Harvey v. Commissioner

T.C. Memo. 1997-337

UNITED STATES TAX COURT

TIMOTHY HARVEY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5474-96. Filed July 24, 1997.

Timothy Harvey, pro se.

Amy Dyar Seals, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Chief Special

Trial Judge Peter J. Panuthos pursuant to the provisions of

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section 7443A(b)(4) and Rules 180, 181, and 183.1 The Court

agrees with and adopts the opinion of the Special Trial Judge,

which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, Chief Special Trial Judge: In a notice of

deficiency dated December 22, 1995, respondent determined a

deficiency in and additions to petitioner's Federal income tax

for the taxable year 1993 as follows:

Addition to Tax

Deficiency Sec. 6651(a) Sec. 6654(a)

$4,855 $1,214 $192

Respondent determined that petitioner failed to file a

return for the taxable year 1993. The notice of deficiency

included the following adjustments of omitted income:

Name of Payor Kind of Payment Amount

NBD Mortgage Co. Real estate sales $17,900

E.D. Jones & Co.

Daily Passport Cash TST Dividends 18

Achievers Unlimited Nonemployee compensation 15

Fidelity Service Co. IRA distribution 599

Fidelity Service Co. IRA distribution 1,973

A timely petition was filed in response to the notice of

deficiency. In the petition, petitioner alleged that, in

response to Internal Revenue Service (IRS) inquiries, he had

1

All section references are to the Internal Revenue Code

in effect for the year in issue, unless otherwise indicated. All

Rule references are to the Tax Court Rules of Practice and

Procedure.

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written a letter to a representative of the IRS advising that if

he did not hear from the IRS within 20 days as to the authority

requiring him to file a Federal income tax return, he would

consider the matter closed. The IRS not having responded,

petitioner asserts that he is not required to do anything more.

Petitioner also included substantial tax protester rhetoric in

the petition.

Petitioner requested and was granted small tax case status

pursuant to section 7463 and Rule 170-179. At the time of filing

the petition herein, petitioner resided at Naples, Florida.

On August 30, 1996, respondent lodged an answer with the

Court asserting an increased deficiency and increased additions

to tax. Respondent also filed a motion to remove the small tax

case designation. In the answer respondent asserted that

petitioner, as the sole proprietor of Staying Young Unlimited,

received commission income from Matol Botanical International LTD

(Matol) in the amount of $84,436.34. Thus, respondent claimed an

increased deficiency for 1993 in the amount of $31,959 (including

self-employment tax) and increased additions to tax under

sections 6651(a) and 6654 in the amounts of $7,990 and $1,338,

respectively. The basis for respondent's motion to remove the

small tax case designation was that, upon the filing of

respondent's answer, the case no longer qualified for small tax

designation because the amount in dispute exceeded $10,000.

After notice and hearing, the Court granted respondent's motion

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to remove small tax case designation, and respondent's answer was

filed on November 27, 1996.

By notice dated March 13, 1997, petitioner was notified that

this case was set for trial at a trial session of the Court in

Tampa, Florida, beginning June 9, 1997. A Standing Pre-Trial

Order was also served on petitioner on the same date. The notice

clearly states, among other things, that "YOUR FAILURE TO APPEAR

MAY RESULT IN DISMISSAL OF THE CASE AND ENTRY OF DECISION AGAINST

YOU". On May 8, 1997, petitioner filed a motion to withdraw the

petition. Petitioner informed the Court that he was giving the

Court notice of his withdrawal of the petition. By order dated

May 12, 1997, the Court denied petitioner's motion (citing Dorl

v. Commissioner, 57 T.C. 720, 722 (1972)).

By order dated May 28, 1997, the Court set this matter for

trial at a time and date certain of Monday, June 9, 1997, at 2

p.m. When the matter was called at the calendar call on the

morning of June 9, 1997, and again sometime after 2 p.m. on the

same date, respondent appeared and announced ready for trial.

There was no appearance by or on behalf of petitioner.

There being no appearance by or on behalf of petitioner,

respondent filed with the Court a motion to dismiss for failure

to prosecute as to the deficiency and additions to tax determined

in the notice of deficiency. Respondent also filed a motion for

a penalty under section 6673, asserting that petitioner had

instituted this proceeding primarily for the purpose of delay,

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and that petitioner's position is frivolous or groundless.

Respondent also presented evidence through testimony of witnesses

and documents to satisfy the burden of proof with respect to the

increased deficiency and increased additions to tax. We shall

first consider respondent's motion to dismiss, then review the

record with respect to the claim for an increased deficiency and

additions to tax, and finally consider the claim for a penalty

under section 6673.

Dismissal

Our Rules provide that the failure of a party to appear at

trial or to properly prosecute may result in entry of decision

against that party. Specifically, Rule 123, which is entitled

"Default and Dismissal", provides in pertinent part as follows:

(b) Dismissal: For failure of a petitioner properly to

prosecute or to comply with these Rules or any order of the

Court or for other cause which the Court deems sufficient,

the Court may dismiss a case at any time and enter a

decision against the petitioner. The Court may, for similar

reasons, decide against any party any issue as to which such

party has the burden of proof * * * .

Additionally, Rule 149, which is entitled "Failure to Appear or

to Adduce Evidence", provides in pertinent part as follows:

(a) Attendance at Trials: The unexcused absence

of a party * * * when a case is called for trial will

not be ground for delay. The case may be dismissed for

failure properly to prosecute, or the trial may proceed

and the case be regarded as submitted on the part of

the absent party or parties.

(b) Failure of Proof: Failure to produce

evidence, in support of an issue of fact as to which a

party has the burden of proof and which has not been

conceded by such party's adversary, may be ground for

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dismissal or for determination of the affected issue

against that party. * * *

Dismissal of a case is a sanction that rests with the

discretion of the Court. Harper v. Commissioner, 99 T.C. 533,

540 (1992); Levy v. Commissioner, 87 T.C. 794, 803 (1986). In

addition--

Dismissal may properly be granted where the party's

failure to comply with Rules and orders of the Court is

due to "willfulness, bad faith or any fault", as

contrasted with mere inadvertence or inability.

Societe Internationale v. Rogers, 357 U.S. 197, 212

(1958) (Fed. R. Civ. P. 37(b)(2)); Dusha v.

Commissioner, 82 T.C. 592, 599 (1984) (Rule 104(c)). A

case may be dismissed for failure properly to prosecute

when petitioner * * * fails to appear at trial and does

not otherwise participate in the resolution of

petitioner's claim. Basic Bible Church v.

Commissioner, 86 T.C. 110, 114 (1986).

Harper v. Commissioner, supra at 540; Bixler v. Commissioner,

T.C. Memo. 1996-329; Kline v. Commissioner, T.C. Memo. 1996-220.

Petitioner did not appear for the calendar call or at the

time at which his case was set for trial. Nor did petitioner

communicate with the Court upon his failure to appear.

Accordingly, we shall grant respondent's motion to dismiss for

failure to properly prosecute and sustain respondent's

determination as to the deficiency and the additions to tax

determined in the notice of deficiency. See, e.g., Smith v.

Commissioner, 91 T.C. 1049, 1052 (1988), affd. 926 F.2d 1470 (6th

Cir. 1991).

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Increased Deficiency and Additions to Tax

With respect to the increased deficiencies and increased

additions to tax claimed in the answer, respondent bears the

burden of proof. Rule 142(a); Achiro v. Commissioner, 77 T.C.

881, 889-990 (1981); DeSantis v. Commissioner, T.C. Memo. 1997-

141. Respondent presented evidence in support of the claim.

In February 1989, petitioner executed an application and

agreement to become an independent distributor for Matol. In

November 1991, petitioner submitted an application for

registration of a fictitious name, Staying Young Unlimited, with

the Division of Corporations, State of Florida. The registration

documents reflect that the mailing address of the business is the

same as that of petitioner's residence. About the same time,

petitioner advised Matol of the name change and asked Matol to

issue all compensation and royalty checks in the name of Staying

Young Unlimited. Petitioner further advised Matol that Staying

Young Unlimited had its own tax identification number.

During the taxable year 1993, Matol, as payor, issued 21

checks in the name of Staying Young Unlimited totaling

$84,436.34. The checks were deposited to an account controlled

by petitioner at the Barnett Bank in Florida. The $84,436.34

represents commissions earned by petitioner from a network

marketing system operated by Matol.

Petitioner failed to file a Federal income tax return for

the taxable year 1993, and he failed to report any income or

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deductions for that year. Petitioner also failed to pay

estimated tax as required by the Internal Revenue Code.

Gross income includes all income derived from any sources

whatsoever, unless specifically excluded by another provision of

the Internal Revenue Code. Sec. 61(a); Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 430 (1955). It is clear that commission

income is taxable income. There is nothing in this record which

would indicate that petitioner did not receive commission income

during 1993 in the amounts claimed by respondent. The evidence

in the record that petitioner did receive such income is

sufficient to carry respondent's burden of proof in that regard.

Section 1401 imposes a tax on self-employment income.

Section 1402 defines net earnings from self-employment as gross

income derived from a trade or business. Petitioner did not

appear at trial or present any information or evidence that the

commissions received were not self-employment income. The

evidence adduced by respondent establishes that these commissions

were income from self-employment. Accordingly, we conclude that

petitioner is liable for the self-employment tax.

Section 6651(a)(1) imposes an addition to tax for failure to

file a timely return. The addition to tax will not apply if the

failure to file was not due to willful neglect, and there was

reasonable cause for the failure to file. United States v.

Boyle, 469 U.S. 241, 245 (1985). Petitioner received substantial

amounts of income during the taxable year 1993, and he did not

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file a Federal income tax return. The evidence in this record

persuades us that there was no reasonable cause for the failure

to file. Therefore, we conclude that petitioner is liable for

the addition to tax as claimed by respondent in the answer.

Section 6654(a) imposes an addition to tax for failure to

pay estimated tax. The addition to tax is mandatory and does not

contain a provision relating to reasonable cause or willful

neglect. Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992);

Recklitis v. Commissioner, 91 T.C. 874, 913 (1988). Petitioner

did not pay an estimated tax despite the receipt of substantial

amounts of commission income. We conclude that petitioner is

liable for the addition to tax as asserted by respondent in the

answer.

Accordingly, we conclude that petitioner is liable for the

increased deficiency and increased additions to tax for the

taxable year 1993 asserted by respondent in the answer.

Penalty Under Section 6673

Petitioner is the same person who filed a petition in docket

No. 20340-94 in response to a notice of deficiency issued for the

taxable years 1991 and 1992.2 In that case the Commissioner

determined and asserted, among other adjustments, that petitioner

received commission income from Matol, which payments were

2

A notice of deficiency for the taxable years 1991 and

1992 was also issued to petitioner's wife, Kathleen Harvey. She

filed a petition at docket No. 20339-94, and that docket was

ultimately consolidated with docket No. 20340-94.

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deposited to his sole proprietorship, Staying Young Unlimited.

The Commissioner also determined that petitioner failed to report

income on Federal income tax returns for the taxable years 1991

and 1992. In his petition in that case petitioner asserted that

the notice of deficiency was invalid, respondent's determination

was unconstitutional, and the amounts received were not income.

On February 8, 1996, pursuant to Rule 152(b), petitioner was

served with a copy of the Court's oral findings of fact and

opinion. The Court concluded that the Commissioner's

determination was correct with respect to the deficiency and

additions to tax for 1991 and 1992. Also, the Court held in

favor of the Commissioner with respect to claimed increased

deficiencies and additions to tax.

Section 6673(a) authorizes the Tax Court to require a

taxpayer to pay to the United States a penalty not in excess of

$25,000 whenever it appears that proceedings have been instituted

or maintained by the taxpayer primarily for delay or that the

taxpayer's position in such proceeding is frivolous or

groundless.

Petitioner did not file a Federal income tax return for the

taxable year 1993. He received substantial income during the

year in issue. Petitioner filed a petition with respect to the

1991 and 1992 tax years, and the Court concluded in that case

that petitioner was liable for deficiencies for omitted income as

well as additions to tax for failure to file a return and failure

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to pay estimated tax. Despite the Court's holding for the tax

years 1991 and 1992 (in an opinion served on the parties on

February 8, 1996), petitioner filed a petition in the instant

case on March 25, 1996, making many of the same claims as he did

in the earlier case.

This Court and other Federal courts have consistently and

uniformly held for many years that compensation is income. E.g.,

Beard v. Commissioner, 793 F.2d 139 (6th Cir. 1986), affg. per

curiam 82 T.C. 766 (1984); Coleman v. Commissioner, 791 F.2d 68,

70 (7th Cir. 1986); Carter v. Commissioner, 784 F.2d 1006, 1009

(9th Cir. 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th

Cir. 1985); United States v. Burton, 737 F.2d 439, 441 (5th Cir.

1984); Gattuso v. Pecorella, 733 F.2d 709, 710 (9th Cir. 1984);

Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982), affg.

T.C. Memo. 1981-506; Lonsdale v. Commissioner, 661 F.2d 71, 72

(5th Cir. 1981), affg. T.C. Memo. 1981-122; United States v.

Romero, 640 F.2d 1014, 1016 (9th Cir. 1981).

Petitioner's arguments are basic tax protester rhetoric. As

the Court of Appeals for the Fifth Circuit has remarked: "We

perceive no need to refute these 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).

The record in this case convinces us that petitioner was not

interested in disputing the merits of either the deficiencies in

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income taxes or the additions to tax. Rather, the record

demonstrates that petitioner regards this case as a vehicle to

protest the tax laws of this country and espouse his own

misguided views.

We are also convinced that petitioner instituted and

maintained this proceeding primarily, if not exclusively, for

purposes of delay. Having to deal with this matter wasted the

Court's time, as well as respondent's. Moreover, taxpayers with

genuine controversies may have been delayed.

Accordingly, we shall grant respondent's motion and,

pursuant to section 6673(a)(1), require petitioner to pay a

penalty to the United States in the amount of $5,000. Coleman v.

Commissioner, supra at 71-72; Crain v. Commissioner, supra at

1417-1418; Coulter v. Commissioner, 82 T.C. 580, 584-586 (1984);

Abrams v. Commissioner, 82 T.C. 403, 408-411 (1984).

To reflect the foregoing,

An order granting respondent's

motions and decision will be

entered.