                         T.C. Memo. 2012-196



                   UNITED STATES TAX COURT



            DWIGHT T. GRANDY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 26157-10.                         Filed July 16, 2012.



      After P failed to file valid or timely tax returns for the 2001 and 2003
through 2007 tax years, R prepared substitutes for returns under I.R.C. sec.
6020(b) and issued a notice of deficiency determining deficiencies in income
tax and additions to tax under I.R.C. sec. 6651(a)(1) and (2) for P’s 2001 and
2003 through 2007 tax years.

      Held: P is liable for the deficiencies in income tax and additions to tax
under I.R.C. sec. 6651(a)(1) and (2).

      Held, further, P is liable for an I.R.C. sec. 6673 penalty of $3,000.



Dwight T. Grandy, pro se.

Sebastian Voth, for respondent.
                                          -2-

              MEMORANDUM FINDINGS OF FACT AND OPINION


       WHERRY, Judge: This case is before us on a petition for redetermination of

income tax deficiencies and section 6651(a)(1) and (2) additions to tax respondent

determined for petitioner’s 2001 and 2003 through 2007 tax years.1 After

concessions,2 the issues for decision are: (1) whether petitioner had unreported

income during the years at issue; (2) whether petitioner is liable for additions to tax

under section 6651(a)(1) for all years at issue; (3) whether petitioner is liable for

additions to tax under section 6651(a)(2) for the 2001 and 2003 through 2006 tax

years; and (4) whether a penalty under section 6673 should be imposed against

petitioner.

       1
       Unless otherwise indicated, all section references are to the Internal Revenue
Code of 1986, as amended and in effect for the years at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
       2
        Respondent conceded petitioner was not liable for tax on self-employment
income of $1,976.00, $2,134.50, and $878.50 for the 2005, 2006, and 2007 tax
years, respectively. This is because, as discussed infra, respondent determined
petitioner had self-employment income of $3,952, $4,269, and $1,757 for the 2005,
2006, and 2007 tax years, respectively, which was reported on respondent’s
substitutes for returns without attributing half to petitioner’s wife pursuant to
California community property law. Respondent has conceded that this self-
employment income should have been reduced by one-half under community
property law.
       Respondent also conceded petitioner was not liable for tax on $24.80 of other
income for the 2006 tax year and $319.00 of wage income for the 2007 tax year and
the sec. 6651(a)(2) addition to tax for the 2007 tax year.
                                          -3-

                                FINDINGS OF FACT

       Petitioner refused to cooperate with respondent or to stipulate any facts.

While he claims he did “not have a residence”, petitioner resided in California when

he filed his petition.

       Petitioner is a tax protester. Although often rambling and unclear, his

arguments include that he is not a citizen of the United States, does not reside in a

Federal area, is not an officer or employee of the Government, and therefore does

not owe Federal income tax. He believes that “wages are not income”.

       Petitioner went so far as to sue the Internal Revenue Service (IRS) and many

others, including the revenue agent who audited his returns in California State court.

Because the description of his suit against the revenue agent is, at best, incoherent

and implausible, we waste no time in trying to decipher petitioner’s theory and

simply quote it in part:

       Michael J. Cummings made, uttered or possesses a counterfeited
       security of a State or a political subdivision thereof or of an
       organization, or made, uttered, or possesses a forged security of a State
       or political subdivision thereof or of an organization, with intent to
       deceive. The counterfeited security is ‘evidence of indebtedness’
       which, in a broad sense, may mean anything that is due and owing
       which would include a duty, obligation or right of action. No duty,
       obligation, or right of action exists against the plaintiffs’ property. The
       defendant is aware that no duty, obligation, or right of action exists and
       is therefore intent on counterfeiting the security. * * * Michael J.
       Cummings has committed all the causes of action in this action at law.
                                           -4-

       Michael J. Cummings was given notice of his unlawful and
       unauthorized activities. Michael J. Cummings was with
       knowledge and intent to commit the counterfeiting and other
       trespasses.

In whole petitioner lists what he refers to as 15 causes of action.

       The revenue agent was not alone in incurring petitioner’s wrath. Petitioner

asserts that a list of individuals, including this judge, owe him $62,700,000. The

basis for this assertion is that the named individuals, “working for foreign agents,

have violated the original organic contract and compact known as the Constitution

for the united states of America.” But we now leave aside petitioner’s tax-protester

rhetoric and turn to the facts of this case.

       During the years at issue petitioner was married to Deanna L. Grandy but did

not file joint Federal income tax returns with her. Mrs. Grandy filed separate tax

returns. Petitioner did not timely file a tax return for any year at issue.

       Revenue Agent Michael Cummings was assigned to audit petitioner’s returns.

Petitioner met with Mr. Cummings on July 8, 2008, at which time he informed Mr.

Cummings he had mailed his 2002 through 2007 tax returns on July 7, 2008.

Petitioner’s Forms 1040EZ, Income Tax Return for Single and Joint Filers With No

Dependents, for the 2001 and 2003 through 2006 tax years, all dated July 1, 2008,
                                         -5-

were received by the IRS on July 10, 2008.3 Petitioner did not sign any of the

submitted Forms 1040EZ under penalty of perjury. Attached to each Form 1040EZ

was a “Signing Statement” on which petitioner asserted more frivolous arguments,

including “The United States is located in the District of Columbia” and “Dwight

Timothy Grandy does not spell his name in all CAPITOL [sic] letters or he is a

corporate entity”.

        While petitioner reported wages on the Forms 1040EZ, albeit between

brackets, he reported “0” taxes owed. He printed at the bottom of the first page of

each Form 1040EZ “Corporate Excise Tax Return”. His stated reason at the trial

for reporting his wages between brackets was that “the United States has abandoned

the constitutional money substance, gold and silver. They instead use credit

hypothecated upon my work product, so it’s a lien on the public socialist trust. So a

lien by definition is a negative.” His stated reason for writing “corporate excise tax

return” on the Forms 1040EZ was “Because the congressional and Supreme Court

caselaw states by defining income that it all stems from the 1909 corporate excise

tax. It was reaffirmed after 1913 as a statutory extension of the corporate excise

tax.”

        3
       We note the fact that petitioner informed Mr. Cummings he had mailed his
2002 through 2007 tax returns, yet this Court was provided with petitioner’s
submitted returns for only the 2001 and 2003 through 2006 tax years.
                                         -6-

      Respondent determined that the submitted Forms 1040EZ were not valid.4

On May 24, 2010, Mr. Cummings prepared substitutes for returns pursuant to

section 6020(b) for all the years at issue. The income reported on the substitutes for

returns came from three sources.

      The first source was petitioner’s self-reported wages on the submitted Forms

1040EZ. The second source was taxable distributions from United Food and

Commercial Workers Union and Food Employers Joint Trust Funds, which had

provided Forms 1099-R, Distributions From Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to respondent showing

petitioner’s receipt of taxable income for the 2003, 2006, and 2007 tax years of

$6,115.76, $1,224.20, and $7,345.20, respectively.

      The third source was additional self-employment income Mr. Cummings

determined petitioner had on the basis of a bank deposits analysis. To perform the

bank deposits analysis, Mr. Cummings first summoned petitioner’s bank records.

Mr. Cummings discovered checks made payable to petitioner and Mrs. Grandy that

      4
         This Court has identified a four-part test for determining whether a defective
or incomplete return is valid: “First, there must be sufficient data to calculate tax
liability; second, the document must purport to be a return; third, there must be an
honest and reasonable attempt to satisfy the requirements of the tax law; and fourth,
the taxpayer must execute the return under penalties of perjury.” Beard v.
Commissioner, 82 T.C. 766, 777 (1984), aff’d per curiam, 793 F.2d 139 (6th Cir.
1986).
                                         -7-

they had deposited during the 2005, 2006, and 2007 tax years, respectively. Mr.

Cummings looked at the information on each check and, if possible, made a phone

call to the payor to find out why the payor was paying petitioner and Mrs. Grandy.

On the basis of the information obtained, Mr. Cummings determined petitioner had

self-employment income of $3,952, $4,269, and $1,757 for the 2005, 2006, and 2007

tax years, respectively. Additionally, pursuant to California community property

law, with the exception of the self-employment income, Mr. Cummings attributed

half of petitioner’s income to Mrs. Grandy and half of her income to petitioner. See

supra note 2.

      Respondent issued a notice of deficiency dated August 27, 2010, determining

the following deficiencies and section 6651(a)(1) and (2) additions to tax:

                                                  Additions to Tax
   Year         Deficiency      Sec. 6651(a)(1)              Sec. 6651(a)(2)
   2001          $2,441              $123.75                     $137.50
   2003             981                98.00                          24.50
   2004             418               100.00                         104.50
   2005           2,252               501.53                         557.25
   2006           2,712               589.50                         537.10
   2007             976               219.60                 to be computed
                                         -8-

      Petitioner timely petitioned this Court on November 24, 2010. Trial was held

on December 8, 2011, in Los Angeles, California. At trial respondent orally

requested the imposition of a section 6673 penalty.

      Petitioner has never disputed receiving any of the income respondent

determined he received, and both at trial and on brief continues to waste this Court’s

time by asserting groundless and frivolous tax-protester arguments.

                                      OPINION

I.    Income Tax Deficiencies

      A. Burden of Proof

      As a general rule, the Commissioner’s determination of a taxpayer’s liability in

the notice of deficiency is presumed correct, and the taxpayer bears the burden of

proving that the determination is improper. See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). However, in unreported income cases, the presumption

of correctness does not attach unless the Commissioner first establishes an

evidentiary foundation linking the taxpayer to the alleged income-producing activity.

See Weimerskirch v. Commissioner, 596 F.2d 358, 360-362 (9th Cir. 1979), rev’g

67 T.C. 672 (1977). The requisite evidentiary foundation is minimal and need not

include direct evidence. See Banister v. Commissioner, T.C. Memo. 2008-201,

aff’d, 418 Fed. Appx. 637 (9th Cir. 2011).
                                         -9-

      Once the Commissioner produces evidence linking the taxpayer to an income-

producing activity, the burden shifts to the taxpayer “to rebut the presumption of

correctness of respondent’s deficiency determination by establishing by a

preponderance of the evidence that the deficiency determination is arbitrary or

erroneous.” Petzoldt v. Commissioner, 92 T.C. 661, 689 (1989); see also Hardy v.

Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff’g T.C. Memo. 1997-97.

      Respondent has established the requisite minimal evidentiary foundation

linking petitioner with an income-producing activity for all years in issue by the

introduction of checks, Forms 1099-R, and the submitted Forms 1040EZ, as well as

Mr. Cummings’ testimony. Therefore, petitioner bears the burden of proving the

deficiency determination arbitrary or erroneous. See Palmer v. IRS, 116 F.3d 1309,

1313 (9th Cir. 1997) (holding that the minimal evidentiary burden was met after the

IRS investigated and uncovered evidence that the taxpayer had worked for wages in

two years and was self-employed in others); Tokarski v. Commissioner, 87 T.C. 74,

77 (1986) (stating: “A bank deposit is prima facie evidence of income and

respondent need not prove a likely source of that income.”); Banister v.

Commissioner, T.C. Memo. 2008-201 (holding that a notice of deficiency based on

information from third-party payors that they paid the taxpayers was enough to meet
                                        - 10 -

the minimal evidentiary burden even though direct evidence of payment was not in

the record).

      B. Income Tax Deficiencies

      Petitioner does not dispute receiving the income respondent determined he

received. Petitioner does not dispute that respondent’s allocations under the

community property rules were proper. Petitioner does not dispute that some of the

income received was self-employment income subject to the self-employment tax

under section 1401. Rather, petitioner spends his time arguing that he does not owe

income tax on the basis of a myriad of tax-protester arguments.

      Petitioner’s arguments are without merit and lack factual and legal foundation,

and “we are not obligated to exhaustively review and rebut petitioner’s misguided

contentions.” See Sanders v. Commissioner, T.C. Memo. 1997-452; see also Wnuck

v. Commissioner, 136 T.C. 498, 513 (2011) (“[L]itigants who present frivolous

arguments should not expect to see them answered in opinions of this Court.”). We

will not “refute these arguments with somber reasoning and copious citation of

precedent; to do so might suggest that these arguments have some colorable merit.”
                                          - 11 -

Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). Accordingly, we

sustain the deficiency determinations.5

II.   Additions to Tax

      A. Burden of Proof

      Respondent bears the burden of production with regard to the additions to tax.

See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet

this burden, respondent must produce sufficient evidence establishing that it is

appropriate to impose the additions to tax. See Higbee v. Commissioner, 116 T.C. at

446. However, respondent does not have to produce evidence of substantial

authority, lack of reasonable cause, or lack of willful neglect. See id. at 446-447.

      B. Section 6651(a)(1)

      As a general rule, “any person made liable for any tax * * * shall make a

return or statement according to the forms and regulations prescribed by the

Secretary.” Sec. 6011(a). Section 6651(a)(1), in the case of a failure to file a return

on time, imposes an addition to tax of 5% of the tax required to be shown on the

      5
        We recognize that in his petition, petitioner made a few arguments that might
be considered legitimate, such as that the amount of income and tax respondent
determined were incorrect. However, petitioner never introduced any evidence of
this and, other than frivolous tax-protester rhetoric, did not further factually address
it. Assignments of error raised in the pleadings and not addressed on brief are
deemed conceded. Rule 151(e)(4) and (5); Petzoldt v. Commissioner, 92 T.C. 661,
683 (1989).
                                          - 12 -

return for each month or fraction thereof for which there is a failure to file, not to

exceed 25% in the aggregate.6 The penalty will not apply if it is shown that such

failure is due to reasonable cause and not due to willful neglect. Sec. 6651(a)(1).

      Petitioner did not timely file tax returns for the years at issue. Respondent has

thus met his burden of production. See Wheeler v. Commissioner, 127 T.C. 200,

207-208 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). Petitioner has not presented

any evidence that his failure to file was due to reasonable cause and not willful

neglect. Accordingly, we sustain the additions to tax under section 6651(a)(1).

      C. Section 6651(a)(2)

      Section 6651(a)(2) provides for an addition to tax of 0.5% per month up to

25% for failure to pay the amount shown on a return unless it is shown that the failure

is due to reasonable cause and not due to willful neglect. The section 6651(a)(2)

addition to tax applies only when an amount of tax is shown on a return. Cabirac v.

Commissioner, 120 T.C. 163, 170 (2003). Petitioner did not file valid tax returns,

and respondent prepared substitutes for returns under section 6020(b) for all years at




      6
       The sec. 6651(a)(1) addition to tax is reduced by the amount of the sec.
6651(a)(2) addition to tax for any month (or fraction thereof) to which an addition to
tax applies under both sec. 6651(a)(1) and (2). See sec. 6651(c)(1).
                                          - 13 -

issue.7 A proper return made by the Secretary under section 6020(b) is treated as the

return filed by the taxpayer for purposes of determining whether the section

6651(a)(2) addition to tax applies. Sec. 6651(g)(2); Wheeler v. Commissioner, 127

T.C. at 208-209.

       Where the taxpayer did not file a valid return, to satisfy his burden of

production for the section 6651(a)(2) addition to tax the Commissioner must

introduce evidence that he prepared a substitute for return satisfying the requirements

under section 6020(b). Wheeler v. Commissioner, 127 T.C. at 209. Respondent

satisfied this burden by introducing into evidence Forms 13496, IRC Section 6020(b)

Certification, for all years at issue. See Oman v. Commissioner, T.C. Memo. 2010-

276; see also Asbury v. Commissioner, T.C. Memo. 2011-107. Petitioner has not

presented any evidence that his failure to pay was due to reasonable cause and not

willful neglect. Accordingly, we sustain the additions to tax under section 6651(a)(2).

III.   Section 6673 Penalty

       We believe petitioner’s case to be appropriate for a section 6673 penalty.

Section 6673(a)(1) authorizes this Court to impose a penalty not in excess of




       7
      We recognize respondent has conceded the addition to tax under sec.
6651(a)(2) for petitioner’s 2007 tax year.
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$25,000 on a taxpayer for instituting or maintaining proceedings primarily for delay or

in which the taxpayer’s position is frivolous or groundless. A position “is ‘frivolous’

where it is ‘contrary to established law and unsupported by a reasoned, colorable

argument for change in the law’.” Williams v. Commissioner, 114 T.C. 136, 144

(2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986)).

      This Court has stated numerous times that tax-protester arguments such as

petitioner’s are frivolous and warrant the imposition of a section 6673 penalty. For

example, in Martin v. Commissioner, T.C. Memo. 1990-560, the taxpayer alleged that

“as a citizen resident of the State of California, it would be constitutionally

impermissible to exact a tax from him on income earned within the United States”.

This Court rejected the taxpayer’s claims and imposed an $8,000 section 6673

penalty.

      Petitioner has been warned of the potential implication of a section 6673

penalty several times. In a letter dated November 17, 2011, respondent informed

petitioner that “it is clear that you are making frivolous tax arguments” and warned

him that if he continued to do so, respondent would request that this Court impose a

section 6673 penalty. At the early morning calendar call on December 8, 2011, the
                                         - 15 -

Court informed petitioner that his arguments were frivolous and if he continued to

assert them, there was potential for a penalty.

      We conclude that this case warrants the imposition of a section 6673 penalty

and, therefore, impose a penalty of $3,000 to be paid to the United States. We

consider it an abuse of our process that “Taxpayers with genuine controversies were

delayed while we considered this case.” Solomon v. Commissioner, T.C. Memo.

1993-509, aff’d without published opinion, 42 F.3d 1391 (7th Cir. 1994); see also

Wnuck v. Commissioner, 136 T.C. at 514.

      Groundless litigation diverts the time and energies of
      judges from more serious claims; it imposes needless costs on other
      litigants. Once the legal system has resolved a claim, judges and
      lawyers must move on to other things. They cannot endlessly rehear
      stale arguments. Both appellants say that the penalties stifle their right to
      petition for redress of grievances. But there is no constitutional right to
      bring frivolous suits, see Bill Johnson’s Restaurants, Inc. v. NLRB, 461
      U.S. 731, 743, 103 S.Ct. 2161, 2170, 76 L.Ed.2d 277 (1983). People
      who wish to express displeasure with taxes must choose other forums,
      and there are many available. * * * [Coleman v. Commissioner, 791 F.2d
      at 72.]

      We have exercised restraint in penalizing petitioner under section 6673.

However, if petitioner insists on continuing his tax-protester rhetoric in this Court, we

will be inclined to impose a significantly higher section 6673 penalty in the future.
                                        - 16 -

      The Court has considered all of petitioner’s contentions, arguments, requests,

and statements. To the extent not discussed herein, we conclude that they are

meritless, moot, or irrelevant.

      To reflect the foregoing,



                                                   Decision will be entered

                                             under Rule 155.
