52 T.C.M. (CCH) 411
CHARLES O. COOLEY AND LORNELL COOLEY, Petitioners
COMMISSIONER OF INTERNAL REVENUE, Respondent
No. 4621-79, 20189-82.
United States Tax Court
September 9, 1986
Charles O. Cooley and Lornell Cooley, pro se.
Robert A. Johnson, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
In these cases which have been consolidated for trial, briefing and opinion, respondent determined deficiencies in and additions to petitioners' Federal income tax as follows:
|| Section 6653(b)1
|| Additions to Tax
|| Additions to Tax
|| Section 6651(a)
|| Section 6653(a)
|| $ 5,766.00
|| $ -
After concessions, the issues remaining for decision are: (1) whether petitioners are entitled to a jury trial in this Court; (2) whether requiring petitioners to file proper income tax returns and to disclose their correct income and expenses there on and in this Court violates their rights under the Fifth Amendment; (3) whether commissions on life insurance policies purchased by petitioner Charles O. Cooley for himself and members of his family constitute gross income; (4) whether property received in lieu of life insurance commissions constitutes gross income; (5) whether petitioners are entitled to losses for the worthlessness of certain stock and partnership interests previously received in lieu of insurance commissions; (6) whether petitioners are entitled to certain miscellaneous deductions in 1969 and 1971; (7) whether petitioner Charles O. Cooley is liable for additions to tax for all years for fraud under section 6653(b) or, in the alternative, for failing to file timely returns under section 6651(a) or for negligence under section 6653(a); and (8) whether petitioner Lornell Cooley is liable for additions to tax under section 6651(a) for failing to file timely returns and additions to tax under section 6653(a) for negligence. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulations and exhibits attached thereto are incorporated herein by reference. Petitioners, Charles O. Cooley and Lornell Cooley, husband and wife, resided in Arizona during the years 1969 through 1978 and at the time they filed their petitions. During the years under consideration Lornell Cooley was a housewife and had no separate income but under the community property laws of Arizona she has a vested interest 
in one-half of the earnings of Charles O. Cooley, who is hereinafter referred to as petitioner. Petitioner was born about 1930 and was raised on his father's farm. His formal education ceased with the eighth grade, but he later acquired a high school equivalency certificate. Prior to becoming an insurance agent in about 1966, he was employed as a farmer, a policeman, and a concrete worker. Lornell Cooley has a high school education. Up to the date of trial her only employment had been for a few months in a meat department. Neither of them have had any education or experience in bookkeeping or accounting. For 1967 they filed a proper joint income tax return on the cash basis which reflected gross commissions from insurance sales by petitioner of $12,552 and a net profit of $6,755. For 1968 they again filed a proper joint return on the cash basis reflecting gross commissions from the same source of $19,469 and a net profit of $12,959. On both returns they claimed exemptions for six children whose ages at that time ranged from approximately nine to approximately eighteen. Neither petitioner filed an income tax return for 1969, 1970, 1971, 1974, 1975, 1976, and 1978. Charles O. Cooley filed a Form 1040 for each of the years 1971, 1974, and 1975 in May of 1977. The Forms 1040, however, did not constitute income tax returns because they disclosed only his name and contained no information from which his income or income tax liability could be computed. 
Instead, each line on the returns contained the phrase ‘ Object-Self- incrimination.‘ The Forms 1040 were accompanied by newspaper clippings, court opinions, and Congressional reports supposedly in support of his failure to provide return information. These Forms 1040 were filed after Mr. Cooley had completed the sentence he received upon his conviction in January of 1975 of having willfully failed to file returns for 1969 and 1970 in violation of section 7203. During 1969, 1970 and 1971, petitioner did business in the Phoenix area as Cooley Insurance Agency and World Wide Life Insurance and Trade Agency. During these years, he sold life insurance for Financial International Consultants Corp. (‘ Financial‘ ), the Beneficial Life Insurance Company (‘ Beneficial ‘ ), Tollica-the Old Line Life Insurance Company of America (‘ Tollica ‘ ), Northwestern National Life Insurance Co. (‘ Northwestern‘ ), North American Life & Casualty (‘ North American‘ ) and Wabash Life Insurance Company (‘ Wabash‘ ). During 1969 petitioner received commission checks from Beneficial totaling $9,070 after payroll deductions reflected on the checks in the following amounts:
| License & Supplies
During 1970 petitioner received commission checks from Beneficial in the total amount of $12,680.31 after payroll deductions which were reflected on the checks in the following amounts:
| Disability Income Protection
| Group Retirement
During 1971 petitioner received commission checks from Beneficial in the total amount of $4,409.72. During 1969 petitioner received commission checks from Financial totaling $6,640.29. During 1970 petitioner received commission checks from Financial totaling $8,148.96 and a check for $1,000 in settlement of a prize which petitioner had won in a sales contest. He was also reimbursed $20.00 for a medical fee previously deducted by Financial. For the years 1969, 1970, and 1971 petitioner received Forms 1099 from Beneficial showing he had earned commissions of $9,278.47, $122,012.30, and $25,256.31, respectively. For 1969 petitioner received a Form 1099 for insurance sold for Financial which reflected total earned commissions of $94,313.02. This Form 1099 was actually issued by Northwestern National Life Insurance Company because that was the contract carrier through whom Financial had placed the insurance. For 1970 petitioner received two Forms 1099 for commissions on insurance sold for Financial totaling $43,559.54. For 1971 petitioner received a Form 1099 from Financial showing total commissions of $2,398.73. The parties have stipulated that the l099's for 1969 and 1970 include commissions on policies which were later cancelled or reversed by the issuing company. Consequently petitioner's commissions as shown on the l099's for 1969 and 1970 are overstated by $9,995.30 and $8,583.74, respectively. The parties also agree that payment was received in 1970 by petitioner on 24 policies written in 1969 on which the commissions totaled $54,881.44, which commissions are included in the Forms 1099 for 1969. For 1969 and 1970 petitioner received commission checks from Wabash in the respective amounts of $163.40 and $106.66. For the same years petitioner received commission checks from Tollica in the respective amounts of $97.37 and $29.07. During the same years petitioner received commission checks from North American Life and Casualty in the total amounts of $154.27 and $114.11, respectively. During 1974, 1975, and 1976 petitioner was employed by Magma Copper Company and received wages in the amounts of $11,595, $19,487, and $5,895 respectively. On May 2, 1974 petitioner gave Magma a Form W-4, Employee Withholding Exemption Certificate, on which he claimed 30 exemptions. At that time he knew he was not entitled to 30 exemptions and by filing the Form W-4 he intended to stop the withholding of Federal income tax from his wages. During 1978 petitioner worked for Old West Development, Oakwood Construction Company, and Brewer Construction Company and received wages in the respective amounts of $6,398.75, $897.75, and $6,000.50. On June 28, 1978 he filed a Form W-4E, Exemption from Withholding, with his employer Old West Development Corporation in which he indicated that he had incurred no income tax liability for 1977 and did not anticipate any tax liability for 1978. As an agent for both Financial and Beneficial, petitioner was entitled to 50% of the first year's premium on any policy he sold as his commission. Furthermore he was required to remit to the company only the difference between the premium and the commission. When a policy was ‘ netted‘ by petitioner in this manner, either Financial or Beneficial would credit his premium account with a full commission without knowing whether and in what manner he collected the commission from the insured. Consequently a Form 1099 issued by either...