                                T.C. Memo. 2014-35



                          UNITED STATES TAX COURT



                  STEVEN T. WALTNER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 21953-12L.                        Filed February 27, 2014.



      Steven T. Waltner, pro se.

      Michael W. Lloyd, for respondent.



                            MEMORANDUM OPINION


      BUCH, Judge: This case began as a collection proceeding in which Steven

Waltner challenged the Internal Revenue Service’s efforts to collect a frivolous tax

submissions penalty. That issue is no longer before us. On November 23, 2013,

Mr. Waltner mailed full payment of the underlying liability plus interest to the

IRS, thus rendering the issues relating to the collection of that liability moot.
                                        -2-

[*2] While the case was pending, however, each party filed a motion asking the

Court to impose sanctions against the other under section 6673.1 But for those

motions, the Court could have dismissed this case as moot, and the Court informed

the parties of this. Mr. Waltner unconditionally withdrew his motion, but in doing

so he restated his view that respondent’s conduct merits sanctions and further

noted that the Court may impose sanctions on a party sua sponte, implying that the

Court should do so notwithstanding that Mr. Waltner had withdrawn his motion.

In contrast, respondent was not willing to withdraw his motion. We are left to sort

out whether either party should be sanctioned.

                                    Background

Mr. Waltner’s 2008 Tax Return

      In August 2009 Mr. Waltner and his wife, Sarah V. Waltner, submitted a

joint Form 1040, U.S. Individual Income Tax Return, for 2008 to the IRS. On the

Form 1040 the Waltners reported zero wages, an IRA distribution of over $22,000,

a student loan interest deduction, and a home mortgage interest deduction of over

$26,000, all of which resulted in zero tax liability. The Waltners each listed their




      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                       -3-

[*3] occupation as “private-sector worker”, and they claimed a refund of over

$10,000.2 Along with the Form 1040, Mr. Waltner submitted three Forms 4852,

Substitute for Form W-2,3 (substitute W-2), each reporting zero wages but

simultaneously reporting taxes withheld. Also, each substitute W-2 states that he

determined that he received zero wages on the basis of “[p]ersonal knowledge and

records provided by the company listed as ‘payer’ on line 5” and with respect to

the efforts he made to obtain a corrected Form W-2, Wage and Tax Statement, he

stated “none”. Mr. Waltner also submitted a “correcting” Form 1099-B, Proceeds

From Broker and Barter Exchange Transactions, which he altered by inserting the

word “corrected” and replacing the amount of gross proceeds of over $5,000 with

zero. At the bottom of the Form 1099-B, Mr. Waltner included the following

statement:

      This correcting Form 1099-B is submitted to rebut a document known
      to have been submitted by the party identified above as ‘Payer’ and
      ‘Broker’ which erroneously alleged a payment to the party identified
      above as ‘Steve T. Waltner’ of ‘gross proceeds’ in connection with a
      ‘trade or business.’ Under penalty of perjury, I declare that I have


      2
       The requested refund included Federal income tax, Social Security tax, and
Medicare tax withheld from Mr. Waltner’s three jobs and withheld Federal income
tax from a retirement plan.
      3
       The complete title of this form is “Substitute for Form W-2, Wage and Tax
Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.”.
                                       -4-

      [*4] examined this statement and to the best of my knowledge and
      belief, it is true, correct and complete.

The Frivolous Tax Submissions Penalty

      Three companies filed Forms W-2 for Mr. Waltner, reporting total wages of

over $75,000, and those Forms W-2 also reported taxes withheld consistent with

what Mr. Waltner reported on his substitute W-2s. The only substantive

difference between the Forms W-2 submitted by the third parties and the substitute

W-2s is that Mr. Waltner reported zero wages. In March 2010 the IRS sent the

Waltners a letter informing them that the return that they had filed and on which

they had reported zero wages represented a frivolous position and offering them

30 days within which to submit a corrected return; otherwise the IRS would

impose a $5,000 frivolous submission penalty under section 6702. The Waltners

did not submit a corrected return, and respondent assessed a $5,000 penalty and

issued to Mr. Waltner a notice of penalty charge, informing him of the assessed

penalty.

The Collection Proceeding Before the IRS

      Respondent issued a notice of intent to levy to Mr. Waltner to collect the

section 6702 penalty. Mr. Waltner requested a hearing and submitted a 49-page

fax to the Appeals officer who held the collection due process (CDP) hearing. The
                                         -5-

[*5] 49-page submission included a summary of Mr. Waltner’s position that he is

not liable for the section 6702 penalty and a 9-page declaration wherein he states

that before January 2008 “I was very ignorant of the tax laws and assumed that all

terms used by the IRS had their common meanings and that all earnings were

taxable without exception. I have become increasingly more educated regarding

these matters and seek to adhere to the rule of law in my affairs with the IRS”.

      With respect to being liable for the income tax, he declared he was not “an

officer, employee, or elected official of the United States, a State or any political

subdivision thereof, or the District of Columbia, or any agency or instrumentality

of any one or more of the foregoing”, he “was never an officer of a corporation”,

“did not receive any Wages from any source”, “did not work for or receive any pay

from an Employer or American Employer”, “was not engaged in Employment”,

“was not an Employee”, “was not engaged in Self-Employment”, “was not

engaged in a Trade or Business, i.e. I have never performed the functions of any

public office”, “was not a citizen or resident of the District of Columbia or any

territory or possession of the United States”, was “never incorporated in

Washington, D.C. or worked for any company who incorporated in Washington,

D.C.”, and “was not a governmental unit or agency or instrumentality thereof, or a

United States Person”.
                                        -6-

[*6] With respect to the information returns filed by third parties, he stated:

“[N]one of the payers for whom I worked in 2008 were engaged in activities

effectively connected to a Trade or Business, none was a federal agency, federal

instrumentality or federal (or federally-controlled) corporation, and none paid me

Wages subject to reporting” however “[s]ome of these payers retained money from

my non-Wage pay and paid it over to the IRS as ‘withholding’ for federal income

and employment (payroll) taxes.”

      During the CDP hearing the Appeals officer informed Mr. Waltner that

many of the arguments in his faxed submission were frivolous and that he would

not consider them. Mr. Waltner did not provide a Form 433-A, Collection

Information Statement,4 and the Appeals officer was unable to determine whether

he was eligible for a collection alternative. Respondent issued a Notice of

Determination Concerning Collection Action(s) Under Section 6320 and/or 6330,

sustaining the proposed levy to Mr. Waltner.

The Proceedings Before This Court

      Among the errors assigned to respondent in the petition, Mr. Waltner

alleged respondent had erroneously determined that Mr. Waltner was subject to a


      4
     The complete title of this form is “Collection Information Statement for
Wage Earners and Self-Employed Individuals”.
                                         -7-

[*7] section 6702 penalty despite his assertion that he “is not among the class of

persons enumerated” in section 6671(b). Further, Mr. Waltner alleged that

respondent had failed to verify at the CDP hearing whether Mr. Waltner was

“among the limited class of people subject to tax upon which levy by distraint

could be made”, which he alleged he was not. Mr. Waltner then filed an amended

petition from which he omitted those frivolous arguments.

      During the five months between the issuance of the notice of trial and the

trial date the parties filed 24 motions, some of which were supplemented and many

of which required responses, competing requests for admissions and supplemental

requests for admissions and various other documents, all of which resulted in the

Court’s issuing no less than 22 orders. The number of documents filed illustrates

the lack of cooperation by the parties and, to some extent, also indicates acrimony

between them. Respondent made repeated attempts to elicit overly broad

admissions regarding facts and documents related to other years and to nonparties

that have no bearing on the year in issue or the penalty at issue in this case. For

his part, Mr. Waltner refused to stipulate many relevant facts and objected to being

compelled to answer interrogatories and produce documents while he

simultaneously requested that the Court compel respondent to answer irrelevant
                                       -8-

[*8] interrogatories and produce irrelevant documents. We address the various

filings by category below.

Admissions

      Mr. Waltner filed a request for admissions, a supplemental request for

admissions, and a motion to review respondent’s responses to each. On November

4, 2013, the Court issued a 39-page order reviewing the 44 requests for admissions

and the 83 supplemental requests for admissions and respondent’s responses. The

Court found many of Mr. Waltner’s requests improper because they called for

legal conclusions, posed hypothetical questions, or asked for information not

relevant to the frivolous tax submissions penalty for 2008. The Court also found

many of respondent’s responses inadequate because respondent attempted to

provide documents in lieu of admitting or denying some of the requests,

respondent denied for lack of information whether certain exhibits appended to the

requests were copies of those in Mr. Waltner’s administrative file when

respondent presumably had the administrative file to verify those exhibits, and

respondent denied for lack of knowledge or information what certain codes in Mr.

Waltner’s transcript meant when respondent was the one who created those very

codes. The November 4 order directed respondent to file revised responses for
                                         -9-

[*9] those the Court found inadequate. On November 22, 2013, respondent filed

revised responses conforming to the Court’s order.

         Respondent filed a 993-page request for admissions, including 242 separate

paragraphs and appended exhibits. Mr. Waltner filed a motion for a protective

order staying discovery, and respondent filed a notice of objection to Mr.

Waltner’s motion. By order dated September 5, 2013, the Court granted Mr.

Waltner’s motion for protective order in part, relieving Mr. Waltner of responding

to some requests, and denied the motion in part, requiring him to respond to

others. The Court reviewed respondent’s requests for admissions and found that

some requests were irrelevant to the Court’s inquiry (regarding properties sold

after the year in issue and information regarding Sarah V. Waltner not related to

2008) and that others related to matters of public record (various District Court,

Court of Appeals, State superior court, and the U.S. Court of Federal Claims cases

involving the Waltners and criminal court proceedings against Peter and Doreen

Hendrickson). Although the Court ordered Mr. Waltner to respond to some of the

requests for admissions, when he responded he renewed his objections and failed

to admit or deny several requests. And as discussed below, for those requests to

which Mr. Waltner responded and denied, some of those denials were not in good

faith.
                                       - 10 -

[*10] Stipulations

      Less than one month after Mr. Waltner’s requests for admissions were

served, he filed a motion to compel stipulation and for an order to show cause why

proposed facts and evidence should not be accepted as established under Rule

91(f). Mr. Waltner alleged that respondent was refusing to stipulate and provided

his proposed stipulations. The Court granted Mr. Waltner’s motion and issued an

order to show cause under Rule 91(f). Respondent filed a response alleging that

Mr. Waltner’s motion should be denied because Mr. Waltner was refusing to

stipulate facts such as his earnings and the CDP administrative file and that many

of the proposed stipulations were already covered by Mr. Waltner’s requests for

admissions. The response also included respondent’s responses to Mr. Waltner’s

proposed stipulations, and so the order to show cause was discharged.

Discovery

      Respondent filed a motion to compel responses to interrogatories; however,

respondent supplemented his motion when he received Mr. Waltner’s responses.

Mr. Waltner filed an objection, and because he had in fact responded, we treated

respondent’s motion to compel as a motion to review the sufficiency of Mr.

Waltner’s responses. By order dated October 29, 2013, the Court granted

respondent’s motion and directed Mr. Waltner to supplement his responses
                                       - 11 -

[*11] because Mr. Waltner’s previous responses consisted of nothing but

objections--not a single interrogatory was answered. For example, Mr. Waltner

repeatedly objected to interrogatories regarding his earnings from three jobs

during 2008 because he stated that they were not reasonably calculated to lead to

discovery of admissible evidence regarding the section 6702 penalty. Rather than

answer, Mr. Waltner filed a motion for reconsideration of the Court’s October 29

order, alleging the Court had exceeded its authority in requiring responses to the

interrogatories and not accepting the objections without answers. That motion for

reconsideration was denied. Mr. Waltner sought an extension of time within

which to answer the interrogatories, and the Court granted his motion. However,

he never responded and instead paid the section 6702 penalty as discussed more

fully below.

      Mr. Waltner filed his own motion to compel responses to interrogatories,

which he amended and to which respondent filed an objection. The Court found

some of respondent’s responses sufficient; however, the Court found four

responses to interrogatories regarding the summary record of assessment

insufficient. Thus, the Court granted Mr. Waltner’s motion in part and ordered

respondent to supplement his responses to those four interrogatories. On
                                        - 12 -

[*12] November 22, 2013, respondent supplemented his responses to include

sufficient answers to the four interrogatories.

      Respondent filed a motion to compel production of documents; however,

respondent supplemented his motion when he received Mr. Waltner’s response.

Mr. Waltner filed an objection; and because he had in fact responded, we treated

respondent’s motion to compel as a motion to review the sufficiency of Mr.

Waltner’s response to the request for production of documents. Mr. Waltner’s

response consisted of nothing but objections--not a single document was

produced. The Court reviewed respondent’s requests for production and found

most of respondent’s requests relevant and not objectionable. However, some of

respondent’s requests were overly broad. For example, respondent requested

documents regarding mortgage applications “regardless of year”, and so we

restricted the request to the two years before and after the year at issue because

those might lead to the discovery of admissible evidence. By order dated October

31, 2013, the Court granted respondent’s motion in part and ordered Mr. Waltner

to supplement his responses. Rather than answer, Mr. Waltner filed a motion for

reconsideration of the Court’s October 31 order, alleging the Court had exceeded

its authority in requiring responses to the requests for production of documents

and not accepting the objections without answers. The Court denied that motion
                                         - 13 -

[*13] for reconsideration. Mr. Waltner sought an extension of time to respond to

the request for production, and the Court granted that motion. However, Mr.

Waltner never responded and, as previously mentioned, paid the section 6702

penalty.

Continuance and Consolidation

      Respondent filed the first motion for continuance, requesting that this case

be continued so that it may be consolidated with a 2008 deficiency case involving

Mr. and Mrs. Waltner’s joint return at docket No. 1729-13. Mr. Waltner filed an

objection, stating that he did not wish to delay this case and that respondent’s

motion should be denied because this case concerned only the 2008 penalty. By

order dated October 23, 2013, the Court denied respondent’s motion to continue

because the Court was disinclined to consolidate the two cases, which was the

underlying reason for the motion to continue. The Court was disinclined to

consolidate the cases because the parties to the two cases are not the same and the

issues in the two cases were not the same; more specifically, Mrs. Waltner is not a

party to this case but she is a party to the deficiency case, and at that time the

underlying issue in this case was whether Mr. Waltner had made a frivolous tax

submission whereas the deficiency case will require the Court to determine the

Waltners’ underlying tax liability. Although it would have been within the sound
                                        - 14 -

[*14] discretion of the Court to consolidate the cases, the Court gave heavy weight

to the fact that it was Mr. Waltner who opposed consolidation, in part because he

represented that he did not want to delay this case.

      Notwithstanding Mr. Waltner’s statement that he did not wish to delay this

case, in early November 2013 he filed his own motion for consolidation of this

case with two other cases at docket Nos. 8726-11L and 12722-13. In stark

contrast to the consolidation that respondent had suggested, the cases Mr. Waltner

proposed to consolidate did not even involve the same years. The Court denied

Mr. Waltner’s motion to consolidate.

      Less than a month before trial Mr. Waltner hired an attorney, who entered

an appearance in this case and who filed a motion to change the place of trial to

Jacksonville, Florida. At the time of that motion there was no connection in this

case to Florida apart from Mr. Waltner’s new attorney, whose office was in

Florida. The Court denied the motion to change the place of trial because it

effectively requested a continuance, and hiring a new counsel is not ordinarily

grounds for a continuance under Rule 133. Mr. Waltner’s then attorney also filed

a motion for reconsideration of the Court’s denial of the motion to change the

place of trial, which the Court also denied. The Court explained to Mr. Waltner’s

then attorney that Mr. Waltner had adamantly opposed continuing his trial as
                                        - 15 -

[*15] recently as October 2013. Further, the Court found the motion to change the

place of trial was dilatory and appeared “to have been filed solely to accommodate

Counsel, who was retained one month before the scheduled trial--a delay of Mr.

Waltner’s own making.” Seven days after Mr. Waltner’s attorney filed an entry of

appearance, he filed a motion to withdraw as counsel, stating that Mr. Waltner did

not object to his withdrawal.

Summary Judgment

      Mr. Waltner filed two motions for summary judgment. Each motion stated

that there were no genuine issues of material fact because respondent had not

proven that Mr. Waltner was liable for the section 6702 penalty. By order dated

September 3, 2013, the Court denied Mr. Waltner’s first motion for summary

judgment. The Court noted that at the time of the September 3 order there was “no

evidence in this case; there are only allegations of fact made by the parties * * *

thus it appears both parties acknowledge that additional facts remain to be

discovered.” With respect to Mr. Waltner’s assertion in his first motion for

summary judgment that he was not a “person” as defined in section 6671(b), we

informed him in the September 3 order that this argument has already been
                                        - 16 -

[*16] rejected by this Court and the Court of Appeals to which this case is

appealable.5 Further, we informed Mr. Waltner in the September 3 order that his

argument that he was not a person under section 6671was frivolous and warned

him that the Court can impose a penalty under section 6673 if it finds that he

“instituted or maintained this proceeding primarily for delay or that he took a

position that is frivolous or groundless.”

      Mr. Waltner filed a motion for reconsideration of the order denying his first

motion for summary judgment, arguing, among other things, that the Court had

misapprehended the meaning of section 6671. Further, Mr. Waltner argued he was

entitled to summary judgment, despite the fact that there were disputed facts at the

time of the motion. The Court denied that motion for reconsideration. On the

same day he filed his motion for reconsideration, Mr. Waltner also filed a motion

for certification for interlocutory appeal on the question of interpretation of

section 6671(b), which the Court also denied.

      Mr. Waltner’s second motion for summary judgment incorporated all of his

first motion and stated that respondent would be unable to prove that the

assessment of the penalty against Mr. Waltner was valid. Mr. Waltner then asked


      5
     See United States v. Graham, 309 F.2d 210, 212 (9th Cir. 1962); Crites v.
Commissioner, T.C. Memo. 2012-267, at *7-*8.
                                        - 17 -

[*17] the Court to take judicial notice of a press release regarding “the discovery

of evidence of forgery of the proof offered by the sitting President of the United

States of his eligibility for office.” Mr. Waltner argued that the President cannot

be a “competent Executive” and thus there can be no valid delegation of authority

from the President to assess the frivolous return penalty at issue. By order dated

October 29, 2013, the Court denied Mr. Waltner’s second motion.

Fee Waiver

        Because we are a Court with nationwide jurisdiction and parties are often

far from the Tax Court courthouse in the District of Columbia, the Court will often

hold telephone conferences with parties to assist them in resolving issues such as

discovery disputes or to discuss motions filed by one or more of the parties. The

Court often reviews the case file in whole or in part in preparation for a conference

call.

        In preparation for such a call, a staff person called the number Mr. Waltner

had provided on his petition and requested a convenient time for a conference call

and a number where Mr. Waltner preferred to be contacted. During Mr. Waltner’s

return phone call, he provided a number that he characterized as his work number.

The Court observed on Mr. Waltner’s fee waiver application that his last “job”

was in 2009; the Court then noticed that Mr. Waltner had altered the Court’s fee
                                       - 18 -

[*18] waiver form, substituting the word “job” where the original form stated

“employment”, substituting “pay” for “salary or wages”, and substituting

“company payer” for “employer”. The Court made no findings based on Mr.

Waltner’s off-the-record statement, but instead by order dated September 6, the

Court sought clarification by ordering Mr. Waltner to complete another

application for waiver without altering the form; the Court did not direct that Mr.

Waltner give updated financial information, only that he complete the form

without altering it or provide the same information requested by the form in some

other format. In lieu of providing an unaltered form or the requested information,

Mr. Waltner paid the filing fee, thus rendering moot the question of whether he

was entitled to a fee waiver. As a result, the Court vacated the September 6 order,

thus ending the inquiry.

Recusal

      After the Court denied Mr. Waltner’s first motion for summary judgment

and Mr. Waltner paid the filing fee, Mr. Waltner filed a motion for recusal of the

Judge assigned to this case. As grounds, Mr. Waltner asserted that the Judge was

biased against him because the Court had denied Mr. Waltner’s first motion for

summary judgment without ordering a response and because the Court had ordered

Mr. Waltner to resubmit his application for fee waiver without altering the
                                       - 19 -

[*19] questions or the wording of the form. Mr. Waltner also claimed that the

Court had denied him the ability to appeal the fee waiver issue because the Court

had vacated the order calling for a new fee waiver application. In an order dated

October 29, 2013, the Court explained that once Mr. Waltner paid the filing fee,

the Court was left with three options: (1) sanction Mr. Waltner for failing to

comply with the Court’s September 6 order, which had directed him to submit a

new unaltered form or the information requested in the unaltered form, (2) order

Mr. Waltner to comply with the September 6 order, or (3) vacate the Court’s

September 6 order and accept the filing fee. The option most favorable to Mr.

Waltner was to vacate the September 6 order, which is what the Court did.

Because there was no basis upon which bias could be found, the Court denied Mr.

Waltner’s motion for recusal.

Sanctions

      Respondent filed a motion for sanctions pursuant to section 6673 in part on

the basis of Mr. Waltner’s response to respondent’s request for admissions. That

response was filed after the Court’s September 3 order, which warned Mr. Waltner

about his potential liability for section 6673 penalty. Respondent alleged that Mr.

Waltner had failed to cooperate with respondent to prepare the case for trial and

was continuing to assert frivolous positions. Mr. Waltner filed a response
                                        - 20 -

[*20] objecting to respondent’s motion for sanctions, asserting instead that

“[r]espondent offers no support (and none exists) for his contention that informing

the Secretary on a tax form that one works in the private sector and received little

or no reportable income is a ‘frivolous’ position meriting penalty. This contention

is itself frivolous and groundless, resulting in a vexatious multiplication of these

proceedings.”

      Mr. Waltner filed his own motion for sanctions pursuant to section 6673.

He stated that he “has no burden to prove that his non-wage earnings were not

taxable, nor anything else related to the dollar amounts that were reported as

income on his return”, all of which he asserted is irrelevant to the frivolous

submission penalty. Mr. Waltner also asserted that it is respondent who has

multiplied these proceedings by continuing to assert that Mr. Waltner has

advanced frivolous arguments and that it is respondent who should be sanctioned.

Motion To Dismiss Petition Without Prejudice

      Approximately two weeks before trial Mr. Waltner filed a motion to dismiss

his petition without prejudice. Mr. Waltner asserted that his motion should be

granted on the ground of mootness because he had fully paid the section 6702

penalty that provided the basis for the proposed collection action at issue. Mr.

Waltner attached to his motion a copy of an express mail receipt for a mailing to
                                        - 21 -

[*21] the IRS, copies of six money orders totaling $5,400 (each with a handwritten

note “2008 1040 CVPN under protest”), and a copy of a note stating “In payment

of 2008, 6702 penalty plus interest. This payment is made under protest. This is

for penalty assessed on Nov 7, 2011 against Steven T. Waltner. Interest paid as

estimated by I.R.S. as of 11-22-13”. The Court could not grant Mr. Waltner’s

motion until it determined that respondent had received the money orders and

applied them as Mr. Waltner directed; moreover, the case could not be dismissed

while the section 6673 motions remained unresolved. To sort all of this out, the

Court set the motion to dismiss for a hearing at the trial session along with the

pending section 6673 motions. At the hearing respondent’s counsel reported that

Mr. Waltner’s $5,400 payment had been misapplied but that he would work to

correctly apply the payment as Mr. Waltner had directed. On January 14, 2014,

respondent filed a status report indicating that Mr. Waltner’s $5,400 payment had

been found and was in the process of being applied as directed.

December 11, 2013, Hearing

      By order dated December 4, 2013, the Court had set both section 6673

motions for hearing and invited each party to appear or file a Rule 50(c) statement

addressing whether that party wished to withdraw that party’s section 6673 motion

in the light of Mr. Waltner’s payment of the section 6702 penalty. Each party
                                      - 22 -

[*22] submitted a Rule 50(c) statement; Mr. Waltner unconditionally withdrew his

motion for sanctions, but respondent did not. At the hearing the Court also gave

both parties an opportunity to reconsider whether they wished to withdraw their

section 6673 motions. The Court offered the parties the option of conditionally

withdrawing their motions (i.e., “I’ll withdraw mine if you withdraw yours.”). Mr.

Waltner confirmed that he wanted to unconditionally withdraw his motion for

sanctions, and respondent confirmed that he wanted the Court to decide his

motion.

                                   Discussion

      This case has occupied an inordinate amount of the Court’s time. The Court

could have disposed of the entire matter summarily by reference to Crain v.

Commissioner6 or any number of other cases that stand for the proposition that we

need not address frivolous arguments.7 After all, Mr. Waltner asserted frivolous


      6
       Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) (“We perceive
no need to refute these arguments with somber reasoning and copious citation of
precedent; to do so might suggest that these arguments have some colorable
merit.”).
      7
       Rapp v. Commissioner, 774 F.2d 932, 936 (9th Cir. 1985); May v.
Commissioner, 752 F.2d 1301, 1305-1306 (8th Cir. 1985); Schiff v.
Commissioner, 751 F.2d 116, 117 (2d Cir. 1984), aff’g T.C. Memo. 1984-223;
Wnuck v. Commissioner, 136 T.C. 498, 499 (2011); McCoy v. Commissioner, 76
T.C. 1027, 1029-1030 (1981), aff’d, 696 F.2d 1234 (9th Cir. 1983); Myrick v.
                                                                    (continued...)
                                        - 23 -

[*23] arguments, and even after the Court rejected those arguments and warned

him about potential sanctions under section 6673, he continued to press those

arguments. The Court has taken the time, however, to address those arguments

because Mr. Waltner appears to be perpetuating frivolous positions that have been

promoted and encouraged by Peter Hendrickson’s book Cracking the Code: The

Fascinating Truth About Taxation in America (2007). Indeed, it appears not

merely that Mr. Waltner’s positions are predicated on that book but that his returns

and return information have been used to promote the frivolous arguments

contained in that book. Consequently, a written opinion is warranted.

      Judicial opinions are the “‘heart of the common law system’” and serve as

“a critical component of what we understand to be the ‘law.’”8 Statutes and

regulations provide simply an outline; judicial opinions fill in the details by

providing the rule of law the court applied, the court’s rationale in applying that

law, and the underlying facts.



      7
       (...continued)
United States, 217 F. Supp. 2d 979, 984-985 (D. Ariz. 2002), aff’d, 70 Fed. Appx.
956 (9th Cir. 2003).
      8
       Martha J. Dragich, “Will the Federal Courts of Appeals Perish If They
Publish? Or Does the Declining Use of Opinions to Explain and Justify Judicial
Decisions Pose a Greater Threat?”, 44 Am. U. L. Rev. 757, 758 (1995) (citations
omitted).
                                         - 24 -

[*24] Judicial opinions serve many purposes: they assist attorneys in advising

clients and preparing cases; they provide the lower court’s rationale when the

appellate court must evaluate its decision; they inform the public of the court’s

analysis; and they establish clear and articulate rules for the future. It is with these

purposes in mind that we address whether Mr. Waltner’s conduct merits sanctions

while addressing the underlying frivolous positions upon which he relies and

which he perpetuates by allowing his return information to be used.

Sanctions

      Pursuant to section 6673(a)(1), the Court may impose a penalty of up to

$25,000 against a taxpayer when it appears that he or she has instituted or

maintained a case primarily for delay, that he or she took a position that is

frivolous or groundless, or that he or she unreasonably failed to pursue

administrative remedies.9 The purpose of section 6673, like that of section 6702

(the frivolous tax submissions penalty that underlies this case), is to encourage

taxpayers to conform their positions to settled tax principles.10




      9
          See Pierson v. Commissioner, 115 T.C. 576, 581 (2000).
      10
       See Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); see also
Wnuck v. Commissioner, 136 T.C. at 513-514; Grunsted v. Commissioner, 136
T.C. 455, 462 (2011).
                                       - 25 -

[*25] One need not review the entire record to determine whether Mr. Waltner

should be sanctioned; the answer can be gleaned from the discovery process. In

general, a party may seek information in discovery, and the party resisting the

discovery may object.11 Either party may seek the Court’s intervention by asking

the Court to compel responses or by asking for a protective order.12 Once the

Court rules on the appropriateness of the request or the sufficiency of the answer,

however, the parties must comply with the Court’s order or risk sanctions.13

      The discovery disputes are now moot because Mr. Waltner has paid the

section 6702 penalty that was at issue. However, each party moved for a section

6673 penalty on the basis of the other’s actions. We focus on the record in this

case to determine whether either party took a frivolous position after the Court

determined it was frivolous or groundless or whether either party took actions

primarily for delay.

      This case presents clear examples of the proper manner for addressing

discovery disputes and of a manner that evidences frivolous positions or attempts

at delay. Respondent’s counsel sought discovery that went beyond the scope of


      11
           Rule 90.
      12
           Rules 103, 104(b).
      13
           See generally Rule 104.
                                       - 26 -

[*26] this case, and the Court issued orders excusing Mr. Waltner from responding

to those requests. Likewise, respondent’s counsel was evasive in answering some

of Mr. Waltner’s discovery requests, and the Court ordered respondent to

supplement those responses. In each instance, once the Court ruled, respondent’s

counsel cured the defect, through either supplementing his responses or accepting

the Court’s determinations that his requests were improper.

      Mr. Waltner sought to avoid answering every discovery request.

      With respect to respondent’s interrogatories, the Court found Mr. Waltner’s

responses (which consisted of nothing but objections) insufficient and ordered him

to supplement those responses. As previously discussed, Mr. Waltner repeatedly

objected to interrogatories regarding his earnings from three jobs during 2008

because he stated that those interrogatories were not reasonably calculated to lead

to the discovery of admissible evidence regarding the section 6702 penalty, an

objection that is not in good faith. Rather than supplement, Mr. Waltner filed a

motion for reconsideration of the order directing him to supplement, which the

Court denied. Mr. Waltner then filed a motion for extension of time to

supplement, which the Court granted. However, Mr. Waltner never supplemented

his responses.
                                       - 27 -

[*27] With respect to respondent’s requests for production of documents, the

Court found Mr. Waltner’s responses (which again consisted of nothing but

objections and did not include a single document) insufficient and ordered him to

supplement his responses. Rather than supplement his responses, Mr. Waltner

filed a separate motion for reconsideration of the order directing him to

supplement his responses, which the Court denied. Mr. Waltner objected to the

requests for production regarding his earnings from three jobs during 2008,

because he considered that information to be irrelevant--an argument the Court

had already rejected. Mr. Waltner then filed a motion for extension of time to

supplement, which the Court granted. Just as he never answered the

interrogatories, Mr. Waltner never supplemented his responses to the request for

production of documents.

      Discovery is not the only area in which Mr. Waltner failed to heed the

Court’s orders. On September 3, 2013, the Court issued an order denying

summary judgment and informing Mr. Waltner that he was a person under sections

6671(b) and 7701(a)(1) and thus could be liable for the section 6702 penalty. The

Court identified these positions as frivolous in the September 3 order and warned

Mr. Waltner that continuing to argue that he was not such a person might lead to

the imposition of a section 6673 penalty. After that order, Mr. Waltner repeatedly
                                         - 28 -

[*28] asserted he could not be liable for the section 6702 penalty because he was

not among the class of people who can be liable for that penalty: in his motion for

reconsideration of the order denying summary judgment, in his motion for

interlocutory appeal, in his motion for recusal, and in his second motion for

summary judgment wherein he incorporated his arguments from his first motion

for summary judgment. Also, Mr. Waltner repeatedly alleged that the pay he

received for his work in 2008 was not taxable, an argument that was found to be

frivolous many years ago.14

      Mr. Waltner’s pattern of filing motions for reconsideration of orders

directing him to supplement his responses and then never supplementing those

responses shows that those motions were interposed for delay. Mr. Waltner’s

objections in the responses he filed were rarely made in good faith. Mr. Waltner’s

late attempts to obtain counsel, consolidate this case with other cases, and change

the place of trial all show an attempt to delay this case.




      14
         See, e.g., Coleman v. Commissioner, 791 F.2d at 69 (“Some people
believe with great fervor preposterous things that just happen to coincide with
their self-interest. ‘Tax protesters’ have convinced themselves that wages are not
income, that only gold is money, that the Sixteenth Amendment is
unconstitutional, and so on. These beliefs all lead--so tax protesters think--to the
elimination of their obligation to pay taxes. The government may not prohibit the
holding of these beliefs, but it may penalize people who act on them.”).
                                       - 29 -

[*29] One particularly troubling aspect of Mr. Waltner’s failure to deal with the

Court in good faith relates to requests for admissions. As with the discovery

requests, he objected to all requests for admissions that respondent posed. Mr.

Waltner sought a protective order, which the Court granted in part and denied in

part, ordering Mr. Waltner to respond to the portions of respondent’s requests for

admissions that the Court found proper. Although the Court determined the

remaining requests were proper, Mr. Waltner objected to almost every remaining

request as “irrelevant” and “vexatious” and failed to admit or deny several

requests notwithstanding the Court’s order.

      Some of those requests related to the book Cracking the Code. The Court

excused Mr. Waltner from admitting or denying that Peter Hendrickson wrote the

book Cracking the Code and maintains the Web site www.losthorizons.com,

which is repeatedly referenced in the book. The Court did, however, require Mr.

Waltner to respond to requests for admissions regarding certain tax materials

posted on that Web site that appear to be the Waltners’ return information. Mr.

Waltner was evasive in his responses and objected to every request related to the

Web site on the grounds that they are not relevant to this case and that they are

vexatious.
                                         - 30 -

[*30] Rule 90(c)(1) generally requires a party to specifically admit, deny, or

“assert[] that it cannot be truthfully admitted or denied and set[] forth in detail the

reasons why this is so”. Mr. Waltner fell far short of this standard. For example,

with respect to a request for admission that Mr. Waltner had submitted certain

documents15 to the Web site affiliated with Cracking the Code, he objected to the

request, stated he had made reasonable inquiry but he was unable to admit or deny,

but that he “[d]enies ‘material * * * was contributed by petitioner’”. In other

requests relating to the Web site, he simply objected and stated he had made

reasonable inquiry and was unable to admit or deny. Mr. Waltner never

supplemented his answers.

      Those responses simply are not credible. Although redacted, even

superficially the documents on the Web site appear to be those of the Waltners.

The documents still appear on the Web site as of the drafting of this opinion,

although after respondent’s requests for admissions were submitted they appeared

in a slightly more redacted form. But after a more thorough inquiry, it is clear that

they are the Waltners’ documents; they submitted those same documents in other


      15
         Specifically, Steven T. Waltner and Sarah V. Waltner’s “return
information notice” for 2007 from the State of California Franchise Tax Board and
a letter from the IRS applying a 2007 overpayment to their outstanding 2006 tax
liability.
                                          - 31 -

[*31] cases pending in this Court. In short, Mr. Waltner’s statements that he was

unable to admit or deny the requested admissions do not appear to have been in

good faith; they appear to have been an attempt by Mr. Waltner to distance himself

from the Web site and its related book.

       In short, Mr. Waltner’s conduct merits sanctions. His motion to consolidate

this case (after having previously objected to consolidation) and his motion to

change the place of trial appear to have been interposed primarily for the purpose

of delay, and thus his conduct is sanctionable under section 6673(a)(1)(A).

Moreover, his assertion of positions that the Court had already rejected as

frivolous is conduct sanctionable under section 6673(a)(1)(B). We will address

this latter point further.

       Mr. Waltner repeatedly advanced frivolous arguments. When he first

advanced the argument that he was not a “person” as that term is used in the

Internal Revenue Code, the Court explained in an order dated September 3, 2013,

that his view has long been rejected. Yet he continued to press that point. His

insistence on pressing a point that has been rejected is consistent with an

admonition from Cracking the Code: It advises readers to follow its positions
                                        - 32 -

[*32] notwithstanding the consequences.16 Indeed, those consequences are often

sanctions on the parties advocating those positions, because courts have repeatedly

rejected the positions espoused in that book.

Cracking the Code

      We address the positions set forth in Cracking the Code not only because

some of Mr. Waltner’s positions in this case mirror positions set forth in that book,

but also because one of the purposes of the Court’s opinions is to guide future

litigants (and in this instance, the same litigant in other proceedings before this

Court).

      Simply looking at the materials the Waltners submitted with their 2008

return show that they are familiar with Cracking the Code. Mr. Waltner has

adopted the book’s nomenclature, declaring himself a “private-sector worker” on

his 2008 return, and he followed the author’s directions in submitting substitute

W-2s and 1099s including declarations, and reporting his Federal tax withholdings

as including Social Security and Medicare taxes.

      In his filings with this Court, Mr. Waltner has adopted the book’s frivolous

approach to statutory construction, specifically as it relates to the use of the word


      16
       Peter Eric Hendrickson, Cracking the Code: The Fascinating Truth About
Taxation in America 204 (2007).
                                         - 33 -

[*33] “includes” when asserting that he cannot be among the class of people

subject to a section 6702 penalty. Mr. Waltner altered his request for waiver of

the filing fee to be consistent with Cracking the Code, replacing the word

“employment” with “job”, replacing the words “salary or wages” with “pay”, and

replacing “employer” with “company payer”. Mr. Waltner submitted a 49-page

fax that he also submitted to the Appeals officer wherein his declaration closely

tracks the narrow types of payments and payers that Cracking the Code declares

are taxable and subject to reporting, and wherein Mr. Waltner declares under

penalty of perjury that he received no such payments from any such payer.

Further, Mr. Waltner states repeatedly in his filings that, although he received pay

for working in 2008, the amount he received was not income because it was from a

private-sector company, which Cracking the Code declares to be not taxable.

      About the Author

      When taxpayers consider relying on a book that purports to explain the tax

laws, it is reasonable to inquire into the qualifications of the author. After all, the

quality of tax research depends on the sources on which the researcher relies.

Taxpayers can perform their own research or they can rely on the advice of others
                                          - 34 -

[*34] as a way to avoid the imposition of accuracy-related penalties.17 But

whether relying on their own research or relying on others, that reliance must be

reasonable.18 For example, if a case is off-topic or is no longer relevant because

the law has changed, relying on that case is not reasonable.19 When a taxpayer is

relying on the advice of a tax professional, the Court will consider the

qualifications of the adviser.20 So it only follows that, when taking positions

based on a book, it is reasonable to inquire into the expertise of the author. Some

authors are well-recognized tax experts who are cited by courts; others are not.

      Cracking the Code is written by Peter Eric Hendrickson. Nowhere in his

book does Mr. Hendrickson set forth his credentials, other than on the back cover

where he vaguely identifies himself as “researcher, analyst and scholar”. Add to

that felon and serial tax evader.



      17
           See, e.g., sec. 6664(c); sec. 1.6664-4(b)(1), Income Tax Regs.
      18
        Freytag v. Commissioner, 89 T.C. 849, 888 (1987), aff’d, 904 F.2d 1011
(5th Cir. 1990), aff’d, 501 U.S. 868 (1991).
      19
     Sec. 1.6662-4(d)(3)(iii), Income Tax Regs.; see also Brown v.
Commissioner, T.C. Memo. 2013-275, at *18.
      20
       See sec. 1.6664-4(c), Income Tax Regs.; see also Charlotte’s Office
Boutique, Inc. v. Commissioner, 425 F.3d 1203, 1212 n.8 (9th Cir. 2005);
Neonatology Assocs, P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299
F.3d 221 (3d Cir. 2002).
                                        - 35 -

[*35] Mr. Hendrickson’s first felony indictment of which the Court is aware

occurred in 1991.21 In October of that year, Mr. Hendrickson was charged with:

      •      Conspiracy to Place Incendiary Device in United States Mail
      •      Placing Injurious Article in U.S. Mail, Aiding and Abetting
      •      Malicious Destruction of Property Affecting Interstate
             Commerce by Means of Explosive
      •      Use of Explosive to Commit Felony Against the United States
      •      Failure to File Federal Income Tax Return (relating to 1988)
      •      Failure to File Federal Income Tax Return (relating to 1989)

Although the descriptions of the first four counts do not appear to be tax related,

the indictment provides further insights.

      It was a part of the conspiracy that defendants PETER
      HENDRICKSON and DOREEN WRIGHT planned the placement of
      an incendiary device in the mail receptacle on the last day for the
      filing of federal income tax returns, April 16, 1990, in order to
      destroy such returns and to foster opposition to the payment of such
      income taxes.

That device was, in fact, placed in the mail.

             On April 16, 1990, the last day which tax returns could be
      postmarked that year, a firebomb was placed in a bin at the United
      States Post Office in Royal Oak, Michigan. At about eight p.m., a
      postal worker standing near the bin and collecting mail from
      individuals driving in front of the post office noticed smoke coming
      from one of the bins. He rummaged through the bin and retrieved a
      smoking brown padded envelope, addressed “to the tax thieves” from
      “freedom loving Americans.” When the postal worker tried to
      extinguish whatever was causing the smoke by placing it in a puddle

      21
        See United States v. Hendrickson, No. 91-80930 (E.D. Mich. Oct. 24,
1991) (indictment).
                                         - 36 -

      [*36] of water and stomping on it, the bomb detonated, injuring the
      postal worker and a bystander.

                *        *       *        *       *        *       *

            Hendrickson and Wright were charged with conspiracy to place
      the device at the post office. * * *[22]

Ultimately, Mr. Hendrickson pleaded guilty to a two-count superseding

information: Conspiracy to Place Incendiary Device in U.S. Mail and Failure to

File Federal Income Tax Return.23

      Mr. Hendrickson’s second indictment occurred in 2008, when he was

indicted on 10 counts of filing a false document, 4 relating to Forms 1040 and 6

relating to substitute W-2s. This indictment is notable because it post-dates the

first printing of Cracking the Code, which according to the copyright page of the

book occurred in July 2003. Further, it is notable because part of Mr.

Hendrickson’s defense appears to have been predicated on “his interpretation of




      22
           United States v. Scarborough, 43 F.3d 1021, 1023 (6th Cir. 1994).
      23
       See Hendrickson, No. 91-80930 (Judgment entered May 13, 1992). The
superseding information and the docket sheet worded the first count as
“Conspiracy to Possess a Destructive Device”.
                                        - 37 -

[*37] the Internal Revenue Code as expounded in his book, Cracking the Code:

The Fascinating Truth About Taxation in America.”24

      In his 2008 criminal case, Mr. Hendrickson advocated the same unduly

narrow--indeed, wholly unreasonable--definition of “person” that he advocates in

Cracking the Code and that Mr. Waltner asserted repeatedly in this proceeding. It

was soundly rejected.

      Defendant begins by asserting that Congress intended through the
      enactment of § 7343 to “limit the application of the title-wide
      definition of ‘person’ found at 26 U.S.C. § 7701(a)(1).” He then
      argues that the use of the term “includes” in § 7343 is meant to
      provide illustrative examples of a “general class” of “persons” within
      the scope of this statutory definition. Because ordinary individuals
      do not fit within the “general class” described by § 7343 - a class that
      is typified by corporate officers and employees, as well as members
      and employees of partnerships -- Defendant surmises that such
      individuals cannot be deemed “persons” within the meaning of §
      7343 (and hence under § 7206(1)).

             This attempt at statutory construction fails at its initial premise.
      While Defendant states as ipse dixit that it is “unambiguously clear”
      and “immediately apparent” that § 7343 is intended to limit, and not
      supplement, the definition of “person” set forth at § 7701(a)(1), the
      most natural reading of these two definitions suggests otherwise.
      Under its plain terms, the definition of “person” set forth at §
      7701(a)(1) governs throughout the tax code unless another provision
      “distinctly expresse[s]” otherwise or this definition would be
      “manifestly incompatible with the intent” of a code provision.
      Nothing in § 7343 can be construed as a “distinct[] express[ion]” of

      24
           United States v. Hendrickson, 664 F. Supp. 2d 793, 796 (E.D. Mich.
2009).
                                         - 38 -

      [*38] an intent to override or supplant the § 7701(a)(1) definition of a
      “person.” To the contrary, § 7343 reads quite naturally as a
      supplement to or clarification of this latter definition: § 7701(a)(1)
      provides that the term “person” “mean[s] and include[s] an
      individual, a trust, estate, partnership, association, company or
      corporation,” and § 7343 then builds upon this definition by
      specifying that it “includes” certain individuals who act on behalf of a
      corporation or partnership -- i.e., “an officer or employee of a
      corporation, or a member or employee of a partnership, who as such
      officer, employee, or member is under a duty to perform the act in
      respect of which the violation occurs.”

               This harmonizing construction of § 7701(a)(1) and § 7343 also
      satisfies the specific dictate of the Internal Revenue Code that “[t]he
      term[] ‘includes’ . . . when used in a definition contained in this title
      shall not be deemed to exclude other things otherwise within the
      meaning of the term defined.” It would violate this code-mandated
      rule of statutory construction to conclude, as Defendant proposes, that
      the use of the word “includes” in § 7343 operates to exclude the
      entirety of the general definition of “person” set forth at § 7701(a)(1)
      -- i.e., individuals, trusts, estates, partnerships, associations,
      companies, and corporations -- and to wholly supplant this definition
      with a far more limited class consisting only of corporate officers and
      employees and members and employees of partnerships. * * * Thus, it
      is not only far more natural, but also better comports with § 7701(c),
      to construe § 7343 as building upon, and not overriding, the more
      general and broadly applicable definition of “person” found at §
      7701(a)(1).

            Not surprisingly, then, the courts have uniformly rejected the
      reading of “person” advocated by Defendant here. * * *[25]

      In addition to this criminal conviction that is explicitly linked to the

positions outlined in Cracking the Code, Mr. Hendrickson has been enjoined from

      25
           Hendrickson, 664 F. Supp. 2d at 814-815 (citations omitted).
                                        - 39 -

[*39] “filing any tax return, amended return, form * * * or other writing or paper

with the IRS that is based on the false and frivolous claims set forth in Cracking

the Code that only federal, state or local government workers are liable for the

payment of federal income tax or subject to the withholding of federal income,

social security and Medicare taxes from their wages”.26

      The reporting positions that gave rise to the permanent injunction, as well as

Mr. Hendrickson’s second indictment and conviction, bear a striking resemblance

to Mr. Waltner’s reporting positions that gave rise to his frivolous tax submissions

penalty and that he espoused in his pleadings in this case. Both failed to report

their wages but rather submitted with their tax returns substitute W-2s that

reported that they received no wages. On brief Mr. Hendrickson explained that

someone “working for remuneration in the private sector, as opposed to an

individual who earned remuneration as a result of the voluntary exercise of a

federal privilege, was not an ‘employee’ and the remuneration he earned was not

‘wages’”.27 Likewise, in his responses to respondent’s requests for admissions,

Mr. Waltner states that while he “does not deny having worked for private



      26
      United States v. Hendrickson, No. 06-11753 (E.D. Mich. May 2, 2007)
(Amended Judgment and Order of Permanent Injunction).
      27
           Hendrickson, 664 F. Supp. 2d at 796.
                                        - 40 -

[*40] companies, or having been paid money for that work in 2008, [he] denies

that this work included the performance of taxable activities or resulted in receipts

or gains therefrom that are subject to tax without apportionment.”

      Through the Looking Glass

      Fittingly, Cracking the Code begins with a passage from Lewis Carroll’s

Through the Looking Glass (1872). In chapter 6 of Carroll’s classic, Alice

encounters Humpty Dumpty where one would expect him to be--sitting on a wall.

Humpty is an odd egg, filled with self-importance. He is pedantic. (Humpty asks

“And if you take one from three hundred and sixty-five, what remains?” To which

Alice responds “Three hundred and sixty-four, of course.” “Humpty Dumpty

looked doubtful. ‘I’d rather see that done on paper,’ he said.”) And when Humpty

speaks, he makes little sense. When Alice is confused by what he says, she tells

Humpty that she does not know what he means. “‘When I use a word,’ Humpty

Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean--

neither more nor less.’”

      It is this passage that is quoted at the beginning of Cracking the Code. It is

fitting because the book is largely an exercise in twisting the meaning of words

into what the author wants them to mean, even if statutes, regulations, and case

law define those words otherwise.
                                          - 41 -

[*41] Foreword

      If there is a single truth in Cracking the Code, it can be found in ALL CAPS

in the forward: If you have taxable income, you are subject to the income tax.28

This is known as a tautology; it is a statement that merely repeats itself. It says

that taxable income is taxable.

      As if to draw a contrast, the book then cites S. Pac. Co. v. Lowe, 247 U.S.

330 (1918), for another unremarkable proposition: Not everything that one

receives is taxable income. When considering citing a case, a “researcher, analyst

and scholar” might look to see whether the “case turns upon its very peculiar

facts”. (It does. Id. at 338.) A “researcher, analyst and scholar” might look to

see whether the law that the case is interpreting is the same law that is currently in

effect. (It is not. The case interpreted the Income Tax Act of 1913; we currently

operate under the Internal Revenue Code of 1986, as amended.) A “researcher,

analyst and scholar” might look to see whether the case has been distinguished or

criticized. (It has, repeatedly. See, e.g., Nat’l Carbide Corp. v. Commissioner,

336 U.S. 422, 429 (1949).) A “researcher, analyst and scholar” might look to see

whether the analysis in the case has been “repudiated by subsequent decisions” of

the very same court. (It has. Id.)

      28
           Cracking the Code, supra note 16, at i.
                                          - 42 -

[*42] But one need not research the few citations that appear in the book to see

what Cracking the Code really is: an antitax screed, short on substance and long

on invective. The foreword is clear in this regard, stating: “Plainly stated, the

‘income’ tax scheme is an utterly corrupt and corrosive fraud feeding an ever-more

insatiable appetite of a swollen cadre of politically astute private interests and their

camp-followers by way of a deliberate campaign of disinformation, intimidation

and cunning.”29 The foreword refers to the tax laws variously as “widely

misunderstood” and “dauntingly and profoundly confusing”, administered by “a

professional class of fixers and go-betweens” through a “tangle of deceit and

confusion”.30 This is not analysis.

      Introduction

      The introduction to Cracking the Code chronicles the author’s antitax

journey. Without an explicit reference to his 1991 indictment, the author refers to

“a rogue and ignorant judge” who, in 1992, apparently ordered him to “comply




      29
        Throughout the book, Mr. Hendrickson uses scare quotes, especially
around the words “income” and “wages”. Scare quotes are defined as “[e]ither of
a pair of quotation marks used to emphasize a word or phrase or to indicate its
special status, especially to express doubt about its validity or to criticize its use.”
The American Heritage Dictionary of the English Language 1555 (4th ed. 2000).
      30
           Cracking the Code, supra note 16, at iii.
                                          - 43 -

[*43] with all internal revenue laws”.31 He questions “the lawfulness[] of the U.S.

Supreme Court” and names as his apparent inspiration people like Irwin Schiff, a

well-recognized tax protester who resides in a Federal prison as a result of his

conviction for conspiracy, aiding in the filing of false income tax returns, and

failing to pay income tax (plus added time for contempt).32 The author tells of

how he would alter the jurat on his tax return, but he notes that the IRS eventually

refused to accept his returns with the altered jurat.33 Although he seems to attach

meaning to the fact that the IRS often accepted his returns with the altered jurat, as

the Supreme Court recently noted, “An agency’s failure to assert a power, even if

prolonged, cannot alter the plain meaning of a statute.”34 It should come as no

surprise that the IRS eventually rejected the returns with the altered jurat; returns




      31
           Cracking the Code, supra note 16, at viii.
      32
        United States v. Schiff, ___ Fed. Appx. ___, 2013 U.S. App. LEXIS 22636
(9th Cir. Nov. 7, 2013).
      33
           Cracking the Code, supra note 16, at ix.
      34
           United States v. Woods, 571 U.S. ___, ___, 134 S. Ct. 557, 567 n.5
(2013).
                                         - 44 -

[*44] must be executed under penalties of perjury.35 And an altered jurat may be

enough to invalidate a return.36

      Part I

      Cracking the Code is divided into three major parts with each part

containing several sections. Part I is titled “The Nature Of The Law” and states--

or more accurately, misstates--a variety of principles. The following are the

section headings from Part I.

      “About Taxes--Direct v. Indirect”

      Starting with the premise that taxes are either direct or indirect, Cracking

the Code lays the foundation for the remainder of the book on two fallacies. The

first is that “federal direct taxes which affect citizens of the several states must be

apportioned.”37 The Constitution at one time required this apportionment;

however, with the adoption of the 16th Amendment in 1913, this rule no longer




      35
           Sec. 6065.
      36
       See, e.g., Sloan v. Commissioner, 53 F.3d 799 (7th Cir. 1995), aff’g 102
T.C. 137 (1994); see also Williams v. Commissioner, 114 T.C. 136 (2000).
      37
           Cracking the Code, supra note 16, at 2.
                                          - 45 -

[*45] applies to income taxes.38 It is unclear whether the author accepts this

fundamental point.

      The second fallacy is that the Federal Government has legislative authority

over only the District of Columbia and U.S. territories and thus lacks the authority

to impose taxes within any State. The error here starts with the author’s

misreading of the Constitution. The Constitution gives Congress the power

      To exercise exclusive Legislation in all Cases whatsoever, over such
      District (not exceeding ten Miles square) as may, by Cession of
      particular States, and the Acceptance of Congress, become the Seat of
      the Government of the United States, and to exercise like Authority
      over all Places purchased by the Consent of the Legislature of the
      State in which the Same shall be, for the Erection of Forts,
      Magazines, Arsenals, dock-Yards, and other needful Buildings
      * * * [39]




      38
         Eisner v. Macomber, 252 U.S. 189, 218-219 (1920); see also Brushaber v.
Union Pac. R.R. Co., 240 U.S. 1, 18 (1916). Brushaber merits special mention,
because Cracking the Code misleadingly cites that case. A stockholder brought
suit to against a corporation to prevent the corporation from paying taxes imposed
by the Tariff Act of 1913. The Supreme Court summarized the stockholder’s
arguments, stating: “The various propositions are so intermingled as to cause it to
be difficult to classify them.” Brushaber, 240 U.S. at 10. The Supreme Court then
proceeded to untangle the stockholder’s arguments, which ultimately proved to be
losing arguments. Yet Cracking the Code cites the Supreme Court’s summary of
the losing arguments as though it were the Supreme Court’s analysis of the
underlying constitutional issues. Cracking the Code, supra note 16, at 19-20.
      39
           U.S. Const., art. I, sec. 8.
                                         - 46 -

[*46] From this the author leaps to the erroneous conclusion that “All other areas

within the union are under the exclusive jurisdiction of one of the several States,

and are thus insulated from federal authority except in regard to certain

enumerated powers, and federal governmental property and contract rights.”40 The

fact that Congress has exclusive legislative power in one area does not mean that it

has no legislative power in others; it merely means that its power in those other

areas is not exclusive. States and the Federal Government exercise sovereignty

concurrent with one another. Or, as the Supreme Court has stated: “As every

schoolchild learns, our Constitution establishes a system of dual sovereignty

between the States and the Federal Government.”41




      40
           Cracking the Code, supra note 16, at 6.
      41
         Gregory v. Ashcroft, 501 U.S. 452, 457 (1991); see also Loughborough v.
Blake, 18 U.S. 317, 319 (1820) (“The power, then, to lay and collect duties,
imposts and excises may be exercised, and must be exercised, throughout the
United States. Does this term designate the whole, or any particular portion of the
American empire? Certainly, this question can admit of but one answer. It is the
name given to our great republic, which is composed of states and territories. The
district of Columbia, or the territory west of the Missouri, is not less within the
United States, than Maryland or Pennsylvania; and it is not less necessary, on the
principles of our constitution, that uniformity in the imposition of imposts, duties
and excises should be observed in the one, than in the other.”).
                                         - 47 -

[*47] “The Origin Of The ‘Income’ Tax”

      The author attempts to use early enactments of the income tax to shed light

on the meaning of the income tax as it exists, but he fails miserably. Section 86 of

the Revenue Act of 1862, ch. 119, 12 Stat. at 472, imposed a 3% tax on Federal

employees whereas section 90, 12 Stat. at 473, of the same act imposed a 3% tax

on “every person residing in the United States”. The author makes an unfounded

leap to conclude that by “identification in section 86 of the remuneration (pay) of

government workers as taxable--and taxed--this original enactment provides a

rare, forthright statutory acknowledgement that the remuneration of private-sectors

workers is not.”42 It does not acknowledge any such thing. These are separate

provisions under separate headings of the Revenue Act of 1862. More

fundamentally, however, these are not the provisions that impose the current

income tax.

      A similar problem adheres to the author’s discussion of Pollock v. Farmers’

Loan & Trust Co., 158 U.S. 601 (1895). The case addressed the question of direct

versus indirect taxes and the (then-existing) requirement that all direct taxes be

apportioned. Again, the apportionment issue was resolved by the 16th




      42
           Cracking the Code, supra note 16, at 14.
                                         - 48 -

[*48] Amendment, which was proposed and ratified after Pollock.43 The author’s

failure to recognize this simple point renders the rest of his discussion

meaningless.

      “The Supreme Court And The Meaning of ‘Income’”

      The author’s tortured analysis erroneously concludes that remuneration for

work is not profit and thus is not taxable. This proposition has already been

rejected by the courts.44 Although we need not review the issue further, the

author’s illogic is worth noting. The analysis begins with a simple analogy of a

shepherd exchanging a sheep for shoes from a cobbler. The author asks whether

in such a transaction either party received income, concluding “[c]learly not”.45

This may not be income in the author’s mind, but from a tax standpoint, it is

income from a barter transaction and it is subject to tax.46 The rest of the author’s

conclusions that flow from this analogy all fail because of his faulty premise.


      43
        Brushaber, 240 U.S. at 18 (“[T]here is no escape from the conclusion that
the Amendment was drawn for the purpose of doing away for the future with the
principle upon which the Pollock case was decided[.]”).
      44
        See, e.g., Reading v. Commissioner, 70 T.C. 730 (1978), aff’d, 614 F.2d
159 (8th Cir. 1980).
      45
           Cracking the Code, supra note 16, at 26.
      46
     Sec. 61(a); Baker v. Commissioner, 88 T.C. 1282, 1288 (1987); Rooney v.
Commissioner, 88 T.C 523 (1987); sec. 1.61-2(d)(1), Income Tax Regs.
                                         - 49 -

[*49] “Regarding The Law And Its Virtues”

      The author opines that laws that need the assistance of interpretation are

“improper and void” and goes on to suggest that the judiciary lacks the authority

to interpret the law.47 Nonsense. It was Chief Justice John Marshall who wrote

more than two centuries ago: “It is emphatically the province and duty of the

judicial department to say what the law is. Those who apply the rule to particular

cases, must of necessity expound and interpret that rule.”48

      “The Plot Thickens”

      Amongst the errors in this section is the author’s misapprehension of the

meaning of the word “including”, or perhaps more accurately his ignoring it. For

example, because certain out-of-date tax provisions expressly stated that they

taxed income, including that of Federal employees, the author erroneously

concludes that persons who are not Federal employees are not taxed. The

Supreme Court rejected this view half a century ago.

      Though the definition of “person” in § 6332 does not mention States
      or any sovereign or political entity or their officers among those it
      “includes” * * * it does not exclude them. This is made certain by the
      provisions of § 7701(b) of the 1954 Internal Revenue Code that “The
      terms ‘includes’ and ‘including’ when used in a definition contained


      47
           Cracking the Code, supra note 16, at 38.
      48
           Marbury v. Madison, 5 U.S. 137, 177 (1803).
                                         - 50 -

      [*50] in this title shall not be deemed to exclude other things
      otherwise within the meaning of the term defined.” * * * [49]

The error flows from the author’s failure to comprehend the meaning of the word

“including”, an error that appears repeatedly in the book and that Mr. Waltner

perpetuated.

      When the law uses a general term followed by the word “including”, what

follows is a nonexhaustive list.50 The Internal Revenue Code is explicit in this

regard, providing that “includes” and “including” “shall not be deemed to exclude

other things”.51 In contrast, when the law uses a specific list of terms, that list is

presumed to be exhaustive.52 This principle is often referred to by the Latin phrase

“expressio unius est exclusio alterius”.53




      49
           Sims v. United States, 359 U.S. 108, 112 (1959).
      50
        Wnuck, 136 T.C. at 506 (“Anyone fluent in English knows that the word
‘includes’ cannot be assumed to mean ‘includes only’.”).
      51
           Sec. 7701(c).
      52
         Helvering v. Morgan’s, Inc., 293 U.S. 121, 125 n.1 (1934) (“The terms
‘means’ and ‘includes’ are not necessarily synonymous. * * * The natural
distinction would be that where ‘means’ is employed, the term and its definition
are to be interchangeable equivalents, and that the verb ‘includes’ imports a
general class, some of whose particular instances are those specified in the
definition.”).
      53
           Black’s Law Dictionary 661-662 (9th ed. 2009).
                                       - 51 -

[*51] This can be illustrated by a simple example. If one were to say “I had ham

and eggs for breakfast”, it would mean that the person had just that. If, however,

one were to say “I had breakfast, including ham and eggs”, then that breakfast may

well have included toast or other breakfast foods. In short, “including” is not a

word of limitation.

      Mr. Waltner followed the same erroneous reading of the word “including”

when he argued that he is not a person. We addressed this error in an order dated

September 3, 2013, stating:

      Mr. Waltner asserts that he is not a “person” as defined in section
      6671(b); an argument that has already [been] rejected by this Court
      and the court of appeals to which this case is appealable. See Crites
      v. Commissioner, T.C. Memo. 2012-267 at *7-8 and United States v.
      Graham, 309 F.2d 210, 212 (9th Cir.1962). Under section 6671(b), a
      “person” subject to section 6702 penalties “includes an officer or
      employee of a corporation, or a member or employee of a
      partnership.” The definition of “person” includes officers and
      employees, but does not exclude all others. In case the plain meaning
      of the word “includes” was not sufficiently clear, the Code explicitly
      tells us that “The terms ‘includes’ and ‘including’ when used in a
      definition contained in this title shall not be deemed to exclude other
      things otherwise within the meaning of the term defined.” Sec.
      7701(c) (emphasis added). * * *

This is the same order in which we cautioned Mr. Waltner against making

frivolous arguments.
                                         - 52 -

[*52] “The Law Means What It Says”

      Having spent the immediately preceding chapter misinterpreting the word

“including”, the author turns to the same Latin phrase discussed above and then

proceeds to misinterpret it. Indeed, courts have repeatedly explained that phrase,

and the author’s views simply do not withstand scrutiny.54 The faulty conclusions

that the author reaches are laughable and have been rejected elsewhere:

      •        Because one Code section defines the term “employee” to
               include government employees,55 someone who does not work
               for the government is not included in the definition of an
               employee. This proposition was rejected in United States v.
               Latham, 754 F.2d 747, 750 (7th Cir. 1985).

      •        Because one Code section defines the United States to include
               the U.S. territories,56 the fifty States are not included in the
               definition of United States. This proposition was rejected in
               Wnuck v. Commissioner, 136 T.C. 498, 504 (2011).

      “The Code Is Born”

      This chapter provides an example of how one illogical conclusion can be

used to bolster another. The author makes the unsupported statement that

“[n]eedless to say, the federal government has no authority to subject officers and


      54
           See Rand v. Commissioner, 141 T.C. ___, ___ (slip. op. at 20) (Nov. 18,
2013).
      55
           Sec. 3401(c).
      56
           Sec. 3121(e)(2).
                                         - 53 -

[*53] employees of the several union States to taxation by decree.”57 He cites no

support, and this view has already been rejected by the Supreme Court.58 But he

bolsters this erroneous view on the basis of his continued misunderstanding of the

word “including.” Because section 7701(a)(10) provides that “[t]he term “State”

shall be construed to include the District of Columbia”, the author implies the term

“State” does not include the 50 States. More than 75 years ago, the Supreme

Court made clear that the Federal government can tax State employees.59

      “Withholding The Truth”

      Turning to the subject of withholding, the author sets forth one of his

fundamental, and fundamentally incorrect, positions regarding tax reporting.


      57
           Cracking the Code, supra note 16, at 70.
      58
         Sims, 359 U.S. at 112-113 (holding a State auditor personally liable for
failing to honor levies on the salaries of certain State employees for the payment
of Federal taxes).
      59
        Helvering v. Gerhardt, 304 U.S. 405, 416-417 (1938) (“In a complex
economic society tax burdens laid upon those who directly or indirectly have
dealings with the states, tend, to some extent not capable of precise measurement,
to be passed on economically and thus to burden the state government itself. But
if every federal tax which is laid on some new form of state activity, or whose
economic burden reaches in some measure the state or those who serve it, were to
be set aside as an infringement of state sovereignty, it is evident that a restriction
upon national power, devised only as a shield to protect the states from curtailment
of the essential operations of government which they have exercised from the
beginning, would become a ready means for striking down the taxing power of the
nation.”).
                                         - 54 -

[*54] Having erroneously concluded that the term “employee” includes only

government employees (and a few selected others), the author concludes that “this

kind of withholding only applies to the pay of federal government workers”.60

This argument, too, has already been rejected by the courts, with at least one court

characterizing it as “a preposterous reading of the statute.”61

      “Crafting A Trade Or Business Plan: A Guide For The Self-Employed”

      The author’s misinterpretation of the word “includes” continues to lead him

to erroneous conclusions. For people involved in a trade or business, he concludes

“that unless one’s works involves the performance of the functions of a public

office one has no ‘net earnings from self-employment’ and need file no return

regarding the proceeds of self-employment; and no private-sector person or

company should ever issue a 1099 MISC.”62 We see this view mirrored in Mr.

Waltner’s repeated reference to himself as a “private-sector worker” as a reason he

should not be taxed. As we have already noted, private sector workers are indeed




      60
           Cracking the Code, supra note 16, at 76.
      61
           United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985).
      62
           Cracking the Code, supra note 16, at 87.
                                         - 55 -

[*55] included among the class of people who are subject to tax.63 And this very

argument has previously led to sanctions.64

      Interlude

      In a pernicious attempt at persuasion, Hendrickson interrupts his own book

to make certain that the reader is convinced. He presents, in essence, a false

dichotomy: Either you agree with him or “you personally are simply incapable of

understanding the law”.65 And anyone who disagrees is part of “a conspiracy of

sloth, and ignorance, and plunder, and fear. And a good share of corruption and

lies, of course.”66 Or he is simply wrong, but the reader is not offered this option.

      Part II

      Part II of Cracking the Code is titled “The Nature Of The Scheme”, which is

apt because it is in Part II where the author lays out his scheme for how people can

avoid taxes. His erroneous advice regarding tax reporting mirrors how Mr.

Waltner has reported, or attempted to report, his items.




      63
           Latham, 754 F.2d at 750.
      64
           See, e.g., Pabon v. Commissioner, T.C. Memo. 1994-476.
      65
           Cracking the Code, supra note 16, at 92.
      66
           Cracking the Code, supra note 16, at 95.
                                          - 56 -

[*56] “‘W’ Is For Weapon”

      The author’s chief weapon, as described beginning in this chapter and

continuing in subsequent chapters, is not to comply with the tax laws. He begins

with a fundamental misunderstanding of what it means to have a “voluntary

compliance” tax system. As we have noted previously, “The concept of voluntary

compliance does not refer to whether one volunteers to be liable for tax but only

that one voluntarily reports and remits his tax due. In the absence of such

voluntary compliance, the government may force compliance.”67 For example,

failing to file a return can result in civil and criminal penalties.68

      We have previously addressed the argument that phrase “voluntary

compliance” means that the tax system is voluntary, stating:

      This is nothing but arrogant sophistry. Implicit in the statements
      relied upon by him to the effect that the system is based upon
      voluntary compliance is the known fact that, in spite of its extensive
      bureaucracy and technical equipment, the manpower and facilities of
      the IRS for policing compliance by every taxpayer are limited and
      that the effectiveness of the system depends upon the taxpayer’s
      voluntary obedience to the law. These statements certainly were
      never intended to suggest that the internal revenue laws were
      self-destructive. Yet, this is precisely what petitioner’s argument


      67
           McKeown v. Commissioner, T.C. Memo. 1985-74.
      68
         See, e.g., sec. 6651(a)(1) (imposing a civil addition to tax for failure to
file); sec. 7203 (imposing a criminal fine or imprisonment for willful failure to
file).
                                         - 57 -

      [*57] comes down to, for if he were correct, Congress has supplied
      every taxpayer with a facile device for totally avoiding all liability by
      simply declaring that he does not choose to comply. We cannot find
      that Congress ever intended any such absurd result.[69]

The result would be absurd, and the very argument is absurd. Yet this absurd

argument serves as the foundation for the author’s suggestions in the succeeding

chapters.

      “W-9’s And Other Alien Notions”

      On the basis of his misguided views about voluntary compliance and who is

subject to tax, the author takes issue with the Form W-9, Request for Taxpayer

Identification Number and Certification, that is typically submitted by people who

are required to file certain information returns. On the basis of his

misinterpretation of various words, as discussed above, the author suggests

“replacing the relevant line [declaring that you are a U.S. citizen or U.S person]

with an accurate declaration, like: ‘I am a Pennsylvania citizen’ (or whatever is

true); and adding language” stating you are not subject to withholding.70 Indeed,

we see this same type of nonsensical rhetoric from Mr. Waltner. But the author

has it backwards; one cannot be a citizen of a State without also being a citizen of


      69
     Donelin v. Commissioner, T.C. Memo. 1984-131; see also Wilcox v.
Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988), aff’g T.C. Memo. 1987-225.
      70
           Cracking the Code, supra note 16, at 130-131.
                                        - 58 -

[*58] the United States.71 Indeed, citizenship in the United States is “paramount

and dominant” over State citizenship.72

      “Lies, Damned Lies, And W-2’s”

      Much like the Humpty Dumpty passage at the start of Cracking the Code,

the author at this point has redefined terms to mean what he wants them to mean:

The term “United States” does not include the States, the term “employee” does

not include most employees, and the term “person” does not include most people.

It is only by venturing into this Through the Looking Glass world that the author

can conclude that tax reporting through Forms W-2 and 1099 does not apply to

private sector persons, a position echoed repeatedly by Mr. Waltner.

      In another pernicious attempt at persuasion, the author issues an ominous

warning to the reader. It is the author’s view that only Federal workers are subject

to tax. By accepting a Form W-2 that reports wages, the author suggests that one

would be admitting to being a Federal worker. Thus, he concludes, failing to


      71
         Kantor v. Wellesley Galleries, Ltd., 704 F.2d 1088, 1090-1091 (9th Cir.
1983) (“Relying on this Supreme Court authority, circuit and district courts have
treated the question before us today as one long decided: ‘[I]n order to be a citizen
of a state, it is elementary law that one must first be a citizen of the United
States.’” (quoting Factor v. Pennington Press, Inc., 230 F. Supp. 906, 909 (N.D.
Ill. 1963)).
      72
       Colgate v. Harvey, 296 U.S. 404, 427 (1935), overruled in part on other
grounds by Madden v. Commissioner, 309 U.S. 83 (1940).
                                          - 59 -

[*59] correct a Form W-2 to state that one earned zero wages will land the

recipient of the Form W-2 in jail: “Furthermore, impersonating a federal official

or employee, as in pretending to be engaged in the performance of the functions of

a public office and withholding from one’s ‘employees’ accordingly, is a felony

under 18 USC 912”.73 Recall, however, that it is Mr. Hendrickson who has been

convicted of tax-related felonies.

      “W-4s--The Blind Leading The Blind Down A Primrose Path”

      Much of the remainder of Cracking the Code simply rehashes the myths that

we have dispelled above. In this section the author analogizes the Form W-4,

Employee’s Withholding Allowance Certificate, to the Form W-2, likewise

maintaining that most employees are not employees under his interpretation and

thus need not have taxes withheld. But this argument has already been rejected.74

      “Feeding The Hand That Bites You”

      Cracking the Code turns its attention to employers, suggesting that

businesses are duped from their inception into participating in the tax system.

Here is another instance where we see parallels between Mr. Waltner’s conduct

and the course of action suggested in Cracking the Code. The author suggests


      73
           Cracking the Code, supra note 16, at 142-143.
      74
           See, e.g., Latham, 754 F.2d at 750.
                                         - 60 -

[*60] “carefully avoiding the use of any possibly misleading legal terms such as

‘employee’, ‘wages’, etc.”, instead suggesting that forms be left blank or that

terms be altered.75 This mirrors Mr. Waltner’s conduct in this case. An example

can be seen in his application for fee waiver, where he substituted “pay” for

“salary or wages” and “job” for “employment”. As already outlined above, both

the author’s and Mr. Waltner’s positions regarding these terms are without merit.

      “About 1040’s, And Claiming Refunds”

      As previously discussed, Cracking the Code erroneously redefines terms in

such a way as to nullify the tax system. And one incorrect definition is predicated

on another, as in this section where the author concludes that “the vast majority of

adult American citizens are not ‘taxpayers’, because they are not ‘employers’,

‘withholding agents’, recipients of ‘income’ in more than the exemption amount,

or other such specialized entities by virtue of which liability for an internal

revenue tax might arise.”76

      This misguided view leads to the author’s strategy for filing tax returns,

which was mirrored by Mr. Waltner’s returns. The author recommends

“correcting” Forms 1099 by including a declaration that nothing that was received


      75
           Cracking the Code, supra note 16, at 160.
      76
           Cracking the Code, supra note 16, at 164.
                                         - 61 -

[*61] was taxable. Mr. Waltner did this. The author recommends creating

substitute W-2s by changing only the amount of the reported wages. Mr. Waltner

did this. The author recommends filing a Form 1040 based on these

inappropriately revised forms. Mr. Waltner did this. The author recommends

including FICA taxes amongst the taxes withheld. Mr. Waltner did this.

      Part III

      Part III, labeled “The Nature of the Crisis”, lays bare the author’s disdain for

our tax system; it is, however, devoid of analysis.

      “Why It Matters”

      According to the author, the entire tax system is “[a] racket by which 250

million people are conned”.77 At this point it should be clear that the only people

being conned are those who follow the positions advocated in Cracking the Code.

And even if deceptive, the positions outlined above are so lacking in merit that

they are sanctionable even if sincerely believed.78




      77
           Cracking the Code, supra note 16, at 187.
      78
         Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th Cir. 1987) (holding
that a sec. 6673 penalty can apply when the taxpayer should have known that a
position was frivolous).
                                         - 62 -

[*62] “Finale”

      In misleading its readers into believing that they can avoid taxes because the

law simply does not apply, Cracking the Code provides a warning:

      All that each of us need do is invoke the written law and claim the
      return of money improperly withheld; de-authorize improper
      withholdings for the future; rebut any erroneous assertions by others
      who have paid us; correct any improper assertions that we have made
      ourselves * * * while being ready to abide the storm of protest,
      denial, resistance, threats, intimidation and perhaps injustice which
      might follow.[79]

What the author perceives as injustice is quite the opposite. It is justice. It is the

rule of law as embodied in the duly enacted statutes being interpreted by the

courts.

          The positions advocated in Cracking the Code have routinely been rejected,

with its author being criminally convicted and its adherents being sanctioned.80

Conclusion

      Mr. Waltner took a series of frivolous positions that have repeatedly been

rejected by the courts. Even after this Court cautioned him that he was making

frivolous arguments, he continued to advance them, and his conduct merits


      79
           Cracking the Code, supra note 16, at 204.
      80
        See, e.g., Lindberg v. Commissioner, T.C. Memo. 2010-67 (imposing
sanctions under sec. 6673 for taking positions consistent with those set forth in
Cracking the Code).
                                       - 63 -

[*63] sanctions. The Court is authorized to impose sanctions of up to $25,000. In

the hope that Mr. Waltner heeds this warning, the Court imposes a penalty under

section 6673 of $2,500. Mr. Waltner has other matters pending in this Court in

which he is asserting arguments similar to those presented in this case, and he has

now been cautioned in both an order and this opinion. We hope that he will heed

the warning. And future litigants are on notice that the positions advanced in

Cracking the Code are frivolous and relying on those positions may result in

sanctions.

      To reflect the foregoing,


                                                An appropriate order and decision

                                      will be entered.
