                  T.C. Memo. 2002-41



                UNITED STATES TAX COURT



             ANDREW HEISEY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1220-01.              Filed February 12, 2002.


     P did not file Federal income tax returns for
1996, 1997, and 1998. R issued a notice of deficiency
for those years, in which he determined deficiencies,
as well as additions to tax under secs. 6651(a)(1) and
(2) and 6654, I.R.C. P does not dispute the receipt of
compensation and sale proceeds in the amounts
determined by respondent. However, P contends that the
Federal income tax is in the nature of an excise tax
and that he is not engaged in any taxable excise
activities.

     Held: Compensation and gain from the sale of
property are taxable as income in the year received.
P’s arguments to the contrary are frivolous.

     Held, further, the additions to tax under secs.
6651(a)(1) and 6654, I.R.C., are sustained.

     Held, further, sec. 6651(a)(2), I.R.C., provides
an addition to tax where a taxpayer fails “to pay the
amount shown as tax on any return”. The addition to
                                    - 2 -

       tax under sec. 6651(a)(2), I.R.C., does not apply
       unless there was an unpaid tax that was shown on a
       return. Since no returns were filed and the record
       does not show that substitute returns were prepared,
       the sec. 6651(a)(2), I.R.C., addition to tax does not
       apply.

            Held, further, we shall impose a penalty of $2,000
       on petitioner pursuant to sec. 6673(a)(1), I.R.C.


       Andrew Heisey, pro se.

       Matthew A. Mendizabal, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


       RUWE, Judge:      Respondent issued a notice of deficiency to

petitioner in which he determined the following Federal income

tax deficiencies and additions to tax:

                                              Additions to tax
Year        Deficiency         Sec. 6651(a)(1)   Sec. 6651(a)(2)   Sec. 6654

1996        $13,852.00           $3,116.70        $2,839.66         $737.27
1997         12,637.00            2,843.33         1,832.37          676.10
1998         54,133.00           11,488.95         4,340.27        2,320.88

The issue for decision is whether petitioner is liable for the

deficiencies and additions to tax determined by respondent.

                              FINDINGS OF FACT

       Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.          At the time petitioner

filed his petition, he resided in San Jose, California.
                                - 3 -

     Petitioner received $72,821, $54,086.38, and $57,575.69 in

wages from Contract Services Co. during 1996, 1997, and 1998,

respectively.    Federal income tax of $3,071.14 was withheld from

petitioner’s wages from Contract Services Co. in 1998; no Federal

income taxes were withheld in 1996 and 1997.   Petitioner received

$9,410 and $17,740 in nonemployee compensation from Acorn Product

Development, Inc., during 1997 and 1998, respectively.   On

December 9, 1998, petitioner sold a single family residence

located at 2716 Morrene Drive, Placerville, 95667 for $112,500.

Petitioner was the owner of this property immediately prior to

its sale.

     Petitioner did not file Federal income tax returns for 1996,

1997, or 1998.   Respondent issued a notice of deficiency to

petitioner, and petitioner filed a petition with this Court.

                               OPINION

A. Income Tax Deficiencies

     Section 61(a)1 includes within the definition of gross

income, “all income from whatever source derived” including

compensation for services and gains derived from dealings in

property.   See United States v. Connor, 898 F.2d 942, 943 (3d




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the tax years in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                - 4 -

Cir. 1990); United States v. Richards, 723 F.2d 646, 648 (8th

Cir. 1983); Grimes v. Commissioner, 82 T.C. 235, 237 (1984).

     Petitioner does not contest the amounts of compensation and

gain upon which respondent based his deficiency determinations.

Indeed, with minor exceptions, petitioner stipulated that he

received the amounts determined by respondent for the tax years

at issue.2   However, petitioner argues that the income tax is an

excise tax and that petitioner did not engage in any taxable

excise activities during 1996, 1997, and 1998.

     The contentions made by petitioner in his petition and on

brief are appropriately termed “tax protester rhetoric and

legalistic gibberish”, and we shall not dignify such arguments

with any further discussion.3   Crain v. Commissioner, 737 F.2d

1417, 1418 (5th Cir. 1984); Lindsay v. Commissioner, T.C. Memo.

2001-285; Black v. Commissioner, T.C. Memo. 1995-560.   We hold

that petitioner’s wages, nonemployee compensation, and gain from




     2
      The only amounts of income in respondent’s determinations
that were not stipulated were $275 of wages in 1996 and $263 of
wages in 1997. Respondent requested that petitioner admit or
deny that he received those amounts as taxable income in taxable
years 1996 and 1997. Petitioner objected to those requests as
legal conclusions, but he does not dispute that he received those
amounts as wages during the years at issue.
     3
      In Hart v. Commissioner, T.C. Memo. 2001-306, the taxpayer
raised similar arguments; i.e., that “The income tax is an
‘excise tax’, and he did not engage in any ‘excise taxable
activity’”. We rejected the taxpayer’s contention that he owed
no income taxes on the wages he received.
                                   - 5 -

the sale of property are taxable income and that the deficiencies

determined by respondent are correct.

B. Section 6651(a)(1) Addition to Tax for Failure To File Return

     Section 6651(a)(1) provides for an addition to tax in the

case of a failure to file a return on or before the specified

filing date.   Section 6651(a)(1) does not apply if the failure to

file is due to reasonable cause and not to willful neglect.       Sec.

6651(a)(1); Higbee v. Commissioner, 116 T.C. 438, 447 (2001).

Petitioner bears the “heavy burden” of proving that the failure

to file did not result from willful neglect and that the failure

was due to reasonable cause.       United States v. Boyle, 469 U.S.

241, 245 (1985).

     Petitioner has not shown that his failure to file was

attributable to reasonable cause; therefore, we sustain the

section 6651(a)(1) additions to tax as determined by respondent.

C. Section 6651(a)(2) Addition to Tax for Failure To Pay Tax

     Respondent determined additions to tax for tax years 1996,

1997, and 1998 pursuant to section 6651(a)(2) for failure to pay

tax shown on a return.       Section 6651(a)(2) provides:

     SEC. 6651.       FAILURE TO FILE TAX RETURN OR TO PAY TAX.

          (a) Addition to the Tax.--In case of failure--

                  *      *    *    *       *   *   *

               (2) to pay the amount shown as tax on any
          return specified in paragraph (1) on or before the
          date prescribed for payment of such tax
          (determined with regard to any extension of time
                               - 6 -

          for payment), unless it is shown that such failure
          is due to reasonable cause and not due to willful
          neglect, there shall be added to the amount shown
          as tax on such return 0.5 percent of the amount of
          such tax if the failure is for not more than 1
          month, with an additional 0.5 percent for each
          additional month or fraction thereof during which
          such failure continues, not exceeding 25 percent
          in the aggregate * * * [Emphasis added.]

On brief, respondent’s only argument with respect to the section

6651(a)(2) addition to tax is as follows:

          I.R.C. § 6651(a)(2) imposes an addition to tax for
     failure to pay the amount shown as tax on the return.
     The addition to tax consists of an addition to the
     amount required to be shown as tax on the return of .5%
     added for each complete month or part of a month in
     which the failure to file continues, up to the maximum
     of 25%. Since petitioner did not file federal income
     tax returns for the 1996, 1997 and 1998 taxable years
     and did not make payment sufficient to pay the amount
     of tax that was to be reported on the returns,
     petitioner is liable for the addition to tax for
     Failure to Pay. [Fn. ref. omitted.]

Respondent’s contentions provide an insufficient basis upon which

to assert the section 6651(a)(2) addition to tax and misstates

the requirements of that section.   Section 6651(a)(2) is imposed

on the underpayment of the amount of tax shown on a return.    The

parties in this case stipulated that “Petitioner did not file

1996, 1997 or 1998 U.S. Individual Income Tax Returns, (Form

1040).”   Given this stipulation and the absence of any additional

evidence indicating the existence of a “return”,4 we hold that


     4
      We are aware of sec. 6651(g), which deals with the effect
of a sec. 6020(b) substitute return on sec. 6651(a)(2). See
Smith v. Commissioner, T.C. Memo. 2000-290 (“A return prepared by
                                                   (continued...)
                              - 7 -

the section 6651(a)(2) addition to tax cannot be sustained.    Watt

v. Commissioner, T.C. Memo. 1986-22.5

     In the notice of deficiency, respondent applied section

6651(c)(1), which limits the addition under section 6651(a)(1) by

the amount of the addition under section 6651(a)(2) for any month

to which an addition applies under both of those provisions.

Since we have found that the additions to tax under section

6651(a)(2) are inapplicable, the additions to tax under section

6651(a)(1) should not have been adjusted.

D. Section 6654 Addition to Tax for Failure To Pay Estimated Tax

     Section 6654(a) provides for an addition to tax in the case

of any underpayment of estimated tax.6   Section 6654(a) does not


     4
      (...continued)
the Commissioner under sec. 6020(b) is treated as a return filed
by the taxpayer for returns due after July 30, 1996, for purposes
of sec. 6651(a)(2)”). The evidence in the instant case does not
show that a substitute return was filed for the years at issue.
Respondent stated in his trial memorandum that the examination in
this case began on Sept. 5, 2000. Since the examination began
after July 22, 1998, sec. 7491(c) applies and places the burden
of production with respect to additions to tax upon respondent.
     5
      The additions to tax under secs. 6651(a)(1) and (2) apply
to different amounts: Sec. 6651(a)(1) applies to amounts
required to be shown on a return, whereas sec. 6651(a)(2) applies
to the amount actually shown on a return which remains unpaid.
See Estate of Rauhoff v. Commissioner, T.C. Memo. 1982-494; sec.
301.6651-1(f), Example (1), Proced. & Admin. Regs. Congress
recognized this in enacting sec. 6651(g) and in providing two
different standards under subsections (a)(1) and (2) of sec.
6651.
     6
      We have jurisdiction over the sec. 6654(a) additions to tax
in this case because income tax returns were not filed for the
                                                   (continued...)
                                - 8 -

apply in certain circumstances, see Grosshandler v. Commissioner,

75 T.C. 1, 20-21 (1980); however, petitioner has not shown that

he falls within any of those exceptions.       Chambers v.

Commissioner, T.C.. Memo. 2000-218, affd. 17 Fed. Appx. 688 (9th

Cir. 2001); sec. 301.6651-1(f), Example (1), Proced. & Admin.

Regs.    We hold that petitioner is liable for the section 6654(a)

additions to tax determined by respondent.

E. Section 6673(a)(1) Penalty

     Respondent requests that we impose a penalty pursuant to

section 6673(a)(1).    Under section 6673(a)(1), we may impose a

penalty not to exceed $25,000 if the taxpayer’s position is

“frivolous or groundless”.

     Petitioner’s only argument is that the income tax is an

excise tax and that petitioner was not engaged in a taxable

excise activity.    Those contentions are patently frivolous.       See

Hart v. Commissioner, T.C. Memo. 2001-306.      Accordingly, we shall

impose upon petitioner a penalty of $2,000.



                                         Decision will be entered for

                                        respondent except for the

                                        additions to tax under section

                                        6651(a)(2) which do not apply.


     6
      (...continued)
tax years at issue. Sec. 6665(b)(2); Hart v. Commissioner, T.C.
Memo. 2001-306.
