                        T.C. Memo. 2004-151



                      UNITED STATES TAX COURT



            BASIL NICHOLAS STEPHANATOS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9037-03.               Filed June 22, 2004.



     Basil Nicholas Stephanatos, pro se.

     Robert W. Mopsick, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined deficiencies of $13,288

and $18,546 in petitioner’s Federal income tax for 1999 and 2000,

respectively, and accuracy-related penalties under section 6662

in the amounts of $2,658 and $3,709 for those years.   The issues

for decision are whether petitioner is entitled to any reduction

of the deficiencies and penalties determined by respondent and
                               - 2 -

whether petitioner is liable for a penalty under section 6673.

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

                         FINDINGS OF FACT

     Petitioner resided in Wayne, New Jersey, at the time that he

filed his petition.

     At all relevant times, petitioner was a licensed

professional engineer receiving wages for his services.

Petitioner filed a Form 1040, U.S. Individual Income Tax Return,

for 1999 on which he reported wages of $69,041.10, taxable

interest of $2,931.49, and taxable refunds (State and local

income taxes) of $679.31.   Petitioner offset his reported income

by an alleged business loss of $32,700.45 and itemized deductions

of $30,298.61.   The amounts claimed on Schedule A, Itemized

Deductions, included $8,745 in employee business expenses.

     On his Form 1040 for 2000, petitioner reported wages of

$79,359.94, taxable interest of $1,992.56, dividends of

$3,131.56, taxable refunds (State and local income taxes) of

$191.99, and capital gains of $8,046.01.    Petitioner offset his

taxable income by a claimed business loss of $37,500 and itemized

deductions of $37,992.06, which included $8,980 in alleged

employee expenses.
                                - 3 -

     The amounts claimed on petitioner’s income tax returns as

business losses and personal itemized deductions were based on

estimates, and most, if not all, were nondeductible personal

expenses.    Petitioner was not operating an active business during

the years in issue and had no income from the environmental

engineering service business that he listed on Schedules C,

Profit or Loss From Business, to his 1999 and 2000 Forms 1040.

Petitioner merely estimated the amounts that he would need as

capital when he actually began operation of the business and

deducted amounts that he allegedly “loaned” to the business in

anticipation of its capital requirements.

     Petitioner’s claimed itemized deductions were similarly

based on estimates.    For example, he deducted $10,000 in 1999 and

$12,000 in 2000, based on his anticipated future medical

expenses.    Petitioner deducted as employee expenses what he

calculated to be the amortized cost of his educational expenses

in obtaining professional degrees, the latest of which had been

obtained in 1987.    Petitioner overstated the State income tax

withheld from his wages as shown on his Forms W-2, Wage and Tax

Statement.    He deducted amounts that represented personal

expenditures for food, water, electricity, and his estimate for

funding of his future retirement, spreading the amounts

throughout his returns and disguising their nature.
                               - 4 -

     When petitioner was audited by the Internal Revenue Service

(IRS), he refused to present any documents substantiating the

amount or purpose of the deductions claimed on his tax returns.

Instead, he commenced a course of correspondence that included

frivolous arguments and spurious threats.   For example, in a

letter dated September 18, 2002, which he attached to the

petition in this case, petitioner accused the IRS of fraudulent

and criminal conduct and made various demands.   Petitioner also

argued that he was not involved in “revenue taxable activities”;

that “Taxes on personal property are direct taxes, nontaxable by

the federal government unless apportioned according to the census

of the states”; and that “Compensation for Labor and the exercise

of the Right to Labor are personal property”.

     In the notice of deficiency, respondent disallowed the

various deductions claimed by petitioner and allowed the standard

deduction of $4,300 for 1999 and $4,400 for 2000.   Petitioner did

not present prior to or during trial proof that he had paid

deductible items exceeding the respective amounts of the standard

deduction for each year in issue.

     During the course of this proceeding, petitioner filed

numerous frivolous motions.   He did not comply with the Court’s

Rules regarding discovery or stipulation but instead submitted

his version of a purported stipulation that merely set forth his

frivolous contentions.   He refused to meet with respondent’s
                                - 5 -

agents.    He persisted in his course of scurrilous threats against

the IRS.   He did not turn over receipts in accordance with the

Court’s Standing Pretrial Order.   At the time of trial,

respondent filed a Motion for Sanctions and Costs Pursuant to

I.R.C. Sec. 6673, setting out examples of petitioner’s failure to

cooperate in the determination of his correct tax liability and

his pursuit of frivolous arguments.

                               OPINION

     Although prior to trial petitioner had pursued many of the

stale arguments common to tax protesters, at trial he had

“refined” his position to two arguments:   First, petitioner

argues that he had no taxable “gain” at the end of any year

because, after paying for food, water, utilities, “mandatory

taxes” such as Social Security taxes and income taxes, recovery

of the cost of his education, and setting aside amounts for

future retirement and medical costs, he had little left.    Second,

he had no “dominion” over the wages he received because, at the

end of the year, they had been spent on essentials.

     Several passages from his testimony leave no doubt that

petitioner contends that he may deduct all of his personal

expenses, current and future, before paying tax on his wages:

          I’m only relying on myself funding my own
     retirement. Then deduct whatever, of course, cost I
     owe to various persons and then whatever business
     expenses, whatever other life expenses, you know, eat
     food, drink water and then come up with my taxable real
     income.
                          - 6 -

            *    *    *    *      *   *   *

     So for these taxable years like 1999, 2000, I’ve
estimated about 40 percent of the space--40 percent as
I had put in my returns--was basically used for
business purposes. So it’s here I have been like
allocating a certain amount of money, loaning money to
the S corporation--around like $35,000 a year--to pay
for the equipment and for the bond, so basically
accumulation of the capital.

            *    *    *    *      *   *   *

     So I had to amortize my expenditures: Masters,
Ph.D., and the B.S., which they run approximately
$150,000. What you do, of course, when you have a
capital expenditure you don’t deduct it. That’s an
expense, which basically you amortize it a minimum of
60 months over five year period.

            *    *    *    *      *   *   *

     I put about what, $10,000 a year, basically for
future medical bills. * * *

            *    *    *    *      *   *   *

     Even if I don’t provide let’s say all the Shop
Right or King Supermarket receipts, all of them or the
originals, still if you use the Cohan rule that’s all
reasonable. Twenty dollars a day, 30 days is $600 per
month. The same thing for electric and natural gas.

            *    *    *    *      *   *   *

     You cannot function without eating food or without
electricity. I want to mention this, I was reading, I
was doing the research. Section 262 for personal
living and family expenses, this is for businesses and
corporations.

            *    *    *    *      *   *   *

     Anyway, I mean we’ve read the Supreme Court
decisions and clearly it says that in order to have
taxable income you have to receive undeniable net
income, accession to wealth. That’s net income, it’s
not gross income. It has to be clearly realized and
                                    - 7 -

     you have to have complete dominion over the accession
     to wealth.

          Complete dominion means you have to have some
     guarantee that you will be allowed to keep the money.
     That means at the end of the year you have to have the
     entire amount in your possession.

                    *      *    *    *      *    *    *

          These something that just occur on a daily basis
     in the performance really of the job. Like, you know,
     I do a lot of work with my eyes, my eyes get tired, I
     use Visine, you know? Or develop headaches, you use
     aspirin. So there are, I believe, expenses that result
     in a reduction of the gross revenues.

                    *      *    *    *      *    *    *

          So overall, I don’t believe I’m really liable to
     anymore income tax because I didn’t have, based on my
     calculation of my liabilities, future liabilities. I
     didn’t derive taxable income that was in my complete
     dominion, and of course, the money that I loaned to a
     corporation for business purposes.

     Petitioner persisted in his frivolous claims despite the

Court’s attempts to determine whether he had any properly

deductible items.       Petitioner rejected the Court’s explanation of

the error of his assumptions, which had been addressed in cases

such as Reading v. Commissioner, 70 T.C. 730, 733-734 (1978),

affd. 614 F.2d 159 (8th Cir. 1980).         Petitioner instead insisted

on quoting, out of context, various Supreme Court cases, stating:

“That’s the law.    The Tax Court cases do not represent the law.

They are not binding on individuals or even the agency.”

     In addition to claiming reliance on a hodgepodge of

quotations from Supreme Court cases, petitioner cited various
                               - 8 -

sections of the Code.   He insisted that section 262, which

prohibits the deduction of personal, living, or family expenses,

applies only to businesses or corporations.    He contended that

section 535, which applies to accumulated taxable income for

purposes of the corporate accumulated income tax, allows him to

accumulate a certain amount of taxable income.    Notwithstanding

his purported familiarity with numerous Code sections, he failed

to show that he qualified for deduction of any expenses that

would be allowed if substantiated.     There is no evidence in the

record that any part of petitioner’s home was used exclusively

and regularly for business or otherwise qualifies for an

exception from the general rule of section 280A disallowing

expenses of a dwelling unit used by the taxpayer as a personal

residence.   Although he presented a single document that

apparently related to real property taxes on his residence, he

presented no proof of payment, and the amount shown on the

document as due in 2000 was substantially less than amounts that

he claimed on his returns for 1999 and 2000.

     In summary, this is basically another case where a taxpayer

claims that his wages are not taxable income.    His arguments are

indistinguishable from those that have been uniformly rejected,

and no further discussion of them is warranted.    See Lonsdale v.

United States, 919 F.2d 1440 (10th Cir. 1990); United States v.

Connor, 898 F.2d 942, 943 (3d Cir. 1990); United States v. Ward,
                                - 9 -

833 F.2d 1538, 1539 (11th Cir. 1987); Sauers v. Commissioner, 771

F.2d 64 (3d Cir. 1985), affg. T.C. Memo. 1984-367; Biermann v.

Commissioner, 769 F.2d 707 (11th Cir. 1985); Waters v.

Commissioner, 764 F.2d 1389 (11th Cir. 1985); Crain v.

Commissioner, 737 F.2d 1417 (5th Cir. 1984); Knighten v.

Commissioner, 702 F.2d 59 (5th Cir. 1983); Lonsdale v.

Commissioner, 661 F.2d 71, 72 (5th Cir. 1981), affg. T.C. Memo.

1981-122; Reading v. Commissioner, supra.

       The nature of the items that petitioner was claiming was

disguised on his tax returns.    When his explanation was given, it

was apparent that the deductions were erroneous and contrary to

law.    He is liable for the accuracy-related penalties under

section 6662.    In addition, a penalty under section 6673 in the

amount of $15,000 is appropriate.    Petitioner’s arguments were

frivolous.    In view of his persistence in the face of contrary

authority and the deception on the face of his returns, we do not

believe that the arguments were made in good faith.      See, e.g.,

Sauers v. Commissioner, supra at 68 n.6.


                                             An appropriate order and

                                        decision for respondent will

                                        be entered.
