                   T.C. Memo. 2008-152



                 UNITED STATES TAX COURT



            SAMUEL D. BATES, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 4010-06.                Filed June 12, 2008.



     R determined deficiencies and penalties under sec.
6662, I.R.C., for 2001 and 2002. The deficiencies and
sec. 6662, I.R.C., penalties were based on P’s failure
to include Social Security benefits and the
disallowance of a deduction.

     Held:   R’s determinations are sustained.

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



Samuel D. Bates, pro se.

Alan E. Staines, for respondent.
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             MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:   After concessions by petitioner,1 the issues

for decision are:2

     (1) Whether petitioner is entitled to a loss deduction of

$1,999 for “Hotel Connect” for taxable year 2002;

     (2) whether petitioner is liable for the section 6662

penalty in the amounts of $3 and $285 for taxable years 2001 and

2002, respectively;3 and

     (3) whether the Court should sua sponte impose a section

6673 penalty.

                           FINDINGS OF FACT

     Some of the facts have been stipulated by the parties.   The

stipulations, with accompanying exhibits, are incorporated herein




     1
      Petitioner conceded that his wife, Joyce M. Bates, received
Social Security benefits of $8,739 and $8,824 for 2001 and 2002,
respectively, which should have been included on their 2001 and
2002 joint Federal income tax returns.
     2
      Respondent initially determined that petitioner was
entitled to a sec. 6428 rate reduction tax credit of $205.50 but
now indicates on brief that the correct amount of the credit is
$393.50 for 2001. Petitioner did not raise any issue with the
credit. As the credit is a computational adjustment that is
based on petitioner’s taxable income, it will be addressed in the
Rule 155 computation. See infra note 4. The Court will not
address this issue further.
     3
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended and in effect for
the years in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
                                - 3 -

by this reference.   At the time the petition was filed,

petitioner resided in Sacramento, California.

     In 2001, petitioner’s wife, Joyce M. Bates (Mrs. Bates),

received $8,739 in Social Security benefits.    Respondent received

petitioner’s 2001 joint Form 1040, U.S. Individual Income Tax

Return, on November 18, 2002.   That return, which was prepared by

Melisa Coates (Ms. Coates), did not include Mrs. Bates’s Social

Security benefits, as petitioner did not provide any

documentation regarding those benefits to Ms. Coates.    Respondent

received petitioner’s self-prepared joint amended Federal income

tax return for 2001 on June 3, 2005.    On that return petitioner

deleted his previously reported $27,577 of wages from Form W-2,

Wage and Tax Statement, claiming that the amounts received were

not “wages as defined in 3401(a) and 3121(a)” and also failed to

include Mrs. Bates’s Social Security benefits.

     In 2002, Mrs. Bates received $8,824 in Social Security

benefits.   Respondent received petitioner’s 2002 joint Federal

income tax return on October 16, 2003.   That return, prepared by

Ms. Coates, did not include Mrs. Bates’s Social Security

benefits, as once again petitioner did not provide any

documentation regarding those benefits to Ms. Coates.    The return

included a deduction for an alleged partnership loss of $1,999

for “Hotel Connect”.   Petitioner has no books, records, or

documents that substantiate his “Hotel Connect” loss deduction.
                              - 4 -

Respondent also received petitioner’s self-prepared 2002 joint

amended Federal income tax return on June 3, 2005, and a second

self-prepared 2002 joint amended return on August 22, 2005, both

of which deleted petitioner’s previously reported $46,097 of Form

W-2 wages and failed to include Mrs. Bates’s Social Security

benefits.

     On November 18, 2005, respondent mailed a notice of

deficiency to petitioner and Mrs. Bates for their 2001 and 2002

taxable years, which reflected deficiencies and penalties

pursuant to section 6662(b) for each taxable year.4   Petitioner

filed a timely petition that contained frivolous and meritless

tax-protester arguments.5




     4
      The notice of deficiency included items that were stricken
when the Court, on May 21, 2007, granted respondent’s Apr. 26,
2007, motion to dismiss for lack of jurisdiction and to strike,
as to portions of the petition relating to partnership items of
Security Plus, Ltd. and related affected items. As a result, a
Rule 155 computation is required.

     The Court notes that the notice of deficiency included a
sec. 6651(a)(1) addition to tax for taxable year 2001. However,
respondent never addressed the addition to tax at trial, having
determined that it was de minimis after respondent’s motion was
granted. The sec. 6651(a)(1) addition to tax is deemed conceded
by respondent.
     5
      Petitioner focused his arguments on the lack of delegated
authority to the person who issued and signed the notice of
deficiency. It is well established that the Secretary or his
delegate may issue notices of deficiency. Secs. 6212(a),
7701(a)(11)(B) and (12)(A)(i); see Nestor v. Commissioner, 118
T.C. 162, 165 (2002).
                              - 5 -

     On May 14, 2007, petitioner lodged a motion for summary

judgment and supporting memorandum of law.    Petitioner’s motion

and supporting memorandum were filed on May 21, 2007, the date of

trial in San Francisco, California.   Petitioner’s motion and

memorandum were voluminous documents containing only frivolous

and meritless tax-protester arguments.6   Respondent lodged an

objection to petitioner’s motion for summary judgment on May 18,

2007, which was filed on the date of trial.    Also on the date of

trial, petitioner filed a reply to respondent’s objection, which

contained frivolous and meritless tax-protester arguments.      On

May 22, 2008, the Court denied petitioner’s frivolous motion for

summary judgment.




     6
      Petitioner expanded on his frivolous and meritless
arguments regarding delegated authority, see supra note 5, to
include frivolous and meritless challenges to the Internal
Revenue Code generally and its applicability to him personally.
All of petitioner’s arguments are time-worn tax-protester
arguments. See, e.g., United States v. Nelson (In re Becraft),
885 F.2d 547, 548 (9th Cir. 1989) (“For over 75 years, the
Supreme Court and the lower federal courts have both implicitly
and explicitly recognized the Sixteenth Amendment’s authorization
of a non-apportioned direct income tax on United States citizens
residing in the United States and thus the validity of the
federal income tax laws as applied to such citizens.”); Olson v.
United States, 760 F.2d 1003, 1005 (9th Cir. 1985) (“This court
has repeatedly rejected the argument that wages are not income as
frivolous.”). The Court will not further address petitioner’s
arguments “with somber reasoning and copious citation of
precedent; to do so might suggest that these arguments have some
colorable merit.” Crain v. Commissioner, 737 F.2d 1417, 1417
(5th Cir. 1984).
                                - 6 -

                               OPINION

I.   Petitioner’s “Hotel Connect” Loss Deduction

     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, pursuant to section 7491(a),

the burden of proof on factual issues that affect the taxpayer’s

tax liability may be shifted to the Commissioner where the

“taxpayer introduces credible evidence with respect to * * * such

issue.”   The burden will shift only if the taxpayer has, inter

alia, complied with substantiation requirements pursuant to the

Internal Revenue Code and “cooperated with reasonable requests by

the Secretary for witnesses, information, documents, meetings,

and interviews”.   Sec. 7491(a)(2).     Petitioner did not raise the

burden-of-proof issue, failed to comply with the substantiation

requirements, and did not introduce any credible evidence.

Accordingly, the burden of proof remains on petitioner.

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving that he is entitled to any

claimed deductions.   INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).   Taxpayers must maintain records relating to their income

and expenses and must prove their entitlement to all claimed
                                 - 7 -

deductions, credits, and expenses in controversy.     See sec. 6001;

Rule 142(a); INDOPCO, Inc. v. Commissioner, supra at 84; Welch v.

Helvering, supra at 115.     Petitioner has no books, records, or

documents that substantiate his “Hotel Connect” loss deduction.

Accordingly, the Court concludes that petitioner is not entitled

to the deduction.

II.   Section 6662 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

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

6662 penalty for 2001 and 2002.    As explained below, the Court

concludes that petitioner was negligent.

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

penalty 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
                                 - 8 -

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. 1.6662-

3(b)(2), Income Tax Regs.     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 (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 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.

     The notice of deficiency included the imposition of the

section 6662(a) penalty for taxable years 2001 and 2002 on the
                                 - 9 -

basis that petitioner was negligent in failing to include Mrs.

Bates’s Social Security benefits for each year and did not

maintain adequate books and records to substantiate his “Hotel

Connect” deduction.    Petitioner admitted that he should have

included his wife’s Social Security benefits on their 2001 and

2002 joint Federal income tax returns and amended returns and

that he did not have any records to substantiate the “Hotel

Connect” deduction.    Petitioner has not contended that the

reasonable cause exception applies, and we do not see any

evidence that it does.    Accordingly, the Court concludes that

petitioner is liable for the section 6662 penalty for taxable

years 2001 and 2002.

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

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).   Courts have ruled that arguments to avoid tax
                               - 10 -

obligations and requirements, such as those arguments espoused by

petitioner, are groundless and wholly without merit.    See

Williams v. Commissioner, T.C. Memo. 1999-277 (imposing section

6673 penalty for tax-protester arguments); Morin v. Commissioner,

T.C. Memo. 1999-240 (same); Sochia v. Commissioner, T.C. Memo.

1998-294 (same).

     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,
     supra at 72.]

     Petitioner repeatedly raised frivolous and meritless tax-

protester arguments in his petition, in his voluminous motion for

summary judgment and memorandum of law in support of petitioner’s

motion for summary judgment, at trial, and on brief.   He did so

in his most recently filed document despite being warned by the

Court in an order dated September 6, 2007, that his arguments

were frivolous and meritless and could warrant the imposition of

the section 6673 penalty.    The Court concludes that a penalty is

appropriate and therefore exercises its discretion sua sponte to

impose upon petitioner a section 6673 penalty of $1,000 to be

paid to the United States.   Although a greater penalty is
                             - 11 -

warranted, we exercise restraint in light of petitioner’s

cooperation in the stipulation process.

     The Court has considered all of petitioners’ 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,


                                          Decision will be entered

                                   under Rule 155.
