                       T.C. Memo. 1998-234



                     UNITED STATES TAX COURT



          JORGE V. AND CAROL A. GEAGA, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13972-97.                       Filed July 1, 1998.



     Jorge V. Geaga, pro se.

     Roger P. Law, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Chief Judge:    Respondent determined a deficiency of

$14,173 in petitioners' Federal income taxes for 1995 and a

penalty of $2,835 under section 6662(a).    All section references

are to the Internal Revenue Code in effect for the year in issue,

unless otherwise indicated.    The issue for decision is whether
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petitioners are liable for the penalty as determined by

respondent.

                          FINDINGS OF FACT

     Petitioners resided in Los Angeles, California, at the time

that they filed their petition.    On December 23, 1991, petitioner

Jorge V. Geaga (petitioner) wrote to the Department of the

Treasury with respect to a notice that he owed Federal income

taxes and a penalty for 1990, explaining petitioner's theories

why certain items should be deductible notwithstanding contrary

legal precedent, and requesting a hearing before a Tax Court

judge.    Thereafter, petitioner commenced an intensive letter-

writing campaign concerning the amounts that he wished to claim

as business deductions.    Over the years, petitioner's letters

became increasingly threatening and accusatory, demanded greater

refunds, and repeated his request for a hearing before a Tax

Court judge.

     Petitioners filed two prior cases in this Court, docket No.

9749-93, with respect to their Federal income taxes for 1990, and

docket No. 18569-93, with respect to their Federal income taxes

for 1991.    The petition in docket No. 9749-93 was filed May 17,

1993.    That case was set for trial but was continued on

respondent's motion without objection by petitioners.     On

November 22, 1994, a decision was entered in that case pursuant

to a stipulation signed by petitioners.      As a result of allowance
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of a loss carried back from 1993, the settlement reflected an

overpayment for 1990.

     The petition in docket No. 18569-93 was filed August 27,

1993.   That case was set for trial, but, prior to the trial date,

the parties agreed to a settlement.      A decision was entered

October 28, 1994, pursuant to a stipulation signed by

petitioners.   The stipulated decision reflected a deficiency of

$10,131 for 1991.

     After settlement of the cases for 1990 and 1991, disputes

between petitioners and the Internal Revenue Service (IRS)

continued as a result of collection efforts by the IRS relating

to petitioners' liabilities for 1991 and 1992.      In February 1996,

petitioners prepared their Federal income tax return for 1995.

On line 12 of that return, they claimed a $99,000 business loss

and inserted "See Appendix A".    Petitioners offset their combined

wages and salaries income of $124,553.62 with this alleged loss,

resulting in a claimed overpayment of $4,764.      In "Appendix A",

they explained that they were claiming a loss of $49,000 that was

disallowed on their 1990 tax return and $50,000 that was

disallowed on their 1991 tax return.      Attached to their 1995 tax

return was a statement dated February 25, 1996, as follows:

     Please note that I have assigned the $4764.00
     overpayment for 1995 to pay for the $794.00 1991-1992
     ACS plan installments for the payment dates Apr. 1,
     May 1, June 1, Jul 1, Aug. 1, and Sep 1, 1996. I am
     sending a copy of this statement to the ACS plan office
     and to Congressman Becerra's office. In the instance
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     the IRS decides to contest the loss deduction I have
     claimed, let this document serve as proof that I waive
     my rights to an appeal before the IRS and directly
     request a tax deficiency statement so I can file for a
     hearing before the U.S. Tax Court. Please furnish
     appropriate citations of sections of the U.S. Tax Code
     which are used to justify denial [of] the deductions I
     have claimed.

     On February 12, 1997, a Problem Resolution Specialist for

the IRS sent to petitioner a letter containing the following

paragraphs:

          This is in response to your letter to me dated
     January 21, 1997, regarding your original inquiry on
     October 28, 1996. You stated that you believe that the
     Internal Revenue Service can overturn the decisions
     made by the United States Tax Court on your 1990 and
     1991 cases. Unfortunately, that is not true. A
     taxpayer's purpose in filing a petition with Tax Court
     is to appeal an Internal Revenue Service determination
     to a higher authority. We must accept the decision of
     the Tax Court whether it is in our favor or in the
     taxpayer's favor. The taxpayer, however, can appeal
     the decision to a higher court if he has not signed the
     Decision Document. The Decision Document that you
     signed is legally binding, and it cannot be retracted.

          Although we could not overturn the Tax Court
     decision, you have been allowed to take the $99,000
     deduction from your 1995 taxes. You claimed that
     deduction as a business loss on your 1995 tax return,
     and it was allowed without being audited. The loss
     offset most of your earnings for that year and resulted
     in no tax being due. The credit that was created by
     your withholding, $4,764, was applied to the balance on
     your 1991 and 1992 taxes, $2,082.53 for 1991 and
     $2,681.47 for 1992. You are making monthly payments on
     the balance still owing for 1992, but I must inform you
     that interest will continue to accrue until the account
     is paid in full.

On June 9, 1997, the statutory notice for 1995 was sent to

petitioners.   The $99,000 deduction was disallowed, and a small
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adjustment was made to petitioners' itemized deductions.   The

petition was filed June 30, 1997, in which petitioners allege:

          (1) * * * IRS knowingly and intentionally accepted
     deductions claimed in 1995 which were incurred in 1990
     and 1991 (in violation of federal law). (2) * * *
     Court is requested to reverse decisions on Dockets
     9749-93 and 18569-93. IRS consciously and
     intentionally violated the constitutional rights of the
     petitioners in securing these decisions. (3) * * *
     Damages are claimed by the petitioners against the IRS
     * * * [named employees of the IRS] in the amount of
     $314173.00 for: (a) violation of constitutional rights
     * * * (b) unlawful and abusive actions by the IRS
     resulting in extreme anxiety to the petitioners * * *
     (c) * * * imposing a lien on the petitioners causing
     extreme anxiety on the petitioners and dependent parent
     * * * who passed away of a stroke on January 9, 1997.

     After the petition was filed, petitioners filed a Motion for

Leave to Amend Petition (to increase their claim to damages by

$1 million), which was denied; a Motion to Vacate Denial of

Motion to Amend Petition, which was denied; a Motion to Schedule

Trial Date, requesting an expedited hearing, which was granted; a

Motion for Ruling (on the "incompleteness" of the notice of

deficiency), which was denied; a Motion to Dismiss Respondent's

Claim (allegedly "forfeited" as a result of the February 12,

1997, letter), which was denied; and a Motion to Reverse

Decisions (in docket Nos. 9749-93 and 18569-93), which was

denied.   They also sent to the Court several other items of

correspondence concerning their claims.   During the pretrial

process, petitioners were warned by the Court concerning the

provisions of section 6673.
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                              OPINION

     In this case, it is apparent from the allegations of their

petition and from their correspondence that petitioners knew they

were not entitled to the deduction of $99,000 claimed on their

1995 return.   As early as December 1991, petitioner had written a

letter acknowledging that the disputed deductions, first taken on

his return for 1990, were contrary to legal precedent.    (From

petitioner's correspondence and his statements at trial, it

appears that the dispute involved whether certain payments must

be capitalized rather than deducted in the years paid.)    On the

1995 return, filed early in 1996, they claimed the erroneous

deduction expressly for the purpose of securing a hearing before

the Court, in which they would attack the settlements for 1990

and 1991 into which they had entered in 1994.   They neither

appealed nor directly attacked by motion the decisions in the

earlier cases.

     Approximately a year after the filing of petitioners' return

for 1995, an IRS Problem Resolution Specialist sent to

petitioners a letter dated February 12, 1997, ambiguously stating

that the deduction claimed on petitioners' 1995 return was being

allowed.   Petitioners claim that the IRS thereby "forfeited" the

right to disallow the deduction.   Their position has no merit.

See Dixon v. United States, 381 U.S. 68, 75 (1965); Automobile

Club v. Commissioner, 353 U.S. 180, 183-184 (1957); Warner v.
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Commissioner, 526 F.2d 1 (9th Cir. 1975), affg. T.C. Memo.

1974-243.

     Petitioners also claim that they were damaged by employees

of the IRS.     We have refrained from quoting at length their

reckless and inflammatory rhetoric, because to do so would be to

exacerbate an unfortunate situation.      The record does not

substantiate petitioners' accusations of misconduct on the part

of IRS employees.

     The only bona fide issue in this case is applicability of

the section 6662 penalty.      Section 6662 provides in pertinent

part as follows:

          SEC. 6662.     IMPOSITION OF ACCURACY-RELATED
     PENALTY.

          (a) Imposition of Penalty.--If this section
     applies to any portion of an underpayment of tax
     required to be shown on a return, there shall be added
     to the tax an amount equal to 20 percent of the portion
     of the underpayment to which this section applies.

          (b) Portion of Underpayment to Which Section
     Applies.--This section shall apply to the portion of
     any underpayment which is attributable to 1 or more of
     the following:

                 (1) Negligence or disregard of rules or
            regulations.

                   (2) Any substantial understatement of income
            tax.

            *       *      *       *      *      *      *

          (c) Negligence.--For purposes of this section, the
     term "negligence" includes any failure to make a
     reasonable attempt to comply with the provisions of
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     this title, and the term "disregard" includes any
     careless, reckless, or intentional disregard.

     To the extent that the penalty is attributable to a

substantial understatement of income tax under section 6662(b)(2)

or to a position contrary to rules or regulations under section

6662(b)(1), it may be reduced if relevant facts are adequately

disclosed in a statement attached to the return.   The provision

for reduction, however, requires that the taxpayer's position

have a reasonable basis.   Sec. 6662(d)(2)(B)(ii)(II); sec.

1.6662-3(c), Income Tax Regs.

     There is no indication that petitioners ever sought

professional advice concerning their deductions or the procedural

means for vacating decisions.   They rejected the explanations of

the IRS, and ultimately of the Court, out of hand.   They did not

have a reasonable basis for their position on their 1995 return.

The underpayment of their taxes for 1995 is due to intentional

disregard of applicable rules, and the section 6662(a) penalty is

sustained in full.

     Prior to and during the trial in this matter, petitioners

acknowledged that the $99,000 deduction was improper and that the

Court does not have jurisdiction to award the damages that they

seek.   They claim that they are merely bringing the issues before

the Court to secure findings that would support their charges

against the IRS.   Although the Court warned petitioners of the

applicability of section 6673 to frivolous or groundless claims,
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respondent has not requested a penalty under that section, and we

have decided not to impose one at this time on our own motion.

Petitioners are again cautioned, however, that if they pursue

further action in this Court based on the same groundless claims

a penalty may well be imposed on them.

                                           Decision will be entered

                                      for respondent.
