                              T.C. Memo. 2016-86



                        UNITED STATES TAX COURT



      STEPHEN H. BRIGGS AND PATRICIA A. BRIGGS, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 3845-14.                         Filed May 2, 2016.



      Stephen H. Briggs and Patricia A. Briggs, pro sese.

      Skyler K. Bradbury and Charles B. Burnett, for respondent.



                          MEMORANDUM OPINION


      LAUBER, Judge: Petitioners are tax protesters. With respect to their

Federal income tax for 2010, the Internal Revenue Service (IRS or respondent)

determined a tax deficiency of $7,158 and an accuracy-related penalty of $1,432
                                        -2-

[*2] under section 6662(a).1 Respondent has moved for summary judgment under

Rule 121, contending that there are no disputed issues of fact and that he is

entitled to judgment as a matter of law. Petitioners have not responded to this

motion. We will grant the motion for summary judgment and sustain the tax

deficiency and penalty. We will also require petitioners to pay under section

6673(a)(1) an additional penalty to the United States in the amount of $3,000 for

advancing frivolous positions in this Court.

                                    Background

      The following facts are derived from the parties’ pleadings and respondent’s

motion papers, including the affidavits and exhibits attached thereto. Petitioners

resided in Utah when they filed their petition.

      During 2010 petitioner-husband was employed by Comcast Cable Holdings,

LLC, and by the U.S. Census Bureau. Petitioner-wife was employed by Christus

Health Utah and by Matthew A. Baker. Both petitioners received some unemploy-

ment compensation during 2010, and petitioner-husband also received an indivi-

dual retirement account (IRA) distribution. Petitioners’ private-sector employers




      1
       All statutory references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all dollar amounts to the nearest dollar.
                                       -3-

[*3] furnished them with Forms W-2, Wage and Tax Statement, reporting that

petitioners had been paid wages during 2010 in the following amounts:

                   Payor                           Amount

            Christus Health Utah                   $40,470
            Comcast Cable Holdings, LLC             17,284
            Matthew A. Baker                         7,449
             Total                                  65,203

      Petitioners jointly filed a Form 1040A, U.S. Individual Income Tax Return,

for 2010. They reported as income their unemployment compensation, the IRA

distribution, and $235 of wages. After claiming various exemptions and deduc-

tions, they reported zero taxable income and zero tax due.

      Petitioners reported on their 2010 return no wage income from their three

private-sector employers. This reflected the well-worn tax-protester argument that

only wages paid by the U.S. Government--here, the $235 paid to petitioner-hus-

band by the Census Bureau--constitute taxable income. Petitioners completed and

attached to their 2010 return three Forms 4852, Substitute for Form W-2, Wage

and Tax Statement. Taxpayers are instructed to file this form when they do not re-

ceive a Form W-2 or where the Form W-2 supplied by their employer is incorrect.

Petitioners averred on the Forms 4852 that the “wages, tips, and other compensa-
                                         -4-

[*4] tion” they received from each of their private-sector employers during 2010

was zero.2

      The IRS selected petitioners’ 2010 return for examination. Following this

examination, the IRS sent them a timely notice of deficiency. This notice deter-

mined a deficiency of $7,158 based on their unreported wage income of $65,203.

      Petitioners timely petitioned this Court. They stated, as the basis for their

disagreement with respondent’s position, that the IRS had “erred in ignoring our

sworn testimony in favor of erroneous information returns.” They asserted that the

Forms W-2 “are anonymous hearsay documents”; that the “[a]mounts listed in the

notice under Taxable Wages are not correct”; and that “[t]he IRS has failed to

comply with regulations specifying the method of assessing tax.”

      One month later petitioners filed an amended petition that detailed their tax-

protester arguments with greater specificity. This document asserted, among other

things: (1) that the IRS “willfully denied” their Fifth Amendment rights against

self-incrimination; (2) that petitioners “affirmatively dispute and rebut the receipt

of ‘wages’” from non-government payors; (3) that the IRS’ reliance on the Forms


      2
        The instructions to Form 4852 inform taxpayers: “If you received an incor-
rect Form W-2 * * * , you should always attempt to have your employer * * * is-
sue a corrected form before filing Form 4852.” There is no evidence that petition-
ers attempted to do this.
                                        -5-

[*5] W-2 denied petitioners due process of law under the Fifth and Fourteenth

Amendments; (4) that the payors of their wages were not “employers” as defined

in section 3401(d); and (5) that petitioners were not “employees” as defined in

section 3401(a). These assertions were followed by eight pages of incoherent

legalese evidently downloaded from tax-protester Web sites.

      Much procedural skirmishing followed. As relevant here, petitioners filed a

second amended petition, reiterating the arguments in their first amended petition

and advancing irrelevant contentions about collection due process and respon-

dent’s alleged failure to comply with “the Revenue Act of 1862.” They next filed

a document asserting that the IRS “had acted lawlessly” in examining their re-

turns; that their receipt of money from their employers “is immaterial”; and that

they had no obligation to prove the non-taxability of their wages “because this

would place the burden of proof on us, when by statute it rightfully should be on

[r]espondent.” On September 3, 2014, we warned petitioners that they were ad-

vancing frivolous positions. We directed their attention to section 6673(a)(1),

which authorizes this Court to impose a penalty of up to $25,000 on taxpayers

asserting frivolous positions.

      On October 22, 2014, respondent filed an answer to petitioners’ second

amended petition, alleging that petitioners were liable for an accuracy-related
                                        -6-

[*6] penalty under section 6662(a). On November 24, 2014, petitioners filed

several motions, including a “motion to strike scandalous and impertinent content”

and a motion to strike respondent’s amended answer as a “sham pleading.” These

motions were denied.

      On March 31, 2015, respondent filed a motion for summary judgment.

Respondent attached as exhibits to this motion copies of documents establishing

that Forms W-2 were issued to petitioners by their private-sector employers. Re-

spondent also attached to this motion certified business records from each em-

ployer, executed by its custodian of records, confirming that the employers had

paid wages to petitioners in the amounts shown on the Forms W-2. These records

included copies of pay stubs issued to petitioners or a schedule of their payroll

history. On April 2, 2015, we ordered petitioners to respond to the motion for

summary judgment by May 4, 2015. We warned them that “under Tax Court Rule

121(d), judgment may be entered against a party who fails to respond to a motion

for summary judgment.” Petitioners ignored this order and have not responded to

the IRS’ motion.
                                         -7-

[*7]                                 Discussion

A.     Summary Judgment Standard

       The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment

when there is no genuine dispute as to any material fact and a decision may be

rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from them in the

light most favorable to the nonmoving party. Ibid. However, the nonmoving

party “may not rest upon the mere allegations or denials” of his pleadings but

instead “must set forth specific facts showing that there is a genuine dispute for

trial.” Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.

       Petitioners have set forth no facts showing that there is a genuine dispute for

trial. Because they failed to respond to the motion for summary judgment, we

could enter a decision against them for that reason alone. See Rule 121(d). We

will nevertheless consider the motion on its merits. We conclude that there are no

material facts in dispute and that this case is appropriate for summary adjudication.
                                         -8-

[*8] B.   Unreported Income

      The IRS’ determinations in a notice of deficiency are generally presumed

correct, and the taxpayer bears the burden of proving those determinations erro-

neous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). For this pre-

sumption to adhere in cases involving receipt of unreported income, respondent

must provide some reasonable foundation connecting the taxpayer to the income-

producing activity. See, e.g., Erickson v. Commissioner, 937 F.2d 1548, 1551

(10th Cir. 1996), aff’g T.C. Memo. 1989-552; Tucker v. Commissioner, T.C.

Memo. 2014-51, at *12. Once respondent has produced evidence linking the

taxpayer to an income-producing activity, the burden of proof shifts to the taxpayer

to prove by a preponderance of the evidence that respondent’s determinations are

arbitrary or erroneous. Helvering v. Taylor, 293 U.S. 507, 515 (1935); Tokarski v.

Commissioner, 87 T.C. 74, 76-77 (1986).

      Respondent has produced, in addition to the Forms W-2 issued to petitioners,

certified business records from each employer’s custodian of records confirming

the wages paid to petitioners during 2010 by Christus Health Utah, Comcast Cable

Holdings, LLC, and Matthew A. Baker. On the basis of this credible evidence, we

are satisfied that the IRS’ determinations of unreported income, as set forth in the

notice of deficiency, are correct, and those determinations are accordingly
                                         -9-

[*9] sustained. See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999),

aff’g T.C. Memo. 1997-97; Powerstein v. Commissioner, T.C. Memo. 2011-271,

102 T.C.M. (CCH) 497, 506.

C.    Accuracy-Related Penalty

      Section 6662(a) imposes a 20% penalty upon the portion of any underpay-

ment of tax that is attributable (among other things) to “[a]ny substantial under-

statement of income tax.” Sec. 6662(a), (b)(2). An understatement of income tax

is “substantial” if it exceeds the greater of $5,000 or 10% of the tax required to be

shown on the return. Sec. 6662(d)(1)(A). Under section 7491(c), the IRS bears the

burden of production with respect to the liability of an individual for any penalty.

See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Because respondent

asserted the penalty in an amended answer, respondent also bears the burden of

proof on this issue. See Rule 142(a); Canal Corp. v. Commissioner, 135 T.C. 199,

217 (2010) (“Respondent bears the burden of proof for a penalty asserted in an

amended answer.”).

      The notice of deficiency determined an understatement of income tax of

$7,158, which we have sustained. This amount exceeds $5,000 and 10% of the

total tax (i.e., $7,158) required to be shown on petitioners’ 2010 return. Respon-
                                        - 10 -

[*10] dent has thus carried his burden of production by demonstrating a substantial

understatement of income tax. See sec. 7491(c).

      Section 6664(c)(1) provides that the accuracy-related penalty shall not be

imposed with respect to any portion of an underpayment “if it is shown that there

was a reasonable cause for such portion and that the taxpayer acted in good faith

with respect to * * * [it].” The decision as to whether the taxpayer acted with

reasonable cause and in good faith is made on a case-by-case basis, taking into

account all pertinent facts and circumstances. See sec. 1.6664-4(b)(1), Income Tax

Regs. Circumstances that may signal reasonable cause and good faith “include an

honest misunderstanding of fact or law that is reasonable in light of all the facts

and circumstances, including the experience, knowledge, and education of the

taxpayer.” Ibid.

      Petitioners’ assertions that wages from private-sector employers are not “in-

come” for Federal income tax purposes are frivolous. See Grunsted v. Commis-

sioner, 136 T.C. 455, 459-460 (2011); Pohl v. Commissioner, T.C. Memo. 2013-

291, at *10. Accordingly, they have neither substantial authority nor a reasonable

basis for their position. See sec. 6662(d)(2)(B)(i) and (ii). We find their arguments

too lacking in any legal or factual basis to constitute a reasonable misunderstanding

of the law. See sec. 1.6664-4(b)(1), Income Tax Regs. Respondent has thus borne
                                        - 11 -

[*11] his burden of proving that petitioners lacked reasonable cause for their

underpayment. We will accordingly sustain the accuracy-related penalty as

asserted in respondent’s amended answer.

D.    Section 6673 Penalty

       In his motion for summary judgment, respondent asks the Court to impose a

penalty on petitioners under section 6673(a)(1). That section authorizes this Court

to require a taxpayer to pay to the United States a penalty not in excess of $25,000

if it appears that the taxpayer has instituted or maintained proceedings primarily for

delay or the taxpayer’s position “is frivolous or groundless.” The purpose of sec-

tion 6673 is to compel taxpayers to conform their conduct to settled tax principles

and to deter the waste of judicial resources. See Coleman v. Commissioner, 791

F.2d 68, 71 (7th Cir. 1986); Salzer v. Commissioner, T.C. Memo. 2014-188, at *11.

      Petitioners were previously before this Court in Briggs v. Commissioner,

T.C. Dkt. No. 11940-12 (Dec. 1, 2014) (bench opinion), where they challenged a

notice of deficiency for 2009 by advancing substantially similar, and equally frivo-

lous, contentions. While noting that we “need not address frivolous arguments,”

we took the trouble to do so in order “to explain to [p]etitioners that indeed their

arguments are frivolous.” We imposed a section 6673(a)(1) penalty of $500 as “a
                                        - 12 -

[*12] caution” and warned petitioners that, if they appeared before this Court again

and asserted similar arguments, they risked a higher penalty.

      Petitioners appeared before this Court again and persisted in advancing

frivolous arguments. We gave them another warning in our September 3, 2014,

order. Shortly after receiving this warning, petitioners filed several pleadings, in-

cluding a motion “to strike scandalous and impertinent content,” a motion to strike

“sham pleadings,” and a memorandum in support of these motions, all of which

included frivolous arguments. We again find that petitioners have asserted frivo-

lous positions in this Court and will require them to pay to the United States under

section 6673(a)(1) a penalty of $3,000. We warn petitioners that assertion of frivo-

lous positions in any future appearance before this Court may result in a higher

penalty.

      To reflect the foregoing,


                                                 An appropriate order and decision

                                       will be entered.
