99 T.C. 202 (1992), 27032-89, Niedringhaus v. C.I.R.

Docket Nº:27032-89.
Citation:99 T.C. 202
Opinion Judge:GERBER, Judge:
Party Name:Paul E. NIEDRINGHAUS and Gladys F. Niedringhaus, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Paul E. Niedringhaus, pro se. Donna C. Hansberry, for respondent.
Case Date:August 11, 1992
Court:United States Tax Court
 
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Page 202

99 T.C. 202 (1992)

Paul E. NIEDRINGHAUS and Gladys F. Niedringhaus, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 27032-89.

United States Tax Court

August 11, 1992

Page 203

          Paul E. Niedringhaus, pro se.

          Donna C. Hansberry, for respondent.

          GERBER, Judge:

         By statutory notice of deficiency, respondent determined deficiencies in petitioners' Federal income taxes and additions to tax as follows:

Additions to Tax
Year Deficiency Sec. 6651 Sec. 6653(a) Sec. 6653(a)(1) Sec. 6654
1979 -0- $2,030.00 $406.00 - $336
1980 $4,017 2,797.25 559.45 - 712
1981 -0- 2,840.75 - $568.15 1 870
Additions to Tax
Year Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6654 Sec. 6661 5
1982 -0- $3,131 1 $609 $1,566
1983 $3,809 7,021 2 860 3,511
1984 5,717 8,113 3 1,020 4,057
1985 4,164 8,292 4 950 4,146
         All section references are to the Internal Revenue Code in effect for the years in issue, and Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. Page 204           The parties now agree that there are deficiencies in Federal income taxes due from petitioners for 1979 through 1985, as follows:
Deficiency
Tax Assessed
Year Tax Liability Paid Unpaid Assessed
1979 $8,120 $4,038 $4,082 -0-
1980 11,189 7,172 $4,017
1981 11,363 12,064 (701)
1982 6,262 6,262 -0-
1983 14,042 10,233 3,809
1984 16,227 700 9,810 5,717
1985 16,584 1,700 10,720 4,164
         The issues remaining for our consideration are:          1. Whether petitioners are liable for the additions to tax under section 6651(a)(1) for 1979, 1980, and 1981;          2. whether petitioners are liable for the additions to tax under section 6653(a) for 1979 and 1980 and the section 6653(a)(1) addition to tax for 1981;          3. whether petitioners are liable for the additions to tax under section 6653(b)(1) for 1982 through 1985 and the additions to tax under section 6653(b)(2) for 1983 through 1985;          4. whether petitioners are liable for the additions to tax under section 6654 for 1979 through 1985; and          5. if petitioners are not liable for the additions to tax under section 6653(b)(1) and (2) for 1982 through 1985, whether in the alternative petitioners are liable for the additions to tax under sections 6651(a)(1) and 6653(a)(1) or (2) for 1982 through 1985.          FINDINGS OF FACT          The stipulations of facts and attached exhibits are incorporated herein by this reference.          On the date of the filing of the petition in this case, petitioners resided in Northbrook, Illinois.          Petitioner Paul Niedringhaus (petitioner or Mr. Niedringhaus) graduated from the U.S. Military Academy at West Point, New York (West Point), sometime before 1960. After his graduation from West Point, petitioner served in the Army for a few years, including a tour of duty in Korea. Following his resignation from the Army, petitioner worked Page 205 in the Philadelphia, Pennsylvania, area variously as a supervisor in a machine shop, a stock broker, and a manufacturer's representative. Since 1960, petitioner has been a self-employed manufacturer's representative in the Chicago, Illinois, area doing business as Penco Precision (Penco). Petitioner sells inspection equipment to industry. Petitioner operated out of his residence in Northbrook, Illinois, during 1979 through 1985 (the years in issue). Over the years petitioner has represented 5 to 10 different companies and has 200 to 300 customers.          Petitioner Gladys Niedringhaus (Mrs. Niedringhaus) attended college for 1 year, after which she worked as a secretary until her marriage to petitioner in 1960. Following her marriage to petitioner, Mrs. Niedringhaus worked for 2 years as an assistant to the personnel director of a large company. Mrs. Niedringhaus ceased working outside the home at about the time of the birth of her first child.          Since 1960, Mrs. Niedringhaus has performed office work for Penco. She prepares the invoices and packing slips and deposits checks paid by Penco's customers. Mrs. Niedringhaus received no formal training in bookkeeping and devised her own bookkeeping system for Penco which is sufficient for her purposes.          For the years 1960 through 1985, petitioners maintained contemporaneous records of Penco's income and expenses. Petitioners maintained a joint bank account at Northfield Bank for approximately 25 years which they used for personal and business purposes (the Northfield account). At some point in time, petitioners sent a letter to the Northfield Bank, advising it that petitioner was the sole owner of Penco Precision and he wanted Northfield Bank to process checks also under Penco's name.          In December 1983, petitioner opened a separate business bank account in Penco's name at Glenview State Bank (the Glenview account). Petitioner opened the Glenview account because he decided the business was getting bigger and, for bookkeeping purposes, it would be easier to keep the business account separate from the personal account. Petitioners deposited Penco's gross receipts into the Glenview account between December 1983 and June 1984. Petitioners made no deposits into the Glenview account from July 1984 through October 1985. From July 1984 through October 1985, Page 206 petitioners deposited Penco's gross receipts into the Northfield account. In November 1985, petitioner changed the name of the Glenview account from " Penco Precision" to " Penco Precision Supplier Escrow Account" . Petitioner changed the name of the Glenview account because he believed that maintaining the funds in an escrow account would protect the funds (which were due his suppliers) from seizure by the Internal Revenue Service (IRS). Petitioners deposited Penco's gross receipts into the Glenview account from November 1985 through October 1986. The Northfield account and the Glenview account were the only bank accounts petitioners maintained during 1982 through 1985.          For the years 1960 through 1978, Mr. Niedringhaus prepared petitioners' Federal income tax returns by looking at invoices and the checkbook to determine Penco's yearly income and calculate costs of goods sold, and by looking at the checkbook and the out-of-pocket expenditures file to determine Penco's yearly expenses.          Sometime in 1978, petitioner began to attend meetings conducted by certain tax protester groups. In 1979, petitioner decided that he would not file returns. Petitioner advised Mrs. Niedringhaus he was not going to file tax returns and she told him that she did not agree with his decision to cease filing returns. She also advised Mr. Niedringhaus to work it out through legal methods. Petitioner did not consult any attorney or tax return preparer outside the tax protester movement regarding his obligation to file tax returns.          Around 1980, petitioner became a member of the Constitutional Patriots Association, a group which objected to some of the income tax laws. Sometime in 1982, petitioner joined the Belanco Religious Organization (Belanco), [1] a tax protester group founded by Paul Bell (Bell). Bell claimed that members of his religious organization were exempt from taxation. Petitioner did not embrace Bell's tax-exemption theory. Bell also claimed that the 16th Amendment was unconstitutional and individuals were not required to file tax returns. Petitioner concluded that Bell had some workable ideas because Bell Page 207 had not been prosecuted, even though allegedly over a number of years Bell publicly announced that he was not going to pay his taxes. Petitioner was a dues-paying member of Belanco from 1982 through 1985.          In addition, petitioner attended meetings held by the Mid-America Commodities and Barter Association (MACBA).[2] Some of MACBA's members apparently engaged in bartering to avoid taxes. Petitioner did not get involved in bartering. MACBA principally conducted discussions on the tax laws. It also allegedly converted money into silver.          Jenco Metal Products (Jenco Metal) was one of petitioner's customers. Jenco Metal issued a check in the amount of $14,527 to Penco on November 19, 1982, for some equipment. Petitioner addressed the invoice (dated November 18, 1982) for this equipment to " Jenco South" at an address in Florida. Petitioner endorsed Jenco Metal's check " Penco Precision, Paul Niedringhaus, Sole Owner" and sent it to Bill Ryche (Ryche), a principal in MACBA. Ryche deposited this check in an account maintained by MACBA allegedly to convert it to silver. [3] A few months later, MACBA sent petitioner $14,527 in cash. The $14,527 invoice was one of Penco's bigger invoices. Petitioner did not need the $14,527 in his business at the time he endorsed Jenco Metal's check over to MACBA. Mrs. Niedringhaus wrote two checks to MACBA in February 1983 in the amount of $220 and $2,277.34. Other Jenco Metal checks issued to Penco were deposited into the Northfield account or the Glenview account.          Petitioners made estimated tax payments regarding their income tax liabilities for the years 1960 through 1978. They made no estimated tax payments regarding their income tax liabilities for the years 1979 through 1985.          Petitioners timely filed Federal income tax returns from at least 1960 through 1978. Petitioners filed delinquent, original Federal income tax returns for 1979 through 1984 on August 18, 1986. They filed a delinquent, original Federal income tax return for 1985 on March 5, 1987. Petitioners did not request extensions of time in which to file their returns Page 208 for 1979 through...

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