                               T.C. Memo. 2014-228



                         UNITED STATES TAX COURT



                   EUGENE J. KERNAN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19672-11.                          Filed November 3, 2014.



      Eugene J. Kernan, pro se.

      Michael W. Lloyd, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      BUCH, Judge: Since sometime in the 1990s, Eugene Kernan has not filed

tax returns, and as is most notable here he did not file tax returns for 2001 through

2006, the years at issue. Respondent issued notices of deficiency for those years

in which he determined deficiencies and related additions to tax under sections
                                         -2-

[*2] 6651(a)(2) and 6654 as well as a fraudulent failure to file addition to tax

under section 6651(f).1

      Mr. Kernan claimed at trial and on brief that he is not required to file a tax

return unless and until he is personally notified by the Commissioner that he is

required to do so. All of his briefs, however, exceeded the generous page limits

that the Court allowed. As a result, the Court will deem Mr. Kernan’s briefs to be

stricken. As for his argument that he is not required to file a tax return until

personally invited to do so, that argument is frivolous. Mr. Kernan is required to

file tax returns for the years at issue, and we sustain respondent’s deficiency

determinations for those years.

      Because respondent failed to prove that Mr. Kernan acted fraudulently in

failing to file his returns, the addition to tax under section 6651(f) does not apply.

      Mr. Kernan is liable for the additions to tax under section 6651(a)(1) for

failure to timely file, which respondent asserted in his answer, under section

6651(a)(2) for failure to timely pay tax, and under section 6654 for failure to make

estimated tax payments.


      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to
the nearest dollar.
                                         -3-

[*3]                          FINDINGS OF FACT

       Eugene Kernan did not file tax returns for tax years 2001 through 2006, the

years at issue. Although Mr. Kernan did not file tax returns, he had income for

those years and owed tax.

I.     Income and Business Activities

       During the years at issue Mr. Kernan had income from at least two sources:

he sold various tax avoidance products, and he performed various paralegal

functions, including advising people in matters before the Internal Revenue

Service (IRS). Deposits into Mr. Kernan’s personal checking account from those

business activities exceeded $79,000 per year. Mr. Kernan stipulated the deposits

and “net gross income” as set forth in the table below. “Net gross income” is the

parties’ euphemistic term to describe gross bank deposits less amounts received

from nontaxable sources. We will refer to this by the more accurate phrase “gross

income”.
            Year                      Deposits                 Gross income
            2001                        $84,368                   $84,212
            2002                         99,721                    99,610
            2003                         79,094                    78,943
            2004                         90,269                    88,814
            2005                        124,346                   124,207
            2006                        103,672                   103,672
                                           -4-

[*4] Mr. Kernan failed to report this income and did not offer any evidence to

show that these deposits came from nontaxable sources.

      A.     Intellectual Property Sales

      Mr. Kernan received income from various business activities. Mr. Kernan

owned a Web site titled “The American Republic”. In 1999 he wrote the contents

of a CD-ROM titled “How to STOP the IRS”, and he later published a short book

titled “The Zen of Liberty”. Mr. Kernan sold these products and other intellectual

property on his Web site. When customers paid by credit card, Mr. Kernan used

D.A.K. Consultants, a separate company owned by Delores Krainski, to process

the credit card charges. D.A.K. Consultants would then write checks to Mr.

Kernan for these credit card payments less the processing fees. Mr. Kernan would

deposit these checks into his personal checking account.

      B.     Paralegal Work

      In addition, Mr. Kernan received income from performing paralegal work.

His Web site advertised that he set up business entities, set up trusts, and

performed other legal functions. In either late 1995 or early 1996 Mr. Kernan

began providing informal representation to clients who were involved in IRS

examinations. These clients paid Mr. Kernan, and he deposited the fees he

received into his personal checking account.
                                             -5-

[*5] II.        Return Filing

       Mr. Kernan did not file returns reporting this income. Likewise, he did not

pay tax on his income or make estimated tax payments.

       Mr. Kernan’s decision not to file tax returns is based on his interpretation of

section 6001, which he interprets to mean that he does not have to file a tax return

unless and until the Commissioner notifies him in writing that he must do so.2 Mr.

Kernan never received such notice.

       Mr. Kernan has consistently held this belief and has communicated it to

various governmental bodies. Although Mr. Kernan filed returns for many years

before 1993, he has not filed a tax return since then. In 1995 he wrote a letter to

the Social Security Administration asking for clarification as to whether he had

been given notice of his obligation to maintain records and file tax returns.

Although he received a response dated November 1, 1995, from the Department of

       2
           Section 6001 provides, in part:

              Every person liable for any tax imposed by this title, or for the
       collection thereof, shall keep such records, render such statements,
       make such returns, and comply with such rules and regulations as the
       Secretary may from time to time prescribe. Whenever in the
       judgment 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. * * *
                                        -6-

[*6] Health and Human Services, it did not specifically address his questions. He

also made similar inquiries to the Commissioner of Internal Revenue and the

Secretary of the Treasury, but he never received responses.

       Mr. Kernan was not shy about sharing his views. Indeed, he appeared on

TV advocating his beliefs. Mr. Kernan spoke in a TV interview that aired on

April 14, 2001, stating his interpretation of section 6001 and asking the IRS to

address whether he had received notice.

III.   IRS Examination

       A.    IRS Promoter Investigation and Subsequent Income Tax Audit

       The IRS began a promoter investigation of Mr. Kernan but later shifted its

investigation to his income tax liability. Agent Cris Corbin completed the audit.

Agent Corbin determined Mr. Kernan’s gross income using bank records showing

deposits made into Mr. Kernan’s personal checking account.

       Agent Corbin reconstructed Mr. Kernan’s income by analyzing his deposits

instead of relying on business records because Mr. Kernan refused to turn over any

books or records. The only items that he produced were copies of the intellectual

property products that he sold on his Web site. The IRS sent summonses to the

bank where Mr. Kernan maintained his personal checking account to obtain
                                       -7-

[*7] records. Mr. Kernan petitioned to quash the summonses, but all of the

summonses were enforced.

      Using the third-party bank records for Mr. Kernan’s checking account, the

IRS computed his unreported gross income by adding the specific deposits that

were made into the account and subtracting any items that the IRS determined

were nontaxable. Then the IRS put together a list of each deposit from various

clients and customers that had purchased his intellectual property and engaged his

help with paralegal work or tax controversy issues.

      B.    Other Bank Records Not Collected

      During the IRS audit Agent Corbin collected bank records only for Mr.

Kernan’s personal checking account; she did not summon records from any other

banks with which Mr. Kernan had apparent relationships. At trial Agent Corbin

testified that there were deposits into Mr. Kernan’s personal checking account

from various sources that, in turn, led her to other accounts with which Mr.

Kernan was potentially connected. Agent Corbin did not summon bank records

for those accounts, and when reconstructing Mr. Kernan’s income, she used only

deposits into Mr. Kernan’s personal checking account.
                                        -8-

[*8] C.      Notices of Deficiency

      The IRS prepared substitutes for returns under section 6020(b) for tax years

2001 to 2006. The IRS issued two notices of deficiency based on those substitute

returns on May 26, 2011. The first notice of deficiency covered tax years 2001

through 2003. The second notice of deficiency covered tax years 2004 through

2006. In the notices the IRS determined the following deficiencies and additions

to tax under sections 6651(a)(2) and (f) and 6654:

                                                  Additions to tax
                                        Sec.           Sec.           Sec.
      Year        Deficiency         6651(a)(2)       6651(f)         6654
      2001          $27,853           $6,963         $20,193         $1,113
      2002           33,108            8,277          24,003          1,106
      2003           24,358            6,090          17,660            628
      2004           28,057            7,014          20,341            804
      2005           39,446            9,862          28,598          1,582
      2006           33,453            8,029          24,253          1,583

IV.   Tax Court Proceedings

      Mr. Kernan timely filed his petition to seek redetermination of the

deficiencies and additions to tax determined in the notices of deficiency. He

resided in Hawaii on the date the petition was filed. Respondent timely answered
                                           -9-

[*9] and asserted additions to tax under section 6651(a)(1) if the Court were to

find that section 6651(f) did not apply.

      Trial was held on December 10, 2013, in Phoenix, Arizona. At the close of

trial respondent moved for sanctions under section 6673, arguing that Mr. Kernan

should be sanctioned because Mr. Kernan had taken a position that was frivolous.

      Following trial the Court ordered simultaneous briefs, but the Court

imposed page limits on the parties’ briefs. Both parties timely filed these briefs,

but Mr. Kernan’s briefs exceeded the Court’s page limits. Mr. Kernan’s 88-page

opening brief exceeded the 75-page limit imposed by this Court; his 88-page

answering brief exceeded the 30-page limit that the Court imposed.

      Respondent filed a motion to strike Mr. Kernan’s briefs, to which Mr.

Kernan responded.

                                     OPINION

      Judges impose page limits for a reason. They force parties to hone their

arguments and to state those arguments succinctly. Page limits cause, or should

cause, parties to dispense with arguments of little or no merit in favor of those

arguments that have a better chance of carrying the day. They encourage parties to

avoid redundancy. And repetition.
                                        - 10 -

[*10] Parties often are quite creative in their efforts to circumvent page limits.

Among the most blatant methods is to put material into an appendix and to not

count that appendix as falling within the page limits.3 Another is to incorporate

another document by reference.4 Less blatant, but still obvious, are those instances

in which parties shrink the margins or the font size so that they can squeeze more

text within the page limits that were imposed.5 All of these violate Rule 23(d).

      Then there are methods that, while perhaps in technical conformity with our

Rules, diminish the quality of a brief. Examples include moving text into

footnotes or using extensive block quotations so that the author can single-space

more of the text.




      3
       See, e.g., Fleming v. Cnty. of Kane, 855 F.2d 496, 498 (7th Cir. 1988);
United States v. Mazzone, 782 F.2d 757, 765 (7th Cir. 1986); Storey v.
Commissioner, T.C. Memo. 2012-115, 2012 WL 1409273, at *17 (striking
Commissioner’s appendix because it exceeded the Court’s page limits); Weiss v.
Commissioner, T.C. Memo. 1995-70, 1995 WL 57337, at *7 (striking
Commissioner’s appendix because it caused the brief to exceed the Court’s 50-
page limit set at trial).
      4
       See Fleming, 855 F.2d at 498; Prudential Ins. Co. v. Sipula, 776 F.2d 157,
161 n.1 (7th Cir. 1985); Bobsee Corp. v. United States, 411 F.2d 231, 234 n.2 (5th
Cir. 1969).
      5
      See Kano v. Nat’l Consumer Coop. Bank, 22 F.3d 899, 899 (9th Cir. 1994);
TK-7 Corp. v. Estate of Barbouti, 966 F.2d 578, 579 (10th Cir. 1992);
Westinghouse Elec. Corp. v. N.L.R.B., 809 F.2d 419, 425 n.* (7th Cir. 1987).
                                        - 11 -

[*11] Mr. Kernan avoided the Court’s page limits in perhaps the least creative

way of all; he just ignored them. At the conclusion of trial the Court had the

following colloquy with the parties concerning briefs:

             THE COURT: Okay. So, here’s what we’re going to do on the
      brief. Opening briefs, brief length and when I’m talking about brief
      length is what I would call the text of the brief, that’s everything. If
      you have a table of contents, it doesn’t count. If you have a table of
      authorities, it doesn’t count. If you have a title page, it doesn’t count.
      Everything after those up through and including the signature page
      not including attachments, okay?

               MR. KERNAN: Including the certificate of service?

             THE COURT: Not including the certificate of service. So, in
      essence, the body of the brief including the findings of fact, 75 pages
      for the opening brief, 30 pages for any reply brief.

The generous page limit for the opening brief was to accommodate proposed

findings of fact, yet Mr. Kernan’s proposed findings of fact were only two pages

and consisted of argument, not findings of fact. Counting pages in the manner

instructed by the Court, Mr. Kernan’s opening brief came in at 88 pages. The

Court did not need to go to great effort to discover Mr. Kernan’s excess pages; he

numbered them as instructed. His page 1 begins after his table of authorities, and

his signature appears on page 88. Perhaps Mr. Kernan is fond of the number 88;

his answering brief also came in at a whopping 88 pages, not counting

attachments.
                                       - 12 -

[*12] Respondent filed a motion to strike Mr. Kernan’s briefs, to which Mr.

Kernan objected.

      The Court was well within its power when it imposed page limits on the

parties’ opening and reply briefs. The Court derives its power to prescribe rules

for its proceedings under section 7453, which provides that “the proceedings of

the Tax Court * * * shall be conducted in accordance with such rules of practice

and procedure * * * as the Tax Court may prescribe”. There are no express page

limits for briefs in our Rules; however, our Rules provide that “[w]here in any

instance there is no applicable rule of procedure, the Court * * * may prescribe the

procedure, giving particular weight to the Federal Rules of Civil Procedure”.6 We

have previously held that “[t]he implied authority of the Tax Court to enforce its

Rules is a necessary adjunct to the full and effective implementation of the basic

rulemaking power granted by section 7453. This doctrine of implied authority is

well settled and has been applied by the Supreme Court specifically to tax

tribunals.”7




      6
          Rule 1(b).
      7
       Westreco, Inc. v. Commissioner, T.C. Memo. 1990-501, 1990 Tax Ct.
Memo LEXIS 554, at *50 (relying on Goldsmith v. Bd. of Tax Appeals, 270 U.S.
117 (1926)).
                                         - 13 -

[*13] Indeed, page limits are usual and customary among Federal courts in order

to promote judicial efficiency. Rule 32(a)(7)(A) of the Federal Rules of Appellate

Procedure imposes page limits of 30 pages or 14,000 words for opening briefs and

of 15 pages or 7,000 words for reply briefs.8 This case is appealable to the Court

of Appeals for the Ninth Circuit, and 14 out of the 15 District Courts within that

circuit have local rules imposing page limits on the parties.9 The District of

Hawaii, where Mr. Kernan resided at the time he filed his petition, imposes a 30-

page or 9,000-word limit on briefs and a 15-page or 4,500-word limit on reply

briefs.10 Arizona, where Mr. Kernan resided at the time of trial, imposes a 17-page




      8
       Fed. R. App. P. 32(a)(7)(A); cf. 9th Cir. R. 32-2 (stating that motions to
exceed page limits are disfavored and “granted only upon a showing of diligence
and substantial need.”)
      9
        See U.S. Dist. Ct. D. Alaska L.R. 39.2(b); U.S. Dist. Ct. D. Ariz. LRCiv
7.2(e); U.S. Dist. Ct. C.D. Cal. L.R. 11-6; U.S. Dist. Ct. N.D. Cal. Civil L.R. 7-
4(b); U.S. Dist. Ct. S.D. Cal. CivLR 7.1(h); U.S. Dist. Ct. D. Guam, LR 7.1(g);
U.S. Dist. Ct. D. Haw. LR 7.5; U.S. Dist. Ct. D. Idaho Loc. Civ. R. 7.1; U.S. Dist.
Ct. D. Mont. L.R. 7.1(d)(2) (word limit); U.S. Dist. Ct. D. Nev. LR 7-4; U.S. Dist.
Ct. D. N. Mar. I. LR 7.1(d); U.S. Dist. Ct. D. Or. LR 7-2(b); U.S. Dist. Ct. E.D.
Wash. LR 7.1(e); U.S. Dist. Ct. W.D. Wash. LCR 7(e); cf. U.S. Dist. Ct. E.D. Cal.
L.R. (stating that although this is the only District Court in the Ninth Circuit
without local rules imposing page limits, its rules contain page limits for
bankruptcy proceedings, and one judge has standing orders imposing page limits).
      10
           U.S. Dist. Ct. D. Haw. LR 7.5 (2014).
                                         - 14 -

[*14] limit on motions and memoranda and an 11-page limit on replies.11 And all

of those local rules, as well as the Federal Rules of Appellate Procedure, impose

page limits that are a mere fraction of what the Court allowed in this case.

      The Court has the inherent power to deem Mr. Kernan’s briefs stricken

because he violated the Court’s page limits. “The Tax Court indisputably has the

inherent authority to protect the integrity of its proceedings and to prevent a party

from undermining its Rules.”12 This inherent power of courts is not limited to

Article III courts. It is possessed by Article I courts such as the Tax Court, as

well, because “it is the nature of a court qua court that gives rise to these inherent

powers”.13 Just as courts have the inherent authority to impose page limits, they

also have the inherent authority to impose sanctions when a party exceeds those

limits.14 The Court of Appeals for the Ninth Circuit has held that “[a]ll federal


      11
         U.S. Dist. Ct. D. Ariz. LRCiv 7.2 (2014). But see U.S. Dist. Ct. D. Ariz.
LRCiv. 16.1(d) (imposing longer limits in Social Security cases: 25 pages for
briefs; 11 pages for replies).
      12
           Westreco v. Commissioner, 1990 Tax Ct. Memo LEXIS 554, at *55.
      13
       Westreco v. Commissioner, 1990 Tax Ct. Memo LEXIS 554, at *56
(“‘Any court which has the power to admit attorneys to practice may also sanction
them for unprofessional conduct.’” (quoting Standing Comm. on Discipline v.
Ross, 735 F.2d 1168, 1170 (9th Cir. 1984))).
      14
           Aloe Vera of Am., Inc. v. United States, 376 F.3d 960, 964-965 (9th Cir.
                                                                        (continued...)
                                        - 15 -

[*15] courts are vested with inherent powers enabling them to manage their cases

and courtrooms effectively and to ensure obedience with their orders. * * * As a

function of this power, courts can dismiss cases in their entirety, bar witnesses,

award attorney’s fees[,] and assess fines.”15 Mr. Kernan violated the express page

limits set by the Court; therefore, the Court is well within its power to sanction

him by deeming his briefs stricken in their entirety.

      The Court’s inherent power to deem Mr. Kernan’s briefs stricken for

violating the Court’s page limits is demonstrated by frequent instances where

courts have sanctioned parties for violations of page limits or their functional

equivalent. In Storey we struck a 314-page appendix to the Commissioner’s brief

for exceeding the prescribed page limit, stating that not only was the appendix

inadmissible as new evidence at trial, but “even if * * * [the 314-page appendix]

were argument instead of evidence, [it] causes the brief to exceed the page limits




      14
        (...continued)
2004) (“Sanctions are an appropriate response to ‘willful disobedience of a court
order[.]’” (quoting Fink v. Gomez, 239 F.3d 989, 991 (9th Cir. 2001))).
      15
        F.J. Hanshaw Enters., Inc. v. Emerald River Dev., Inc., 244 F.3d 1128,
1136 (9th Cir. 2001) (citations omitted) (relying on Chambers v. NASCO, Inc.,
501 U.S. 32, 43-44 (1991) in partnership dissolution case where court imposed
monetary sanctions, upholding civil sanctions on appeal, but overturning criminal
sanctions).
                                          - 16 -

[*16] the Court established at trial.”16 Similarly, in Weiss we struck an appendix

to the Commissioner’s opening brief because the appendix caused the brief to

exceed the 50-page limit set by the Court at trial.17 The Court of Appeals for the

Ninth Circuit in Kano sanctioned the appellant’s counsel for using smaller spacing

between lines and smaller typeface for footnotes than was permitted under the

rules.18 The brief would have been at least 15 pages over the limit had appellant’s

counsel followed the court’s rules.19 The Court of Appeals for the Tenth Circuit in

TK-7 Corp. struck the appellees’ brief for “[u]sing a favorite undergraduate

gambit” to exceed the court’s page limit by inserting 102 footnotes with small type

and spacing to shrink their brief down to half the size it would have been if the

appellees had complied with the limits.20

      Indeed, Mr. Kernan acknowledged in his objection to respondent’s motion

to strike that “there is no doubt that the Tax Court ‘has the right to set limit[s] as to

brief length and has discretion as to whether to accept and/or not consider


      16
           Storey v. Commissioner, 2012 WL 1409273, at *17.
      17
           Weiss v. Commissioner, 1995 WL 57337, at *7.
      18
           Kano, 22 F.3d at 899.
      19
           Kano, 22 F.3d at 899.
      20
           TK-7 Corp., 966 F.2d at 579.
                                         - 17 -

[*17] deficient briefs’.” Accordingly, we will deem Mr. Kernan’s opening and

answering briefs stricken in a separate order.

I.    Requirement To File

      Mr. Kernan is not put to a disadvantage by having his briefs deemed

stricken because, for all of the verbiage he used to fill his pages, his argument can

be distilled down to a single sentence that he uttered at trial: “No one ever sent me

a notice saying where is your return.” He elaborated on this point. It seems that

Mr. Kernan’s position is that he is not required to file a tax return until the

Commissioner notifies him that he specifically is required to file a return. For this

proposition, Mr. Kernan referred at trial to myriad of irrelevant authorities that we

need not address in detail.21 He laments that, in his meetings and conversations




      21
         See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) (“We
perceive no need to refute these [frivolous] arguments with somber reasoning and
copious citation of precedent; to do so might suggest that these arguments have
some colorable merit.”); Wnuck v. Commissioner, 136 T.C. 498, 504 (2011) (“[I]t
is doubtful whether tax jurisprudence will be much advanced by issuing yet
another opinion affirming the obvious truisms about tax law[.]”); Wnuck v.
Commissioner, 136 T.C. at 511 (“[P]eddlers of frivolous anti-tax positions and
their clients who file petitions advancing those positions should not be allowed to
divert and drain away resources that ought to be devoted to bona fide disputes.”);
Sanders v. Commissioner, T.C. Memo. 1997-452, 1997 WL 602841, at *4 (“[W]e
are not obligated to exhaustively review and rebut petitioner’s misguided
contentions.”).
                                       - 18 -

[*18] with one representative of the IRS or another, “[n]ot once did he tell me how

I was wrong or if, how I was wrong, if I was wrong.”

      Simply put, Mr. Kernan is wrong. Mr. Kernan argues that the IRS “may

require any person, by notice served upon such person” to file a tax return, and

then argues that he has not been served with any such notice.22 Mr. Kernan’s

reading of a portion of a single Internal Revenue Code provision is incomplete in

the sense that he not only omits words from that section, but also fails to heed

other Code provisions.

      Mr. Kernan is required to file a tax return, even without a personal

invitation to do so. Section 6012(a)(1)(A) provides that “[r]eturns with respect to

income taxes under subtitle A shall be made by * * * [e]very individual having for

the taxable year gross income which equals or exceeds the exemption amount”.

We have previously addressed this issue and reached the same conclusion.23




      22
           See sec. 6001.
      23
     See Zook v. Commissioner, T.C. Memo. 2013-128, at *9 & n.5; Fox v.
Commissioner, T.C. Memo. 1997-440, 1997 WL 593872, at *1,*3; cf. Funk v.
Commissioner, T.C. Memo. 2001-291, 2001 WL 1398382, at *5, app. A, para. 5.
                                        - 19 -

[*19] II.      Unreported Income

      As a general matter, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer bears the burden of proving an

error.24 However, in unreported income cases, “before the Commissioner can rely

on this presumption of correctness, the Commissioner must offer some substantive

evidence showing that the taxpayer received income from the charged activity.”25

Once the Commissioner sufficiently connects the taxpayer with the unreported

income, then the taxpayer “bears[s] the burden of proving that * * * [the

Commissioner’s] determination of underreported income, computed using the

bank deposits method of reconstructing income, is incorrect.”26

      Respondent sufficiently connected Mr. Kernan with the unreported income,

and Mr. Kernan has not shown that these amounts are incorrect or nontaxable.

Respondent used a bank deposits analysis of Mr. Kernan’s personal checking

account to determine Mr. Kernan’s unreported gross income for the years at issue.

Mr. Kernan stipulated these amounts of gross income and did not show that they


      24
           Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
      25
        Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th Cir. 1979), rev’g
67 T.C. 672 (1977).
      26
        DiLeo v. Commissioner, 96 T.C. 858, 871 (1991), aff’d, 959 F.2d 16 (2d
Cir. 1992).
                                         - 20 -

[*20] are nontaxable. He argued only that he did not have to file a tax return or

pay tax until he received notice. Respondent’s determinations of gross income

amounts were greater than the applicable exemption amounts for 2001 to 2006.

Accordingly, we sustain respondent’s tax deficiency determinations for the years

at issue.

III.   Fraudulent Failure To File

       Section 6651(a) imposes an addition to tax for the failure to timely file tax

returns, and that addition is enhanced under section 6651(f) if that failure to file is

fraudulent. When a person does not timely file, section 6651(a) imposes a

maximum addition of 25% of the amount of tax required to have been shown on

the return unless the taxpayer proves that the failure was for reasonable cause and

not due to willful neglect. Section 6651(f) increases that limit to 75% if the failure

to file was fraudulent. For the addition to tax to apply at the increased rate,

respondent must prove by clear and convincing evidence that Mr. Kernan

“(1) * * * has underpaid his taxes for each year; and (2) some part of the

underpayment is due to fraud.”27

       Respondent proved the first element: that Mr. Kernan underpaid his tax for

the years at issue. Mr. Kernan stipulated that he had gross income for 2001

       27
            See DiLeo v. Commissioner, 96 T.C. at 873.
                                        - 21 -

[*21] through 2006. Respondent proved he had not paid tax for these years.

These facts establish that Mr. Kernan underpaid his tax for each of the years at

issue. The remaining element that respondent must prove is fraudulent intent.

      The Commissioner has the burden to prove fraudulent intent, and he must

demonstrate fraud by clear and convincing evidence.28 More specifically, the

Commissioner must prove that the taxpayer deliberately failed to file, and also,

that by failing to file, the taxpayer intended to evade tax that he knew was owed.29

The Court evaluates the taxpayer’s belief and intent at the time the taxpayer

decided not to file.30 Because direct proof of the taxpayer’s fraudulent intent is

rarely available, we rely on circumstantial evidence to show fraudulent intent.31




      28
       See sec. 7454(a); Rule 142(b); Clayton v. Commissioner, 102 T.C. 632,
652-653 (1994).
      29
       Clayton v. Commissioner, 102 T.C. at 646-647; see also, e.g., Prof’l Servs.
v. Commissioner, 79 T.C. 888, 930 (1982); Holmes v. Commissioner, T.C. Memo.
2012-251, at *30 (citing DiLeo v. Commissioner, 96 T.C. at 873).
      30
           See Mohamed v. Commissioner, T.C. Memo. 2013-255, at *20-*23.
      31
       See Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff’g
T.C. Memo. 1984-601; DiLeo v. Commissioner, 96 T.C. at 890; Rowlee v.
Commissioner, 80 T.C. 1111, 1123 (1983); Mohamed v. Commissioner, T.C.
Memo. 2013-255.
                                          - 22 -

[*22] A.       Disclosure as a Mitigating Factor

      Mr. Kernan publicly declared that he was not required to file a tax return

without prior notice. He inquired of the Social Security Administration whether

he had been given notice of his obligation to maintain records and file tax returns.

Mr. Kernan likewise sent letters to the Commissioner of Internal Revenue and the

Secretary of the Treasury asking them to tell him whether he was mistaken about

his interpretation under section 6001. Mr. Kernan also appeared in a TV interview

and espoused his views regarding return filing. He told reporter Steve Krafft of

his erroneous position and asked the IRS to come forward and tell him where he

was wrong. These actions raise the issue of whether Mr. Kernan’s disclosure can

mitigate the fraud addition.

      The Court of Appeals for the Third Circuit has held that disclosure can be a

mitigating factor.32 In Raley v. Commissioner, Mr. Raley failed to timely file

returns for tax years 1972 through 1976.33 Mr. Raley filed a Form W-4E,

Exemption from Withholding, with his employer stating he did not have a tax

liability for the prior year and did not anticipate a tax liability for the current year



      32
       Raley v. Commissioner, 676 F.2d 980 (3d Cir. 1982), rev’g T.C. Memo.
1980-571.
      33
           Raley v. Commissioner, 676 F.2d at 982.
                                         - 23 -

[*23] either, for each of the tax years from 1973 through 1976. His employer did

not withhold Federal income tax from his income for years 1973 through 1976.

Mr. Raley sent multiple letters to the IRS, the Secretary of the Treasury, and other

highly ranking Federal officials stating that he would not pay because taxes were

unconstitutional. Then in 1976 he filed purported amended returns for tax years

1972 and 1973 that he did not sign and that did not report any income.34 Mr.

Raley pleaded guilty to the charge of willful failure to file a return for tax year

1974.35 At his subsequent civil trial this Court held that he was liable for

fraudulent failure to pay tax under former section 6653(b).36 The Court of Appeals

for the Third Circuit reversed, holding that Mr. Raley’s letters mitigated a finding

of fraud.

      [Mr. Raley] went out of his way to inform every person involved in
      the collection process that he was not going to pay any federal income
      taxes. The letters do not support a claim of fraud; to the contrary,
      they make it clear that Raley intended to call attention to his failure to
      pay taxes. It would be anomalous to suggest that Raley’s numerous
      attempts to notify the Government are supportive, let alone
      suggestive, of an intent to defraud.[37]


      34
           Raley v. Commissioner, 676 F.2d at 982-983.
      35
           Raley v. Commissioner, 676 F.2d at 982.
      36
           Raley v. Commissioner, 676 F.2d at 983.
      37
           Raley v. Commissioner, 676 F.2d at 983-984.
                                         - 24 -

[*24] The Court of Appeals for the Ninth Circuit held the opposite in Edelson v.

Commissioner.38 In that case Mr. Edelson filed returns that the IRS rejected

because the returns stated income of “‘less than $10’ annually calculated in

‘constitutional dollars of silver and/or gold.’”39 Mr. Edelson hid assets by

transferring them to his wife before he filed the invalid returns.40 He was

convicted under section 7203 for willful failure to file for the tax years at issue.41

The Court of Appeals upheld the finding of fraud under former section 6653(b),

stating: “[d]isclosed defiance, standing alone, would not bar a finding of fraud.”42

The court explained that fraudulent intent “does not require that the taxpayer hide

his defiance from the IRS. Whether or not Edelson disclosed his willful refusal to

file is therefore irrelevant to the Tax Court’s finding of fraud”.43 In the light of

this Ninth Circuit precedent, we find that Mr. Kernan’s repeated disclosures do not




      38
       Edelson v. Commissioner, 829 F.2d 828 (9th Cir. 1987), aff’g T.C. Memo.
1986-223.
      39
           Edelson v. Commissioner, 829 F.2d at 829-830.
      40
           Edelson v. Commissioner, 829 F.2d at 830.
      41
           Edelson v. Commissioner, 829 F.2d at 829-830.
      42
           Edelson v. Commissioner, 829 F.2d at 833.
      43
           Edelson v. Commissioner, 829 F.2d at 833.
                                        - 25 -

[*25] prevent the application of the fraudulent failure to file addition. Instead, the

question is whether he had the requisite fraudulent intent.

      B.       Fraudulent Intent

      Because direct evidence of fraudulent intent is rare, we look for

circumstantial evidence, or “badges of fraud”, to demonstrate fraudulent intent.

These badges of fraud show a taxpayer’s intent to conceal, mislead, or otherwise

prevent the collection of tax.44 Badges of fraud include: (1) failing to file returns;

(2) failing to make estimated tax payments; (3) maintaining inadequate records;

(4) failing to cooperate with tax authorities; (5) filing false documents;

(6) engaging in illegal activities; (7) concealing income or assets; (8) evidencing

an intent to mislead; (9) dealing in cash; (10) providing implausible or inconsistent

explanations of behavior; (11) understating income; (12) failing to be forthright

with one’s tax preparer; (13) evidencing intelligence, education, and tax expertise;

and (14) demonstrating a lack of credibility.45 “Although no single factor is




      44
           DiLeo v. Commissioner, 96 T.C. at 874.
      45
      See, e.g., Clayton v. Commissioner, 102 T.C. at 647; Mohamed v.
Commissioner, at *32-*33; DeVries v. Commissioner, T.C. Memo. 2011-185,
2011 WL 3418248, at *6.
                                        - 26 -

[*26] necessarily sufficient to establish fraud, a combination of factors is more

likely to constitute persuasive evidence.”46

      Respondent has proven some of the badges of fraud in this case. Mr.

Kernan failed to file tax returns and failed to make estimated payments. Mr.

Kernan did not maintain adequate records. Mr. Kernan refused to cooperate with

tax authorities, repeatedly attempting to quash IRS summonses for his records.

Although Mr. Kernan correctly asserts that he was within his rights to challenge

the IRS summonses, his repeated failed attempts to do so were uncooperative,

even if legally permissible. Additionally, Mr. Kernan refused to produce business

records.

      Respondent asserted additional badges of fraud but failed to prove them by

clear and convincing evidence. Mr. Kernan did not file false documents.

Respondent asserts Mr. Kernan’s past efforts to promote tax shelters is evidence of

illegal activity, but respondent has not shown Mr. Kernan was involved in illegal

activity; promoting tax avoidance products is not illegal. Mr. Kernan was neither

indicted nor convicted of any crimes. Further, the ties respondent tried to make




      46
      Mohamed v. Commissioner, at *33; Holmes v. Commissioner, at *31;
Browning v. Commissioner, T.C. Memo. 2011-261, 2011 WL 5289636, at *13.
                                       - 27 -

[*27] between Mr. Kernan and others who had been convicted of “illegal

activities” were too attenuated.

      Additionally, respondent failed to prove Mr. Kernan hid assets and income.

Mr. Kernan deposited the income he received into a checking account that he held

in his own name. Indeed, he did not conceal income but stipulated respondent’s

calculations of gross income for the years at issue that were based on these bank

deposits. Similarly, we are not persuaded that Mr. Kernan was trying to conceal

income when he had D.A.K. Consultants process credit card payments for him.

D.A.K. Consultants simply processed the payments and wrote checks to Mr.

Kernan for these amounts less its processing fees. Then he deposited these checks

into his personal checking account, and respondent did not prove that there were

additional, unreported credit card payments. Further, there was no evidence that

Mr. Kernan kept two sets of books or dealt in cash. Respondent did not prove that

Mr. Kernan had additional income in other bank accounts that he failed to report.

The IRS chose not to obtain additional bank account information and used only

deposit records from Mr. Kernan’s personal checking account to determine his

gross income.

      Some of the badges of fraud listed above do not apply to the facts of this

case. Mr. Kernan did not provide an implausible or inconsistent explanation of his
                                        - 28 -

[*28] behavior. Mr. Kernan did not “understate” his income because he never

filed returns and did not report any income at all. While a “failure to report

substantial amounts of income over a number of years” may be persuasive

evidence of fraudulent intent, it is not dispositive.47 Additionally, the badge of

failing to be forthright with one’s tax preparer does not apply here.

      Finally, the last two badges of fraud listed above were not proven:

intelligence, education, and tax expertise; and a lack of credibility. Regarding the

former, although he holds himself out as a tax professional, Mr. Kernan does not,

in fact, have any specialized tax education or expertise. His lack of expertise is

demonstrated by his having reached a conclusion about return filing requirements

that plainly contradicts well-established legal precedent. As to the latter, Mr.

Kernan was forthright and credible in presenting his erroneously held beliefs.

Therefore, we find there is not clear and convincing evidence of fraudulent intent.




      47
           See DeVries v. Commissioner, 2011 WL 3418248, at *7.
                                        - 29 -

[*29] C.       Good-Faith Belief

      The facts in Mr. Kernan’s case closely resemble the facts in Raney v.

Commissioner.48 In Raney, the Court refused to impose an addition to tax under

section 6651(f), holding that Mr. Raney’s good-faith belief that he did not have to

pay taxes negated fraudulent intent.49 Mr. Raney claimed 15 withholding

allowances on his Form W-4, took the position that there was not a statute that

required him to pay tax on his income earned from the U.S. Postal Service, and did

not report income on his Forms 1040, U.S. Individual Income Tax Return.50 The

Court explained: “A good faith misunderstanding * * * can exist even if the

misunderstanding is objectively unreasonable. We * * * cautio[n], however, that a

good faith misunderstanding of the law is different from disagreement with the

law or a belief that the law is or may be unconstitutional.”51 We refused to impose

an addition under section 6651(f), stating:

      While we believe that petitioner’s position is objectively
      unreasonable, the sparse evidence in the record before us does not
      clearly and convincingly negate petitioner’s implicit claim that he was
      acting on his good faith understanding of the law. Of course, we may

      48
           Raney v. Commissioner, T.C. Memo. 2000-277, 2000 WL 1227128.
      49
           Raney v. Commissioner, 2000 WL 1227128, at *2.
      50
           Raney v. Commissioner, 2000 WL 1227128, at *1-*2.
      51
           Raney v. Commissioner, 2000 WL 1227128, at *2 (citation omitted).
                                        - 30 -

      [*30] question whether petitioner’s purported misunderstanding of
      the law was the product of good faith. However, suspicions are not a
      substitute for evidence. Respondent bears the burden of proving
      fraudulent intent by clear and convincing evidence. Respondent has
      not done so. We therefore hold that petitioner is not liable for the
      additions to tax under section 6651(f).[52]

      Likewise, we are not convinced by clear and convincing evidence that Mr.

Kernan’s beliefs were not held in good faith. The frivolity of his legal arguments

is not enough, even when added to the badges of fraud present in this case, to

establish fraudulent intent by clear and convincing evidence.

      Respondent suggests that Mr. Kernan’s belief was disingenuous and merely

a guise to hide behind so he did not have to pay taxes, but Mr. Kernan has acted

consistently with his belief before, during, and after the years at issue. His belief

was that he did not have to file a return unless the Commissioner sent him written

notification that he had an obligation to do so. He wrote multiple letters to

Government agencies asking them for clarification. He informed the public at

large of his position when he appeared on television and was interviewed in April

2001 on a FOX network affiliate’s news broadcast, espousing his interpretation of

section 6001.




      52
         Raney v. Commissioner, 2000 WL 1227128, at *2 (fn. ref. omitted)
(citations omitted).
                                           - 31 -

[*31] Indeed, he gave a consistent message when he informally represented clients

at IRS audit meetings. At trial Mr. Kernan said: “People would come to me and

say I need you to tell me how I don’t have to pay taxes. I can’t do that. I wouldn’t

do that if I could. I’m not the authority. The IRS is the authority.” At trial he

repeated many times that he believed he was not required to file or pay without

notice and that he never received such notice. Mr. Kernan’s consistent actions

support a good-faith, albeit misguided, belief rather than fraudulent intent to evade

taxes.

         In sum, respondent has failed to prove fraud under section 6651(f) by clear

and convincing evidence for tax years 2001 through 2006.

IV.      Failure To File

         Respondent asserted an addition to tax under section 6651(a)(1) for each of

the years at issue if the Court were to find that respondent had not carried his

burden under section 6651(f); however, respondent asserted it in his answer. The

Court has jurisdiction to decide this issue under section 6214(a).53 Because

respondent did not raise this addition until his answer, respondent bears the burden

of proof under Rule 142(a)(1).




         53
              See, e.g., Mohamed v. Commissioner, at *15-*16.
                                         - 32 -

[*32] Section 6651(a)(1) imposes an addition to tax for failing to timely file a

Federal income tax return unless the failure to file was for reasonable cause and

not due to willful neglect. A taxpayer may have reasonable cause if the taxpayer

exercised ordinary business care and prudence but was not able to timely file.54

Willful neglect means a “conscious, intentional failure or reckless indifference.”55

      Mr. Kernan stipulated gross income for the years at issue. Further, Mr.

Kernan stipulated that he did not file returns for tax years 2001 through 2006. He

failed to file returns because of his frivolous argument that he was not required to

do so. Mr. Kernan did not provide any evidence of a defense to this addition to

tax; accordingly, respondent has met his burden. The failure to timely file

addition under section 6651(a)(1) applies for each of the years at issue.

V.    Failure To Pay

      Section 6651(a)(2) imposes an addition to tax for failing to timely pay the

amount of tax required to have been shown on the return unless the taxpayer

proves that his failure was for reasonable cause and not due to willful neglect.

The Commissioner bears the burden of production with respect to any addition to




      54
           See sec. 301.6651-1(c)(1), Proced. & Admin. Regs.
      55
           United States v. Boyle, 469 U.S. 241, 245 (1985).
                                         - 33 -

[*33] tax.56 The taxpayer then bears the burden of proving any defenses.57 If no

returns have been filed by the taxpayer, then the Commissioner must show that he

prepared substitutes for returns that met the requirements under section 6020(b).58

We have held that in order for substitutes for returns to comply with the section

6020(b) requirements “the return[s] must be subscribed, * * * [they] must contain

sufficient information from which to compute the taxpayer’s tax liability, and the

return form[s] and any attachments must purport to be a ‘return’.”59 The Court has

found that the section 6020(b) requirements “have been met where the substitutes

for returns consist of Forms 4549-A, Forms 886-A, and Forms 13496, and the

forms contain the taxpayer’s name and Social Security number and sufficient

information to compute a tax liability.”60

       Respondent met his burden under section 6651(a)(2) because he made

substitutes for returns for tax years 2001 to 2006 that met the requirements of


       56
            Sec. 7491(c).
       57
            See Higbee v. Commissioner, 116 T.C. 438, 447 (2001).
       58
        See sec. 6651(g); Wheeler v. Commissioner, 127 T.C. 200, 208-209
(2006), aff’d, 521 F.3d 1289 (10th Cir. 2008).
       59
            Spurlock v. Commissioner, T.C. Memo. 2003-124, 2003 WL 1987156, at
*10.
       60
            Nix v. Commissioner, T.C. Memo. 2012-304, at *13.
                                        - 34 -

[*34] section 6020(b), and respondent proved that Mr. Kernan owed tax and did

not timely pay his tax liability for each of the years at issue. Respondent’s

substitutes for returns for tax years 2001 to 2006 included Forms 4549-A, Income

Tax Examination Changes, Forms 886-A, Explanation of Items, and Forms 13496,

IRC Section 6020(b) Certification, as well as Mr. Kernan’s name and Social

Security number and sufficient information to compute his tax liability. Because

respondent has met his burden of production, Mr. Kernan has the burden of

proving any defenses. Mr. Kernan did not challenge the amounts of deficiencies

determined by the IRS and argued only that he was not required to file and pay

until he received notice. His frivolous argument is not a valid defense.

Consequently, the addition to tax under section 6651(a)(2) applies for each of the

years at issue because Mr. Kernan did not timely pay the tax he owed.

VI.   Failure To Make Estimated Tax Payments

      Section 6654(a) imposes an addition to tax for failing to make estimated tax

payments. Where a taxpayer has a “required annual payment”,61 the section 6654

addition to tax is “automatically imposed unless the taxpayer proves that one of

several statutory exceptions applies” or that the Commissioner’s determination




      61
           Sec. 6654(d).
                                        - 35 -

[*35] was in error.62 Under section 6654(d), a taxpayer has a required annual

payment of 90% of the tax for such year if the taxpayer has not filed a return. If a

taxpayer has a required annual payment, then the taxpayer must make four

estimated tax payments of 25% of the required annual payment for that year.63

The Commissioner bears the burden of production with respect to additions to tax,

and the taxpayer bears the burden of proving any defenses.64

      Mr. Kernan is liable for the addition to tax under section 6654 for each of

the years at issue because he failed to make estimated tax payments and does not

have a valid defense. Respondent proved Mr. Kernan had gross income and owed

tax for 2001 to 2006. Accordingly, Mr. Kernan had required annual payments of

90% of the tax for each year at issue, was required to make estimated tax payments

on this required annual payment, and did not do so. The burden shifts to Mr.

Kernan, and he has failed to raise any defense.




      62
       See Sanders v. Commissioner, 1997 WL 602841, at *6 (citing Habersham-
Bey v. Commissioner, 78 T.C. 304, 319-320 (1982), and Grosshandler v.
Commissioner, 75 T.C. 1, 20-21 (1980)).
      63
           See sec. 6654(c) and (d).
      64
           Sec. 7491(c); see Higbee v. Commissioner, 116 T.C. at 447.
                                        - 36 -

[*36] VII.     Sanctions

      At the close of trial respondent moved that the Court impose sanctions

under section 6673. Sanctions are warranted if the taxpayer has instituted the

proceedings primarily for delay, has taken a position that is frivolous or

groundless, or has unreasonably failed to pursue available administrative

remedies.65 The Court has discretion to impose a maximum penalty of $25,000.66

      Respondent asserts that Mr. Kernan should be sanctioned because he has

instituted the proceedings primarily for delay and has taken a position that is

frivolous or groundless. A taxpayer evidences a primary purpose of delay if he

files multiple frivolous motions or documents,67 asks for multiple continuances

and fails to appear,68 fails to meet deadlines for brief submissions and refuses to




      65
           Sec. 6673(a)(1).
      66
           Sec. 6673(a)(1).
      67
        See Moore v. Commissioner, T.C. Memo. 2007-200 (taxpayer filed
multiple frivolous documents with the Court), aff’d, 296 Fed. Appx. 821 (11th Cir.
2008).
      68
       See Loescher v. Commissioner, T.C. Memo. 1993-74 (taxpayer asked for
two continuances for claimed medical reasons, failed to appear at trial for another
medical excuse, and failed to respond to Court’s order to show cause why case
should not be dismissed).
                                         - 37 -

[*37] follow the Court’s orders,69 refuses to cooperate in the stipulation process,70

or merely uses frivolous or groundless arguments to delay paying his taxes.71 A

position is frivolous “if it is contrary to established law and unsupported by a

reasoned, colorable argument for change in the law.”72 The word “groundless”

means “having no ground or foundation: lacking cause or reason for support.”73

More specifically, a position is groundless if it lacks merit or states no justiciable

facts in the petition and has no valid ground or foundation.74 Frivolous and

groundless claims divert the Court’s time, energy, and resources away from more


      69
         See Williams v. Commissioner, 119 T.C. 276, 280-81 (2002) (taxpayer
failed to comply with Court’s pretrial orders and improperly invoked automatic
stay of the Bankruptcy Code to delay Tax Court proceedings); Keating v.
Commissioner, T.C. Memo. 1985-312 (taxpayer failed to comply with Court order
and failed to appear at hearing); Lynch v. Commissioner, T.C. Memo. 1983-428
(taxpayer failed to appear at calendar call and failed to prosecute his case).
      70
       See Goff v. Commissioner, 135 T.C. 231, 237 (2010) (taxpayer refused to
cooperate in the stipulation process and failed to comply with Court orders).
      71
        See Beard v. Commissioner, 82 T.C. 766, 781 (1984), aff’d, 793 F.2d 139
(6th Cir. 1986) (taxpayer admitted in his brief that he knew the Court had rejected
arguments similar to his as frivolous and groundless in many prior cases).
      72
           Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986).
      73
        Nies v. Commissioner, T.C. Memo. 1985-216, 1985 Tax Ct. Memo LEXIS
418, at *14 (quoting Webster’s Third New International Dictionary Unabridged).
      74
        See Keating v. Commissioner, T.C. Memo. 1985-312, 1985 Tax Ct. Memo
LEXIS 329, at *13-*14; Nies v. Commissioner, 1985 Tax Ct. Memo LEXIS 418,
at *14-*15.
                                        - 38 -

[*38] serious claims and increase the needless cost imposed on other litigants by

these types of lawsuits.75 And “we can no longer tolerate abuse of the judicial

review process by irresponsible taxpayers who press stale and frivolous

arguments, without hope of success on the merits, in order to delay or harass the

collection of public revenues for other nonworthy purposes.”76

      The Court must be cautious when imposing a penalty under section 6673

because “[t]he doors of our courts must always remain open to persons seeking in

good faith to invoke the protection of the law”.77 Taxpayers asserting the same

frivolous arguments on multiple occasions are more likely to be subjected to a

penalty under section 6673 than those appearing for the first time before our

Court.78

      We must determine whether Mr. Kernan was acting in good faith or knew

his claims were frivolous and acted merely “to delay payment of taxes, clog up the

      75
           Coleman v. Commissioner, 791 F.2d at 72.
      76
       Kile v. Commissioner, 739 F.2d 265, 269-270 (7th Cir. 1984), aff’g Basic
Bible Church v. Commissioner, 74 T.C. 846 (1980).
      77
           May v. Commissioner, 752 F.2d 1301, 1306 (8th Cir. 1985).
      78
       Compare Wheeler v. Commissioner, T.C. Memo. 2011-278, Howard v.
Commissioner, T.C. Memo. 2005-144, and Funk v. Commissioner, T.C. Memo.
2001-291, with Lewis v. Commissioner, T.C. Memo. 2006-73, Shireman v.
Commissioner, T.C. Memo. 2004-155, Sides v. Commissioner, T.C. Memo. 2004-
141, and Kaeckell v. Commissioner, T.C. Memo. 2002-114.
                                           - 39 -

[*39] courts, or as a symbolic protest against a system with which * * * [he did]

not agree.”79 We have already concluded that Mr. Kernan sincerely believed his

position in this litigation, frivolous as it is.

         The Court often issues a warning in lieu of sanctions when a taxpayer

asserts a frivolous position in our Court for the first time.80 The rationale is that a

warning will discourage the taxpayer from taking frivolous positions in the

future.81 We will not impose a monetary sanction against Mr. Kernan because this

was the first time he petitioned our Court. We are mindful that Mr. Kernan has

implied that he may not follow this Court’s opinion on the merits. As he stated at

trial:

         My understanding of the law is still what my understanding of the law
         is. There has been no, and I don’t mean to be disrespectful, Your
         Honor. It’s my understanding that according to administrative law
         and according to primary jurisdiction, it’s not up to you to tell me that
         I’m required. It’s not up to the District Court to tell me I’m required.
         It’s not up to the guy down the street. It’s not up to the Internal


         79
              May v. Commissioner, 752 F.2d at 1308.
         80
       See Leyshon v. Commissioner, T.C. Memo. 2012-248; Lizalek v.
Commissioner, T.C. Memo. 2009-122; Shireman v. Commissioner, T.C. Memo.
2004-155.
         81
       See White v. Commissioner, 72 T.C. 1126, 1135-1136 (1979); Hatfield v.
Commissioner, 68 T.C. 895, 899-900 (1977); Cook v. Commissioner, T.C. Memo.
2010-137; Skeriotis v. Commissioner, T.C. Memo. 2007-52; Lewis v.
Commissioner, T.C. Memo. 2006-73.
                                          - 40 -

      [*40] Revenue agent of any shape or form or any level. It’s up to
      the District Director to serve me notice that I’m required.

But we warn Mr. Kernan that if he asserts frivolous arguments in this Court again

we will likely impose sanctions under section 6673.

                                      Conclusion

      Because Mr. Kernan’s briefs exceeded the generous page limits that the

Court allowed, the Court, in its inherent power to both impose page limits and

sanction parties, will deem his briefs stricken. As for his argument on the merits

that he is not required to file a tax return until personally invited to do so, that

argument is frivolous. Mr. Kernan is required to file tax returns, and we sustain

respondent’s deficiency determinations for the years at issue.

      We find that respondent has failed to meet his burden of proving fraud

under section 6651(f) by clear and convincing evidence. Specifically, respondent

has failed to prove that Mr. Kernan acted with fraudulent intent when he failed to

file his returns for the years at issue; therefore, the section 6651(f) addition to tax

does not apply. However, we find Mr. Kernan liable for the section 6651(a)(1)

addition to tax for failure to timely file tax returns for the years at issue.

      Because Mr. Kernan is required to pay his income tax liabilities and make

estimated tax payments, we find him liable for both the section 6651(a)(2)
                                        - 41 -

[*41] addition to tax for failure to timely pay tax owed and the section 6654(a)

addition to tax for failure to make estimated tax payments for the years at issue.

      Finally, we will not impose section 6673 sanctions against Mr. Kernan

because this was his first time to appear before our Court.

      To reflect the foregoing,


                                                 An appropriate order will be issued,

                                       and decision will be entered under Rule

                                       155.
