                          T.C. Memo. 2003-144



                        UNITED STATES TAX COURT



                  ROBERT D. HILL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6814-02.               Filed May 20, 2003.



     Robert D. Hill, pro se.

     Erin K. Huss, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:     Petitioner petitioned the Court to redetermine

the following determinations as to his 1999 taxable year:

                     Addition to Tax      Accuracy-Related Penalty
    Deficiency       Sec. 6651(a)(1)             Sec. 6662(a)

      $35,568            $7,113.60                 $7,113.60
                                  -2-



We decide as to that year:

     1.   Whether petitioner failed to include in his gross income

self-employment income of $106,077 and a tax refund of $266.     We

hold he did.

     2.   Whether petitioner is liable for self-employment tax on

his self-employment income.   We hold he is.

     3.   Whether petitioner is liable for the addition to tax and

the accuracy-related penalty.   We hold he is.

     4.   Whether we shall impose a penalty on petitioner under

section 6673 for advancing frivolous and/or groundless claims.

We shall impose a penalty of $15,000.

     Section references are to the applicable versions of the

Internal Revenue Code.   Rule references are to the Tax Court

Rules of Practice and Procedure.

                         FINDINGS OF FACT

     Some facts were stipulated.    The stipulated facts and the

exhibits submitted therewith are incorporated herein by this

reference.   We find the stipulated facts accordingly.    Petitioner

resided in Sedona, Arizona, when he petitioned the Court.

     During 1999, petitioner was a self-employed salesperson for

London Bridge Resort LLC (LLC).    In that capacity, he solicited

individuals and entities to purchase timeshare interests in the

London Bridge Resort Time Share Condominium.     LLC generally

compensated petitioner for his services by paying to him
                                  -3-

commissions on the interests that he sold.     Petitioner’s written

contract as to those services provided that petitioner would not

be considered by the parties thereto to be an employee but an

independent contractor.     The contract also provided that

petitioner was fully responsible for the Federal, State, and

local taxes and Social Security contributions payable with

respect to those services.     During 1999, petitioner received

$106,077 from LLC.     Petitioner also received a tax refund of $266

from the State of California during that year.

     Petitioner filed his 1999 Federal income tax return on

December 14, 2000, and reported therein that he had “zero” income

and “zero” tax.     He attached a letter to his return indicating,

among other things, that he was unaware of any section of the

Internal Revenue Code which established an income tax liability.

This letter was similar to tax protester letters we have seen in

other cases, e.g., Copeland v. Commissioner, T.C. Memo. 2003-46,

and Smith v. Commissioner, T.C. Memo. 2003-45.

     On March 21, 2001, respondent sent to petitioner a letter

advising him that his tax-reporting position was frivolous and

giving him the opportunity to correct his position in order to

avoid imposition of frivolous return penalties under section

6702.     On April 1, 2001, petitioner responded to respondent’s

letter.     Petitioner stated in part:

             The only Code sections identified in the 1040's
        Privacy Act Notice as allegedly applying to income
                                      -4-

     taxes are Code Sections 6001, 6011, and 6012 and none
     of them identifies any statute which makes me “liable”
     for income taxes, requires me “to pay” such a tax; or
     requires me to accurately “self-assess” myself with any
     such tax.

     *         *         *        *         *     *       *

     Code Section 6011 states, “When required by regulation
     ... any person made liable for any tax...” shall do
     certain things. However, like Code Section 6001,
     Section 6011 does not even mention income taxes, let
     alone identify any regulation that “requires” me to do
     anything with respect to income taxes.

     *         *         *        *         *     *       *

          And Code Section 6012 does not even contain the
     word “liability”, “liable”, or “self-assessment”;
     therefore, this section can have nothing to do with
     making me “liable” for income taxes or putting me on
     notice that I required [sic] to “self-assess” myself.

     *         *         *        *         *     *       *

          In addition your letter claiming that I had filed
     a “frivolous” income tax return made no mention at all
     of my claims (let alone refute them) that:

          1. No Section of the Internal Revenue Code makes
     me “liable” for income taxes.

          2.       “Income” is not defined in the Code.

          3. The Supreme Court defined “income” as being a
     corporate profit. And

          4. Since I know the constitutional definition of
     “income”, if I were to swear under penalty of perjury
     to receiving anything other than “zero” income, I would
     be swearing falsely, and thus I would be committing
     perjury under at least two statutes.

     On October 15, 2001, respondent sent to petitioner a letter

informing him about changes which respondent proposed to make to

petitioner’s 1999 return.       These changes included the unreported
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income of $106,077 and of $266.        The letter also reflected an

addition to tax of $7,113.60 under section 6651(a)(1) for failure

to file timely his 1999 return and an accuracy-related penalty of

$7,113.60 under section 6662(a) and (b)(1) for negligence.          On

October 24, 2001, petitioner acknowledged the receipt of

respondent’s letter.       In an attachment to his response,

petitioner stated in part:

          This is in reply to your letter of Oct. 15th 2001
     in which you notified me that “We have changed/adjusted
     your return.”

     *       *         *          *         *       *       *

     You have no legal authority to “change/adjust” my
     return, nor to assess any amount other than what is
     shown on my return, and if any IRS employee attempts to
     do otherwise, they will do so at their own criminal
     and/or civil peril.

     Petitioner’s statements in the attachment are similar to the

tax protester statements contained in a letter sent by the

taxpayer in Kaye v. Commissioner, T.C. Memo. 2003-74.           The other

correspondence in the record between petitioner and respondent

also includes tax protester statements advanced by petitioner.

                                  OPINION

A.   Burden of Proof

     Respondent’s determinations of deficiencies in the notice of

deficiency are presumed correct, and petitioner bears the burden

of proving those determinations wrong.          Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).         Section 7491 shifts to the
                                 -6-

Commissioner the burden of proof as to determined deficiencies

when the taxpayer establishes that he or she met certain

requirements.   Petitioner has not established that he has met

those requirements.

     Section 7491(c) requires that the Commissioner bear the

burden of production as to the additions to tax and penalties.

In order to meet this burden, the Commissioner must present

evidence indicating that it is appropriate to impose an addition

to tax or a penalty.   See Higbee v. Commissioner, 116 T.C. 438,

446 (2001).   Once the Commissioner meets his burden of

production, the taxpayer must come forward with evidence

sufficient to persuade a Court that the Commissioner’s

determination is incorrect.   Id.

B.   Whether Petitioner Had Unreported Income

     In his petition, petitioner asserted that respondent erred

in attributing income to petitioner which he did not receive “for

any taxable source within or without the United States”.   We

disagree that respondent erred as asserted.   First, petitioner

received $106,077 from LLC during 1999.   Under section 61(a),

this amount, which is an accession to petitioner’s wealth, is

includable in his gross income absent a determination that it

falls within a statutory exclusion.    Sec. 61(a); United States v.

Burke, 504 U.S. 229, 233 (1992); Commissioner v. Glenshaw Glass

Co., 348 U.S. 426, 431 (1955).   Petitioner has failed to present
                                  -7-

any evidence or credible argument that this income was not

taxable to him for the subject year.    Respondent, on the other

hand, clearly established that petitioner was self-employed

during 1999 and that he received the above-referenced amount in

connection with his self-employment business.    That evidence

includes:   (1) A copy of petitioner’s realtor’s license; (2) a

copy of an independent contractor’s contract between petitioner

and Queen’s Bay, the owner and developer of the London Bridge

Resort Time Share Condominium; and (3) a payroll check register

of LLC indicating that LLC paid petitioner during the relevant

year for his services.   The record also includes the testimony of

the custodian of records of LLC to the effect that petitioner

provided services for and received income from LLC.

     Second, petitioner received a tax refund of $266 from the

State of California.   Under the tax benefit rule, State income

tax refunds are taxable if the amount of the tax refund was

deducted in a prior year and the deduction resulted in a

reduction of tax for that year.    Sec. 111; Kadunc v.

Commissioner, T.C. Memo. 1997-92; sec. 1.111-1(a), Income Tax

Regs.   The amount of the refund is taxable to petitioner absent

his proving to the contrary.   Petitioner has failed to present

any evidence or testimony to the effect that the amount of this

tax refund was not taxable to him for the subject year.
                                 -8-

     We sustain respondent’s determination as to both items of

unreported income.   In so doing, we note without further comment

that we consider it proper for respondent to have determined this

unreported income from the information received from the third

parties.    E.g., Parker v. Commissioner, 117 F.3d 785 (5th Cir.

1997); see also Hardy v. Commissioner, 181 F.3d 1002, 1005 (9th

Cir. 1999), affg. T.C. Memo. 1997-97.

C.   Whether Petitioner Is Liable for Self-Employment Tax

     Section 1401 imposes a tax on the self-employment income of

every individual for old age, survivors, disability insurance,

and hospital insurance.   Sec. 1401(a) and (b); Schelble v.

Commissioner, 130 F.3d 1388, 1391 (10th Cir. 1997), affg. T.C.

Memo. 1996-269; sec. 1.1401-1(a), Income Tax Regs.

Self-employment income includes the net earnings from

self-employment derived by an individual during the taxable year.

Sec. 1402(b).   For purposes of the self-employment tax, the term

"net earnings from self-employment" is the gross income derived

by an individual from any trade or business carried on by such

individual, reduced by, inter alia, the deductions attributable

to the trade or business.   Sec. 1402(a); sec. 1.1402(a)-1, Income

Tax Regs.   Petitioner has failed to disprove that his earnings

were “net earnings from self-employment” within the meaning of

section 1402(a).   Accordingly, we sustain respondent’s
                                -9-

determination that petitioner is liable for self-employment tax.

See Rule 142(a).

D.   Addition to Tax and Accuracy-Related Penalty

     1.   Addition to Tax

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

file timely a required Federal income tax return, unless it is

shown that the failure was due to reasonable cause and not to

willful neglect.   Petitioner was required to file a Federal

income tax return for the subject year.    Secs. 6012, 6072.

     Respondent met his burden of production as to this addition

to tax in that respondent introduced (and the Court admitted)

into evidence documentation establishing that petitioner filed

his 1999 income tax return untimely.    Petitioner, in turn, has

failed to meet his burden of proof.    Petitioner has neither

asserted nor introduced any evidence indicating that he filed his

return untimely for cause that is reasonable.    We hold that

petitioner is liable for the addition to tax under section

6651(a)(1).   See United States v. Boyle, 469 U.S. 241, 245

(1985); Cluck v. Commissioner, 105 T.C. 324, 338-339 (1995).

     2.   Accuracy-Related Penalty

     Section 6662(a) and (b)(1) imposes a penalty equal to 20

percent of the amount of an underpayment attributable to

negligence or disregard of rules or regulations.    In this

context, negligence includes any failure to make a reasonable
                                -10-

attempt to comply with the provisions of the Internal Revenue

Code and any failure to exercise ordinary and reasonable care in

the preparation of a tax return.     Sec. 6662(c); ASAT, Inc. v.

Commissioner, 108 T.C. 147, 175 (1997); sec. 1.6662-3(b)(1),

Income Tax Regs.    An accuracy-related penalty under section

6662(a) does not apply to any part of an underpayment if the

taxpayer shows that there was reasonable cause for that part and

that the taxpayer acted in good faith.      Sec. 6664(c)(1).

      Petitioner’s failure to report any income and reliance on

frivolous arguments are not what a reasonable and prudent person

would do under the circumstances.      We sustain respondent’s

determination as to this issue.

E.   Penalty Under Section 6673(a)

     Respondent moved the Court to impose a penalty under section

6673(a).    Respondent asserts that petitioner’s position in this

case is frivolous and groundless.      Respondent also asserts that

petitioner instituted this proceeding primarily for the purpose

of delay.

     Section 6673(a)(1) authorizes the Court to require a

taxpayer to pay to the United States a penalty of up to $25,000

whenever it appears that proceedings have been instituted or

maintained by the taxpayer primarily for delay or that the

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

Petitioner did not offer any evidence at trial, nor did he
                               -11-

otherwise make any legitimate attempt to prove respondent’s

determinations wrong.   Petitioner was warned by respondent before

trial, and he was warned by the Court during trial, that his

position (or lack thereof) was without merit and could subject

him to a penalty of up to $25,000 under section 6673(a).

Notwithstanding the fact that we previously sanctioned petitioner

in Hill v. Commissioner, T.C. Memo. 2002-272, for $3,500,

petitioner continues to pursue his frivolous and/or groundless

arguments.   Petitioner has disregarded these warnings and has

consumed wastefully the time, resources, and effort of the Court.

We conclude from the record that petitioner’s positions in this

proceeding are frivolous and without merit.   We also conclude

from the record that petitioner has instituted and maintained

this proceeding primarily for delay.   Pursuant to section

6673(a), we require petitioner to pay to the United States a

penalty of $15,000.1




     1
       We note that petitioner has two more cases before the
Court (docket Nos. 8690-02 and 14771-02).
                               -12-

     We have considered all arguments made by the parties and

have found those arguments not discussed herein to be irrelevant

and/or without merit.   To reflect the foregoing,



                                           An appropriate order and

                                      decision will be entered for

                                      respondent.
