Williams v. Comm'r of Internal Revenue
| Decision Date | 01 March 2000 |
| Docket Number | No. 23179–97.,23179–97. |
| Citation | 114 T.C. No. 8,114 T.C. 136 |
| Parties | Stephen W. WILLIAMS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Taxpayer petitioned for redetermination of deficiencies arising from income taxpayer claimed was not taxable and penalties. The Tax Court, Vasquez, J., held that: (1) taxpayer was liable for deficiency assessed on earned income; (2) taxpayer was not liable for accuracy-related penalty on invalid tax return; (3) addition to tax for failure to timely file was warranted; and (4) penalty for frivolous, delaying positions was warranted.
Decision for IRS. P mailed two Forms 1040, U.S. Individual Income Tax Return, for 1991 to the IRS. The first Form 1040 included a deduction for “Non Taxable Compensation” equal to P's total income, and P failed to sign it. P stipulated that this Form 1040 is not a valid return. In the second Form 1040, P reported taxes owed of $36,621. P however attached a disclaimer statement to the second Form 1040 stating that he denied all tax liability and did not admit that the stated amount of tax was due.Held: P is liable for the deficiency.Held, further, P's second Form 1040 is not a valid return; therefore, P is not liable for the accuracy-related penalty pursuant to sec. 6662(a), I.R.C.Held, further, P is liable for the addition to tax pursuant to sec. 6651(a)(1), I.R.C.Held, further, P is liable for a penalty under sec. 6673, I.R.C.Stephen W. Williams, pro se.
M. Kathryn Bellis and Marion S. Friedman, for respondent.
Respondent determined a deficiency of $42,934, an addition to tax pursuant to section 6651(a)(1) of $9,492, and an accuracy-related penalty pursuant to section 6662(a) of $8,587 in petitioner's 1991 Federal income tax.1
Pursuant to Rule 122, the parties submitted this case fully stipulated. The stipulations of fact, the supplemental stipulations of fact, and the attached exhibits are incorporated herein by this reference. At the time the petition was filed, petitioner resided in Spring, Texas.
After concessions,2 the issues for decision are: (1) Whether petitioner is liable for the deficiency determined by respondent in petitioner's 1991 taxes; (2) whether petitioner's Form 1040, U.S. Individual Income Tax Return, containing a disclaimer statement constituted a valid return, and if so, whether petitioner is liable for a penalty pursuant to section 6662; (3) whether petitioner is liable for an addition to tax pursuant to section 6651(a)(1); and (4) whether petitioner is liable for a penalty pursuant to section 6673.
During 1991, petitioner was employed as a veterinarian by Stephen W. Williams P.C., an S corporation (Williams P.C.). Petitioner received extensions of time for filing his 1991 income tax return until October 15, 1992.
On October 1, 1994, petitioner mailed a Form 1040 for 1991 to the Internal Revenue Service (IRS). Petitioner altered the Form 1040 (altered 1040) by marking through the captions on lines 7 and 18 and typing his own caption, “Non Taxable Compensation”. Petitioner reported income of $20,500 and $135,861 on lines 7 and 18, respectively. Next, petitioner whited out the captions on lines 24a and b and typed in “Non Taxable Compensation Eisner v. Macomber 252 U.S. 189”. Petitioner reported a deduction of $156,861 on line 24a, which brought his adjusted gross income to $0. Petitioner did not sign the altered 1040.
The IRS treated the altered 1040 as a frivolous return under section 6702 and fined petitioner $500. Petitioner stipulated that the altered 1040 was a frivolous return and not a return within the meaning of section 6501(a).
On November 21, 1996, petitioner mailed another Form 1040 (disclaimer 1040) for 1991 to the IRS. On the disclaimer 1040, petitioner reported adjusted gross income of $150,852 consisting of wages of $20,500, taxable interest income of $14, a capital loss of ($2,986), and rents and partnership income of $133,324. Petitioner reported a total tax of $41,586 and an amount owed of $36,621. Petitioner, this time, did not strike or change any language on the form. Instead, beside the amount owed reported on line 64, petitioner placed an asterisk. At the bottom of the page, petitioner stated that the asterisk denoted The attached disclaimer statement (the disclaimer) read in part:
The above named taxpayer respectfully declines to volunteer concerning assessment and payment of any tax balance due on the return or any redetermination of said tax. Be it known that the above said taxpayer, therefore, denies tax liability and does not admit that the stated amount of tax on return is due and collectable. * * *
Petitioner signed the disclaimer 1040.
Except for the altered 1040 and the disclaimer 1040, petitioner did not mail to or file with the IRS any other Forms 1040 for 1991.
During 1991, petitioner received income and incurred losses as follows:
+------------------------------------------------------+
¦Wages from Williams P.C. ¦$20,500¦
+----------------------------------------------+-------¦
¦Interest from Vista Properties (Vista) ¦14 ¦
+----------------------------------------------+-------¦
¦Interest from Charles Schwab ¦3 ¦
+----------------------------------------------+-------¦
¦Net short term capital loss ¦(2,986)¦
+----------------------------------------------+-------¦
¦Rents from Williams P.C. ¦29,000 ¦
+----------------------------------------------+-------¦
¦Nonpassive loss from Vista ¦(1,637)¦
+----------------------------------------------+-------¦
¦Nonpassive income from Williams P.C. ¦105,961¦
+----------------------------------------------+-------¦
¦Rents from Summit Outdoor Advertising (Summit)¦900 ¦
+------------------------------------------------------+
DiscussionI. Deficiency Liability
Petitioner does not challenge either the facts on which respondent's determination is based or respondent's calculation of tax. In fact, respondent based the computation of the deficiency on the amounts reported by petitioner on the altered 1040 and the disclaimer 1040. Petitioner, nevertheless, contends he is not liable for the deficiency. Petitioner claims that (1) he did not volunteer to self-assess or pay his taxes, and he therefore cannot be held liable for any deficiency; (2) his income is not from any of the sources listed in section 1.861–8(a), Income Tax Regs., and thus is not taxable; and (3) the notice of deficiency was improperly issued because petitioner disclaimed the tax liability shown on the return.
Petitioner's arguments are reminiscent of tax-protester rhetoric that has been universally rejected by this and other courts. We shall not painstakingly 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). Accordingly, we conclude that petitioner is liable for the deficiency determined by respondent.
II. Accuracy-related Penalty
Respondent determined that petitioner is liable for an accuracy-related penalty pursuant to section 6662(a) for his underpayment of tax attributable to negligence or disregard of rules or regulations. The penalty under section 6662(a) applies only where a return has been filed. See sec. 6664(b). We therefore must determine whether the disclaimer 1040 constitutes a valid return.
Generally, pursuant to section 6011(a), taxpayers are required to file returns that conform to the forms and regulations prescribed by the Secretary. See sec. 1.6011–1(a), Income Tax Regs. The Form 1040 is the form prescribed by the Secretary for use by individual taxpayers in filing returns. See Steines v. Commissioner, T.C. Memo.1991–588.
Section 6065 requires returns to contain or be verified by a written declaration that they are made under the penalties of perjury. To facilitate a taxpayer's compliance with this requirement, the Form 1040 contains a preprinted jurat.3 By signing the jurat included within the Form 1040, a taxpayer satisfies the requirement that his return be executed under penalty of perjury. See Sloan v. Commissioner, 102 T.C. 137, 146–147, 1994 WL 31438 (1994), affd. 53 F.3d 799 (7th Cir.1995); Sochia v. Commissioner, T.C. Memo.1998–294.
The U.S. Supreme Court has also held that certain documents drafted by taxpayers that do not comply with the forms prescribed by the Secretary will nevertheless be treated as valid returns, for purposes of the statute of limitations, if they contain certain elements. See Badaracco v. Commissioner, 464 U.S. 386, 104 S.Ct. 756, 78 L.Ed.2d 549 (1984); Commissioner v. Lane–Wells Co., 321 U.S. 219, 64 S.Ct. 511, 88 L.Ed. 684 (1944); Zellerbach Pager Co. v. Helvering, 293 U.S. 172, 55 S.Ct. 127, 79 L.Ed. 264 (1934); Lucas v. Pilliod Lumber Co., 281 U.S. 245, 50 S.Ct. 297, 74 L.Ed. 829 (1930); Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453, 50 S.Ct. 215, 74 L.Ed. 542 (1930). In Beard v. Commissioner, 82 T.C. 766, 777, 1984 WL 15573 (1984), affd. 793 F.2d 139 (6th Cir.1986), we summarized the Supreme Court's test for a valid return as follows:
First, there must be sufficient data to calculate [the] tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.
The fourth requirement is the same requirement found in section 6065 and can be satisfied by signing the jurat on the Form 1040.
In Beard, we applied the Supreme Court's test in our analysis of whether the document at issue was a tax return for purposes of section 6651(a)(1). See id.; see also Martin Fireproofing Profit Sharing Plan & Trust v. Commissioner, 92 T.C. 1173, ...
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