                        T.C. Memo. 2010-149



                      UNITED STATES TAX COURT



          HAROLD X. O’BOYLE, Petitioner v. COMMISSIONER
                  OF INTERNAL REVENUE, Respondent

          SALLY R. O’BOYLE, Petitioner v. COMMISSIONER
                 OF INTERNAL REVENUE, Respondent



     Docket Nos. 30214-07, 30215-07.1    Filed July 13, 2010.



     Harold X. O’Boyle and Sally R. O’Boyle, pro sese.

     Vivian Rodriguez, for respondent.



                        MEMORANDUM OPINION


     WELLS, Judge:   Respondent determined deficiencies in

petitioners’ Federal income tax and additions to tax pursuant to



     1
      These cases were consolidated by order of this Court and
are hereinafter referred to collectively as the instant case.
                                - 2 -

sections 6651(a)(1) and (2) and 6654(a)2 for their 2000, 2001,

and 2002 tax years in the following amounts:

                          Harold X. O’Boyle
                                   Additions to tax under sec.
    Year       Deficiency       6651(a)(1) 6651(a)(2)     6654
    2000        $23,688          $5,329.80     $5,922.00   $1,265.28
    2001         67,726          15,238.35     16,931.50   2,706.54
    2002         77,558          17,450.55     19,389.50   2,591.77

                          Sally R. O’Boyle
                                  Additions to tax under sec.
    Year       Deficiency      6651(a)(1) 6651(a)(2)      6654
    2000         $76,162       $17,136.45     $19,040.50   $4,068.20
    2001          92,034        20,707.65      23,008.50   3,678.01
    2002         254,419        57,244.28      63,604.75   8,501.96

     The issues we must decide are:     (1) Whether petitioners

received and failed to report taxable income for their 2000,

2001, and 2002 tax years; (2) whether petitioners are liable for

self-employment tax for the tax years in issue; (3) whether

petitioner Sally R. O’Boyle (Ms. O’Boyle) is liable for a 10-

percent additional tax pursuant to section 72(t) for an early

distribution from a qualified retirement plan; (4) whether

petitioners are entitled to a filing status of married filing

jointly; and (5) whether petitioners are liable for the additions




     2
      All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                                 - 3 -

to tax respondent determined pursuant to sections 6651(a)(1) and

(2) and 6654(a) for the tax years in issue.

                              Background

     Some of the facts and certain exhibits have been stipulated.

The parties’ stipulations of fact are incorporated in this

opinion by reference and are found as facts in the instant case.

At the time of filing their petitions, petitioners resided in

Costa Rica.

     Petitioners received the following income for the tax years

in issue:

                            Harold X. O’Boyle

      Type of income                 2000         2001      2002

Interest                                 $369      $280       $32

Dividends                                   8       454     1,572

Short-term capital gain                   --        --     13,577

Long-term capital gain                    --        --    122,589

Compensation for services          69,894       182,243   48,195
                                 - 4 -

                            Sally R. O’Boyle

     Type of income                  2000         2001      2002

Interest                                 --         $43      --

Dividends                                --        --        $601

Short-term capital gain                  --        --         250

Long-term capital gain                   --        --     121,340

Distributive share of
  partnership income                     $295       94            34

Qualified retirement
  account distribution                   --       6,277      --

Compensation for services          200,223      234,259   165,649

     During tax years 2000, 2001, and 2002 petitioners were

engaged in a real estate business.

     During the years in issue petitioner Harold X. O’Boyle (Mr.

O’Boyle) received compensation from third parties for managing

rental properties.    He deposited that compensation into his

various business bank accounts.3

     Ms. O’Boyle received compensation from third parties for her

activities as a real estate broker during 2000, 2001, and 2002.

She deposited that compensation into the bank accounts of Sally




     3
      Some of the bank accounts were in the name of BBSG
Management, LC, which was an unincorporated entity having Mr.
O’Boyle as its sole member. Mr. O’Boyle stipulated that BBSG
Management, LC, can be disregarded for tax purposes.
                               - 5 -

O’Boyle Realty, LC,4 an unincorporated entity having Ms. O’Boyle

as its sole member.

     Ms. O’Boyle received nonemployee compensation from Red Barn

Actors Studio during 2001 and 2002.

     Neither petitioner was employed by any third party during

2000, 2001, or 2002.

     Petitioners did not file a timely tax return for the 2000,

2001, or 2002 tax years.

     Mr. O’Boyle paid $10,000 toward his potential Federal income

tax liability for the 2000 tax year.    At the time of trial,

neither petitioner had made any additional payment toward his or

her Federal income tax liabilities for tax years 2000, 2001, or

2002.

     At some point between May 2006 and March 2008 petitioners

sent to respondent a Form 1040, U.S. Individual Income Tax

Return, electing joint filing status for each of the tax years in

issue.5   The only taxable income shown on petitioners’ 2000 Form

1040 was $8 in ordinary dividends.     The only taxable income shown


     4
      Sally O’Boyle Realty, LC, changed its name to O’Boyle Real
Estate, LC, on or about Aug. 1, 2001.
     5
      Petitioners contend that they mailed the 2000, 2001, and
2002 Forms 1040 in May 2006. Respondent contends that the Forms
1040 purportedly mailed in May 2006 were never received.
Respondent stipulates receiving petitioners’ 2000, 2001, and 2002
Forms 1040 in March 2008. Because we find below that
petitioners’ 2000, 2001, and 2002 Forms 1040 were not valid
Federal income tax returns, it is unnecessary to find precisely
when those forms were filed.
                               - 6 -

on petitioners’ 2001 Form 1040 was $16 in interest and $454 in

ordinary dividends.   The only taxable income shown on

petitioners’ 2002 Form 1040 was $601 in ordinary dividends and a

capital gain of $250.

     During July 2007, respondent prepared substitutes for

returns pursuant to section 6020(b) for petitioners’ 2000, 2001,

and 2002 tax years using the joint filing status.

     On October 3, 2007, respondent sent petitioners notices of

deficiency for their 2000, 2001, and 2002 tax years.     Petitioners

timely petitioned this Court for redetermination of the

deficiencies set forth in the notices of deficiency.

     On February 18, 2009, petitioners filed a motion to dismiss

for lack of jurisdiction.

     Petitioners’ motion to dismiss for lack of jurisdiction was

denied by this Court on February 18, 2009.
                               - 7 -

                             Discussion6

I.   Burden of Proof

     Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, Welch v. Helvering, 290 U.S.

111, 115 (1933), and Rule 142(a) places the burden of proving an

error on the taxpayer.   However, under section 7491(a)(1), if a

taxpayer introduces credible evidence with respect to any factual

issue relevant to the liability for tax, the burden of proof may

shift to the Commissioner.   Additionally, section 7491(c) places

the burden of production regarding additions to tax on the

Commissioner.   If the Commissioner satisfies the burden of

production, the taxpayer bears the ultimate burden of persuasion

regarding the additions to tax.    See Higbee v. Commissioner, 116

T.C. 438, 446 (2001).




     6
      Both parties have objected, on the basis of relevancy and
hearsay, to the admissibility of some of the exhibits attached to
the stipulation of facts. Petitioners filed a motion to reserve
objections to the admission of a number of exhibits. Some of
petitioners’ objections were resolved during the trial, but the
Court took under advisement petitioners’ objections to Exhibits
3-J through 8-J as hearsay and to Exhibits 17-J, 18-J, 42-J, 43-
J, and 45-J through 55-J as irrelevant. Following the trial,
petitioners renewed their hearsay objection to Exhibits 3-J
through 8-J in a motion to strike evidence. The Court denied
petitioners’ motion to strike. Respondent objects to the
admissibility of Exhibits 75-P and 76-P on the basis of hearsay
and relevancy. We conclude that petitioner’s objections to
Exhibits 17-J, 18-J, 42-J, 43-J, and 45-J through 55-J and
respondent’s objections to Exhibits 75-P and 76-P are moot
because we do not rely on those documents in reaching our
decision. Accordingly, we do not rule on those objections.
                               - 8 -

     Petitioners assert that their 2000, 2001, and 2002 Forms

1040 along with their testimony at trial constitute credible

evidence of the nature and amount of their income for the years

in issue and argue that the burden should be shifted to

respondent pursuant to section 7491(a)(1) on those issues.    In

order for the burden to shift under section 7491(a)(1), in

addition to introducing credible evidence on a disputed issue of

fact, a taxpayer must comply with the substantiation and

recordkeeping requirements of the Internal Revenue Code and

cooperate with reasonable requests by the Commissioner for

“witnesses, information, documents, meetings, and interviews”.

Sec. 7491(a)(2).

     We first consider whether petitioners have introduced

credible evidence with respect to a disputed fact relevant to

their liability for tax.   We conclude that both the Forms 10407

and petitioners’ testimony are nothing more than a continuation

of petitioners’ frivolous legal arguments and conclusions.

Neither the Forms 1040 nor petitioners’ testimony offers any

probative evidence of their liability for tax.   Accordingly, we

conclude that petitioners have not introduced credible evidence

for purposes of section 7491(a), and the burden of proof

therefore remains with petitioners.



     7
      See the discussion infra concerning the validity of
petitioners’ 2000, 2001, and 2002 Federal income tax returns.
                                 - 9 -

II.   Taxable Income

      Gross income means all income from whatever source derived.

Sec. 61(a).    Petitioners concede that their dividend and interest

income, Ms. O’Boyle’s distributive share of partnership income,

and Ms. O’Boyle’s early distribution from a qualified retirement

plan, as set forth in the notices of deficiency, are taxable

income.    Petitioners argue that all other amounts they received

during 2000, 2001, and 2002 are not taxable income within the

relevant meaning of the law.

      A.   Gains From Dealings in Property

      Gross income includes gains derived from dealings in

property.    Sec. 61(a)(3).   A taxpayer must recognize gain on the

sale of property in an amount equal to the difference between the

amount realized and his basis.    Secs. 1001, 1012.   Petitioners

bear the burden of demonstrating that they are entitled to a

basis in an asset sold, and if they fail to do so they may be

considered to have a zero basis in the asset.    See Rule 142(a);

Arnold v. Commissioner, T.C. Memo. 2003-259.     Mr. O’Boyle

concedes that he received $13,577 in gross proceeds from the sale

of securities during 2002 but asserts that the proceeds are not

taxable income.

      There is no evidence in the record from which we can find

that Mr. O’Boyle had a basis in the securities.    We therefore

conclude that his basis in the securities was zero.
                              - 10 -

     Petitioners concede that Mr. O’Boyle received a long-term

capital gain distribution of $1,249 during 2002 and that Ms.

O’Boyle received a short-term capital gain distribution of $250

during 2002.

     During tax year 2002, petitioners received gross proceeds of

$510,000 for the sale of real property located at 2107 Flagler

Avenue, Key West, Florida.   Respondent determined that

petitioners’ basis in that property was $267,320.    Petitioners

have not produced any evidence that their basis in the property

was greater than the amount respondent determined.

     While petitioners concede that they received the amounts set

forth above, they contend that those amounts are not taxable

income within the meaning of the Internal Revenue Code.8   To

support their contention, petitioners offer only frivolous

arguments.   Petitioners offered altered Forms 1099-B, Proceeds

From Broker and Banker Exchange Transaction and 1099-S, Proceeds

From Real Estate Transactions, they prepared themselves, but the

altered Forms 1099-B and 1099-S are based on tax-protester type

arguments and therefore are not credible.    Petitioners’ testimony

at trial was nothing more than mistaken, frivolous conclusions

that the income in issue is not taxable.    We do not address


     8
      In the notice of deficiency issued to Ms. O’Boyle for her
2002 tax year, respondent also determined that Ms. O’Boyle had a
taxable gain of $377,359 from the sale of securities. Respondent
now concedes that Ms. O’Boyle’s sale of securities in 2002 did
not result in a taxable gain.
                              - 11 -

petitioner’s frivolous and groundless arguments with “somber

reasoning and copious citation of precedent” as to do so “might

suggest that these arguments have some colorable merit.”    See

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

     Accordingly, we uphold respondent’s determination that Mr.

O’Boyle had taxable income of $13,577 for 2002 from the sale of

securities.   We conclude that petitioners’ capital gain

distributions were taxable income in the year received.    We

further conclude that petitioners realized a taxable capital gain

of $242,680 for 2002 from the sale of real property.9

     B.   Compensation for Services

     Compensation for services rendered constitutes taxable

income, and a taxpayer has no basis in his labor.   Sec. 61(a)(1);

Abrams v. Commissioner, 82 T.C. 403, 407 (1984).    Mr. O’Boyle

testified that during the years in issue he received compensation

from third parties for his management of rental properties and

from a real estate business in which he engaged with Ms. O’Boyle.

He further testified that he deposited that compensation into his

various business bank accounts.   Ms. O’Boyle testified that

during the years in issue she was a licensed real estate broker


     9
      In the notices of deficiency respondent determined that
each petitioner was liable for the entire gain from the sale of
the real property. Respondent now concedes that only one-half of
the gain should be included in the taxable income of each
petitioner. Since petitioners had owned the property for more
than a year, the gain qualifies for long-term capital gain
treatment pursuant to sec. 1222(3).
                               - 12 -

and received commissions and fees for her activities as a real

estate broker.    She further testified that she deposited those

commissions and fees into her various business accounts.

       Bank deposits are prima facie evidence of income.    Clayton

v. Commissioner, 102 T.C. 632 (1994).    The bank deposits method

of reconstruction assumes that all money deposited in a

taxpayer’s bank account constitutes taxable income.       DiLeo v.

Commissioner, 96 T.C. 858, 868 (1991), affd. 959 F.2d 16 (2d Cir.

1992).    Taxpayers bear the burden of proving that the

Commissioner’s determination of income computed using the bank

deposits method of reconstructing income is incorrect.       Id. at

871.

       Using a bank deposits analysis, respondent treated all of

the deposits into petitioners’ business bank accounts during the

years in issue as taxable income.    Respondent determined that Mr.

O’Boyle had taxable income arising from his property management

and real estate activities of $68,894, $182,243, and $48,195 for

his 2000, 2001, and 2002 tax years, respectively.    Respondent

determined that Ms. O’Boyle had taxable income from her

activities as a real estate broker of $200,223, $233,249, and

$164,849 for her 2000, 2001, and 2002 tax years, respectively.

Respondent further determined, on the basis of a third-party

information return, that Ms. O’Boyle received nonemployee
                              - 13 -

compensation from Red Barn Actors Studio of $1,010 in tax year

2001 and $800 in tax year 2002.

     Petitioners do not challenge respondent’s computation of

their receipts from their property management and real estate

activities.   To the contrary, they concede that the bank

statements respondent used accurately reflect their deposits for

the years in issue.   Petitioners also do not challenge Ms.

O’Boyle’s receipt of compensation from Red Barn Actors Studio.

However, petitioners argue that the amounts they received from

their property management and real estate activities and as Ms.

O’Boyle’s nonemployee compensation during the years in issue are

not taxable income.   To support this assertion, petitioners offer

only frivolous arguments and an altered Form 1099-MISC,

Miscellaneous Income, which they prepared themselves.   The

altered Form 1099-MISC petitioners offered is based on tax-

protester arguments, and we do not find it credible.

Petitioners’ testimony at trial was nothing more than mistaken,

frivolous conclusions that the income in issue is not taxable.

As discussed above, we do not address petitioner’s frivolous and

groundless arguments.   Because petitioners have not shown that

respondent’s bank deposits analysis was incorrect, we uphold

respondent’s determinations that petitioners’ compensation for

property management and real estate activities and Ms. O’Boyle’s
                                - 14 -

nonemployee compensation from Red Barn Actors Studio were taxable

income in the years received.

III. Self-Employment Tax

      Section 1401 imposes a tax on the self-employment income of

every individual.   Self-employment income is the gross income

derived by an individual from any trade or business carried on by

such individual, less allowable deductions.   Sec. 1402.

Petitioners have conceded that they were engaged in business

activities during the years in issue and that they received

compensation for their business activities.   Petitioners have

conceded that they were not employed by any third party during

the years in issue, and they do not assert that any of the other

exceptions in section 1402(c) applies to exclude their business

income from the definition of self-employment income.   Instead,

petitioners offer frivolous assertions that their businesses do

not meet the statutory definition of a trade or business.    We

uphold respondent’s determination that petitioners are subject to

self-employment tax on their compensation for business activities

for the 2000, 2001, and 2002 tax years.   Under section 164(f)

petitioners are entitled to a deduction for income tax purposes

of one-half of their self-employment taxes.

IV.   Additional Tax for Early Distribution From Qualified
      Retirement Plan

      Section 72(t)(1) imposes a 10-percent additional tax on

early distributions from qualified retirement plans unless the
                                - 15 -

distribution meets one of the exceptions enumerated in section

72(t)(2).    Ms. O’Boyle concedes that she received a distribution

of $6,277 from a qualified retirement plan during the 2001 tax

year and that she was under the age of 59-1/2 at the time of the

distribution.    At trial Ms. O’Boyle presented no evidence that

she qualified for any of the exceptions in section 72(t)(2).

Accordingly, we hold that Ms. O’Boyle is liable for a 10-percent

additional tax pursuant to section 72(t)(1).

V.   Filing Status

     The election of joint filing status must be made on a

return.     Secs. 1(a), 6013; see also Sloan v. Commissioner, 102

T.C. 137, 141 (1994), affd. 53 F.3d 799 (7th Cir. 1995).    A

taxpayer who has not previously filed a return for a tax year may

file a return and elect a filing status for such year even after

the Commissioner has prepared a substitute for return and issued

a notice of deficiency for such year and the taxpayer has

petitioned this Court for a redetermination of that deficiency.

Millsap v. Commissioner, 91 T.C. 926, 938 (1988).    However, if a

taxpayer has not filed a return by the time his case is submitted

for decision, it is too late for the taxpayer to elect joint

filing status.    Brattin v. Commissioner, T.C. Memo. 1992-625

(citing Thompson v. Commissioner, 78 T.C. 558, 561 (1982), and

Phillips v. Commissioner, 86 T.C. 433, 441 n.7 (1986), affd. as

to this issue 851 F.2d 1492 (D.C. Cir. 1988)).
                                 - 16 -

     Petitioners contend that they elected joint filing status on

the 2000, 2001, and 2002 Forms 1040 they sent to respondent.      The

parties disagree as to when petitioners mailed their 2000, 2001,

and 2002 Forms 1040, but both parties have stipulated that

respondent received those forms no later than March 2008, which

was before the instant case was submitted for decision.

Accordingly, to resolve petitioners’ claim of election of joint

filing status we consider whether their 2000, 2001, and 2002

Forms 1040 are valid Federal income tax returns.

     In order for a return to be valid, the following criteria

must be met:   (1) There must be sufficient data to calculate tax

liability; (2) the document must purport to be a return; (3)

there must be an honest and reasonable attempt to satisfy the

requirements of the tax law; and (4) the taxpayer must execute

the return under penalties of perjury.    Beard v. Commissioner, 82

T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986).    The

2000, 2001, and 2002 Forms 1040 petitioners sent to respondent

omitted most of petitioners’ taxable income, as discussed above.

We conclude that petitioners’ 2000, 2001, and 2002 Forms 1040 did

not contain sufficient data to calculate their tax liability and

were not an honest and reasonable attempt to satisfy the

requirements of the tax law.10    Accordingly, we conclude that


     10
      Since we find that the 2000, 2001, and 2002 Forms 1040
petitioners sent to respondent were not valid returns, we need
                                                   (continued...)
                                - 17 -

petitioners did not file valid Federal income tax returns for the

2000, 2001, and 2002 tax years.     Since petitioners did not elect

the joint filing status on valid returns for the years in issue,

we uphold respondent’s use of the filing status “Married Filing

Separately” in determining petitioners’ deficiencies for the

2000, 2001, and 2002 tax years.

VI.   Additions to Tax

      A.   Failure To File

      Section 6012 generally requires the filing of an income tax

return by all individuals receiving gross income in excess of

certain minimum amounts.     Because petitioners had gross income

for each of the years in issue as determined by respondent in the

notices of deficiency and upheld by this Court above in excess of

the section 6012 minimum amount, petitioners were required to

file Federal income tax returns for their 2000, 2001, and 2002

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

failure to file an income tax return by the due date.     A taxpayer

may be relieved of the addition, however, if he can demonstrate

that the “failure is due to reasonable cause and not due to

willful neglect”.   Id.    Respondent bears the burden of production

under section 7491(c), and petitioners bear the burden of proof.

See Higbee v. Commissioner, 116 T.C. at 446.     As discussed above,


      10
      (...continued)
not consider whether or when petitioners did in fact file those
returns.
                               - 18 -

petitioners did not file valid income tax returns for their 2000,

2001, and 2002 tax years.    Nor did petitioners make a showing

that their failure to file was due to reasonable cause.

Accordingly, we uphold respondent’s determination of additions to

tax pursuant to section 6651(a)(1).

     B.     Failure To Pay

     Section 6651(a)(2) provides for an addition to tax for

failure to pay taxes shown on a return on or before the payment

due date.    In instances where the taxpayer fails to file a

return, a return prepared by the Commissioner pursuant to section

6020(b) shall be treated as the return filed by the taxpayer for

the purpose of calculating the addition to tax pursuant to

section 6651(a)(2).    Sec. 6651(g)(2).   For a return prepared by

the Commissioner to constitute a section 6020(b) return, it must

be subscribed, it must contain sufficient information from which

to compute the taxpayer’s tax liability, and the return form and

any attachments must purport to be a return.      Spurlock v.

Commissioner, T.C. Memo. 2003-124.      Respondent bears the burden

of production under section 7491(c), and petitioners bear the

burden of proof.    See Higbee v. Commissioner, supra at 446.

     The record contains a substitute for return for each

petitioner for each of the 2000, 2001, and 2002 tax years.      Each

substitute for return is subscribed and includes a section

6020(b) certification; Form 4549-A, Income Tax Discrepancy
                                 - 19 -

Adjustments; Form 5278, Statement - Income Tax Changes; and Form

886-A, Explanation of Items.      Those forms are sufficient for

respondent to compute petitioners’ tax liabilities for tax years

2000, 2001, and 2002, and respondent has certified that they will

be treated as returns.   Petitioners have conceded that, with the

exception of $10,000 paid by Mr. O’Boyle for his 2000 tax year,

petitioners did not pay any taxes and did not have any amounts

withheld for their 2000, 2001, or 2002 tax year.      Accordingly, we

uphold respondent’s determination of additions to tax pursuant to

section 6651(a)(2).

     C.   Failure To Make Estimated Tax Payments

     Section 6654(a) imposes an addition to tax for failure to

pay estimated income tax.      Section 6654(a) applies where

prepayments of tax, through either withholdings or estimated

quarterly payments, do not equal the lesser of 90 percent of the

tax shown for the current tax year or 100 percent of the tax

shown for the previous tax year.      Sec. 6654(d)(1)(B).   Where the

taxpayer did not file a return for the preceding tax year, the

estimated tax payments must equal 90 percent of the tax shown for

the current tax year.    Id.    Respondent bears the burden of

production to show that petitioners had an estimated tax payment

obligation, which includes showing whether a return was filed for

the preceding year.   See sec. 7491(c); Wheeler v. Commissioner,

127 T.C. 200, 211-212 (2006), affd. 521 F.3d 1289 (10th Cir.
                              - 20 -

2008).   Petitioners bear the burden of proof.    See Higbee v.

Commissioner, supra at 446.

     The record shows that petitioners filed a return for tax

year 1999 showing tax due of $11,262.    Ninety percent of the tax

for 2000 was greater than $11,262; therefore, for the 2000 tax

year, petitioners were required to make estimated payments equal

to $11,262.   The record shows that petitioners did not file valid

tax returns for the 2000 and 2001 tax years.     Accordingly,

petitioners were required to make estimated tax payments equal to

90 percent of the tax for the 2001 and 2002 tax years.

Respondent has satisfied the burden of production by showing that

petitioners had estimated tax payment obligations for the 2000,

2001, and 2002 tax years.   The record shows that petitioners

failed to make the required estimated tax payments for the 2000,

2001, and 2002 tax years.   Moreover, there is no evidence or

argument that an exception applies.    Consequently, petitioners

have failed to meet their burden of proof, and we uphold

respondent’s determination of additions to tax pursuant to

section 6654(a).

VII. Section 6673 Penalty

     Section 6673(a)(1) provides that this Court may require the

taxpayer to pay a penalty not in excess of $25,000 whenever it

appears to this Court that:   (a) The proceedings were instituted

or maintained by the taxpayer primarily for delay; (b) the
                                - 21 -

taxpayer’s position is frivolous or groundless; or (c) the

taxpayer unreasonably failed to pursue available administrative

remedies.

     Respondent has moved for a section 6673 penalty.

Petitioners were warned by respondent that their arguments were

frivolous.     Petitioners referred to the penalty in their

petitions.11    During the trial, this Court gave petitioners yet

another warning of the potential consequences for continuing to

raise frivolous arguments.     Petitioners clearly are aware of

section 6673, yet raised frivolous arguments during the

administrative process, in their petitions to this Court, and in

their posttrial briefs.    Furthermore, petitioners continued to

raise groundless arguments regarding the jurisdiction of this

Court even after the Court ruled on those arguments by denying

petitioners’ motion to dismiss for lack of jurisdiction.

Accordingly, we shall impose a $15,000 penalty in each docket in

the instant case pursuant to section 6673.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we conclude that

they are without merit, irrelevant, or moot.




     11
      Para. 6 of the petition filed by each petitioner admits:
“According to Section 6673, this court may penalize Petitioner up
to $25,000 for failure to complete the administrative process
before petitioning this court.”
                        - 22 -

To reflect the foregoing,


                                  Decisions will be entered

                             under Rule 155.
