                       T.C. Memo. 2000-55



                     UNITED STATES TAX COURT



                 ANTHONY TINSMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8395-98.                 Filed February 22, 2000.



     Anthony Tinsman, pro se.

     Ann L. Darnold, for respondent.



                       MEMORANDUM OPINION


     DEAN, Special Trial Judge:   Respondent determined

deficiencies in petitioner’s Federal income taxes of $2,403 for

1994, $1,166 for 1995, and $1,181, for 1996.   Respondent also
                               - 2 -

determined additions to tax under section 6651(a)1 for failure by

petitioner to file timely his Federal income tax returns in the

amounts of $733 for 1994, $292 for 1995, and $295 for 1996.

     The issues for decision are:   (1) Whether the notice of

deficiency is arbitrary and excessive, and therefore is not

entitled to the presumption of correctness; (2) whether

petitioner received an unreported IRA distribution in 1994; (3)

whether petitioner is liable for the additional tax on early

distributions from qualified retirement plans; (4) whether

petitioner had unreported income for 1995 and 1996; and (5)

whether petitioner failed to file timely Federal income tax

returns for 1994, 1995, and 1996 without reasonable cause.

     The stipulated documents are incorporated herein by

reference.   Petitioner resided in Midland, Arkansas, at the time

he filed his petition in this case.

                            Background

     During the years at issue and at the time of trial,

petitioner was married and had two children.

     Petitioner filed a Federal income tax return for 1994 that

he signed and dated May 24, 1996.   He attached to the tax return

a Form W-2, Wage and Tax Statement, from Petroleum Helicopters,

Inc. (Helicopters), reporting wages, tips, and other compensation


     1
        Section references are to the Internal Revenue Code in
effect for the years in issue, and Rule references are to the Tax
Court Rules of Practice and Procedure.
                              - 3 -

of $31,871.64, as well as Federal and State withholding taxes.

He also attached to the return a Form 1099R, Statements for

Recipients of Distributions From Pensions, Annuities, Retirement

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,

reporting from the Helicopters Federal Credit Union a $14,135.44

distribution from a qualified retirement plan.

     Although petitioner overreported his wages as $33,965.872 on

the face of his Form 1040, he also included with the return a

Schedule D, Capital Gains and Losses.   On the Schedule D he

reported as property held for 1 year or less "LABOR RECEIVED AS

GIFT [from God]" from 1-1-94 through 12-31-94, having a basis

equal to and a "sales" price of $33,965.87.    He reported as an

asset held for more than 1 year the retirement plan distribution,

and also characterized it as payment for past labor received as a

gift from God having a basis equal to its sale price.

     Petitioner included with the 1994 tax return two documents

he titled a "Statement" and a "Declaration".    In the Statement he

expressed his belief that, upon his "study and understanding", he

was not "liable to the income taxes imposed by the Code."    The

Statement declares that to the extent the Forms 1040 and 1099R

contradict the statements in his Declaration, "said forms are


     2
        This represents the amount of total Social Security wages
reported on petitioner’s Form W-2 from Helicopters for the year
1994 rather than wages includable in gross income. Respondent
concedes that petitioner overreported his wage income subject to
income tax by $2,094.23 ($33,965.87-$31,871.64).
                               - 4 -

false and misrepresent the facts and law and are hereby refuted

and denied."   He explained in the Declaration that his position

was based on his belief that he had a basis in his labor, and

upon his personal definitions of the words "wages", "compensation

for services", "employee", and "employment".    In the Declaration

he claimed that while he had "sold" his labor "under contract",

he had not received "Wages" or "Compensation for Services" in

1994 from Helicopters.   He also expressed the opinion that he is

a nonresident alien with no U.S.-source income.   The Form W-2

indicates that Helicopters is located in Lafayette, Louisiana.

     Petitioner signed his 1994 Federal income tax return "under

protest" and listed his occupation as "none".   Petitioner did not

file Federal income tax returns for 1995 or 1996.

     Respondent sent to petitioner a notice dated March 10, 1997,

advising him that he had not yet filed a tax return for 1995.

The notice informed petitioner that if he did not contact the

Internal Revenue Service (IRS) immediately, the IRS might have to

summons him or "Begin criminal proceedings * * * if you willfully

fail to file a tax return."

     Sometime in late 1997 respondent received a document signed

by petitioner in which he asserts that he has determined that he

was not required to file a tax return for 1995 or 1996, but that

if he were so required, he would file as "head of household with

4 dependents."
                              - 5 -

     Respondent issued a statutory notice of deficiency to

petitioner determining that he had failed to report the receipt

of an IRA distribution of $2,619 for 1994, was liable for the

10-percent additional tax on early distributions from qualified

retirement plans, had failed to report income for 1995 and 1996

(determined by the Bureau of Labor Statistics (BLS)), and had

failed to file timely a tax return for each of the 3 years 1994

through 1996.

     Petitioner filed an amended petition with the Court alleging

error on respondent's part in failing to allow him "deductions,

allowances and credits", proceeding "as if" he had IRA income in

1994, or any income in 1995 and 1996, and in attempting to impose

a direct or indirect tax upon his income, if any.   The facts upon

which he based his allegations of error are:   (a) He "had

expenses for the deductions, allowances and credits for the

maintenance of his home and care of his family, including his

wife and 2 children"; (b) assuming that the bank that held the

IRA made payments to him in 1994, it did not send him a notice

signed under penalties of perjury that it had made payments to

him; (c) he was neither an employee nor self-employed during 1995

and 1996; and (d) respondent is attempting to impose improperly a

direct tax without apportionment or an indirect tax "without

identifying the commodity or material consumed."
                                - 6 -

     Before answering the amended petition, respondent filed a

motion to strike allegations of error and fact referencing the

imposition of an improper direct or indirect tax on petitioner.

Petitioner sent to respondent a motion for enlargement of time to

file response to respondent's motion to strike in which

petitioner alleged:    "The petitioner works full time and must do

his research and draft his response around his work schedule

which generally means the weekends."      After the Court granted him

additional time, petitioner filed an objection to respondent's

motion containing a lengthy discussion of whether the Federal

income tax is a direct tax or an excise tax and attached a copy

of a Congressional Research Report for Congress.     The Court

subsequently granted respondent's motion to strike.

     At trial petitioner refused to present any evidence until

after respondent had proceeded, insisting that respondent has the

burden of proof because it is "an unreported income case".

Respondent called petitioner as a witness, whereupon he proceeded

to assert the Fifth Amendment privilege against self-

incrimination in response to almost every question on direct

examination.

                             Discussion

Burden of Proof

     The threshold issue for decision concerns the placement of

the burden of proof.   Petitioner argues that when respondent's
                                 - 7 -

determinations are based upon alleged unreported income the

burden of proof shifts to respondent.

     Respondent acknowledges that when allegations of unreported

income are made, respondent must show some minimal evidence

linking the taxpayer to that income before the presumption of

correctness attaches to the notice.      Respondent believes that the

burden of proof remains with petitioner because evidence linking

him to income-producing activity has been provided.

     In general, the Commissioner's determinations contained in a

notice of deficiency are entitled to a presumption of

correctness, and the taxpayer has the burden of proving them

incorrect.3    See Rule 142(a); United States v. Janis, 428 U.S.

433, 441-442 (1976); Welch v. Helvering, 290 U.S. 111, 115

(1933); Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374, 1378

(7th Cir. 1990), affg. Malicki v. Commissioner, T.C. Memo.

1988-559.     As a general rule, we do not look behind the statutory

notice to examine the evidence used in making the determination.

See Petzoldt v. Commissioner, 92 T.C. 661, 688 (1989);




     3
        The Internal Revenue Service Restructuring & Reform Act
of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685,
724-727, added sec. 7491, which shifts the burden of proof to the
Secretary in certain circumstances. Sec. 7491, however, is
applicable to "court proceedings arising in connection with
examinations commencing after the date of the enactment of this
Act." RRA 1998 sec. 3001(c). The RRA was enacted on July 22,
1998, while the petition and amended petition in this case were
filed before July 22, 1998.
                                 - 8 -

Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, 327

(1974).

     The presumption, however, is not irrebuttable.   In certain

limited circumstances, if the taxpayer proves by a preponderance

of the evidence that the Commissioner's determinations are

arbitrary and excessive, or without rational foundation, then the

presumption no longer applies.    See Page v. Commissioner, 58 F.3d

1342, 1347 (8th Cir. 1995), affg. T.C. Memo. 1993-398; Long v.

Commissioner, 757 F.2d 957, 959 (8th Cir. 1985).

     Courts have identified an exception to the presumption of

correctness where the Commissioner, in a case involving

unreported income, introduces no direct evidence but rests on the

presumption of correctness and the taxpayer challenges the

deficiency on the grounds that it is arbitrary.    See Schad v.

Commissioner, 87 T.C. 609, 618 (1986), affd. without published

opinion 827 F.2d 774 (11th Cir. 1987); see also Senter v.

Commissioner, T.C. Memo. 1995-311.

     Thus, to rebut the presumption of correctness and shift the

burden of producing evidence to the Commissioner, the taxpayer

must demonstrate that the Commissioner’s deficiency assessment

lacks a rational foundation or is arbitrary and excessive.    See

Pittman v. Commissioner, 100 F.3d 1308, 1313 (7th Cir. 1996),

affg. T.C. Memo. 1995-243; Page v. Commissioner, supra; Long v.

Commissioner, supra.
                              - 9 -

     Petitioner relies on United States v. Janis, supra, and

Portillo v. Commissioner, 932 F.2d 1128, 1133 (5th Cir. 1991),

revg. in part, affg. in part and remanding T.C. Memo. 1990-68, as

support for his position that the notice of deficiency in this

case is arbitrary and excessive and therefore not entitled to the

normal presumption of correctness.    In Janis, the Supreme Court

held that a "'naked' assessment without any foundation

whatsoever" may be excessive and without rational foundation.4

United States v. Janis, supra at 441.    In Portillo, the taxpayer

was issued a deficiency notice determining that he had received

unreported income due to a discrepancy between the amount he had

reported and the amount on a Form 1099 filed by his employer.

The employer could account for only part of the discrepancy and

had no records for the remainder.    Because the taxpayer disputed

that he was paid the income, the Court of Apppeals for Fifth

Circuit found that the Commissioner had failed to substantiate

the deficiency by any other means, the Court of Appeals concluded

that the deficiency was excessive and arbitrary.

     In a later case, the Court of Appeals for the Fifth Circuit

explained that its holding in Portillo does not require "an


     4
        Although the issue of a "naked assessment" generally
arises when an illegal tax-generating activity is alleged, the
Court of Appeals for the Eighth Circuit seems to have extended
the principle to legal tax-generating activity as well. See Day
v. Commissioner, 975 F.2d 534, 537 (8th Cir. 1992), affg. in
part, revg. in part and remanding on another issue T.C. Memo.
1991-140.
                              - 10 -

independent investigation" by the IRS in all unreported income

cases.   Parker v. Commissioner, 117 F.3d 785, 787 (5th Cir.

1997), affg. per curiam an Order of this Court.   Where a taxpayer

does not dispute that he received the payment in question as

reported on a third-party information return, the Commissioner

has no duty to investigate.   See id.   And where the taxpayer

fails to dispute a connection with the tax-generating income, the

"naked assessment" doctrine does not apply.   See Parrish v.

Commissioner, 168 F.3d 1098, 1100-1101 (8th Cir. 1999), affg.

T.C. Memo. 1997-474; Day v. Commissioner, 975 F.2d 534, 537 (8th

Cir. 1992), affg. in part and revg. in part on another issue T.C.

Memo. 1991-140; Zuhone v. Commissioner, 883 F.2d. 1317, 1326 (7th

Cir. 1989), affg. T.C. Memo. 1988-142; Andrews v. Commissioner,

T.C. Memo. 1998-316.

     Petitioner denies in his trial memorandum that he was an

"'employee,' engaged in 'employment' or 'self-employment'" in

either 1994, 1995, or 1996 or that he received "'wages' or 'non-

employee compensation'" in those years.   Considering petitioner's

legal arguments and the evidence in the record in this case, we

interpret his use of quotation marks around words such as

"employee" and "wages" to mean that petitioner uses those terms

in a personal way that has a special meaning to him, not as they

are ordinarily understood.
                              - 11 -

     Petitioner does not argue that he did not receive payment

for the "sale" of his labor in 1994, 1995, or 1996.    Petitioner’s

argument is instead based on his "gift" theory of the taxability

of wages.   His Statement attached to the 1994 tax return declares

the Forms W-2 and 1099R to be erroneous as well as his listing

the Helicopters payments as wages.     On Schedule D attached to the

return, petitioner treated his wages as property held for 1 year

or less, "LABOR RECEIVED AS GIFT [from God]", having a basis

equal to its sales price.

     Petitioner does not argue that he did not receive an IRA

distribution in 1994.   Petitioner's position is that such

distributions represent nontaxable payments received from past

"sales" of labor at no "gain".   He also argues that the Form

1099R reporting an IRA distribution to him in 1994 is invalid

unless it is "signed under the penalty of perjury", citing

section 6065.

     Upon analysis of the record in this case, we find that

petitioner has not disputed his connection with the tax-

generating income ascribed to him by respondent.    Respondent

determined for the year 1994 that petitioner received an

unreported IRA distribution, and for 1995 and 1996, unreported

income the amount of which was determined by using BLS

statistics.   The closest petitioner has come to a denial of the

receipt of income is in his amended petition.    The amended
                               - 12 -

petition alleges that respondent erred in determining a

deficiency "as if" petitioner received IRA income for 1994 and

any income for 1995 or 1996.   In view of the arguments he has

raised, we find this to be short of a denial that he received

such income.

Minimal Factual Predicate

     Even if we were to find that petitioner is actually

disputing any connection with the tax generating income

determined by respondent, our inquiry would not be concluded.

Respondent's notice of deficiency maintains the presumption of

correctness as long as the determination has "some minimal

factual predicate."   Pittman v. Commissioner, 100 F.3d at 1317;

Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir. 1993),

affg. T.C. Memo. 1991-636; Bjelk v. Commissioner, T.C. Memo.

1998-169.   Respondent's determination fails where it is without

"any foundation or supporting evidence."   Page v. Commissioner,

58 F.3d at 1347; accord United States v. Janis, supra; Dodge v.

Commissioner, 981 F.2d 350, 353 (8th Cir. 1992), affg. in part,

revg. in part and remanding 96 T.C. 172 (1991).

     We proceed to examine the record to determine whether there

is some minimal factual predicate to support respondent's

determination.   Examining the Form 1040 filed by petitioner for

1994, we find that he was an employee who received wages from
                               - 13 -

employment for the year.   Petitioner admitted in his amended

petition that he had an IRA in 1994.    Petitioner stated in

correspondence to respondent that if he were required to file a

Federal income tax return for 1995 and 1996, he would file as

head of household with four dependents.    In his amended petition,

petitioner alleges that for 1995 and 1996, he had expenses for

the maintenance of his home and care of his wife and 2 children.

In an August 1998 motion sent to respondent, petitioner admitted

that he currently "works full time".

     Petitioner failed to file returns for 2 of the 3 years in

this case and refused to cooperate in the ascertainment of his

income for all 3 years.    From the evidence in the record, we find

that petitioner was employed in 1994, owned an IRA in 1994,

supported a household for himself, his wife, and children in

1994, 1995, and 1996, and worked full time in 1998.      Respondent

has established in this case a minimal factual predicate for the

determinations.

     Where there is evidence of taxable income but no evidence as

to the amount of such income, it is not arbitrary for respondent

to determine that the taxpayer had income at least equal to the

normal cost of supporting his family.    See Giddio v.

Commissioner, 54 T.C. 1530, 1533 (1970); Andrews v. Commissioner,

T.C. Memo. 1998-316.   "Otherwise 'skillful concealment' would be
                               - 14 -

an 'invincible barrier' to the determination of tax liability."

Giddio v. Commissioner, supra at 1533.

     In Palmer v. United States, 116 F.3d 1309, 1313 (9th Cir.

1997), the court found that the inference that taxpayers must

have had sufficient income to support themselves for years when

no income was reported, along with information linking one of the

taxpayers to wages for at least part of a 4-year period, was a

sufficient evidentiary foundation to establish the presumption of

correctness.   We find the facts of this case to be similar to

those of Palmer v. United States, supra.

     Additionally, the use of data compiled by the Bureau of

Labor Statistics is an acceptable and reasonable method of income

reconstruction.5   See Pollard v. Commissioner, 786 F.2d 1063, 1066

(11th Cir. 1986), affg. T.C. Memo. 1984-536; Burgo v.

Commissioner, 69 T.C. 729, 749 (1978); Cupp v. Commissioner, 65

T.C. 68 (1975), affd. without published opinion 559 F.2d 1207 (3d

Cir. 1977); Giddio v. Commissioner, supra at 1532.

     While the presumption remains intact here, it creates only a

prima facie case placing the burden on petitioner to rebut the



     5
        The amounts determined as additional income in 1995 and
1996 in the notice of deficiency for petitioner were computed for
a single person with no children. Petitioner was married and had
two children over the age of 6. Respondent’s computations
understate by 64 percent the actual BLS figures for a person
supporting a family the size of petitioner’s.
                                - 15 -

presumption by showing that the inference of taxable earnings for

family support is unreasonable.    See Parrish v. Commissioner,

supra; Page v. Commissioner, 58 F.3d 1342, 1348 (8th Cir. 1995);

Palmer v. United States, supra; Day v. Commissioner, 975 F.2d 534

(8th Cir. 1992).

Petitioner’s Lack of Evidence

     Petitioner presented no testimony, nor did he call any

witnesses to testify on his behalf that respondent's

determinations are erroneous.    He chose instead to assert his

Fifth Amendment privilege against self-incrimination.    Even if

this was a valid assertion of the privilege, however, it is not a

substitute for evidence and is not "intended to be * * * a sword

whereby a claimant asserting the privilege would be freed from

adducing proof in support of a burden which would otherwise have

been his."   United States v. Rylander, 460 U.S. 752, 758 (1983);

Tweeddale v. Commissioner, 841 F.2d 643, 645 (5th Cir. 1988),

affg. T.C. Memo. 1987-197; Petzoldt v.    Commissioner, 92 T.C.

661, 684 (1989).   This rule applies to petitioner's meeting his

burden of proof with respect to both the tax deficiency and the

addition to tax under section 6651(a).    See Moore v.

Commissioner, 722 F.2d 193, 196 (5th Cir. 1984), affg. T.C. Memo.

1983-20; Petzoldt v. Commissioner, supra at 685.
                               - 16 -

     Not only has petitioner failed to adduce any evidence, his

legal arguments are frivolous.   The courts have consistently and

uniformly held that wages are income and that a taxpayer has no

basis in his labor.    See, e.g., Beard v. Commissioner, 793 F.2d

139 (6th Cir. 1986), affg. per curiam 82 T.C. 766 (1984); Coleman

v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986); Carter v.

Commissioner, 784 F.2d 1006, 1009 (9th Cir. 1986); United States

v. Burton, 737 F.2d 439, 441 (5th Cir. 1984); Funk v.

Commissioner, 687 F.2d 264, 265 (8th Cir. 1982), affg. per curiam

T.C. Memo. 1981-506.

     Petitioner’s argument that Forms 1099R are invalid unless

signed under penalty of perjury is incorrect and is irrelevant to

whether he received a distribution.     Under section 6065, except

as otherwise provided, a document required to be made under the

internal revenue laws or regulations must contain or be verified

under a written declaration that it is made under the penalties

of perjury.   The Secretary has provided by way of regulation that

if a document is required by the regulations contained in chapter

61, or by the form and instructions issued with respect to the

document, to be verified by written declaration under penalties

of perjury, the document shall be so verified by the person

signing it.   See sec. 1.6065-1, Income Tax Regs.   Requirements

for reports on IRA distributions, however, are not found in
                               - 17 -

chapter 61 but are contained in chapter 1.   Section 1.408-7,

Income Tax Regs., describes reports on distributions from

individual retirement plans.   The regulation contains no

requirement that Forms 1099-R be verified by written declaration

under penalties of perjury, and neither the form nor the

instructions contain such a requirement.    Therefore, no written

verification by written declaration under penalties of perjury is

required for the form.

     Petitioner raised no argument and presented no evidence on

the issue of his liability for the additional tax on early

distributions from qualified retirement accounts.

     On this record, we sustain respondent's determinations.

Section 6651(a)(1) Failure To File Timely

     For each year in issue, respondent determined that

petitioner is liable for the addition to tax under section

6651(a)(1) for his failure to file timely a Federal income tax

return.   Section 6651(a)(1) provides for an addition to tax of 5

percent of the tax required to be shown on the return for each

month or fraction thereof for which there is a failure to file,

not to exceed 25 percent.   The addition to tax for failure to

file a return timely will be imposed if a return is not timely

filed unless the taxpayer shows that the delay was due to

reasonable cause and not willful neglect.    See sec. 6651(a)(1).
                              - 18 -

     There is no evidence in the record that suggests that

petitioner's failure to file timely a Federal income tax return

for any year in issue was due to reasonable cause and not due to

willful neglect.   Consequently, we sustain respondent's

determination that petitioner is liable for the additions to tax

under section 6651(a)(1) for the years 1994 through 1996.

     To reflect the foregoing,

                                      Decision will be entered

                                 under Rule 155.
