                        T.C. Memo. 2001-154



                      UNITED STATES TAX COURT



                   LOU DESERIO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20581-98.                Filed June 27, 2001.



     Lou Deserio, pro se.

     Erin K. Huss, for respondent.



                        MEMORANDUM OPINION

     GERBER, Judge:   Respondent filed two motions, one seeking

dismissal for lack of prosecution and the other seeking damages

against petitioner under section 6673(a)(1).1   We consider the


     1
       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, unless otherwise
                                                   (continued...)
                                  - 2 -

merits of those motions.      This case was scheduled for trial at

the Court’s Phoenix, Arizona, trial session beginning January 29,

2001.    Petitioner failed to appear, and respondent filed the

above-referenced motions.      The Court, by an order dated January

29, 2001, directed petitioner to show cause, if any, why

respondent’s motions should not be granted.

     Respondent determined that petitioner has deficiencies in

and additions to Federal income tax as follows:

                                       Additions to Tax
     Year        Deficiency       Sec. 6651(a)(1)     Sec. 6654
     1992         $58,789            $14,697            $2,564
     1993         100,681             25,170             4,218
     1994         127,233             31,808             6,602
     19951          2,438                609               134
     19962          1,810                362                95
     1
       The deficiency and additions to tax amounts at issue
differ from the amounts in the Notices of Deficiency dated Sept.
23, 1998, pursuant to the Court’s order dated Feb. 11, 2000.
     2
       See supra note 1.

Background

     In support of his motions, respondent explains that on

several occasions petitioner was invited to stipulate the facts

in compliance with this Court’s Rules and pretrial order;

however, petitioner was unresponsive.      Although petitioner

answered respondent’s request for admissions, he failed to

respond to interrogatories or requests for the production of



     1
      (...continued)
indicated.
                                - 3 -

documents.    When petitioner did agree to meet with respondent,

petitioner did not effectively engage in meaningful preparation

of his case for trial as required by this Court’s Rules and

pretrial order.    Respondent points out that, in general,

petitioner was uncooperative and failed to comply with the letter

or the spirit of this Court’s Rules or its pretrial order.

     Petitioner assigned his income-generating activities to

trusts or other entities by means of transactions that respondent

determined lacked economic substance.2       The notices of

deficiency, among other adjustments and explanations, contain the

following explanatory paragraphs concerning petitioner’s business

income and his relationship to the trusts:

     Since the trust arrangement is a sham with no economic
     substance, it is disregarded for tax purposes. Your
     business income is increased by the gross receipts of
     the Photo Art Marketing enterprises Trust and Photo Art
     Publishing Trust and decreased by the ordinary and
     necessary expenses of carrying on those business[es].
     * * *

     Alternatively, your business income is increased
     because the Photo Art Marketing enterprise Trust and
     the Photo Art Publishing Trust are grantor trusts whose
     incomes are taxable to you individually. * * *

          *        *      *      *       *        *      *



     2
       Petitioner has chosen to attack the Commissioner’s and
this Court’s jurisdiction to delve into his relationship with his
trust and has adduced no evidence to show that the substance of
the Government’s determination is in error. Petitioner admits,
in response to respondent’s request for admissions, that he
transferred his business to the trust(s).
                                 - 4 -

     Alternatively, it is determined that the attempted
     assignment of your income to Photo Art Marketing
     Enterprises Trust and/or Photo Art Publishing Trust is
     not recognized for Federal Income Tax purposes and that
     such income is taxable to you individually.

     Since 1992, petitioner has sent documents to respondent that

contain statements and/or that take positions that do not address

the substance and merits of respondent’s determination.

Respondent has labeled petitioner’s arguments as frivolous.     For

example, petitioner has attempted to revoke his returns, or

signatures thereon, that he had filed with the IRS.    Petitioner

has continually asserted that the IRS and its officers and agents

have no authority over him, and on one occasion petitioner

explained his position regarding his Fifth Amendment privilege

vis-a-vis the income tax.   Petitioner has continually refused to

submit information to respondent regarding the trusts and a

limited liability corporation.

     Petitioner’s tax proceeding has been pending in this Court

since the December 28, 1998, filing of his petition.    In that

petition, petitioner alleges that this Court lacks subject matter

jurisdiction over questions involving related trusts.    Although

petitioner’s expression of his position is somewhat elusive, his

contention appears to be that respondent has no authority to make

any determination with respect to petitioner’s trusts or other

entities.   Respondent has determined that petitioner’s trust

and/or other entities are to be disregarded for purposes of
                                 - 5 -

determining petitioner’s Federal income tax.   Petitioner contends

that such a determination is one that must be made by the

judicial branch of Government and in particular by an Article III

judge.    Apparently, petitioner’s premise is that the disregarding

of his entities for tax purposes is tantamount to the dissolution

of the entities.

     Petitioner’s position is without foundation or support.    For

purposes of Federal income taxation, respondent may make

determinations disregarding the form of the transaction and/or

that income may not be assigned to another and/or that an entity

may be ignored or disregarded.    See Lucas v. Earl, 281 U.S. 111

(1930).   These principles have been extant for more than 70

years.    Petitioner has concocted a theory by which he attempts to

attack collaterally the authority of the Commissioner to make

such determinations.   In light of established precedent, we find

petitioner’s theory and reasoning to be wholly without support

and frivolous.

     Petitioner advances the same reasoning in his argument that

Judges of this Court are without authority and/or subject matter

jurisdiction to make decisions regarding trusts or other

entities.   This Court is statutorily authorized and empowered to

make decisions regarding petitioner’s income tax liability and

whether respondent’s determination to disregard an entity in that

context is in error.   Petitioner, however, has not chosen to
                               - 6 -

attack the merits of respondent’s determination and has refused

and/or failed to prepare and present any such arguments to this

Court.

Respondent’s Motion To Dismiss for Lack of Prosecution

     Respondent has moved to dismiss this case due to

petitioner’s lack of prosecution and for this Court to enter a

decision that petitioner is liable for deficiencies in and

additions to Federal income tax in the full amounts set forth in

the notices of deficiency for 1992, 1993, and 1994 and in reduced

amounts for 1995 and 1996.   Petitioner does not allege that

respondent’s allegations in support of his motions are incorrect.

In response to respondent’s motions and this Court’s order to

show cause, petitioner merely counters that this Court and

respondent are without authority to determine or decide any

income tax deficiencies regarding certain entities (trusts and a

limited liability corporation).

     Petitioner has not complied with this Court’s pretrial order

that required his preparation of this case for trial, including

the exchange of information and stipulation of facts.    Petitioner

has not cooperated with respondent’s efforts to comply with this

Court’s Rules.   Petitioner did not appear for trial or otherwise

offer evidence that would show that respondent’s determination is

in error.   Respondent has not been shown to bear the burden with

respect to any of the adjustments or determinations contained in
                                 - 7 -

the notices of deficiency.   Wherefore, we hold that respondent’s

motion to dismiss for lack of prosecution will be granted and a

decision entered against petitioner.

Respondent’s Motion for Damages Under Section 6673(a)(1)

     Under section 6673(a)(1), the Court may require a taxpayer

to pay a penalty not in excess of $25,000 if it appears that a

proceeding was instituted or maintained primarily for delay

and/or a taxpayer’s position is frivolous or groundless and/or a

taxpayer fails unreasonably to pursue available administrative

remedies.   Respondent contends that petitioner failed to pursue

administrative remedies or cooperate in the development of this

case and that petitioner has, since 1992, advanced frivolous

positions in documents sent to respondent.

     We have found petitioner’s argument that the Commissioner

and this Court have no authority or jurisdiction to determine

and/or decide that income of certain entities should be imputed

to petitioner to be frivolous.    Taxpayers have been making the

same argument for over a decade, and other courts have already

found such arguments to be frivolous.    In Sandvall v.

Commissioner, 898 F.2d 455, 458 (5th Cir. 1990), affg. T.C. Memo.

1989-189 and T.C. Memo. 1989-56, a case involving substantially

the same type of determination as was made for petitioner herein,

the Court of Appeals for the Fifth Circuit rejected “as patently

frivolous the * * * [taxpayers’] contention that the Tax Court
                                 - 8 -

had no authority to impute * * * [an entity’s] income to * * *

[the taxpayers].”   In addition to section 6673 penalties imposed

by the Tax Court, the Court of Appeals for the Fifth Circuit in

Sandvall v. Commissioner, supra, awarded $3,000 in damages, in

part, because of the taxpayers’ “frivolous and meaningless

arguments.”   Id. at 460.

     Because petitioner unreasonably failed to avail himself of

his administrative remedies and, more particularly, because

petitioner has advanced frivolous arguments, we hold that he is

liable for a $5,000 penalty under section 6673.

     To reflect the foregoing,

                                 An appropriate order and decision

                            will be entered.
