Woods v. Comm'r of Internal Revenue

• Decision Date: 25 July 1988
• Citation: 91 T.C. No. 11,91 T.C. 88
• Parties: William A. WOODS, II, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

91 T.C. 88

91 T.C. No. 11

William A. WOODS, II, Petitioner,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

United States Tax Court.

Decided: July 25, 1988

William A. Woods, II, pro se.

Peter R. Hochman, for respondent.

CHABOT, Judge:

This case was assigned to Special Trial Judge Pate pursuant to the provisions of section 7456(d) (redesignated as section 7443A(b) by the Tax Reform Act of 1986, Pub.L. 99–514, 100 Stat. 2755) and Rules 180 and 181. ¹ The Court agrees with and adopts her opinion which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PATE, Special Trial Judge:

This case is before the Court on respondent's Motion for Judgment on the Pleadings, pursuant to Rule 120(a). Petitioner filed an opposition thereto. Subsequently, this Court issued an order asking respondent to file a supplemental motion together with a memorandum of legal authorities addressing certain allegations made in the petition. Respondent filed such supplemental motion and petitioner filed an opposition thereto. At oral argument, respondent moved that this Court award damages to the United States under section 6673.

William A. Woods, II (petitioner) was single during 1983, the year in issue. He did not file a Federal income tax return despite receiving $32,844 in wages and $53 in interest income during that year. On September 13, 1985, respondent determined a deficiency in petitioner's federal income tax in the amount of $7,152 and additions to tax under section 6651(a)(1) of $834.75, section 6653(a)(1) ² of $357.60, section 6653(a)(2) ³ of fifty percent of the interest due on the underpayment, and section 6661(a) of $715.20. Petitioner timely filed his petition ⁴ alleging that respondent erred in asserting all of the additions to tax,⁵ and alternatively, that he had not been given credit for withholding taxes of $3,813.77 ⁶ in the calculation of such additions.

Deficiency in Income Tax

In the petition and the various objections filed thereafter, petitioner raised numerous “tax protestor” type arguments. He maintains that his wages do not constitute gross income; that reporting and paying income taxes is strictly voluntary and, therefore, the filing of an income tax return was not required; that the Fifth Amendment to the Constitution of the United States prevents respondent from requiring him to provide the information called for on an income tax return; that the Sixteenth Amendment to the Constitution was not properly ratified; and, at least impliedly, that he was wrongfully denied a jury trial.

All of these arguments have been rejected repeatedly by the courts. There is no doubt that petitioner was required to file an income tax return for the year 1983 and that he was required to pay taxes on his wages and interest income. See sections 1, 61, 6011, 6012(a)(1)(A), 7701(a)(1); section 1.6012–1, Income Tax Regs.; Rowlee v. Commissioner, 80 T.C. 1111, 1119–1123 (1983), and cases cited therein. Moreover, to invoke the Fifth Amendment privilege, petitioner must be faced with substantial hazards of self-incrimination that are real and appreciable and must have reasonable cause to apprehend such danger. McCoy v. Commissioner, 696 F.2d 1234, 1236 (9th Cir.1983), affg. 76 T.C. 1027 (1981). Petitioner has shown us no evidence even remotely indicating that petitioner was faced with such a hazard. See Steinbrecher v. Commissioner, 712 F.2d 195, 197 (5th Cir.1983), affg. a Memorandum Opinion of this Court.

Petitioner also contends that the Sixteenth Amendment was not properly ratified. Every court that has considered this and related arguments has rejected it. Knoblauch v. Commissioner, 749 F.2d 200, 201–202 (5th Cir.1984), cert. denied 474 U.S. 830 (1985) (and cases cited therein). Moreover, the Supreme Court first held the Sixteenth Amendment constitutional over seventy years ago in Brushaber v. Union Pac. R.R. Co., 240 U.S. 1 (1916). Petitioner has not stated any reason why these cases should not be followed.

Petitioner complains further that he was wrongfully denied a jury trial. However, the Seventh Amendment does not apply to suits against the United States because there was no common law action against the sovereign. McElrath v. United States, 102 U.S. 426, 440 (1880). It has repeatedly been held that there is no constitutional right to a jury trial in the Tax Court. Phillips v. Commissioner, 283 U.S. 589, 599 n. 9 (1931); Lonsdale v. Commissioner, 661 F.2d 71, 72 (5th Cir.1981), affg. a Memorandum Opinion of this Court.

Since no other issues were raised by petitioner with regard to his income tax for 1983, and petitioner bears the burden of proving that respondent's determinations are incorrect, we find that petitioner is liable for the amount of income tax shown on the notice of deficiency. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a).

Section 6651

We now turn our attention to the various additions to tax as determined by respondent. The first, section 6651(a)(1), imposes an addition to tax for failure to file a timely income tax return. It is uncontested that petitioner failed to file a Federal income tax return for the year in issue. Further, as we previously stated, requiring petitioner to report the requisite financial information on his income tax return does not violate petitioner's Fifth Amendment privilege against self-incrimination. The computation of the addition to tax does take into consideration petitioner's withholding tax credits, as is required by section 6651(b)(1). See section 301.6651–1(d)(1), Proced. and Admin.Regs. Accordingly, we find that petitioner is liable for the addition to tax under 6651(a)(1) as shown on the notice of deficiency.

Section 6653

Petitioner also questions whether he is liable for the addition to tax under section 6653(a)(1) and (2) for negligence or intentional disregard of rules and regulations. Section 6653(a)(1) provides that, if any part of any underpayment is due to negligence or intentional disregard of rules and regulations, there shall be added to the tax an amount equal to 5 percent of the underpayment. Moreover, section 6653(c)(1) provides that the “underpayment” taken into account shall not be reduced by credits for withholding taxes. See section 6211(a) and (b)(1). Section 6653(a)(2) provides that there shall be added to the tax an amount equal to 50 percent of the interest payable under section 6601 with respect to the portion of the underpayment which is attributable to negligence or intentional disregard of rules and regulations. Petitioner bears the burden of proving that his underpayment was not due to negligence or intentional disregard of rules and regulations. Rule 142(a); Bixby v. Commissioner, 58 T.C. 757, 791–792 (1972). Since petitioner presented no objection to respondent's determination of negligence other than his timeworn tax protestor arguments, we find that he is liable for the additions to tax under 6653(a)(1) and (2).

Section 6661

Finally, we consider respondent's determination under section 6661. ⁷ In the notice of deficiency, respondent determined that petitioner was liable for an addition under this section in the amount of $715.20, based on ten percent of the total amount of the deficiency in income tax of $7,152. Respondent moved to increase the addition to tax under section 6661 from $715.20 to $1,788 in his Supplemental Motion for Judgment on the Pleadings, based on the Omnibus Budget Reconciliation Act of 1986 (hereinafter OBRA 86). OBRA 86, sec. 8002, Pub.L. 99–509, 100 Stat. 1874, 1951. Petitioner opposed this increase at the hearing of this case. Because respondent asserted his claim for the increased amount prior to the hearing, and the issue has been heard by the consent of the parties, we have jurisdiction to make a determination thereon. Sec. 6214(a); Rule 41(a)(1); Pallottini v. Commissioner, 90 T.C. 498 (1988).

Section 6661(a) originally provided for an addition to tax equal to 10 percent. In 1986, Congress passed two acts, each of which amended section 6661(a). One of the acts called for the increase to a 20–percent rate and the other (OBRA 86) called for an increase to a 25–percent rate. In a decision reviewed by this Court, we decided that OBRA 86 controlled and, therefore, that the correct rate was 25 percent. Pallottini v. Commissioner, supra. Accordingly, respondent was correct in asserting the 25–percent rate in this case.⁸

We now must decide whether respondent correctly computed the increased addition to tax by applying 25 percent to the entire deficiency of $7,152. He maintains that because petitioner did not file any return for 1983, the percentage is properly applied to the total amount of the income tax determined in the notice of deficiency. On the other hand, petitioner maintains that the percentage applies only to the difference between the deficiency and the amount of Federal taxes withheld from his wages.⁹

Section 6661(a) provides that:

If there is a substantial understatement of income tax for any taxable year, there shall be added to the tax an amount equal to 25 percent of the amount of any underpayment attributable to such understatement. [Emphasis added.]

Since the statute provides that the 25–percent rate shall be applied to “the amount of any underpayment,” our determination turns on the meaning of the term “underpayment” in the context of section 6661.

To put our discussion into perspective, we must first consider the meaning of some of the other terms used in that section. The term “understatement” is expressly defined by section 6661(b)(2) as the excess of the amount of the tax required to be shown on the return over the amount of the tax imposed which is shown on the return.¹⁰ Due to the fact that petitioner failed to report any of his income, the entire amount of the tax required to be shown on the return is equal to the total deficiency of $7,152.¹¹ Further, since no return was filed by petitioner, the amount of tax which is shown on the return is considered to be zero. Sec....