Lawrence James Saccato ( 2023 )


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  •                      United States Tax Court
    
    T.C. Memo. 2023-96
    LAWRENCE JAMES SACCATO,
    Petitioner
    v.
    COMMISSIONER OF INTERNAL REVENUE,
    Respondent
    —————
    Docket No. 831-19.                                              Filed July 25, 2023.
    —————
    Lawrence James Saccato, pro se.
    Catherine J. Caballero, Kimberly A. Trujillo, Kimberly L. Clark, and Su-
    san T. Mosley, for respondent.
    MEMORANDUM FINDINGS OF FACT AND OPINION
    LAUBER, Judge: Petitioner is a serial nonfiler. He failed to file
    Federal income tax returns for an uninterrupted period of at least 14
    years, including 2013–2016, the years at issue in this case. For these
    years the Internal Revenue Service (IRS or respondent) determined de-
    ficiencies and additions to tax as follows: 1
    1 Unless otherwise indicated, statutory references are to the Internal Revenue
    Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
    Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
    Rule references are to the Tax Court Rules of Practice and Procedure. We round all
    monetary amounts to the nearest dollar.
    Served 07/25/23
    2
    [*2]
    Year     Deficiency   Failure to File   Failure to Pay     Failure to Pay Es-
    Addition to Tax   Addition to Tax      timated Tax
    § 6651(a)(1)      § 6651(a)(2)       Addition to Tax
    § 6654
    2013      $40,169         $9,038            $10,042              $721
    2014      113,886         25,624        To be determined         2,045
    2015      24,419          5,494         To be determined          440
    2016      22,242          5,004         To be determined          532
    The deficiencies are attributable to unreported rental income,
    gain from the sale of real property, taxable Social Security benefits, and
    certain “other income.” Petitioner conceded at trial that he is taxable on
    $3,142 of Social Security benefits for 2016, as determined in the notice
    of deficiency. Respondent conceded on brief that, for 2013, $44,360 of
    the “other income” determined in the notice of deficiency is not taxable
    to petitioner. We will rule for respondent as to all remaining issues. We
    will also require petitioner to pay under section 6673(a) a penalty of
    $10,000 to the United States for persistently advancing frivolous posi-
    tions in this Court.
    FINDINGS OF FACT
    The following facts are drawn from the pleadings, the trial testi-
    mony, documents admitted into evidence at trial, and Stipulations of
    Facts with attached Exhibits admitted into evidence under Rule 91(f).
    Petitioner resided in Oregon when he timely petitioned this Court.
    Petitioner has worked in the warehouse and ministorage business
    for many years. Beginning in the 1990s or earlier, he created a panoply
    of entities that purported to hold assets that he deployed in his business
    and financial transactions. He describes these entities as “trusts” and
    denies holding any beneficial stake in them. But he has produced no
    trust agreements, declarations of trust, tax returns, or other documents
    that would substantiate the legal existence of such entities or confirm
    the identities of their settlors, trustees, or beneficiaries. We find that
    these “trusts” do not exist and that, if they did exist, they would be
    shams. The sole purpose of these fictitious entities was to obscure peti-
    tioner’s true ownership of the assets they purportedly held. At all times
    3
    [*3] petitioner exercised total control over these assets and the income
    they produced, using them for his personal enjoyment and benefit.
    A.    Hide Away Storage
    In the early 1990s petitioner and John Dillingham founded a stor-
    age business variously called Hide Away Storage and Hide Away Mini
    Warehouses (Hide Away). Hide Away’s revenue came from the rental of
    storage sheds, U-Haul vehicles, space for the storage of cars and RVs,
    and land on which a cell tower stood. Petitioner and Mr. Dillingham
    operated Hide Away as a partnership. In 1991 they opened a checking
    account at South Umpqua State Bank (Umpqua account) in the name of
    “Hide Away Mini Warehouse.” As of 2013 petitioner owned 100% of the
    ministorage business and the assets used to run it, having acquired Mr.
    Dillingham’s share at some point before the latter’s death in 2009.
    The physical assets of the business were located at multiple ad-
    dresses on Grant Smith Road in Roseburg, Douglas County, Oregon. Be-
    ginning in 2013 or earlier, Hide Away’s principal office occupied one of
    three units at 265 Grant Smith Road. Other units in that building were
    occupied by Currieco Real Estate, Inc. (Currieco). Currieco’s principal
    real estate broker and sole shareholder was Valynn Currie. Ms. Currie
    and petitioner have dated periodically since the early 2000s, gone on
    vacations together, and lived together since 2016.
    During 2013–2016 most of Hide Away’s business receipts were
    deposited into the Umpqua account. Petitioner was the only signatory
    on the Umpqua account during this period. He also deposited to this
    account numerous checks made payable to him personally.
    During 2013–2016 petitioner withdrew more than $100,000 from
    the Umpqua account to pay his personal expenses. These included ex-
    penses charged to a Wells Fargo credit card account in the name of
    “Larry Saccato,” a second Wells Fargo credit card account in the name
    of “L Saccato Investments,” a charge account at the Douglas County
    Farmers Co-op, and a personal line of credit at WestAmerica Bank in
    the name of “Lawrence Saccato.”
    In August 2013 petitioner decided to offer Hide Away’s customers
    the option to pay by credit card, in part to facilitate the rental of U-Haul
    vehicles. He enlisted Ms. Currie to help establish a credit card payment
    processing account on Hide Away’s behalf. Ms. Currie used Currieco’s
    employer identification number to set up this account.
    4
    [*4] On August 15, 2013, Ms. Currie executed an application for a pay-
    ment processing account with CTS Holding, LLC (CTS). On the appli-
    cation she stated that the applicant’s name was “Currieco-U Haul Inc.”
    doing business as “Hideaway Storage.” The credit card machine tied to
    the account was in Hide Away’s office.
    During 2013–2016 CTS processed more than $100,000 in credit
    card transactions for Hide Away, and the proceeds were deposited into
    another Umpqua checking account held in the name of “Currieco-U
    Haul.” Ms. Currie or her employee Trisha Bates intermittently drew
    checks on this account made out to Hide Away; the memo line on these
    checks indicated that they reflected the proceeds of CTS credit card
    transactions. Petitioner deposited these checks into Hide Away’s
    Umpqua account or into another account he controlled.
    The annual amounts of CTS credit card proceeds were reported to
    the IRS on Forms 1099–K, Payment Card and Third Party Network
    Transactions. Copies of these Forms 1099–K were issued to “Currieco-
    U Haul, Inc., Hideaway Storage.” But Ms. Currie did not consider the
    CTS credit card proceeds to belong to Currieco, and they were not re-
    ported on Currieco’s tax returns for 2013–2016.
    On April 26, 2016, Ms. Currie opened three deposit accounts at
    Rogue Credit Union (Rogue accounts) in the name of “Currieco Real Es-
    tate.” All monthly statements for these accounts were addressed to
    “Hideaway Storage.” Petitioner asked Ms. Currie to open the Rogue ac-
    counts as a replacement for Hide Away’s Umpqua account, which was
    then being levied upon by the IRS to satisfy petitioner’s 2012 Federal
    tax liabilities.
    Ms. Currie (or her employee Ms. Bates) deposited more than
    $33,000 into the Rogue accounts in 2016. But Ms. Currie did not con-
    sider the sums thus deposited to belong to Currieco. None of these
    amounts was reported on Currieco’s tax returns for 2013–2016.
    Petitioner had access to the checkbooks for the Rogue accounts.
    When he wished to extract cash from those accounts, he would complete
    the payee line on a check and insert the amount to be paid. Ms. Currie
    or Ms. Bates would sign and date the check, then give it to petitioner.
    Petitioner used funds from the Rogue accounts to pay his personal ex-
    penses, including $19,000 of purchases racked up on his two Wells Fargo
    credit cards.
    5
    [*5] B.     Petitioner’s Sham Entities
    In 1999 petitioner purported to contribute Hide Away’s assets to
    a trust called Hideaway Holdings. Petitioner was supposedly the settlor
    of this trust, and Ms. Currie and Marcia Willardson served as its sup-
    posed managers and trustees. Ms. Willardson (formerly known as Mar-
    cia Doerr) has a history of involvement with sham trusts used by tax-
    payers to shift income and avoid tax. See, e.g., Swanson v. Commis-
    sioner, 
    T.C. Memo. 2008-265
    , aff’d, 
    438 F. App’x 582
     (9th Cir. 2011);
    Caralan Trust v. Commissioner, 
    T.C. Memo. 2001-241
    ; United States v.
    Edwards, No. 17-cv-1105, 
    2018 WL 2499386
     (E.D. Cal. June 4, 2018).
    Petitioner testified that he was not a trustee of Hideaway Hold-
    ings. But in 2002 he registered the name “Hideaway Holdings” with the
    Oregon secretary of state and represented that he was its trustee. And
    in 2004 he registered the name “Hideaway Holdings I” with the Oregon
    secretary of state and represented that he was its trustee. He is also
    listed as a trustee of Hideaway Holdings I on a notarized “Certification
    of Trustees Under Trust,” which Ms. Currie signed in 2014.
    Emerald Investment (Emerald) was the purported beneficiary of
    Hideaway Holdings. Ms. Currie and Ms. Willardson, the supposed trus-
    tees of Hideaway Holdings, allegedly also served as Emerald’s trustees.
    Petitioner testified that he was not a trustee of Emerald, but he repre-
    sented that he was its trustee on documents associated with a U.S. Bank
    checking account titled to Emerald. Petitioner was the only signatory
    on that U.S. Bank account during 2013–2016.
    Emerald purported to manage Hide Away’s storage business and
    collect rent payments from its customers. In fact, all of those activities
    were performed during 2013–2016 by petitioner or Ms. Currie. Ms. Cur-
    rie testified that she prepared Forms 1099 reporting income from the
    storage business to Emerald. But no such Forms 1099 were produced at
    trial, and there is no evidence that they were ever prepared or filed with
    the IRS.
    Petitioner, Ms. Currie, and Ms. Willardson all professed igno-
    rance as to who Emerald’s beneficiary was. We find as a fact that, if any
    of these trusts was genuine, petitioner was Emerald’s beneficiary.
    Although he testified that he had no financial interest in Emerald’s as-
    sets or income, we found his testimony (on this and many other points)
    lacking in credibility.
    6
    [*6] During 2013–2016 petitioner was associated with several other
    purported trusts, known variously as Olive Branch, Olive Branch Equi-
    ties, and/or Olive Branch Equities and Land (collectively, Olive Branch).
    Ms. Currie was allegedly a trustee of Olive Branch. Petitioner testified
    that he was not a trustee of Olive Branch, but in September 2014 he
    signed a “Certification of Trustees Under Trust” representing that he
    was its trustee. Petitioner, Ms. Currie, and Ms. Willardson all professed
    ignorance as to who Olive Branch’s beneficiary was. We find as a fact
    that, if any of these trusts was genuine, petitioner was its beneficiary.
    During 2013–2016 petitioner was the sole signatory on a U.S.
    Bank account in the name of Olive Branch. That account had been
    opened in 2009 by petitioner and Mr. Dillingham. During 2013–2016
    petitioner deposited into this account rent checks he received from oper-
    ators of a cell tower located at 275 Grant Smith Road in Roseburg. Most
    of these checks were made payable to “Olive Branch Equities, Lawrence
    J Saccato Trustee.” Petitioner used funds from this account to pay per-
    sonal expenses, including a 2015 vacation he took with Ms. Currie to
    Pueblo Bonito Sunset Beach in Mexico.
    C.    Real Estate Sale
    In 2002 petitioner acquired from Douglas County real property at
    250 Grant Smith Road in Roseburg (250 Property). On June 4, 2002, a
    warranty deed was recorded transferring the 250 Property to “Lawrence
    James Saccato in his capacity as Trustee of Hideaway Holdings.” This
    document does not indicate what consideration (if any) was paid for the
    250 Property.
    In 2014 Hideaway Holdings, the nominal owner of the 250 Prop-
    erty, transferred it to Currieco. Petitioner, as a purported trustee of
    Hideaway Holdings, executed and recorded a series of warranty deeds
    with respect to this transfer. Currieco paid no consideration to
    Hideaway Holdings for the 250 Property.
    The purpose of the transaction described in the preceding para-
    graph was to facilitate the sale of the 250 Property, while obscuring the
    fact that petitioner was its true owner. On October 15, 2014, the 250
    Property was sold to a third party for $276,472. At the closing, the title
    company issued to Currieco a check for $263,701, representing the sale
    proceeds less the costs of sale.
    That same day Ms. Currie deposited the $263,701 check into an
    account at Oregon Pacific Bank (OPB account). She had opened this
    7
    [*7] account earlier in 2014 for the sole purpose of holding funds belong-
    ing to petitioner or to sham entities he controlled. In November 2015
    Ms. Currie deposited another $7,622 into the OPB account, consisting of
    cash and checks payable to Olive Branch or Hideaway Holdings.
    Ms. Currie testified that the funds in the OPB account belonged
    to Olive Branch and were not income to Currieco. Currieco did not in-
    clude in its income, for tax or financial accounting purposes, any of the
    amounts that Ms. Currie deposited into the OPB account. During 2015,
    $20,000 was drawn from the OPB account to pay charges incurred on
    one of petitioner’s Wells Fargo credit cards.
    D.    IRS Examination
    Petitioner refused to cooperate with the revenue agent (RA) as-
    signed to conduct the examination of his 2013–2016 tax years. The RA
    reconstructed petitioner’s income on the basis of deposits made into the
    various accounts that petitioner controlled. The RA prepared for each
    year a substitute for return (SFR) that met the requirements of section
    6020(b).
    On October 24, 2018, the IRS issued petitioner a timely notice of
    deficiency for 2013–2016 determining the deficiencies and additions to
    tax set forth above. See supra p. 2. The underpayments of tax are at-
    tributable to the rents associated with the storage business, the rents
    associated with the cell phone tower, the sale of the 250 Property, and
    other income including cancellation-of-indebtedness income, patronage
    dividends, and taxable Social Security benefits. Petitioner timely peti-
    tioned this Court, advancing several frivolous and groundless argu-
    ments. He urged that the notice of deficiency was invalid because “it
    was not signed under penalties of perjury by [a] duly authorized assess-
    ment officer.” And he urged that he is exempt from Federal income tax
    because he is “a citizen of the State of Oregon” and “not a federal citizen.”
    OPINION
    The Commissioner’s determinations in a notice of deficiency are
    generally presumed correct, and the taxpayer bears the burden of prov-
    ing them erroneous. See Rule 142(a); Welch v. Helvering, 
    290 U.S. 111
    ,
    115 (1933). In certain circumstances section 7491 may shift the burden
    of proof to the Commissioner on certain factual issues. But that section
    applies only if the taxpayer (among other things) “introduces credible
    evidence” and “has maintained all records required under this title.”
    8
    [*8] § 7491(a)(1), (2)(B). Petitioner does not contend, and he could not
    plausibly contend, that he met these requirements.
    I.    Purported Trusts
    Taxpayers are generally free to structure their affairs to minimize
    taxes. Gregory v. Helvering, 
    293 U.S. 465
     (1935). However, a trust is
    disregarded for tax purposes if in substance it lacks any valid purpose
    but is simply a tax-avoidance device. Zmuda v. Commissioner, 
    79 T.C. 714
    , 719–20 (1982), aff’d, 
    731 F.2d 1417
     (9th Cir. 1984); Markosian v.
    Commissioner, 
    73 T.C. 1235
    , 1244–45 (1980); Nichols v. Commissioner,
    
    T.C. Memo. 2003-24
    , 
    85 T.C.M. (CCH) 798
    , 800, aff’d, 
    79 F. App’x 282
    (9th Cir. 2003). Whether a trust lacks economic substance is a question
    of fact. Paulson v. Commissioner, 
    T.C. Memo. 1991-508
    , aff’d, 
    992 F.2d 789
     (8th Cir. 1993).
    As a threshold matter, petitioner did not meet his burden of prov-
    ing that any of the purported trusts actually existed during 2013–2016.
    He produced no trust agreements, declarations of trust, trust income tax
    returns, or other evidence that would substantiate their existence. Al-
    though he represented to Oregon authorities that he was a trustee of
    various trusts, he denied at trial that he ever served as a trustee. Gen-
    uine trusts have trust documents that preclude this sort of uncertainty.
    When asked about the ultimate beneficiaries of Emerald, Hidea-
    way Holdings, and Olive Branch—which supposedly held, directly or in-
    directly, the storage business, the cell tower, and the 250 Property—
    petitioner, Ms. Currie, and Ms. Willardson all professed not to know. It
    is inconceivable that the settlor, trustees, and managers of a genuine
    trust would be unable to identify its beneficiaries. This evasive behavior
    strengthens our conclusion that these purported trusts were fictions.
    Assuming arguendo that the trusts existed, we find that they
    lacked economic substance and were shams that must be ignored for
    Federal income tax purposes. Currieco was a legitimate business entity.
    But we find that Ms. Currie connived with petitioner to make Currieco
    available to him as a conduit, through which cash could be diverted to
    him while concealing his ownership. To the extent Currieco served as a
    mere conduit, we likewise ignore its existence for Federal income tax
    purposes.
    Petitioner did not offer a shred of admissible evidence—only his
    self-serving and unsubstantiated testimony—that he lacked control over
    the income and assets in the accounts titled to the trusts and to Currieco
    9
    [*9] (insofar as it served as a conduit for funneling money to him). He
    routinely drew cash out of Hide Away’s Umpqua account, Olive Branch’s
    U.S. Bank account, Currieco’s Umpqua account, Currieco’s Rogue ac-
    counts, and Currieco’s OPB account to pay his personal expenses. These
    expenses included hundreds of items charged to his two Wells Fargo
    credit cards, a personal charge account at the Douglas County Farmers
    Co-op, a personal line of credit at WestAmerica Bank, and a vacation he
    took with Ms. Currie to a Mexican beach resort. We find that the depos-
    its made into all of the aforementioned accounts during 2013–2016 be-
    long to petitioner.
    II.   Unreported Income
    Section 61(a) provides that “gross income means all income from
    whatever source derived.” In cases of unreported income, the Commis-
    sioner must establish an evidentiary foundation connecting the tax-
    payer to the income-producing activity, Weimerskirch v. Commissioner,
    
    596 F.2d 358
    , 361 (9th Cir. 1979), rev’g 
    67 T.C. 672
     (1977), or demon-
    strate that the taxpayer actually received income, Edwards v. Commis-
    sioner, 
    680 F.2d 1268
    , 1270–71 (9th Cir. 1982). Once the Commissioner
    has met his threshold burden, the burden shifts to the taxpayer to show
    that the Commissioner’s determinations are arbitrary or erroneous. See
    Hardy v. Commissioner, 
    181 F.3d 1002
    , 1004–05 (9th Cir. 1999), aff’g
    
    T.C. Memo. 1997-97
    .
    Respondent has met his threshold burden here. He has estab-
    lished petitioner’s connection to the Hide Away storage business, the cell
    phone tower, and the 250 Property, and he has shown that petitioner
    regularly extracted funds from the accounts into which the rental in-
    come and sale proceeds were placed. Respondent has also produced
    Forms 1099 establishing petitioner’s connection to the “other income.”
    Petitioner did not assert “a reasonable dispute with respect to any item
    of income reported on” these Forms 1099. See § 6201(d). The burden
    thus shifts to petitioner to prove that the Commissioner’s determina-
    tions of unreported income are arbitrary or erroneous.
    A.     Rental Income
    A taxpayer must maintain books and records establishing the
    amount of his gross income. See § 6001. When a taxpayer does not keep
    accurate books and records, the Commissioner may reconstruct his in-
    come “under such method as, in the opinion of the Secretary, does clearly
    reflect income.” § 446(b); see Petzoldt v. Commissioner, 
    92 T.C. 661
    , 693
    10
    [*10] (1989). Such reconstruction “need only be reasonable in light of
    all surrounding facts and circumstances.” Petzoldt, 
    92 T.C. at 687
    .
    “When a taxpayer keeps no books or records, has large bank deposits,
    and offers no plausible explanation of such deposits, the Commissioner
    is not arbitrary or capricious in resorting to the bank deposit method for
    computing income.” Estate of Mason v. Commissioner, 
    64 T.C. 651
    , 657
    (1975), aff’d, 
    566 F.2d 2
     (6th Cir. 1977); see Gobins v. Commissioner, 
    18 T.C. 1159
    , 1168 (1952), aff’d per curiam, 
    217 F.2d 952
     (9th Cir. 1954).
    Bank deposits are prima facie evidence of income. The bank de-
    posits method starts with the presumption that all money deposited into
    a taxpayer’s bank account during a given period constitutes taxable in-
    come. Price v. United States, 
    335 F.2d 671
    , 677 (5th Cir. 1964). This
    presumption is rebutted to the extent the deposits are shown to include
    nontaxable amounts, and “the Government must take into account any
    non-taxable source . . . of which it has knowledge.” Ibid.; DiLeo v. Com-
    missioner, 
    96 T.C. 858
    , 868 (1991), aff’d, 
    959 F.2d 16
     (2d Cir. 1992). Af-
    ter the IRS reconstructs a taxpayer’s income and determines a defi-
    ciency, the taxpayer bears the burden of proving that the IRS’s imple-
    mentation of the bank deposits method was unfair or inaccurate. See
    Clayton v. Commissioner, 
    102 T.C. 632
    , 645–46 (1994); DiLeo, 
    96 T.C. at 871
    –72.
    Petitioner did not supply books and records or otherwise cooper-
    ate with the RA during the examination. The RA accordingly used the
    bank deposits method to reconstruct petitioner’s income for 2013–2016.
    He began by analyzing account records for Hide Away’s Umpqua ac-
    count and the other accounts that petitioner controlled or to which he
    had access. These other accounts included the U.S. Bank accounts titled
    to Olive Branch and Emerald and the Umpqua, OPB, and Rogue ac-
    counts titled to Currieco.
    The RA summonsed from these financial institutions monthly
    statements, copies of checks, and other documents, all of which are in-
    cluded in the record. He then tabulated the transfers made into these
    accounts that corresponded to the storage rental income and the cell
    tower rental income. In order to reflect more accurately the credit card
    proceeds from Hide Away’s rental business, the RA used the amounts
    appearing on the Forms 1099–K supplied by CTS.
    After eliminating nontaxable receipts of which he was aware, the
    RA concluded that petitioner received, during 2013–2016, $459,785 of
    rents reportable on Schedule E, Supplemental Income and Loss. These
    11
    [*11] amounts constitute the bulk of the ordinary income the RA iden-
    tified as petitioner’s unreported income for these years. Petitioner did
    not challenge, during the examination or at trial, the RA’s use of the
    bank deposits method or the amounts the RA determined to constitute
    taxable income.
    Once the IRS reconstructs a taxpayer’s income and determines a
    deficiency, the taxpayer bears the burden of proving that the IRS’s im-
    plementation of the bank deposits method was unfair or inaccurate. See
    Ruark v. Commissioner, 
    449 F.2d 311
    , 312 (9th Cir. 1971), aff’g per cu-
    riam, 
    T.C. Memo. 1969-48
    ; Clayton, 
    102 T.C. at 645
    –46; DiLeo, 
    96 T.C. at 871
    –72. Petitioner wholly failed to meet his burden of proof; indeed,
    he did not even try, apart from arguing that he was altogether exempt
    from Federal income tax. We accordingly find that the Commissioner’s
    bank deposits analysis, as applied to determine petitioner’s Schedule E
    rental income, has not been shown to be “arbitrary or erroneous.” Hardy
    v. Commissioner, 181 F.3d at 1004.
    B.     Capital Gain
    Gross income includes gains from dealings in property. § 61(a)(3).
    A taxpayer must recognize gain on the sale of property in an amount
    equal to the difference between the amount realized and his cost or ad-
    justed basis. §§ 1001, 1012; Hacker v. Commissioner, T.C. Memo. 2022-
    16, 
    123 T.C.M. (CCH) 1088
    , 1098. The taxpayer bears the burden of
    establishing his basis (if any) in the property. O’Neill v. Commissioner,
    
    271 F.2d 44
    , 50 (9th Cir. 1959), aff’g 
    T.C. Memo. 1957-193
    .
    The IRS determined in the notice of deficiency that petitioner for
    2014 had net taxable capital gain of $263,701 realized upon sale of the
    250 Property. Petitioner does not dispute that the net proceeds from
    this sale were $263,701. But he contends that these proceeds did not
    belong to him.
    We reject that contention. The 250 Property was initially owned
    (in a nominal sense) by Hideaway Holdings, a “trust” that did not exist
    (or was a sham). Petitioner was the true owner of the 250 Property when
    it was conveyed (for no consideration) to Currieco in 2014. Ms. Currie
    deposited the proceeds from the sale of the 250 Property into the OPB
    account. This account was accessible to petitioner, as evidenced by his
    use of funds in that account to pay his Wells Fargo credit card bills.
    Ms. Currie admitted at trial that the funds in the OPB account
    did not belong to Currieco, and Currieco did not report the $263,701 as
    12
    [*12] its income. To the contrary, she testified that the funds in the
    OPB account belonged to Olive Branch, one of petitioner’s “trusts.” We
    find that petitioner owned the 250 Property and that the gain on its sale
    was taxable to him.
    It was petitioner’s burden to establish his cost or adjusted basis
    in the 250 Property. See O’Neill v. Commissioner, 
    271 F.2d at 50
    . If he
    had a basis that could be offset against the sale proceeds, he failed to
    supply any evidence of that basis to the IRS or to the Court. Respondent
    has conceded that petitioner’s gain on this sale is taxable as long-term
    capital gain, rather than short-term gain as determined in the notice of
    deficiency. See § 1222(1), (3). We thus find that petitioner is taxable for
    2014 on long-term capital gain of $263,701. 2
    C.      “Other Income”
    1.      Cancellation of Indebtedness
    The IRS determined in the notice of deficiency that petitioner for
    2013 received $73,906 of cancellation-of-indebtedness (COI) income.
    Gross income generally includes income from the discharge of indebted-
    ness. § 61(a)(12). The rationale of this principle is that the cancellation
    of indebtedness provides the debtor with an economic benefit that is
    equivalent to income. See United States v. Kirby Lumber Co., 
    284 U.S. 1
     (1931); Friedman v. Commissioner, 
    216 F.3d 537
    , 545 (6th Cir. 2000),
    aff’g 
    T.C. Memo. 1998-196
    .
    The year for which a taxpayer realizes COI income is a question
    of fact to be determined on the basis of the evidence. See Policy Holders
    Agency, Inc. v. Commissioner, 
    41 T.C. 44
    , 47 (1963); Newman v. Com-
    missioner, 
    T.C. Memo. 2016-125
    , 
    111 T.C.M. (CCH) 1599
    , 1600. A debt
    is deemed discharged the moment it becomes clear that the debt will
    never be repaid. Cozzi v. Commissioner, 
    88 T.C. 435
    , 445 (1987). “Any
    ‘identifiable event’ which fixes the loss with certainty may be taken into
    consideration.” 
    Id.
     (citing United States v. S.S. White Dental Mfg. Co.,
    
    274 U.S. 398
     (1927)); see also 
    Treas. Reg. § 1
    .6050P-1(b)(2)(i). A credi-
    tor’s issuance of a Form 1099–C, Cancellation of Debt, is an identifiable
    2 On October 13, 2022, four months after the trial, respondent filed a Motion
    to amend his Answer to assert additional capital gain on the sale of other properties
    on Grant Smith Road allegedly belonging to petitioner. We denied that Motion, con-
    cluding that petitioner would be prejudiced by allowing that amendment at the post-
    trial stage of the case.
    13
    [*13] event that is evidence of the creditor’s intention to cancel the debt.
    Newman, 111 T.C.M. (CCH) at 1600; 
    Treas. Reg. § 1
    .6050P-1(b)(2)(i)(G).
    For 2013 petitioner received Forms 1099–C from U.S. Bank and
    Capital One Bank reporting COI income totaling $29,546. The Form
    1099–C issued by U.S. Bank reported COI income of $22,208, relating
    to an account titled to “Emerald Investment Co., Lawrence J. Saccato.”
    The Form 1099–C issued by Capital One Bank reported COI income of
    $7,338, relating to an account titled to “Larry Saccato, Hideaway Hold-
    ings.”
    Petitioner introduced no evidence to contradict the information
    appearing on these two Forms 1099–C. Indeed, he introduced no evi-
    dence on this subject at all. 3 We accordingly find that $29,546, the sum
    of the amounts appearing on these Forms 1099–C, is taxable to peti-
    tioner as COI income for 2013. On brief respondent conceded $44,360,
    the balance of the COI income determined in the notice of deficiency for
    2013. We accordingly hold that petitioner is not taxable on the latter
    sum.
    2.      Patronage Dividends
    The IRS determined in the notice of deficiency that for 2013–2016
    petitioner received but did not report patronage dividends of $56, $11,
    $16, and $16, respectively. These amounts appear on Forms 1099–
    PATR, Taxable Distributions Received From Cooperatives, issued to pe-
    titioner by the Douglas County Farmer’s Co-op.
    “Patronage dividends” are includable in gross income unless an
    exception applies. § 1385(a); Ag Processing, Inc. v. Commissioner, 
    153 T.C. 34
    , 46 (2019). Petitioner conceded at trial that he received these
    amounts but offered frivolous arguments in contending that they are
    excludable from his gross income. We hold that the patronage dividends
    are taxable to him as determined in the notice of deficiency.
    D.      Social Security Benefits
    The Internal Revenue Code provides that up to 85% of a tax-
    payer’s Social Security benefits are includable in gross income if his
    3 At the beginning of trial petitioner urged that he was not taxable on the
    amount reported by U.S. Bank, vaguely suggesting that “an insurance company” had
    paid off the U.S. Bank debt. But he never followed up on this suggestion and presented
    no evidence tending to show that respondent’s determination was incorrect.
    14
    [*14] “modified adjusted gross income” exceeds specified thresholds. See
    § 86(a) and (b); Brady v. Commissioner, 
    T.C. Memo. 2013-1
    , 
    105 T.C.M. (CCH) 1001
    , 1002. The IRS determined in the notice of deficiency that
    petitioner received $3,697 of Social Security benefits in 2016 and that
    85% of that total, or $3,142, was includable in his gross income under
    section 86(a)(2)(B). At trial petitioner conceded that he received $3,697
    of Social Security benefits, and he did not dispute respondent’s calcula-
    tion of the taxable portion. We accordingly sustain inclusion of $3,142
    of taxable Social Security benefits in his gross income for 2016.
    III.   Additions to Tax
    A.    Failure to File
    Section 6651(a)(1) provides for an addition to tax of 5% of the tax
    required to be shown on a return for each month (or a fraction thereof)
    for which there is a failure to file the return, not to exceed 25% in toto.
    Respondent has the burden of production on this issue. See § 7491(c).
    Respondent has produced Forms 4340, Certificate of Assessments, Pay-
    ments, and Other Specified Matters, which show that petitioner did not
    file returns for 2013–2016. These were sufficient to satisfy respondent’s
    burden of production. See Murray v. Commissioner, T.C. Memo. 2017-
    67, 
    113 T.C.M. (CCH) 1314
    , 1317.
    Petitioner has supplied no evidence that he filed Federal income
    tax returns for 2013–2016. Indeed, by asserting frivolous arguments in
    support of his assertion that he had no obligation to file such returns, he
    has effectively admitted that he did not file them. He has alleged no
    facts and produced no evidence showing that his failures were “due to
    reasonable cause and not due to willful neglect.” See § 6651(a)(1). We
    will accordingly sustain the failure-to-file additions to tax for 2013–
    2016.
    B.    Failure to Pay
    Section 6651(a)(2) provides for an addition to tax when a taxpayer
    fails to pay timely the tax shown on a return unless the taxpayer proves
    that his failure was due to reasonable cause and not due to willful ne-
    glect. An SFR prepared by the IRS pursuant to section 6020(b) is treated
    as the “return” filed by the taxpayer for purposes of section 6651(a)(2).
    See § 6651(g). To meet his burden of production under section 7491(c)
    for this addition to tax, respondent must produce evidence of a tax re-
    turn, which can take the form of an SFR. Wheeler v. Commissioner, 
    127 T.C. 200
    , 208–10 (2006), aff’d, 
    521 F.3d 1289
     (10th Cir. 2008).
    15
    [*15] Respondent met his burden of production by introducing into ev-
    idence certified copies of the SFRs that the IRS prepared on petitioner’s
    behalf for 2013–2016. These SFRs met the requirements of section 6020
    and thus constituted valid tax returns. Petitioner has not paid the tax
    shown on those returns and has not shown that his failures were “due
    to reasonable cause and not due to willful neglect.” See § 6651(a)(2).
    Quite the contrary: Petitioner urged as his justification for failing to file
    that he “was not a federal citizen” and was thus immune from Federal
    income tax. We will accordingly sustain the failure-to-pay additions to
    tax for 2013–2016.
    C.     Failure to Make Estimated Tax Payments
    Section 6654(a) imposes an addition to tax on an individual who
    underpays his estimated tax. This addition to tax is calculated with ref-
    erence to four required installment payments of the taxpayer’s esti-
    mated tax liability. § 6654(c) and (d). Each required installment is
    equal to 25% of the “required annual payment.” § 6654(d). Where a
    taxpayer has not filed a return for the current tax year or the immedi-
    ately preceding tax year, the “required annual payment” is equal to 90%
    of the tax due for the current year. § 6654(d)(1)(B).
    Respondent’s burden of production under section 7491(c) requires
    him to produce, for each year for which the addition to tax is asserted,
    evidence that the taxpayer had a “required annual payment” under sec-
    tion 6654(d). To do so, respondent must establish the tax shown on the
    taxpayer’s return for the preceding year or demonstrate that the tax-
    payer filed no such return. See Wheeler, 
    127 T.C. at 212
    ; Collins v.
    Commissioner, 
    T.C. Memo. 2020-50
    , 
    119 T.C.M. (CCH) 1319
    , 1330.
    Respondent met his burden of production by producing Forms
    4340 showing that petitioner did not file income tax returns for 2012–
    2016. See Murray, 113 T.C.M. (CCH) at 1317. Petitioner’s “required
    annual payment” for 2013–2016 thus equaled 90% of the tax due for
    each of those years. See § 6654(a), (d)(1)(B). Petitioner has not alleged
    (and has adduced no facts indicating) that he made any estimated tax
    payments for 2013–2016. We will accordingly sustain the additions to
    tax under section 6654(a).
    IV.   Penalty for Maintaining Frivolous Positions
    Section 6673(a)(1) authorizes this Court to require a taxpayer to
    pay to the United States a penalty, not in excess of $25,000, “[w]henever
    it appears to the Tax Court that—(A) proceedings before it have been
    16
    [*16] instituted or maintained . . . primarily for delay, [or] (B) the tax-
    payer’s position in such proceeding is frivolous or groundless.” The pur-
    pose of section 6673 is to compel taxpayers to conform their conduct to
    settled tax principles and to deter the waste of judicial and IRS re-
    sources. Coleman v. Commissioner, 
    791 F.2d 68
    , 71–72 (7th Cir. 1986);
    Salzer v. Commissioner, 
    T.C. Memo. 2014-188
    , 
    108 T.C.M. (CCH) 284
    ,
    287. “Frivolous and groundless claims divert the Court’s time, energy,
    and resources away from more serious claims and increase the needless
    cost imposed on other litigants . . . .” Kernan v. Commissioner, 
    T.C. Memo. 2014-228
    , 
    108 T.C.M. (CCH) 503
    , 512, aff’d, 
    670 F. App’x 944
     (9th
    Cir. 2016).
    Petitioner began advancing frivolous arguments at the com-
    mencement of this case, and he has not stopped since, despite our warn-
    ings that he should desist. He asserted in his Petition that he is exempt
    from Federal income tax because he is “a citizen of the State of Oregon”
    and “not a federal citizen.” And he urged that the notice of deficiency
    was invalid because “it was not signed under penalties of perjury by duly
    authorized assessment officer.” A notice of deficiency is not required to
    be signed “under penalties of perjury.” And given the restrictions
    against assessment set forth in section 6213, a notice of deficiency is not
    required to be signed by “a duly authorized assessment officer.” All of
    these arguments have been identified by the Commissioner as frivolous.
    See Wnuck v. Commissioner, 
    136 T.C. 498
     (2011); Aldrich v.Commis-
    sioner, 
    T.C. Memo. 2013-201
    , 
    106 T.C.M. (CCH) 192
     (citing Crain v.
    Commissioner, 
    737 F.2d 1417
    , 1417 (5th Cir. 1984)).
    Although the liabilities determined in the notice of deficiency ex-
    ceed $50,000 for both 2013 and 2014, petitioner filed his case as a “small
    tax case,” a procedure available only when the amount in dispute does
    not exceed $50,000. See § 7463(a), (e). In numerous filings he defended
    that position on the theory that, as “a citizen of Oregon,” he had zero
    Federal tax liability for either year. By Order served May 8, 2019, we
    struck the “S” designation and directed that the case proceed under the
    Court’s regular deficiency procedures.
    Four months after filing his Petition, petitioner moved to have
    this case dismissed for lack of jurisdiction, setting forth a plethora of
    arguments pulled off tax-protester websites. He asserted (among other
    things) that the IRS “lacks personam jurisdiction over Lawrence James
    Saccato, who is an American, Citizen of Oregon (expressly not a federal
    citizen and not resident alien).” And he asserted that the IRS “failed to
    17
    [*17] execute the required procedurally proper Assessment Certifi-
    cate(s) which corresponds to each Notice of Deficiency.”
    In our May 8, 2019, Order, we denied petitioner’s Motion to Dis-
    miss. He immediately moved to vacate our Order, asserting that the
    deficiency notices were invalid and that the Court must take “Manda-
    tory Judicial Notice” of the Internal Revenue Code. We denied that Mo-
    tion, but he persisted in arguing that we lacked jurisdiction, contending
    in an August 2020 Motion for Continuance that he is neither a “federal
    citizen nor a resident alien.”
    In an Order served February 4, 2021, we warned petitioner that
    he risked a sizable penalty if he hewed to the course he was then pursu-
    ing:
    I.R.C. § 6673(a)(1) authorizes this Court to require a tax-
    payer to pay to the United States a penalty of up to $25,000
    if it appears to the Court that the taxpayer has instituted
    or maintained proceedings “primarily for delay” or has
    taken a position that “is frivolous or groundless.” Peti-
    tioner’s submissions to this Court to date have included nu-
    merous frivolous statements and positions. We warn peti-
    tioner that he risks a significant penalty if he continues on
    this path. See, e.g., Briggs v. Commissioner, 
    T.C. Memo. 2016-86
     (imposing penalty of $3,000); Balice v.Commis-
    sioner, 
    T.C. Memo. 2015-46
     (imposing penalty of $25,000).
    Despite that warning, petitioner advanced more frivolous argu-
    ments in a document filed July 26, 2021 (docket entry #33). We issued
    another warning three weeks later (docket entry #34). Still undeterred,
    he filed a Summary Judgment Motion on October 4, 2021, stating: “Pe-
    titioner has noticed [sic] the Respondent as far back as 2005 of Peti-
    tioner’s standing of his being an Oregon State Citizen and specifically
    NOT a Federal Citizen or a Resident Alien. At no time since 2005, after
    Petitioner has noticed [sic] each and every subsequent Commissioner
    and other high ranking officials, there has not been a rebuttal of Peti-
    tioner’s standing.”
    At the outset of trial we again warned petitioner to refrain from
    making frivolous arguments. He again ignored our warning, filling his
    post-trial brief with gibberish commonly embraced by tax protesters—
    e.g., that he “never knowingly elected to be treated as a ‘taxpayer’,” that
    he “was protected through the doctrine of estoppel,” and that “the notice
    18
    [*18] of deficiency lacked the required jurat signed under the penalties
    of perjury.”
    Although petitioner maintains that “[he] is not a tax protestor,”
    his filings in this Court belie that contention. His persistent filing of
    frivolous papers has wasted the Government’s time and ours. We will
    accordingly require that he pay to the United States a penalty of
    $10,000.
    To implement the foregoing,
    Decision will be entered under Rule 155.