Zielasko v. Commissioner

ELINA H. ZIELASKO and FRED W. ZIELASKO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Zielasko v. Commissioner

Docket No. 20949-91

United States Tax Court

T.C. Memo 1993-177; 1993 Tax Ct. Memo LEXIS 186; 65 T.C.M. (CCH) 2458;

April 21, 1993, Filed

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Decision will be entered under Rule 155.

Elina H. Zielasko and Fred W. Zielasko, pro se.

For respondent: John M. Altman.

PARR

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PARR

MEMORANDUM FINDINGS OF FACT AND OPINION

PARR, Judge: Respondent determined deficiencies and additions to tax with regard to petitioner Fred W. Zielasko as follows:

Additions to Tax, Secs.
Year	Deficiency	6653(b)(1)	6653(b)(2)	6653(b)(1)(A)
1983	$ 6,583	$ 3,292	50% of the	N/A
			interest due
			on $ 6,583
1984	4,977	2,489	50% of the	N/A
			interest due
			on $ 4,977
1985	7,986	3,993	50% of the	N/A
			interest due
			on $ 7,986
1986	9,370	N/A	N/A	$ 7,028
1987	18,327	N/A	N/A	13,745
1988	17,547	N/A	N/A	13,160

Additions to Tax, Secs.
Year	6653(b)(1)(B)	6654	6661	6621(c)
1983	N/A	$ 403	$ 1,646	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 6,583
1984	N/A	313	-0-	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 4,977
1985	N/A	457	1,997	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 7,986
1986	50% of the	454	2,343	Interest
	interest due			at 120%
	on $ 9,370			of sec.
				6621(a)
				rate on
				$ 9,370
1987	50% of the	990	4,582	Interest
	interest due			at 120%
	on $ 18,327			of sec.
				6621(a)
				rate on
				$ 18,327
1988	N/A	1,122	4,387	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 17,547

With regard to Fred W. Zielasko, respondent conceded that he is not liable for the additions to tax for fraud, that he is not liable for the increased rate of interest under section 6621(c) for any of the years in issue, and that he is not liable for additions to tax under section 6661.

Respondent determined deficiencies and additions to tax as follows with regard to petitioner Elina H. Zielasko:

Additions to Tax, Secs.
Year	Deficiency	6653(b)(1)	6653(b)(2)	6653(b)(1)(A)
1983	$ 3,245	$ 1,623	50% of the	N/A
			interest due
			on $ 3,245
1984	1,851	926	50% of the	N/A
			interest due
			on $ 1,851
1985	3,334	1,667	50% of the	N/A
			interest due
			on $ 3,334
1986	4,204	N/A	N/A	$ 3,153
1987	12,940	N/A	N/A	9,705
1988	11,672	N/A	N/A	8,754

Additions to Tax, Secs.
Year	6653(b)(1)(B)	6654	6661	6621(c)
1983	N/A	$ 199	0	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 3,245
1984	N/A	117	0	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 1,851
1985	N/A	191	0	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 3,334
1986	50% of the	203	0	Interest
	interest due		at 120%
	on $ 4,204		of sec.
				6621(a)
				rate on
				$ 4,204
1987	50% of the	699	$ 3,235	Interest
	interest due		at 120%
	on $ 12,940			of sec.
				6621(a)
				rate on
				$ 12,940
1988	N/A	745	2,918	Interest
				at 120%
				of sec.
				6621(a)
				rate on
				$ 11,672

In the answer, respondent conceded that petitioner Elina H. Zielasko is not liable for the additions to tax for fraud under section 6653(b)(1) and (2) ¹ for the years 1983, 1984, and 1985, and under section 6653(b)(1)(A) and (B) for 1986, 1987, and 1988. Respondent further conceded that Elina H. Zielasko is not liable for the increased rate of interest under section 6621(c) for 1983 through 1988, and that she is not liable for additions to tax under section 6661.

Because petitioners substantiated additional expenses, thereby reducing the deficiencies determined by the Commissioner, the amounts in dispute at time of trial were as follows:

Amounts in Dispute, Elina Zielasko:

Additions to Tax, Secs.
Year	Deficiency	6651(a)	6653(a)(1)	6653(a)(2)
1984	1,851	463	93	*
1985	3,334	834	167	*
1986	4,204	1,051	N/A	N/A
1987	12,940	3,235	N/A	N/A
1988	11,672	2,918	N/A	N/A

Additions to Tax, Secs.
Year	6653(a)(1)(A)	6653(a)(1)(B)	6654
1983	N/A	N/A	$ 199
1984	N/A	N/A	117
1985	N/A	N/A	191
1986	$ 210	*	203
1987	647	*	699
1988	584	N/A	745

Amounts in Dispute, Fred Zielasko:

Additions to Tax, Secs.
Year	Deficiency	6651(a)	6653(a)(1)	6653(a)(2)
1983	$ 6,583	$ 1,646	$ 329	*
1984	4,977	1,244	249	*
1985	7,986	1,997	399	*
1986	9,370	2,343	N/A	N/A
1987	18,327	4,582	N/A	N/A
1988	17,547	4,387	N/A	N/A

Additions to Tax, Secs.
Year	6653(a)(1)(A)	6653(a)(1)(B)	6654
1983	N/A	N/A	$ 403
1984	N/A	N/A	313
1985	N/A	N/A	457
1986	$ 469	*	454
1987	916	*	990
1988	877	N/A	1,122

The additions to tax for negligence and for failure to file returns were first asserted by respondent on answer.

The issues in dispute are:

1. Whether petitioners received unreported income during taxable years 1983 through 1988 from the operation of a sole proprietorship known as Electronic Cash Register Systems.

2. Whether petitioners received unreported interest income for taxable years 1983, 1984, 1985, and 1988.

3. Whether petitioner, Fred Zielasko, is liable for self-employment tax for the years 1983 through 1988.

4. Whether petitioners are liable for additions to tax, under section 6651(a), for failure to file Federal income tax returns for taxable years 1983 through 1988.

5. Whether petitioners are liable for additions to tax, under section 6653(a)(1) and (2), for taxable years 1983, 1984, and 1985, and section 6653(a)(1)(A) and (B) for taxable years 1986, 1987, and 1988, for negligence or intentional disregard of rules or regulations.

6. Whether petitioners are liable for additions to tax, under section 6654, for taxable years 1983 through 1988 for failure to pay estimated tax.

FINDINGS OF FACT

Most of the facts have been stipulated by petitioner Fred W. Zielasko and respondent. Elina H. Zielasko refused to sign the stipulation of facts. She appeared at trial but did not testify.

When they filed their petition in this case, petitioners resided in Everett, Washington.

During the years in issue, petitioners were married and domiciled in the State of Washington. Mr. Zielasko sold and serviced cash registers and related equipment as a sole proprietorship known as Electronic Cash Register Systems. Mr. Zielasko received the following amounts from his business during the years in issue:

1983	Gross Funds	$  51,197
	Less: Cost of Goods Sold	(32,477)
	Less: Expenses	(6,009)
	Net Income	$ 12,711
1984	Gross Funds	$  35,417
	Less: Cost of Goods Sold	(20,328)
	Less: Expenses	(7,994)
	Net Income	$   7,095
1985	Gross Funds	$  72,868
	Less: Cost of Goods Sold	(36,389)
	Less: Expenses	(12,710)
	Net Income	$  23,769
1986	Gross Funds	$  59,564
	Less: Cost of Goods Sold	(35,376)
	Less: Expenses	(10,294)
	Net Income	$  13,894
1987	Gross Funds	$ 162,627
	Less: Cost of Goods Sold	(75,684)
	Less: Expenses	(38,003)
	Net Income	$  48,940
1988	Gross Funds	$ 137,719
	Less: Cost of Goods Sold	(54,242)
	Less: Expenses	(25,378)
	Net Income	$  58,099

Mr. Zielasko also received interest income in the amounts of $ 35, $ 44, $ 76, and $ 18, for the years 1983, 1984, 1985, and 1988, respectively.

Neither petitioner filed Federal income tax returns for the years 1983 through 1988. Neither petitioner made payments of estimated tax for any of the years in issue.

OPINION

Petitioners have the burden of proof regarding the deficiencies and additions to tax under section 6654. Rule 142(a).

Issues 1 and 2: Unreported Income

Section 61 defines gross income as all income from whatever source derived. "Compensation for services" and "interest" are included within the definition of gross income. Sec. 61(a)(1), (4).

Petitioners argue that the income tax is a "voluntary" tax and, since petitioners did not voluntarily file any returns they are not liable for income tax. The matter of filing tax returns and paying taxes is not voluntary. Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988), affg. T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006">784 F.2d 1006, 1009 (9th Cir. 1986); see also United States v. Romero, 640 F.2d 1014">640 F.2d 1014, 1016 (9th Cir. 1981) (taxpayer's good faith disagreement with statutory provisions of income tax laws did not excuse her failure to file income tax returns). They also assert that the funds received from the business are not "income", that the Tax Court has no jurisdiction "to assess as a 'deficiency' the total alleged income tax liability of petitioners in violation of the 'self-assessment' nature of the income tax", and other common protester-type arguments.

As every court to consider these arguments has observed, they have no merit. Gross income means all income from whatever source derived including, but not limited to, wages, salaries, and income from self-employment. Any monies which come to the taxpayer as the fruits of his labor are "income". See generally Lucas v. Earl, 281 U.S. 111">281 U.S. 111, 114-115 (1930); Roberts v. Commissioner, 176 F.2d 221">176 F.2d 221, 225 (9th Cir. 1949). It includes income realized in any form, whether in money, property, or services. Income as defined under the Sixteenth Amendment is "gain derived from capital, from labor, or from both combined". Eisner v. Macomber, 252 U.S. 189">252 U.S. 189, 207 (1920).Section 61 encompasses all realized accessions to wealth. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Moreover, the Tax Court, which was established under Article I of the Constitution, has authority to adjudicate disputes between taxpayers and respondent when a notice of deficiency has been issued and the Tax Court petition is timely filed. Stix Friedman & Co. v. Coyle, 467 F.2d 474">467 F.2d 474 (8th Cir. 1972); Rowlee v. Commissioner, 80 T.C. at 1114-1115. A petition in this case was timely filed by petitioners, and the Tax Court clearly has jurisdiction to decide the matter.

Issue 3: Self-Employment Tax

Respondent determined petitioner Fred W. Zielasko is liable for tax under section 1401. Section 1401 imposes a tax for each taxable year on the "self-employment income" of every individual. Section 1402(b) defines self employment income as the "net earnings from self employment" derived by an individual, with certain limitations. Section 1402(a), in turn, defines an individual's "net earnings from self employment" as the gross income derived by an individual from any trade or business carried on by such individual, also with certain limitations.

Section 1402(c) provides that the term "trade or business" when used with reference to self-employment income or net earnings from self employment, shall have the same meaning as when used in section 162 (relating to trade or business expenses). The pleadings and stipulation of facts, as well as certain deemed admissions, clearly establish that petitioner Fred Zielasko engaged in his own trade or business of selling and servicing cash registers during the years in issue. Accordingly, respondent's determination is sustained.

Issue 4: Additions to Tax for Failure to File

Section 6651(a) imposes an addition to tax for failure to file a required return on or before the prescribed filing date. The addition to tax consists of an addition to the amount required to be shown as tax on the return of 5 percent of the tax per month, but not to exceed 25 percent of the tax required to be shown on the return. Since the additions to tax under section 6651 were first asserted by respondent on answer, respondent bears the burden of proof with respect to this issue. Rule 142(a).

It is undisputed that petitioners failed to file returns for each of the years in issue. The stipulation of facts clearly establishes that Mr. Zielasko received income from selling and servicing cash registers during the years in issue. Since, at all relevant times, petitioners were married and domiciled in Washington, one-half of the income earned by Mr. Zielasko is attributable to Mrs. Zielasko under the community property laws of the State of Washington. See Wash. Rev. Code Ann. secs. 26.16.010-26.16.210 (West 1986). In their trial memorandum, petitioners refer to a purported separate property agreement between petitioner Fred W. Zielasko and petitioner Elina H. Zielasko. Although given the opportunity to do so, neither petitioner testified as to any such property agreement, and no written document purporting to be such an agreement was offered in evidence. Therefore, we deem this argument to have been waived. Thus, both petitioners were required to file returns during the years in issue. Accordingly, respondent's determination is sustained.

Issue 5: Negligence Addition to Tax

Generally, section 6653(a)(1) for the years 1983 through 1985, and section 6653(a)(1)(A) for the years 1986 through 1988, impose an addition to tax if any part of an underpayment is due to negligence or intentional disregard of the rules or regulations. Section 6653(a)(2), for the years 1983 through 1985, and section 6653(a)(1)(B) for the years 1986 and 1987 impose an addition to tax in an amount equal to 50 percent of the interest due on the portion of the underpayment attributable to negligence. Negligence is defined as lack of care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances. Neely v. Commissioner, 85 T.C. 934">85 T.C. 934, 937 (1985).

As discussed above, petitioners were required to file returns for the years in issue but failed to do so. Failure to file returns is prima facie evidence of negligence. Emmons v. Commissioner, 92 T.C. 342">92 T.C. 342, 349-350 (1989), affd. 898 F.2d 50">898 F.2d 50 (5th Cir. 1990). Moreover, petitioners failed to maintain any books or records with respect to the income and expenses of the business. Accordingly, the determinations of negligence are sustained.

Issue 6: Section 6654 Addition to Tax

Section 6654(a) provides that, in the case of any underpayment of estimated tax by an individual, there shall be added to the tax an amount determined by applying the rate established under section 6621, to the amount of the underpayment for the period of the underpayment. In the present case, petitioner failed to make any payments of estimated tax for any of the years in issue. The addition to tax under section 6654(a) is mandatory unless petitioners can prove that they fall into one of the statutory exceptions under section 6654(e). Baldwin v. Commissioner, 84 T.C. 859">84 T.C. 859 (1985). Petitioners have not shown such proof. Accordingly, petitioners are liable for additions to tax under section 6654 for all the years in issue.

To account for concessions made by respondent,

Decision will be entered under Rule 155.

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Footnotes

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

• *. 50% of the interest due on the entire deficiency.↩

• *. 50% of the interest due on the entire deficiency.↩