Arlin G. Hatfield, III & Jennifer W. Hatfield ( 2023 )

United States Tax Court
T.C. Memo. 2023-93ARLIN G. HATFIELD, III AND JENNIFER W. HATFIELD,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 6235-22. Filed July 24, 2023.
—————
Arlin G. Hatfield III and Jennifer W. Hatfield, pro sese.
John K. Parchman and Ardney J. Boland, for respondent.
MEMORANDUM OPINION
WEILER, Judge: In a notice of deficiency dated December 15,
2021, the Internal Revenue Service (IRS or respondent) determined a
deficiency in petitioners’ 2018 joint federal income tax of $50,441 and an
accuracy-related penalty pursuant to section 6662(a)1 of $10,088.
Respondent has filed a Motion for Summary Judgment, and the issues
for decision are whether (1) petitioners failed to report wages of
$309,986 for the 2018 tax year, (2) petitioners are liable for an accuracy-
related penalty under section 6662(a), and (3) a section 6673 penalty is
appropriate.
Finding petitioners’ arguments disputing the unreported wages
to be entirely frivolous, and there being no issue of material fact in
1 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, and Rule
references are to the Tax Court Rules of Practice and Procedure. All monetary amounts
are rounded to the nearest dollar.
Served 07/24/23
2
[*2] dispute, we will grant respondent’s Motion for Summary Judgment
and impose a section 6673 penalty of $5,000.
Background
Petitioners resided in Mississippi when they timely filed their
Petition. However, this is not petitioners’ first time before the Tax Court.
In Hatfield v. Commissioner, T.C. Memo. 2022-59, aff’d per curiam
without published opinion, No. 22-60504, 2022 WL 19038050 (5th Cir.
Nov. 2, 2022), we decided by summary judgment petitioners’ federal
income tax deficiencies for the 2013 and 2014 tax years, which were also
related to unreported wages.
The frivolous arguments and circumstances being raised by
petitioners are identical to those found in our prior opinion, and we
adopt those discussions herein by reference. See id. Petitioners do not
dispute Dr. Hatfield’s employment as a radiologist and wages of
$309,986 reported on his Form W–2, Wage and Tax Statement, for the
tax year in question. Rather, petitioners excluded all wages paid to Dr.
Hatfield on their joint 2018 federal income tax return and contend that
wages of U.S. citizens do not constitute taxable income.
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and
avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.
v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant
summary judgment when there is no genuine dispute as to any material
fact and a decision may be rendered as a matter of law. Rule 121(a)(2);
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17
F.3d 965 (7th Cir. 1994). In deciding whether to grant summary
judgment we construe factual materials and draw inferences therefrom
in the light most favorable to the nonmoving party. Sundstrand Corp.,
98 T.C. at 520. However, the nonmoving party may not rest upon mere
allegations or denials of his pleadings but, rather, must set forth specific
facts showing that there is a genuine dispute for trial. Rule 121(d); see
Sundstrand Corp., 98 T.C. at 520. Finding no material dispute of fact
present in this case, we determine this matter is ripe for summary
adjudication.
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[*3] II. Petitioners’ Contentions
Notwithstanding our prior decision, petitioners’ frivolous
arguments remain unrestrained. As we have said before, we generally
do not address frivolous arguments 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) (per curiam); see, e.g., Cabirac v. Commissioner, 120 T.C. 163(2003), aff’d per curiam without published opinion, No. 03-3157, 2004
WL 7318960 (3d Cir. Feb. 10, 2004); Rowlee v. Commissioner, 80 T.C.
1111, 1120 (1983) (rejecting the taxpayer’s claim that he is not a person
liable for tax); Waltner v. Commissioner, T.C. Memo. 2014-35 (laying out
and rejecting a taxpayer’s frivolous position), aff’d, 659 F. App’x 440 (9th
Cir. 2016).
Petitioners’ assertion that wages are not taxable income has been
identified as a “frivolous position” in I.R.S. Notice 2010-33, 2010-17
I.R.B. 609, and we have done the same. See, e.g., Walker v.
Commissioner, T.C. Memo. 2022-63; Briggs v. Commissioner, T.C.
Memo. 2016-86; Lovely v. Commissioner, T.C. Memo. 2015-135, aff’d,
642 F. App’x 268 (4th Cir. 2016). Finding petitioners’ argument to be
entirely frivolous, we will sustain the adjustment to petitioners’ income
as determined in the notice of deficiency.
III. Accuracy-Related Penalty
The Code imposes a 20% penalty upon the portion of any
underpayment of income tax that is attributable to (among other things)
any “substantial understatement of income tax.” I.R.C. § 6662(a), (b)(2).
Section 6662(d)(2) defines the term “understatement” as the excess of
the tax required to be shown on the return over the amount shown on
the return as filed. An understatement of income tax is “substantial” if
it exceeds the greater of $5,000 or 10% of the tax required to be shown
on the return. I.R.C. § 6662(d)(1)(A). For the 2018 tax year petitioners
reported tax of zero on their return while their correct tax liability was
$56,334. Thus their understatement of income tax was substantial.
Respondent must also show compliance with the procedural
requirements of section 6751(b)(1). See I.R.C. § 7491(c); Graev v.
Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling
in part 147 T.C. 460 (2016). Section 6751(b)(1) provides that no penalty
shall be assessed unless “the initial determination” of the assessment
was “personally approved (in writing) by the immediate supervisor of
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[*4] the individual making such determination.” In his Motion for
Summary Judgment respondent has supplied us with case notes
reflecting that supervisory approval for the accuracy-related penalty
was obtained on October 15, 2021, which was prior to the October 20,
2021, communication to petitioners that the penalty would be imposed.
It is undisputed that supervisory approval was timely secured and that
the requirements of section 6751(b)(1) were met. 2 Considering the
foregoing, we will sustain the accuracy-related penalty determined in
the notice of deficiency.
IV. Frivolous Position Penalty
Section 6673(a)(1) authorizes this Court to require a taxpayer to
pay a penalty to the United States in an amount not to exceed $25,000
whenever it appears to the Court that the taxpayer instituted or
maintained the proceeding primarily for delay or that the taxpayer’s
position in the proceeding is frivolous or groundless.
In our prior opinion we cautioned petitioners that their
arguments were “unquestionably ‘frivolous and groundless’” and
instituted “primarily for delay.” Hatfield, T.C. Memo. 2022-59, at *5
(quoting I.R.C. § 6673(a)(1)). Citing to this docketed case, we noted that
“[g]iven the magnitude of petitioners’ unreported income and the inane
character of their arguments, we would be justified in imposing a very
substantial penalty.” Id. Our decision in Hatfield was then affirmed by
the U.S. Court of Appeals for the Fifth Circuit. See Hatfield v.
Commissioner, 2022 WL 19038050.
Although not specifically requested by respondent, on the basis of
the frivolous arguments repeated by petitioners and the ignored
warnings, we will require petitioners to pay a penalty of $5,000 to the
United States under section 6673(a). We take this opportunity to warn
petitioners again that assertion of such frivolous arguments in any
future appearance before this Court may result in an additional penalty
of a higher amount.
2 Under section 7491(c) the Commissioner also bears the burden of production
with respect to the liability of an individual for any penalty. See Higbee v.
Commissioner, 116 T.C. 438, 446 (2001). Respondent has carried his burden by
showing petitioners failed to report wages of $309,986, as reported on the Form W–2
issued to Dr. Hatfield.
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[*5] To reflect the foregoing,
An appropriate order and decision will be entered.