                                                 SCOTT GRUNSTED, PETITIONER v. COMMISSIONER
                                                     OF INTERNAL REVENUE, RESPONDENT

                                                        Docket No. 12954–09L.                      Filed May 11, 2011.

                                                 P filed late purported income tax returns for 2002, 2003 and
                                               2004 showing zero income and seeking refunds for taxes with-
                                               held. R notified P that two of the purported returns would not
                                               be accepted for lack of sufficient information and that they
                                               were based on frivolous positions. P resubmitted substantially
                                               identical purported tax returns for those two years. R
                                               assessed five frivolous return penalties under sec. 6702,
                                               I.R.C., against P for those years. P failed to pay the penalties.
                                               R then commenced collection action against P. P argues that
                                               R may not proceed with the proposed collection action as the
                                               penalties were invalid assessments. P maintains that the pen-
                                               alties were not properly assessed because no district director
                                               exists. District directors were eliminated after the Internal
                                               Revenue Service Restructuring and Reform Act of 1998, Pub.
                                               L. 105–206, 112 Stat. 685. R moves for summary judgment.
                                                 1. Held: P is liable for the five frivolous return penalties
                                               under sec. 6702, I.R.C., which were validly assessed because
                                               the district director responsibilities were reassigned under the
                                               savings provision of the Internal Revenue Service Restruc-
                                               turing and Reform Act of 1998, Pub. L. 105–206, sec. 1001,
                                               112 Stat. 689, and IRS Deleg. Order 1–23 (formerly IRS
                                               Deleg. Order 193, Rev. 6), Internal Revenue Manual pt.
                                               1.2.40.22 (Nov. 8, 2000).

                                                                                                                                    455




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                                      456                136 UNITED STATES TAX COURT REPORTS                                      (455)


                                                 2. Held, further, R may proceed with collection.
                                                 3. Held, further, P is not subject to a penalty under sec.
                                               6673, I.R.C., but is warned that continued frivolous argu-
                                               ments may subject him to the sec. 6673, I.R.C., penalty in the
                                               future.

                                           Scott Grunsted, pro se.
                                           Lisa M. Oshiro and Melanie Senick, for respondent.

                                                                                  OPINION

                                         KROUPA, Judge: This collection review matter is before the
                                      Court on respondent’s motion for summary judgment under
                                      Rule 121. 1 The first issue for decision is whether petitioner
                                      is liable for the five frivolous return penalties assessed for
                                      the 2002, 2003 and 2004 tax years (the years at issue). We
                                      find that he is liable. The second issue for decision is
                                      whether respondent’s determination to proceed with the pro-
                                      posed collection action is an abuse of discretion. We hold it
                                      is not.

                                                                               Background
                                         Petitioner resided in Hayden, Idaho at the time he filed
                                      the collection review petition. Petitioner is a husband, a
                                      father and a college graduate.
                                         Petitioner filed late purported income tax returns on Form
                                      1040EZ for each of the years at issue. His purported returns
                                      showed zero income. Petitioner attached letters to the pur-
                                      ported returns supporting his zero income filings by claiming
                                      that private sector payments for labor are not taxable. He
                                      attached a Form 4852, Substitute for Form W–2, Wage and
                                      Tax Statement, to each purported tax return. Petitioner
                                      reported that his employer, Agency Software, Inc., had with-
                                      held Federal income tax, State tax, local tax, Social Security
                                      tax and Medicare tax. Petitioner sought refunds for all Fed-
                                      eral taxes withheld and also requested refunds for Social
                                      Security and Medicare taxes in his letters.
                                         Respondent notified petitioner in a letter that the pur-
                                      ported returns for 2002 and 2003 would not be accepted
                                      because they lacked sufficient information and were based on
                                      frivolous positions. Petitioner resubmitted substantially iden-
                                        1 Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and

                                      Procedure, and all section references are to the Internal Revenue Code.




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                                      (455)                        GRUNSTED v. COMMISSIONER                                        457


                                      tical purported tax returns for those two years, again
                                      showing zero income and again seeking a refund of certain
                                      amounts withheld from his wages. Respondent assessed
                                      frivolous return penalties against petitioner for the three
                                      years at issue. Respondent assessed a penalty for each of the
                                      five purported returns filed in those years, in the amounts of
                                      $500 and $500 for 2002, $500 and $5,000 for 2003 and $5,000
                                      for 2004. 2
                                         Petitioner failed to pay the penalties. Respondent issued a
                                      Final Notice of Intent to Levy and Notice of Your Right to
                                      a Hearing with respect to the five frivolous return penalties.
                                      Respondent also filed two notices of Federal tax lien with the
                                      relevant county recorder. One lien dealt with the two pen-
                                      alties for 2002 and the one penalty for 2004. The other lien
                                      dealt with the two penalties for 2003. Respondent notified
                                      petitioner of the Federal tax liens, detailing the liens and
                                      petitioner’s right to a collection due process (CDP) hearing.
                                      Petitioner responded to the levy and lien notices, asserting
                                      that no lawful assessments had been made and threatening
                                      criminal complaints and civil action. Petitioner argued that
                                      the penalties were invalid assessments because no district
                                      director exists. Per petitioner, the Secretary is required
                                      under regulations to appoint a district director for assess-
                                      ment purposes, and no tax may be assessed without a dis-
                                      trict director.
                                         Respondent’s Appeals Office scheduled a CDP hearing and
                                      requested petitioner to provide outstanding tax returns and
                                      certain financial information. Petitioner failed to provide any
                                      returns or financial information so that collection alter-
                                      natives could be considered. Petitioner did, however, send a
                                      long letter arguing that respondent had failed to follow
                                      assessment procedures because the Secretary had not
                                      appointed a district director in his geographical area. Peti-
                                      tioner concluded that, because there was no district director,
                                      there were also no assessment officers and therefore the pen-
                                      alties could not be assessed against him. Petitioner also
                                      asserted other arguments that his wages were zero and that
                                      he was not subject to any frivolous return penalty.
                                        2 The amount of the frivolous submission penalty was increased from $500 to $5,000 in De-

                                      cember 2006. See Tax Relief and Health Care Act of 2006, Pub. L. 109–432, div. A, sec. 407,
                                      120 Stat. 2960.




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                                      458                136 UNITED STATES TAX COURT REPORTS                                      (455)


                                         Respondent’s Appeals Office again asked petitioner to pro-
                                      vide tax returns and other information and notified peti-
                                      tioner that his arguments were frivolous. After sending yet
                                      another letter with substantially similar arguments, peti-
                                      tioner had a telephone CDP hearing. Petitioner raised
                                      substantially similar arguments at his hearing, and he failed
                                      to provide the requested documents or propose collection
                                      alternatives.
                                         Respondent’s Appeals Office upheld respondent’s collection
                                      action, including a proposed levy, and sent a determination
                                      letter to petitioner. Petitioner timely filed a petition with this
                                      Court. Petitioner’s only argument in his two-sentence peti-
                                      tion is that he does not owe the frivolous return penalties
                                      because proper assessment cannot be made in the absence of
                                      a district director.
                                         Respondent filed a motion for summary judgment, and
                                      petitioner filed a response. This is the first time this Court
                                      has addressed in a published Opinion the question of
                                      whether the absence of a district director causes an assess-
                                      ment to be invalid. 3

                                                                                Discussion
                                        Petitioner has followed in the footsteps of numerous others
                                      who have unsuccessfully attempted to avoid paying Federal
                                      income taxes. Petitioner wants only to contest his liability for
                                      the frivolous return penalties in this collection review
                                      matter.
                                        We begin by noting that we have jurisdiction to review a
                                      determination notice issued under section 6330 where the
                                      underlying tax liability consists of frivolous return penalties.
                                      See Callahan v. Commissioner, 130 T.C. 44, 47–49 (2008).
                                      We also note that petitioner may contest the frivolous return
                                      penalties before this Court. 4 See id. at 49–50. We next
                                      review general rules that apply to summary judgment.
                                        3 A Federal District Court has rejected the district director argument. United States v. Booth,

                                      106 AFTR 2d 2010–6409, 2010–2 USTC par. 50,626 (E.D. Cal. 2010). We are not, however,
                                      bound by the decision of the District Court for the Eastern District of California.
                                        4 Petitioner did not receive a deficiency notice with respect to the frivolous return penalties

                                      because the statutory deficiency procedures do not apply to frivolous return penalties. See sec.
                                      6703(b); Yuen v. United States, 290 F. Supp. 2d 1220, 1224 (D. Nev. 2003). Petitioner also has
                                      not disputed the penalties during a prior conference with respondent’s Appeals Office. See Lewis
                                      v. Commissioner, 128 T.C. 48 (2007). As a result, petitioner may contest the penalties both at
                                      a CDP hearing and before this Court.




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                                      (455)                        GRUNSTED v. COMMISSIONER                                        459


                                         The purpose of summary judgment is to expedite litigation
                                      and avoid costly, time-consuming and unnecessary trials.
                                      Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).
                                      Summary judgment may be granted if the pleadings and
                                      other acceptable materials, together with the affidavits, if
                                      any, show that there is no genuine issue as to any material
                                      fact and that a decision may be rendered as a matter of law.
                                      Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518,
                                      520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).
                                         We next consider the standard of review under which we
                                      evaluate respondent’s summary judgment motion. Where the
                                      validity of the underlying tax liability is properly at issue, as
                                      the case is here, we will review the matter de novo. See
                                      Callahan v. Commissioner, supra at 50; Sego v. Commis-
                                      sioner, 114 T.C. 604, 610 (2000). Where the validity of the
                                      underlying tax liability is not properly at issue, we will
                                      review the Commissioner’s determination for abuse of discre-
                                      tion. See Callahan v. Commissioner, supra at 50–51; Sego v.
                                      Commissioner, supra at 610.
                                         We now review the frivolous return penalties in light of the
                                      dual purpose of our review. A civil penalty for filing frivolous
                                      returns may be assessed against a taxpayer if three require-
                                      ments are met. First, the taxpayer must file a document that
                                      purports to be an income tax return. Sec. 6702(a)(1). Second,
                                      the purported return must lack the information needed to
                                      gauge the substantial correctness of the self-assessment or
                                      contain information indicating the self-assessment is
                                      substantially incorrect. Id. Third, the taxpayer’s position
                                      must be frivolous or demonstrate a desire to delay or impede
                                      the administration of Federal income tax laws. Sec.
                                      6702(a)(2). 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. See Yuen v. United States, 290
                                      F. Supp. 2d 1220, 1224 (D. Nev. 2003).
                                         Respondent satisfied the first element by showing that
                                      petitioner filed five documents for the years at issue that
                                      each purported to be an income tax return. The five Forms
                                      1040EZ purported to be income tax returns filed to obtain
                                      tax refunds. See Callahan v. Commissioner, supra at 53.
                                      Petitioner attached a Form 4852 to each purported return,
                                      reporting amounts that petitioner’s employer had withheld




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                                      460                136 UNITED STATES TAX COURT REPORTS                                      (455)


                                      for tax. Petitioner thus filed five purported tax returns for
                                      the years at issue.
                                        Respondent satisfied the second element as well. Petitioner
                                      claimed on his purported returns and on the attached Forms
                                      4852 that he received no wages. The same Forms 4852, how-
                                      ever, indicated that Agency Software, Inc. had withheld cer-
                                      tain taxes on wages to petitioner. Petitioner attached expla-
                                      nations to his initial purported returns, clarifying that the
                                      payments he received were for labor. These attached letters
                                      made patently erroneous assertions, including that the Fed-
                                      eral Government could tax only income ‘‘federally connected’’
                                      and not the payments petitioner received from the private
                                      sector. By the same token, none of the purported returns
                                      petitioner submitted contained information on which the
                                      substantial correctness of the self-assessment might be deter-
                                      mined.
                                        Finally, respondent satisfied the third element by showing
                                      that the purported returns reflect frivolous positions. This
                                      Court and others have repeatedly characterized returns
                                      reflecting zero income and zero tax as frivolous. See Blaga v.
                                      Commissioner, T.C. Memo. 2010–170; Ulloa v. Commissioner,
                                      T.C. Memo. 2010–68; Hill v. Commissioner, T.C. Memo.
                                      2003–144; Rayner v. Commissioner, T.C. Memo. 2002–30,
                                      affd. 70 Fed. Appx. 739 (5th Cir. 2003). Petitioner advanced
                                      meritless tax-protester arguments to report zero wages on
                                      his purported returns. We do not address petitioner’s ground-
                                      less arguments with somber reasoning and copious citations
                                      of precedent, as to do so might suggest that these arguments
                                      possess some degree of colorable merit. See Crain v. Commis-
                                      sioner, 737 F.2d 1417, 1417 (5th Cir. 1984). We therefore find
                                      that petitioner is liable for the frivolous return penalties
                                      under section 6702 because all of the elements have been
                                      met.
                                        Petitioner argued to respondent’s Appeals Office and in his
                                      petition that respondent cannot assess frivolous return pen-
                                      alties against him, even if section 6702 would otherwise
                                      apply, because the assessments for the penalties are invalid.
                                      We disagree.
                                        An assessment is made by recording the liability of a tax-
                                      payer in the office of the Secretary in accordance with rules
                                      or regulations prescribed by the Secretary. Sec. 6203. Assess-
                                      ments are made by assessment officers who are appointed by




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                                      (455)                        GRUNSTED v. COMMISSIONER                                        461


                                      the district director and the director of the regional service
                                      center. Sec. 301.6203–1, Proced. & Admin. Regs. Petitioner
                                      argues that there is no district director; therefore no assess-
                                      ment officers have been properly appointed and so there can
                                      be no valid assessment of frivolous return penalties against
                                      him. Petitioner is correct in arguing that there are no longer
                                      any district directors. He errs, however, in concluding that
                                      there were no valid assessments because of the absence of
                                      district directors.
                                        The IRS has been reorganized several times in recent his-
                                      tory. The district director position and responsibilities were
                                      assigned to others after the Internal Revenue Service
                                      Restructuring and Reform Act of 1998 (RRA), Pub. L. 105–
                                      206, 112 Stat. 685, required the Commissioner to eliminate
                                      or substantially modify the IRS’ national, regional and district
                                      structure. Id. sec. 1001, 112 Stat. 689. To ensure continuity
                                      of operations, the RRA specifically included a savings provi-
                                      sion. Id. sec. 1001(b). The savings provision applies to keep
                                      in effect regulations that refer to officers whose positions no
                                      longer exist. Id. It also provides that nothing in the reorga-
                                      nization plan would be considered to impair any right or
                                      remedy to recover any penalty claimed to have been collected
                                      without authority. Id.
                                        Furthermore, IRS Deleg. Order 1–23 (formerly IRS Deleg.
                                      Order 193, Rev. 6), Internal Revenue Manual pt. 1.2.40.22
                                      (Nov. 8, 2000), allows directors, submission processing field,
                                      compliance services field and accounts management field to
                                      appoint assessment officers. This order further implemented
                                      Congress’ intent that the IRS’ normal duties, including that
                                      of assessment, not be obstructed by the reorganization. 5 In
                                      short, petitioner’s frivolous return penalties were properly
                                      assessed and his argument, albeit novel, is without merit.
                                        Petitioner has not advanced arguments or presented evi-
                                      dence allowing us to conclude that the determination to sus-
                                      tain the proposed collection action was arbitrary, capricious,
                                      or without sound basis in fact or otherwise an abuse of
                                      discretion. See, e.g., Giamelli v. Commissioner, 129 T.C. 107,
                                        5 See H. Conf. Rept. 105–599, at 194 (1998), 1998–3 C.B. 747, 948 (‘‘The IRS Commissioner

                                      is directed to restructure the IRS by eliminating or substantially modifying the present-law
                                      three-tier geographic structure and replacing it with an organizational structure that features
                                      operating units serving particular groups of taxpayers with similar needs. * * * The legality
                                      of IRS actions will not be affected pending further appropriate statutory changes relating to
                                      such a reorganization (e.g., eliminating statutory references to obsolete positions).’’).




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                                      462                136 UNITED STATES TAX COURT REPORTS                                      (455)


                                      112, 115 (2007). Petitioner did not provide any collection
                                      alternatives or present any other defenses. The record
                                      indicates that the only issues petitioner raised throughout
                                      the administrative process, in his petition and at the sum-
                                      mary judgment hearing were frivolous tax-protester argu-
                                      ments and groundless arguments about assessment
                                      authority. We therefore conclude that respondent’s deter-
                                      mination to proceed with the proposed collection action is not
                                      an abuse of discretion. It is appropriate for us to grant
                                      respondent’s summary judgment motion.
                                         We now address whether it is appropriate for us to impose
                                      a penalty against petitioner on our own motion under section
                                      6673. This section authorizes the Tax Court to require a tax-
                                      payer to pay to the United States a penalty of up to $25,000
                                      whenever it appears that proceedings have been instituted or
                                      maintained primarily for delay or that the taxpayer’s position
                                      in such proceedings is frivolous or groundless. See sec. 6673;
                                      Scruggs v. Commissioner, T.C. Memo. 1995–355, affd. with-
                                      out published opinion 117 F.3d 1433 (11th Cir. 1997); Zyglis
                                      v. Commissioner, T.C. Memo. 1993–341, affd. without pub-
                                      lished opinion 29 F.3d 620 (2d Cir. 1994). The purpose of sec-
                                      tion 6673, like that of section 6702, is to compel taxpayers
                                      to think and to conform their conduct to settled tax prin-
                                      ciples. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th
                                      Cir. 1986).
                                         We note that the type of argument petitioner raised, espe-
                                      cially that his wages are not taxable, is the type of argument
                                      that has been deemed by this Court to be frivolous and/or
                                      sanctionable under section 6673. It is apparent from the
                                      record that petitioner instituted this proceeding in continu-
                                      ation of his refusal to acknowledge and satisfy his tax obliga-
                                      tions. Such proceedings waste the Court’s and respondent’s
                                      limited resources, taking time away from taxpayers with
                                      legitimate disputes. We take this opportunity to admonish
                                      petitioner that the Court will consider imposing a substantial
                                      penalty if petitioner returns to the Court and advances
                                      similar arguments in the future.
                                         We have considered all remaining arguments the parties
                                      made and, to the extent not addressed, we conclude they are
                                      irrelevant, moot or meritless.




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                                      (455)                        GRUNSTED v. COMMISSIONER                                        463


                                           To reflect the foregoing,
                                                                     An appropriate order and decision for
                                                                   respondent will be entered.

                                                                               f




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