Ulloa v. Comm'r

T.C. Memo. 2010-68

UNITED STATES TAX COURT

RICHARD ENRIQUE ULLOA, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 2053-09, 4514-09. Filed April 6, 2010.

P received wages and other income in 2003-2006

from third-party payers who reported the income to the

IRS. P filed untimely “zero returns”, reporting no

income and no tax liability. Pursuant to I.R.C.

sec. 6020(b), R prepared substitutes for returns for

2003-2006 on the basis of the third-party payer

information and issued notices of deficiency

determining taxes owed and additions to tax under

I.R.C. secs. 6651(a)(1) and (2) and 6654(a). P filed

petitions and contends that the third parties are not

“valid payers” because they do not reside in Puerto

Rico, the Virgin Island, Guam, or American Samoa, see

I.R.C. sec. 3121(e)(2), and that therefore he owes no

income tax. P and R cross-moved for summary judgment.

Held: R is entitled to summary judgment as to P’s

liability for income tax on his wages and other income

and his liability for additions to tax under I.R.C.

sec. 6651(a)(1) and (2) for all 4 years 2003-2006.

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Held, further: R is entitled to summary judgment

as to P’s liability for the I.R.C. sec. 6654(a)

addition to tax for 2004-2006 but not for 2003.

Held, further: A penalty of $5,000 will be

imposed against P under I.R.C. sec. 6673 for his

maintaining frivolous positions.

Richard Enrique Ulloa, pro se.

Jessica Browde, for respondent.

MEMORANDUM OPINION

GUSTAFSON, Judge: The Internal Revenue Service (IRS) issued

to petitioner Richard Enrique Ulloa four statutory notices of

deficiency pursuant to section 6212,1 showing the IRS’s

determination of the following deficiencies in income tax and

accompanying additions to tax for failure to file under section

6651(a)(1), failure to pay under section 6651(a)(2), and failure

to pay estimated taxes under section 6654 for tax years 2003

through 2006:

1

Unless otherwise indicated, all citations of sections refer

to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and

all citations of Rules refer to the Tax Court Rules of Practice

and Procedure.

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Additions to Tax

Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654

2003 $22,515 $2,257.43 $2,508.25 $223.10

2004 63,486 12,891.60 11,745.68 1,622.23

2005 19,603 4,410.68 2,842.44 786.32

2006 28,217 4,490.55 1,696.43 901.06

Mr. Ulloa brings this case pursuant to section 6213(a),

asking this Court to redetermine those deficiencies and additions

to tax. The case is currently before the Court on the parties’

cross-motions for summary judgment. For the reasons explained

below, we will deny Mr. Ulloa’s motion, grant respondent’s motion

in large part, and impose on Mr. Ulloa a penalty pursuant to

section 6673(a).

Background

The following facts are based on Mr. Ulloa’s pleadings and

other filings in this case and on the assertions in respondent’s

motion papers that are supported in accordance with Rule 121 and

as to which Mr. Ulloa did not raise any genuine issue of material

fact. At the time he filed his petitions, Mr. Ulloa claimed an

address in New York State.

Mr. Ulloa’s Income

In 2003 Mr. Ulloa received wages totaling $104,424--i.e.,

$99,224 from Candle Corporation and $5,200 from another payer

named Richard Ulloa, perhaps a relative. From those wages only

$12,482 had been withheld as Federal income tax. Federal

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Insurance Contributions Act tax (FICA tax) was also withheld from

his wages, pursuant to sections 3101 and 3102. He also received

in 2003 rental income of $2,538 from Almar Rentals.

In 2004 Mr. Ulloa received wages totaling $131,449--i.e.,

$73,031 from Candle Corporation, $54,018 from IBM, and $4,400

from the other Richard Ulloa. From those wages only $6,190 had

been withheld as Federal income tax. He had submitted to IBM in

2004 a Form W-4, Employee’s Withholding Allowance Certificate,

reporting himself exempt from income tax withholding. This

submission presumably accounts for the small amount of income tax

withholding ($3,371) from his IBM wages. The record does not

show his Form W-4 submission to Candle Corporation. FICA tax was

also withheld from his wages. Mr. Ulloa also received in 2004

proceeds of $105,000 from the sale of real estate in Florida (as

reported on Form 1099-S, Proceeds From Real Estate Transactions,

by American United Title Company), interest income of $38, and

qualified dividends of $11.

In 2005 Mr. Ulloa received wages totaling $97,680--i.e.,

$96,580 from IBM and $1,100 from the other Richard Ulloa. FICA

tax was withheld from his wages, but zero Federal income tax was

withheld. Mr. Ulloa submitted to IBM in November 2004 a Form W-4

reporting 20 allowances;2 and that submission and his prior claim

2

Under section 3402(f) an employee may claim exemptions for

himself, his spouse, and his dependents that reduce the amount of

(continued...)

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of being exempt from withholding apparently account for the non-

withholding from his IBM wages. He also received in 2005

interest income of $70 and qualified dividends of $100.

In 2006 Mr. Ulloa received wages from IBM totaling $110,794.

Beginning in July 2006, he submitted a series of Forms W-4 on

which he first claimed 99 allowances, then claimed 4 allowances,

then claimed 5 allowances, and then (in late November) claimed to

be exempt from withholding. However, on August 31, 2006, the IRS

instructed IBM to withhold tax on the basis of three allowances,

and IBM informed Mr. Ulloa that a change to three allowances

would be reflected in his pay statement of October 1, 2006. From

his 2006 IBM wages, $8,259 was withheld as Federal income tax.

FICA tax was also withheld from his wages. Mr. Ulloa also

received in 2006 profits from the sale of securities of $15,483,

distributions from a partnership of $2,893, and interest income

of $63.

Mr. Ulloa’s Submissions to the IRS

Mr. Ulloa did not file a timely Federal income tax return

for any of the years 2003 through 2006. It was not until

February 2007 that Mr. Ulloa submitted to the IRS purported

returns for 2003 (on Form 1040X, Amended U.S. Individual Income

2

(...continued)

income tax withholding. Under section 3402(m) an employee may

further reduce his Federal income tax withholding by claiming

“allowances” that correspond to his estimated deductions and

credits for the year.

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Tax Return) and for 2004 and 2005 (on Form 1040, U.S. Individual

Income Tax Return); and in June 2007 he submitted to the IRS a

purported return for 2006 (on Form 1040). Each of the purported

returns reported zero income and zero tax liability. Each of the

purported returns claimed a refund resulting from “Excess social

security * * * tax withheld”, in an amount that was equal to or

greater than the entire withholding of the “social security”

portion of FICA tax (under section 3101(a)) and that, for 2003

and 2005, apparently included the “hospital insurance” or

Medicare portion of FICA tax (under section 3101(b)), although

the amount claimed does not correspond precisely to the

withholding as reported by the payers.

On the Form 1040X for 2003, Mr. Ulloa gave the following

“Explanation of Changes to Income, Deductions, and Credits”:

Line 1. Original W-2 Forms attached to our submission

of 2004[3] Form 1040 were in error. No IRC

section 3401(a) “Wages” were received by either party

affiliated with either this or the original return.

Need I explain the changes that occur to Lines 3, 5, 6,

and 10 through the application of basic math and

reading comprehension skills?

3

Mr. Ulloa’s Form 1040X refers to a prior “submission of

2004”, as if he were filing an amended return for 2004, not 2003;

and Form 1040X is the form used for an amended return. However,

the record shows no evidence (and Mr. Ulloa makes no allegation)

that any form (such as Form 1040) was submitted for 2003 before

the Form 1040X, and the Form 1040X for 2003 does claim a refund

of income tax withholding in an amount that was actually withheld

for 2003. We therefore conclude that the Form 1040X was

submitted for 2003, as it states.

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To each of the purported returns Mr. Ulloa attached one or

two Forms 4852, Substitute for Form W-2, Wage and Tax Statement,

on which he reported that he had received an “incorrect” Form W-2

from Candle Corporation in 2003, from IBM in 2005 and 2006, and

from both payers in 2004. On the Forms 4852 he stated amounts of

income tax, Social Security tax, and Medicare tax as having been

withheld, and the amounts approximate those that the payers

reported on Forms W-2. However, on the Forms 4852 Mr. Ulloa left

blank lines 7a (“Wages, tips, and other compensation”), thus

indicating his position that the correct wage amounts were zero,

rather than the substantial amounts that the payers had reported.

Administrative Action

The IRS did not treat Mr. Ulloa’s zero returns as proper tax

returns. Rather, pursuant to section 6020(b), the IRS prepared

for Mr. Ulloa (and an IRS official signed) a substitute for

return (SFR) for 2003 on August 29, 2008, and SFRs for 2004,

2005, and 2006 on September 2, 2008. The IRS then issued, in

October and November 2008, separate notices of deficiency to

Mr. Ulloa for 2003, 2004, 2005, and 2006. The SFRs and the

notices of deficiency all treated as income to Mr. Ulloa the

amounts reported by his employers and other third-party payers.

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Proceedings in This Court

Mr. Ulloa timely filed petitions in this Court challenging

the deficiencies and additions to tax for all four years: his

petition for 2003, 2005, and 2006 in docket No. 2053-09 and his

petition for 2004 in docket No. 4514-09. The Court consolidated

the cases by order and served notice that the cases were

scheduled to be tried at the session beginning January 11, 2010,

in New York City.

On December 8, 2009, respondent filed in each case a motion

for summary judgment and for imposition of a penalty under

section 6673(a). The Court then issued its order of December 14,

2009, which stated in part as follows:

On December 8, 2009, respondent filed motions for

summary judgment in each of the two consolidated cases.

Without prejudging the motions, the Court advises

petitioner Richard Enrique Ulloa that, if the motions

are correct, it appears that Mr. Ulloa has made

frivolous arguments in this case. The Court warns

Mr. Ulloa that if this is correct, and if he persists

in making frivolous arguments, then he will be liable

for a penalty of up to $25,000 pursuant to 26 U.S.C.

sec. 6673.

In view of the foregoing, it is

ORDERED that, no later than December 28, 2009

(which is also the due date for exchange of exhibits

and submission of pretrial memoranda identifying

witnesses), Mr. Ulloa shall file with the Court and

serve on respondent a response to respondent’s motions

for summary judgment. It is further

ORDERED that respondent’s motions for summary

judgment will be the subject of a hearing at the trial

calendar to be called at the Court’s session commencing

January 11, 2010, in New York City, New York.

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Mr. Ulloa filed an opposition and his own cross-motion for

summary judgment in each case on December 31, 2009. Each of his

oppositions states, “I respectfully request the indulgence of

this court as I am not schooled in law. This is provided by

the precedent set by Haines vs. Kerner at 404 U.S. 519.”4 Each

of his motions begins--

Comes now Richard-Enrique Ulloa, Secured Party-

Creditor, by special visitation and not appearing

generally, before this court seeking a remedy in

Admiralty as is provided by “The Saving to the Suitors

Clause” at USC 28-1333(1).[5] I am standing in my

unlimited commercial liability as a Secured Party-

Creditor and request that the officers of this court do

the same. * * *

* * * * * * *

[T]he Respondent has not proved that the Documents

purporting to be w-2’s have a valid payer, or were

issued by a valid payer. * * * [S]ince the one and

only issue that needed addressing was and is the

purported w-2 documents and was NEVER RESPONDED to by

the Respondent, therefore making my case that the

purported W-2 are not valid documents, and therefore

the Service cannot procedurally move into an

Examination and issue a Deficiency. You cannot collect

two hundred dollars without passing Go, or get to

taxes, income and wages unless you address this, basic

4

Mr. Ulloa also repeats his mantra that he is “not schooled

in the law” in (a) an unagreed “Stipulation of Facts” that he

submitted unilaterally and that the Court filed as his pretrial

memorandum on December 31, 2009; (b) his affidavits in support of

his cross-motions for summary judgment, filed December 31, 2009;

and (c) an objection, filed January 4, 2010, to the affidavit

submitted in support of respondent’s motions for summary

judgment. The case he cites--Haines v. Kerner, 404 U.S. 519

(1972)--is discussed below in part IV.

5

Title 28 U.S.C. section 1331(1) (2006) gives jurisdiction

only to the Federal District Courts, and not to the Tax Court.

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document issue, which thus far, Respondent FAILED to

address and has avoided.

With his motions Mr. Ulloa submitted papers showing that the

entities that had paid him wages and other income amounts in the

years at issue were authorized to do business in New York and

California--evidently making them, in his view, not “valid

payers”. His papers included his own affidavits, which state:

8. As a non-privileged private-sector[6] worker, I

received NOTHING in the way of “wages,” as defined

at IRC Section 3401(a). I am sure you are well

aware that Form 4852 entitled, in pertinent part,

“Substitute for Form W-2, Wage and Tax Statement,”

is the IRS's own form for correcting erroneous

information returns purporting as W-2’s.

9. I deny participating in any activity as an officer

or employee of a corporation,[7] or a member or

employee of a partnership, or as any other

individual in an enterprise, who as such officer,

employee, member, or other individual in an

enterprise is under the duty to perform the act of

filing tax returns.

10. I deny participating in any activity as an officer

or employee of a corporation, or a member or

employee of a partnership, or as any other

individual in an enterprise, who as such officer,

employee, member, or other individual in an

enterprise that makes my [sic] liable for any tax

on income.

6

Mr. Ulloa’s identification of himself as a “private-sector

worker” evidently alludes to the frivolous position that only

Federal employees are subject to income tax. See Rev. Rul.

2006-18, 2006-1 C.B. 743.

7

Mr. Ulloa’s denial of participation in a corporation,

partnership, or enterprise may be an allusion to the frivolous

argument that an individual is not a person subject to tax. See

Rev. Rul. 2007-22, 2007-1 C.B. 866. In any event, such

participation is not a precondition to income tax liability.

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11. I expressly reserve the exclusive right to

determine the value of my time,[8] and other of my

valuable resources, for any purpose whatsoever at

any time in the future * * *.

The Court and the parties held a telephone conference on

January 5, 2010, and these cases were called from the calendar on

January 11, 2010, at which time the Court heard argument on the

parties’ cross-motions for summary judgment. Respondent argued

that Mr. Ulloa should be held liable for tax on his wages and

other income reported to the IRS by the payers and liable also

for the additions to tax. Mr. Ulloa argued:

[I]f you go by the definition on Section 3121, okay, of

26 USC, there are several tests that have to meet that

criteria for an American employer, okay? So none of

those tests are met by these companies [i.e.,

Mr. Ulloa’s employers and other payers].

So that’s the only argument that I’m bringing into

-- and they [i.e., the IRS] haven’t proved otherwise

8

Mr. Ulloa’s assertion about the value of his time evidently

alludes to the frivolous position that a wage earner is allowed a

deduction for his basis in his time and effort, measured by its

value. See Carskadon v. Commissioner, T.C. Memo. 2003-237

(“Petitioners assert that petitioner’s wages are not taxable

because the Code, which states exactly what is taxable, does not

specifically state that ‘time reimbursement transactions’, a term

of art coined by petitioners, are taxable. However, the Code

does not limit gross income to the list provided in section

61(a). Gross income means all income from whatever source

derived. Sec. 61(a). Petitioners’ arguments completely

disregard the definition of gross income”). Courts have

consistently held that compensation for services rendered

constitutes taxable income and that taxpayers have no tax basis

in their labor. 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. Romero, 640 F.2d 1014, 1016 (9th Cir.

1981); Abrams v. Commissioner, 82 T.C. 403, 407 (1984); Rowlee v.

Commissioner, 80 T.C. 1111, 1119-1122 (1983).

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that this section of code and that these companies are

either an American vessel or American aircraft [or]

even within the United States. They haven’t defined

what the United States means.

His reference to American vessels and aircraft relates to

section 3121(f), and his complaint that the IRS had not “defined

what the United States means” refers to section 3121(e)(2), which

he then cited:

MR. ULLOA: Well, sub-section (a) is -- defines

wages, sub-section (b) defines employment, sub-section

(e)(2) defines the United States and section (f)

defines an American employer.

THE COURT: So (e)(2) is what you’re relying on?

MR. ULLOA: (e)(2) is the United States, right.

THE COURT: Okay. It says, the term United States

when used in a geographical * * * [sense], includes the

Commonwealth of Puerto Rico, The Virgin Island, Guam,

and American Samoa.

MR. ULLOA: Exactly. * * * It includes that just

those are considered the United States.

THE COURT: So you say that the word “includes”

there means includes only --

MR. ULLOA: Only those, right.

THE COURT: All right. That is a frivolous

position that’s been rejected over and over by the

courts. Do you have anything else you want to say?

MR. ULLOA: Well, that is my argument and that’s,

as far as I’m concerned, if -- you know, we had a

conversation, a pre-trial conversation [on January 5,

2010], and * * * you were biased about that whole

situation * * *. * * * I considered your statement

biased because it’s not a frivolous argument.

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Mr. Ulloa then engaged in this colloquy with the Court:

THE COURT: * * * [I]f you’re granted a trial,

will you be testifying that you did not receive that

money?

MR. ULLOA: No, I’ll be testifying that they are

not an American company.

THE COURT: So you admit that you received the

money?

MR. ULLOA: That’s irrelevant, Your Honor.

THE COURT: Well, no, I --

MR. ULLOA: We’re not saying we received money or

didn’t receive money. The only thing we’re questioning

is the document itself. * * *

THE COURT: What I’m questioning now is, did you

receive that money from those payors?

MR. ULLOA: I can’t say that.

THE COURT: Pardon me?

MR. ULLOA: I can’t say that.

THE COURT: What do you mean you can’t say that?

MR. ULLOA: That’s a private matter. I mean

whether I did or not doesn’t matter at all. The

document is what matters, what the document says.

THE COURT: Well, what matters is the fact about

how much income you received that year. That’s what I

have to find. And unless you intend to show that you

didn’t receive the money, then I have no basis for

finding in your favor. What you want to prove instead

is that you have a quibble with the paperwork. But

since you’re not going to disprove that you received

the money * * * I don’t know how I could find in your

favor even if we agreed that we didn’t like the

paperwork.

MR. ULLOA: Then, Your Honor, then you have to

rule for them and I’ll bring it up on appeal.

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The Court then took the parties’ motions under advisement.

Discussion

I. Summary Judgment Standards

Where the pertinent facts are not in dispute, a party may

move for summary judgment to expedite the litigation and avoid an

unnecessary trial. Fla. Peach Corp. v. Commissioner, 90 T.C.

678, 681 (1988). Rule 121 provides for summary judgment in terms

equivalent to Rule 56 of the Federal Rules of Civil Procedure.

Summary judgment may be granted where there is no genuine issue

as to any material fact, and a decision may be rendered as a

matter of law. Rule 121(a) and (b); see Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988). The

party moving for summary judgment bears the burden of showing

that there is no genuine issue as to any material fact, and

factual inferences will be drawn in the manner most favorable to

the party opposing summary judgment. Dahlstrom v. Commissioner,

85 T.C. 812, 821 (1985); Jacklin v. Commissioner, 79 T.C. 340,

344 (1982). However, Rule 121(d) provides:

When a motion for summary judgment is made and

supported as provided in this Rule, an adverse party

may not rest upon the mere allegations or denials of

such party’s pleading, but such party’s response, by

affidavits or as otherwise provided in this Rule, must

set forth specific facts showing that there is a

genuine issue for trial. * * *

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In compliance with Rule 121(b), respondent made and supported a

showing that Mr. Ulloa received income reported to the IRS by his

employers and other payers. Mr. Ulloa opposed the motion but did

not controvert the facts. The Court specifically encouraged him

to do so during the telephone conference of January 5, 2010; and

at the hearing on January 11, 2010, the Court asked Mr. Ulloa

whether he had received the money reported by the payers.

Mr. Ulloa declined to make any assertion about his receiving or

not receiving the money because “[t]hat’s a private matter”.

Respondent’s statement of facts is therefore uncontroverted

and is accepted for purposes of ruling on the motion, leaving us

to decide whether Mr. Ulloa is exempt from tax on the money he

received because the entities that paid him were, he says, not

“valid payers”.

II. Mr. Ulloa’s Motion for Summary Judgment

Mr. Ulloa argues that the IRS’s determination of tax

deficiencies must not be sustained because respondent has not

shown that the Forms W-29 reporting the income were submitted by

“valid payers”--with “valid” evidently meaning in the “United

States” as defined in section 3121(e)(2). The definition of

9

One of the largest income items at issue here is proceeds

of $105,000 that Mr. Ulloa received in 2004 from the sale of real

estate in Florida, as reported by American United Title Company.

The proceeds were reported not on Form W-2 but on Form 1099-S,

and a real estate sale transaction would not implicate an

employment relationship pertinent to section 3121.

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“employment” in section 3121(b) uses the phrases “within the

United States”, “of the United States”, and “in the United

States”; and section 3121(e)(2) provides that--

(2) United States.--The term “United States” when

used in a geographical sense includes the Commonwealth

of Puerto Rico, the Virgin Islands, Guam, and American

Samoa. [Emphasis added.]

Mr. Ulloa proposes that “includes” here means “includes only”, so

that for tax purposes “the United States” fails to include the 50

States that actually constitute the United States.

This is a thoroughly discredited and frivolous argument.

See United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990)

(citing Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916),

and noting that the Supreme Court has recognized that the

“sixteenth amendment authorizes a direct nonapportioned tax upon

United States citizens throughout the nation, not just in federal

enclaves”); Rev. Rul. 2006-18, 2006-1 C.B. 743. Section 3121

pertains to employment taxes10 (which are not at issue in this

case involving a deficiency in income tax); and, to state the

obvious, section 3121(e)(2) simply clarifies that the “United

States” does include, for employment tax purposes, areas that

might not otherwise be thought to fall within the United States

10

Section 3121(e) provides that its definitions are “[f]or

purposes of this chapter” (emphasis added)--i.e., chapter 21

(Federal Insurance Contributions Act, sections 3101-3128). An

equivalent definition appears in section 3306(j) for purposes of

chapter 23 (Federal Unemployment Tax Act, sections 3301-3311).

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(Puerto Rico, the Virgin Islands, Guam, and American Samoa). The

definition does not thereby exclude the 50 States from the United

States.

Mr. Ulloa’s motion must be denied.

III. Respondent’s Motion for Summary Judgment

A. Income Tax

Mr. Ulloa’s legal theory has no merit, and he must pay

income tax on his income. As we noted above in part I,

respondent supported his assertions that Mr. Ulloa received money

from employers and others, and Mr. Ulloa did not even deny the

assertions, much less submit evidence to raise any genuine issue

of material fact.

Mr. Ulloa does not cite section 6201(d), but it bears

mention here, where the sufficiency of third-party payer

information is at issue. The statute reads:

In any court proceeding, if a taxpayer asserts a

reasonable dispute with respect to any item of income

reported on an information return filed with the

Secretary under subpart B or C of part III of

subchapter A of chapter 61 by a third party and the

taxpayer has fully cooperated with the Secretary

(including providing, within a reasonable period of

time, access to and inspection of all witnesses,

information, and documents within the control of the

taxpayer as reasonably requested by the Secretary), the

Secretary shall have the burden of producing reasonable

and probative information concerning such deficiency in

addition to such information return.

Id. This case does involve information reported on “information

return[s]” from third parties, such as IBM and Candle

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Corporation. If Mr. Ulloa had successfully invoked

section 6201(d), then respondent could not have prevailed by

relying on the third-party reporting but would also have been

required to “produc[e] reasonable and probative information

concerning such deficiency in addition to such information

return”.11

But section 6201(d) does not help Mr. Ulloa. The statute

applies only if the “taxpayer asserts a reasonable dispute with

respect to any item of income”. (Emphasis added.) Mr. Ulloa

does not dispute that he received the income; on that critical

point he is silent. He makes only a frivolous argument--by

definition, not a “reasonable dispute”--and thus cannot

successfully invoke section 6201(d). His receipt of income has

been supported as Rule 121 requires and has not been effectively

disputed, and he is liable for tax on that income.

B. Additions to Tax

Pursuant to section 7491(c), the Commissioner bears the

burden of production and must produce sufficient evidence showing

11

Because Mr. Ulloa fails to meet the threshold requirement

for invoking section 6121(d), we do not reach the issue of

whether, if he could invoke it, respondent could nevertheless

carry the “burden of producing reasonable and probative

information concerning such deficiency in addition to such

information return”. Respondent’s submission in support of his

motion does rely on information returns, but not solely on those

information returns. Rather, respondent obtained and submitted

payroll information from IBM and Candle Corporation, and

Mr. Ulloa did not dispute its authenticity or accuracy.

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the imposition of an addition to tax or penalty is appropriate in

a given case. Once the Commissioner meets this burden, the

taxpayer must come forward with persuasive evidence that the

Commissioner’s determination is incorrect. Rule 142(a); Higbee

v. Commissioner, 116 T.C. 438, 446-447 (2001).

1. Section 6651(a)(1)

The notices of deficiency also reflect the determination of

additions to tax under section 6651(a)(1) for Mr. Ulloa’s failure

to file his income tax returns when due. Section 6651(a)(1)

authorizes the imposition of an addition to tax for failure to

file a timely return unless the taxpayer proves that such failure

was due to reasonable cause and was not due to willful neglect.

See United States v. Boyle, 469 U.S. 241, 245 (1985). Respondent

met his burden of production under section 7491(c) by showing

that Mr. Ulloa’s only “returns” were not returns at all but were

lists of zeroes. To determine whether a taxpayer has filed a

valid tax return, we follow the test enunciated in Beard v.

Commissioner, 82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th

Cir. 1986), under which, “First, there must be sufficient data to

calculate tax liability; second, the document must purport to be

a return; third, there must be an honest and reasonable attempt

to satisfy the requirements of the tax law; and fourth, the

taxpayer must execute the return under penalties of perjury.”

Mr. Ulloa’s zero returns fail at least two of these tests: His

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zero returns do not have “sufficient data to calculate a tax

liability”, and they do not constitute “an honest and reasonable

attempt to satisfy the requirements of the tax law”. On the

contrary, they omit his income entirely. His documents

constitute some sort of a protest against the tax law, not an

attempt to comply with it. See Cabirac v. Commissioner, 120 T.C.

163, 169 (2003) (“The majority of courts, including this Court,

have held that, generally, a return that contains only zeros is

not a valid return”). Mr. Ulloa did not file a valid return for

any of the years in issue. Therefore, the failure-to-file

additions to tax will be sustained.

2. Section 6651(a)(2)

Section 6651(a)(2) imposes an addition to tax “[i]n case of

failure * * * to pay the amount shown as tax on any return”.

This addition does not accrue unless a tax amount is “shown on” a

return, so the Commissioner must introduce evidence that the tax

was shown on a Federal income tax return to satisfy his burden of

production under section 7491(c). Cabirac v. Commissioner,

supra. When a taxpayer has not filed a return, the section

6651(a)(2) addition to tax may be imposed if the IRS prepared a

substitute for return (SFR) that meets the requirements of

section 6020(b). Wheeler v. Commissioner, 127 T.C. 200, 208-209

(2006), affd. 521 F.3d 1289 (10th Cir. 2008). The statute

provides:

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SEC. 6020(b). Execution of Return by Secretary.--

(1) Authority of Secretary to execute return.--If

any person fails to make any return required by any

internal revenue law or regulation made thereunder at

the time prescribed therefor, or makes, willfully or

otherwise, a false or fraudulent return, the Secretary

shall make such return from his own knowledge and from

such information as he can obtain through testimony or

otherwise.

(2) Status of returns.--Any return so made and

subscribed by the Secretary shall be prima facie good

and sufficient for all legal purposes.

In this case, the IRS has shown the preparation of SFRs that were

made from the information the IRS obtained and were subscribed by

an IRS employee as agent of the Secretary. Respondent has met

his burden of production, and the additions to tax under

section 6651(a)(2) will therefore be sustained.

3. Section 6654(a)

Because Mr. Ulloa sometimes claimed exemption from

withholding and at other times claimed numerous “allowances” to

reduce his withholding, his tax was substantially underwithheld.

Section 6654 imposes an addition to tax on an individual taxpayer

who underpays his estimated tax. A taxpayer has an obligation to

pay estimated tax for a particular year if he has a “required

annual payment” for that year. Sec. 6654(d). A “required annual

payment” is defined in section 6654(d)(1)(B) as:

the lesser of--

(i) 90 percent of the tax shown on the

return for the taxable year (or, if no return is

filed, 90 percent of the tax for such year), or

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(ii) 100 percent of the tax shown on the

return of the individual for the preceding taxable

year.

Clause (ii) shall not apply if * * * the individual did

not file a return for such preceding taxable year.

Thus, the Commissioner’s burden of production under section

7491(c) requires him to produce, for each year for which the

addition is asserted, evidence that the taxpayer had a required

annual payment under section 6654(d); and in order to do so he

must demonstrate the tax shown on the taxpayer’s return for the

preceding year, unless he can show that the taxpayer did not file

a return for that preceding year. Wheeler v. Commissioner, supra

at 210-212.

For 2002--i.e., the “preceding taxable year” for taxable

year 2003--the transcript submitted with respondent’s motion

appears to show that a return was filed, and for purposes of

Rule 121 we therefore assume that Mr. Ulloa filed a 2002 return.

On that assumption, in order to obtain summary judgment as to the

section 6654(a) addition for 2003, respondent was obliged to show

under section 6654(d)(1)(B) a “required annual payment”

consisting of “the lesser of * * * 90 percent of the tax” for

2003 or “100 percent of the tax shown on the return” for 2002.

The codes and amounts on the transcript may reflect the amount of

tax shown on Mr. Ulloa’s 2002 return, but we cannot interpret the

coded transcript with any confidence. Factual inferences must be

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drawn in the manner most favorable to the party opposing summary

judgment, and in that light we are unable to complete this

computation.12 There is therefore a genuine issue of material

fact as to the $223.10 addition to tax under section 6654 for

2003, and respondent’s motion will be denied in that respect.

The section 6654 addition to tax for 2003 will therefore proceed

to trial or other disposition.

However, we have already found that Mr. Ulloa’s zero returns

for the taxable years 2003 through 2006 were not qualifying tax

returns, so for the second, third, and fourth of those years--

2004, 2005, and 2006--respondent has shown for each year that

Mr. Ulloa did not file a return for the preceding year.

Consequently, respondent has carried his burden of production

under section 7491(c) with respect to the section 6654 addition

for 2004, 2005, and 2006.

12

See Barnes v. Commissioner, T.C. Memo. 2010-30 (slip op.

at 13-16) (“notably absent from the array of documents attached

to respondent’s motion for summary judgment is a Form 4340,

Certificate of Assessments, Payments, and Other Specified

Matters. * * * Unlike many of the printouts from respondent’s

computer system that were attached to respondent’s motion for

summary judgment, a Form 4340 is normally a readable and

understandable history of transactions and events concerning a

taxpayer’s account for a particular taxable period. * * * The

Chief Counsel for the IRS recognized this and has instructed his

attorneys as follows: ‘A certified copy of an updated Form 4340

transcript should also be submitted with all summary judgment

motions’” (quoting Chief Counsel Notice CC-2009-010 (Feb. 13,

2009))).

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The section 6654 addition to tax is mandatory unless the

taxpayer can place himself within one of the computational

exceptions provided for in subsection (e) thereof. Grosshandler

v. Commissioner, 75 T.C. 1, 20-21 (1980). Mr. Ulloa has not made

any showing that any of the computational exceptions to section

6654 applies. Accordingly, we will grant summary judgment to

respondent on the issue of Mr. Ulloa’s liability for the addition

to tax under section 6654 for the years 2004, 2005, and 2006.

IV. Penalty Under Section 6673(a)

Section 6673(a)(1) authorizes the Tax Court to impose 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. A position maintained by

the taxpayer is “frivolous” where it is “contrary to established

law and unsupported by a reasoned, colorable argument for change

in the law.” Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.

1986); see also Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th

Cir. 1987) (section 6673 penalty upheld because taxpayer should

have known claim was frivolous). The statute grants the Court

discretion in deciding whether to impose the penalty. See

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 102

(2000), affd. 299 F.3d 221 (3d Cir. 2002).

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Respondent proposes that we impose such a penalty on Mr.

Ulloa. We will do so. Mr. Ulloa’s position is indeed frivolous,

as we showed above in part II, and he persisted in maintaining

that position after he was warned of the section 6673 penalty not

only by his opponent’s summary judgment motion but also by the

Court, both in its order of December 14, 2009, and in the

telephone conference on January 5, 2010. We will impose a

penalty of $5,000.13

It is true, as Mr. Ulloa urged four times in his motion

papers, that he is “not schooled in the law”.14 He makes this

assertion to request a benefit (the “indulgence” of the Court),

but in fact it is detrimental to him here. Mr. Ulloa truly is

not schooled in the law, but his admitted awareness of this fact

did not cause him to show any reserve or caution in making and

13

Mr. Ulloa’s liability for the penalty for maintaining a

frivolous position is unaffected by our inability to resolve the

estimated tax addition to tax under section 6654 for 2003.

Docket No. 2053-09 will remain open pending resolution of the

section 6654 addition for 2003. On the other hand, we resolve

docket No. 4514-09 today; and while we could impose the penalty

in both cases, we will exercise our discretion and require

Mr. Ulloa to pay a $5,000 penalty in docket No. 4514-09 only.

14

In this connection Mr. Ulloa cites Haines v. Kerner, 404

U.S. 519 (1972), without explanation. That case involved a

motion under Fed. R. Civ. P. 12(b)(6) to dismiss a petition for

failure to state a claim. The petition had been filed by a

pro se prisoner, and the Court observed that “the allegations of

the pro se complaint” are held “to less stringent standards than

formal pleadings drafted by lawyers”. Id. at 520. It so held

for purposes of determining whether the petition stated a cause

of action. It certainly did not hold that pro se litigants enjoy

an immunity from sanction when they make frivolous arguments.

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defending his arguments, and it evidently has not made him

receptive of any schooling in the law. Rather, despite his

admitted ignorance, he is uncurious about contrary authority,

scornful of opposition, and dismissive of correction.

Moreover, a lack of sophisticated knowledge of the law is

not really what makes Mr. Ulloa’s case problematic. Rather, at

the level of mere common sense, his principal argument (i.e.,

that “the United States” includes none of the States) is

radically counter-intuitive. His reasoning, if it can be called

reasoning, bears a fallacy (i.e., that “includes” means “includes

only”) that is obvious to anyone fluent in English. Mr. Ulloa

concluded that he owes no Federal income tax because neither he

nor his payers resides in Puerto Rico, the Virgin Islands, Guam,

or American Samoa; he must have noticed that this conclusion

would apply equally well to all of his neighbors and fellow

employees; yet most of them pay their taxes every year.

The Tax Court is fully accustomed to--and fully

accommodating of--taxpayers who are not “schooled in the law” but

must represent themselves. The Court reads their pleadings by

“less stringent standards”, Haines v. Kerner, 404 U.S. 519, 520

(1972); the Court works to assure that a petitioner’s ignorance

of law or procedure does not result in an unjust decision; the

Court does not penalize good-faith errors. This case, however,

involves not a good-faith error but a wildly improbable position

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that Mr. Ulloa must have known was frivolous. Mr. Ulloa ignored

warnings from the Court that his position was frivolous (instead

determining, he said, that the Court must be “biased”) and

stubbornly persisted in that frivolous position. The penalty of

section 6673 is designed to address petitioners who conduct

themselves in this manner.

To reflect the foregoing,

An appropriate order will be

issued in docket No. 2053-09.

An appropriate order and

decision will be entered in docket

No. 4514-09.