                                  T.C. Memo. 2013-265



                            UNITED STATES TAX COURT



                      JOHN LEWIS HILL, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14625-12.                            Filed November 19, 2013.



      John Lewis Hill, pro se.

      Anne M. Craig, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      MARVEL, Judge: Respondent determined a deficiency of $4,093 in

petitioner’s 2005 Federal income tax and additions to tax of $921, $1,023, and

$164 under sections 6651(a)(1) and (2) and 6654,1 respectively. After


      1
          Unless otherwise indicated, all statutory references are to the Internal
                                                                           (continued...)
                                         -2-

[*2] concessions,2 the issues for decision are: (1) whether petitioner is liable for a

deficiency in Federal income tax for 2005; (2) whether petitioner is liable for the

additions to tax under sections 6651(a)(1) and (2) and 6654; and (3) whether

petitioner is liable for a penalty under section 6673 for instituting proceedings

primarily for delay or for asserting frivolous or groundless positions.

                               FINDINGS OF FACT

      Some of the facts have been deemed established for purposes of this case

pursuant to Rule 91(f). The deemed facts are incorporated herein by this

reference. Petitioner resided in Florida when he petitioned this Court.

I.    Petitioner’s Income

      During 2005 petitioner was self-employed as a hearing aid specialist. He

ordered and sold hearing aids, performed hearing tests, and fitted and adjusted

hearing aids for customers. Petitioner performed his hearing aid activities through

his sole proprietorship, Precision Hearing Aid Center (Precision Hearing).

Precision Hearing was in St. Cloud, Florida.


      1
       (...continued)
Revenue Code (Code) in effect for the year at issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
      2
        Respondent concedes that petitioner’s capital gain for 2005 was $685 and
that petitioner did not receive $649 in nonemployee compensation income.
                                       -3-

[*3] Through Precision Hearing petitioner received medical payment income that

was reported to respondent on third-party information returns. Petitioner received

medical payment income of $2,800 from North American Health Plans, Inc.,

$6,350 from United Healthcare Insurance Co., and $666 from Blue Cross & Blue

Shield of Florida, Inc. Petitioner also maintained an investment account at TD

Ameritrade during 2005. Petitioner received $30,9203 from the sale of stocks and

bonds through his Ameritrade account in 2005.

II.   Petitioner’s Return and Notice of Deficiency

      On January 21, 2009, respondent received petitioner’s Form 1040, U.S.

Individual Income Tax Return, for 2005. With the exception of lines 40 and 41

(showing the standard deduction as a positive amount and a negative amount,

respectively) and line 42 (showing the exemption amount), each line on

      3
        Respondent introduced into evidence consolidated Form 1099-INT-DIV-
MISC-OID-1099B, which showed petitioner received $30,924 from the sale of
stocks and bonds through Ameritrade in 2005. On March 13, 2013, respondent
filed a motion to show cause why proposed facts and evidence should not be
accepted as established under Rule 91(f). Included in respondent’s facts at
paragraph 6 was a proposed finding that petitioner earned $30,920 from the sale of
stocks and bonds through Ameritrade in 2005. By order dated April 11, 2013, this
Court deemed established the facts and evidence set forth in respondent’s motion
to show cause. Respondent also introduced into evidence a Form 4549, Income
Tax Examination Changes, and a Form 886-A, Explanation of Items, which state
that petitioner’s income from the sale of stocks and bonds through Ameritrade was
$30,920. We resolve the discrepancy in petitioner’s income from Ameritrade in
2005 by treating $30,920 as petitioner’s receipts from the sale of stocks and bonds.
                                         -4-

[*4] petitioner’s Form 1040 was either blank or filled in with a zero. Petitioner

reported taxable income of zero for 2005 and did not make any estimated tax

payments.

      Petitioner attached to his 2005 Form 1040 a document purporting to

“correct” to zero the amounts on certain Forms 1099.4 The document attached to

petitioner’s Forms 1040 included the following statement:5

      The purpose of this document is to rebut and correct payments made
      to myself, John L. Hill, by third party “PAYERS,” for the year 2005,
      that erroneously allege “gains, profit, or income” made in the course
      of a “trade or business” as the term “trade or business” is defined
      under [s]ection 7701(a)(26), “income” for the purpose of an “income
      tax,” or “gross income” for the purpose of an “income tax.” The
      corrected amounts indicate the proper amount of “gains, profit, or
      income” made in the course of a “trade or business” as the term “trade
      or business” is defined under [s]ection 7701(a)(26), “income” for the
      purpose of an “income tax,” or “gross income” for the purpose of an
      “income tax” paid to me, the “RECIPIENT,” by those third party
      “PAYERS.”




      4
        The document attached to petitioner’s 2005 return purported to correct
Forms 1099-MISC, Miscellaneous Income, filed by Blue Cross & Blue Shield of
Florida, Inc., United Health Care Insurance Co., and North American Health
Plans, Inc., and consolidated Form 1099 filed by Ameritrade.
      5
         Petitioner also attached to his return a letter in which he objected to having
to file a Form 1040 and questioned respondent’s authority to request a Form 1040.
                                        -5-

[*5] Respondent determined that petitioner’s 2005 Form 1040 was not a valid

return and prepared a substitute for return on behalf of petitioner under section

6020(b).6 Respondent issued a notice of deficiency dated March 7, 2012.

                                     OPINION

I.    Burden of Proof

      Ordinarily, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving that the

determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). Here, the record establishes, and petitioner concedes, that he received

medical payments for services as a hearing aid specialist and proceeds from the

sale of stock. Petitioner does not dispute respondent’s determination of the

amount of his taxable income. He disputes only the characterization of these

payments as taxable income.7 Because petitioner raises only legal issues, we

      6
      The substitute for return consisted of a Form 4549, a Form 886-A, and a
Form 13496, IRC Section 6020(b) Certification.
      7
        Petitioner disputed the accuracy of certain Forms 1099 in his petition and at
trial. Under sec. 6201(d), if a taxpayer asserts a reasonable dispute with respect to
an item of income reported on an information return filed by a third party and the
taxpayer meets certain other requirements, the Commissioner bears the burden of
producing reasonable and probative evidence, in addition to the information
return, concerning the deficiency attributable to the income item.

                                                                       (continued...)
                                        -6-

[*6] decide whether he is liable for the deficiency at issue without regard to the

burden of proof.8

II.   Unreported Income

      Section 61(a) defines gross income as “all income from whatever source

derived”, including gains from dealings in property and compensation paid for

services, whether furnished by the taxpayer as an employee, a self-employed

person, or an independent contractor. See sec. 61(a)(1), (3); Commissioner v.

Glenshaw Glass Co., 348 U.S. 426, 431 (1955). Petitioner contends that the

income he received from his hearing aid business is not income subject to Federal

taxation. Likewise, petitioner contends that his stock sale proceeds are not subject

to Federal taxation.




      7
       (...continued)
      Petitioner admitted that he performed services for, and received medical
payments from, the various health care companies for which respondent received
Forms 1099. Petitioner did not dispute the amounts reported on the information
returns respondent received. Petitioner has not raised any reasonable dispute with
respect to the accuracy of the information returns. We conclude that petitioner’s
attempt to dispute the accuracy of the information returns under these
circumstances is not reasonable under sec. 6201(d). See, e.g., Carlson v.
Commissioner, T.C. Memo. 2012-76; Hyde v. Commissioner, T.C. Memo. 2011-
131.
      8
       Respondent, however, bears the initial burden of production with respect to
the additions to tax. See sec. 7491(c); infra p. 9.
                                         -7-

[*7] Petitioner supports his position by contending, among other things, that he

was not involved in a trade or business as defined by the Code. Petitioner defines

a trade or business to include only the performance of the function of a public

office, and not his private sector activities for which he received only private

sector money. Petitioner therefore asserts that the amounts he received from all

third-party payors are not gain or profit from a trade or business as defined in

section 7701(a)(26), taxable income, or gross income. Petitioner also contends

that (1) he is not a person statutorily made liable for the income tax;9 (2) the

income tax is an excise tax; (3) he did not have income within the meaning of the

Sixteenth Amendment; and (4) the income tax does not apply to the receipts of all

American citizens.

      Without exception, petitioner has raised only frivolous and groundless

arguments.10 The U.S. Court of Appeals for the Eleventh Circuit has repeatedly


      9
       Petitioner’s statutory argument is based in part on his contention that
withholding agents under sec. 1461 are the only persons made statutorily liable for
the payment of income tax.
      10
        In his numerous pretrial filings petitioner repeatedly invites our attention
to various court opinions including, most prominently, Brushaber v. Union Pac.
R.R. Co., 240 U.S. 1 (1916). The Supreme Court’s opinion in Brushaber strikes
down every objection advanced in that case regarding the constitutionality of the
income tax provisions of the 1913 Tariff Act. See Powers v. Commissioner, T.C.
Memo. 2009-229. Nothing in the Supreme Court’s opinion in Brushaber supports
                                                                        (continued...)
                                        -8-

[*8] held similar arguments to be frivolous and without merit. See United States

v. Morgan, 419 Fed. Appx. 958, 959 (11th Cir. 2011) (holding that the taxpayers’

argument that they were not involved in a “trade or business” was frivolous);

United States v. Morse, 532 F.3d 1130, 1132-1133 (11th Cir. 2008) (holding that

an argument that income from work in the private sector is not subject to income

tax was frivolous); United States v. Ward, 833 F.2d 1538, 1539 (11th Cir. 1987)

(stating that a taxpayer’s argument that withholding agents are the only persons

statutorily liable for the income tax was “utterly without merit”); McNair v.

Eggers, 788 F.2d 1509, 1510 (11th Cir. 1986) (stating that arguments that the

taxpayer is not a person subject to the income tax and that the Internal Revenue

Service does not have jurisdiction over the taxpayer are “patently frivolous”);

Motes v. United States, 785 F.2d 928, 928 (11th Cir. 1986) (holding that the

taxpayer’s arguments that “only public servants are subject to tax liability” were

frivolous).

      Indeed, petitioner’s frivolous and groundless arguments warrant no further

discussion. See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)


      10
        (...continued)
any contention petitioner makes in the instant case; to contend otherwise is
frivolous. Likewise, none of petitioner’s additional citations of legal precedent
support his contentions.
                                         -9-

[*9] (“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.”); see also Wnuck v. Commissioner, 136 T.C. 498, 501-513

(2011). Because self-employment income and capital gains must be included in

petitioner’s income under section 61, we sustain respondent’s determination with

respect to the increased deficiencies as modified by concessions.

III.   Additions to Tax

       If a taxpayer assigns error to the Commissioner’s determination that the

taxpayer is liable for an addition to tax, the Commissioner has the burden, under

section 7491(c), of producing evidence with respect to the liability of the taxpayer

for the additions to tax. See Higbee v. Commissioner, 116 T.C. 438, 446-447

(2001). To meet this burden of production, the Commissioner must come forward

with sufficient evidence showing that it is appropriate to impose the addition to

tax. Id. Once the Commissioner meets his burden, the taxpayer must come

forward with sufficient evidence to persuade this Court that the determination is

incorrect. Id.

       Respondent determined that petitioner is liable for an addition to tax under

section 6651(a)(1) for failure to timely file a return for 2005. Section 6651(a)(1)

authorizes the imposition of an addition to tax for failure to timely file a return,
                                         - 10 -

[*10] unless it is shown that such failure is due to reasonable cause and not due to

willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985); United

States v. Nordbrock, 38 F.3d 440, 444 (9th Cir. 1994). Failure to file a timely

Federal income tax return is due to reasonable cause if the taxpayer exercised

ordinary business care and prudence but nevertheless was unable to file the return

within the prescribed time. See sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

Willful neglect means a conscious, intentional failure to file or reckless

indifference towards filing. Boyle, 469 U.S. at 245.

      To meet the requirement of filing a return, a taxpayer must file a valid

return. See Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139

(6th Cir. 1986). Under Beard v. Commissioner, 82 T.C. at 777, a valid return is

one that (1) contains sufficient data to calculate a tax liability, (2) purports to be a

return, (3) represents an honest and reasonable attempt to satisfy the requirements

of the tax law, and (4) is executed by the taxpayer under penalties of perjury. A

taxpayer who files a document that purports to be a Federal income tax return but

which contains only zeros on the relevant lines generally has not filed a valid

return because it does not contain sufficient information for the Commissioner to

calculate and assess a tax liability. See Cabirac v. Commissioner, 120 T.C. 163,

169 (2003); Hamilton v. Commissioner, T.C. Memo. 2009-271; see also United
                                        - 11 -

[*11] States v. Moore, 627 F.2d 830, 835 (7th Cir. 1980) (stating that an income

tax might conceivably be calculated on the basis of a return showing zero entries,

but that “it is not enough for a form to contain some income information; there

must also be an honest and reasonable intent to supply the information required by

the tax code”).

      Respondent introduced into evidence petitioner’s 2005 Form 1040 on which

petitioner reported zero taxable income and which contained zeros on all relevant

income lines. Attached to petitioner’s Form 1040 was a document which

purported to “correct” to zero taxable income reported by certain third-party

payors. The record also includes deemed stipulations that petitioner had income

from various sources in amounts sufficient to require the filing of a return.

Respondent did not treat petitioner’s purported return as a valid return, and the

record supports respondent’s position that petitioner did not make an honest and

reasonable attempt to supply the information required by the Code. See Cabirac v.

Commissioner, 120 T.C. at 169. Consequently, we conclude that respondent has

satisfied his burden of production under section 7491(c).

      Petitioner must come forward with evidence sufficient to persuade the Court

that respondent’s determination is in error. Petitioner did not introduce any

evidence to prove that he is not liable for the addition to tax or that he had
                                         - 12 -

[*12] reasonable cause for his failure to timely file a valid return. Accordingly,

we conclude that petitioner is liable for the section 6651(a)(1) addition to tax for

2005.

        Respondent also determined that petitioner is liable for an addition to tax for

failure to pay an amount of tax shown on a return under section 6651(a)(2). The

section 6651(a)(2) addition to tax applies only when an amount of tax is shown on

a return. Cabirac v. Commissioner, 120 T.C. at 170. Petitioner did not file a valid

2005 return. However, respondent prepared a substitute for return under section

6020(b). A return prepared by the Secretary11 under section 6020(b) is treated as

the return filed by the taxpayer for purposes of determining whether the section

6651(a)(2) addition to tax applies. Sec. 6651(g)(2); Wheeler v. Commissioner,

127 T.C. 200, 208-209 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008).

        Respondent introduced into evidence a substitute for return that satisfied the

requirements of section 6020(b), as well as a copy of petitioner’s account

transcript. The substitute for return and the account transcript establish that

petitioner failed to pay the tax shown on the substitute for return. Respondent has

satisfied the burden of production under section 7491(c). Petitioner did not


        11
       The term “Secretary” means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B).
                                         - 13 -

[*13] introduce any evidence that he was unable to pay the tax owed or that he

would have suffered undue hardship if he had paid the tax on the due date. See

sec. 301.6651-1(c), Proced. & Admin. Regs. Accordingly, we hold that petitioner

is liable for the section 6651(a)(2) addition to tax for 2005.

      Respondent also determined that petitioner is liable for an addition to tax for

failure to pay estimated tax under section 6654 for 2005. Section 6654 imposes an

addition to tax on an individual who underpays his estimated tax.12 The addition

to tax is calculated with reference to four required installment payments of the

taxpayer’s estimated tax liability. Sec. 6654(c) and (d). Each required installment

of estimated tax is equal to 25% of the “required annual payment”. Sec. 6654(d).

The “required annual payment” is equal to the lesser of (1) 90% of the tax shown

on the individual’s return for that year (or, if no return is filed, 90% of his tax for

such year), or (2) if the individual filed a valid return for the immediately

preceding taxable year, 100% of the tax shown on that return. See sec.

6654(d)(1)(A), (B), and (C). A taxpayer has an obligation to pay estimated tax

only if he has a “required annual payment”. Wheeler v. Commissioner, 127 T.C.

at 212; see also Mendes v. Commissioner, 121 T.C. 308, 324 (2003).

      12
        Unless a statutory exception applies, the sec. 6654(a) addition to tax is
mandatory. See sec. 6654(a), (e); Recklitis v. Commissioner, 91 T.C. 874, 913
(1988).
                                         - 14 -

[*14] Respondent introduced an account transcript showing that petitioner had a

Federal income tax liability for 2004 and that he did not file a valid return.13

Respondent also introduced evidence showing that petitioner had a Federal

income tax liability for 2005, that petitioner was required to file a Federal income

tax return for 2005, that petitioner did not file a valid Federal income tax return,

and that petitioner did not make any estimated tax payments. Therefore,

respondent has shown petitioner had a required annual payment under section

6654(d)(1)(B) for 2005. Accordingly, we hold that petitioner is liable for the

section 6654(a) addition to tax for 2005 unless the Rule 155 computations show

that he qualifies for the section 6654(e)(1) exception to the addition to tax.14

IV.   Section 6673 Penalty

      Under section 6673(a)(1), this Court may require a taxpayer to pay a penalty

not in excess of $25,000 whenever it appears that: (1) the taxpayer has instituted

or maintained proceedings primarily for delay; (2) the taxpayer’s position is



      13
       Because petitioner did not file a valid tax return for 2004, we need not
engage in any analysis under sec. 6654(d)(1)(B)(ii). See Trescott v.
Commissioner, T.C. Memo. 2012-321; Mandeville v. Commissioner, T.C. Memo.
2007-332.
      14
         Under sec. 6654(e)(1), the sec. 6654(a) addition to tax does not apply if
the tax shown on the return for the taxable year (or, if no return is filed, the tax),
reduced by the credit under sec. 31, is less than $1,000.
                                        - 15 -

[*15] frivolous or groundless; or (3) the taxpayer unreasonably failed to pursue

available administrative remedies. A taxpayer’s position is frivolous or

groundless if it is “‘contrary to established law and unsupported by a reasonable,

colorable argument for change in the law.’” Williams v. Commissioner, 114 T.C.

136, 144 (2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.

1986)).

      Throughout these proceedings, petitioner repeatedly asserted arguments that

are contrary to well-established law and are frivolous. At trial petitioner did not

testify regarding any factual matters and instead persisted in asserting frivolous

and groundless arguments. Although this Court provided ample warning in

pretrial proceedings of the potential implications of continuing to assert those

frivolous and groundless arguments, petitioner did not abandon his arguments or

acknowledge his liability for income tax on the income he received in 2005.15

      15
        Petitioner is no stranger in this Court. In a case at docket No. 13267-09L,
we sustained respondent’s determination to proceed with the collection by lien and
levy of petitioner’s unpaid liabilities for 1999-2004. In doing so, we warned
petitioner that he might become subject to a sec. 6673 penalty in future cases if he
persisted in maintaining proceedings for delay or otherwise advanced frivolous
arguments.

       At docket No. 15452-10L, a collection due process case for 2006
concerning imposition of a sec. 6702 penalty for filing a frivolous return, we held
that petitioner’s 2006 Form 1040 “reflects a desire (which appears on the
                                                                       (continued...)
                                       - 16 -

[*16] Petitioner has wasted the time and resources of this Court. The record

demonstrates that petitioner maintained these proceedings primarily for delay and

that petitioner’s asserted positions were frivolous and groundless. In the exercise

of our discretion we conclude that a penalty under section 6673(a)(1) is

appropriate. Petitioner shall pay to the United States a penalty of $10,000 under

section 6673(a)(1).

      We have considered the remaining arguments made by the parties and, to

the extent not discussed above, conclude those arguments are irrelevant, moot, or

without merit.




      15
       (...continued)
purported return) to delay or impede the administration of Federal tax laws” and
imposed on petitioner a sec. 6673 penalty of $5,000.

       At docket Nos. 221-10 and 15501-10, consolidated cases addressing
deficiencies in petitioner’s 2006 and 2007 income tax which this Court heard
before the trial in this case, we repeatedly warned petitioner that he might become
subject to a sec. 6673 penalty if he continued to advance frivolous arguments.
Unfortunately, the imposition of sanctions in docket No. 15452-10L, our previous
warnings in docket No. 13267-09L, and our repeated warnings in the consolidated
cases did not deter petitioner from advancing the same frivolous arguments in this
case. We imposed on petitioner a sec. 6673 penalty of $10,000 in each of the
consolidated cases (total sec. 6673 penalty of $20,000 in the consolidated cases)
for advancing frivolous arguments. The same $10,000 penalty is warranted here.
                                      - 17 -

[*17] To reflect respondent’s concessions and the foregoing,


                                               Decision will be entered under

                                     Rule 155.
