                        T.C. Memo. 2009-169



                      UNITED STATES TAX COURT



                   JOHN B. RICE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21567-07L.            Filed July 15, 2009.



     John B. Rice, pro se.

     Steven M. Webster, for respondent.



                        MEMORANDUM OPINION


     JACOBS, Judge:   The dispute between the parties concerns

respondent’s proposed use of a levy to collect frivolous income

tax return penalties against petitioner pursuant to section 6702.

The issue is whether to sustain respondent’s determination to

proceed with the proposed collection activity.
                                 - 2 -

         Unless otherwise indicated, all section references are to

the Internal Revenue Code.

     At the time he filed his petition, petitioner resided in

Georgia.

                              Background

     Petitioner is an adherent of the principles espoused by

Robert Clarkson (Clarkson),1 founder of the Patriot Network, a

national organization that advocates tax avoidance activities as

well as the frustration and delay of collection efforts by the

Internal Revenue Service (IRS).     Petitioner is no stranger to

this Court.     He has appeared before us on two prior occasions,

losing both times.     Rice v. Commissioner, an Oral Opinion of this

Court dated Aug. 30, 2006; Rice v. Commissioner, an Oral Opinion

of this Court dated Mar. 19, 2008.

     During 2001 petitioner received a distribution from the

Employees’ Retirement System of Georgia pension plan of which

$34,631 was reported to respondent by the payor as taxable

income.     He reported $17 as taxable interest.

     During 2002 petitioner received a distribution from the

Employees’ Retirement System of Georgia pension plan of which


     1
      Clarkson had previously been found to have engaged in
activities that interfere with the enforcement of internal
revenue laws including, but not limited to, instructing others to
purposely frustrate and delay collection efforts and was
permanently enjoined from participating in those and other
activities. See United States v. Clarkson, 100 AFTR 2d 2007-
5108, 2007-2 USTC par. 50,558 (D.S.C. 2007).
                               - 3 -

$35,688 was reported to respondent by the payor as the taxable

amount.   He also reported $17 as taxable interest.

     Petitioner submitted undated Federal income tax returns for

2001 and 2002 reporting as taxable income for each year only the

$17 of interest and reporting no tax liability.   Form 2555-EZ,

Foreign Earned Income Exclusion, and Form 1099-R, Distributions

From Pensions, Annuities, Retirement or Profit-Sharing Plans,

IRAs, Insurance Contracts, etc., reflecting petitioner’s pension

income, were attached to each return.   For each year petitioner

claimed he qualified for the foreign earned income exclusion,

stating he resided in the “American Republic of Georgia” and, as

a retired Georgia State employee, his employer was the “American

Republic of Georgia.”   Neither return was signed.

     Using information from third-party payors, the IRS computed

petitioner’s 2001 tax to be $4,119 and his 2002 tax to be $3,913.

A notice of deficiency for year 2001 was mailed to petitioner on

January 14, 2004.   That notice, in addition to the aforementioned

$4,119 deficiency in income tax, included additions to tax under

section 6651(a)(1) (failure to file a return) and section 6654

(failure to pay estimated tax).   A notice of deficiency for year

2002 was mailed to petitioner on October 5, 2004.     That notice,

in addition to the aforementioned $3,913 deficiency in income

tax, included additions to tax under sections 6651(a)(1) and

6654.
                                - 4 -

     On April 7, 2004, petitioner filed a petition at docket No.

6025-04 contesting respondent’s determinations with respect to

year 2001.   On December 29, 2004, petitioner filed a petition at

docket No. 24893-04 contesting respondent’s determinations with

respect to year 2002.   Pursuant to an Order dated January 3,

2005, on February 22, 2005, petitioner filed an amended petition

with respect to year 2002.   By Order dated November 1, 2005, the

cases in docket Nos. 6025-04 and 24893-04 were consolidated for

trial, briefing, and opinion.

     A trial with respect to docket Nos. 6025-04 and 24893-04 was

held in Atlanta, Georgia, on August 28, 2006.   As stated supra p.

2, a bench opinion was rendered on August 30, 2006, and decisions

were entered in accordance therewith on September 26, 2006.

      On a date not specified in the record, respondent assessed

a frivolous income tax return penalty pursuant to section 6702

for both 2001 and 2002.

     On October 23, 2006, respondent mailed petitioner a Final

Notice of Intent to Levy and Notice of Your Right to a Hearing

regarding the section 6702 frivolous return penalty for 2002.    On

March 8, 2007, respondent mailed petitioner a final levy notice

regarding the section 6702 penalty for 2001. Petitioner timely

submitted a Form 12153, Request for a Collection Due Process or

Equivalent Hearing (section 6330 hearing), challenging each

notice of levy and requesting a face-to-face hearing.
                               - 5 -

     By letter dated July 25, 2007, respondent informed

petitioner that his request for a hearing had been received and

that his case had been assigned to a settlement officer in

respondent’s Appeals Office in Atlanta.   The letter stated that

the issues petitioner raised “are those that Courts have

determined are frivolous or Appeals does not consider.”    The

letter advised petitioner that because the only issues he raised

were frivolous, he was not entitled to a face-to-face hearing.

Instead, petitioner was offered a telephone hearing to be held on

August 15, 2007.   Petitioner was advised that he would be allowed

a face-to-face conference with respect to any nonfrivolous issue;

however, before doing so respondent had to be informed of the

nonfrivolous issue in writing or by telephone call to

respondent’s Appeals settlement officer by August 8, 2007.

     By letter dated August 8, 2007, petitioner stated he did not

want a telephone hearing, and he again asked for a face-to-face

meeting.   Petitioner denied raising frivolous issues.   Petitioner

appeared unexpectedly in person at respondent’s Appeals Office in

Atlanta along with Clarkson and one or two other witnesses.

Respondent’s Appeals settlement officer refused to see them.

     Respondent issued a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 on August 21,

2007.   In that notice respondent sustained the proposed levy.

Respondent noted in the determination notice that no notice of
                                  - 6 -

deficiency was necessary with respect to the imposition of a

frivolous return penalty under section 6702.

      Petitioner timely contested respondent’s levy determination

by filing a petition in this Court.       A trial was held on February

3, 2009.   At trial petitioner was given the opportunity to

explain why the section 6702 frivolous return penalty should not

be applied with respect to his submissions of his 2001 and 2002

Federal income tax returns.     Petitioner gave no adequate

explanation.     Collection of the deficiencies in income tax for

2001 and 2002 and additions to tax under sections 6651(a)(1) and

6654 is not before us.

                               Discussion

A.   Section 6702 Frivolous Income Tax Return Penalty

      Pursuant to section 6702,2 a frivolous return penalty may be


      2
      Sec. 6702 as in effect during the relevant period provides
in relevant part:

      SEC. 6702.        FRIVOLOUS INCOME TAX RETURN.

           (a)     Civil Penalty.--If–-

                (1) any individual files what purports to be a
           return of the tax imposed by subtitle A but which–-

                        (A) does not contain information on which
                   the substantial correctness of the self-assessment
                   may be judged, or

                        (B) contains information that on its face
                   indicates that the self-assessment is
                   substantially incorrect; and

                                                        (continued...)
                                  - 7 -

assessed against a taxpayer if three requirements are met.

First, under section 6702(a)(1), the taxpayer must file a

document that purports to be an income tax return.       Second, under

section 6702(a)(1)(A), the purported return must lack the

information needed to judge the substantial correctness of the

self-assessment or, under section 6702(a)(1)(B), must contain

information indicating the self-assessment on the purported

return is substantially incorrect.        Third, under section

6702(a)(2), the taxpayer’s position must be frivolous or

demonstrate a desire (which appears on the purported return) to

delay or impede the administration of Federal income tax law.

See Callahan v. Commissioner, 130 T.C. 44, 51 (2008).        “We

generally look to the face of the documents to determine whether

a taxpayer is liable for a frivolous return penalty as a matter

of law.”   Id.; see Yuen v. United States, 290 F. Supp. 2d 1220,

1224 (D. Nev. 2003).



     2
      (...continued)
               (2) the conduct referred to in paragraph (1) is
          due to–-

                       (A)   a position which is frivolous, or

                     (B) a desire (which appears on the purported
                return) to delay or impede the administration of
                Federal income tax laws,

     then such individual shall pay a penalty of $500.
                                  - 8 -

B.   Jurisdiction

      The section 6702 frivolous return penalty is governed by the

procedural rules of section 6703,3 which generally removes

section 6702 penalty assessments from the deficiency jurisdiction

of this Court.      However, section 6330(d)(1)4 provides this Court

with jurisdiction to review an appeal from the Commissioner’s

determination to proceed with collection activity regardless of

the type of underlying tax involved.      We have held that our

jurisdiction includes the right to review the Commissioner’s levy

collection activity regarding the section 6702 frivolous return

penalty.   Callahan v. Commissioner, supra.     Thus, we have

jurisdiction to review respondent’s notice of determination of

August 21, 2007, issued to petitioner under section 6330.

C.   Standard of Review

      This case involves a review of respondent’s determination to

proceed with collection of petitioner’s frivolous return

penalties for 2001 and 2002 via levy.      Section 6330(a) provides

that no levy may be made on any property or right to property of

any person unless the Secretary has notified that person in

      3
      Sec. 6703(b) provides that subch. B of ch. 63 of the
Internal Revenue Code (relating to deficiency procedures) does
not apply with respect to the assessment or collection of the
penalties provided by secs. 6700, 6701, and 6702.
      4
      As amended by the Pension Protection Act of 2006, Pub. L.
109-280, sec. 855, 120 Stat. 1019, effective for determinations
made after Oct. 16, 2006.
                               - 9 -

writing of the right to a hearing before the levy is made (the

section 6330 hearing).   Section 6330 hearings concerning levies

are conducted in accordance with section 6330(c).    After the

Commissioner issues his notice of determination following an

administrative hearing, a taxpayer has the right to petition this

Court for judicial review of the Commissioner’s determination.

Sec. 6330(d)(1).

     A taxpayer is precluded from contesting the existence or

amount of the underlying liability if he/she received a notice of

deficiency for the tax year in question or otherwise had an

opportunity to dispute the underlying tax liability.    Sec.

6330(c)(2)(B).   If the taxpayer did not receive a notice of

deficiency or did not have an opportunity to dispute the

underlying tax liability, we review the matter de novo.    Davis v.

Commissioner, 115 T.C. 35, 39 (2000).

     Because no notice of deficiency was sent with respect to the

section 6702 frivolous return penalty, petitioner was entitled to

contest the penalty at his section 6330 hearing.    Respondent

conceded that no actual meeting or telephone conference between

petitioner and respondent’s Appeals settlement officer took

place.   Accordingly, we review the 2001 and 2002 frivolous return

penalties de novo.
                               - 10 -

D.   Application

       With regard to the first element of the section 6702

frivolous return penalty, the documents petitioner filed

purported to be income tax returns for 2001 and 2002.    Each

return included a Form 1099-R that was provided by the Employees’

Retirement System of Georgia pension plan reporting petitioner’s

pension income.    A relatively insignificant amount of interest

income was also reported on each return.    Finally, petitioner

attached a Form 2555-EZ to each return purporting to show that he

was entitled to the foreign earned income exclusion, and as a

consequence he reported zero on the line for total tax on Form

1040, U.S. Individual Income Tax Return, for each year.    Thus,

the first element of the section 6702 frivolous return penalty is

met.

       With regard to the second element of the section 6702

frivolous return penalty, the returns petitioner filed for 2001

and 2002 are substantially incorrect in that he claimed on each

return a foreign earned income exclusion on Form 2555-EZ, even

though he provided a domestic address and acknowledged that he

lived there throughout each taxable year.    Accordingly, the

second element of the section 6702 frivolous return penalty is

met.

       Finally, with regard to the third element of the section

6702 frivolous return penalty, petitioner’s position that he
                               - 11 -

qualifies as a nonresident nontaxpayer is frivolous on its face.

Petitioner claims on Form 2555-EZ to be a citizen of the

“American Republic of Georgia” and not a resident of the United

States.    We have imposed the section 6673 penalty for taking a

frivolous position upon taxpayers who have claimed that they are

not subject to Federal income taxation because they are not

citizens of the United States but instead are citizens of a State

“republic” (e.g., the Republic of Colorado, the Republic of

California).    See, e.g., Fisher v. Commissioner, T.C. Memo. 1996-

277; Fox v. Commissioner, T.C. Memo. 1996-79 (applying the

section 6673 penalty for instituting procedures primarily for

delay based on raising frivolous arguments).    The third and final

element of the section 6702 frivolous return penalty is thus met.

E.   Petitioner’s Position

      Petitioner contends that he was entitled to a face-to-face

hearing and that because he was denied one, respondent abused his

discretion in determining to proceed with the collection of the

frivolous income tax return penalties for years 2001 and 2002 by

levy.     We disagree.

      Petitioner’s arguments disputing the section 6702 frivolous

return penalties, as set forth in his communications with

respondent, themselves were frivolous.    Petitioner was given an

opportunity to present nonfrivolous arguments but did not do so.

We are satisfied that a face-to-face conference would not have
                              - 12 -

been productive.   See Moline v. Commissioner, T.C. Memo. 2009-

110; Summers v. Commissioner, T.C. Memo. 2006-219; Ho v.

Commissioner, T.C. Memo. 2006-41.

F.   Conclusion

      Respondent’s Appeals settlement officer verified that the

requirements of all applicable law and administrative procedures

were met and that the proposed levy action appropriately balanced

the need for efficient collection of taxes with the petitioner’s

concerns that the levy be no more intrusive than necessary.

      We hold that respondent did not abuse his discretion in

determining to proceed with the collection by levy of the

frivolous income tax return penalties owed by petitioner for

years 2001 and 2002.

      To reflect the foregoing,


                                         Decision will be entered

                                    for respondent.
