                        T.C. Memo. 2003-165



                   UNITED STATES TAX COURT



   JOHN P. TROWBRIDGE, LIFE CENTER HOUSTON BUSINESS TRUST,
JOHN P. TROWBRIDGE, TRUSTEE, AND LIFE CHOICES BUSINESS TRUST,
         JOHN P. TROWBRIDGE, TRUSTEE, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 750-01.                  Filed June 4, 2003.



        R determined deficiencies in, and additions
   to, tax with respect to P John P. Trowbridge
   (Dr. Trowbridge) for 1996 and 1997. As a protective
   measure, R also determined deficiencies in, and
   additions to, tax with respect to P Life Center Houston
   Business Trust (Life Center) for 1996 and 1997 and P
   Life Choices Business Trust (Life Choices) for 1997.
   Ps filed a petition for redetermination but failed to
   appear at trial. R moved for default judgment against
   Dr. Trowbridge with respect to deficiencies in tax for
   1996 and 1997 in the amounts of $146,847 and $211,508,
   respectively. R proceeded to trial on the issues of
   (1) an additional deficiency in tax (first raised in
   R’s amendment to answer) with respect to Dr. Trowbridge
   for 1996 based on additional gross business receipts
   for that year, and (2) the additions to tax asserted
   against Dr. Trowbridge for 1996 and 1997.
                                - 2 -

          1. Held:     R’s motion for default judgment is
     granted.

          2. Held, further, R is not barred by the statute
     of limitations on assessment with respect to Dr.
     Trowbridge’s 1996 taxable year.

          3. Held, further, there is an additional
     deficiency in tax with respect to Dr. Trowbridge for
     1996 based on gross business receipts of $1,632,140 for
     that year.

          4. Held, further, Dr. Trowbridge is liable for
     additions to tax under secs. 6651(a)(1) and 6654,
     I.R.C., with respect to his 1996 and 1997 taxable
     years.

          5. Held, further, Dr. Trowbridge is liable for a
     penalty under sec. 6673, I.R.C., in the amount of
     $25,000.



     John Parks Trowbridge, pro se.

     M. Kathryn Bellis, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HALPERN, Judge:    By notice of deficiency dated October 20,

2000 (the notice of deficiency), respondent determined

deficiencies in, and additions to, Federal income tax with

respect to petitioner John P. Trowbridge (Dr. Trowbridge) as

follows:1


     1
        Respondent also asserted additions to tax under sec.
6651(a)(2) in amounts to be determined. We interpret
respondent’s posttrial brief as conceding those additions to tax
in the event we find that the 1996 and 1997 Forms 1040 received
                                                   (continued...)
                               - 3 -

                                 Additions to Tax
     Year   Deficiency    Sec. 6651(a)(1)     Sec. 6654
     1996    $146,847        $33,041            $7,816
     1997     272,771         61,373            14,593

In a statement attached to the notice of deficiency, respondent

explained that business income purportedly earned by petitioner

Life Center Houston Business Trust (Life Center) in 1996 and 1997

and by petitioner Life Choices Business Trust (Life Choices) in

1997 is taxable to Dr. Trowbridge on the alternative grounds that

(1) Life Center and Life Choices were shams, (2) Life Center and

Life Choices were grantor trusts of which Dr. Trowbridge was the

owner, or (3) Dr. Trowbridge in fact earned such income and,

under the assignment of income doctrine, could not shift the

incidence of taxation with respect to such amounts.   Solely as a

protective measure (i.e., as an alternative position in the event

the foregoing arguments proved to be unsuccessful), respondent

also determined deficiencies in, and additions to, tax with

respect to Life Center for 1996 and 1997 and Life Choices for

1997 and issued notices of deficiency (also dated October 20,

2000) to that effect.2   Petitioners timely filed a petition for

redetermination.


     1
      (...continued)
by respondent from Dr. Trowbridge in October 1997 and October
1998, respectively, are not valid income tax returns (which we so
find).
     2
        Because we do not reach respondent’s alternative
position, we do not set forth the deficiencies and additions to
tax determined against Life Center and Life Choices.
                               - 4 -

     Respondent has moved that Dr. Trowbridge be held in default

and that a decision be entered that there are deficiencies in tax

with respect to him for 1996 and 1997 in the amounts of $146,847

and $211,508,3 respectively, and that decisions be entered that

there are no deficiencies in tax with respect to Life Center and

Life Choices.   Respondent has also moved for partial summary

judgment in his favor on the issues of (1) whether respondent is

barred by the statute of limitations on assessment with respect

to Dr. Trowbridge’s 1996 taxable year, (2) whether there is an

additional deficiency in tax with respect to Dr. Trowbridge for

1996 based on additional gross business receipts for that year,

and (3) whether Dr. Trowbridge is liable for additions to tax

under sections 6651(a)(1) and 6654.    For the reasons that follow,

we shall grant respondent’s motion for default judgment and

sustain (with minor modifications as to amounts) the positions he

has taken in his motion for partial summary judgment.   We shall

also impose a penalty on Dr. Trowbridge under section 6673(a)(1).

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years at issue, and

all Rule references are to the Tax Court Rules of Practice and




     3
        That amount is less than the deficiency in tax for 1997
determined by respondent in the notice of deficiency. In his
motion for default judgment, respondent attributes such downward
adjustment to the elimination of transfers among petitioners and
other duplicated items.
                                 - 5 -

Procedure.   For the sake of convenience, all dollar amounts are

rounded to the nearest dollar.

                         FINDINGS OF FACT

Dr. Trowbridge and Life Center

     Dr. Trowbridge is a physician who has been practicing

medicine since at least 1978.    At the time the petition was filed

in this case, Dr. Trowbridge resided in Harris County, Texas.

Dr. Trowbridge is a calendar year taxpayer.

     Life Center is a business trust4 created by Dr. Trowbridge

and a colleague on or around December 6, 1996, pursuant to a

document styled “Contract and Declaration of Trust for Life

Center Houston” (the trust agreement).   The trust agreement

purports to effect the transfer by Dr. Trowbridge of unspecified

property to Life Center in exchange for trust certificates

evidencing beneficial ownership of Life Center.   Although the

trust agreement does not identify any trustees by name, Dr.

Trowbridge held himself out as the trustee of Life Center.

Before the close of 1996, Dr. Trowbridge obtained an employer

identification number for Life Center and opened a bank account

in Life Center’s name (the Life Center bank account).




     4
        For purposes of this report, we assume (without deciding)
that Life Center is a legally recognized entity under Texas law.
                                 - 6 -

The Medical Practice

     During the years at issue, Dr. Trowbridge provided medical

services at 9816 Memorial Blvd., Suite 205, Humble, Texas (the

medical practice).     The books and records of the medical practice

were maintained under the cash method of accounting.    Prior to

December 1996, the medical practice was referred to as “John

Parks Trowbridge MD”, and receipts from the medical practice were

deposited in two bank accounts styled “John Parks Trowbridge MD”.

Contemporaneous with the formation of Life Center in December

1996, Dr. Trowbridge began using the name “Life Center Houston”

for the medical practice.    On January 8, 1997, cash receipts and

checks from the medical practice for the period December 3

through December 31, 1996, were deposited in the Life Center bank

account.

Dr. Trowbridge’s 1995 Through 1997 Forms 1040

     1995 Form 10405

     Some time in January 1997, the Internal Revenue

Service (IRS) received from Dr. Trowbridge a Form 1040, U.S.

Individual Income Tax Return 1995 (1995 Form 1040).    Although

Dr. Trowbridge reported tax of $133,977 on that form, he also

inserted the following handwritten notation thereon:    “SEE

ATTACHED DISCLAIMER STATEMENT–-ADMITTED TAX LIABILITY IS ZERO”.


     5
        As discussed infra, Dr. Trowbridge’s 1995 Form 1040 is
relevant to the determination of whether he is liable for the
sec. 6654 addition to tax with respect to his 1996 taxable year.
                                - 7 -

The attached disclaimer statement (the 1995 disclaimer) reads in

part as follows:

     The assessment and payment of income taxes is voluntary
     * * * I respectfully decline to volunteer concerning
     assessment and payment of any tax balance due on the
     return or any redetermination of said tax. Be it known
     that I, therefore, deny tax liability and do not admit
     that the stated amount of tax on return, as calculated
     solely by reference to provided tables, is due and
     collectible. The tax return read as a whole shows no
     amount as being the tax and shows the tax to be zero
     and zero is the starting point in determining a
     deficiency or any other action involving me. * * *

     Initial 1996 Form 1040

     Dr. Trowbridge received extensions of time to file his 1996

Federal income tax return to October 15, 1997.    On that date,

Dr. Trowbridge mailed to the IRS a Form 1040, U.S. Individual

Income Tax Return 1996 (initial 1996 Form 1040), which the IRS

received on October 20, 1997.     Although Dr. Trowbridge reported

tax of $36,851 on that form, he also attached a disclaimer

statement substantially identical to the 1995 disclaimer.

Dr. Trowbridge also deleted the words “of perjury” from the jurat

of his initial 1996 Form 1040.6

     1996 Form 1040X and Revised 1996 Form 1040

     On January 28, 2000, the IRS received from Dr. Trowbridge a

Form 1040X, Amended Individual Income Tax Return, for 1996 (1996


     6
        The jurat is the statement above the signature line on
the return which reads in relevant part: “Under penalties of
perjury, I declare that I have examined this return and
accompanying schedules and statements, and to the best of my
knowledge and belief, they are true, correct, and complete.”
                               - 8 -

Form 1040X), reporting additional tax of $4,071.   Attached as an

exhibit to the 1996 Form 1040X is a Form 1040 for 1996 signed by

Dr. Trowbridge and dated January 26, 2000 (revised 1996 Form

1040).   In terms of computations, the revised 1996 Form 1040 is

substantially identical to the initial 1996 Form 1040 (i.e., it

does not reflect the changes contained in the 1996 Form 1040X).

However, Dr. Trowbridge did not attach a disclaimer statement to

the revised 1996 Form 1040, nor did he alter the jurat thereof.

The words “under protest/without prejudice” appear directly

beneath Dr. Trowbridge’s signature on both the 1996 Form 1040X

and the revised 1996 Form 1040.

     Initial 1997 Form 1040

     Dr. Trowbridge received an extension of time to file

his 1997 Federal income tax return to August 15, 1998.   On

October 22, 1998, the IRS received from Dr. Trowbridge a Form

1040, U.S. Individual Income Tax Return 1997 (initial 1997 Form

1040).   Although Dr. Trowbridge reported tax of $44,763 on that

form, he also wrote the following on page 2 thereof:   “SEE

ATTACHED DISCLAIMER-–ADMITTED TAX LIABILITY IS ZERO PER ATTACHED

STATEMENT”.   In substance, the attached disclaimer statement is

identical to the 1995 disclaimer.   Dr. Trowbridge also deleted

the word “perjury” from the jurat of his initial 1997 Form 1040.
                               - 9 -

     1997 Form 1040X and Revised 1997 Form 1040

     On January 28, 2000, the IRS received from Dr. Trowbridge a

Form 1040X, Amended Individual Income Tax Return, for 1997 (1997

Form 1040X), reporting additional tax of $32,180.    Attached as an

exhibit to the 1997 Form 1040X is a Form 1040 for 1997 signed by

Dr. Trowbridge and dated January 26, 2000 (revised 1997 Form

1040).   In terms of computations, the revised 1997 Form 1040 is

substantially identical to the initial 1997 Form 1040 (i.e., it

does not reflect the changes contained in the 1997 Form 1040X).

However, Dr. Trowbridge did not attach a disclaimer statement to

the revised 1997 Form 1040, nor did he alter the jurat thereof.

The words “under protest/without prejudice” appear directly

beneath Dr. Trowbridge’s signature on both the 1997 Form 1040X

and the revised 1997 Form 1040.

Dr. Trowbridge’s Payments and Credits

     The only payments made by Dr. Trowbridge in respect of his

1996 income tax were $100 payments submitted with his initial

1996 Form 1040 in October 1997 and his 1996 Form 1040X in January

2000, respectively.   The only payments made by Dr. Trowbridge in

respect of his 1997 income tax were $100 payments submitted with

his initial 1997 Form 1040 in October 1998 and his 1997 Form

1040X in January 2000, respectively.    Dr. Trowbridge did not

claim any wage withholding or other credits on his 1996 and 1997

Forms 1040 and 1040X.
                                - 10 -

The Pleadings

     The Petition

     Petitioners filed a petition for redetermination on

January 16, 2001.   We have struck from the petition all

assignments of error other than petitioners’ assignment relying

on the affirmative defense that the period for assessment of

taxes for 1996 has expired (petitioners’ limitations defense).

     Answer and Amendment to Answer

     Respondent answered petitioners’ one remaining assignment of

error by denying that he had erred and averring that, because Dr.

Trowbridge’s initial 1996 Form 1040 is not a valid return, the

statute of limitations does not bar the assessment of tax with

respect to Dr. Trowbridge for that year.7

     Subsequently, we granted respondent leave to amend his

answer to allege an increased deficiency in Dr. Trowbridge’s 1996

tax attributable to increased gross business receipts for that

year (the portion of Dr. Trowbridge’s 1996 deficiency in excess

of $146,847 is hereafter referred to as the additional 1996

deficiency).    Respondent also asserted corresponding increases in

the additions to tax asserted against Dr. Trowbridge under

sections 6651(a)(1) and 6654.    Consistent with the protective

notice of deficiency issued to Life Center, respondent asserted


     7
        Respondent also alleged that he issued his notice of
deficiency to Life Center within the 3-year period of limitations
on assessment applicable to Life Center’s 1996 taxable year.
                              - 11 -

in the alternative an increased deficiency in, and increased

additions to, Life Center’s 1996 tax.   Petitioners did not file a

reply to respondent’s amendment to answer.

Petitioners’ Discovery Requests

     On September 27 and 28, 2001, petitioners served on

respondent a request for admissions, a set of interrogatories,

and two requests for production of documents.   The request for

admissions is 134 pages in length (without attachments) and

requests 545 admissions.   The set of interrogatories is 124 pages

in length and contains 480 interrogatories.

     On October 5, 2001, respondent filed a motion for protective

order with respect to the request for admissions,

interrogatories, and requests for production of documents served

by petitioners.   Respondent argued that such requests were not

timely, addressed improper issues, and were intended to burden

respondent unduly, waste his resources, and divert him from trial

preparation.   We asked petitioners to respond and, after

considering their response, granted respondent relief

“substantially for the reasons stated in respondent’s motion.”

Petitioners’ Dismissal Efforts

     Motion To Dismiss for Lack of Jurisdiction

     On November 21, 2001, petitioners submitted a motion styled

“Petitioner’s Verified Challenge to Jurisdiction of the Court”,

which we filed as a motion to dismiss for lack of jurisdiction.
                                - 12 -

The motion “denies the existence of any contracts or commercial

agreements which create an attachment of an equity relationship

between the ‘United States’ and/or The State of Texas and

Petitioner.”   The motion also states:    “Petitioner has

specifically forfeited, waived, rejected, declined, and refused

to voluntarily accept any and all benefits, especially admiralty

and limited debt liability benefits, from the ‘United States’ and

its instrumentalities.”     Apparently on those bases, the motion

then states:   “Petitioner hereby gives formal notice to the Court

of Petitioner’s status as a nonjuristic person, a Texas state

Citizen, and that, in such status, Petitioner squarely challenges

and voids the jurisdiction of this Court.”       Petitioners claimed

in the motion that we lack “in personam” jurisdiction and subject

matter jurisdiction.     We denied the motion.

     Motion To Dismiss

     On November 23, 2001, petitioners submitted a motion styled

“Petitioner’s Notice of Withdrawal of Petition”, which we filed

as a motion to dismiss (the motion to dismiss) and denied.8      In

that motion, petitioners reiterated their claim that we lack

jurisdiction and stated that they wished to withdraw their



     8
        To the extent petitioners were relying on grounds other
than jurisdiction, a decision dismissing the proceedings would
have been considered a decision sustaining the deficiencies
determined by respondent. See sec. 7459(d). Since we did not
believe that was the result petitioners intended, we denied the
motion to dismiss.
                                - 13 -

petition:   “Petitioner hereby gives Notice of WITHDRAWAL of the

petition for review by the United States Tax Court.    This Notice

of Withdrawal of petition makes moot, voids, and cancels all

proceedings previously scheduled by this Court for action upon

the petition filed in error.”

Trial Session

     This case was set for trial at the Court’s trial session

commencing December 3, 2001, in Houston, Texas (the trial

session).

     On Friday, November 30, 2001, an employee of the Court

Clerk’s Office contacted Dr. Trowbridge and reminded him that

petitioners were expected to appear on the following Monday

at the call of the calendar at the trial session.    When, on

December 3, 2001, the case was called from the calendar,

petitioners failed to appear.    Counsel for respondent appeared

and announced ready for trial.    The Court set the case for trial

on the following day (December 4).

     When the case was recalled from the calendar for trial on

December 4, 2001, petitioners failed to appear.    Counsel for

respondent appeared and announced ready for trial.    The deputy

trial clerk reported that he had left two messages for Dr.

Trowbridge at his office regarding the date and time of the

trial.   Counsel for respondent orally moved for default judgment

with respect to the initial deficiencies in tax determined
                                - 14 -

against Dr. Trowbridge, which we took under advisement pending

respondent’s filing of a (subsequently filed) written motion for

default (the default motion).    Respondent proceeded to trial on

the remaining amounts at issue (i.e., the additional 1996

deficiency and the additions to tax).9

                                OPINION

I.   The Default Motion

      By the default motion, respondent moves that Dr. Trowbridge

be held in default and that a decision be entered that there are

deficiencies in tax with respect to him for 1996 and 1997 in the

amounts of $146,847 (the initial 1996 deficiency) and $211,508

(the 1997 deficiency), respectively, and that a decision be

entered that there are no deficiencies in tax with respect to

Life Center and Life Choices.    Respondent moves in the

alternative that Life Center be held in default and that a

decision be entered that there are deficiencies in tax with

respect to Life Center for 1996 and 1997 in the amounts of

$23,195 and $476,918, respectively, and that Life Choices be held



      9
        Respondent bears the burden of proof (i.e., the ultimate
burden of persuasion) with respect to the additional 1996
deficiency and the portions of the asserted additions to tax
attributable thereto. See Rule 142(a). Respondent bears the
burden of production (i.e., the burden of moving forward with
evidence) with respect to the additions to tax asserted against
Dr. Trowbridge in their entirety. See current sec. 7491(c).
Since respondent decided to proceed to trial on those issues to
satisfy his evidentiary burdens, we need not decide whether he
was required to do so in this default setting.
                               - 15 -

in default and that a decision be entered that there is a

deficiency in tax with respect to Life Choices for 1997 in the

amount of $500,028.    Although the Court ordered petitioners to

file a response to the default motion, Dr. Trowbridge returned to

the Court a copy of that order with the following language

handwritten thereon:    “Timely Notice of Non-Acceptance[.] The

Petition was Withdrawn”.

     In pertinent part, Rule 123(a) provides:

     (a) Default: If any party has failed to plead or
     otherwise proceed as provided by these Rules or as
     required by the Court, then such party may be held in
     default by the Court either on motion of another party
     or on the initiative of the Court. Thereafter, the
     Court may enter a decision against the defaulting
     party, upon such terms and conditions as the Court may
     deem proper * * *

We have no doubt that petitioners had knowledge of the call of

this case on December 3, 2001, and the recall of the case on the

following day.   We assume that petitioners failed to answer those

calls because they no longer wished to continue their case in

this Court; that is the position they took in their motion to

dismiss (which we previously denied).    We therefore grant the

default motion and, in accordance with respondent’s primary

position therein, hold Dr. Trowbridge in default.10


     10
        As discussed above, we struck from the petition all
assignments of error other than petitioners’ limitations defense.
Since respondent addresses petitioners’ limitations defense
(among other items) in his motion for partial summary judgment,
the principal consequence of our holding Dr. Trowbridge in
                                                   (continued...)
                               - 16 -

II.   Respondent’s Motion for Partial Summary Judgment

      Respondent has moved for partial summary judgment in his

favor (the summary judgment motion) with respect to petitioners’

limitations defense, the existence and amount of the additional

1996 deficiency,11 and the additions to tax asserted against Dr.

Trowbridge.12   Summary judgment is a device used to expedite

litigation and is intended to avoid unnecessary and expensive

trials of “phantom factual questions.”    Espinoza v. Commissioner,

78 T.C. 412, 416 (1982).   Since there was a trial in this case,

at which respondent presented evidence pertaining to the issues

addressed in the summary judgment motion, we need not determine

whether summary adjudication is appropriate here.   We shall,

therefore, deny the summary judgment motion (although we largely




      10
      (...continued)
default is the ratification   of respondent’s primary position that
Dr. Trowbridge, rather than   Life Center and Life Choices, is
liable for any deficiencies   in tax and additions to tax
determined in the notice of   deficiency.
      11
        In his amendment to answer, respondent alleges an
additional 1996 deficiency of $244,935, based on gross business
receipts of $1,649,376 for that year. In his posttrial brief,
respondent asserts that Dr. Trowbridge had gross business
receipts of $1,632,423 in 1996, thus necessitating a Rule 155
computation with respect to the additional 1996 deficiency.
      12
        Respondent moved in the alternative for partial summary
judgment against Life Center and Life Choices in the event we
deny his request for default judgment against Dr. Trowbridge.
Our disposition of the default motion renders that alternative
position moot.
                                  - 17 -

sustain respondent’s substantive positions therein, as discussed

below).

III.    Statute of Limitations

       As a general matter, income tax (and related penalties and

additions to tax) must be assessed within 3 years after the later

of (1) the due date (without regard to extensions) of the

corresponding return, or (2) the date on which such return is

filed.13      Secs. 6501(a) and (b)(1), 6665(a)(2); sec. 301.6501(b)-

1(a), Proced. & Admin. Regs.      However, if the taxpayer fails to

file a return, the Commissioner may assess such amounts at any

time.       Sec. 6501(c)(3).

       As relevant to petitioners’ limitations defense, respondent

contends that Dr. Trowbridge’s initial 1996 Form 1040 does not

constitute a valid return.      In Williams v. Commissioner, 114 T.C.

136, 143 (2000), we held that a disclaimer statement similar to

the ones at issue in this case rendered the Form 1040 to which it

was attached invalid.       We have also held that altering the Form

1040 jurat can destroy that form’s validity as a return.      E.g.,

Jenkins v. Commissioner, T.C. Memo. 1989-617.       We shall not

depart from the reasoning of those cases here.      Accordingly, we

conclude that Dr. Trowbridge’s initial 1996 Form 1040 is not a



       13
        For these purposes, the date on which a return is mailed
is treated as the filing date if the postmark date falls within
the prescribed period (including extensions) for filing the
return. Sec. 7502(a)(1) and (a)(2)(A)(i).
                              - 18 -

valid return.   It follows that respondent is not barred by the

statute of limitations on assessment with respect to Dr.

Trowbridge’s 1996 taxable year.14   See, e.g., Jarvis v.

Commissioner, 78 T.C. 646, 655 (1982).

IV.   Additional 1996 Deficiency

      In the notice of deficiency, respondent determined that the

medical practice generated gross receipts of $1,062,676 in 1996.

Respondent based that determination on an analysis of the deposit

activity with respect to the two bank accounts styled “John Parks

Trowbridge MD” and the Life Center bank account (collectively,

the medical practice bank accounts).   Respondent subsequently

received daily cash analysis reports and daily practice summaries

with respect to the medical practice for 1996 as the result of

the enforcement of a summons issued to Dr. Trowbridge.     Those

reports, introduced into evidence at trial, show that the medical

practice generated gross receipts of $1,632,140 in 1996.15


      14
        Even if the revised 1996 Form 1040 that Dr. Trowbridge
submitted in January 2000 constitutes a valid return (an issue
respondent does not explicitly address and we do not decide),
respondent issued the notice of deficiency on Oct. 20, 2000, well
within the 3-year period of limitations on assessment for 1996
that would have commenced on the date of such filing. See secs.
6503(a), 6213(a) (issuance of a valid notice of deficiency
suspends the running of the period of limitations on assessment
during the pendency of any ensuing proceedings originating in
this Court).
      15
        We have adjusted respondent’s computation of 1996
medical practice gross receipts ($1,632,423) downward by $283 to
reflect a patient refund recorded on the cash analysis report for
                                                   (continued...)
                              - 19 -

     Respondent bolstered his documentary evidence with witness

testimony.   Kathryn Hill, a former employee of Dr. Trowbridge’s,

testified that she had prepared the practice summaries each day

as part of her duties and that she had derived the month-to-date

and year-to-date collections listed thereon from the daily cash

analysis reports prepared by other personnel.   Ms. Hill further

testified that, as sometimes reflected in her handwritten

notations on the daily cash analysis reports, she had transferred

cash receipts directly to Dr. Trowbridge and had used patients’

checks to pay third party creditors of the medical practice

whenever Dr. Trowbridge so requested, rather than depositing such

amounts in any of the medical practice bank accounts.    Ms. Hill’s

testimony is consistent with that of William Williams, an IRS

agent who testified that, in his review of the medical practice

bank account statements, he had been unable to find deposits

corresponding to numerous checks and cash receipts recorded in

the daily cash analysis reports.

     Dr. Trowbridge’s own daily records establish the gross

receipts of the medical practice in 1996, and the testimony of

Ms. Hill and Mr. Williams satisfactorily explains the large

discrepancy between that amount and the aggregate bank deposits

on which respondent based the initial 1996 deficiency.



     15
      (...continued)
Oct. 28, 1996, that we believe respondent overlooked.
                                  - 20 -

Accordingly, we find that there is an additional deficiency in

tax with respect to Dr. Trowbridge for 1996 based on gross

business receipts of $1,632,140 for that year.

V.   Additions to Tax

      A.   Statutory Provisions

            1.   Section 6651(a)(1)

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

event a taxpayer fails to file a timely return (determined with

regard to any extension of time for filing), unless it is shown

that such failure is due to reasonable cause and not due to

willful neglect.     The amount of the addition is equal to 5

percent of the amount required to be shown as tax on the

delinquent return for each month or fraction thereof during

which the return remains delinquent, up to a maximum addition of

25 percent for returns more than 4 months delinquent.      For these

purposes, the amount required to be shown as tax on the return is

reduced by any timely payments of the tax16 and any credits which

may be claimed on the return.      Sec. 6651(b)(1).

           2.    Section 6654

      Section 6654 provides for an addition to tax (in the form of

an interest charge) in the event of an underpayment of a required

installment of individual estimated tax.      As relevant to this


      16
        In general, payment of income tax is due on the due date
of the corresponding return, determined without regard to any
filing extensions. Sec. 6151(a).
                                 - 21 -

case, each required installment of estimated tax is equal to 25

percent of the “required annual payment”, which in turn is equal

to the lesser of (1) 90 percent of the tax shown on the

individual’s return for that year (or, if no return is filed, 90

percent of his or her tax for such year), or (2) if the

individual filed a return for the immediately preceding taxable

year, 100 percent of the tax shown on that return.      Sec.

6654(d)(1)(B)(i) and (ii).      The due dates of the required

installments for a calendar taxable year are April 15, June 15,

and September 15 of that year and January 15 of the following

year.     Sec. 6654(c)(2).   For purposes of section 6654, an

individual’s tax consists of income tax and self-employment tax

and is determined before the application of any wage withholding

credit17 (but after the application of other allowable credits).

Sec. 6654(f); see sec. 31.

     There are two mechanical exceptions to the applicability of

the section 6654 addition to tax.      First, as relevant to this

case, the addition is not applicable if the tax shown on the

individual’s return for the year in question (or, if no return is

filed, the individual’s tax for that year), reduced for these

purposes by any allowable credit for wage withholding, is less




     17
        Under sec. 6654(g)(1), wage withholding credits are
treated as payments of estimated tax.
                                     - 22 -

than $500.18      Sec. 6654(e)(1).    Second, the addition is not

applicable if the individual’s tax for the preceding taxable year

was zero.    Sec. 6654(e)(2).

     B.    Discussion

             1.   Respondent’s Section 6651(a)(1) Determinations

     We have already concluded, in the context of petitioners’

limitations defense, that the disclaimer statement attached to,

and the alteration of the jurat of, Dr. Trowbridge’s initial 1996

Form 1040 rendered that Form 1040 invalid.        Since Dr. Trowbridge

attached a substantially identical disclaimer statement to, and

similarly altered the jurat of, his initial 1997 Form 1040, we

conclude as well that Dr. Trowbridge’s initial 1997 Form 1040 is

not a valid return.

     In addition to introducing at trial Dr. Trowbridge’s

(invalid) initial 1996 and 1997 Forms 1040, respondent produced

evidence that Dr. Trowbridge did not submit to the IRS any other

document purporting to be a return for 1996 or 1997 until January

2000.     Respondent therefore produced evidence that Dr. Trowbridge

did not timely file Federal income tax returns for 1996 and 1997

and that each such failure continued for more than 4 months.        In

the absence of any conflicting or exculpatory evidence (e.g.,

evidence of reasonable cause or lack of willful neglect on the


     18
        Effective for taxable years beginning after Dec. 31,
1997, the threshold amount is $1,000. Taxpayer Relief Act of
1997, Pub. L. 105-34, sec. 1202(a), 111 Stat. 994.
                               - 23 -

part of Dr. Trowbridge), we conclude that Dr. Trowbridge is

liable for 25-percent additions to tax under section 6651(a)(1)

with respect to his 1996 and 1997 taxable years.19

     Respondent also produced evidence that Dr. Trowbridge did

not make any timely payments in respect of his 1996 and 1997

income taxes and did not claim any tax credits for those years.

Accordingly, the 25-percent additions to tax for which Dr.

Trowbridge is liable under section 6651(a)(1) apply to the full

amount of tax required to be shown on his respective 1996 and

1997 returns.20   See sec. 6651(b)(1).

          2.   Respondent’s Section 6654 Determinations21

     In addition to introducing at trial Dr. Trowbridge’s

(invalid) initial 1996 and 1997 Forms 1040, respondent submitted


     19
        We note that, in computing the amount of the 1997
addition to tax, respondent incorrectly applied a rate of 22.5
percent rather than 25 percent. See supra note 1.
     20
        The amount of tax required to be shown on Dr.
Trowbridge’s 1996 return is equal to the initial 1996 deficiency
($146,847) plus the additional 1996 deficiency, the latter amount
to be determined under Rule 155 in accordance with part IV of
this report. The amount of tax required to be shown on Dr.
Trowbridge’s 1997 return is equal to the 1997 deficiency
($211,508).
     21
        Respondent applied the provisions of sec. 6654 without
regard to the amounts shown as tax on the revised 1996 and 1997
Forms 1040 attached by Dr. Trowbridge to the 1996 and 1997 Forms
1040X submitted by him to the IRS in January 2000. Petitioners
did not assign error to that aspect of respondent’s
determinations. We shall not, therefore, decide whether the
revised 1996 and 1997 Forms 1040 are valid returns or otherwise
take them into account for purposes of determining the
application of sec. 6654.
                               - 24 -

with the summary judgment motion Dr. Trowbridge’s (invalid) 1995

Form 1040, authenticated by affidavit of respondent’s counsel.22

Respondent also produced evidence that Dr. Trowbridge did not

make any timely payments (actual or deemed, see supra note 17) in

respect of his 1996 or 1997 income taxes that could be applied

against his required annual payments.

     Given the foregoing evidence regarding invalid returns, the

general applicability of the estimated tax provisions to Dr.

Trowbridge’s respective 1996 and 1997 taxable years depends on

whether Dr. Trowbridge’s actual (rather than reported) tax for

those years is greater than zero.   See sec. 6654(d)(1)(B).

Similarly, the availability of the $500 de minimis exception with

respect to either such year is determined by reference to Dr.

Trowbridge’s actual (rather than reported) tax for each such year

(less any allowable wage withholding credit).   See sec.

6654(e)(1).   As relevant to the application of section

6654(d)(1)(B), our disposition herein of the default motion

establishes that Dr. Trowbridge’s tax for each of 1996 and 1997

is indeed greater than zero.   As relevant to the application of

section 6654(e)(1), such disposition establishes that



     22
        As referenced in our findings of fact, Dr. Trowbridge’s
1995 Form 1040 includes a disclaimer statement that is
substantially identical to the disclaimers attached to his
initial 1996 and 1997 Forms 1040. On that basis, we conclude
that Dr. Trowbridge’s 1995 Form 1040 is not a valid return. See
Williams v. Commissioner, 114 T.C. 136, 143 (2000).
                                    - 25 -

Dr. Trowbridge’s tax (less allowable wage withholding credits)

for each year far exceeds $500.

      Our disposition of the default motion also precludes the

applicability of the section 6654(e)(2) exception (zero tax for

preceding year) with respect to Dr. Trowbridge’s 1997 taxable

year.        In that regard, although the record does not reveal Dr.

Trowbridge’s tax for 1995, we deem his 1995 Form 1040 (showing

tax of $133,977 and no tax credits) to be evidence that such tax

was greater than zero, which would render the section 6654(e)(2)

exception inapplicable to his 1996 taxable year as well.

      Based on the foregoing, and in the absence of any evidence

to the contrary, we conclude that Dr. Trowbridge was subject to

estimated tax with respect to each of his 1996 and 1997 taxable

years and that he made no timely payments in respect of such

liability.        Thus, the amount of Dr. Trowbridge’s underpayment

with respect to each installment of his required annual payments

for those years is equal to the full amount of such installment.23

VI.   Section 6673 Penalty

      In pertinent part, section 6673(a)(1) provides:

      SEC. 6673.       SANCTIONS AND COSTS AWARDED BY COURTS.

                (a) Tax Court Proceedings.--


        23
        In that regard, we accept respondent’s computation of
the 1997 addition to tax ($11,316), and we direct the parties to
determine the amount of the 1996 addition to tax on the basis of
Dr. Trowbridge’s 1996 tax (more precisely, 90 percent thereof),
determined in accordance with note 20, supra.
                                  - 26 -

               (1) Procedures instituted primarily for
          delay, etc.–-Whenever it appears to the Tax
          Court that--

                    (A) proceedings before it have been
               instituted or maintained by the taxpayer
               primarily for delay,

                    (B) the taxpayer’s position in such
               proceeding is frivolous or groundless,
          or

                     *   *    *     *      *   *   *

     the Tax Court, in its decision, may require the
     taxpayer to pay to the United States a penalty not in
     excess of $25,000.

     The purpose of section 6673 “is to compel taxpayers to think

and to conform their conduct to settled principles before they

file returns and litigate.”       Coleman v. Commissioner, 791 F.2d

68, 71 (7th Cir. 1986); see also Grasselli v. Commissioner, T.C.

Memo. 1994-581 (quoting Coleman).       A taxpayer’s position is

frivolous if it is contrary to established law and unsupported by

a reasoned, colorable argument for change in the law.      E.g., Nis

Family Trust v. Commissioner, 115 T.C. 523, 544 (2000).      We need

not find specific damages to invoke section 6673(a)(1); rather,

that section is a penalty provision, intended to deter and

penalize frivolous claims and positions in deficiency

proceedings.   Bagby v. Commissioner, 102 T.C. 596, 613-614

(1994).

     Dr. Trowbridge does not here argue for any change in the

law, and there is no plausible argument that, as maintained in
                               - 27 -

the disclaimers attached to his initial 1996 and 1997 Forms 1040,

the payment of income taxes is voluntary.    E.g., Woods v.

Commissioner, 91 T.C. 88, 90 (1988).    Whatever legitimate

arguments may underlie his assignments of error, Dr. Trowbridge

has emphasized frivolous arguments and, for that reason alone,

deserves to have a section 6673(a)(1) penalty imposed against

him.

       We are also convinced by Dr. Trowbridge’s conduct that he

both instituted and maintained these proceedings for delay, which

is a separate basis for imposing a section 6673(a)(1) penalty.

We struck substantial portions of the petition.    His discovery

requests ran to hundreds of pages, and we granted respondent’s

motion for a protective order with respect thereto.

Notwithstanding his active, indeed forceful, prosecution of this

case initially, Dr. Trowbridge abruptly changed course 2 weeks

before trial.    At that point, he attempted to withdraw the

petition, asserting a jurisdictional challenge premised on his

disavowal of any commercial relationship with, and any enjoyment

of benefits from, the United States.    He refused to appear for

trial, despite notice thereof.    We interpret Dr. Trowbridge’s

actions in prosecuting (and not prosecuting) this case as

evidence of his intent to delay these proceedings.

       There is a contemporaneous case in this Court involving Dr.

Trowbridge and his 1991-95 taxable years which involves conduct
                              - 28 -

similar to that involved here.   See Trowbridge v. Commissioner,

T.C. Memo. 2003-164.   We conclude that Dr. Trowbridge deserves a

large penalty under section 6673(a)(1).    Therefore, we shall

impose on him a penalty of $25,000.

     To reflect the foregoing,


                                          An appropriate order will

                                      be issued, and decision will

                                      be entered under Rule 155.
