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STATE OF NEW YORK
DIVISION OF TAX APPEALS
IN THE MATTER OF THE PETITION
JAMES E. ELLETT
for Redetermination of a Deficiency or for Refund of Personal Income
Tax under Article 22 of the Tax Law for the Year 1995.
DTA NO. 817420
 Petitioner, James E. Ellett, c/o 5171 Rt. 32, Catskill, New York 12414, filed
a petition for redetermination of a deficiency or for refund of New York State
personal income tax under Article 22 of the Tax Law for the year 1995.
 A hearing was held before Winifred M. Maloney, Administrative
Law Judge, at the offices of the Division of Tax Appeals,
500 Federal Street, Troy, New York, on July 11, 2000 at 9:15
A.M., with all briefs to be submitted by October 26, 2000,
which date began the six-month period for the issuance of
this determination. Petitioner appeared pro se. The Division
of Taxation appeared by Barbara G. Billet, Esq. ( Kevin R.
Law, Esq., of counsel).
I. Whether petitioner's wage income was subject to New York
State personal income tax.
II. Whether the Division of Taxation's request for the imposition
of a frivolous petition penalty pursuant to 20 NYCRR 3000.21
 FINDINGS OF FACT
1. Petitioner, James E. Ellett, filed a timely New York
State resident income tax return (form IT-200) for the year
1995, with a filing status of married filing separate return.
The return, as filed, reported taxable interest income in
the sum of $193.29, but no wage income. Petitioner claimed
the standard deduction of $5,400.00, which resulted in no
taxable income and no tax due. Petitioner requested a refund
of $3,253.09 which had been withheld from his wages. The
wage and tax statement attached to the return showed that
during 1995 petitioner was employed by Central Hudson Gas & Electric
Corp. and earned wages of $52,441.10 from which New York
State income tax was withheld in the sum of $3,253.09.
2. On June 6, 1996 the Division of Taxation ("Division")
issued a notice and demand for the payment of tax due to
petitioner for the year 1995, showing Federal adjusted gross
income of $52,634.00 ($52,441.00 plus $193.00), and New York
taxable income of $47,234.00 after allowance for the standard
deduction. The amount of New York State income tax computed
was $3,296.00, less the tax withheld of $3,253.09, leaving
tax due of $42.91.
3. Petitioner signed and returned to the Division a Department
of Taxation and Finance form dated July 9, 1996 wherein he
indicated his disagreement with the amount of tax due and
attached a written explanation of his reasoning. In his explanation
petitioner distinguished between "gains and profits" which
he stated were subject to income tax, and "compensation
for labor" which, he contended, is not subject to income
4. By notice of assessment resolution dated December 30,
1996, the Division responded to petitioner's correspondence,
explaining that a person who receives wages for services
rendered is required to pay income taxes on those wages.
In his undated letter in response to the Division's notice
of assessment resolution, petitioner denied that he had a
liability for income tax and penalties, arguing that one
does not derive income by rendering services and charging
5. On November 17, 1997 the Division sent to petitioner
a collection notice and a consolidated statement of tax liabilities
informing him that, in addition to the $42.91 tax item, he
also owed penalty in the sum of $3.78 plus interest in the
amount of $5.94 for a total of $52.63.
6. On January 9, 1998 petitioner mailed to the Division
an unsigned form IT-201-X, Amended Resident Income Tax Return,
wherein he changed the amount of the Federal adjusted gross
income reported on line 1 by increasing said amount by $52,441.10
(the amount of his Central Hudson Gas & Electric Corp.
wages) to $ 52,634.39. Petitioner then substituted an itemized
deduction in the amount of $53,741.10 in place of the $5,400.00
standard deduction which served to reduce his New York State
taxable income to zero. He then claimed a refund in the sum
of $3,253.09, the amount of his New York State taxes withheld.
7. With his 1995 amended New York State return, petitioner
included a copy of his 1995 form 1040-X, Amended U.S. Individual
Income Tax Return, dated June 19, 1997, wherein he made the
same adjustment to his Federal adjusted gross income as he
made on his amended New York State return, and increased
his itemized deduction from zero to $52,441.10, the amount
of his wages. Petitioner then requested a refund of his Federal
income tax withheld in the sum of $10,429.61. On his form
1040, schedule A, petitioner reported as a miscellaneous
deduction the sum of $52,441.10, describing it as a "non-taxable
compensation as per U.S. Constitution." Submitted with
the form 1040-X was an Internal Revenue Service ("IRS")
statement of account dated October 20, 1997 acknowledging
a refund due to petitioner in the sum of $3,782.80.
8. On March 27, 1998 the Division issued to petitioner a
notice of disallowance of refund, disallowing in full petitioner's
claimed New York State income tax refund in the amount of
$3,253.09. This document noted that the IRS statement of
account does not reflect any changes in income or deductions,
only that credit was given for Federal tax withheld.
SUMMARY OF THE PARTIES' POSITIONS
9. Petitioner filed a petition for a refund on November
15, 1999 wherein he stated:
The error made by the Commissioner of Taxation and Finance
or, his representative in the Taxation department, was the
disallowance of compensation for labor as an exemption [sic]
from income in determining taxable income.
I intend to prove that compensation for labor is, under the United States Constitution
and Internal Revenue Code, not taxable income because it is an excemption [sic].
Also that New York State Tax Code follows the Internal Revenue Code, and therefore
compensation for labor is an included excemption [sic] in the New York State
10. In its answer to the petition and at the hearing the Division, inter alia,
requested that the Division of Tax Appeals impose the maximum penalty for filing
a frivolous petition pursuant to Tax Law section 2018 and 20 NYCRR 3000.21.
 CONCLUSIONS OF LAW
A. Tax Law section 611(a) defines New York taxable income
The New York taxable income of a resident individual shall
be his New York adjusted gross income less his New York deduction
and New York exemptions, as determined under this part.
B. Tax Law section 612(a) defines New York adjusted gross income as follows:
The New York adjusted gross income of a resident individual
means his federal adjusted gross income as defined in the
laws of the United States for the taxable year, with the
modifications specified in this section.
C. IRC section 62(a) defines federal adjusted gross income in the case of an
individual, as "gross income minus the following deductions: . . . ." None
of the deductions listed in IRC section 62(a) include wage or salary income.
D. IRC section 61(a) defines gross income, in part, as follows:
(a) GENERAL DEFINITION. -- Except as otherwise provided
in this subtitle, gross income means all income from whatever
source derived, including (but not limited to) the following
(1) Compensation for services, including fees, commissions, fringe benefits,
and similar items. . . .
E. In Cardinalli v. Commissioner (39 TCM 514, affd 649 F2d 866), the U.S. Tax
Court held "that the levying of an income tax on the salary received by
petitioner for personal services is not unconstitutional for any reason and
does not violate due process of law" (id., at 515). Petitioner contends
that compensation for labor is exempt from income tax under the U.S. Constitution,
the Internal Revenue Code and the New York State Tax Law. Petitioner bears
the burden of proof in accordance with Tax Law section 689(e) to show that
the income sought to be taxed is exempt from tax for any reason. Petitioner
has failed to meet his burden to prove that the income received from his employer
is exempt from or otherwise not subject to income tax.
F. Petitioner, while admitting in his reply brief that he
was born in New York State, asserts that he is not a United
States citizen because New York State is a separate, contiguous
nation with respect to the United States. Petitioner reasons
that since he is not a citizen of the United States, and
because in Article 22 of the New York State Tax Law the Legislature
adopted, for its personal income tax purposes, the provisions
of the laws of the United States relating to the determination
of income for Federal income tax purposes, it follows that
he is subject to neither Federal nor New York State personal
income tax. Section 1 of Amendment 14 to the United States
Constitution reads in part, "All persons born or naturalized
in the United States, and subject to the jurisdiction thereof,
are citizens of the United States and of the State wherein
they reside." The record demonstrates that petitioner
paid Federal income tax on his 1995 wages and is subject
to New York State personal income tax on those same wages.
G. 20 NYCRR 3000.21 reads, in part, as follows:
If a petitioner commences or maintains a proceeding primarily
for delay, or if the petitioner's position in a proceeding
is frivolous, the tribunal may, on its own motion or on the
motion of the office of counsel, impose a penalty against
such petitioner of not more than $500. This penalty shall
be in addition to any other penalty provided by law, and
shall be collected and distributed in the same manner as
the tax to which the penalty relates.
Example (a) in the list of examples of frivolous positions reads "that
wages are not taxable as income." The record is replete with examples
where petitioner has advanced the premise that wages are not taxable as income,
which premise is clearly frivolous.
H. The Division, in its answer to the petition, has requested
that the maximum penalty for the filing of a frivolous petition
be imposed. The Division further placed petitioner on notice
of the existence of the frivolous petition issue in its opening
statement and its closing argument at the hearing on July
11, 2000. The Division, having duly applied to the Division
of Tax Appeals for a determination that petitioner has asserted
a position that is frivolous and asking that a frivolous
petition penalty be imposed, and petitioner having failed
to establish that his position was other than frivolous,
it is determined that a frivolous petition penalty is appropriate.
Although I found petitioner to be sincere, he is misguided
in his belief that his wages are not subject to income tax.
Therefore, given the circumstances, a penalty of $250.00
is imposed pursuant to 20 NYCRR 3000.21.
I. The petition of James E. Ellett is denied. The notice
of disallowance issued by the Division disallowing petitioner's
claim for refund is sustained. The notice and demand is sustained
and, in accordance with Conclusion of Law "H," a
penalty of $250.00 is imposed for the filing of a frivolous
DATED: Troy, New York
April 5, 2001
Winifred M. Maloney
Administrative Law Judge
Return to Tax Protestor Exhibit