                      T.C. Memo. 1998-460



                  UNITED STATES TAX COURT



   GHALARDI INCOME TAX EDUCATION FOUNDATION, Petitioner
      v. COMMISSIONER OF INTERNAL REVENUE, Respondent

          WILLIAM S. WEBBER, JR., Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



  Docket Nos. 24817-96, 24826-96.   Filed December 30, 1998.



     Donald S. Fletcher (trustee), for petitioner

 foundation.

     William S. Webber, Jr., pro se.

     Lloyd T. Silberzweig and Andrew P. Crousore, for

respondent.


          MEMORANDUM FINDINGS OF FACT AND OPINION

     WHALEN, Judge:   Respondent determined the following

deficiency in and penalty with respect to the Federal
                                  - 2 -


income tax of petitioner Ghalardi Income Tax Education

Foundation:

       Year      Deficiency          Penalty Sec. 6662(a)

       1993           $14,334                 $2,866


Unless stated otherwise, all section references are to the

Internal Revenue Code as in effect for the years in issue.

Respondent also determined the following deficiencies in,

addition to, and penalties with respect to the Federal

income tax of William S. Webber, Jr.:

                                                 Addition to Tax
Year     Deficiency      Penalty Sec. 6662       Sec. 6651(a)(1)

1992       $19,404              $3,881                   -0-
1993        27,426               5,485                 $1,371


These cases were consolidated for trial, briefing, and

opinion by order of the Court issued pursuant to Rule

141(a) of the Tax Court Rules of Practice and Procedure.

In this opinion all Rule references are to the Tax Court

Rules of Practice and Procedure.

       The issue for decision in this case is whether

respondent properly determined the subject tax

deficiencies, penalties, and addition to tax.


                          FINDINGS OF FACT

       Mr. Webber filed Forms 1040, U.S. Individual Income

Tax Return, for 1992 and 1993.           On each return, Mr. Webber
                                                          - 3 -


reported that he was employed as a "Tax Consultant" trading

under the name "Bill's Business Service".                                 Attached to each

return is Schedule C, Profit or Loss From Business, with

respect to Mr. Webber's tax consulting business.                                     Set out

below is a summary of the income and expenses reported on

the Schedule C filed by Mr. Webber for 1992 and 1993:


                                                       1992                           1993

Gross receipts                                        $31,546                        $28,039
Cost of goods sold                                        168                          7,383

Gross Income                                           31,378                        20,656

Advertising                                    $212                           -0-
Car and truck expenses                        5,618                         $3,521
Commissions and fees                          2,446                           -0-
Insurance                                       200                           -0-
Interest:
  a Mortgage (paid to banks, etc.)
  b Other                                        68                           -0-
Legal and professional services                 600                           541
Office expense                                1,928                         1,485
Rent or lease:
  a Vehicles, machinery, and equipment
  b Other business property                     120                           132
Repairs and maintenance                         970                           154
Supplies                                      4,493                         3,264
Taxes and licenses                               75                           -0-
Travel, meals, and entertainment:
   a Travel                                    442                            137
   b Meals and entertainment        $6,574                        $926
  c Enter 20% of line b              1,315                         185
  d Subtract line c from b                    5,259                           741
Utilities                                     1,836                         2,865
Other expenses:
  Bank charges                         144                          36
  Postage                              578                          -0-
  Continuing education                  -0-                        453
  Contributions                         -0-                        125
  Dues and subscriptions                -0-                        754
                                               722                          1,368
Total expenses                                        24,989                         14,208

Net profit (loss)                                      6,389                          6,448
                                - 4 -


     During the years in issue, Mr. Webber maintained a

bank account with First Interstate Bank under the name

Bill Webber d/b/a Bill's Business Service.       He also

maintained two accounts with the Santa Cruz Community

Credit Union under the same name.       Set forth below is a

summary of the aggregate deposits made into Mr. Webber's

three accounts, the amount of cash received at the time

the deposits were made, the gross receipts reported on

Mr. Webber's Schedules C, and the unreported income

determined by respondent:

        Bank                                   1992          1993

First Interstate Bank                       $31,036.82     $24,995.26
Cash received                                 9,450.00       6,350.00
Santa Cruz Community Credit Union, #1           943.50       1,508.33
Santa Cruz Community Credit Union, #2        20,709.74      14,858.33

Aggregate deposits and cash received         62,140.06     47,711.92

Less gross receipts reported                 31,546.00     28,039.00

Unreported income                            30,594.06     19,672.92


     On or about January 2, 1991, Mr. Webber caused a

declaration of trust to be executed entitled the Ghalardi

Income Tax Education Foundation "A Trust", herein referred

to as Ghalardi.     Pursuant to the declaration of trust,

Ms. Lillian Girarde, the sister of Mr. Webber's

grandmother, purportedly created an irrevocable trust:
                           - 5 -


     TO PROVIDE for the administration of the assets
     by natural or corporate persons acting in a
     fiduciary capacity to preserve, conserve,
     maintain, invest, and develop the assets for
     the benefit of the certificate holders and in
     a manner designated in this instrument.


The declaration of trust states that the certificates of

interest of the trust are divided into 100 units or parts,

and it describes the certificates of interest as follows:


                  CERTIFICATES OF INTEREST

     THE CERTIFICATES of interest of this trust, as
     a convenience and for purposes of distributions,
     are divided into one hundred (100) units or parts
     thereof. They are non-assessable, non-taxable
     and non-negotiable. No certificate holder may
     transfer any unit of interest to anyone else,
     without the approval of at least one other
     certificate holder of the trust other than the
     person to whom the units of interest are being
     transferred. When a transfer of units of
     interest is made by a sole certificate holder, or
     one of only two certificate holders to the other
     certificate holder, the transfer must be approved
     by an independent trustee. Ownership of a
     certificate, and the units represented thereby,
     shall not entitle the holder to any legal title
     in or to the trust property, nor any say or power
     in the management thereof.

     NO INTEREST of any certificate holder shall be
     subject to or liable for attachment, execution,
     or other processes of law. No certificate holder
     shall have the right to encumber, hypothecate,
     or alienate his interest in this trust in any
     manner, without the written approval of an
     adverse party.
                            - 6 -


     IF ANY CERTIFICATE holder of this trust shall
     contest in any court the validity of this trust
     or in any manner [sic] to nullify or set aside
     this trust or any of its provisions, then the
     interest of that certificate holder shall cease
     and that person's interest shall be divided up
     among the other certificate holders pro-rata.
     The trustees are authorized to defend, at the
     expense of the trust, any kind of contest or
     attack by a certificate holder or any other
     person against the trust or against any of its
     provisions.

     THE NAME OF EACH certificate holder of this trust
     must be recorded by the trust record keeper in
     the trust records. Any third party may rely
     upon that certified list (Attachment "C") in all
     transactions with the trustees or in behalf of
     the trust, and that list is intended to represent
     a clear and definite means for the ascertainment
     of the certificate holders of this trust.


According to Schedule C, CERTIFIED LIST OF CERTIFICATE

HOLDERS, attached to the declaration of trust, all

certificates of interest in Ghalardi are owned by

Isaac Hull Holding Co.   The record of this case does

not describe this entity or state who owns this entity.

     The declaration of trust sets forth the following

standard governing distributions by the trust:


          ASCERTAINABLE STANDARD FOR DISTRIBUTION

     THE TRUSTEES may accumulate for or distribute
     to any certificate holder such portions of
     the income or corpus of the trust as the
     trustees deem necessary for the support, care,
     maintenance, education, medical expenses or
     emergencies of the certificate holders. No
     distribution from the trust shall be made
     except in conformity with this external
                             - 7 -


     ascertainable standard, except on a pro-
     rata basis of the certificate holders.

     THE TRUSTEES shall have power to distribute
     principal and/or income to the certificate
     holders, or to make decisions or distributions
     of the trust estate in whole or in part, for
     delivery or transfer to the certificate holders
     of any part or any portion thereof, at such
     valuation as is established by the trustees to
     be the fair value of the part or portion, or
     the trustees may convert the trust estate or
     any portion thereof into cash and distribute
     the net proceeds to the certificate holders.


     According to Schedule B of the declaration of trust,

Ms. Girarde contributed the following personal property

to the trust:    Tools, checking and savings accounts,

furniture, fixtures, and others as per the inventory.

There is no evidence, however, that Ms. Girarde contributed

any property to the trust in January 1991 or at any other

time.

     The declaration of trust purports to have been

executed by two trustees, Ms. Judie Dew and Mr. Don

Fredrickson.    Both individuals have personal relation-

ships with Mr. Webber, and neither of them exercised any

independent judgment or control with respect to Ghalardi

or any of the assets allegedly held by or on behalf of

Ghalardi.

     On or about January 5, 1993, Mr. Webber opened a

checking account at First Interstate Bank with an initial
                             - 8 -


deposit of $1,550.   This account purported to be in the

name of Ghalardi Income Tax Education Foundation.      This

account was closed several months later because the bank

determined that it did "not meet our bank's guidelines for

a Trust account."    During the time it was open, deposits

in the aggregate amount of $11,875 were made to the

account.

     On or about May 26, 1993, Mr. Webber opened another

account under the name Ghalardi Income Tax Education

Foundation at the Coast Commercial Bank in Santa Cruz,

California.    The signature card for the account is

signed by Mr. Webber as manager and by Ms. Dew and

Mr. Fredrickson, who purport to be acting as trustees

of Ghalardi.   During 1993, aggregate deposits of $23,805

were made to this account.

     Set out below is a list of the dates and amounts of

the deposits made to the First Interstate Bank and the

Coast Commercial Bank accounts that were opened by

Mr. Webber under the name Ghalardi Income Tax Education

Foundation:
                                - 9 -


     Date        First Interstate Bank   Coast Commercial Bank    Total

    01/05/93           $1,550                     --
    01/26/93            3,675                     --
    02/02/93            1,100                     --
    03/09/93            1,000                     --
    03/31/93            1,725                     --
    04/09/93              825                     --
    04/14/93              750                     --
    05/05/93            1,250                     --
    05/27/93             --                     $1,650
    05/28/93             --                        500
    07/02/93             --                      1,750
    08/06/93             --                      2,700
    09/01/93             --                      3,200
    10/01/93             --                      2,310
    10/06/93             --                      1,125
    10/18/93             --                      1,075
    11/04/93             --                      2,250
    11/29/93             --                      3,800
    12/09/93             --                        625
    12/21/93             --                      1,500
    12/23/93             --                      1,320

                       11,875                   23,805            $35,680


The parties have stipulated that aggregate deposits of

$23,655 were made during 1993 to the Coast Commercial Bank

account.    This is $150 less than the aggregate deposits

reflected on the statements for that account, as shown

above.   We shall use the amount stipulated by the parties.

The parties have also stipulated that $2,900 of cash was

received by petitioner in connection with the above

deposits to the Coast Commercial Bank account.           Thus,

petitioner made aggregate deposits during 1993 of $35,530

and received an additional $2,900 in cash, for a total of

$38,430.    The record of this case does not establish the

source of any of these funds.       Mr. Webber used those funds

as his own.
                             - 10 -


    During the years in issue, Mr. Webber exercised

complete and unfettered control over the moneys on deposit

in the above accounts under the name Ghalardi Income Tax

Education Foundation.

    Ghalardi filed a return for calendar year 1993 on Form

1041, U.S. Fiduciary Income Tax Return.          As part of the

return, there is a Schedule C, Profit or Loss From

Business, which purports to be from a business described

as Consultant/Education that was operated under the name

G.I.T.E.F.   The receipts and expenses reported on Schedule

C for this alleged business are as follows:

     Gross receipts                                          $22,845
     Car and truck expenses                         $3,415
     Rent or lease
       Vehicles, machinery & equipment                 822
       Other business property                       7,000
     Supplies                                        5,741
     Travel, meals, & entertainment
       Travel                                          534
     Utilities                                         688
     Other Expenses
       Service charges                    $990
       Freight                              19
       Team building                       113
       Bank charges                        101
       Conventions, seminars             2,391
       Dues, publications                  943
       Parking                              10
       Samples, displays                    89
       Contract labor                      725
       Total other expenses                          5,381
       Total expenses                                         23,581

     Net profit or (loss)                                         (736)


     Respondent made three adjustments in the notice of

deficiency issued to Ghalardi.      First, respondent
                               - 11 -


determined that Ghalardi had received unreported income

during 1993 in the amount of $15,585, the excess of the

sum of the total deposits to Ghalardi's bank accounts and

cash received, $38,430, over the gross receipts reported

on Ghalardi's Schedule C, $22,845.        Second, respondent

determined that Ghalardi is entitled to none of the

expenses claimed as deductions on its Schedule C for 1993

because Ghalardi did not establish that it was engaged in

a trade or business, that the amounts were paid, or that

they constituted allowable deductions.        Finally, respondent

determined Ghalardi's liability for the accuracy-related

penalty imposed under section 6662(a) for negligence or

disregard of rules or regulations or, in the alternative,

for substantial understatement of income tax.

     Respondent made seven adjustments in the notice of

deficiency issued to Mr. Webber.        First, respondent

increased Mr. Webber's taxable income for 1992 and 1993

in the amount by which the total deposits to Mr. Webber's

bank accounts and cash received exceed the gross receipts

reported on Mr. Webber's Schedules C as follows:


                                           1992             1993

Total deposits and cash received         $62,140.06     $47,711.92
Less gross receipts reported              31,546.00      28,039.00

Unreported income                        30,594.06      19,672.92
                            - 12 -


     Second, respondent disallowed the cost of goods sold

claimed on the Schedules C for Mr. Webber's tax consulting

business in the amount of $168 in 1992 and $7,383 in 1993.

Third, respondent disallowed the expenses claimed on the

Schedules C, $24,989 in 1992 and $14,208 in 1993, on the

ground that Mr. Webber had not substantiated any of these

expenses.    Fourth, respondent increased Mr. Webber's

taxable income by Ghalardi's gross receipts for 1993,

$38,430.    The notice of deficiency sets forth the follow-

ing explanation of this adjustment:


     It has been determined that Ghalardi ITEF
     operates as an agent of William S. Webber.
     Income from Ghalardi ITEF is being reassigned to
     William S. Webber in the amount indicated below
     [i.e., $38,430].


Fifth, respondent decreased Mr. Webber's taxable income by

one-half of the additional self-employment tax determined

for the year, $3,821 for 1992 and $4,269 for 1993.

     Sixth, respondent determined that Mr. Webber is

liable for the addition to tax under section 6651(a)(1)

for failure to file Mr. Webber's 1993 return on or before

Monday, October 17, 1994, the due date including

extensions.    Finally, respondent determined that Mr. Webber

is liable for the accuracy-related penalty under section

6662(a) for 1992 and 1993 on the ground that the under-
                           - 13 -


payment of tax for each year was due to negligence, a

substantial understatement of tax, or a substantial

valuation misstatement.

     After respondent issued the subject notice of

deficiency to Mr. Webber and after Mr. Webber had filed

the instant petition in this Court, he sent to respondent

a second Form 1040 for both 1992 and 1993 on which he

shows zero taxable income and claims a refund of the tax

paid for both years.   Attached to each of those documents

is a statement signed by Mr. Webber.   The document attached

to Mr. Webber's 1992 "amended return" states as follows:


     I, William Spencer Webber, Jr., am submitting
     this as part of my 1992 income tax return. I am
     filing this return in response to the Informal
     Request for Admissions concerning docketed case
     no. 24826-96. I am filing this corrected return
     in order to adjust the voluntary over reporting
     of taxable income on my original return for the
     tax year 1992, which was shown in ignorance of
     the laws and regulations and without this
     document having been submitted.

     In addition to the above, I am filing the
     corrected return even though the "Privacy Act
     Notice" as contained in a 1040 booklet clearly
     informs me that I am not required to file any
     return such as the one I filed in 1992 and
     which I am now amending based upon the laws
     and regulations of the Internal Revenue Code.
     It does so in at least two (2) places:

     A.   In one place it states that I need only
          file a return for "any tax" for which I
          may be liable. Since no Code Section
          makes me "liable" for income taxes,
          this provision notifies me that I do
                     - 14 -


     not have to file an income tax return,
     which I did in ignorance in 1992.

B.   In another place it direct [sic] me to
     Code Section 6001. This section
     provides, in relevant part, that
     "whenever in the judgement of the
     Secretary it is necessary, he may
     require any person by notice served
     upon such person, or by regulations, to
     make such returns, render such
     statements, or keep such records, as
     the Secretary deems sufficient to show
     whether or not such person is liable
     for tax under this title." Since the
     Secretary of the Treasury did not
     "serve" me with any such "notice" and
     since no legislative regulation exists
     requiring anyone to file an income tax
     return, I am again informed by the
     "Privacy Act Notice" that I am not
     required to file an income tax return.

Even though I know that no section of the
Internal Revenue Code:

1.   Establishes an income tax "liability"
     as, for example, Code Sections 4401,
     5005, & 5703 do with respect to
     wagering, alcohol & tobacco taxes;

2.   Provides that income taxes "have to be
     paid on the basis of a return" as, for
     example, Code Sections 4374, 4401(c),
     5061(a), & 5703(b) do with respect to
     other taxes

In addition:

3.   26 CFR 602.101 does not list a 1040
     (OMB#1545-0074) as even being
     applicable to the income tax imposed in
     Section 1 of the Code. This regulation
     refers the public to a document
     carrying OMB#1545-0067, which is for
     reporting "Foreign Earned Income."
     Since I had no foreign earned income to
     report, there seems to be no other
                     - 15 -


     document or return that 26 CFR 602.101
     makes applicable to the income tax
     imposed in Section 1 of the Internal
     Revenue Code.

4.   Sections 6103(h) & 6103(l) provide that
     all return information can be used
     against me to determine and impose both
     criminal and civil fines and penalties.
     Therefore, I do not see how any [sic]
     can compel me to provide information to
     the government that can be used against
     me in this manner, consistent with my
     Fifth Amendment right not to be
     compelled to be a witness against
     myself. Fifth Amendment protection
     applies to any proceeding, civil or
     criminal, adminis-trative or judicial,
     and may be invoked in connection with
     federal income taxes. See U.S. v.
     Argomaniz, 925 F.2d 1349 (11th Cir.
     1991); Cincinnati v. Bawtenheimer, 63
     Ohio St. 3d, p.260.

5.   With respect to the information I have
     included in my return, I wish to point
     out that the courts have ruled that:
     "A (1040) form with 'zeros' inserted in
     the space provided * * * qualified as a
     return." See U.S. v. Long, 618 F.2d 74
     (9th Cir. 1980), U.S. v. Kimball, 896
     F.2d 1218 (9th Cir. 1990), U.S. v.
     Moore, 627 F.2d 830 (7th Cir. 1980),
     and a Las Vegas bankruptcy court held
     that "Zeroes entered on a Form 1040
     constitutes a return."" [sic] See
     Cross v. U.S., 91-2 USTC p.50, 318;
     Bankr.L.Rep. p. 7404.

6.   It is also noted that I had "zero"
     income according to the Supreme Court's
     definition of income, 1since in
     Merchant's Loan & Trust Co. v.
     Smietanka, 225 U.S. 509 (at pages 518 &
     519) the court held that, "The word
     (income) must be given the same meaning
     in all of the Income Tax Acts of
     Congress that was given to it in the
                     - 16 -


     Corporation Excise Tax Act of 1909."
     Therefore, since I had no earnings in
     1992 that would have been taxable as
     "income" under the Corporation Excise
     Tax Act of 1909, I can only swear to
     having "zero" income in 1992.
     Obviously, since I know the legal
     definition of "income," if I were to
     swear to having received any other
     amount of "income," I would be
     committing perjury under both 18 U.S.C.
     1621 and U.S.C. 7206. Thus, not
     wishing to commit perjury under either
     statute, I can only swear to have
     "zero" income for 1992.

7.   Please note that my 1992 return also
     con-stitutes a claim for refund
     pursuant to IRCode § 6402.

8.   I am also putting IRS on notice that my
     corrected 1992 tax return and claim for
     refund does not constitute a
     "frivolous" return pursuant to IRCode §
     6702. My amended return and claim for
     refund is based on 9 court decisions, 9
     Internal Revenue Code sections, 3
     Privacy Act Notice provisions and
     numerous other references. As such, it
     can not [sic] be termed "frivolous"
     on any basis as that term is defined
     and understood. In addition, my return
     is not designed to "delay or impede the
     administration of Federal Income Tax
     laws," since it is designed to be my
     final statement under those "laws."
     Further, no IRS employee has any
     delegated authority to impose a
     "frivolous" penalty, or is there any
     legislative regulation implementing
     IRCode § 6702; thus the statute is
     benign.

9.   Finally, I shall hold any and all IRS
     employees who disregard the statutes,
     court decisions, Privacy Act Notice
     provisions and other references
     contained in this document accountable
                           - 17 -


           pursuant to 26 U.S.C. 7214 and 18
           U.S.C. 241. Section 7214 makes it a
           crime for IRS agents to seek to extract
           "other or greater sums than authorized
           by law" and to engage in "extortion and
           willful oppression under color of law."
           To the extent that IRS employees
           capriciously, wantonly, and arbitrarily
           disregard the court decisions,
           statutes, and other references con-
           tained in this document, they will be
           in criminal violation of these statutes
           and are, accordingly, being put on such
           notice.

    Signed   William S. Webber, Jr.    Date September 3, 1997
             William S. Webber, Jr.
       1
        The word "income" is not defined in the
     Internal Revenue Code (See U.S. v. Ballard, 535
     F.2d 400, 404). But, as stated above, it can
     only be a derivative of corporate activity.
     The Supreme Court has held this numerous times.
     "Whatever difficulty there may be about a precise
     and scientific definition of 'income' it imports,
     as used here * * * the idea of gain or increase
     arising from corporate activities." See Doyle
     v. Mitchell, 247 U.S. 179. "Certainly the term
     'income' has no broader meaning in the 1913 Act
     than in that of 1909 (See Stratton's Independence
     v. Howbert, 231 U.S. 399, 416, 417), and we
     assume that there is no difference in its meaning
     as used in the two acts." Southern Pacific Co.
     v. John Z. Lowe, Jr., 247 U.S. 330, 335.


The document attached to Mr. Webber's 1993 "amended return"

is virtually identical to the above.


                           OPINION

     Petitioners make eight frivolous contentions in their

posttrial briefs.   First, petitioners allege that the

expenses disallowed by respondent are "ordinary and
                           - 18 -


necessary expenses" incurred during the taxable year in

carrying on their trades or businesses and are deductible

under section 162.   Respondent disallowed all the expenses

claimed on the Schedules C filed by Ghalardi and

Mr. Webber, as well as the cost of goods sold claimed on

Mr. Webber's Schedule C, because petitioners neither

substantiated any of the amounts claimed nor showed that

the expenses or costs of goods sold were allowable.

Petitioners' contention is frivolous because, at trial,

they introduced no testimony or documents to substantiate

any of the expenses or costs of goods sold claimed by

either petitioner.

     Second, petitioners assert that the notices of

deficiency issued to them are not reflected in a computer

summary of their accounts, designated the "Individual

Master File Tax Module", for 1992 or 1993.   Petitioners

introduced a copy of the computer summary of Mr. Webber's

account for 1992 and 1993, but they did not introduce a

computer summary of Ghalardi's account.   Based upon the

computer summary of Mr. Webber's account, petitioners argue

"that there has never been an official filing of a notice

of deficiency for either year" and that the subject

"Notices of Deficiency are invalid and fraudulent."

Petitioners cite no authority for their contention.
                          - 19 -


     Third, petitioners argue that "even if the deficiency

notices sent by IRS were valid, any additional assessments

that they would have created would be invalid."   According

to Mr. Webber, this is true because respondent "has no

delegated authority to prepare returns for Petitioner and,

therefore, no legal deficiency notices are possible in the

instant case where Petitioner did not self-assess himself."

     Fourth, petitioners argue that "any returns provided

by Respondent that were prepared by a revenue officer in

the San Jose office of Internal Revenue will not conform

to 26 USC 6065 because such returns are not authorized by

law nor are they affirmed under penalties of perjury."

Similarly, petitioners argue that respondent's agent

violated the law "by failing to provide a lawful signature

on his information reports" as required by section 6065.

Petitioners charge that, by completing the statements of

income tax examination changes that are attached to the

notices of deficiency and by filing those statements as

"substitute returns" for petitioners under section 6020(b),

respondent's agent has "made an attempt to extort sums"

from petitioners in violation of section 7214.

     Fifth, petitioners assert that under our system of

taxation, "the only way Internal Revenue can legally

collect an income tax from an individual citizen * * *
                           - 20 -


is if the individual voluntarily files a form 1040,

self assesses an amount of tax, and then does not pay."

Petitioners assert that "there is no section in the

Internal Revenue Code which establishes an income tax

liability".

     Sixth, petitioners assert that the meaning of the

term "gross income" for purposes of the Internal Revenue

Code "means 'gains and profits' derived from corporate

activities".   In responding to a request for admissions

from respondent, Mr. Webber employed this meaning of the

word "income".   For example, Mr. Webber denied that

"nontaxable income" was deposited into certain checking

accounts because, according to him, "the word 'income'

infers corporate profit and I had no corporation,

therefore, I had no 'income.'"

     Seventh, petitioners complain about the bias exhibited

by both respondent's agent and the Court.   For example,

petitioners make the following complaint:


     The Judge has surrendered the position of
     indifference and supported Internal Revenue in
     these cases. Judge Whalen was witnessed by at
     least two people in the course of preparing to
     hear this matter to have referred to Petitioner
     Webber as a "tax protestor." Although this
     accusation was denied by the Judge on the record,
     witnesses could collaborate [sic] the expressed
     bias. Throughout the trail [sic] Judge Whalen
     held contempt for the Pro per litigant by
     demanding a presence and a knowledge of procedure
                            - 21 -


     that would be expected ONLY of an accredited
     officer of the Court. The deportment of the
     Judge in this hearing surely violated the Maxim
     of Jurisprudence noted in CIV § 3512, which
     states, "One must not change his purpose to the
     injury of another."


     Finally, Mr. Webber contends that he filed his 1993

return on October 17, 1994, which was timely because

October 15, 1994, fell on Saturday.    The notice of

deficiency states that Mr. Webber's return was filed on

October 19, 1994.    This contention is frivolous because

Mr. Webber introduced no evidence regarding the manner in

which his 1993 return was filed or the date on which such

filing took place.    Accordingly, there is no basis in the

record to overturn respondent's determination on this

point.

     Each of the contentions raised by petitioners is

frivolous or groundless and none of them merit discussion.

See Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir.

1988) (stating that paying taxes is not voluntary), affg.

T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006,

1009 (9th Cir. 1986) (rejecting taxpayer's argument that

the income tax is voluntary); Abrams v. Commissioner, 82

T.C. 403, 407 (1984) (stating that gross income under

section 61 means all income from whatever source derived);

Rowlee v. Commissioner, 80 T.C. 1111, 1116-1117, 1120
                          - 22 -


(1983) (rejecting taxpayer's assertion that he is not a

"person liable" for tax and the taxpayer's allegations of

bias); Stone v. Commissioner, T.C. Memo. 1998-314 (stating

that section 6065 applies to returns and other documents

filed with Commissioner but does not apply to notices of

deficiency); Janus v. Commissioner, T.C. Memo. 1996-195

(finding that forms included in the notices of deficiency

detailing the adjustments made by Commissioner did not

serve as substitute returns under section 6020 and that

nothing in the Internal Revenue Code requires the Secretary

to file a return pursuant to section 6020 before assessing

a deficiency); Hill v. Commissioner, T.C. Memo. 1992-140

(describing taxpayer's assertion that he owes no income

tax in the absence of a voluntary self-assessment as an

"outdated protester-type argument"); Lewis v. Commissioner,

T.C. Memo. 1992-76 (dismissing taxpayers' arguments that

tax system is voluntary and that self-assessment is

required before a notice of deficiency can be issued as

"stale tax protester contentions"); Ebert v. Commissioner,

T.C. Memo. 1991-629 (rejecting taxpayer's assertion that

there is no section of the Internal Revenue Code that makes

taxpayer liable for the taxes claimed), affd. without

published opinion 986 F.2d 1427 (10th Cir. 1993); Rice

v. Commissioner, T.C. Memo. 1978-334 (stating that
                           - 23 -


the allegation that the conduct of agents of the Internal

Revenue Service in issuing the notice of deficiency

violates section 7214 is a matter over which the Tax Court

has no jurisdiction); Spencer v. Commissioner, T.C. Memo.

1977-145 (stating that section 6065 does not require

notices of deficiency issued by Commissioner to be signed

under penalties of perjury).   In view of the fact that

all of petitioners' arguments are frivolous or groundless,

we will require Mr. Webber to pay to the United States a

penalty pursuant to section 6673(a) in the amount of

$10,000.

     Furthermore, Mr. Webber presented no evidence at

trial and made no argument in his posttrial briefs

regarding respondent's determination of the addition

to tax under section 6651(a)(1) and the penalty under

section 6662(a).   Accordingly, we hereby sustain those

determinations.

     Notwithstanding petitioners' failure to raise an

issue that merits discussion, we must address the notice

of deficiency issued to Ghalardi.   Respondent argues that

Ghalardi was a sham devised by Mr. Webber in an attempt

to shift income to Ghalardi.   There is ample evidence to

support that contention and no evidence to contradict it.

For example, we have found that Mr. Webber formed Ghalardi
                           - 24 -


and exercised full and complete control over all of

Ghalardi's assets.   There is no evidence in this case that

Ghalardi had any role or economic purpose other than to

shift income from Mr. Webber and tax avoidance.    We find

that Mr. Webber stood in the same position with respect

to the assets allegedly held by Ghalardi after its

formation as before.   See Zmuda v. Commissioner, 79 T.C.

714, 721 (1982), affd. 731 F.2d 1417 (9th Cir. 1984);

Professional Servs. v. Commissioner, 79 T.C. 888, 925

(1982).   Mr. Webber was free to deal with Ghalardi's assets

without restraint and, as a matter of economic reality,

there was no separation of legal title from beneficial

enjoyment and, hence, Ghalardi was a nullity.     See

Markosian v. Commissioner, 73 T.C. 1235, 1244-1245 (1980);

Dahlstrom v. Commissioner, T.C. Memo. 1991-265, affd.

without published opinion 999 F.2d 1579 (5th Cir. 1993).

Accordingly, we agree with respondent that Ghalardi is a

sham for Federal income tax purposes.   Thus, we sustain

the adjustment to Mr. Webber's 1993 return in which

respondent increased Mr. Webber's taxable income by the

amount of Ghalardi's gross income for the year.     The

notice of deficiency issued to Ghalardi which appears

to have been in the nature of a protective notice of

deficiency, is hereby disapproved.   See Professional
                          - 25 -


Servs. v. Commissioner, supra; Tatum v. Commissioner,

T.C. Memo. 1988-579, affd. without published opinion

886 F.2d 1313 (5th Cir. 1989).


                                 In the case at docket No.

                           24817-96, decision will be

                           entered for petitioner.

                                 In the case at docket No.

                           24826-96, decision will be

                           entered for respondent.
