedro Rivera and furnishing documents saying they
were Pedro Rivera * * * -- they had to produce the
documents required by an I-9, so a Social Security
card and a passport or a driver's license or some
other identification -- came to our Terminix offices
here in Florida in 1997, produced those documents,
claimed to be Pedro Rivera, provided the Social Security
number that is on these documents, and that we then
employed and continued to pay that person from 1997
to 2001.


/7/ There were considerable other costs also involved to all of the trial participants from lost time in court and as an expense of operating the Court.


/8/ Petitioner contends that the Court's sec. 6673(a)(1) warnings "constrained" him from cooperating with respondent or diligently preparing his case. That contention, like all of his other arguments, is frivolous and specious.

[Pottapaug1938]

And another "pro se" litigant goes down in flames.

In Massachusetts, we have the right of "free petition" concerning our legislature. This means that any citizen can write a bill and have his or her state senator or representative submit the bill to the General Court (our name for the State Senate and House of Representatives). Each bill bears the name of the legislator who submits it; but if this line reads anything like, "Rep. Warren Doubleday, by request", the bill is doomed -- it means that the legislator does not believe in the bill enough to submit it under his own authority, and wants the others to know that he is filing the bill only because he or she is compelled to do so.

Similarly, I would not be surprised to find that, in TP cases, the fact that a litigant proceeds pro se is a subtle sign that no lawyer worth a d*mn considers the case worthy enough to take, and that the pro se litigant has a case that is without serious merit.

[Quixote]

And another "pro se" litigant goes down in flames.

In Massachusetts, we have the right of "free petition" concerning our legislature. This means that any citizen can write a bill and have his or her state senator or representative submit the bill to the General Court (our name for the State Senate and House of Representatives). Each bill bears the name of the legislator who submits it; but if this line reads anything like, "Rep. Warren Doubleday, by request", the bill is doomed -- it means that the legislator does not believe in the bill enough to submit it under his own authority, and wants the others to know that he is filing the bill only because he or she is compelled to do so.

Similarly, I would not be surprised to find that, in TP cases, the fact that a litigant proceeds pro se is a subtle sign that no lawyer worth a d*mn considers the case worthy enough to take, and that the pro se litigant has a case that is without serious merit.

I don't think the taxpayer proceeding pro se signals, by itself, a lack of merit. It could signal the taxpayer's belief that he can't afford a lawyer and that the facts as he knows them speak for themselves. That, of course, is not why Pedro proceeded pro se. If he had any facts in his favor, he would have presented them. That failure to present a single bit of evidence, added to his proceeding pro se, is a signal that he had no case.

[Pottapaug1938]

Just as there are some bills filed "by request" which have some merit, but are filed by a hostile legislator, there certainly are cases where a pro se litigant has a case with merit. However, by and large, I would bet that the majority of TP cases, where the TPer proceeds pro se, are meritness or nearly so.

[Quixote]

Just as there are some bills filed "by request" which have some merit, but are filed by a hostile legislator, there certainly are cases where a pro se litigant has a case with merit. However, by and large, I would bet that the majority of TP cases, where the TPer proceeds pro se, are meritness or nearly so.

If "TP" is short for tax protester, don't all TP cases lack merit by definition?

[Quixote]

A tax protester can present a potentially valid argument for the IRS and/or court to consider - which is why there are things like Totten trusts and rabbi trusts and such. A particular taxpayer thought the tax assessment made by the IRS was wrong and through the court system proved their point.

Huh? What do rabbi trusts, which are legitimate tax deferred pension plans, have to do with tax protesting?

[Brandybuck]

Tax protester - one who protests taxes. There is nothing immoral, unethical or illegal about protesting a particular tax, or taxes in general. You may disagree with the protester on philosophical or ideological grounds, but you cannot deny them their legal and moral right to protest them.

Tax denier - one who denies the existance of taxes. These guys are the nutters. They argue that a particular tax does not exist. They rant about the 16th Amendment not be ratified, that Ohio was not a state until the 1950s, that the income tax only applies to federal employees, and all sorts of other bizarreness. They are akin to troofers and birfers, who rinse their brains out each morning with unscented Clorox.

[Duke2Earl]

Killed that bug dead!

[grixit]

Think maybe he stayed inside too long a few times after bagging a house?

[LPC]

A tax protester can present a potentially valid argument for the IRS and/or court to consider - which is why there are things like Totten trusts and rabbi trusts and such. A particular taxpayer thought the tax assessment made by the IRS was wrong and through the court system proved their point.

Huh? What do rabbi trusts, which are legitimate tax deferred pension plans, have to do with tax protesting?

And "Totten trusts" have nothing to do with taxes whatsoever.

A "Totten trust" is a form of beneficiary designation for a bank account, so that ownership of the account passes at death to the named beneficiary without any need for a will. There is no tax savings.

[Pantherphil]

Whether or not assets pass through probate has nothing to do with whether or not they are part of the gross estate for federal estate tax purposes. The federal estate tax reaches many assets that pass outside of probate including joint tenancy property, joint and survivor accounts, assets in revocable trusts, assets in which the decedent had a retained life interests, annuities, retirement plan accounts, IRA accounts, annuities, life insurance proceeds of policies in which the decedent possessed incidents of ownership and a variety of other assets. A Totten Trust owned by the decedent during his lifetime would be fully includible in the decedent's gross estate.

[LPC]

A "Totten trust" is a form of beneficiary designation for a bank account, so that ownership of the account passes at death to the named beneficiary without any need for a will. There is no tax savings.

If it keeps that money from being probated, you have saved on.......estate taxes. And estate taxes, except for this year and next, can take huge chunks of money.

Now we're talking about what I do for a living, and what I have been paid to teach at a graduate level.

So, what part of "There is no tax savings" did you not understand?

Just like "gross income" is defined for federal income tax purposes by section 61, the "gross estate" (which is the estate subject to federal estate tax unless reduced by an exemption or deduction, just like gross income is subject to federal income tax unless exempted or deducted) is defined by the Internal Revenue Code for federal estate tax purposes, but by sections 2031 through 2046 instead of section 61. What you call the "money being probated" (actually, money is not "probated," only wills are probated) is covered by section 2033. Sections 2034 through 2046 cover interests which are NOT "probated" but which are nevertheless part of the gross estate.

A "Totten trust" would be included in the gross estate under either section 2037 or 2038 (or both).

And, once included in the gross estate, a Totten trust would be subject to federal estate tax unless deducted or exempted under some other section of the Internal Revenue Code.

As a general rule, "avoiding probate" is for the idiots and the rubes, because it accomplishes nothing. The real money in estate planning is in the avoidance of federal estate tax, and that requires more than just "avoiding probate."

[LPC]

Whether or not assets pass through probate has nothing to do with whether or not they are part of the gross estate for federal estate tax purposes.

I wouldn't say it has "nothing to do" with the federal estate tax, because assets that "pass through probate" are obviously (and by reason of IRC section 2033) subject to federal estate tax. The real point is that there are lots of things that are not part of the probate estate and yet are still subject to federal estate tax.

Such as "Totten trusts" and other forms of revocable transfers.

The federal estate tax reaches many assets that pass outside of probate including joint tenancy property, joint and survivor accounts, assets in revocable trusts, assets in which the decedent had a retained life interests, annuities, retirement plan accounts, IRA accounts, annuities, life insurance proceeds of policies in which the decedent possessed incidents of ownership and a variety of other assets. A Totten Trust owned by the decedent during his lifetime would be fully includible in the decedent's gross estate.

Right.

[LPC]

Because in one instance a rabbi protested the way the IRS wanted to tax his unfunded deferred compensation plan. So, the rabbi and his tax attorney fought the IRS decision and in the end the courts (if I remember correctly) decided in favor of the rabbi - since he had not taken constructive receipt of the retirement benefit, he could not be taxed on it. It resulted in unfunded deferred compensation plans remaining untaxed and being called rabbi trusts.

I don't think that you remember correctly.

The use of "Rabbi trusts" has been based on favorable IRS rulings and procedures, and not court decisions. See, for example, Rev. Proc. 1992-64, 1992-2 C.B. 422.

[Arthur Rubin]

As a general rule, "avoiding probate" is for the idiots and the rubes, because it accomplishes nothing. The real money in estate planning is in the avoidance of federal estate tax, and that requires more than just "avoiding probate."

I tend to agree, but as part of general estate planning, avoiding probate does serve some (limited) purpose; in California, up to 10% of the probate estate can go to the lawyer (not necessarily the personal representative). It's no match for the 45% estate tax rate or the estate's income tax, but it is something that needs to be considered.

[Cpt Banjo]

As a general rule, "avoiding probate" is for the idiots and the rubes, because it accomplishes nothing. The real money in estate planning is in the avoidance of federal estate tax, and that requires more than just "avoiding probate."

I tend to agree, but as part of general estate planning, avoiding probate does serve some (limited) purpose; in California, up to 10% of the probate estate can go to the lawyer (not necessarily the personal representative). It's no match for the 45% estate tax rate or the estate's income tax, but it is something that needs to be considered.

The use of revocable trusts won't save estate taxes, but it can accomplish significant non-tax goals, such as avoiding ancillary probate in cases where a decedent owns real property in another state.

In Texas, an executor is required to file an inventory of the probate assets. This is a public document, and some clients don't want the world to know the extent of their estate. A revocable trust can afford privacy in this regard.

Finally, in some states a revocable trust can avoid the delay inherent in the probate system. My mother-in-law lived in Wisconsin, and I once asked her attorney (who had advised her to place her assets in a revocable trust) how long it took to probate a will and administer an estate in Wisconsin. The answer was 10 to 12 months, a ridiculously long time.

[Demosthenes]

Probate costs and issues vary widely by state.

[Tax Man]

Although there very well may be a cost-savings with avoiding probate, there is also a cost associated with forming and maintaining a trust. Do the math to see how it works. The trust could be viewed as somewhat of an "up-front" payment of probate fees.

Other non-estate tax issues include: keeping the property in the hands of a skilled trustee versus a guardian in the event of guardianship/conservator proceedings; ancillary administration; preservation of GST exemption (but if you are concerned about GST, youre also concerned about estate taxes); and privacy.

[LaVidaRoja]

An understanding of State probate law is essential. It is also necessary to have a firm grasp on the TOTAL estate. These are items that should be addressed by the party while they are alive. Are there potential issues of controversy? You may choose Probate to have a full hearing on the issues. Is there real property in another state? A trust may be the best way to easily transfer the property. Specific bequests of personal property are usually (not always) best handled through probate (i.e. the Chagall prints) The first questions to be answered are: #1 What do you have? #2 Who do you want to leave it to? #3 Are there any other parties/problems anticipated in #1 and #2?

[LPC]

Probate costs and issues vary widely by state.

I have practiced my entire career in a state in which probate fees are minimal, lawyers are not required for estate administrations, legal fees are competitive, and "avoiding probate" is a scam in which the elderly pay $5,000 or more in fees to incompetent, unethical, and often unlicensed lawyers in order to avoid a couple of hundred dollars in probate fees which wind up having to be paid anyway.

My apologies to those who live in other states with other lawyers, other laws, and other facts.