                          T.C. Summary Opinion 2019-33



                         UNITED STATES TAX COURT



                   REED L. KLEINMAN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 12809-18S.                         Filed October 31, 2019.



      Reed L. Kleinman, pro se.

      Michael T. Garrett and Matthew A. Houtsma, for respondent.



                              SUMMARY OPINION


      URDA, Judge: This case was heard pursuant to the provisions of

section 7463 of the Internal Revenue Code in effect when the petition was filed.1



      1
        All other section references are to the Internal Revenue Code in effect for
the tax year in issue, and all Rule references are to the Tax Court Rules of Practice
and Procedure. We round all monetary amounts to the nearest dollar.
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Under section 7463(b), the decision to be entered is not reviewable by any other

court, and this opinion shall not be treated as precedent for any other case.

      The Internal Revenue Service (IRS) determined a deficiency in petitioner

Reed Kleinman’s 2015 Federal income tax of $10,518, as well as an accuracy-

related penalty under section 6662(a), (b)(2), and (d) of $2,104. Mr. Kleinman

does not challenge the third-party tax reporting upon which the IRS based its

determinations but instead presses assorted tax-defier arguments. We will sustain

the IRS’ deficiency determination subject to respondent’s concession of the

accuracy-related penalty.

                                    Background

      The parties have submitted this case for decision without trial under

Rule 122. All relevant facts have been stipulated or are otherwise included in the

record. See Rule 122(a). Mr. Kleinman resided in Arizona when he timely

petitioned this Court.

I.    Mr. Kleinman’s 2015 Earnings and Tax Reporting

      In 2015 Mr. Kleinman worked for A-1 Restaurant Services, LLC (A-1),

which paid him $58,712 in wages. He also received $634 in health savings

account (HSA) distributions from Optum Bank. A-1 and Optum Bank reported

these amounts on information returns filed with the IRS (respectively, a Form
                                        -3-

W-2, Wage and Tax Statement, and a Form 1099-SA, Distributions From an HSA,

Archer MSA, or Medicare Advantage MSA).

      On February 1, 2016, Mr. Kleinman filed his 2015 Form 1040, U.S.

Individual Income Tax Return, on which he claimed a refund of $739. Mr.

Kleinman reported wages of $24,366, itemized deductions of $9,250, and

exemptions of $8,000. His return reflected neither the wages reported by A-1 nor

the HSA distributions reported by Optum Bank.2

II.   IRS Examination and Notice of Deficiency

      The discrepancies between the tax reporting of Mr. Kleinman and that of

A-1 and Optum Bank led to an IRS examination of Mr. Kleinman’s 2015 tax

return. In July 2017 the IRS sent Mr. Kleinman a notice asserting that he owed

$13,314 in tax and interest for 2015. Mr. Kleinman refused to pay, stating in a

letter dated August 18, 2017, that “[t]he language is very plain on the 4852 I sent

with my 1040 for 2015. IRC 3401(a) and 3121(a) explain it.”

      On January 2, 2018, Mr. Kleinman sent another letter to the IRS, in which

he stated that he “traded * * * [his] time for a wage.” Mr. Kleinman asserted that

      2
       Although Mr. Kleinman attached to his 2015 tax return a Form 4852,
Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc., he indicated on the form that he did not receive any wages from
A-1.
                                        -4-

his wages did not constitute income because “[i]ncome is where someone gains”

and he “did not gain from * * * [his] employment.”

      On April 16, 2018, the IRS issued to Mr. Kleinman a notice for his 2015 tax

year determining a deficiency of $10,518 and an accuracy-related penalty (for an

underpayment attributable to a substantial understatement of income tax) of

$2,104. In calculating the deficiency amount the notice added Mr. Kleinman’s

A-1 wages and HSA distributions to his gross income, determined a 20%

additional tax pursuant to section 223(f)(4)(A) relating to his HSA distributions,

and made corresponding computational adjustments.

      Mr. Kleinman filed a timely petition for redetermination in this Court, after

which respondent conceded the accuracy-related penalty. The parties

subsequently moved to submit this case for decision without trial pursuant to

Rule 122.

                                    Discussion

I.    Unreported Income

      The IRS’ determinations in a notice of deficiency are generally presumed

correct, and the taxpayer bears the burden of proving those determinations

erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933);

Merkel v. Commissioner, 192 F.3d 844, 852 (9th Cir. 1999), aff’g 109 T.C. 463
                                        -5-

(1997). In cases involving failure to report income, the Court of Appeals for the

Ninth Circuit, to which an appeal in this case would ordinarily lie, see

sec. 7482(b)(1)(A), has held that the Commissioner must establish “some

evidentiary foundation” linking the taxpayer to an alleged income-producing

activity before the presumption of correctness attaches to the deficiency

determination. Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir.

1979), rev’g 67 T.C. 672 (1977). Once the Commissioner has established such a

foundation, the burden of proof shifts to the taxpayer to prove by a preponderance

of the evidence that the IRS’ determinations are arbitrary or erroneous. Hardy v.

Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff’g T.C. Memo. 1997-97.

      The notice of deficiency in this case determined two adjustments involving

unreported income from A-1 and Optum Bank. The parties have stipulated that

in 2015 Mr. Kleinman received $58,712 in wages from A-1 and $634 in HSA

distributions from Optum Bank and have introduced supporting exhibits to that

effect. Both wages and HSA distributions (if not used exclusively to pay or

reimburse for qualified medical expenses as defined in section 213(d)) are sources

of taxable income. See secs. 61(a), 223(f)(2). On the basis of the evidence before

us, we are satisfied that respondent has established a reasonable foundation

connecting Mr. Kleinman with income-producing activities. The burden of proof
                                        -6-

thus shifts to Mr. Kleinman to show that the IRS’ determinations were arbitrary or

erroneous.

      Mr. Kleinman has not satisfied his burden of proof. In his brief he does not

challenge the wage amount reported by A-1 or oppose the IRS’ determination that

the HSA distributions that he received were of the taxable, rather than the tax-free,

variety.3 Instead he invokes (both in his petition and in his brief) numerous

groundless arguments, including that he is “not a corporation” but “a natural born

person,” that he has never lived on Federal land, and that the income tax under the

Sixteenth Amendment does not extend to “the common man who trades their time

for a wage.”

      We have repeatedly rejected these and other similar tax-defier arguments.

See, e.g., Wnuck v. Commissioner, 136 T.C. 498, 506-510 (2011); Hatfield v.

Commissioner, 68 T.C. 895, 897 (1977); Klir v. Commissioner, T.C.

Memo. 1979-259, 38 T.C.M. (CCH) 1028, 1030 (1979). We will not dignify them

with further discussion. See, e.g., Crain v. Commissioner, 737 F.2d 1417, 1417

(5th Cir. 1984) (“We perceive no need to refute these arguments with somber

      3
        Sec. 223(f) requires the inclusion in income of (and imposes a 20%
additional tax upon) HSA distributions not used for qualified medical expenses or
fitting one of the exceptions outlined in sec. 223(f)(4). Mr. Kleinman does not
contend in this Court that these distributions were so used or that his
circumstances in 2015 fit any of the statutory exceptions.
                                        -7-

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

arguments have some colorable merit.”); Wnuck v. Commissioner, 136 T.C.

at 510-512 (explaining that addressing frivolous arguments wastes time and

resources and delays the assessment of tax).

      In conclusion, the parties’ stipulation that Mr. Kleinman received

unreported wages and unreported HSA distributions in 2015 satisfies respondent’s

burden to establish an evidentiary foundation linking Mr. Kleinman to the asserted

income-producing activities. For his part, Mr. Kleinman has chosen to repeat

meritless arguments rather than attempt to show the IRS’ determinations were

arbitrary or erroneous. We sustain the IRS’ deficiency determinations.

II.   Section 6673 Penalty

      Pursuant to section 6673(a)(1), we have the authority to impose a penalty of

up to $25,000 on a taxpayer who, among other things, institutes or maintains

before this Court a proceeding primarily for delay or pursues in this Court a

position which is frivolous or groundless. We choose not to impose this penalty

here because Mr. Kleinman has no previous history of making frivolous

arguments. Mr. Kleinman should be aware, however, that if he advances

groundless tax-defier arguments in the future, he risks expensive consequences.
                             -8-

To reflect the foregoing,


                                   Decision will be entered for

                            respondent as to the deficiency and for

                            petitioner as to the penalty.
