HEISEY v. COMMISSIONER ( 2002 )

ANDREW HEISEY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

HEISEY v. COMMISSIONER

No. 1220-01

United States Tax Court

T.C. Memo 2002-41; 2002 Tax Ct. Memo LEXIS 45; 83 T.C.M. (CCH) 1233;

February 12, 2002, Filed

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Petitioner liable for deficiencies determined by respondent. Sections 6651(a)(1) and 6654(a) additions to tax sustained. Section 6651(a)(2) addition to tax not sustained. Penalty imposed upon petitioner under section 6673(a)(1).

P did not file Federal income tax returns for 1996, 1997,

   and 1998. R issued a notice of deficiency for those years, in

   which he determined deficiencies, as well as additions to tax

   under secs. 6651(a)(1) and (2) and 6654, I.R.C. P does not

   dispute the receipt of compensation and sale proceeds in the

   amounts determined by respondent. However, P contends that the

   Federal income tax is in the nature of an excise tax and that he

   is not engaged in any taxable excise activities.

     Held: Compensation and gain from the sale of

   property are taxable as income in the year received. P's

   arguments to the contrary are frivolous.

     Held, further, the additions to tax under secs.

   6651(a)(1) and 6654, I.R.C., are sustained.

     Held, further, sec. 6651(a)(2), I.R.C., provides an

   addition to tax where a taxpayer fails "to pay the amount

   shown as tax on any return". The addition to tax under sec.

   6651(a)(2), I.R.C., does not apply unless there was an unpaid

   tax that was shown on a return. Since no returns were filed and

   the record does not show that substitute returns were prepared,

   the sec. 6651(a)(2), I.R.C., addition to tax does not apply.

     Held, further, we shall impose a penalty of $ 2,000

   on petitioner pursuant to sec. 6673(a)(1), I.R.C.

Andrew Heisey, pro se.

Matthew A. Mendizabal, for respondent.

Ruwe, Robert P.

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RUWE

MEMORANDUM FINDINGS OF FACT AND OPINION

RUWE, Judge: Respondent issued a notice of deficiency to petitioner in which he determined the following Federal income tax deficiencies and additions to tax:

                  Additions to tax

                  ________________

Year    Deficiency    Sec. 6651(a)(1)    Sec. 6651(a)(2)   Sec. 6654

____    __________    _______________    _______________   _________

1996    $ 13,852.00     $ 3,116.70      $ 2,839.66     $ 737.27

1997     12,637.00      2,843.33       1,832.37      676.10

1998     54,133.00     11,488.95       4,340.27     2,320.88

The issue for decision is whether petitioner is liable for the deficiencies and additions to tax determined by respondent.

             FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time petitioner filed his petition, he resided in San Jose, California.

Petitioner received $ 72,821, $ 54,086.38, and $ 57,575.69 in wages from Contract Services Co. during 1996, 1997, and 1998, respectively. Federal income tax of $ 3,071.14 was withheld from petitioner's wages from Contract Services Co. in 1998; no Federal income taxes were withheld in 1996 and 1997. Petitioner received $ 9,410 and $ 17,740 in nonemployee compensation from Acorn Product Development, Inc., during 1997 and 1998, respectively. On December 9, 1998, petitioner sold a single family residence located at 2716 Morrene Drive, Placerville, 95667 for $ 112,500. Petitioner was the owner of this property immediately prior to its sale.

Petitioner did not file Federal income tax returns for 1996, 1997, or 1998. Respondent issued a notice of deficiency to petitioner, and petitioner filed a petition with this Court.

                OPINION

A. Income Tax Deficiencies

Section 61(a)^{United States v. Connor, 898 F.2d 942">898 F.2d 942, 943 (3d Cir. 1990); United States v. Richards, 723 F.2d 646">723 F.2d 646, 648 (8th Cir. 1983); Grimes v. Commissioner, 82 T.C. 235">82 T.C. 235, 237 (1984).}

Petitioner does not contest the amounts of compensation and gain upon which respondent based his deficiency determinations. Indeed, with minor exceptions, petitioner stipulated that he received the amounts determined by respondent for the tax years at issue. ^{Crain v. Commissioner, 737 F.2d 1417">737 F.2d 1417, 1418 (5th Cir. 1984);Lindsay v. Commissioner, T.C. Memo 2001-285">T.C. Memo 2001-285; Black v. Commissioner, T.C. Memo 1995-560">T.C. Memo 1995-560. We hold that petitioner's wages, nonemployee compensation, and gain from the sale of property are taxable income and that the deficiencies determined by respondent are correct.}

B. Section 6651(a)(1) Addition to Tax for Failure To File Return

Section 6651(a)(1) provides for an addition to tax in the case of a failure to file a return on or before the specified filing date. Section 6651(a)(1) does not apply if the failure to file is due to reasonable cause and not to willful neglect. Sec. 6651(a)(1); Higbee v. Commissioner, 116 T.C. 438">116 T.C. 438, 447 (2001). Petitioner bears the "heavy burden" of proving that the failure to file did not result from willful neglect and that the failure was due to reasonable cause. United States v. Boyle, 469 U.S. 241">469 U.S. 241, 245, 83 L. Ed. 2d 622">83 L. Ed. 2d 622, 105 S. Ct. 687">105 S. Ct. 687 (1985).

Petitioner has not shown that his failure to file was attributable to reasonable cause; therefore, we sustain the section 6651(a)(1) additions to tax as determined by respondent.

C. Section 6651(a)(2) Addition to Tax for Failure To Pay Tax

Respondent determined additions to tax for tax years 1996, 1997, and 1998 pursuant to section 6651(a)(2) for failure to pay tax shown on a return. Section 6651(a)(2) provides:

SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.

     (a) Addition to the Tax. --  In case of failure --

     *   *   *   *   *   *   *

        (2) to pay the amount shown as tax on any

        return specified in paragraph (1) on or before

        the date prescribed for payment of such tax

        (determined with regard to any extension of time for

        payment), unless it is shown that such failure is due

        to reasonable cause and not due to willful neglect,

        there shall be added to the amount shown as tax on

        such return 0.5 percent of the amount of such tax if

        the failure is for not more than 1 month, with an

        additional 0.5 percent for each additional month or

        fraction thereof during which such failure continues,

        not exceeding 25 percent in the aggregate * * *

        [Emphasis added.]

On brief, respondent's only argument with respect to the section 6651(a)(2) addition to tax is as follows:

      I.R.C.  6651(a)(2) imposes an addition to tax for

   failure to pay the amount shown as tax on the return. The

   addition to tax consists of an addition to the amount required

   to be shown as tax on the return of .5% added for each complete

   month or part of a month in which the failure to file continues,

   up to the maximum of 25%. Since petitioner did not file federal

   income tax returns for the 1996, 1997 and 1998 taxable years and

   did not make payment sufficient to pay the amount of tax that

   was to be reported on the returns, petitioner is liable for the

   addition to tax for Failure to Pay. [Fn. ref. omitted.]

Respondent's contentions provide an insufficient basis upon which to assert the section 6651(a)(2) addition to tax and misstates the requirements of that section. Section 6651(a)(2) is imposed on the underpayment of the amount of tax shown on a return. The parties in this case stipulated that "Petitioner did not file 1996, 1997 or 1998 U.S. Individual Income Tax Returns, (Form 1040)." Given this stipulation and the absence of any additional evidence indicating the existence of a "return", ^{section 6651(a)(2) addition to tax cannot be sustained. Watt v. Commissioner, T.C. Memo 1986-22">T.C. Memo 1986-22. *54 In the notice of deficiency, respondent applied section 6651(c)(1), which limits the addition under section 6651(a)(1) by the amount of the addition under section 6651(a)(2) for any month to which an addition applies under both of those provisions. Since we have found that the additions to tax under section 6651(a)(2) are inapplicable, the additions to tax under section 6651(a)(1) should not have been adjusted.}

D. Section 6654 Addition to Tax for Failure To Pay Estimated Tax

Section 6654(a) provides for an addition to tax in the case of any underpayment of estimated tax. Section 6654(a) does not apply in certain circumstances, see Grosshandler v. Commissioner, 75 T.C. 1">75 T.C. 1, 20-21 (1980); however, petitioner has not shown that he falls within any of those exceptions. Chambers v. Commissioner, T.C.. Memo 2000-218, affd. 17 Fed. Appx. 688">17 Fed. Appx. 688 (9th Cir. 2001); sec. 301.6651-1(f), Example (1), Proced. & Admin. Regs. We hold that petitioner is liable for the section 6654(a) additions to tax determined by respondent.

E. Section 6673(a)(1) Penalty

Respondent requests that we impose a penalty pursuant to section 6673(a)(1). Under section 6673(a)(1), we may impose a penalty not to exceed $ 25,000 if the taxpayer's position is "frivolous or groundless".

Petitioner's only argument is that the income tax is an excise tax and that petitioner was not engaged in a taxable excise activity. Those contentions are patently frivolous. See Hart v. Commissioner, T.C. Memo 2001-306">T.C. Memo 2001-306. Accordingly, we shall impose upon petitioner a penalty of $ 2,000.

Decision will be entered for respondent except for the additions to tax under section 6651(a)(2) which do not apply.

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Footnotes

• 1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the tax years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩

• 2. The only amounts of income in respondent's determinations that were not stipulated were $ 275 of wages in 1996 and $ 263 of wages in 1997. Respondent requested that petitioner admit or deny that he received those amounts as taxable income in taxable years 1996 and 1997. Petitioner objected to those requests as legal conclusions, but he does not dispute that he received those amounts as wages during the years at issue.↩

• 3. In Hart v. Commissioner, T.C. Memo 2001-306">T.C. Memo 2001-306↩, the taxpayer raised similar arguments; i.e., that "The income tax is an 'excise tax', and he did not engage in any 'excise taxable activity'". We rejected the taxpayer's contention that he owed no income taxes on the wages he received.

• 4. We are aware of sec. 6651(g), which deals with the effect of a sec. 6020(b) substitute return on sec. 6651(a)(2). See Smith v. Commissioner, T.C. Memo 2000-290">T.C. Memo 2000-290("A return prepared by the Commissioner under sec. 6020(b) is treated as a return filed by the taxpayer for returns due after July 30, 1996, for purposes of sec. 6651(a)(2)↩"). The evidence in the instant case does not show that a substitute return was filed for the years at issue. Respondent stated in his trial memorandum that the examination in this case began on Sept. 5, 2000. Since the examination began after July 22, 1998, sec. 7491(c) applies and places the burden of production with respect to additions to tax upon respondent.

• 5. The additions to tax under secs. 6651(a)(1) and (2) apply to different amounts: Sec. 6651(a)(1) applies to amounts required to be shown on a return, whereas sec. 6651(a)(2) applies to the amount actually shown on a return which remains unpaid. See Estate of Rauhoff v. Commissioner, T.C. Memo 1982-494">T.C. Memo 1982-494; sec. 301.6651-1(f), Example (1), Proced. & Admin. Regs. Congress recognized this in enacting sec. 6651(g) and in providing two different standards under subsections (a)(1) and (2) of sec. 6651↩.

• 6. We have jurisdiction over the sec. 6654(a) additions to tax in this case because income tax returns were not filed for the tax years at issue. Sec. 6665(b)(2); Hart v. Commissioner, T.C. Memo 2001-306">T.C. Memo 2001-306↩.