                   T.C. Memo. 2008-138



                 UNITED STATES TAX COURT



         RICHARD CLARKE RANDALL, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 24992-06.              Filed May 20, 2008.



     R determined a deficiency and a penalty under sec.
6662, I.R.C., for 2004. The deficiency and sec. 6662,
I.R.C., penalty were based on P’s failure to include
amounts reported on Forms 1099-MISC on his Federal
income tax return.

     Held:   R’s determinations are sustained.

     Held, further:    P is liable for a sec. 6673,
I.R.C., penalty.



Richard Clarke Randall, pro se.

Steven I. Josephy, for respondent.
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               MEMORANDUM FINDINGS OF FACT AND OPINION


       WHERRY, Judge:   This case is before the Court on a petition

for redetermination of a deficiency.      The issues for decision

are:

       (1) Whether petitioner had unreported nonemployee income for

2004;

       (2) whether petitioner is liable for the section 6662(a)

accuracy-related penalty for 2004;1 and

       (3) whether the Court should sua sponte impose upon

petitioner a section 6673 penalty.

                           FINDINGS OF FACT

       Some of the facts have been stipulated.    These stipulations,

with accompanying exhibits, are incorporated herein by this

reference.    At the time the petition was filed petitioner resided

in Colorado.

       Petitioner’s 2004 Form 1040EZ, Income Tax Return for Single

and Joint Filers With No Dependents, was received by the Internal

Revenue Service on August 17, 2005.      Petitioner’s Form 1040EZ

reflected zero wages on line 1, and taxable interest of $322.61

on line 2.    Petitioner attached to his Form 1040EZ a Form 1099-

DIV, Dividends and Distributions, from Southern Company which



       1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986 (Code), as amended and in
effect for the year in issue.
                              - 3 -

reflected that petitioner had received total ordinary dividends

of $260.44 and that no Federal income tax had been withheld.

Petitioner also attached a Form 1099-INT, Interest Income, from

Firstbank of Arapahoe County, which reflected $62.17 in interest

income and that no Federal income tax had been withheld.

     In addition, petitioner attached to his Form 1040EZ four

Forms 1099-MISC, Miscellaneous Income, from the following payers

reflecting the following nonemployee compensation:   (1) Labtest

Int’l Inc., $38,358.60, (2) Network Courier Services, Inc.,

$12,231.59, (3) NATIONAL QUALITY ASSURANCE USA, INC., $33,275,

and (4) NQA LABORATORY SERVICES, INC., $900.   All of the Forms

1099-MISC had the nonemployee compensation amount crossed out and

replaced with a handwritten zero, as well as the following typed

notation at the bottom of the form:

     This corrected Form 1099-MISC is submitted to rebut a
     document known to have been submitted by the party
     identified above as “PAYER” which erroneously alleges a
     payment to the party identified above as the
     “RECIPIENT” OF “gains, profit or income” made in the
     course of a “trade or business”. Under penalties of
     perjury, I declare that I have examined this statement
     and to the best of my knowledge and belief, it is true,
     correct, and complete.

     [Signature]

     Richard C. Randall
     15 August, 2005

All of the Forms 1099-MISC reflected that no Federal income tax

had been withheld from the nonemployee compensation paid to

petitioner.
                               - 4 -

     On May 22, 2006, respondent mailed to petitioner a Notice

CP2000, We Are Proposing Changes To Your Tax Return, that

reflected a tax increase of $26,519, a $5,304 penalty, and

interest (if paid by June 21, 2006) of $2,590.     In response,

petitioner sent respondent a letter containing frivolous and

meritless tax-protester arguments.     Specifically, petitioner

alleged that the Internal Revenue Service must recognize the

altered Forms 1099-MISC that he submitted with his “zero return”,

that “the income tax is a tax on gains from voluntary involvement

in federal activities”, “the income tax is an excise tax (which

is a tax on exercising a privilege)”, and “The monies that I

received from all of the corporations * * * during 2004 was non-

privileged compensation to a private, self-employed, natural

person; not subject to being reported via the 1099-MISC form.”

     On September 11, 2006, respondent mailed to petitioner the

aforementioned notice of deficiency.     The notice reflected a

deficiency in petitioner’s 2004 Federal income tax of $26,519

based on the inclusion in petitioner’s taxable income of the

$84,764 reported on the Forms 1099-MISC.     The notice further

reflected an accuracy-related penalty pursuant to section 6662(a)

of $5,304.   Petitioner filed a timely petition with this Court in

which he asserted:

     The Petitioner requests a Writ of Mandamus ordering the
     I.R.S. to process the properly submitted 1040EZ tax
     return.
                               - 5 -

     Four separate entities (LABTEST INT’L INC, NETWORK
     COURIER SERVICES INC., NATIONAL QUALITY ASSURANCE USA
     INC., and NQA LABORATORY SERVICES INC.) each submitted
     separate 1099-MISC forms (as the “PAYER”) erroneously
     alleging a payment to the party identified as the
     “RECIPIENT” of “gains, profit or income” made in the
     course of a “trade or business”. I, the Petitioner,
     rebutted each of these allegations in a 1040EZ
     submitted to the IRS.

     Petitioner is no stranger to this Court.   In Randall v.

Commissioner, T.C. Memo. 2007-1, affd. without published opinion

100 AFTR 2d 6946, 2007-2 USTC par. 50,839 (10th Cir. 2007), in

which the facts were almost identical to those in the instant

case, the Court concluded that “Petitioner’s argument is clearly

without merit, and we hold that the amounts of nonemployee

compensation received by petitioner are includable in his taxable

income for 2003.”   The Court also found petitioner liable for the

section 6662(a) accuracy-related penalty for taxable year 2003.

See id.

     In the instant case, a trial was held on October 30, 2007,

in Denver, Colorado.   Petitioner filed with the Court a pretrial

memorandum full of frivolous and meritless arguments, such as his

contention, which he also made in his case regarding his 2003

taxable year, that his nonemployee compensation

     was received in exchange for services provided by the
     Petitioner acting as a private, self-employed, natural
     person pursuing an occupation of common right, which if
     taxed, would necessarily fall within the class of a
     direct tax. Therefore, the compensation received by
     the Petitioner was non-privileged earnings; not subject
     to 1099-MISC reporting as the Petitioner, Richard C.
     Randall, does not meet the criteria of a “Trade or
                                 - 6 -

     Business” as defined in U.S.C. Title 26, Subtitle F,
     Chapter 79, Sec. 7701,(a),(26) or U.S.C. Title 26,
     Subtitle A, Chapter 2, Sec. 1402,(c),(1).

Petitioner also made frivolous and meritless arguments regarding

the Sixteenth Amendment to the U.S. Constitution.2    During trial,

petitioner repeatedly argued that his nonemployee compensation

was not taxable.

                                OPINION

I.   Nonemployee Compensation

     Section 61(a) provides that “gross income means all income

from whatever source derived”, including compensation for

services and interest.   Petitioner does not dispute that he

received the amounts listed on the Forms 1099-MISC.    Rather, he

argues that the amounts are not taxable.   Petitioner’s arguments

are frivolous and meritless tax-protester arguments that have

been rejected by this and other courts.    See generally Wilcox v.

Commissioner, 848 F.2d 1007 (9th Cir. 1988), affg. T.C. Memo.

1987-225; Carter v. Commissioner, 784 F.2d 1006, 1009 (9th Cir.

1986); Ficalora v. Commissioner, 751 F.2d 85, 87-88 (2d Cir.

1984); Abrams v. Commissioner, 82 T.C. 403 (1984); Watson v.


     2
      Our tax system, the Code, and the Tax Court have been
firmly established as constitutional. Crain v. Commissioner, 737
F.2d 1417, 1417-1418 (5th Cir. 1984); Ginter v. Southern, 611
F.2d 1226, 1229 (8th Cir. 1979). Specifically, the Court notes
that the “Federal income tax laws are constitutional. * * * The
whole purpose of the 16th Amendment was to relieve all income
taxes when imposed from apportionment and from a consideration of
the source whence the income was derived.” Abrams v.
Commissioner, 82 T.C. 403, 406-407 (1984).
                                 - 7 -

Commissioner, T.C. Memo. 2007-146; Randall v. Commissioner,

supra; Brunner v. Commissioner, T.C. Memo. 2004-187, affd. 142

Fed. Appx. 53 (3d Cir. 2005); Oldland v. Kurtz, 528 F. Supp. 316,

320 (D. Colo. 1981).

      Petitioner also argued, for the first time at trial, that

“Some portion of the monies received were reimbursements for

expenses”, specifically $11,033 of the $38,358 he received from

Lab Test Int’l, and $10,800 of the $12,231 he received from

Network Courier Services, Inc.    Petitioner also claimed that he

incurred $8,285 in “occupation-related expenses”.    Petitioner did

not present any evidence to substantiate these expenses other

than his vague testimony, and he admitted at trial that he had

not provided any documentation to the Internal Revenue Service

regarding his alleged expenses.    Petitioner’s uncorroborated

testimony cannot serve to establish that he incurred expenses.

Accordingly, the Court sustains respondent’s deficiency

determination.

II.   Section 6662 Accuracy-Related Penalty

      Under section 7491(c), respondent bears the burden of

production with respect to petitioner’s liability for the section

6662(a) penalty.   This means that respondent “must come forward

with sufficient evidence indicating that it is appropriate to

impose the relevant penalty.”     Higbee v. Commissioner, 116 T.C.

438, 446 (2001).   The Court concludes that respondent has met the
                                 - 8 -

section 7491(c) burden of production with respect to the section

6662 penalty for 2004.    As explained below, the Court concludes

that petitioner substantially understated his Federal income tax

for 2004 and that the deficiency is attributable to petitioner’s

negligence.

     Subsection (a) of section 6662 imposes an accuracy-related

penalty in the amount of 20 percent of any underpayment that is

attributable to causes specified in subsection (b).      Among the

causes justifying the imposition of the penalty are (1)

negligence or disregard of rules or regulations and (2) any

substantial understatement of income tax.

     Section 6662(c) defines negligence as “any failure to make a

reasonable attempt to comply with the provisions of this title”.

Regulations promulgated under section 6662 provide that

“‘Negligence’ also includes any failure by the taxpayer to keep

adequate books and records or to substantiate items properly.

* * *   Negligence is strongly indicated where--(i) A taxpayer

fails to include on an income tax return an amount of income

shown on an information return”.    Sec. 1.6662-3(b)(1), Income Tax

Regs.   “[D]isregard” is defined to include “any careless,

reckless, or intentional disregard.”     Sec. 6662(c).   Under

caselaw, “‘Negligence is a lack of due care or the failure to do

what a reasonable and ordinarily prudent person would do under

the circumstances.’”     Freytag v. Commissioner, 89 T.C. 849, 887
                               - 9 -

(1987) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), affg. on this issue 43 T.C. 168 (1964) and T.C. Memo.

1964-299), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S.

868 (1991).

     There is a “substantial understatement” of income tax for

any taxable year where the amount of the understatement exceeds

the greater of (1) 10 percent of the tax required to be shown on

the return for the taxable year or (2) $5,000.

Sec. 6662(d)(1)(A).   However, the amount of the understatement is

reduced to the extent attributable to an item (1) for which there

is or was substantial authority for the taxpayer’s treatment

thereof, or (2) with respect to which the relevant facts were

adequately disclosed on the taxpayer’s return or an attached

statement and there is a reasonable basis for the taxpayer’s

treatment of the item.   See sec. 6662(d)(2)(B).

     There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate (1) reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with

respect to the underpayment.   Sec. 6664(c)(1).    Regulations

promulgated under section 6664(c) further provide that the

determination of reasonable cause and good faith “is made on a

case-by-case basis, taking into account all pertinent facts and

circumstances.”   Sec. 1.6664-4(b)(1), Income Tax Regs.
                              - 10 -

     In the instant case, there is a substantial understatement

of income tax as well as negligence on petitioner’s part.

Petitioner’s 2004 Form 1040EZ shows total tax due of zero.

Respondent determined a deficiency of $26,519.    The deficiency,

which is both greater than $5,000 and greater than 10 percent of

the amount required to be shown on the return, is a substantial

understatement within the meaning of section 6662(d).    In

addition, the deficiency is attributable to negligence as

petitioner failed to include the amounts listed on the Forms

1099-MISC on his 2004 Form 1040EZ.     See sec. 1.6662-3(b)(1)(i),

Income Tax Regs.   The Court concludes that petitioner did not act

with reasonable cause or in good faith.3    Accordingly, the Court

concludes that petitioner is liable for the section 6662 penalty

for taxable year 2004.

III. Section 6673 Penalty

     Section 6673(a)(1) authorizes the Tax Court to impose a

penalty not in excess of $25,000 on a taxpayer for proceedings

instituted primarily for delay or in which the taxpayer’s

position is frivolous or groundless.    “A petition to the Tax

Court, or a tax return, is frivolous if it is contrary to

established law and unsupported by a reasoned, colorable argument


     3
      At trial, petitioner argued that he acted with reasonable
cause and in good faith, as evidenced by his pretrial memorandum.
The Court found all of petitioner’s arguments in his pretrial
memorandum to be timeworn frivolous and meritless tax-protester
arguments.
                              - 11 -

for change in the law.”   Coleman v. Commissioner, 791 F.2d 68, 71

(7th Cir. 1986).

     The Court may sua sponte impose a section 6673 penalty

against a taxpayer.   Pierson v. Commissioner, 115 T.C. 576, 580-

581 (2000).   Petitioner’s argument that his nonemployee

compensation is not taxable is frivolous and without merit.

Petitioner raised the same arguments in his previous Tax Court

case.   See Randall v. Commissioner, T.C. Memo. 2007-1.    The

opinion in petitioner’s previous case was filed on January 3,

2007, which gave petitioner ample time to reconsider his position

before he made the same frivolous and meritless tax-protester

arguments in his pretrial memorandum and at trial.   Petitioner

was warned by the Court during trial that he could be subject to

the section 6673 penalty if he continued to raise frivolous and

meritless arguments, and he still persisted with his arguments.

The Court concludes that petitioner is liable for a section 6673

penalty in the amount of $1,000.   In setting the penalty at

$1,000, the Court has taken into consideration that when

petitioner filed his pretrial memorandum and when this case was

tried on October 30, 2007, the U.S. Court of Appeals for the

Tenth Circuit had not yet decided his appeal of the Tax Court

decision regarding his 2003 taxable year.   Petitioner should not

expect such lenient treatment in any similar future case.
                             - 12 -

     The Court has considered all of petitioner’s contentions,

arguments, requests, and statements.   To the extent not discussed

herein, the Court concludes that they are meritless, moot, or

irrelevant.

     To reflect the foregoing,



                                         An appropriate order and

                                   decision will be entered.
