DocketNumber: Docket No. 19391-08L
Citation Numbers: 2010 T.C. Memo. 170, 100 T.C.M. 91, 2010 Tax Ct. Memo LEXIS 206
Judges: PARIS
Filed Date: 8/3/2010
Status: Non-Precedential
Modified Date: 4/17/2021
Decision will be entered for respondent.
PARIS,
This case was submitted fully stipulated *207 under
James M. Blaga (Mr. Blaga) and Vivian P. Blaga (Mrs. Blaga), husband and wife, lived in Michigan when they filed their petition. For all the tax years at issue Mr. Blaga worked as a medical technologist for St. John Health Corp. (St. John Health). During the tax years 2002 and 2003 Mrs. Blaga operated a cleaning service business named "Personal Touch Cleaning Services". She was a housewife for the tax year 2004 and worked outside the home at Mid-Day Properties, Inc. (Mid-Day Properties), for the tax year 2005.
Petitioners timely filed their joint returns on Forms 1040, U.S. Individual Income Tax Return, and paid income taxes shown thereon for the tax years 2002, 2003, and 2004. For tax year 2002 petitioners reported Mr. Blaga's wages of $62,197, Mrs. Blaga's business income of $5,903, and interest income of $42. Petitioners attached the Form W-2, Wage and Tax Statement, issued by St. John Health to report the wages Mr. Blaga earned and the withholdings on his wages. Petitioners also reported the self-employment tax of *208 $834 on Mrs. Blaga's business income for the tax year 2002 and claimed a corresponding deduction of $417 for one-half of the self-employment tax. On the basis of their reporting, petitioners paid an income tax of $5,630 for tax year 2002. For the tax year 2003 petitioners reported Mr. Blaga's wages of $62,030, Mrs. Blaga's business income of $4,802, and their interest income of $25. For that tax year petitioners again attached the Form W-2 from St. John Health, reported the self-employment tax of $679, and claimed a deduction of $340 for one-half of the self-employment tax. On the basis of their reporting, petitioners paid an income tax of $6,605 for the tax year 2003. For the tax year 2004 petitioners reported Mr. Blaga's wages of $63,276, their interest income of $2,424, and their taxable State refunds, credit, or offsets of $36. Petitioners again attached the Form W-2 from St. John Health. On the basis of their reporting, petitioners paid income tax of$6,039 for the tax year 2004.
On March 1, 2006, petitioners filed Form 1040X, Amended U.S. Individual Income Tax Return, for the tax year 2002, reporting that Mr. *209 Blaga received no wages for the tax year 2002. On the amended return petitioners wrote: "applied understanding of statutory language behind
By April 12, 2006, petitioners filed their 2004 amended return, reporting that Mr. Blaga did not earn any wages. On the amended return petitioners wrote that they "applied [their] understanding of statutory language behind
On April 17, 2006, petitioners amended their 2003 return to report that Mrs. Blaga had earned no income from her cleaning service business and Mr. Blaga had received no salary for the tax year 2003. Petitioners also indicated that Mrs. Blaga's business income was not subject to self-employment tax. On the 2003 amended return petitioners wrote: "applied understanding of statutory language behind
On April 28, 2006, petitioners filed another amended return for 2002, reporting a calculation error on their previous amended return. Petitioners did not make any changes to their tax position or the amount of their claimed refund.
Petitioners untimely filed a tax return for the tax year 2005 on May 4, 2006. On that return petitioners reported the same position as on their amended returns, claiming that their wages should not be taxed. Petitioners attached, as they had in previous tax years, a Form 4852 stating that Mr. Blaga received no wages from his employer but reporting that St. John Health had withheld Federal income tax, State tax, local tax, Social Security tax, and medicare tax for that tax year. Although Mrs. Blaga worked at Mid-Day Properties*212 in 2005, petitioners claimed that Mrs. Blaga did not receive any wages from Mid-Day Properties and submitted a Form 4852 reporting that Mid-Day Properties had withheld State income tax, Social Security tax, and medicare tax. Additionally, petitioners attached to their 2005 tax return a letter dated April 10, 2006, conceding that they did receive wages but contending that the Federal Government does not have jurisdiction over private citizens' wages pursuant to
By letters dated July 31 and September 20, 2006, respondent informed petitioners that they had submitted frivolous tax returns for the tax years 2002 and 2004, respectively, and provided a 30-day period from the date of those notices for petitioners to withdraw their frivolous tax returns (notices to withdraw). Each notice to withdraw stated that if petitioners withdrew those frivolous tax returns, the penalty imposed under
By letters dated February 19, 2007, January 8, 2007, December 11, 2006, and February 12, 2007 for tax years 2002, 2 2003, 2004, and 2005, respectively, respondent assessed each petitioner with frivolous return penalties under
On April 28, 2007, respondent issued to Mrs. Blaga a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for the tax years 2003 and 2004. On May 24, 2007, petitioners requested a collection due process hearing for the tax years 2003 and 2004. On July 24, 2007, respondent issued to Mr. Blaga a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for the tax years 2002, 2003, 2004, and 2005. On August 22, 2007, petitioners requested a collection due process hearing for the tax years 2002, 2003, 2004, and 2005. On November 8, 2007, respondent issued to Mrs. Blaga a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for the tax years 2002 and 2005. In a letter dated November 26, 2007, petitioners requested a collection *215 due process hearing for the tax years 2002 and 2005. In each of the letters requesting a collection due process hearing petitioners asserted that the Federal Government cannot tax their wages or business income because the Federal Government does not have jurisdiction over them as private citizens.
On November 26, 2007, respondent prematurely filed a notice of levy with LaSalle Bank Midwest N.A. in an attempt to collect from petitioners' personal bank accounts the
By a letter dated April 18, 2008, petitioners requested that the hearing be held by correspondence. On July 1, 2008, respondent issued a Notice of Determination Concerning Collection Action(s) Under
On March 25, 2010, this Court issued a bench opinion in docket No. 8101-09, wherein Mr. Blaga filed a petition to contest a notice of deficiency issued for the tax year 2005. In that case the Court concluded that *216 Mr. Blaga's assertion, such as he makes here, that private citizens' income cannot be taxable, is frivolous and warned him that a penalty would be imposed if he continued to make such an assertion.
This case involves a review of respondent's determination to proceed with collection by levy of frivolous return penalties imposed on petitioners for tax years 2002, 2003, 2004, and 2005. The Secretary has the authority to collect a tax by means of a levy. See
If the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the underlying tax liability, the Court reviews the matter de novo. See
Petitioners *218 are entitled to challenge the assessment of frivolous return penalties under
The Court will review other aspects of respondent's determination regarding the collection action for abuse of discretion.
A taxpayer is liable for a frivolous return penalty under
For the reasons set forth below, the Court finds that respondent has met his burden of proof with respect to all three elements of
Respondent satisfied the first element. Petitioners' Forms 1040X for tax years 2002, 2003, and 2004 purported to be income tax returns filed to obtain refunds of tax. See
As to the second element of the frivolous return penalty, respondent has met his burden of proving that each of petitioners' 2002, 2003, 2004, and 2005 purported returns was substantially incorrect on its face. Petitioners claimed on their purported returns and on the attached Forms 4852 that they received no wages, but the original Forms W-2 named their employers as either St. John Health or Mid-Day Properties and stated that their employers had withheld certain taxes on the compensation paid in exchange for petitioners' services. Furthermore, petitioners reported on their purported returns for 2002 and 2003 that Mrs. Blaga's business earned no income but claimed a deduction for one-half of her self-employment tax. The letter attached to their purported return for 2005 makes patently erroneous assertions such as that the Federal Government could only tax income "federally connected" and not the wages petitioners received from the private sector. By the same token, none of the purported returns petitioners submitted contained information on which the substantial correctness of the self-assessment might be judged.
The third and final *221 element of the frivolous return penalty is likewise satisfied because the purported returns reflect frivolous positions. This Court and others have repeatedly characterized returns reflecting zero income and zero tax as frivolous. See
To report zero wages on their returns, petitioners advanced other arguments, including that wages do not constitute taxable income under
The Court concludes that petitioners are liable under
The Court now addresses whether respondent abused his discretion in determining to proceed with collection by levy of the frivolous return penalties. Petitioners bear the burden of proof. See
This Court sustains respondent's imposition of the frivolous return penalties for the tax years 2002, 2003, 2004, and 2005 because respondent has met all the elements set forth in
This Court has considered all arguments the parties have made and has found those arguments not discussed herein to be irrelevant and/or without merit.
To reflect the foregoing,
1. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code), and all Rule References are to the Tax Court Rules of Practice and Procedure.↩
2. The 2002 notice of penalty charge informed Mr. and Mrs. Blaga that a penalty of $1,000 had been imposed on each of them for each of their frivolous amended returns. The other notices informed Mr. and Mrs. Blaga that a penalty of $500 had been imposed on each of them for either their frivolous amended return for the tax years 2003 and 2004 or their frivolous 2005 tax return.↩