                          T.C. Memo. 1998-261



                        UNITED STATES TAX COURT



                      MARKO PORTER, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 8510-97.                       Filed July 16, 1998.



        Marko Porter, pro se.

        Charles B. Burnett, for respondent.



                          MEMORANDUM OPINION


        DINAN, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

        1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable years in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
                              - 2 -

     Respondent determined deficiencies in petitioner's Federal

income taxes for 1992, 1993, and 1994 in the amounts of $1,204,

$2,701, and $3,199, respectively, and additions to tax pursuant

to section 6651(a)(1) in the amounts of $280, $465, and $555,

respectively.

     The issues for decision are:    (1) Whether petitioner

received and failed to report income during the taxable years in

issue; (2) petitioner's proper filing status for the taxable

years in issue; (3) whether petitioner is entitled to dependency

exemption deductions for his two sons for the taxable years in

issue; (4) whether petitioner is liable for the section

6651(a)(1) additions to tax for failure to file his 1992, 1993,

and 1994 returns; and (5) whether we should impose a penalty on

petitioner pursuant to section 6673(a).

     Petitioner resided in Tempe, Arizona, on the date the

petition was filed in this case.    No stipulations of fact were

filed in this case.

     Petitioner was married and supported his two sons during the

taxable years in issue.

     Village Auto Electric reported to respondent that it paid

petitioner employee wages in the amount of $8,481 during 1992.

Arizona Department of Economic Security (Arizona DES) reported to

respondent that it paid petitioner unemployment compensation in

the amount of $5,437 during 1992.
                               - 3 -

     Patrick Steve O'Brien reported to respondent that he paid

petitioner employee wages in the total amount of $19,212 during

1993.   Polar Bear Auto Air reported to respondent that it paid

petitioner nonemployee compensation in the amount of $2,213

during 1993.   Arizona DES reported to respondent that it paid

petitioner unemployment compensation in the amount of $700 during

1993.

     Arctic Auto Air Electric reported to respondent that it paid

petitioner employee wages in the amount of $27,594 during 1994.

     The first issue for decision is whether petitioner received

and failed to report income during the taxable years in issue.

     Section 61(a) includes in gross income all income from

whatever source derived including, but not limited to,

compensation for services.   Sec. 61(a)(1).   Section 85(a)

provides that gross income includes unemployment compensation.

Unemployment compensation means any amount received under a law

of the United States or of a State which is in the nature of

unemployment compensation.   Sec. 85(b).

     Petitioner alleges that the information returns submitted to

respondent by the reporting payers are unreliable.    At trial, he

admitted receiving unemployment compensation from Arizona DES in

the amounts reported to respondent.    He refused to admit that he

received employee wages and nonemployee compensation in the

amounts reported to respondent by Village Auto Electric, Patrick

Steve O'Brien, Polar Bear Auto Air, and Arctic Auto Air Electric.
                               - 4 -

Yet, he admitted at trial that his endorsement was on the back of

a number of checks issued to him by Village Auto Electric during

1993 and stated in his first amended petition as one of the facts

upon which he based his case that:

          While Village Auto Electric, Patrick Obrien [sic]
     or Arctic Auto Air Electric had the right to tell the
     Petitioner what to do Village Auto Electric, Patrick
     Obrien [sic] or Arctic Auto Air Electric did not have
     the right to tell the Petitioner how to accomplish his
     tasks. Village Auto Electric, Patrick Obrien [sic] or
     Arctic Auto Air Electric had to rely upon the
     Petitioner's knowledge and experience.

     Respondent's revenue agent, Shelby Bare, testified that

respondent relied upon payer information returns which were

received under the Information Returns Program (IRP) in making

the determinations contained in the statutory notices of

deficiency issued to petitioner in this case.   Respondent

submitted transcripts from his IRP master file which list the

payers which reported payments to petitioner during 1992, 1993,

and 1994.

     Based on the record, we find that petitioner has failed to

prove any error in respondent's determinations on this issue.

He introduced no credible evidence which persuades us that the

amounts of income reported on the information returns received by

respondent were inaccurate.   On cross-examination, petitioner was

specifically asked whether he received the amounts determined by

respondent in the statutory notices of deficiency for the years

in issue from Village Auto Electric, Patrick Steve O'Brien, Polar
                               - 5 -

Bear Auto Air, and Arctic Auto Air Electric.   His objection to

each question was overruled, and he was ordered to answer.    His

answer:   "I will remain silent at this time on that question."

Accordingly, we hold that petitioner received and failed to

report employee wages, nonemployee compensation, and unemployment

compensation in the amounts determined by respondent for the

taxable years in issue.

     The second issue for decision is petitioner's proper filing

status for the taxable years in issue.

     In the statutory notices of deficiency, respondent

determined that petitioner's proper filing status for 1992, 1993,

and 1994 was single.   However, respondent conceded at trial that

petitioner was married during the taxable years in issue.     Since

petitioner did not make a single return jointly with his wife

under section 6013, we hold that his proper filing status for

1992, 1993, and 1994 was married filing separately.   Sec. 1(d).

     The third issue for decision is whether petitioner is

entitled to dependency exemption deductions for his two sons for

the taxable years in issue.

     In the statutory notices of deficiency, respondent did not

allow petitioner dependency exemption deductions for his two sons

for 1992, 1993, and 1994.   At trial, respondent's counsel stated

that petitioner had presented "two birth certificates for

dependents."   He further stated respondent's position with
                                - 6 -

respect to the allowance of exemption deductions for the two

dependents as follows:

          Under Code section 151(e) it says no exemptions
     shall be allowed under this section with respect to any
     individual unless the taxpayer identification number of
     such individual is included in the return claiming the
     exemption. Our position is that without returns filed,
     Mr. Porter doesn't get the benefit of claiming the
     exemptions.

     Although respondent's counsel accurately recited the current

rule of law provided in section 151(e), such rule was not

effective during the taxable years in issue.   Small Business Job

Protection Act of 1996, Pub. L. 104-188, sec. 1615(d), 110 Stat.

1755, 1853.   Accordingly, we hold that petitioner is entitled to

dependency exemption deductions for his two sons for 1992, 1993,

1994.

     The fourth issue for decision is whether petitioner is

liable for the section 6651(a)(1) additions to tax for failure to

file his 1992, 1993, and 1994 returns.

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

file timely returns, unless the taxpayer establishes that such

failure is due to reasonable cause and not due to willful

neglect.   "Reasonable cause" requires the taxpayer to demonstrate

that he exercised ordinary business care and prudence and was

nonetheless unable to file a return within the prescribed time.

United States v. Boyle, 469 U.S. 241, 245-246 (1985).   "Willful

neglect" means a conscious, intentional failure or reckless

indifference.   Id. at 245.   The addition to tax equals 5 percent
                               - 7 -

of the tax required to be shown on the return if the failure to

file is for not more than 1 month, with an additional 5 percent

for each additional month or fraction of a month during which the

failure to file continues, not to exceed a maximum of 25 percent.

Sec. 6651(a)(1).

     Based on the record, we find that petitioner has failed to

prove that his failure to file his returns was not due to willful

neglect or that such failure was due to reasonable cause.   We

therefore hold that petitioner is liable for the section

6651(a)(1) additions to tax.

     The fifth issue for decision is whether we should impose a

penalty on petitioner pursuant to section 6673(a).

     Whenever it appears to this Court that proceedings before it

have been instituted or maintained by the taxpayer primarily for

delay or the taxpayer's position in such proceeding is frivolous

or groundless, the Court, in its discretion, may require the

taxpayer to pay to the United States a penalty not in excess of

$25,000.   Sec. 6673(a)(1)(A) and (B).   A position maintained by a

taxpayer in the Tax Court is frivolous "if it is contrary to

established law and unsupported by a reasoned, colorable argument

for change in the law."   Coleman v. Commissioner, 791 F.2d 68, 71

(7th Cir. 1986).   A penalty may be properly imposed when the

taxpayer knew or should have known that his claim or argument was

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

1987).
                                - 8 -

     Petitioner initiated this case by filing an imperfect

petition.    In his first amended petition, petitioner alleged the

following facts as the basis for his case:

            a. The Petitioner is married and has two children.

            a. The Petitioner's labor is his property.

          b. As part of his life he receives his labor as a
     day to day gift from his Creator.

          c. The Property was received by him after December
     31, 1920.

          d. The Petitioner's Creator is the original owner
     of this property and his Creator did not receive the
     property as a gift before giving it to the Petitioner.

          e. The Secretary of the Treasury of the United
     States, or his authorized delegate, either failed to
     determine the basis (cost) in the Petitioner's labor,
     as required by Internal Revenue Code (IRC), § 1015(a),
     or was unable to determine the basis (cost) that the
     Petitioner's Creator has in the gift of the labor [sic]
     was given to the Petitioner.

          f. The Petitioner has been unable to discover the
     basis (cost) his Creator had in the labor at the time
     it was given to the Petitioner as a gift.

          g. Because he failed or was unable to determine
     the basis (cost) the Petitioner's Creator had in the
     labor that was given to the Petitioner as a gift, the
     Secretary was required to proceed as if the basis
     (cost) in the labor is the "FAIR MARKET VALUE" of the
     property (labor) based upon the best information
     available to him.

          h. The only information that was available to the
     Secretary to determine the basis (cost) the Petitioner
     had in his labor would be the amount he received for
     the labor he sold.

          i. The Petitioner sold his labor under contract.
     The basis (cost) in labor when sold under contract is
     the same for all property sold under contract, which is
     the amount paid in accordance with the terms of the
                               - 9 -

     contract, whether the contract is verbal, expressed or
     implied. * * *

     In his first amended petition, petitioner thereafter sought

the following relief from this Court:

          A. Dismiss the Petition for Lack of Subject matter
     jurisdiction as determination of the amounts received
     would require determination of taxes and amounts paid
     under Subtitle C of Title 26 U.S.C. and this Court is
     not granted subject matter jurisdiction over Subtitle
     C.

          B. Otherwise dismiss the Commissioner's Notice of
     Deficiency; and,

          C. Declare that the Petitioner is entitled to the
     filing status of married filing jointly for the
     purposes of determining the amount of any liability.

          D. Declare that IRC, §1015(a) would generally
     establish a presumption that a Man has a basis (cost)
     equal to or greater than the amount he received for the
     sale of his labor.

          E. Declare that the Respondent has the burden of
     proof of showing that the Petitioner had a basis (cost)
     other than a basis (cost) equal to or greater than the
     amount he received for the sale of his labor; and,

           F. Declare that the Petitioner had a basis (cost)
     equal to or greater than the amount he received for the
     sale of his labor during the years 1992, 1993 and 1994;
     * * *

     In order to avoid our granting of respondent's motion to

dismiss for failure to state a claim in this case, filed July 25,

1997, petitioner filed a second amended petition in which he

omitted the frivolous assertions contained in his first amended

petition.   Nonetheless, we find that petitioner's position in

this case, which has its genesis in common tax protester

rhetoric, is utterly frivolous and was designed to delay his
                              - 10 -

ultimate payment of taxes.   He failed to comply with our standing

pretrial order and played semantical games throughout this

proceeding.   We find that his second amended petition filed

September 29, 1997, was merely another delaying tactic used to

prolong this proceeding.   Petitioner knew that on May 18, 1995,

the United States Court of Appeals for the Ninth Circuit had

affirmed an unpublished order of this Court dated August 24,

1994, which granted respondent's Motion for Judgment on the

Pleadings, dismissing petitioner's case for the years 1991 and

1992.2   He has once again caused this Court to waste its limited

resources reviewing his rejected taxpayer protests which he knew

or should have known are without merit.

     In view of the foregoing, we will exercise our discretion

under section 6673(a) and require petitioner to pay a penalty to

the United States in the amount of $3,000.

     To reflect the foregoing,



                                       An appropriate order will

                                   be issued and a decision will

                                   be entered under Rule 155.




     2
          Porter v. Commissioner, 56 F.3d 73 (9th Cir. 1995),
affg. without opinion an order of this Court dated Aug. 24, 1994
(granting the Commissioner's motion for judgment on the
pleadings).
