UNITED STATES TAX COURT

T.C. Memo. 1998-460

UNITED STATES TAX COURT

GHALARDI INCOME TAX EDUCATION FOUNDATION, Petitioner

v. COMMISSIONER OF INTERNAL REVENUE, Respondent

WILLIAM S. WEBBER, JR., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 24817-96, 24826-96.

Filed December 30, 1998.

Donald S. Fletcher (trustee), for petitioner

foundation.

William S. Webber, Jr., pro se.

Lloyd T. Silberzweig and Andrew P. Crousore, for

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHALEN, Judge:

Respondent determined the following

deficiency in and penalty with respect to the Federal

- 2 income tax of petitioner Ghalardi Income Tax Education

Foundation:

Year

Deficiency

Penalty Sec. 6662(a)

1993

$14,334

$2,866

Unless stated otherwise, all section references are to the

Internal Revenue Code as in effect for the years in issue.

Respondent also determined the following deficiencies in,

addition to, and penalties with respect to the Federal

income tax of William S. Webber, Jr.:

Year

Deficiency

Penalty Sec. 6662

Addition to Tax

Sec. 6651(a)(1)

1992

1993

$19,404

27,426

$3,881

5,485

-0$1,371

These cases were consolidated for trial, briefing, and

opinion by order of the Court issued pursuant to Rule

141(a) of the Tax Court Rules of Practice and Procedure.

In this opinion all Rule references are to the Tax Court

Rules of Practice and Procedure.

The issue for decision in this case is whether

respondent properly determined the subject tax

deficiencies, penalties, and addition to tax.

FINDINGS OF FACT

Mr. Webber filed Forms 1040, U.S. Individual Income

Tax Return, for 1992 and 1993.

On each return, Mr. Webber

- 3 reported that he was employed as a "Tax Consultant" trading

under the name "Bill's Business Service".

Attached to each

return is Schedule C, Profit or Loss From Business, with

respect to Mr. Webber's tax consulting business.

Set out

below is a summary of the income and expenses reported on

the Schedule C filed by Mr. Webber for 1992 and 1993:

1992

1993

Gross receipts

Cost of goods sold

$31,546

168

$28,039

7,383

Gross Income

31,378

20,656

Advertising

Car and truck expenses

Commissions and fees

Insurance

Interest:

a Mortgage (paid to banks, etc.)

b Other

Legal and professional services

Office expense

Rent or lease:

a Vehicles, machinery, and equipment

b Other business property

Repairs and maintenance

Supplies

Taxes and licenses

Travel, meals, and entertainment:

a Travel

b Meals and entertainment

$6,574

c Enter 20% of line b

1,315

d Subtract line c from b

Utilities

Other expenses:

Bank charges

144

Postage

578

Continuing education

-0Contributions

-0Dues and subscriptions

-0-

$212

5,618

2,446

200

-0$3,521

-0-0-

68

600

1,928

-0541

1,485

120

970

4,493

75

132

154

3,264

-0-

442

137

$926

185

5,259

1,836

741

2,865

36

-0453

125

754

722

1,368

Total expenses

24,989

14,208

Net profit (loss)

6,389

6,448

- 4 During the years in issue, Mr. Webber maintained a

bank account with First Interstate Bank under the name

Bill Webber d/b/a Bill's Business Service.

He also

maintained two accounts with the Santa Cruz Community

Credit Union under the same name.

Set forth below is a

summary of the aggregate deposits made into Mr. Webber's

three accounts, the amount of cash received at the time

the deposits were made, the gross receipts reported on

Mr. Webber's Schedules C, and the unreported income

determined by respondent:

1992

1993

First Interstate Bank

Cash received

Santa Cruz Community Credit Union, #1

Santa Cruz Community Credit Union, #2

$31,036.82

9,450.00

943.50

20,709.74

$24,995.26

6,350.00

1,508.33

14,858.33

Aggregate deposits and cash received

62,140.06

47,711.92

Less gross receipts reported

31,546.00

28,039.00

Unreported income

30,594.06

19,672.92

Bank

On or about January 2, 1991, Mr. Webber caused a

declaration of trust to be executed entitled the Ghalardi

Income Tax Education Foundation "A Trust", herein referred

to as Ghalardi.

Pursuant to the declaration of trust,

Ms. Lillian Girarde, the sister of Mr. Webber's

grandmother, purportedly created an irrevocable trust:

- 5 TO PROVIDE for the administration of the assets

by natural or corporate persons acting in a

fiduciary capacity to preserve, conserve,

maintain, invest, and develop the assets for

the benefit of the certificate holders and in

a manner designated in this instrument.

The declaration of trust states that the certificates of

interest of the trust are divided into 100 units or parts,

and it describes the certificates of interest as follows:

CERTIFICATES OF INTEREST

THE CERTIFICATES of interest of this trust, as

a convenience and for purposes of distributions,

are divided into one hundred (100) units or parts

thereof. They are non-assessable, non-taxable

and non-negotiable. No certificate holder may

transfer any unit of interest to anyone else,

without the approval of at least one other

certificate holder of the trust other than the

person to whom the units of interest are being

transferred. When a transfer of units of

interest is made by a sole certificate holder, or

one of only two certificate holders to the other

certificate holder, the transfer must be approved

by an independent trustee. Ownership of a

certificate, and the units represented thereby,

shall not entitle the holder to any legal title

in or to the trust property, nor any say or power

in the management thereof.

NO INTEREST of any certificate holder shall be

subject to or liable for attachment, execution,

or other processes of law. No certificate holder

shall have the right to encumber, hypothecate,

or alienate his interest in this trust in any

manner, without the written approval of an

adverse party.

- 6 IF ANY CERTIFICATE holder of this trust shall

contest in any court the validity of this trust

or in any manner [sic] to nullify or set aside

this trust or any of its provisions, then the

interest of that certificate holder shall cease

and that person's interest shall be divided up

among the other certificate holders pro-rata.

The trustees are authorized to defend, at the

expense of the trust, any kind of contest or

attack by a certificate holder or any other

person against the trust or against any of its

provisions.

THE NAME OF EACH certificate holder of this trust

must be recorded by the trust record keeper in

the trust records. Any third party may rely

upon that certified list (Attachment "C") in all

transactions with the trustees or in behalf of

the trust, and that list is intended to represent

a clear and definite means for the ascertainment

of the certificate holders of this trust.

According to Schedule C, CERTIFIED LIST OF CERTIFICATE

HOLDERS, attached to the declaration of trust, all

certificates of interest in Ghalardi are owned by

Isaac Hull Holding Co.

The record of this case does

not describe this entity or state who owns this entity.

The declaration of trust sets forth the following

standard governing distributions by the trust:

ASCERTAINABLE STANDARD FOR DISTRIBUTION

THE TRUSTEES may accumulate for or distribute

to any certificate holder such portions of

the income or corpus of the trust as the

trustees deem necessary for the support, care,

maintenance, education, medical expenses or

emergencies of the certificate holders. No

distribution from the trust shall be made

except in conformity with this external

- 7 ascertainable standard, except on a prorata basis of the certificate holders.

THE TRUSTEES shall have power to distribute

principal and/or income to the certificate

holders, or to make decisions or distributions

of the trust estate in whole or in part, for

delivery or transfer to the certificate holders

of any part or any portion thereof, at such

valuation as is established by the trustees to

be the fair value of the part or portion, or

the trustees may convert the trust estate or

any portion thereof into cash and distribute

the net proceeds to the certificate holders.

According to Schedule B of the declaration of trust,

Ms. Girarde contributed the following personal property

to the trust:

Tools, checking and savings accounts,

furniture, fixtures, and others as per the inventory.

There is no evidence, however, that Ms. Girarde contributed

any property to the trust in January 1991 or at any other

time.

The declaration of trust purports to have been

executed by two trustees, Ms. Judie Dew and Mr. Don

Fredrickson.

Both individuals have personal relation-

ships with Mr. Webber, and neither of them exercised any

independent judgment or control with respect to Ghalardi

or any of the assets allegedly held by or on behalf of

Ghalardi.

On or about January 5, 1993, Mr. Webber opened a

checking account at First Interstate Bank with an initial

- 8 deposit of $1,550.

This account purported to be in the

name of Ghalardi Income Tax Education Foundation.

This

account was closed several months later because the bank

determined that it did "not meet our bank's guidelines for

a Trust account."

During the time it was open, deposits

in the aggregate amount of $11,875 were made to the

account.

On or about May 26, 1993, Mr. Webber opened another

account under the name Ghalardi Income Tax Education

Foundation at the Coast Commercial Bank in Santa Cruz,

California.

The signature card for the account is

signed by Mr. Webber as manager and by Ms. Dew and

Mr. Fredrickson, who purport to be acting as trustees

of Ghalardi.

During 1993, aggregate deposits of $23,805

were made to this account.

Set out below is a list of the dates and amounts of

the deposits made to the First Interstate Bank and the

Coast Commercial Bank accounts that were opened by

Mr. Webber under the name Ghalardi Income Tax Education

Foundation:

- 9 Date

First Interstate Bank

Coast Commercial Bank

01/05/93

01/26/93

02/02/93

03/09/93

03/31/93

04/09/93

04/14/93

05/05/93

05/27/93

05/28/93

07/02/93

08/06/93

09/01/93

10/01/93

10/06/93

10/18/93

11/04/93

11/29/93

12/09/93

12/21/93

12/23/93

$1,550

3,675

1,100

1,000

1,725

825

750

1,250

--------------

--------$1,650

500

1,750

2,700

3,200

2,310

1,125

1,075

2,250

3,800

625

1,500

1,320

11,875

23,805

$35,680

The parties have stipulated that aggregate deposits of

$23,655 were made during 1993 to the Coast Commercial Bank

account.

This is $150 less than the aggregate deposits

reflected on the statements for that account, as shown

above.

We shall use the amount stipulated by the parties.

The parties have also stipulated that $2,900 of cash was

received by petitioner in connection with the above

deposits to the Coast Commercial Bank account.

Thus,

petitioner made aggregate deposits during 1993 of $35,530

and received an additional $2,900 in cash, for a total of

$38,430.

The record of this case does not establish the

source of any of these funds.

as his own.

Total

Mr. Webber used those funds

- 10 During the years in issue, Mr. Webber exercised

complete and unfettered control over the moneys on deposit

in the above accounts under the name Ghalardi Income Tax

Education Foundation.

Ghalardi filed a return for calendar year 1993 on Form

1041, U.S. Fiduciary Income Tax Return.

As part of the

return, there is a Schedule C, Profit or Loss From

Business, which purports to be from a business described

as Consultant/Education that was operated under the name

G.I.T.E.F.

The receipts and expenses reported on Schedule

C for this alleged business are as follows:

Gross receipts

Car and truck expenses

Rent or lease

Vehicles, machinery & equipment

Other business property

Supplies

Travel, meals, & entertainment

Travel

Utilities

Other Expenses

Service charges

Freight

Team building

Bank charges

Conventions, seminars

Dues, publications

Parking

Samples, displays

Contract labor

Total other expenses

Total expenses

$22,845

$3,415

822

7,000

5,741

534

688

$990

19

113

101

2,391

943

10

89

725

5,381

23,581

Net profit or (loss)

(736)

Respondent made three adjustments in the notice of

deficiency issued to Ghalardi.

First, respondent

- 11 determined that Ghalardi had received unreported income

during 1993 in the amount of $15,585, the excess of the

sum of the total deposits to Ghalardi's bank accounts and

cash received, $38,430, over the gross receipts reported

on Ghalardi's Schedule C, $22,845.

Second, respondent

determined that Ghalardi is entitled to none of the

expenses claimed as deductions on its Schedule C for 1993

because Ghalardi did not establish that it was engaged in

a trade or business, that the amounts were paid, or that

they constituted allowable deductions.

Finally, respondent

determined Ghalardi's liability for the accuracy-related

penalty imposed under section 6662(a) for negligence or

disregard of rules or regulations or, in the alternative,

for substantial understatement of income tax.

Respondent made seven adjustments in the notice of

deficiency issued to Mr. Webber.

First, respondent

increased Mr. Webber's taxable income for 1992 and 1993

in the amount by which the total deposits to Mr. Webber's

bank accounts and cash received exceed the gross receipts

reported on Mr. Webber's Schedules C as follows:

1992

1993

Total deposits and cash received

Less gross receipts reported

$62,140.06

31,546.00

$47,711.92

28,039.00

Unreported income

30,594.06

19,672.92

- 12 Second, respondent disallowed the cost of goods sold

claimed on the Schedules C for Mr. Webber's tax consulting

business in the amount of $168 in 1992 and $7,383 in 1993.

Third, respondent disallowed the expenses claimed on the

Schedules C, $24,989 in 1992 and $14,208 in 1993, on the

ground that Mr. Webber had not substantiated any of these

expenses.

Fourth, respondent increased Mr. Webber's

taxable income by Ghalardi's gross receipts for 1993,

$38,430.

The notice of deficiency sets forth the follow-

ing explanation of this adjustment:

It has been determined that Ghalardi ITEF

operates as an agent of William S. Webber.

Income from Ghalardi ITEF is being reassigned to

William S. Webber in the amount indicated below

[i.e., $38,430].

Fifth, respondent decreased Mr. Webber's taxable income by

one-half of the additional self-employment tax determined

for the year, $3,821 for 1992 and $4,269 for 1993.

Sixth, respondent determined that Mr. Webber is

liable for the addition to tax under section 6651(a)(1)

for failure to file Mr. Webber's 1993 return on or before

Monday, October 17, 1994, the due date including

extensions.

Finally, respondent determined that Mr. Webber

is liable for the accuracy-related penalty under section

6662(a) for 1992 and 1993 on the ground that the under-

- 13 payment of tax for each year was due to negligence, a

substantial understatement of tax, or a substantial

valuation misstatement.

After respondent issued the subject notice of

deficiency to Mr. Webber and after Mr. Webber had filed

the instant petition in this Court, he sent to respondent

a second Form 1040 for both 1992 and 1993 on which he

shows zero taxable income and claims a refund of the tax

paid for both years.

Attached to each of those documents

is a statement signed by Mr. Webber.

The document attached

to Mr. Webber's 1992 "amended return" states as follows:

I, William Spencer Webber, Jr., am submitting

this as part of my 1992 income tax return. I am

filing this return in response to the Informal

Request for Admissions concerning docketed case

no. 24826-96. I am filing this corrected return

in order to adjust the voluntary over reporting

of taxable income on my original return for the

tax year 1992, which was shown in ignorance of

the laws and regulations and without this

document having been submitted.

In addition to the above, I am filing the

corrected return even though the "Privacy Act

Notice" as contained in a 1040 booklet clearly

informs me that I am not required to file any

return such as the one I filed in 1992 and

which I am now amending based upon the laws

and regulations of the Internal Revenue Code.

It does so in at least two (2) places:

A.

In one place it states that I need only

file a return for "any tax" for which I

may be liable. Since no Code Section

makes me "liable" for income taxes,

this provision notifies me that I do

- 14 not have to file an income tax return,

which I did in ignorance in 1992.

B.

In another place it direct [sic] me to

Code Section 6001. This section

provides, in relevant part, that

"whenever in the judgement of the

Secretary it is necessary, he may

require any person by notice served

upon such person, or by regulations, to

make such returns, render such

statements, or keep such records, as

the Secretary deems sufficient to show

whether or not such person is liable

for tax under this title." Since the

Secretary of the Treasury did not

"serve" me with any such "notice" and

since no legislative regulation exists

requiring anyone to file an income tax

return, I am again informed by the

"Privacy Act Notice" that I am not

required to file an income tax return.

Even though I know that no section of the

Internal Revenue Code:

1.

Establishes an income tax "liability"

as, for example, Code Sections 4401,

5005, & 5703 do with respect to

wagering, alcohol & tobacco taxes;

2.

Provides that income taxes "have to be

paid on the basis of a return" as, for

example, Code Sections 4374, 4401(c),

5061(a), & 5703(b) do with respect to

other taxes

In addition:

3.

26 CFR 602.101 does not list a 1040

(OMB#1545-0074) as even being

applicable to the income tax imposed in

Section 1 of the Code. This regulation

refers the public to a document

carrying OMB#1545-0067, which is for

reporting "Foreign Earned Income."

Since I had no foreign earned income to

report, there seems to be no other

- 15 document or return that 26 CFR 602.101

makes applicable to the income tax

imposed in Section 1 of the Internal

Revenue Code.

4.

Sections 6103(h) & 6103(l) provide that

all return information can be used

against me to determine and impose both

criminal and civil fines and penalties.

Therefore, I do not see how any [sic]

can compel me to provide information to

the government that can be used against

me in this manner, consistent with my

Fifth Amendment right not to be

compelled to be a witness against

myself. Fifth Amendment protection

applies to any proceeding, civil or

criminal, adminis-trative or judicial,

and may be invoked in connection with

federal income taxes. See U.S. v.

Argomaniz, 925 F.2d 1349 (11th Cir.

1991); Cincinnati v. Bawtenheimer, 63

Ohio St. 3d, p.260.

5.

With respect to the information I have

included in my return, I wish to point

out that the courts have ruled that:

"A (1040) form with 'zeros' inserted in

the space provided * * * qualified as a

return." See U.S. v. Long, 618 F.2d 74

(9th Cir. 1980), U.S. v. Kimball, 896

F.2d 1218 (9th Cir. 1990), U.S. v.

Moore, 627 F.2d 830 (7th Cir. 1980),

and a Las Vegas bankruptcy court held

that "Zeroes entered on a Form 1040

constitutes a return."" [sic] See

Cross v. U.S., 91-2 USTC p.50, 318;

Bankr.L.Rep. p. 7404.

6.

It is also noted that I had "zero"

income according to the Supreme Court's

definition of income, 1since in

Merchant's Loan & Trust Co. v.

Smietanka, 225 U.S. 509 (at pages 518 &

519) the court held that, "The word

(income) must be given the same meaning

in all of the Income Tax Acts of

Congress that was given to it in the

- 16 Corporation Excise Tax Act of 1909."

Therefore, since I had no earnings in

1992 that would have been taxable as

"income" under the Corporation Excise

Tax Act of 1909, I can only swear to

having "zero" income in 1992.

Obviously, since I know the legal

definition of "income," if I were to

swear to having received any other

amount of "income," I would be

committing perjury under both 18 U.S.C.

1621 and U.S.C. 7206. Thus, not

wishing to commit perjury under either

statute, I can only swear to have

"zero" income for 1992.

7.

Please note that my 1992 return also

con-stitutes a claim for refund

pursuant to IRCode § 6402.

8.

I am also putting IRS on notice that my

corrected 1992 tax return and claim for

refund does not constitute a

"frivolous" return pursuant to IRCode §

6702. My amended return and claim for

refund is based on 9 court decisions, 9

Internal Revenue Code sections, 3

Privacy Act Notice provisions and

numerous other references. As such, it

can not [sic] be termed "frivolous"

on any basis as that term is defined

and understood. In addition, my return

is not designed to "delay or impede the

administration of Federal Income Tax

laws," since it is designed to be my

final statement under those "laws."

Further, no IRS employee has any

delegated authority to impose a

"frivolous" penalty, or is there any

legislative regulation implementing

IRCode § 6702; thus the statute is

benign.

9.

Finally, I shall hold any and all IRS

employees who disregard the statutes,

court decisions, Privacy Act Notice

provisions and other references

contained in this document accountable

- 17 pursuant to 26 U.S.C. 7214 and 18

U.S.C. 241. Section 7214 makes it a

crime for IRS agents to seek to extract

"other or greater sums than authorized

by law" and to engage in "extortion and

willful oppression under color of law."

To the extent that IRS employees

capriciously, wantonly, and arbitrarily

disregard the court decisions,

statutes, and other references contained in this document, they will be

in criminal violation of these statutes

and are, accordingly, being put on such

notice.

Signed

William S. Webber, Jr.

William S. Webber, Jr.

Date September 3, 1997

1

The word "income" is not defined in the

Internal Revenue Code (See U.S. v. Ballard, 535

F.2d 400, 404). But, as stated above, it can

only be a derivative of corporate activity.

The Supreme Court has held this numerous times.

"Whatever difficulty there may be about a precise

and scientific definition of 'income' it imports,

as used here * * * the idea of gain or increase

arising from corporate activities." See Doyle

v. Mitchell, 247 U.S. 179. "Certainly the term

'income' has no broader meaning in the 1913 Act

than in that of 1909 (See Stratton's Independence

v. Howbert, 231 U.S. 399, 416, 417), and we

assume that there is no difference in its meaning

as used in the two acts." Southern Pacific Co.

v. John Z. Lowe, Jr., 247 U.S. 330, 335.

The document attached to Mr. Webber's 1993 "amended return"

is virtually identical to the above.

OPINION

Petitioners make eight frivolous contentions in their

posttrial briefs.

First, petitioners allege that the

expenses disallowed by respondent are "ordinary and

- 18 necessary expenses" incurred during the taxable year in

carrying on their trades or businesses and are deductible

under section 162.

Respondent disallowed all the expenses

claimed on the Schedules C filed by Ghalardi and

Mr. Webber, as well as the cost of goods sold claimed on

Mr. Webber's Schedule C, because petitioners neither

substantiated any of the amounts claimed nor showed that

the expenses or costs of goods sold were allowable.

Petitioners' contention is frivolous because, at trial,

they introduced no testimony or documents to substantiate

any of the expenses or costs of goods sold claimed by

either petitioner.

Second, petitioners assert that the notices of

deficiency issued to them are not reflected in a computer

summary of their accounts, designated the "Individual

Master File Tax Module", for 1992 or 1993.

Petitioners

introduced a copy of the computer summary of Mr. Webber's

account for 1992 and 1993, but they did not introduce a

computer summary of Ghalardi's account.

Based upon the

computer summary of Mr. Webber's account, petitioners argue

"that there has never been an official filing of a notice

of deficiency for either year" and that the subject

"Notices of Deficiency are invalid and fraudulent."

Petitioners cite no authority for their contention.

- 19 Third, petitioners argue that "even if the deficiency

notices sent by IRS were valid, any additional assessments

that they would have created would be invalid."

According

to Mr. Webber, this is true because respondent "has no

delegated authority to prepare returns for Petitioner and,

therefore, no legal deficiency notices are possible in the

instant case where Petitioner did not self-assess himself."

Fourth, petitioners argue that "any returns provided

by Respondent that were prepared by a revenue officer in

the San Jose office of Internal Revenue will not conform

to 26 USC 6065 because such returns are not authorized by

law nor are they affirmed under penalties of perjury."

Similarly, petitioners argue that respondent's agent

violated the law "by failing to provide a lawful signature

on his information reports" as required by section 6065.

Petitioners charge that, by completing the statements of

income tax examination changes that are attached to the

notices of deficiency and by filing those statements as

"substitute returns" for petitioners under section 6020(b),

respondent's agent has "made an attempt to extort sums"

from petitioners in violation of section 7214.

Fifth, petitioners assert that under our system of

taxation, "the only way Internal Revenue can legally

collect an income tax from an individual citizen * * *

- 20 is if the individual voluntarily files a form 1040,

self assesses an amount of tax, and then does not pay."

Petitioners assert that "there is no section in the

Internal Revenue Code which establishes an income tax

liability".

Sixth, petitioners assert that the meaning of the

term "gross income" for purposes of the Internal Revenue

Code "means 'gains and profits' derived from corporate

activities".

In responding to a request for admissions

from respondent, Mr. Webber employed this meaning of the

word "income".

For example, Mr. Webber denied that

"nontaxable income" was deposited into certain checking

accounts because, according to him, "the word 'income'

infers corporate profit and I had no corporation,

therefore, I had no 'income.'"

Seventh, petitioners complain about the bias exhibited

by both respondent's agent and the Court.

For example,

petitioners make the following complaint:

The Judge has surrendered the position of

indifference and supported Internal Revenue in

these cases. Judge Whalen was witnessed by at

least two people in the course of preparing to

hear this matter to have referred to Petitioner

Webber as a "tax protestor." Although this

accusation was denied by the Judge on the record,

witnesses could collaborate [sic] the expressed

bias. Throughout the trail [sic] Judge Whalen

held contempt for the Pro per litigant by

demanding a presence and a knowledge of procedure

- 21 that would be expected ONLY of an accredited

officer of the Court. The deportment of the

Judge in this hearing surely violated the Maxim

of Jurisprudence noted in CIV § 3512, which

states, "One must not change his purpose to the

injury of another."

Finally, Mr. Webber contends that he filed his 1993

return on October 17, 1994, which was timely because

October 15, 1994, fell on Saturday.

The notice of

deficiency states that Mr. Webber's return was filed on

October 19, 1994.

This contention is frivolous because

Mr. Webber introduced no evidence regarding the manner in

which his 1993 return was filed or the date on which such

filing took place.

Accordingly, there is no basis in the

record to overturn respondent's determination on this

point.

Each of the contentions raised by petitioners is

frivolous or groundless and none of them merit discussion.

See Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir.

1988) (stating that paying taxes is not voluntary), affg.

T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006,

1009 (9th Cir. 1986) (rejecting taxpayer's argument that

the income tax is voluntary); Abrams v. Commissioner, 82

T.C. 403, 407 (1984) (stating that gross income under

section 61 means all income from whatever source derived);

Rowlee v. Commissioner, 80 T.C. 1111, 1116-1117, 1120

- 22 (1983) (rejecting taxpayer's assertion that he is not a

"person liable" for tax and the taxpayer's allegations of

bias); Stone v. Commissioner, T.C. Memo. 1998-314 (stating

that section 6065 applies to returns and other documents

filed with Commissioner but does not apply to notices of

deficiency); Janus v. Commissioner, T.C. Memo. 1996-195

(finding that forms included in the notices of deficiency

detailing the adjustments made by Commissioner did not

serve as substitute returns under section 6020 and that

nothing in the Internal Revenue Code requires the Secretary

to file a return pursuant to section 6020 before assessing

a deficiency); Hill v. Commissioner, T.C. Memo. 1992-140

(describing taxpayer's assertion that he owes no income

tax in the absence of a voluntary self-assessment as an

"outdated protester-type argument"); Lewis v. Commissioner,

T.C. Memo. 1992-76 (dismissing taxpayers' arguments that

tax system is voluntary and that self-assessment is

required before a notice of deficiency can be issued as

"stale tax protester contentions"); Ebert v. Commissioner,

T.C. Memo. 1991-629 (rejecting taxpayer's assertion that

there is no section of the Internal Revenue Code that makes

taxpayer liable for the taxes claimed), affd. without

published opinion 986 F.2d 1427 (10th Cir. 1993); Rice

v. Commissioner, T.C. Memo. 1978-334 (stating that

- 23 the allegation that the conduct of agents of the Internal

Revenue Service in issuing the notice of deficiency

violates section 7214 is a matter over which the Tax Court

has no jurisdiction); Spencer v. Commissioner, T.C. Memo.

1977-145 (stating that section 6065 does not require

notices of deficiency issued by Commissioner to be signed

under penalties of perjury).

In view of the fact that

all of petitioners' arguments are frivolous or groundless,

we will require Mr. Webber to pay to the United States a

penalty pursuant to section 6673(a) in the amount of

$10,000.

Furthermore, Mr. Webber presented no evidence at

trial and made no argument in his posttrial briefs

regarding respondent's determination of the addition

to tax under section 6651(a)(1) and the penalty under

section 6662(a).

Accordingly, we hereby sustain those

determinations.

Notwithstanding petitioners' failure to raise an

issue that merits discussion, we must address the notice

of deficiency issued to Ghalardi.

Respondent argues that

Ghalardi was a sham devised by Mr. Webber in an attempt

to shift income to Ghalardi.

There is ample evidence to

support that contention and no evidence to contradict it.

For example, we have found that Mr. Webber formed Ghalardi

- 24 and exercised full and complete control over all of

Ghalardi's assets.

There is no evidence in this case that

Ghalardi had any role or economic purpose other than to

shift income from Mr. Webber and tax avoidance.

We find

that Mr. Webber stood in the same position with respect

to the assets allegedly held by Ghalardi after its

formation as before.

See Zmuda v. Commissioner, 79 T.C.

714, 721 (1982), affd. 731 F.2d 1417 (9th Cir. 1984);

Professional Servs. v. Commissioner, 79 T.C. 888, 925

(1982).

Mr. Webber was free to deal with Ghalardi's assets

without restraint and, as a matter of economic reality,

there was no separation of legal title from beneficial

enjoyment and, hence, Ghalardi was a nullity.

See

Markosian v. Commissioner, 73 T.C. 1235, 1244-1245 (1980);

Dahlstrom v. Commissioner, T.C. Memo. 1991-265, affd.

without published opinion 999 F.2d 1579 (5th Cir. 1993).

Accordingly, we agree with respondent that Ghalardi is a

sham for Federal income tax purposes.

Thus, we sustain

the adjustment to Mr. Webber's 1993 return in which

respondent increased Mr. Webber's taxable income by the

amount of Ghalardi's gross income for the year.

The

notice of deficiency issued to Ghalardi which appears

to have been in the nature of a protective notice of

deficiency, is hereby disapproved.

See Professional

- 25 Servs. v. Commissioner, supra; Tatum v. Commissioner,

T.C. Memo. 1988-579, affd. without published opinion

886 F.2d 1313 (5th Cir. 1989).

In the case at docket No.

24817-96, decision will be

entered for petitioner.

In the case at docket No.

24826-96, decision will be

entered for respondent.