                        T.C. Memo. 2004-210



                      UNITED STATES TAX COURT



    GARY M. DASHIELL AND FRANCES J. DASHIELL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19118-02L.         Filed September 20, 2004.



     Gary M. Dashiell and
     Frances J. Dashiell, pro sese.

     Shirley M. Francis, for respondent.



                        MEMORANDUM OPINION

     SWIFT, Judge:   This matter is before us on respondent’s

Motion for Summary Judgment concerning respondent’s tax lien

filing against petitioners with regard to petitioners’

outstanding 1997 Federal income tax liability.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue.
                               - 2 -


                            Background

     During 1997 and at the time their petition was filed,

petitioners resided in Multnomah County, Oregon.

     On May 7, 1998, petitioners filed with respondent a document

purporting to be their 1997 joint Federal income tax return (1997

tax return).   Thereon, petitioners indicated that Gary’s

occupation was that of a salesman and that Frances’s (Fran)

occupation was that of a computer consultant.

     A Form W-2, Wage and Tax Statement, that was attached to

petitioners’ 1997 tax return reflected that in 1997 Gary received

wages of $25,101 from his employer and that during 1997 $2,114 in

Federal income taxes was withheld from Gary’s wages.

     There was no Form W-2 attached to and no Schedule C, Profit

or Loss From Business, or estimated tax payments reflected on

petitioners’ 1997 tax return relating to wages or income earned

in 1997 by Fran.

     In spite of the above $25,101 in Gary’s wages and in spite

of any income Fran earned from her computer consulting business,

on their 1997 tax return, petitioners reflected zero wages, zero

total income, zero adjusted gross income, zero taxable income,

and zero tax liability.   Also, on their 1997 tax return

petitioners claimed a refund for the total $2,114 in Federal

income taxes that had been withheld from Gary’s wages.
                              - 3 -

     Petitioners’ 1997 tax return was signed by Gary and Fran

under penalties of perjury.

     After an audit, on June 30, 2000, respondent mailed to

petitioners a notice of deficiency for 1997 in which respondent

treated petitioners’ 1997 tax return as a joint 1997 Federal

income tax return for petitioners and in which respondent

determined that Gary’s $25,101 in wages constituted taxable

income to petitioners, that Fran received $30,455 in nonemployee-

fee income, that Gary and Fran received $15 in interest income

and $9,693 in early retirement account distributions, and that

petitioners owed a tax deficiency of $12,061 in addition to the

$2,114 in Federal income taxes withheld from Gary’s wages.    Also,

respondent determined against petitioners a $2,412 accuracy-

related penalty under section 6662(a) relating to petitioners’

1997 tax return.

     Petitioners did not file a petition with this Court with

regard to respondent’s above deficiency and penalty

determinations, and on November 20, 2000, the above deficiency

and penalty, plus statutory interest, were assessed against

petitioners.

     One year later, on November 20, 2001, a notice of Federal

tax lien was filed by respondent against petitioners relating to

the assessment against petitioners of the above tax deficiency

and penalty.
                               - 4 -

     On December 14, 2001, in response to respondent’s notice of

Federal tax lien filing, petitioners filed with respondent a

request for a hearing, which was held on October 17, 2002, with

respondent’s Appeals Office in Portland, Oregon.

     At the Appeals Office hearing, petitioners argued that they

were not taxable on their income.   Petitioners did not claim any

error had occurred in respondent’s collection procedures, nor did

petitioners raise any collection alternatives.

     On November 19, 2002, respondent mailed to petitioners a

notice of determination in which respondent determined that

respondent’s tax lien constituted a valid and appropriate

collection activity against petitioners.

     On December 11, 2002, petitioners filed their petition

herein in which petitioners claim only that they are not subject

to the income tax.   Petitioners make no claim of irregularity in

respondent’s collection procedures.    Quoting from petitioners’

pretrial memorandum, petitioners argue that –-


     A careful examination of 26 C.F.R. sec. 1.861-8, (as well as
     over 80 years of predecessor statutes and regulations) shows
     that taxable sources of income are limited to the following
     types of commerce:

     (1)   Certain foreign income of U.S. citizens (26 C.F.R.
           sec. 1.861-8(f)(1)(i));

     (2)   The domestic income of foreigners (26 C.F.R.
           sec. 1.861-8(f)(1)(iv));

     (3)   Certain income related to federal possessions
           (26 C.F.R. sec. 1.861-8(f)(1)(vi)(E)).
                               - 5 -

     At the Court hearing on November 17, 2003, Fran argued with

much vigor that, under her reading and close study of the

Internal Revenue Code and regulations, she and her husband are

not taxable on their wages and income.   Fran pleads with the

Court to provide her with a persuasive written explanation, if

any exists, as to how she and her husband are liable for Federal

income taxes on her husband’s wages, on her fee income, on the

early retirement account distributions and on the interest

income.


                            Discussion

     We note initially that because petitioners received a notice

of deficiency relating thereto petitioners’ Federal income tax

liability for 1997 is not before us in this action.     Goza v.

Commissioner, 114 T.C. 176, 180-181 (2000).   Our jurisdiction

herein is limited to a review of respondent’s discretion in

filing a notice of Federal tax lien to upgrade respondent’s

creditor status vis-a-vis petitioners’ other creditors.    Sec.

6323; Sego v. Commissioner, 114 T.C. 604, 610 (2000).

     On that narrow question as to respondent’s discretion we

hold for respondent.   Petitioners have offered no basis on which

we could find any error in respondent’s discretionary

determination to proceed with the filing of a notice of Federal

tax lien relating to the 1997 Federal income tax deficiency,
                               - 6 -

penalty, and interest that respondent assessed against petitioners.

     With regard to the underlying tax deficiency determined by

respondent against petitioners, even if such tax deficiency were

properly before us, most courts would not dignify petitioners’

particular tax protester argument by addressing it at length in a

written court opinion.   For example, in Williams v. Commissioner,

114 T.C. 136, 138-139 (2000), wherein the taxpayers made the same

argument as the petitioners herein make about sections 61 and

861, we stated as follows:


          Petitioner’s arguments are reminiscent of tax-protester
     rhetoric that has been universally rejected by this and
     other courts. We shall not painstakingly address
     petitioner’s assertions “with somber reasoning and copious
     citation of precedent; to do so might suggest that these
     arguments have some colorable merit.” Crain v.
     Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). * * *


     In our discretion, however, herein we provide to petitioners

an explanation as to why their 1997 wage and other income

constitute taxable income.   We do so only with the hope that

petitioners will consider themselves personally addressed, that

they will consider themselves to have had their day in court, and

that petitioners will find such explanation persuasive and

convincing and will come back into compliance with the Federal

income tax system.
                                 - 7 -

     Generally, under section 1, U.S. citizens such as

petitioners who reside in the United States are required to pay

tax on their worldwide income.    The particular source (domestic

or overseas) of a U.S. citizen’s income has no effect on its

treatment as “income” for Federal income tax purposes, and a U.S.

citizen’s Federal income tax liability is computed (before any

foreign tax credits that might be available to the taxpayer)

without regard to the source of the taxpayer’s income.    Sec. 1.1-

1(b), Income Tax Regs.

     With regard to the definition of income, section 61

expressly states that gross income constitutes “all income” and

expressly lists as one of the categories of income “compensation

for services” rendered by the taxpayer, which certainly would

include Gary’s wages as a salesman and any fee income Fran

received for computer consulting.    Sec. 61(a)(1).   Also, section

61(a)(4) expressly lists “interest,” which certainly would

include interest income petitioners received in 1997.
                              - 8 -

     Section 1.1-1, Income Tax Regs., provides further as

follows:


          Sec. 1.1-1. Income tax on individuals.--(a)
     General rule. (1) Section 1 of the Code imposes an
     income tax on the income of every individual who is a
     citizen or resident of the United States * * *.

     *       *        *        *        *        *          *

               (b) Citizens or residents of the United States
     liable to tax. In general, all citizens of the United
     States, wherever resident, * * * are liable to the income
     taxes imposed by the Code whether the income is received
     from sources within or without the United States. * * *


     The Supreme Court has defined income under section 61

broadly, noting that Congress intended to tax as income “all

gains except those specifically exempted.”   Commissioner v.

Glenshaw Glass Co., 348 U.S. 426, 429-430 (1955).

     In Commissioner v. Schleier, 515 U.S. 323, 327-328 (1995),

the Supreme Court noted that because of the broad and inclusive

nature of section 61(a), an income item must be included in

income for Federal income tax purposes unless it is explicitly

excluded by another provision of the Code.

     Petitioners point out that section 61(a) uses the word

“source” but that section 61 does not go on to define the

“sources” which produce income taxable by the United States.

Petitioners therefore conclude that in order to identify the

“sources” of income that are taxable reference must be made to

the income “sourcing” rules of sections 861-865 and to
                               - 9 -

respondent’s regulations thereunder, specifically section 1.861-

8(f)(1), Income Tax Regs.

     Petitioners misread section 61.    That section prefaces its

use of the word “source” by the word “whatever”, thereby making

the particular source of a U.S. taxpayer’s income (and the income

sourcing rules of sections 861-865) irrelevant for purposes of

the definition of income under section 61.    The precise language

of section 61(a) provides as follows:


          Except as otherwise provided in this subtitle, gross
     income means all income from whatever source derived,
     including (but not limited to) * * *. [Emphasis supplied.]


     It is helpful to read carefully the specific language from

the regulations under section 861 on which petitioners rely.   The

introductory language of section 1.861-8(f)(1), Income Tax Regs.,

states as follows:


          (f) Miscellaneous matters--(1) Operative sections.
     The operative sections of the Code which require the
     determination of taxable income of the taxpayer from
     specific sources or activities and which give rise to
     statutory groupings to which this section is applicable
     include the sections described below. [Emphasis
     added.]


     As we have explained, section 61 does not “require the

determination of petitioners’ taxable income from specific

sources”.   Rather, section 61 explicitly states that petitioners’

income from “whatever” source constitutes income under
                              - 10 -

section 61.   Therefore, since section 61 is not one of the

“operative sections” which require “specific” sourcing of items

of income, section 61 is not affected by section 1.861-8(f)(1),

Income Tax Regs.

     As the Court of Claims has explained:


          The determination of where income is derived or
     “sourced” is generally of no moment to either United
     States citizens or United States corporations, for such
     persons are subject to tax under section 1 and section
     11, respectively, on their worldwide income. * * *
     [Great-West Life Assur. Co. v. United States,
     230 Ct. Cl. 477, 482, 678 F.2d 180, 183 (1982).]


     Petitioners’ narrow reading of section 61, under which the

definition of income for purposes of section 61 would be limited

by the section 861 source-of-income rules, is without any legal

support and is erroneous.   Petitioners do not provide us with any

case citations or other legal authority that reads section 61 and

the source-of-income rules of sections 861-865 as they do.

     Again, the source-of-income rules of sections 861-865 and

the regulations under those sections are not definitional

provisions that attempt to define income.    Rather, those source-

of-income rules simply distinguish between income that is earned

domestically and income that is earned overseas for purposes

primarily of calculating certain foreign tax credits to which

taxpayers who earn income from both domestic and overseas sources

may be entitled.
                              - 11 -

     Courts which have addressed the precise argument petitioners

make herein have rejected it as frivolous.     Takaba v.

Commissioner, 119 T.C. 285, 294-295, 300-302 (2002); Williams v.

Commissioner, supra; Corcoran v. Commissioner, T.C. Memo.

2002-18, affd. 54 Fed. Appx. 254 (9th Cir. 2002); Madge v.

Commissioner, T.C. Memo. 2000-370, affd. 23 Fed. Appx.

604 (8th Cir. 2001);   Aiello v. Commissioner, T.C. Memo. 1995-40;

Solomon v. Commissioner, T.C. Memo. 1993-509, affd. without

published opinion 42 F.3d 391 (7th Cir. 1994).

     We sustain respondent’s tax lien filing with regard to

petitioners’ 1997 assessed and unpaid 1997 Federal income tax

deficiency, accuracy-related penalty, and interest.

     Lastly, we address respondent’s motion for an award of

damages under section 6673.   On the basis of the Court’s dialogue

with petitioners, which occurred at the hearing on respondent’s

motion for summary judgment, we decline to impose any

section 6673 penalty on petitioners.    We strongly encourage

petitioners to abandon all erroneous arguments such as those made

herein and to bring their conduct into full compliance with the

Federal tax laws.

     To reflect the foregoing,

                                      An appropriate Order and

                                 Decision will be entered for

                                 respondent.
