                  T.C. Summary Opinion 2010-112



                      UNITED STATES TAX COURT



              JAMES ALLEN GREGOLINE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12751-08S.            Filed August 10, 2010.



     James Allen Gregoline, pro se.

     Bryan E. Sladek and Robert D. Heitmeyer, for respondent.



     GOLDBERG, Special Trial Judge:   This case was 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 decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code) in
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effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency of $4,564 in petitioner’s

2005 Federal income tax and an addition to tax of $1,098.88 under

section 6651(a)(1) for late filing of the 2005 Federal income tax

return.   The issues for decision are whether for 2005 petitioner:

(1) Is entitled to deduct $84,101 in unreimbursed employee

business expenses; (2) may exclude his wages of $100,463 from

gross income; and (3) is liable for the $1,098.88 addition to tax

for late filing of his 2005 Federal income tax return.

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

California when he filed his petition.

     In 2005 petitioner maintained his job as a “Journeyman

Engineer - Picture Editorial, Production Dept., Union 41 -

IATSE”, for Twentieth Century Fox Film in California, earning

$100,463.   He had held the job for many years before 2005 and

continued in the employment through the close of the record.

Petitioner received only two other items of income in 2005:    $15

of miscellaneous income from Global Entertainment Partners and

$35 of interest from 20th Century Fox Federal Credit Union.

Twentieth Century Fox withheld $13,364 of Federal income tax from
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petitioner’s 2005 wages.    By the end of 2005 petitioner was

divorced, but his ex-wife was still living with him.

     Marga M. A. Bakker, who had been preparing petitioner’s

income tax returns since 1999, is a self-employed tax return

preparer.    On petitioner’s behalf for 2005, she timely filed a

Form 4868, Application for Automatic Extension of Time To File

U.S. Individual Income Tax Return, securing for petitioner a 6-

month extension of time to file his 2005 Federal income tax

return.

     Ms. Bakker also prepared petitioner’s 2005 Federal income

tax return.    She dated her combined cover letter and invoice to

petitioner as October 13, 2006, billing him a total fee of $349,

and electronically filed the return on October 16, 2006.

Petitioner’s 2005 Federal income tax return accurately reported

the three income items noted above totaling $100,513 of gross

income.    The return also reflected $87,528 in net itemized

deductions, consisting of $5,437 in State and local taxes,

$84,101 in unreimbursed employee business expenses, and a

reduction of $2,010 in the unreimbursed employee business

expenses to incorporate the section 67(a) floor on miscellaneous

itemized deductions of 2 percent of adjusted gross income.

     Petitioner’s regular and alternative minimum taxes totaled

$15,668.    After application of petitioner’s withholding of

$13,364 and a self-computed estimated tax penalty of $33, the
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return reported a balance due of $2,337.   On March 16, 2007, the

IRS received payment in full of $2,572.60 from petitioner for the

balance due plus associated penalties and interest.   An

abbreviated IRS schedule of payments indicates that petitioner

had also made prior payments toward balances due from 2003 and

2004.

     The IRS selected petitioner’s 2005 Federal income tax return

for examination.   On a Form 4549-EZ, Income Tax Examination

Changes, dated February 19, 2008, Revenue Agent J. Ewert proposed

disallowing all of petitioner’s $84,101 in unreimbursed employee

business expenses.   Agent Ewert did not provide a reason on the

form for the disallowance.   Because of mathematical adjustments

to the alternative minimum tax, the net impact of the adjustment

was a proposed Federal income tax deficiency for 2005 of $4,564.

     Agent Ewert further ascertained that the extended due date

for filing the return was October 15, 2006, and because

petitioner filed his return on October 16, 2006, the filing was 1

day late.   Consequently, Agent Ewert proposed a $1,098.88

addition to tax under section 6651(a)(1) for petitioner’s late

filing of his 2005 Federal income tax return.

     In a notice of deficiency respondent determined a deficiency

of $4,564 and an addition to tax for late filing of $1,098.88.

The notice of deficiency included a copy of the Form 4549-EZ that

Agent Ewert had prepared.
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     Petitioner timely petitioned this Court.   He wrote that the

addition to tax is incorrect because “I did file my 2005 return

with the help of a C.P.A.”   Moreover, with respect to the

unreimbursed employee business expenses, petitioner wrote:

     In 2005, I worked as a union employee and a weekly-hire
     for Twentieth Century Fox Filmed Entertainment. During
     that year I worked on twenty-one movies, in multiple
     cities, in the United States, Hungary and Australia.
     On each movie I worked a variety of jobs, from on-set
     during filming to off-set in the cutting rooms and also
     in the labs. Because of the competetive [sic] nature
     of my business and it’s [sic] ever changing
     technologies, I frequently attend trade shows, go to
     schools for certified training, own and upgrade my own
     equipment, and frequently attend business meals. I
     also travel extensively and have a home office. I am a
     member of the Motion Picture Editors Guild - Local 700.
     And, if it pleases the court, I can provide to them a
     copy of my 2005 itemized deductions.

     Accordingly, this case appeared to be a straightforward

substantiation matter.   However, petitioner subsequently adopted

a new posture, that his earnings are excludable from gross

income.   The contents of a letter dated November 4, 2008, from

Twentieth Century Fox to the IRS may have motivated petitioner’s

change in tack.   In response to an inquiry from the IRS,

Twentieth Century Fox informed the IRS that

     It is the policy of Twentieth Century Fox to reimburse
     all ordinary, necessary, and reasonable expenses
     associated with employment which includes, and may not
     be limited to, travel, meals, lodging, and mileage.
     For actors, directors, and writers, certain expenses
     may be negotiated per contract and reimbursement made
     accordingly. The earnings reported to James Gregoline
     on the 2005 W-2 form, consists of payments for work or
     services performed for that period.
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     Building on his income exclusion theory, petitioner sent to

the IRS, among numerous other documents:    (1) Form 4852,

Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc.; (2) Form 1040X,

Amended U.S. Individual Income Tax Return; (3) Form 843, Claim

for Refund and Request for Abatement; and (4) Form SSA-7008,

Request for Correction of Earnings Record.    Through these forms,

petitioner asserted, respectively, that:    (1) His compensation

from Twentieth Century Fox for 2005 was zero; (2) he had zero

income and zero itemized deductions for 2005 and is therefore

entitled to a refund of all the Federal income tax that he paid

and which Twentieth Century Fox withheld for 2005; (3) he is also

entitled to a refund of all the Social Security and Medicare

taxes that he paid for 2005; and (4) his correct earnings for

Social Security purposes for each year 2006, 2007, and 2008 were

zero.

     The IRS accepted none of these documents and after several

back and forth discussions and correspondence issued a letter

dated April 10, 2009, alerting petitioner in bold print that

“section 6702 imposes a $5,000 penalty for the filing of a

frivolous tax return or purported return.    We are proposing a

$5,000 penalty per return based on your filing a frivolous tax

return(s) or purported tax returns(s).”    The letter gave
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petitioner 30 days to file a corrected return for 2005.

Petitioner noted that he had received similar warnings from the

IRS for each year 2002 through 2007.   The letter for 2005 stated

that the IRS would not respond to any future correspondence from

petitioner that asserted a frivolous position.     Petitioner

considered the letter “harassment” and believed that by not

complying with his refund requests, the IRS was “violating my

constitutional rights.”

     Unbowed, petitioner submitted a new Form 1040X for 2005,

reporting adjusted gross income of $50 and a standard deduction

of $5,000 and requesting a refund of $22,974, consisting of the

payments he made for 2005 of $15,937 in Federal income tax and

$7,037 in Social Security and Medicare taxes.    The IRS did not

accept or respond to this form.   Nonetheless, respondent did not

assert a penalty under section 6702 or any other section for

petitioner’s frivolous arguments, voluminous submissions, and

delay tactics with respect to 2005.

     Petitioner filed a motion with the Court to dismiss his case

for lack of jurisdiction because he contends, in main part, that

under the Constitution his “earnings do not constitute taxable

income.”   The Court denied petitioner’s motion.
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                             Discussion

I.    Burden of Proof With Respect to Factual Matters

       In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error.      Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).      Under

section 7491(a) the burden may shift to the Commissioner

regarding factual matters if the taxpayer produces credible

evidence and meets the other requirements of the section.

Petitioner has neither produced credible evidence nor established

his compliance with the other requirements of section 7491(a).

Petitioner therefore bears the burden of proof regarding factual

matters.

II.    Petitioner’s Unreimbursed Employee Business Expenses

       Deductions are a matter of legislative grace, and taxpayers

have the burden to satisfy the statutory requirements for

claiming the deductions.    Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).      Section 6001 requires

taxpayers to maintain records sufficient to establish the amount

of each deduction.    See also Ronnen v. Commissioner, 90 T.C. 74,

102 (1988); sec. 1.6001-1(a), (e), Income Tax Regs.

       Taxpayers may deduct ordinary and necessary expenses that

they pay in connection with operating a trade or business.        Sec.
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162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004).

Generally, the performance of services as an employee constitutes

a trade or business.   Primuth v. Commissioner, 54 T.C. 374, 377

(1970).   For these types of expenses to be deductible the

taxpayer must not have the right to obtain reimbursement from his

employer.   See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th

Cir. 1986), affg. T.C. Memo. 1984-533; Lucas v. Commissioner, 79

T.C. 1, 7 (1982).   We now apply the law to the present facts and

circumstances.

     Petitioner initially pleaded that his unreimbursed employee

business expenses were bona fide and substantiated.   However,

petitioner abandoned that theory, instead alleging that Ms.

Bakker concocted the deductions and therefore he did not pay her

fee and he never signed or authorized the electronic submission

of his 2005 Federal income tax return.   Petitioner wrote in his

pretrial memorandum that “I had no itemized deductions to take”

and “no source of income to take them from”, and in summary, the

deductions “did not exist”.

     We do not need to and we explicitly do not make a finding as

to the reasons for petitioner’s change in legal arguments.    As

respondent correctly noted, petitioner has simply not

substantiated any of the $84,101 in unreimbursed employee

business expenses that he deducted on his 2005 Federal income tax
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return.    Further, petitioner has explicitly conceded that his

itemized deductions for 2005 “did not exist”.

       For the foregoing reasons, we sustain respondent’s

disallowance of all of petitioner’s $84,101 in unreimbursed

employee business expenses for 2005.

III.    Whether Petitioner’s 2005 Compensation is Includable in
        Gross Income

       “Taxes are what we pay for civilized society,” as Justice

Oliver Wendell Holmes of the Supreme Court of the United States

famously observed.    Compania General de Tabacos de Filipinas v.

Collector, 275 U.S. 87, 100 (1927).     Petitioner argues the

opposite; namely that his payment of taxes interferes with his

“inalienable rights of life liberty and the pursuit happiness,

protected by the constitution [sic].”     We abide by Justice

Holmes’ view and note that “‘the greatness of our nation is in no

small part due to the willingness of our citizens to honestly and

fairly participate in our tax collection system which depends

upon self-assessment.’”    May v. Commissioner, 752 F.2d 1301, 1305

(8th Cir. 1985) (quoting Hatfield v. Commissioner, 68 T.C. 895,

899 (1977)).

       Gross income includes all income from whatever source

derived, including compensation for services.     Sec. 61(a)(1).

Petitioner offers unoriginal, tired, and meritless tax-protester

type arguments that this and other courts have universally

rejected.    See Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir.
                               - 11 -

1988),1 affg. T.C. Memo. 1987-225; Bigley v. Commissioner, T.C.

Memo. 2010-29.    We will not dignify petitioner’s arguments “with

somber reasoning and copious citations of precedent; to do so

might suggest that these arguments have some colorable merit.”

Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984).

Consequently, we sustain respondent’s determination by holding

that petitioner’s 2005 compensation from Twentieth Century Fox is

includable in gross income.

IV.    Addition to Tax Under Section 6651(a)(1) for Petitioner’s
       Purported Late Filing of His 2005 Federal Income Tax Return

       With respect to penalties and additions to tax, the

Commissioner bears the burden of production.    Sec. 7491(c); Rule

142(a); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).      To

satisfy this burden, the Commissioner must present “sufficient

evidence indicating that it is appropriate to impose the relevant

penalty” or addition to tax.    Higbee v. Commissioner, supra at

446.

       In the notice of deficiency respondent determined that

petitioner is liable for the addition to tax under section

6651(a)(1) for late filing of his return because petitioner filed

his return on October 16, 2006, 1 day after the extended due date

of October 15, 2006.    Petitioner contends that the IRS’



       1
      If this case were appealable, the appeal would lie in the
Court of Appeals for the Ninth Circuit.
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determination of the addition to tax for delinquent filing is

“incorrect”.

     We begin our analysis by noting that timely submission of

Form 4868 provides individual taxpayers with “an automatic 6-

month extension of time to file the return after the date

prescribed for filing the return”.     Sec. 1.6081-4T(a), Temporary

Income Tax Regs., 70 Fed. Reg. 67359 (Nov. 7, 2005).    Therefore,

in the ordinary course of events, the extended due date for

filing a 2005 individual Federal income tax return was October

15, 2006.

     However, October 15, 2006, fell on a Sunday.    Section 7503

provides that when the due date of a prescribed act under the

Code falls on a Saturday, Sunday, or legal holiday, performance

of the act is considered timely if it is performed on the next

business day.   Applying section 7503, petitioner had until the

end of the next business day, Monday, October 16, 2006, to timely

file his 2005 Federal income tax return.

     Respondent has conceded that petitioner filed his return on

October 16, 2006.   Therefore, we hold that petitioner timely

filed his 2005 Federal income tax return, and that respondent’s

determination that petitioner is liable for the addition to tax

for late filing under section 6651(a)(1) is erroneous.
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V.   Penalty for Frivolous Submissions

      Petitioner claimed deductions to which he was not entitled

and later switched to tax-protester type arguments that his wages

were not includable in income.   In addition to the penalties or

additions to tax that the Commissioner may determine, the Court

may on its own separately impose an additional penalty not in

excess of $25,000 when it appears that a taxpayer has instituted

or maintained proceedings primarily for delay or that the

taxpayer’s position in a proceeding is frivolous or groundless.

Sec. 6673(a)(1).   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.”   Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986);

see also Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th Cir.

1987) (section 6673 penalty upheld because the taxpayer should

have known that the claim was frivolous).    The Court has

discretion in deciding whether to impose the penalty.    See

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 102

(2000), affd. 299 F.3d 221 (3d Cir. 2002).

      Petitioner is a shrewd person, works for a prestigious film

company, and earns a good livelihood.    He had no need for his

vacuous theories, nasty comportment, and voluminous submissions.

Petitioner delayed payment of his own tax, and he irresponsibly

wasted many judicial and administrative resources that could have
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been better devoted to resolving bona fide claims of other

taxpayers.    We could not, however, find a prior warning by any

court to this particular petitioner.    Therefore, though it is a

close call, we decline to impose a penalty under section

6673(a)(1).    However, as sternly as words can express, we rebuke

petitioner and warn him that should he advance these or similar

arguments in the future, or if he institutes or maintains a

proceeding primarily for delay, he may be subject to a penalty

under section 6673(a)(1).    See Wolf v. Commissioner, 4 F.3d 709,

716 (9th Cir. 1993) (affirming the Tax Court’s section 6673

sanction where the Commissioner had forewarned the taxpayer

against litigating frivolous or groundless positions), affg. T.C.

Memo. 1991-212.

VI.   Conclusion

      We have considered all of the other arguments made by

petitioner, and to the extent that we have not specifically

addressed them, we conclude that those arguments are without

merit, irrelevant, or moot.
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To reflect our disposition of the issues,


                                   Decision will be entered

                              for respondent with respect to

                              the deficiency and for

                              petitioner with respect to the

                              addition to tax under section

                              6651(a)(1).
