                         115 T.C. No. 37



                     UNITED STATES TAX COURT



THE NIS FAMILY TRUST, FRANK NI, TRUSTEE, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 9820-99, 9821-99,         Filed December 4, 2000.
                 9822-99.



          The cases are before the Court on R’s motions for
     judgment on the pleadings and partial summary judgment
     and on the Court’s orders to show cause why it should
     not (1) impose penalties on Ps for instituting or
     maintaining proceedings primarily for delay or for
     advancing frivolous or groundless positions, and
     (2) require Ps’ attorney, S, to pay excess costs,
     expenses, and fees for her bad faith course of conduct
     by which she unreasonably and vexatiously multiplied
     these proceedings.
          In the petitions, Ps fail to address any of the
     adjustments made in the notices of deficiency, raising


     1
        Cases of the following petitioners are consolidated
herewith: Nis Venture Trust, Frank [Hae-Rong] Ni, Trustee,
docket No. 9821-99, and Hae-Rong and Lucy B. Ni, docket No. 9822-
99.
                         - 2 -

only meritless tax-protester arguments. Ps, therefore,
have conceded those adjustments and, with respect to
the deficiencies in tax determined by R, entry of
judgment on the pleadings is appropriate. Sec. 7491,
I.R.C., does not add to the burden of respondent as the
movant for judgment on the pleadings in these cases. R
has shown that partial summary judgment is appropriate
for the accuracy-related penalties determined by R. Ps
have abandoned their return positions, relying,
instead, on a strategy of noncooperation and delay,
undertaken behind a smokescreen of frivolous tax-
protester arguments. S, Ps’ attorney, has, in bad
faith, aided Ps in that strategy by making additional
meritless tax-protester arguments, making meritless
motions and responses to motions, and abusing the
Court’s subpoena power. Neither Ps or S have shown
that the orders to show cause should not be made
absolute.
     1. Held: With respect to the deficiencies in tax
determined by respondent, judgment will be entered on
the pleadings. Rule 120(a), Tax Court Rules of
Practice and Procedure.
     2. Held, further, sec. 7491, I.R.C., does not add
to movant’s burden for judgment on the pleadings with
respect to such deficiencies in tax.
     3. Held, further, with respect to the sec. 6662,
I.R.C., accuracy-related penalties, partial summary
judgment will be granted for R. Rule 121(a), Tax Court
Rules of Practice and Procedure.
     4. Held, further, in each case, P (or Ps) will be
required to pay penalties ($25,000 in docket No. 9822-
99; $500 in docket No. 9820-99 and $5,000 in docket No.
9821-99) on account of instituting and maintaining
these proceedings primarily for delay and taking
frivolous and groundless positions. Sec. 6673(a)(1),
I.R.C.
     5. Held, further, S will be required to pay
personally $10,643.75 for R’s excess attorney’s fees
reasonably incurred by R on account of S’s bad faith
course of conduct in which she unreasonably and
vexatiously multiplied the proceedings. Sec.
6673(a)(2), I.R.C.
                                 - 3 -

     Crystal D. Sluyter, for petitioners.

     Dale A. Zusi, Paul K. Webb, and Debra K. Moe, for

respondent.



                                OPINION

     HALPERN, Judge:     These cases have been consolidated for

trial, briefing, and opinion (the consolidated cases or these

cases).   Respondent has determined deficiencies in income tax and

accuracy-related penalties under section 6662 as follows:

                               Taxable
       Petitioner[s]            Year      Deficiency    Penalty

   The Nis Family Trust,
   Frank Ni, Trustee            1995          $83          $17

   Nis Venture Trust,
   Frank Ni, Trustee            1995        172,702     34,540

   Hae-Rong and
   Lucy B. Ni                   1995        186,988     37,398


These cases are before the Court on (1) respondent’s motions for

(A) judgment on the pleadings and (B) partial summary judgment

and (2) the Court’s orders to show cause why it should not impose

(A) penalties on petitioners pursuant to section 6673(a)(1) and

(B) require counsel for petitioners, Crystal D. Sluyter, to pay

costs, expenses, and fees (without distinction, costs) pursuant

to section 6673(a)(2).

      Unless otherwise indicated, all section references are to

the Internal Revenue Code as in effect for the year in issue, and
                               - 4 -

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                            Background

Residence

     At the time the petitions were filed, all petitioners

resided in San Jose, California.

Notices of Deficiency

     By separate notices of deficiency, each dated February 19,

1999 (collectively, the notices of deficiency or notices),

respondent determined the deficiencies in tax and penalties set

forth above.2   Respondent’s determinations were based on the

following adjustments:

     Nis Family Trust

     Respondent disallowed petitioner’s deduction for fiduciary

and attorney’s fees in the amount of $600 because of petitioner’s

failure to establish the amount, if any, of such fees paid during

the taxable year for ordinary and necessary expenses incurred in

connection with trust administration or the management of trust

assets.   Respondent disallowed petitioner’s deduction for a

charitable contribution in the amount of $1,800 because of



     2
        Copies of those notices of deficiency are attached as
Exhibits A through C to respondent’s requests for admissions. As
set forth below, petitioners failed timely to deny respondent’s
requests for admissions, and, therefore, such requests are deemed
admitted. See Rule 90. Petitioners are also deemed to admit that
petitioner Hae-Rong Ni is also known as Frank Ni.
                                - 5 -

petitioner’s failure to substantiate (1) the existence and amount

of any contribution, (2) that a contribution was made to a

charitable organization, and (3) that the claimed contribution

was not a prohibited transaction resulting in personal benefit or

inurement.    Respondent disallowed petitioner’s claimed exemption

deduction in the amount of $100 because of petitioner’s failure

to show entitlement to such deduction under either section 651 or

652.

       Nis Venture Trust

       Respondent disallowed petitioner’s cost of goods sold in the

amount of $404,420 and a deduction for Schedule C, Profit or Loss

From Business, expenses in the amount of $9,737 because of

petitioner’s failure to substantiate such expenditures and to

show that such expenses were incurred in a trade or business.

Respondent disallowed an S corporation loss in the amount of

$20,131 because of petitioner’s failure to substantiate such loss

and show that the loss was a business loss.   On various grounds,

respondent disallowed an income distribution deduction in the

amount of $1,500, a deduction for attorney’s fees of $1,500, a

deduction for an exemption of $100, and a Schedule E,

Supplemental Income and Loss, expense for rent in the amount of

$1,021.
                               - 6 -

     Hae-Rong and Lucy B. Ni

     Respondent increased petitioners’ gross income by $439,230

based on the alternative grounds that (1) the Nis Family Trust

and the Nis Venture Trust (together, the Trusts) are shams with

no economic substance, (2) the Trusts are grantor trusts, (3)

under the assignment of income doctrine, petitioners are taxable

on the income and deductions of the Trusts, or (4) if the Trusts

are recognized for tax purposes, sections 652 or 662 function to

increase the gross income of petitioners.   Respondent also made

certain resultant adjustments and other adjustments that are not

fully explained.

Pleadings

     A separate petition in each of the consolidated cases was

filed on May 21, 1999.   None of the petitions fully complied with

our Rules, and, in each case, petitioner (petitioners in the case

of Hae-Rong and Lucy B. Ni) was ordered by the Court to file an

amended petition.   In each case, petitioner (or petitioners)

filed an amended petition (together, the amended petitions)

stating the following disagreement, and reasons therefor, with

the adjustments set forth above (and accompanying penalty):

     I disagree with all the adjustments and changes the
     Commissioner has made. I do not believe that there was
     any underlying liability due to a lack of
     consideration. I have previously submitted facts with
     the Internal Revenue Service “IRS” in support of my
     position in an effort to resolve the matter
     administratively. The IRS failed or refused to
     consider those facts or my good faith effort to resolve
                               - 7 -

     the matter. The following facts were submitted to the
     IRS in April of 1999:

          1.    “It does not appear that the United States
                and the State of California (each a body
                politic with their respective governments)
                are under any legal obligation to protect our
                property and ourselves;
          2.    That although I may have accepted some
                commercial benefits, it does not appear that
                the tax in question bears a fiscal relation
                to those benefits;
          3.    In addition, regardless of the fact that some
                commercial benefits may have been accepted,
                it does not appear that any obligation to pay
                any particular tax in return was ever
                disclosed.”

     Factually, this case is distinguished from cases such
     as United States v. Sloan, 939 F.2d 499 and similar
     cases because the presumption of Cook v. Tait, 265 U.S.
     47 has been overcome due in part to statutes such as 50
     U.S.C. § 1520 as enacted in 1976.

     The IRS has not disputed these facts. Therefore,
     petitioner brings only an issue of law before the
     court.

     The legal conclusion drawn from the above facts is that
     no liability could have been incurred regardless if
     income was earned or not because of a lack of
     consideration, see also State of Wisconsin, et al. v.
     J.C. Penney Company, 311 U.S. 435, and Complete Auto
     Transit, Inc. v. Brady, 430 U.S. 274.

     Respondent filed answers to the amended petitions on

September 24, 1999.   In each answer, respondent denied making

errors in his adjustments.

Consolidation

     By motion filed November 23, 1999, respondent moved to

consolidate these cases for trial, briefing, and opinion (the

motion to consolidate).   We ordered petitioners to make any
                                 - 8 -

objection to the motion to consolidate by December 13, 1999.      No

objection was made, and we granted the motion to consolidate on

December 21, 1999.

Cases Set for Trial

     By notice dated December 29, 1999, these cases were set for

trial at the trial session of the Court commencing on June 5,

2000, in San Francisco, California (the trial session).

Admissions

     On March 16, 2000, respondent served Respondent’s Requests

for Admissions (the requests for admissions) on all petitioners

herein.   See Rule 90.   None of the petitioners responded to the

requests for admissions.   Therefore, each matter as to which

respondent requested admission is deemed admitted (the deemed

admissions).   See Rule 90(c).   We will set forth some of the

deemed admissions in the discussion that follows.

Appearance of Crystal D. Sluyter

     On April 10, 2000, Crystal D. Sluyter, attorney, entered her

appearance in each of these cases, on behalf of the respective

petitioner (or petitioners).

Motions for Protective Order

     On April 10, 2000, petitioners, “by and through”

Ms. Sluyter, separately moved in each case for a protective order

“in regards to discovery and production of documents” (motions

for protective order or the motions).    The motions all state:
                                    - 9 -

“This motion should be granted because the respondent is not

entitled to receive any private and confidential books and

records from petitioners.”        No affidavits accompany the motions.

The motions are accompanied, however, by documents entitled

“Memorandum of Points and Authorities” (the memoranda).          The

memoranda state as follows:       “The gravamen of Petitioners’ case

is that respondent has no legitimate authority over their lives

and property.”    The memoranda continue:

     The petitioners entered evidence that the Internal
     Revenue Code (IRC) was not applicable to them. * * *

                  *      *    *     *       *   *     *

          As the Petitioners maintain that Respondent lacks
     legitimate authority over their lives and property, it
     would be imprudent to allow Respondent to have
     Petitioners’ books and records before evidence is
     provided to the contrary.

The motions are all signed by Ms. Sluyter.

     On April 11, 2000, the Court ordered respondent to respond

to the motions.       On April 24, 2000, respondent filed an 11-page

response.

     On April 25, 2000, the Court denied the motions.

Motions for Judgment on the Pleadings

     On April 12, 2000, respondent, by a separate motion in each

case, moved for judgment on the pleadings (the motions for

judgment on the pleadings or the motions).          On April 13, 2000,

the Court ordered petitioners to respond to the motions for

judgment on the pleadings.        On April 19, 2000, in response to the
                              - 10 -

motions, all of the petitioners filed similar documents,

captioned “Petitioners’ Objections to Respondent’s Motion for

Judgment on the Pleadings and Supporting Memorandum” (sometimes,

petitioners’ objections).   The memorandum portion of each of

petitioners’ objections states that, although, in the petition,

petitioner (petitioners, in the case of Hae-Rong and Lucy B. Ni)

did state that there were no issues of fact in dispute, such is

no longer the case.   Each such memorandum portion claims:

     There is no evidence to suggest that there is a bona
     fide political relationship between the petitioners and
     the “UNITED STATES” and the “STATE OF CALIFORNIA.”
     There is no evidence that the petitioners are subject
     to the written will of individuals called
     “CONGRESSMEN." * * *

Each of petitioners’ objections includes an affidavit of

Ms. Sluyter wherein, among other things, she claims, without

further detail:   “There is a factual dispute as to the

Petitioners relationship to the United States and the State of

California.”   Ms. Sluyter signed the petitioners’ responses.

Court’s Order Dated April 24, 2000

     By order dated April 24, 2000 (the April 24 order), the

Court (1) calendared the motions for judgment on the pleadings

for hearing at the trial session and (2) ordered that, at the

trial session (A) petitioners show cause why the Court should not

impose a penalty pursuant to section 6673(a)(1) (which provides

for a penalty if, among other things, a proceeding is instituted

or maintained primarily for delay or the taxpayer’s position is
                              - 11 -

frivolous or groundless), and (B) Ms. Sluyter show cause why she

should not be required to pay costs pursuant to section

6673(a)(2) (which provides that costs may be imposed on counsel

who has multiplied the proceedings in any case unreasonably and

vexatiously).

Motions to Compel

     On April 24, 2000, by one consolidated motion, made in each

of these cases, respondent moved to compel (1) production of

documents and (2) answers to interrogatories (the motions to

compel).   In support of the motions to compel, respondent set

forth a history of unfulfilled requests for both informal and

formal discovery.   In support of the motion to compel answers to

interrogatories, respondent set forth the following description

of an April 4, 2000, meeting among respondent’s counsel,

Ms. Sluyter, and an individual named Mark MacDonald:

     On April 4, 2000, respondent’s counsel met with
     attorney Sluyter and Mark MacDonald, a representative
     of petitioners, regarding respondent’s informal and
     formal discovery requests and about the legal theories
     presented in these consolidated cases. Attorney
     Sluyter and Mr. MacDonald set forth a variety of
     arguments on petitioners’ behalf, including: (1) that
     what the United States government calls the “federal
     law” is not applicable to petitioners Frank [Hae-Rong]
     and Lucy Ni, (2) that Frank [Hae-Rong] and Lucy Ni have
     no affiliation to the “so-called United States,”
     (3) that the Internal Revenue Service has no
     jurisdiction to audit the income tax returns of Frank
     [Hae-Rong] and Lucy Ni, and (4) that Frank [Hae-Rong]
     and Lucy Ni can have no tax liability because no
     consideration exists between the Ni’s and the United
     States government. Further, Attorney Sluyter stated
     that petitioners would not be providing respondent’s
                              - 12 -

     counsel with responses to the aforementioned
     interrogatories and would not be providing respondent’s
     counsel with any of the requested documents. Finally,
     attorney Sluyter stated that she would be filing a
     protective order with this Court regarding respondent’s
     counsel’s discovery requests.

Respondent asked that petitioners be ordered to produce documents

pursuant to 100 separately numbered requests in Respondent’s

First Request for Production of Documents (the document request)

and answer 59 separately numbered interrogatories propounded in

Respondent’s First Set of Interrogatories (the interrogatories).

Respondent asked for sanctions if petitioners failed to comply

with any such order.

     By order dated April 25, 2000 (the April 25 order), the

Court ordered petitioners, on or before May 8, 2000, to produce

the documents asked for in the document request and answer the

interrogatories.   The Court set the sanctions portion of the

motions to compel for hearing at the trial session.

     On May 26, 2000, the Court filed as a status report

Respondent’s Supplements to Respondent’s Motions To Compel

Production of Documents and To Compel Responses to

Interrogatories (the status report).   Attached to the status

report are copies of petitioners’ responses to the document

request and interrogatories (petitioners’ responses).   In

response to the document request, petitioners provided two

documents:   “Declaration of Trust of the NIS Venture Trust” and a

purported trust indenture relating to “The Nis Family Trust”.    In
                               - 13 -

response to 83 of 100 requests for documents, petitioners

responded:    “There are no documents responsive to this request.”

Such requests included respondent’s requests for documents

supporting the various deductions claimed by petitioners in their

returns.   In response to an interrogatory asking petitioners to

state their legal theory, a portion of petitioners’ response is

as follows:

     Petitioners will prevail because none of the witnesses
     are able to prove that the petitioners are subject to
     the will of any individuals, including individuals
     referred to as “CONGRESSMEN.” As such, any demands or
     claims to petitioners’ property are void. The tax
     system is voluntary not mandatory and the IRS
     Commissioner has not [sic] oath of office to the United
     States.

     In addition, petitioners can show that the individuals
     of the IRS have no legitimate authority over the lives
     and property of the petitioners. The only “authority”
     these individuals have is enforcing their arbitrary
     will at gun-point. * * *

Ms. Sluyter signed petitioners’ responses.

Motions To Quash

     On May 25, 2000, by five consolidated motions, made in each

of these cases (motions to quash), respondent moved to quash

subpoenas (the subpoenas) served on Charles Rossotti, Peggy Rule,

Kevin Johnson, Andrew Bricker, and James Ledbetter.   The

subpoenas are signed by Ms. Sluyter, and seek to compel

attendance of the individuals subpoenaed to testify at the trial

session on behalf of petitioners.   Mr. Rossotti is the

Commissioner of Internal Revenue; Ms. Rule is the Internal
                              - 14 -

Revenue Service (IRS) District Director, Central California

District; Mr. Johnson is a Revenue Agent of the IRS;   Mr. Bricker

is a Special Agent in the Criminal Investigation Branch of the

IRS; and Mr. Ledbetter is an Appeals Officer of the IRS.

Respondent made various arguments as to why the subpoenas ought

to be quashed.   Principally, respondent argued that none of the

individuals can give testimony that is required or relevant for

the Court to redetermine the deficiencies determined in these

cases.

     By order dated May 26, 2000, the Court ordered petitioners,

on or before June 1, 2000, to file a response to the motions to

quash, suspended compliance with the subpoenas, and set the

motions to quash subpoenas for hearing at the trial session.

     On June 5, 2000, petitioners lodged with the Court

“Petitioners’ Response to Respondent’s Motion to Quash Subpoenas

with Supporting Memorandum of Points and Authorities” (the

response to the motion to quash or the response).   Because the

response was late, the Court gave petitioners leave to file it.

In pertinent part, the response contains the following argument:

          The issue before the COURT is whether or not the
     individuals of the so-called INTERNAL REVENUE SERVICE
     (IRS) and the UNITED STATES GOVERNMENT have legitimate
     authority over the lives and property of the
     petitioners. * * *

          Each witness has initiated force against the
     petitioners. They have each * * * made the wild claim
     that the individuals of the so-called UNITED STATES
     GOVERNMENT2 have not only a right to control
                             - 15 -

     petitioners’ life and property, but also a right to a
     portion of that property.

          Petitioners have the right to collaterally attack
     all so-called “evidence” against them. * * * that
     includes all so-called “facts” frivolous legal
     conclusions; conclusions such as the absurd claim that
     petitioners are subject to so-called “FEDERAL LAW” with
     no further requirements.
     ___________
     2
       There is no “entity” commonly called “GOVERNMENT.”
     What is referred to as “GOVERNMENT” is nothing more
     than individuals. These individuals use various
     “titles” appended to their names as if that gives them
     legitimate authority over the lives and property of
     other people.

     In the response, petitioners also claim, with respect to

respondent’s counsel, Paul Webb, that he is a liar.   They state:

     In his [Webb’s] last pleading he outright lied1 about
     the Zimmerman case in Fresno.[3] * * *
     ___________


     3
        Apparently, petitioners are referring to respondent’s
response to petitioners’ motions for protective order, in which
respondent states, among other things:

          Petitioners’ counsel has already argued these same
     frivolous legal positions before the United States
     District Court in an unrelated summons enforcement
     case. The District Court, in an unpublished opinion,
     summarily rejected these arguments. See Zimmerman, et
     al. v. United States, 85 AFTR 2d 2000-1091; 2000-1 USTC
     par. 50,295 (E.D. Cal. 2000) (Zimmermans argued that
     they are not subject to federal taxation because "they
     are neither citizens or residents" of the United
     States, they have no political relationship to the
     United States and owe no allegiance to the United
     States and the United States is under no duty to
     protect the Zimmermans; the responsibility to pay tax
     is based on a reciprocal agreement for the United
     States to protect the Zimmermans).

     We see no inaccuracy in respondent’s statements about the
Zimmerman case, which we further discuss infra in sec. III.B.3.
                              - 16 -
     1
         WEBB should be sanctioned for his outrageous lie.

The response is signed by Ms. Sluyter.

Motions for Reconsideration

     On June 5, 2000, by one consolidated motion, made in each of

these cases, petitioners moved for reconsideration of (1) our

denial of the motions for protective order and (2) the April 25

order (motions for reconsideration).    Among the arguments

advanced by petitioners in the motions for reconsideration is

that the existence of the Internal Revenue Code is not evidence

that the Code is binding on petitioners.       Petitioners explain

that respondent’s counsel:

     still refuses to provide any evidence that the
     petitioners are subject to the so-called “CONGRESS.”
     That is all so-called “FEDERAL LAW” is. It’s the
     written will of individuals referred to as
     “CONGRESSMEN.” It demands no reverence, no allegiance
     and no compliance. * * *

          Until there is evidence that Petitioners are
     subject to the will of these individuals, then what the
     so-called “IRC” says is wholly irrelevant because there
     is no evidence that it is binding first. What is
     frivolous2 is maintaining that the petitioners are
     subject to so-called “FEDERAL LAW” while refusing to
     produce evidence that Petitioners are subject to the
     written will of individuals referred to as
     “CONGRESSMEN.”

          The filing of a so-called “RETURN” is no evidence
     that Petitioners are subject to the will of individuals
     referred to as “CONGRESSMEN.” * * *

                *    *    *    *    *      *       *

          Just because the petitioners filed so-called
     “RETURNS” out of fear is no evidence that a legitimate
     obligation to do so exists. * * *
                                - 17 -

     _______
     2
        One must also [take] into consideration that most of
     those individuals referred to as “CONGRESSMEN,” that
     [sic] if they can be identified at all by the
     respondent, are more then likely DEAD or not referred
     to as “CONGRESSMEN” and [sic] longer. Are petitioners
     subject to the written will of individuals who are
     dead?

Ms. Sluyter signed the motions for reconsideration.     We denied

them.

Trial Session

        These cases came on for hearing (the hearing), pursuant to

notice, at the trial session.     At the hearing, respondent moved

to amend the motions for judgment on the pleadings to limit them

to the deficiencies in each case (and exclude the penalties).

Counsel for petitioners stated that she had no objection to those

motions, and the Court granted them.     The Court took the motions

for judgment on the pleadings, as amended (still, motions for

judgment on the pleadings), under advisement.     Respondent also

informed the Court that he would be making a motion for partial

summary judgment with respect to the penalties determined by him

in each case.     The Court gave respondent leave until July 5,

2000, to make such motion and allowed petitioners until August 4,

2000, to respond.

        The Court did not conduct proceedings on those portions of

the April 24 order ordering (1) petitioners to show cause why

they should not be subject to a penalty under section 6673(a)(1)

and (2) Ms. Sluyter to show cause why she should not be required
                                - 18 -

to pay costs pursuant to section 6673(a)(2).   Rather, the Court

ordered that compliance with such orders (the orders to show

cause) be extended to August 25, 2000, at which time, petitioners

and Ms. Sluyter were to show cause, in writing, why the orders to

show cause should not be made absolute.

     The Court denied the motions to quash on the grounds that no

trial was held and the subpoenas were no longer in force.    The

Court denied the sanctions portion of the motions to compel.

     The Court continued the consolidated cases and retained

jurisdiction.

Subsequent Actions by Parties

     On June 7, 2000, respondent, by separate motion in each

case, moved for partial summary judgment as to the section

6662(a) penalty (the motions for partial summary judgment or

motions).   No petitioner responded to any of the motions for

partial summary judgment.

     Neither petitioners nor Ms. Sluyter has filed any response

to the orders to show cause.

     Respondent has filed various memoranda of points and

authorities in support of the motions for judgment on the

pleadings and partial summary judgment and the orders to show

cause, as well as the affidavit of Paul K. Webb, one of

respondent’s attorneys, in connection with the order to show

cause as to Ms. Sluyter.
                                   - 19 -

     Petitioners have attempted to file a document styled

“Emergency Motions for Continuance and Request for Sanctions”,

accompanied by Ms. Sluyter’s declaration in support of that

document.    We returned those documents to Ms. Sluyter accompanied

by a letter dated August 9, 2000, explaining, among other things,

that, since the cases are neither calendared for trial nor set

for hearing, no continuance could be granted.        By that letter, we

advised Ms. Sluyter how to ask for more time to respond to the

Court’s orders.     By letter dated August 31, 2000, we returned to

Ms. Sluyter a document styled “Emergency Motion for Extension”,

since such document lacked Ms. Sluyter’s original signature and,

thus, was not a proper document.        See Rule 23(a)(3).   We again

advised Ms. Sluyter how to ask for more time to respond.

                                 Discussion

I.   Motions for Judgment on the Pleadings

      A.    Introduction

             1.   Rule 120(a)

      In pertinent part, Rule 120(a) provides:       “After the

pleadings are closed but within such time as not to delay the

trial, any party may move for judgment on the pleadings.”          The

pleadings in these cases consist of the petitions, amended

petitions, and answers, since no other pleadings were required or

permitted.     See Rule 30.     The answers were all made before
                                  - 20 -

April 12, 2000, which is the date on which respondent made the

motions for judgment on the pleadings.        The motions for judgment

on the pleadings were made sufficiently in advance of the date of

the trial session, June 5, 2000, so as not to delay trial of

these cases.     The procedural requirements of Rule 120(a) were,

thus, satisfied.      As amended, the motions ask that the Court find

that there is due from the various petitioners the deficiencies

in tax set forth above.       Petitioners object.

            2.   Rule 34(b)

     Rule 34 deals with petitions.         In pertinent part, Rule 34,

provides:

          (b) Content of Petition in Deficiency or
     Liability Actions: The petition in a deficiency or
     liability action shall contain * * *

                  *     *     *    *    *      *     *

          (4) Clear and concise assignments of each and
     every error which the petitioner alleges to have been
     committed by the Commissioner in the determination of
     the deficiency or liability. The assignments of error
     shall include issues in respect of which the burden of
     proof is on the Commissioner. Any issue not raised in
     the assignments of error shall be deemed to be
     conceded. Each assignment of error shall be separately
     lettered.

          (5) Clear and concise lettered statements of the
     facts on which petitioner bases the assignments of
     error, except with respect to those assignments of
     error as to which the burden of proof is on the
     Commissioner.
                                  - 21 -

          3.    Respondent’s Arguments

     Respondent’s argument is the same in each of the motions.

In docket No. 9820-99, respondent states:

     Petitioner’s amended petition fails to meet these
     requirements [Rule 34(b)] and in fact states that
     “petitioner brings only an issue of law before the
     court.” * * * Tax Court Rule 34(b)(4) states that
     “Any issue not raised in the assignments of error shall
     be deemed to be conceded."

Respondent then summarizes the amended petition and states that

petitioner has failed to comply with Rule 34(b) by, in effect,

failing to assign any error to respondent’s determinations of

deficiencies.   For that reason, respondent argues, the motion

should be granted:

     [The amended petition] * * * merely sets forth
     frivolous legal positions which are contrary to
     established law and unsupported by a reasoned,
     colorable argument for change in the law. Petitioner’s
     amended petition fails to present any specific
     allegations of error, any meritorious reasons for
     disagreeing with the notice of deficiency, nor any
     facts in support of any such disagreement. * * *

                 *    *    *      *    *   *    *

     Because petitioner’s amended petition merely sets forth
     frivolous arguments and as such does not allege any
     justiciable error with respect to the notice of
     deficiency, respondent should be granted judgment in
     his favor based upon the pleadings. [Citations
     omitted.]

          4.    Burden of Proof

     A judgment on the pleadings is a judgment based solely on

the allegations and information contained in the pleadings and

not on any outside matters.    See Rule 120(a) and (b); see also
                               - 22 -

Fed. R. Civ. P. 12(c); Black’s Law Dictionary 848 (7th ed. 1999).

The movant has the burden of showing entitlement to judgment on

the pleadings.   See Abrams v. Commissioner, 82 T.C. 403, 408

(1984).   He must show that the pleadings do not raise a genuine

issue of material fact and that he is entitled to a judgment as a

matter of law.   See id.; see also 2 Moore, Moore’s Federal

Practice, sec. 12.38, at 12-102.1 (3d ed. 2000) (“Judgment on the

pleadings should be granted if the movant ‘is entitled to

judgment as a matter of law’”, quoting Burns Intl. Sec. Servs. v.

International Union United Plant Guard Workers, Local 537, 47

F.3d 14, 16 (2d Cir. 1995)).   At the hearing, we asked respondent

to address whether the provisions of recently enacted section

7491 add to his burden as movant in these cases.   Respondent

believes that they do not.   We agree.

     Section 7491 was enacted by section 3001(a) of the Internal

Revenue Service Restructuring & Reform Act of 1998 (RRA 1998),

Pub. L. 105-206, 112 Stat. 685, 726-727.   As so added, section

7491 is effective with respect to court proceedings arising in

connection with examinations by respondent commencing after July

22, 1998, the date of the enactment of RRA 1998.   See RRA 1998

sec. 3001(c).    Respondent concedes that section 7491 is effective

with respect to these Court proceedings.   Provisions of section
                               - 23 -

7491 pertinent to this case are set forth in the margin.4   Among

other things, section 7491 provides that, in any court

proceeding, the burden of proof as to any factual issue is on the

Secretary where the taxpayer, who has satisfied certain other


     4
         SEC. 7491.   BURDEN OF PROOF

     (a) Burden Shifts Where Taxpayer Produces Credible
     Evidence.--

     (1) General rule. If, in any court proceeding, a
     taxpayer introduces credible evidence with respect to
     any factual issue relevant to ascertaining the
     liability of the taxpayer for any tax imposed by
     subtitle A or B, the Secretary shall have the burden of
     proof with respect to such issue.

     (2) Limitations. Paragraph (1) shall apply with
     respect to an issue only if--

           (A) the taxpayer has complied with the
           requirements under this title to substantiate
           any item;

           (B) the taxpayer has maintained all records
           required under this title and has cooperated
           with reasonable requests by the
           Secretary for witnesses, information,
           documents, meetings, and interviews; and

           (C) in the case of a partnership,
           corporation, or trust, the taxpayer is
           described in section 7430(c)(4)(A)(ii).

                *     *    *    *       *   *   *

     (c) Penalties.

                Notwithstanding any other provision of
           this title, the Secretary shall have the
           burden of production in any court proceeding
           with respect to the liability of any
           individual for any penalty, addition to tax,
           or additional amount imposed by this title.
                               - 24 -

requirements, produces credible evidence with respect to that

issue.    See sec. 7491(a).

     Section 7491 does not add to respondent’s burden as the

movant for judgment on the pleadings in these cases because, in

part, the burden on the movant is to show that there are no

material facts in dispute.    See, e.g., Abrams v. Commissioner,

supra; see also Enron Oil Trading & Transp. v. Walbrook Ins. Co.,

132 F.3d 526, 529 (9th Cir. 1997) (with respect to Fed. R. Civ.

P. 12(c), which is similar to our Rule 120(a), judgment on

pleadings for defendants reversed when they failed clearly to

establish that, on the face of pleadings, no material issues of

fact remained to be resolved and they were entitled to judgment

as a matter of law).    Once the movant shows that there are no

material facts in dispute, as he has here, see infra section

I.B., then there remain only legal issues for the Court to

decide.    Since there remain only legal issues, burden of proof,

and, therefore, section 7491, are irrelevant.

     B.    Discussion

     Respondent has determined deficiencies in tax against each

of the petitioners, and the petitioners have filed petitions.      We

have jurisdiction to redetermine the correct amount of such

deficiencies.    See sec. 6214(a).   As set forth supra in section

I.A.2., the petition in a deficiency case must set forth each and

every error that the petitioner alleges to have been committed by
                               - 25 -

the Commissioner and clear and concise statements of facts upon

which the petitioner bases the assignments of error.

Furthermore, any issue not raised in the assignments of error is

deemed conceded.   See id.   A petition that makes only frivolous

and groundless arguments makes no justiciable claim, and it is

properly subject to a motion for judgment on the pleadings.    See

Abrams v. Commissioner, 82 T.C. 403 (1984); see also Rodriguez v.

Commissioner, T.C. Memo. 1995-67 (judgment on the pleadings

granted where petitions merely set forth frivolous “protester

arguments that have been heard by this Court on many occasions

and rejected”); Wright v. Commissioner, T.C. Memo. 1990-232

(frivolous argument in petition that petitioner was exempt from

Federal taxation justified granting respondent’s motion to

dismiss for failure to state a claim); Brayton v. Commissioner,

T.C. Memo. 1989-664 (taxpayer made meritless “tax-protester”

arguments; quoting Abrams, the Court stated:   “A judgment on the

pleadings is appropriate where a petition raises no justiciable

issues.”).   We may grant a motion for judgment on the pleadings

as to less than all the issues in a case.   See Brock v.

Commissioner, 92 T.C. 1127, 1133 (1989);    Caplette v.

Commissioner, T.C. Memo. 1993-46 (partial judgment on the

pleadings, except as to fraud penalty, where petition merely

contained “tax protester arguments that have been heard and

rejected by this Court on many occasions”).
                                - 26 -

     The amended petitions all contain the same arguments:

(1) The petitioners have no tax liability “due to a lack of

consideration”, (2) "[i]t does not appear that the United States

and the State of California (each a body politic with their

respective governments) are under any legal obligation to protect

our property and ourselves", (3) although petitioners may have

accepted some commercial benefits, “it does not appear that the

tax in question bears a fiscal relation to those benefits”, and

(4) “regardless of the fact that some commercial benefits may

have been accepted, it does not appear that any obligation to pay

any particular tax in return was ever disclosed”.

     Those are all frivolous arguments.    On numerous occasions,

courts have rejected similar arguments.    See, e.g., McLaughlin v.

Commissioner, 832 F.2d 986, 987 (7th Cir. 1987) ("The notion that

the federal income tax is contractual or otherwise consensual in

nature is not only utterly without foundation but * * * has been

repeatedly rejected by the courts."); United States v. Drefke,

707 F.2d 978, 981 (8th Cir. 1983) (taxpayer unsuccessfully argued

that taxes are debts only incurred when individuals contract with

the Government for services).    The cases cited in the amended

petitions are not relevant to the adjustments made in the notices

of deficiency.   None of those cases relates to the validity of

the trusts involved or to the substantiation of expenses, which

are the issues set forth in the notices.    Furthermore, the
                                - 27 -

statute cited in the amended petitions, 50 U.S.C. section 1520

(1982), has long since been repealed.    When it was effective, the

statute related to the testing of chemical and biological agents

on humans.   Clearly such a statute is not relevant to our

redetermination of any deficiency in petitioners’ Federal income

taxes.

     In the amended petitions, petitioners state that

“[petitioners bring] only an issue of law before the court.”      In

petitioners’ responses (to the motions for judgment on the

pleadings), petitioners claim that that no longer is the case.

Nevertheless, petitioners have not moved to amend the amended

petitions to aver any facts in support of their assignments of

error.   See Rules 34(b), 41(a).   Indeed, in petitioners’

responses to the motions, petitioners’ claim:    “[t]here is no

evidence” (1) “to suggest that there is a bona fide political

relationship between the petitioners and the ‘UNITED STATES’ and

the ‘STATE OF CALIFORNIA’” and (2) “that the petitioners are

subject to the written will of individuals called ‘CONGRESSMEN’”.

Those claims do not raise any factual issue relevant to our

redetermination of the deficiencies determined by respondent.

Those are frivolous claims of no merit.    Petitioners have raised

no factual issues for decision by us.

     None of the petitions or amended petitions assign any error

that we consider justiciable:    Petitioners rely on meritless tax-
                                - 28 -

protester arguments that demand no respect from the courts.

Petitioners have failed to make any legitimate challenge to the

deficiencies determined by respondent.      They have not assigned

any error that could possibly influence us to redetermine the

deficiencies determined by respondent.

      C.   Conclusion

      In the petitions, petitioners have failed to address any of

the adjustments made in the notices of deficiency.      We,

therefore, consider petitioners to have conceded those

adjustments.     See Rule 34(b)(4).   They have made no other

argument of which we take cognizance.      We shall grant the motions

for judgment on the pleadings.5

II.   Motions For Partial Summary Judgment

      A.   Introduction

            1.   Background

      The motions for partial summary judgment ask for partial

summary adjudications as to the section 6662(a) penalties.      Those

motions were made following respondent’s amendments to the


      5
        Under various of the theories underlying respondent’s
adjustments with respect to petitioners Hae-Rong and Lucy B. Ni
(e.g., the income of the Trusts is taxed to Hae-Rong and Lucy B.
Ni because the Trusts are shams with no economic substance), the
Trusts would owe no income tax and there could be no deficiency
in tax. Respondent has, nevertheless, with respect to the
Trusts, determined deficiencies in tax. We recognize that
respondent may issue inconsistent notices in order to protect his
interests. We will delay entering decisions in these cases until
the parties have had the opportunity to advise us how we should
deal with any inconsistencies.
                               - 29 -

motions for judgment on the pleadings to remove the penalties

from the scope of those motions and, thus, to limit them to the

deficiencies in each case.    Respondent explained his action in

amending the motions for judgment on the pleadings as resulting

from his concern that the pleadings alone did not satisfy the

burden of production that section 7491 imposes on him with

respect to petitioners’ liabilities for the section 6662

penalties.6    See sec. 7491(c).   Apparently, respondent was

concerned that, because of section 7491(c), we would refuse to

enter judgment on the pleadings with respect to the section 6662

penalties.

          2.    Section 6662 Accuracy-Related Penalties

     Section 6662(a) provides for an accuracy-related penalty in

the amount of 20 percent of the portion of any underpayment of

tax attributable to, among other things (1) negligence or

disregard of rules or regulations (hereafter, simply, negligence)

or (2) any substantial understatement of tax.     Negligence has


     6
        Because of respondent’s amendments to the motions for
judgment on the pleadings, we do not determine the adequacy of
petitioners’ pleadings with respect to the sec. 6662 penalties.
Rule 34(b)(4) provides that the petition shall contain: “Clear
and concise assignments of each and every error which the
petitioner alleges to have been committed by the Commissioner in
the determination of the deficiency or liability. * * * Any
issue not raised in the assignments of error shall be deemed to
be conceded.” We need not determine whether, in fact,
petitioners failed to assign error to respondent’s determinations
of the sec. 6662 penalties and, thus, are deemed to concede their
liabilities for such penalties, thereby allowing for judgment on
the pleadings with respect to such liabilities.
                                - 30 -

been defined as the failure to exercise the due care of a

reasonable and ordinarily prudent person under like

circumstances.    See Neely v. Commissioner, 85 T.C. 934, 947

(1985).   A substantial understatement exists for any taxable year

if the amount of the understatement for the taxable year exceeds

the greater of 10 percent of the tax required to be shown on the

return for the year or $5,000.      See sec. 6662(d)(1)(A).

           3.    Summary Judgment

     A summary judgment is appropriate "if the pleadings, answers

to interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law."      Rule 121(b).   "A

partial summary adjudication may be made which does not dispose

of all the issues in the case."      Id.   The party moving for

summary judgment has the burden of showing the absence of a

genuine issue as to any material fact.      See, e.g., Espinoza v.

Commissioner, 78 T.C. 412, 416 (1982).

     B.   Discussion

     As noted in our background discussion, petitioners are

deemed to have admitted certain facts.      The deemed admissions

were made pursuant to Rule 90(c).      By the deemed admissions, the

petitioners have each admitted negligence in the preparation and

filing of his (their) income tax return for 1995.      The admissions
                               - 31 -

referred to in Rule 121(b), include those deemed admitted under

Rule 90(c).    See, e.g., Marshall v. Commissioner, 85 T.C. 267,

272 (1985).    Respondent can rely on a deemed admission of

negligence to show that there is no genuine issue as to any

material fact and that the taxpayer was negligent as a matter of

law.    See, e.g., Battikhi v. Commissioner, T.C. Memo. 1998-208;

McIlvane v. Commissioner, T.C. Memo. 1994-104.    We have here,

however, more than conclusory deemed admissions of negligence.

By the deemed admissions, petitioners are also deemed to admit

numerous additional facts that, when taken together, establish

that each failed to exercise the due care of a reasonable and

ordinarily prudent person under like circumstances.    For example,

each petitioner is deemed to admit that the Trusts are shams,

created primarily for income tax purposes.    Petitioners assigned

no error to respondent’s determination of a penalty or set forth

any facts contradicting respondent’s grounds.    We are satisfied

that all of the underpayments of tax here in question are

attributable to negligence, and so find.

       Moreover, by the deemed admissions, petitioners are deemed

to admit to copies of their 1995 income tax returns.    We have

examined those copies and, based on the deficiencies in tax

determined by respondent, which we will sustain, we find that all

of the underpayments of tax here in question are attributable to

substantial understatements of tax.
                                    - 32 -

       C.    Conclusion

       Based either on the negligence of petitioners or their

substantial understatements of income tax, the motions for

partial summary judgment shall be granted.         Petitioners are

liable for the section 6662 penalties determined by respondent.

III.    Orders To Show Cause

       A.     Penalty Pursuant to Section 6673(a)(1)

               1.   Introduction

       Petitioners in each of these cases have been ordered to show

cause why the Court should not impose a penalty pursuant to

section 6673(a)(1) (the order to show cause or the order).           No

petitioner has obeyed the order.         Respondent has filed his

memorandum of points and authorities in support of the order

(respondent’s memorandum).         For the reasons that follow, we shall

make the order to show cause absolute.

               2.   Section 6673(a)(1)

       Section 6673 provides for the imposition of penalties and

the awarding of costs.       Section 6673(a) applies to proceedings

before the Tax Court; in pertinent part, it provides:

               (1) Procedures instituted primarily for delay,
       etc.

            Whenever it appears to the Tax Court that--

               (A) proceedings before it have been
               instituted or maintained by the taxpayer
               primarily for delay,
                                   - 33 -

            (B) the taxpayer’s position in such
            proceeding is frivolous or groundless, or

            (C) the taxpayer unreasonably failed to
            pursue available administrative remedies,

     the Tax Court, in its decision, may require the
     taxpayer to pay to the United States a penalty not in
     excess of $25,000.

            3.    Discussion

     A taxpayer’s position is frivolous “if it is contrary to

established law and unsupported by a reasoned, colorable argument

for change in the law.     * * *    The inquiry is objective.   If a

person should have known that his position is groundless, a court

may and should impose sanctions.”       Coleman v. Commissioner, 791

F.2d 68, 71 (7th Cir. 1986); see also Hansen v. Commissioner, 820

F.2d 1464, 1470 (9th Cir. 1987) (trial court’s finding that

taxpayer should have known that claim was frivolous allows for

section 6673 penalty); Booker v. Commissioner, T.C. Memo.

1996-261.

     We have already concluded that the petitions make nothing

but frivolous arguments.       See supra sec. I.B.   Hae-Rong Ni is

both petitioner in his own right and, as trustee, petitioner for

the trusts.      He was not represented by counsel when he filed the

petitions in these cases.      Attached to respondent’s memorandum is

a copy of a diploma issued by Oregon State University in 1984,

conferring on one Hae-Rong Ni the degree of Doctor of Philosophy.

In respondent’s memorandum, he states that Hae-Rong Ni is highly
                              - 34 -

educated and, thus, should have been aware that the arguments

that he was making on his own behalf and on behalf of the trusts

are frivolous.   Respondent argues that, had Hae-Rong Ni conducted

any research at all, he would have found that courts have

rejected similar arguments.   Petitioners have failed to respond

to respondent’s memorandum, and we accept as true respondent’s

representation as to Hae-Rong Ni’s education.    We also agree that

he should have known that his positions were frivolous.

Consequently, we find that petitioners’ positions in each of

these cases are frivolous.

     Moreover, we believe that petitioners both instituted and

maintained these proceedings primarily for delay.     All of the

petitioners filed returns and reported items of income and

deduction.   Petitioners Hae-Rong and Lucy B. Ni reported total

taxes due of $2,516.   None of those returns claim that

petitioners are not subject to the Federal income tax, as

petitioners claim in the petitions.    The notices of deficiency

are based on the positions taken by petitioners in their returns.

Respondent’s principal adjustment questions the independent tax

existence of the trusts.   Other adjustments disallow deductions

and other amounts for lack of substantiation.    Petitioners have

made no attempt to meet respondent’s adjustments head on.     By the

deemed admissions, petitioners admit the following:    Neither

petitioners Hae-Rong or Lucy B. Ni, in their own right, nor
                                - 35 -

petitioner Hae-Rong, as trustee of the Trusts, appeared before

respondent for the scheduled audit of their (his) return.

Neither petitioners Hae-Rong or Lucy B. Ni, nor any

representative on their behalf, appeared before respondent to

comply with summonses issued to such petitioners even though

ordered to do so by the U.S. District Court for the Northern

District of California.    None of the petitioners have provided

records to respondent to substantiate the deductions, losses, and

other items claimed by them on their returns, nor do they have

such records.   Moreover, by the April 25 order, we ordered

petitioners to produce documents to respondent and answer his

interrogatories.   We have reviewed petitioners’ responses to the

April 25 order, copies of which are attached to the status report

(filed by respondent).    Those responses are inadequate and, we

believe, not made in good faith.    It appears to us that

petitioners abandoned their return positions before they filed

the petitions in these cases.    We assume that they concluded that

their return positions lacked merit.      See, e.g., Johnston v.

Commissioner, T.C. Memo. 2000-315 (reviewing “long line of

authority” prohibiting assignment to a trust of income earned

from rendering personal services).       Rather than press positions

in which they appear to have lost confidence, petitioners chose,

instead, to pursue a strategy of noncooperation and delay,
                                - 36 -

undertaken behind a smokescreen of frivolous tax-protester

arguments.

       Clearly, the taxpayers in these cases deserve penalties

under section 6673(a)(1).     In determining the amounts of those

penalties, we take account of the repeated incidents of

petitioners’ noncooperation and nonresponsiveness, both during

respondent’s examinations of their returns, see Cary v.

Commissioner, T.C. Memo. 1988-128, affd. without published

opinion, 900 F.2d 262 (9th Cir. 1990), and during the pendency of

this case.    We also take account of the fact that, as these

proceedings progressed, and counsel appeared for petitioners,

petitioners’ frivolous arguments multiplied.     See infra sec. III.

B.3.    Finally, we are aware that petitioner Hae-Rong Ni (also

known as Frank Ni) is here both in an individual capacity and as

trustee for the trusts.     By the deemed admissions, petitioners

admit that (1) during the taxable year in question, the trusts

were the alter egos of petitioners Hae-Rong and Lucy B. Ni and

(2) the trusts were shams, created primarily for income tax

purposes.    Petitioners abandoned their return positions before

they filed the petitions in these cases.     Since petitioners

abandoned their return positions before they filed the petitions

in these cases, we assume that petitioners recognize the truth of

the deemed admissions, and have brought the Trust cases only to

ensure that respondent does not assess the same deficiency
                                - 37 -

against both the Nis, as individuals, and the Trusts.    See supra

note 5.    However, petitioner Hae-Rong Ni, as trustee, has not

limited himself to filing protective petitions in the Trust

cases.    He has raised the same frivolous arguments with respect

to the Trust that he has raised in his individual capacity.    Such

duplication has served to burden respondent and the Court and

delay disposition of these cases.    We will, therefore, impose

penalties not only on Hae-Rong (and Lucy B.) Ni but also on the

Trusts.    Taking into account the actions of petitioner Hae-Rong

Ni in the Trust cases and petitioners Hae-Rong and Lucy B. Ni in

their case, the amounts in dispute in each case, respondent’s

efforts to dissuade petitioners from their groundless arguments,

and the time and effort of the Court required to dispose of these

cases, we believe that the maximum penalty, in the amount of

$25,000, is appropriate with respect to petitioners Hae-Rong and

Lucy B. Ni, and smaller penalties, in the amount of $500 in the

case at docket No. 9820-99, and $5,000 in the case at docket No.

9821-99, are appropriate with respect to each of the Trusts.

            4.   Conclusion

     The order to show cause shall be made absolute, and

petitioner (petitioners) in each case shall pay to the United

States a penalty pursuant to section 6673(a)(1) in the amount of

$25,000 in docket No. 9822-99, $500 in docket No. 9820-99, and

$5,000 in docket No. 9821-99.
                                - 38 -

     B.   Costs Pursuant to Section 6673(a)(2)

            1.   Introduction

     Ms. Sluyter has been ordered to show cause why she should

not be required to pay costs pursuant to section 6673(a)(2) (the

order to show cause or the order).       She has not obeyed the order.

Respondent has filed his memorandum of points and authorities in

support of the order (respondent’s memorandum), along with the

declaration of Paul K. Webb, Esq. (the Webb declaration).      For

the reasons that follow, we shall make the order to show cause

absolute.

            2.   Section 6673(a)(2)

     Section 6673(a)(2) provides for counsel’s liability for

excessive costs.    In pertinent part, section 6673(a)(2) provides:

     Counsel’s liability for excessive costs.   Whenever it
     appears to the Tax Court that any attorney or other
     person admitted to practice before the Tax Court has
     multiplied the proceedings in any case unreasonably and
     vexatiously, the Tax Court may require--

            (A) that such attorney or other person pay
            personally the excess costs, expenses, and
            attorneys’ fees reasonably incurred because
            of such conduct * * *
                                  - 39 -

               3.   Discussion

               a.   Bad Faith

       Section 6673(a)(2) is a relatively new provision,7 and, in

Harper v. Commissioner, 99 T.C. 533 (1992), we discussed fully

the standards for imposing costs under it.      While there may be

some question as to whether, before we impose costs, we must find

that the attorney or other person admitted to practice before the

Tax Court (without distinction, attorney) acted in bad faith, see

Harper v. Commissioner, supra at 545, we have no trouble in

finding that, in these cases, Ms. Sluyter did act in bad faith.

The standard of bad faith that we believe is here satisfied is

the standard described by us in Harper v. Commissioner, viz.,

that the challenged actions are entirely without colorable

pretext or basis and are taken for reasons of harassment or delay

or for other improper purposes.       Harper v. Commissioner, supra at

546.       For purposes of determining bad faith, a claim is colorable

if it has some legal and factual support, considered in light of

the reasonable beliefs of the individual making the claims.      See

Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir. 1980) (citing

“ABA Model Rules of Professional Conduct" sec. 3.3, Comment

(Discussion Draft 1980)); see also Golden Eagle Distrib. Corp. v.


       7
        Sec. 6673(a)(2) was added to the Code by sec. 7731(a) of
the Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239,
103 Stat. 2106, 2400, and applies to positions taken after
Dec. 31, 1989, in proceedings pending on or commenced after such
date.
                              - 40 -

Burroughs, 801 F.2d 1531, 1537 (9th Cir. 1986) (similar

standards for imposing sanctions pursuant to Rule 11, Fed. R.

Civ. P.).   Bad faith may be found not only in the actions that

led to the litigation but also in the conduct of the litigation.

See Harper v. Commissioner, supra.

     Ms. Sluyter entered her appearances in the consolidated

cases on April 10, 2000, after the petitions had been filed.      It

is clear that, on that date, Ms. Sluyter was aware of the

meritless tax-protester arguments made in the petitions.     On

April 4, 2000, a week before her appearances, Ms. Sluyter met

with respondent’s counsel (the April 4 meeting), and she both

repeated and added to the specious arguments made in the

petition.   Respondent has provided us with a letter from

respondent’s counsel to Ms. Sluyter, dated April 11, 2000 (the

April 11 letter), analyzing various cases and statutory

provisions, and showing the lack of merit in Ms. Sluyter’s

arguments made at the April 4 meeting.   We have examined the

April 11 letter.   It put Ms. Sluyter on clear notice that her

arguments were meritless.   Nevertheless, Ms. Sluyter has

persisted in those and similar arguments.   She has signed

documents submitted to respondent and the Court that contain

meritless and, in some instances, inflammatory, statements:

e.g.:
                             - 41 -

     [P]etitioners can show that the individuals of the IRS
     have no legitimate authority over the lives and
     property of petitioners. The only “authority” these
     individuals have is enforcing their arbitrary will at
     gun point. * * *

                       -------------------

     There is no “entity” commonly called “GOVERNMENT.”
     What is referred to as “GOVERNMENT” is nothing more
     than individuals. These individuals use various
     “titles” appended to their names as if that gives them
     legitimate authority over the lives and property of
     other people.

                       -------------------

           One must also [take] into consideration that most
     of those individuals referred to as “CONGRESSMEN,” that
     if they can be identified at all by the respondent, are
     more then likely DEAD or not referred to as
     “CONGRESSMEN” and [sic] longer. Are petitioners
     subject to the written will of individuals who are
     dead?

                       -------------------

          Just because the petitioners filed so-called
     “RETURNS” out of fear is no evidence that a legitimate
     obligation to do so exists. * * *

We believe that, by those statements, Ms. Sluyter intended to

make legal claims, and those claims are entirely without color.

No attorney could reasonably believe that Ms. Sluyter’s “dead

congressmen” claim is more than meritless or the Federal

Government lacks authority to collect income taxes.

     Moreover, we believe that Ms. Sluyter made those claims for

delay or other improper purposes.   As stated supra in section

III.A.3, it appears to us that petitioners abandoned their return

positions in favor of a strategy, undertaken behind a smokescreen
                                - 42 -

of frivolous and tax-protester arguments, of noncooperation and

delay.    Ms. Sluyter abetted that strategy by reiterating and

multiplying those frivolous and tax-protester arguments (see the

discussion infra in sec. III.B.3.b).     We believe that there is

ample evidence that Ms. Sluyter conducted this litigation in bad

faith.8

            b.   Unreasonable and Vexatious Multiplication of
                  Proceedings

     In sum, the following actions, among others, lead us to

believe that Ms. Sluyter unreasonably and vexatiously multiplied

the proceedings before the Court:9

     Petitioners’ motions for protective order were made on

April 10, 2000, the day Ms. Sluyter entered her appearances.     The

motions were signed by Ms. Sluyter.      Those motions were made in

response to respondent’s discovery requests.     We ordered

respondent to respond and, after considering that response,

denied the motions.    In essence, the memoranda that accompany the

motions state that, until respondent proves that he has



     8
        Rule 201 (a) provides: “Practitioners before the Court
shall carry on their practice in accordance with the letter and
spirit of the Model Rules of Professional Conduct of the American
Bar Association.” (Model Rules.) Our finding that Ms. Sluyter
conducted this litigation in bad faith brings into question her
conduct under the Model Rules. See, e.g., Model Rules 3.1, 3.2,
and 3.3.
     9
        In relevant part, the term “vexatious” means to cause or
create, or intended to cause or create, vexation or annoyance.
The American Heritage Dictionary 1915 (4th ed. 2000).
                              - 43 -

legitimate authority over petitioners’ lives and property, they

should not be required to comply with respondent’s requests for

discovery.   We again point out that petitioners filed returns

reporting items of income and deduction.    Section 7602(a)(1)

establishes the Secretary’s authority to examine a taxpayer’s

books and records to determine the correctness of any return.

Clearly, Ms. Sluyter knew that when she signed the motion.    We

say that because respondent has brought to our attention another

proceeding in which Ms. Sluyter represented tax-protesters

challenging the Commissioner’s summons enforcement action.    That

proceeding, Zimmerman v. United States, 85 AFTR 2d 2000-1091;

2000-1 USTC par. 50,295 (E.D. Cal. 2000), involves findings and

recommendations submitted by U.S. Magistrate Judge O’Neill to the

Hon. Anthony W. Ishii, Judge, U.S. District Court for the Eastern

District of California.   In his findings and recommendations (all

of which are adverse to the Zimmermans), Magistrate Judge O’Neill

states that, under section 7602(a)(1), to ascertain the

correctness of any return, the “Secretary is authorized to

examine ‘any books, papers, records, or other data which may be

relevant or material’ for IRS inquiry”.10   Id.   Moreover,




     10
        In Zimmerman v. United States, 86 AFTR 2d 2000-7027,
2000-2 USTC par. ___ (E.D. Cal. 2000), Judge Ishii imposed
sanctions against Ms. Sluyter under Fed. R. Civ. P. 11 for tax-
protester type arguments that she had advanced in the proceeding
discussed in the text and in a related, subsequent proceeding.
                               - 44 -

respondent’s right to obtain discovery is established by our

Rules.   See Rule 70(a).   The motions were groundless, and

Ms. Sluyter had reason to know that; the motions served no

purpose other than to delay these proceedings and annoy the Court

and respondent.

     Ms. Sluyter also signed Petitioners’ Objections to

Respondent’s Motion for Judgment on the Pleadings and Supporting

Memorandum.    That document makes the unsupported statement that

petitioners have no bona fide political relationship to the

United States and the frivolous argument that there is no

evidence that petitioners “are subject to the written will of

individuals called CONGRESSMEN”.    It accompanied Ms. Sluyter’s

affidavit stating:   “There is a factual dispute as to the

Petitioners relationship to the United States and the State of

California.”   No legitimate factual dispute is raised in the

pleadings or was otherwise before the Court.    The response was

unreasonable and contributed to the delay in concluding these

proceedings.

     We have detailed the subpoenas signed by Ms. Sluyter.

Respondent moved to quash the subpoenas, and petitioners filed

the response to the motions to quash.    Among those subpoenaed was

Charles Rossotti, Commissioner of Internal Revenue.    At the trial

session, we denied the motions to quash on the grounds that no

trial was held and the subpoenas were no longer in force.     We
                               - 45 -

agree, however, with the principal argument made by respondent in

the motions to quash:   viz., the testimony of the subpoenaed

witnesses is irrelevant to the Court’s redetermination of the

deficiencies determined by respondent.    The statement in the

response to the motions to quash that the issue before the Court

is whether the IRS and the U.S. Government “have legitimate

authority over the lives and property of the petitioners” is, as

we have discussed, groundless, and served only to unreasonably

protract these proceedings.    Moreover, the response contains the

unsupported (and unsupportable) charge that respondent’s counsel

lied about Zimmerman v. United States, supra.    The response also

claims, without support:    “Each witness has initiated force

against the petitioners.”    Such charges can only have been made

to vex or distress respondent, his counsel, and this Court.

     From the time Ms. Sluyter entered her appearances in these

cases to the present, she has acted to multiply these proceedings

by actions that are both unreasonable and vexatious.    There

remains only the question of the amount of costs we shall require

her to pay.

          4.   Costs

     “Attorney’s fees awarded under section 6673(a)(2) are to be

computed by multiplying the number of excess hours reasonably

expended on the litigation by a reasonable hourly rate.    The

product is known as the ‘lodestar’ amount.”    Harper v.
                                - 46 -

Commissioner, 99 T.C. at 549.    Respondent has submitted

respondent’s memorandum in support of the order to show cause.

In support of respondent’s memorandum, respondent has submitted

the Webb declaration (declaration of Paul K. Webb, respondent’s

counsel).    Attached to the Webb declaration are copies of

respondent’s internal time keeping records, reflecting the total

time expended on the consolidated cases by, among others,

attorneys Paul K. Webb, Dale A. Zusi, and Debra K. Moe.     Their

total time spent working on the cases is set forth, as well as

their time spent working on the cases since the appearance of Ms.

Sluyter.    Since the appearance of Ms. Sluyter, the hours spent

working on the cases by Mr. Webb, Ms. Zusi, and Ms. Moe are

202.75, 17.25, and 13.5, respectively.    Respondent asks

reimbursement only for those hours spent by his attorneys on

tasks that would not have been required in the absence of

Ms. Sluyter’s “vexatious actions multiplying these proceedings”

(excess hours).

     Respondent asks reimbursement for 56.75 hours of Mr. Webb’s

time, at a rate of $125 an hour.    Mr. Webb is the attorney with

day-to-day responsibility for the cases.    He is an attorney

employed in respondent’s San Jose, California, District Counsel’s

office.    He has been a member of the California State Bar since

1987.   He has detailed the time he spent on the cases, which

involved time spent on research, drafting, review of submissions
                                - 47 -

to the Court, and appearances.    Based in part on the costs of

living and attorney wages in San Jose, California, respondent

asks reimbursement at a rate of $125 an hour for Mr. Webb’s time.

The hourly rate properly charged for the time of a Government

attorney is the "amount to which attorneys of like skill in the

area would typically be entitled for a given type of work on the

basis of an hourly rate of compensation."     Harper v.

Commissioner, 99 T.C. at 551.    Petitioners and Ms. Sluyter have

made no response to the order to show cause.    We have no reason

to believe that $125 an hour is not a reasonable hourly charge

for Mr. Webb’s time or that 56.75 is not the number of excess

hours Mr. Webb expended on this litigation.    We are familiar with

the procedural and factual history of this case and believe that

56.75 hours was reasonably necessary for Mr. Webb to do the work

he described.    See United States v. $12,248 U.S. Currency, 957

F.2d 1513, 1520 (9th Cir. 1992).    We find that $125 is a

reasonable hourly charge for Mr. Webb’s time and 56.75 is the

number of excess hours he reasonably expended on this litigation.

The lodestar amount for Mr. Webb’s time is $7,093.75.

       Respondent asks reimbursement for 10.25 hours of Ms. Zusi’s

time, at a rate of $200 an hour.    Ms. Zusi is the abusive trust

coordinating attorney for the Central California District of the

IRS.    She has practiced law for more than 15 years, both with

District Counsel and as a trial attorney and Assistant U.S.
                               - 48 -

Attorney with the Department of Justice.    Ms. Zusi’s hours were

spent on research, advice, review of submissions in these cases,

and appearances.   Also based on local rates of compensation for

attorneys, respondent asks reimbursement at a rate of $200 an

hour for Ms. Zusi’s time.    For similar reasons as with respect to

Mr. Webb, we find that $200 is a reasonable hourly charge for Ms.

Zusi’s time and 10.25 is the number of excess hours she

reasonably expended on this litigation.    The lodestar amount for

Ms. Zusi’s time is $2,050.

     Respondent asks reimbursement for 7.5 hours of Ms. Moe’s

time, at a rate of $200 an hour.    Ms. Moe is Mr. Webb’s

supervisor.   She is an Assistant District Counsel in respondent’s

San Jose, California, District Counsel’s office.    Ms. Moe has

been practicing law since 1982.    Also based on local rates of

compensation for attorneys, respondent asks reimbursement at a

rate of $200 an hour for Ms. Moe’s time.    For similar reasons as

with respect to Mr. Webb, we find that $200 is a reasonable

hourly charge for Ms. Moe’s time and 7.5 is the number of excess

hours she reasonably expended on this litigation    The lodestar

amount for Ms. Moe’s time is $1,500.

     The total lodestar amount for the time of Mr. Webb,

Ms. Zusi, and Ms. Moe is $10,643.75.    Respondent has not itemized

costs for travel expense, photocopying, or supplies used in

preparing the cases.   Respondent limits his request for costs to
                               - 49 -

the total lodestar amount.    We shall require Ms. Sluyter to pay

costs in that amount.

           C.   Conclusion

      We find that $10,643.75 is a reasonable amount for

respondent’s excess attorney’s fees incurred by reason of

Ms. Sluyter’s unreasonable and vexatious multiplication of these

proceedings.    Therefore, we shall make the order to show cause

absolute and order Ms. Sluyter personally to pay respondent

$10,643.75 pursuant to section 6673(a)(2), that she make payment

by means of a certified check, cashier’s check, or money order in

favor of the IRS, that such payment be delivered to respondent’s

counsel at the Office of District Counsel in San Jose,

California, not later than 30 days from the date the order is

served, and that respondent report to the Court if such payment

is not timely received.

IV.   Conclusion

      To reflect the foregoing,


                                       An appropriate order imposing
                                  a sanction on Crystal D. Sluyter
                                  shall be issued, and other
                                  appropriate orders shall be
                                  issued.
