                           T.C. Memo. 2000-290



                         UNITED STATES TAX COURT



                   STEPHEN C. SMITH, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 18760-98.                  Filed September 18, 2000.



       Stephen C. Smith, pro se.

       Brian M. Harrington, for respondent.



                           MEMORANDUM OPINION


       COLVIN, Judge:    Respondent determined deficiencies in

petitioner’s income tax as follows:

                                        Additions to tax
                                 Sec.            Sec.        Sec.
Year        Deficiency        6651(a)(1)      6651(a)(2)     6654
1994         $10,687          $2,671.75           --        $554.58
1995          25,866           6,466.50           --       1,402.52
1996          28,270           6,360.75       $1,837.55    1,504.67
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     The issues for decision are:

     1.   Whether petitioner is liable for income tax on amounts

that Terminex International Co., LP, paid to an unincorporated

business called King of Construction in 1994, 1995, and 1996.     We

hold that he is.

     2.   Whether petitioner may deduct business expenses in

1994, 1995, and 1996.    We hold that he may not because he has not

provided substantiation or any other convincing basis for us to

estimate the amount of the expenses.

     3.   Whether petitioner is liable for self-employment tax

for 1994, 1995, and 1996.   We hold that he is.

     4.   Whether petitioner is liable for additions to tax for

failure to file a return and failure to pay estimated tax for

1994, 1995, and 1996 and failure to pay tax for 1996.   We hold

that he is.

     5.   Whether petitioner is liable for a penalty under

section 6673.   We hold that he is in the amount of $3,500.

     Unless otherwise indicated, section references are to the

Internal Revenue Code.   Rule references are to the Tax Court

Rules of Practice and Procedure.

                             Background

     Some of the facts are stipulated and are so found.

Petitioner lived in Lebanon, Indiana, when he filed the petition.

     Petitioner did business during the years in issue as King of
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Construction, a carpentry, remodeling, and home repair business.

Terminex International Co., LP (Terminex), paid $51,132 in 1994,

$104,915 in 1995, and $114,647 in 1996 to King of Construction

for repairing homes that had been damaged by termites.    King of

Construction had no employees during those years.   Petitioner did

the work and sometimes hired contract labor.   Petitioner bought

materials, acquired equipment, and hired contract labor as

needed.   He issued some Forms 1099 to subcontractors.   He

retained the profits that were left after paying expenses for

King of Construction.

     Petitioner did not file a Form 1040, U.S. Individual Income

Tax Return, or pay income tax or estimated tax for 1994, 1995, or

1996.   Respondent began the audit of this case before May 13,

1998, and issued a notice of deficiency to petitioner for 1994,

1995, and 1996 on September 1, 1998.

     Petitioner alleged in his petition that his income is not

taxable, and that the following defenses apply:   (1) Res

judicata, (2) estoppel, (3) waiver, (4) duress, (5) fraud, (6)

statute of limitations, (7) invalid notice of deficiency, (8)

failure to provide Freedom of Information Act documents and

materials necessary for petitioner to prepare for trial, (9)

failure of respondent to exhaust administrative remedies, (10)

laches, (11) the “clean hands” doctrine, and (12) illegality of

the notice of deficiency.   He alleged no facts to support these
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allegations.

     Petitioner sent respondent interrogatories, and requests for

admissions and production of documents, all of which were

frivolous (e.g., petitioner is not a “person liable” for tax; he

did not volunteer to file returns or pay tax; respondent’s

employees lacked authority; the substitute for return is

invalid).

     On May 7, 1999, respondent’s counsel sent petitioner a

letter stating that petitioner had taken tax protester type

positions which could result in imposition of monetary sanctions.

Respondent’s counsel attached to the letter copies of 11 recent

Tax Court cases in which we rejected arguments similar to those

raised by petitioner.   On August 19, 1999, respondent’s counsel

sent another letter to petitioner in which he said that

petitioner had not cooperated in preparing for trial and advised

petitioner that he could be subject to a penalty under section

6673.   Respondent’s counsel attached a copy of section 6673 to

the August 19, 1999, letter.   Petitioner filed a motion for

summary judgment and a pretrial memorandum in which he made only

frivolous arguments.    He did not dispute any of the adjustments

in the notice of deficiency.   We denied his motion for summary

judgment.

     In respondent’s pretrial memorandum, respondent contended

that petitioner is liable for the section 6673 penalty.    At
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trial, counsel for respondent filed a motion asking us to impose

a penalty under section 6673.   Petitioner received a copy of the

motion and supporting legal authority.   At trial, petitioner

continued to maintain frivolous positions.    He offered no

evidence relating to his income or deductions.

                           Discussion

A.   Whether Petitioner Is Liable for Federal Income Tax

     Petitioner bases his contention that he is not subject to

Federal income tax laws on frivolous arguments; e.g., that there

is no provision in the Internal Revenue Code making him liable

for any tax or requiring him to file a return.    Petitioner's

assertions parrot those that courts have universally rejected.

We do not address petitioner's assertions "with somber reasoning

and copious citation of precedent; to do so might suggest that

these arguments have some colorable merit."    Crain v.

Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); see Wilcox v.

Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988) (rejecting

taxpayer’s claim that paying taxes is voluntary), affg. T.C.

Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006, 1009 (9th

Cir. 1986) (rejecting taxpayer's claim that the income tax is

voluntary); Rowlee v. Commissioner, 80 T.C. 1111, 1120 (1983)

(rejecting taxpayer's claim that he is not a "person liable" for

tax); Stone v. Commissioner, T.C. Memo. 1998-314 (stating that

section 6065 applies to returns and other documents filed with
                               - 6 -

the Commissioner but does not apply to notices of deficiency);

Janus v. Commissioner, T.C. Memo. 1996-195 (finding that forms

included in the notices of deficiency detailing the adjustments

made by the Commissioner were not substitute returns under

section 6020 and that nothing in the Internal Revenue Code

requires the Secretary to file a return pursuant to section 6020

before assessing a deficiency); Ebert v. Commissioner, T.C. Memo.

1991-629 (rejecting taxpayer's assertion that there is no section

of the Internal Revenue Code that makes taxpayer liable for the

taxes claimed), affd. without published opinion 986 F.2d 1427

(10th Cir. 1993); Rice v. Commissioner, T.C. Memo. 1978-334

(stating that the allegation that the conduct of agents of the

Internal Revenue Service in issuing the notice of deficiency

violates section 7214 is a matter over which the Tax Court has no

jurisdiction); Spencer v. Commissioner, T.C. Memo. 1977-145

(stating that section 6065 does not require notices of deficiency

issued by Commissioner to be signed under penalties of perjury).

B.   Whether Petitioner Is Liable for Income Tax on the Amounts
     That Terminex Paid to King of Construction in the Years in
     Issue

     Petitioner contends that he is not liable for tax on

payments from Terminex to King of Construction because Jesus

Christ and not petitioner owned King of Construction.   We

disagree.   Petitioner owned and controlled King of Construction.

There is no evidence that King of Construction is incorporated.
                                - 7 -

Respondent determined that petitioner is liable for tax on the

income to King of Construction.   Respondent’s determination is

presumed to be correct and petitioner bears the burden of proving

otherwise.    See Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933).    We sustain respondent’s determination and conclude

that the amounts that Terminex paid are taxable to petitioner in

1994, 1995, and 1996.

C.   Whether Petitioner May Deduct Business Expenses of King of
     Construction

     Petitioner contends that King of Construction had business

expenses for equipment, materials, and contract labor, but he

offered no substantiation for any of those expenses.     He

testified that he had records showing costs for the work that he

did in the years in issue but that he did not have them with him

at trial.

     We may estimate the amount of a deductible expense if a

taxpayer provides a sufficient evidentiary basis for us to make

an estimate.   See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930), affg. in part and remanding in part 11 B.T.A. 743

(1928).   Petitioner testified that most contractors, including

himself, made a profit of 15 percent of gross receipts.       He

testified that he paid up to 80 percent of the gross receipts for

expenses, but that for some jobs he paid less than 80 percent.

Petitioner’s testimony is an inadequate basis for us to estimate

the amounts of his business expenses.   See Vanicek v.
                                - 8 -

Commissioner, 85 T.C. 731, 742-743 (1985).     Thus, petitioner may

not deduct any amount for business expenses in the years in

issue.

D.   Whether Petitioner Is Liable for Self-Employment Tax

     Petitioner does not deny that he is liable for self-

employment tax.    However, he testified that King of Construction

paid wages to him.    If that were true, he would not be liable for

self-employment tax.

     Petitioner testified that money from Terminex went into an

account in the name of King of Construction.    He paid business

expenses from the account and kept what was left.    We conclude

that payments from Terminex are self-employment income to

petitioner, and not wages.    We conclude that petitioner is liable

for self-employment tax in the years in issue.

E.   Whether   Petitioner Is Liable for the Additions to Tax for
     Failure   To File Returns for 1994, 1995, and 1996, for
     Failure   To Pay Tax for 1996, and Failure To Pay Estimated
     Tax for   1994, 1995, and 1996

     Petitioner contends in his petition that he is not liable

for the additions to tax for failure to file timely returns and

pay tax under section 6651(a)(1) or (2), or for failure to pay

estimated tax under section 6654.    Petitioner concedes that he

did not file a tax return or pay any tax, including estimated

tax, for 1994, 1995, or 1996.    He offered no evidence as to why

he failed to do so.    We conclude that petitioner is liable for
                                - 9 -

the additions to tax under section 6651(a)(1) and (2).1    See sec.

6654(a); United States v. Boyle, 469 U.S. 241, 245 (1985).

F.   Whether Petitioner Is Liable for a Penalty Under Section
     6673

     At trial, respondent moved that the Court impose a penalty

under section 6673 on the grounds that petitioner maintained

frivolous and groundless positions.     Petitioner has not responded

to respondent’s motion.

     The Court may require that the taxpayer pay a penalty to the

United States of not more than $25,000 if the taxpayer instituted

or maintained proceedings primarily for delay, if the taxpayer's

position is frivolous or groundless, or if the taxpayer

unreasonably failed to pursue administrative remedies.    See sec.

6673.    A taxpayer's position is frivolous or groundless if it is

contrary to established law and unsupported by a reasoned,

colorable argument for change in the law.    See Coleman v.

Commissioner, 791 F.2d 68, 71 (7th Cir. 1986).    Petitioner’s

position is contrary to law and is not supported by a reasonable

argument for a change in the law.

     Respondent’s counsel told petitioner twice in writing that

petitioner’s positions were without merit, and gave petitioner

copies of recent Tax Court cases so holding and a copy of section


     1
        A return prepared by the Commissioner under sec. 6020(b)
is treated as a return filed by the taxpayer for returns due
after July 30, 1996, for purposes of sec. 6651(a)(2). See sec.
6651(g).
                               - 10 -

6673.   Petitioner ignored our precedents and the warnings from

respondent’s counsel.   He continued to assert frivolous and

groundless positions and did not produce evidence relating to the

merits of this case.    He has wasted the resources of respondent

and the Court.   We conclude that petitioner’s position is

frivolous and groundless and was instituted primarily for delay.

We impose on petitioner a penalty of $3,500 under section 6673.


                                          An appropriate order

                                     will be issued granting

                                     respondent’s motion under

                                     section 6673, and decision

                                     will be entered for

                                     respondent.
