                        T.C. Memo. 2009-179



                      UNITED STATES TAX COURT



          LEVI KENNETH HODGES, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 10741-04, 1046-05,     Filed August 4, 2009.
                 15189-05.



     Levi Kenneth Hodges, pro se.

     Edwina L. Jones, for respondent.



                        MEMORANDUM OPINION


     WELLS, Judge:   Respondent determined Federal income tax

deficiencies for Levi Kenneth Hodges’ or Levi K. Hodges’


     1
      Cases of the following petitioners are consolidated
herewith for purposes of trial, briefing, and opinion: Levi
Kenneth Hodges, docket No. 1046-05, and Levi K. Hodges, docket
No. 15189-05. These cases are collectively referred to herein as
the instant case.
                                -2-

(petitioner’s) 2001, 2002, and 2003 taxable years of $51,152.24,

$46,790.30, and 40,784.08, respectively.    For 2001 respondent

determined additions to tax under sections 6651(a)(1) and

6654(a)2 of $17,136 and $2,024.25, respectively.   For 2002

respondent determined additions to tax under sections 6651(a)(1)

and 6654(a) of $22,225.39 and $1,563.59, respectively.    For 2003,

respondent determined additions to tax under sections 6651(a)(1)

and 6654(a) of $11,419.54 and $1,052.35, respectively.    The

issues we must decide are:   (1) Whether petitioner received and

failed to report taxable income for his 2001, 2002, and 2003

taxable years and (2) whether petitioner is liable for the

additions to tax determined by respondent pursuant to sections

6651(a)(1) and 6654(a) for the taxable years in issue.

                             Background

     Some of the facts and certain exhibits have been stipulated.

The parties’ stipulations of fact are incorporated in this

opinion by reference and are found as facts in the instant case.

At the time of filing the petitions, petitioner resided in South

Carolina.

     Petitioner did not timely file a Federal income tax return

for his 2001, 2002, or 2003 taxable year.




     2
      All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                                 -3-

     During 2001 petitioner received nonemployee compensation of

$120,541, interest income of $61, stock sale proceeds of $3,605,

and real estate sale proceeds of $30,500.    During 2002 petitioner

received nonemployee compensation of $116,889, interest income of

$31, and real estate sale proceeds of $27,000.   During 2003

petitioner received nonemployee compensation of $126,835 and

interest income of $1,819.

     Respondent determined tax deficiencies and additions to tax

for petitioner’s 2001, 2002, and 2003 taxable years as follows:3

                                      Additions to Tax
     Year       Deficiency     Sec. 6651(a)(1)     Sec. 6654

     2001       $51,152.24      $17,136.00        $2,024.25
     2002        46,790.30       22,225.39         1,563.59
     2003        40,784.08       11,419.54         1,052.35

     On April 7 and November 2, 2004, and May 5, 2005, respondent

sent petitioner notices of deficiency for petitioner’s 2001,

2002, and 2003 taxable years, respectively.

     On June 23, 2004, and January 18 and August 16, 2005,

petitioner filed petitions with this Court for redetermination of

the deficiencies for his 2001, 2002, and 2003 taxable years,

respectively.    In each of those petitions, petitioner stated that

he did not have any tax liability, denied the figures and


     3
      The sec. 6651(a)(1) additions to tax set forth in this
opinion are those that respondent determined in the notices of
deficiency. The sec. 6651(a)(1) additions to tax set forth in
respondent’s pretrial memorandum differed from those listed in
this opinion. We do not decide which figures are correct but
expect the parties to resolve this issue in the computations we
will order pursuant to Rule 155.
                                  -4-

contents of the notices of deficiency, disputed the computations,

and claimed that for the years in issue he had dependents,

deductions, credits, costs of doing business, losses, and

depreciation.

     In a letter to respondent dated September 18, 2004,

petitioner made the frivolous assertion that he did not realize

gain on the sale of his labor and thus had no income and was not

required to file a Federal income tax return under section 6012.

     On July 22, 2005, petitioner submitted to respondent a Form

1040, U.S. Individual Income Tax Return, for his 2002 taxable

year and attached what purports to be a corrected Form 1099-MISC,

Miscellaneous Income, for 2002.    The “corrected” Form 1099-MISC

was prepared by petitioner and shows zero nonemployee

compensation for 2002.   Petitioner’s 2002 Form 1040 showed

interest income of $31 and no other income for his 2002 taxable

year, resulting in no tax allegedly due for 2002.

     Petitioner submitted to respondent an affidavit dated August

24, 2005, frivolously asserting, among other things, that

respondent had no authority to issue a notice of deficiency for

his 2001 taxable year because petitioner had not filed an income

tax return.   Along with that affidavit petitioner submitted a

Form 1040 for his 2001 taxable year and a purportedly “corrected”

Form 1099-MISC prepared by petitioner and showing zero

nonemployee compensation for 2001.      Petitioner’s 2001 Form 1040
                                -5-

showed interest income of $62, capital gain of $2,352, a rental

loss of $594, and no tax due for 2001.

     On October 3, 2005, petitioner sent respondent a letter

asserting that petitioner did not have taxable income for his

2003 taxable year and frivolously asserting that respondent did

not have the authority to issue a notice of deficiency for his

2003 taxable year because petitioner had not filed an income tax

return for that year.   Along with that letter, petitioner also

sent respondent a Form 1040 for his 2003 taxable year and a

“corrected” Form 1099-MISC prepared by petitioner and showing

zero nonemployee compensation for 2003.   Petitioner’s 2003 Form

1040 showed interest income of $25 and no other income for 2003,

resulting in no tax due for 2003.

     On November 7, 2005, petitioner submitted to respondent

another affidavit, frivolously asserting, among other things,

that petitioner did not receive any income as that term has been

defined by the Supreme Court of the United States and that

petitioner had no income tax liability for his 2001, 2002, and

2003 taxable years.   Petitioner attached to the affidavit copies

of Form 1040 for his 2001, 2002, and 2003 taxable years, dated

November 7, 2005, showing no tax due for any of those years.

     The instant case was set for trial in Columbia, South

Carolina, on January 9, 2006.   At that trial petitioner conceded

he had received the amounts determined in the notices of
                                -6-

deficiency and agreed to provide receipts for the expenses that

he claimed should offset those receipts.   On the basis of those

representations, this Court continued the instant case to allow

to the parties to reach a settlement.

     Subsequently, petitioner provided respondent with

documentation to support business expenses for his 2001, 2002,

and 2003 taxable years and with evidence of his bases in the real

estate and stocks sold in those years.   Consequently, respondent

conceded that petitioner is entitled to deduct business expenses

of $72,565.77, $53,541, and $63,669 for his 2001, 2002, and 2003

taxable years, respectively.   Additionally, respondent conceded

that petitioner incurred a long-term capital loss of $3,179 on

the real estate and stock sales in 2001; a long-term capital loss

of $27,000 on the sale of real estate in 2002; an ordinary loss

of $8,316 on the sale of business property in 2002; and a rental

loss of $319 in 2002.

     The parties reached a tentative agreement regarding

petitioner’s tax liabilities for his 2001, 2002, and 2003 taxable

years.   Petitioner apparently had a change of heart, and, instead

of signing the settlement documents, filed a motion to dismiss on

July 25, 2006.   In that motion, petitioner asserted that this

Court lacked jurisdiction over him.

     On September 27, 2006, petitioner’s motion to dismiss was

denied, and this case was again set for trial on March 17, 2008.
                                -7-

At the trial, petitioner did not dispute receiving the amounts

shown in the deficiency notices but claimed on the basis of

various tax-protester arguments that those amounts were not

taxable income.

                            Discussion

Petitioner’s Taxable Income for 2001, 2002, and 2003

     As a general rule, the Commissioner’s determinations in a

notice of deficiency are presumed correct, Welch v. Helvering,

290 U.S. 111, 115 (1933), and Rule 142(a) places the burden of

proving an error on the taxpayer.     Petitioner conceded at trial

that he received the amounts of compensation, interest, and sale

proceeds set out in the notices of deficiency for his 2001, 2002,

and 2003 taxable years.   In the light of that concession there

are no disputed issues of fact in respect of his receipt of those

amounts.   Accordingly, the only issue remaining for this Court to

decide is the legal question of whether the amounts petitioner

received are taxable under the Internal Revenue Code, a question

we decide as a matter of law without reference to the presumption

of correctness or the burden of proof.

     Petitioner argues that the income he received in 2001, 2002,

and 2003 was not taxable income within the relevant meaning of

the law.   To support his assertion, petitioner offered only tax-

protester arguments and corrected Forms 1099-MISC for years 2001,

2002, and 2003 prepared by petitioner himself.    The corrected
                                    -8-

Forms 1099-MISC were based on tax-protester arguments, and we do

not find them worthy of belief.

     Gross income means all income from whatever source derived,

including compensation for services, interest, and gains from

dealings in property.    Sec. 61.    Compensation for services

rendered constitutes taxable income, and a taxpayer has no basis

in his labor.    Abrams v. Commissioner, 82 T.C. 403, 407 (1984).

The only arguments that petitioner has raised to support his

assertion that the payments he received in 2001, 2002, and 2003

were not taxable income within the relevant meaning of the law

are frivolous tax-protester arguments.      We do not address

petitioner’s frivolous and groundless arguments with “somber

reasoning and copious citation of precedent; to do so might

suggest that these arguments have some degree of colorable

merit.”    See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir.

1984).    We conclude that the income respondent seeks to tax is

taxable income under the Internal Revenue Code.      Accordingly, we

uphold respondent’s determination of deficiencies in petitioner’s

income and self-employment tax for his 2001, 2002, and 2003

taxable years subject to recalculation to reflect the deductions

and losses respondent conceded.

Additions to Tax

     Section 6012 generally requires the filing of an income tax

return by all individuals receiving gross income in excess of
                                 -9-

certain minimum amounts.    Because petitioner’s gross income for

the years in issue, as determined by respondent in the notices of

deficiency and upheld by this Court above, exceeded the section

6012 minimum amount, petitioner was required to file Federal

income tax returns for his 2001, 2002, and 2003 taxable years.

Section 6651(a)(1) imposes an addition to tax for failure to file

an income tax return by the due date.   A taxpayer may be relieved

of the addition, however, if he can demonstrate that the “failure

is due to reasonable cause and not due to willful neglect”.    Id.

     Section 6654(a) imposes an addition to tax for failure to

pay estimated income tax.   Section 6654(a) applies where

prepayments of tax, through either withholdings or estimated

quarterly payments, do not equal the percentage of total

liability required under the statute.

     Pursuant to section 7491(c), the Commissioner bears the

burden of production with respect to the additions to tax under

sections 6651(a)(1) and 6654(a).   To meet that burden, the

Commissioner must produce sufficient evidence to demonstrate that

the addition to tax is appropriate.    See Higbee v. Commissioner,

116 T.C. 438, 446 (2001).   However, “the Commissioner’s

obligation under section 7491(c) initially to come forward with

evidence that it is appropriate to apply a particular penalty to

a taxpayer is conditioned upon the taxpayer’s assigning error to

the Commissioner’s penalty determination.”    Wheeler v.
                               -10-

Commissioner, 127 T.C. 200, 206 (2006), affd. 521 F.3d 1289 (10th

Cir. 2008).   A taxpayer who fails to assign error to a penalty is

deemed under Rule 34(b)(4) to have conceded the penalty.      Swain

v. Commissioner, 118 T.C. 358, 363 (2002).

     Petitioner’s petition for his 2001 taxable year assigned

error as follows:

     I do not have any tax liability. I deny the figures
     and content of the Notice of Deficiency. I dispute the
     computations. In the year in question I had
     dependents, deductions, credits, costs of doing
     business, losses, depreciation. I have no job and I am
     not employed. I have no savings, no investments, no
     I.R.A. or pension plan.

Petitioner’s assignments of error in his petitions for his 2002

and 2003 taxable years were substantially the same as those

quoted above.   We conclude from the foregoing that petitioner did

not assign error to respondent’s determinations that:   (1)

Petitioner failed to timely file Federal income tax returns and

(2) petitioner failed to make required payments of estimated

income tax.   Consequently, we conclude that petitioner is deemed

to have conceded, pursuant to Rule 34(b)(4), that the penalties

respondent determined are appropriate.   Accordingly, the

additions to tax under sections 6651(a)(1) and 6654(a) for the

taxable years in issue are sustained, subject to recalculation to

reflect the recalculated deficiencies conceded by respondent.
                                 -11-

Section 6673 Penalty

     Respondent has moved for a penalty under section 6673(a)(1).

Section 6673(a)(1) provides that this Court may require the

taxpayer to pay a penalty not in excess of $25,000 whenever it

appears to this Court that:   (a) The proceedings were instituted

or maintained by the taxpayer primarily for delay; (b) the

taxpayer’s position is frivolous or groundless; or (c) the

taxpayer unreasonably failed to pursue available administrative

remedies.   Petitioner was warned by this Court and by respondent

that he could be subject to a penalty if he persisted in raising

frivolous tax-protester arguments.      Despite being warned,

petitioner continued to delay the instant proceedings with

frivolous arguments.   Consequently, pursuant to section 6673, we

impose on petitioner a penalty of $5,000 for the case at docket

No. 10741-04, a penalty of $5,000 for the case at docket No.

1046-05, and a penalty of $5,000 for the case at docket No.

15189-05.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we conclude that

they are without merit, irrelevant, or moot.

     To reflect the foregoing,


                                             Orders and decisions will

                                        be entered under Rule 155.
