Bernard D. Holland

• Court: United States Tax Court
• Decided: November 18, 2021
• Docket: 7115-20
• Status: Unpublished

Opinion

T.C. Memo. 2021-129

UNITED STATES TAX COURT

BERNARD D. HOLLAND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7115-20. Filed November 18, 2021.

Bernard D. Holland, pro se.

Ashley M. Bender, Timothy J. Driscoll, and Amy Dyar Seals, for

respondent.

MEMORANDUM OPINION

LAUBER, Judge: The principal question in this case is whether petitioner is

taxable on retirement income he received during 2017. Conceding that he received

these payments, petitioner asserts that they did not constitute taxable income

because they were received in exchange for his prior labor and were unconnected

Served 11/18/21 -2-

[*2] with his exercise of any Federal privilege. The parties have submitted the

case for decision without trial under Rule 122.1 Concluding that petitioner fares no

better than other tax protesters who have advanced these arguments previously, we

will enter decision for respondent.

Background

The following facts are derived from the pleadings, a stipulation of facts, a

supplemental stipulation of facts, and the exhibits attached thereto. Petitioner

resided in North Carolina when he timely petitioned this Court.

Petitioner was retired during 2017. He had previously been employed as a

service technician by PepsiCo. He drove a truck for a period of time and was a

member of the Teamsters union.

During 2017 petitioner received Social Security benefits of $26,292. The

Social Security Administration (SSA) reported these payments to petitioner and the

Internal Revenue Service (IRS or respondent) on a Form SSA-1099, Social

Security Benefit Statement. SSA withheld no tax from these payments.

During 2017 petitioner received a distribution of $20,928 from a retirement

plan of which Fidelity Investments (Fidelity) was the custodian. Fidelity reported

1 All statutory references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar. -3-

[*3] this distribution to petitioner and the IRS on a Form 1099-R, Distributions

From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., checking the box for distribution code “7,” indicating a normal dis-

tribution. Fidelity withheld no tax from this distribution.

During 2017 petitioner received a distribution of $4,200 from the Western

Pennsylvania Teamsters and Employers Pension Fund (Pension Fund). The Pen-

sion Fund reported this distribution to petitioner and the IRS on a Form 1099-R,

checking the box for distribution code “7,” indicating a normal distribution. The

Pension Fund withheld tax of $194 from this distribution.

In preparing his Form 1040, U.S. Individual Income Tax Return, for 2017,

petitioner did not use the information reported to him on the Forms 1099-R. Rath-

er, he attached to his return two Forms 4852, Substitute for Form W-2 or Form

1099-R, that he himself drafted. Taxpayers are instructed to complete a Form 4852

if their payor “doesn’t issue * * * Form 1099-R” or “has issued an incorrect * * *

Form 1099-R.” On the Forms 4852 petitioner asserted that Fidelity and the

Pension Fund had each made distributions to him of zero.

Petitioner reported on his return retirement plan distributions of zero, taxable

Social Security benefits of zero, and taxable income of zero. He reported tax -4-

[*4] payments of $2,892, whereas only $194 had actually been withheld by his

payors. He asked that his purported overpayment be refunded to him.

At a time not disclosed by the record, petitioner submitted to the IRS an un-

signed Form 1040 reporting the information listed above. On May 3, 2018, the

IRS sent that document back to him and told him that he needed to sign the return.

He signed the return on May 6, 2018, and filed it with the IRS. The return is

stamped “received” by the Kansas City Service Center on June 4, 2018. Petition-

er’s account transcript likewise shows that the return was received by the IRS on

June 4, 2018.

On February 24, 2020, the IRS issued petitioner a timely notice of deficien-

cy for 2017 determining a deficiency of $4,413, an accuracy-related penalty of

$1,422 under section 6662(a), and a late-filing addition to tax of $442 under

section 6651(a)(1). The notice incorrectly asserted that petitioner had received

$52,584 of Social Security benefits, double the amount he actually received. That

error was evidently caused by SSA’s issuance of two separate Forms SSA-1099,

addressed to petitioner at two different addresses.

Respondent concedes that petitioner in 2017 received only $26,292 of Social

Security benefits, the taxable amount of which respondent calculates as $8,143, as

opposed to $19,317 as determined in the notice of deficiency. That concession -5-

[*5] reduces the deficiency to $2,734 and reduces the late-filing addition to tax to

$254. Respondent also concedes the accuracy-related penalty. See sec. 6751(b).

Discussion

A. Gross Income

Section 61(a) provides that “gross income means all income from whatever

source derived,” including “[c]ompensation for services.” Sec. 61(a)(1). In cases

of unreported income, the Commissioner must generally establish an evidentiary

foundation connecting the taxpayer to the income-producing activity, Weimers-

kirch v. Commissioner, 596 F.2d 358, 361 (9th Cir. 1979), rev’g 67 T.C. 672

(1977), or demonstrate that the taxpayer actually received income, Edwards v.

Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982). Information supplied to the

IRS on Forms W-2 and 1099 is sufficient to meet this burden. See Hardy v. Com-

missioner, 181 F.3d 1002, 1005 (9th Cir. 1999), aff’g T.C. Memo. 1997-97. Once

the Commissioner makes the required threshold showing, the burden shifts to the

taxpayer to prove by a preponderance of the evidence that the Commissioner’s de-

terminations are arbitrary or erroneous. See Williams v. Commissioner, 999 F.2d

760, 763 (4th Cir. 1993), aff’g T.C. Memo. 1992-153.

The IRS may not rely solely on a third-party report of income, such as a

Form 1099, if the taxpayer raises a reasonable dispute concerning the accuracy of -6-

[*6] the report. See sec. 6201(d). Far from doing so, petitioner has stipulated that

he received the amounts of income reported on the Forms 1099. Petitioner thus

bears the burden of proving that the IRS erred in determining that during 2017 he

received $25,128 of taxable retirement plan distributions and $8,143 of taxable So-

cial Security benefits.

In contending that this income was immune from Federal income tax, peti-

tioner offers a familiar array of arguments lifted from the tax-protester arsenal. He

contends that retirement benefits are essentially deferred wages, which are suppos-

edly tax-exempt because received as an equal exchange for labor. Ignoring the

Sixteenth Amendment to the Constitution, he asserts that, “once someone has come

into ownership of money or property, by fulfilling the terms of a [labor] contract,

* * * that property can only be taxed by means of an apportioned tax.” He asserts

that he could never have received wages to begin with because he was never a

Federal employee, citing the definition in section 3401(c) that the term employee

“includes” an officer or employee of the United States. And he asserts that

“outside of Federal geographical jurisdiction work cannot be taxed indirectly by

the Federal government.” -7-

[*7] These are all time-worn tax-protester arguments that no court has ever ac-

cepted.2 Petitioner is taxable on the income he received to the extent provided in

the Internal Revenue Code. He submitted no evidence that he had any basis in

either of his private retirement plans, so he is taxable on the full amount received

($20,928 + $4,200 = $25,128). Nor has he shown that respondent erred in calcu-

lating as $8,143 the taxable portion of his Social Security benefits. See sec. 86(a).

We thus sustain an adjustment of $33,271 to petitioner’s 2017 gross income.

B. Late-Filing Addition to Tax

Section 6651(a)(1) provides for an addition to tax of 5% of the tax required

to be shown on the return for each month or fraction thereof for which there is a

failure to file the return, not to exceed 25% in toto. Respondent contends that pe-

titioner is liable for an addition to tax (reduced as discussed previously) of $254.

Respondent has the burden of production on this issue. See sec. 7491(c).

2 See Taliaferro v. Freeman, 595 F. App’x 961, 962-963 (11th Cir. 2014) (calling the section 3401(c) argument “frivolous” and “meritless”); Montero v. Commissioner, 354 F. App’x 173, 175 (5th Cir. 2009) (calling it “frivolous” and a “tax-protester argument[]”); Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986) (calling it “meritless”); United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) (calling it a “preposterous reading of the statute”); see also Crain v. Com- missioner, 737 F.2d 1417, 1417-1418 (5th Cir. 1984) (calling the jurisdiction argument so “frivolous” that to address it “might suggest that * * * [it has] some colorable merit”); Wnuck v. Commissioner, 136 T.C. 498, 512 (2011) (calling these “anti-tax arguments” so frivolous that addressing them “risks dignifying them”). -8-

[*8] Petitioner’s return for 2017 was due on April 17, 2018. 3 Respondent pro-

duced a certified transcript of petitioner’s account showing that his 2017 return

was received on June 4, 2018. The physical copy of the return is stamped “re-

ceived” by the Service Center on June 4, 2018, and shows that petitioner signed it

on May 6, 2018, three weeks after the due date.

Petitioner contends that he submitted to the IRS, by the April 17 deadline, an

unsigned copy of his 2017 Form 1040. That document was not a “return” because

it was not signed. See Beard v. Commissioner, 82 T.C. 766, 777 (1984) (holding

that an essential element of a valid return is that “the taxpayer must execute the

return under penalties of perjury”), aff’d, 793 F.2d 139 (6th Cir. 1986). In any

event petitioner produced no evidence (such as a certified mail receipt) that he

mailed his unsigned Form 1040 to the IRS before the filing deadline. See sec.

7502. The return itself, which shows that it was “returned for signature” on May 3,

2018, supplies no evidence of timely filing.

3 Traditionally, the filing deadline for individual tax returns is April 15. See sec. 6072(a). However, if a filing deadline falls on a weekend or a legal holiday in the District of Columbia, the deadline is extended until the following business day. See sec. 7503. In 2018, April 15 fell on a Sunday and April 16 was Emancipation Day, which the District of Columbia recognizes as a holiday. Accordingly, the deadline for individual taxpayers to file returns for 2017 was extended to April 17, 2018, the following Tuesday. -9-

[*9] Petitioner does not contend that his failure to file his return on time was “due

to reasonable cause and not due to willful neglect.” Sec. 6651(a)(1). Nor does he

dispute respondent’s revised calculation of the addition to tax. We accordingly

sustain a late-filing addition to tax of $254.

C. Frivolous Position Penalty

Section 6673(a)(1) authorizes this Court to require a taxpayer to pay to the

United States a penalty, not in excess of $25,000, “[w]henever it appears to the Tax

Court that--(A) proceedings before it have been instituted or maintained * * *

primarily for delay, [or] (B) the taxpayer’s position in such proceeding is frivolous

or groundless.” The purpose of section 6673 is to compel taxpayers to conform

their conduct to settled tax principles and to deter the waste of judicial and IRS re-

sources. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); Wnuck

v. Commissioner, 136 T.C. 498, 513 (2011). “Frivolous and groundless claims

divert the Court’s time, energy, and resources away from more serious claims and

increase the needless cost imposed on other litigants.” Kernan v. Commissioner,

T.C. Memo. 2014-228, 108 T.C.M. (CCH) 503, 512, aff’d, 670 F. App’x 944 (9th

Cir. 2016).

Petitioner’s arguments that his income was immune from Federal income tax

are frivolous. See, e.g., Briggs v. Commissioner, T.C. Memo. 2016-86, 111 - 10 -

[*10] T.C.M. (CCH) 1389, 1391-1392 (imposing a $3,000 penalty on a taxpayer

who advanced the section 3401(c) argument); Waltner v. Commissioner, T.C.

Memo. 2014-35, 107 T.C.M. (CCH) 1189, 1200-1201, 1203 (imposing a $2,500

penalty), aff’d, 659 F. App’x 440 (9th Cir. 2016). The IRS publishes and

occasionally updates “The Truth About Frivolous Tax Arguments,” a compendium

of frivolous positions and the case law refuting them. Petitioner’s arguments are

included in that compendium. The Truth About Frivolous Tax Arguments, Internal

Revenue Service (March 2018), https://www.irs.gov/pub/taxpros/frivolous_truth_

march_2018.pdf. Although petitioner has no legal training, he evidently had no

difficulty cutting and pasting material downloaded from tax-protester websites.

Had he made even a modest inquiry using an internet search engine, he would have

found the copious authorities refuting his stance. See Wnuck, 136 T.C. at 504

(“Anyone with the inclination to do legal research * * * will confront such

authorities.”).

This appears to be petitioner’s first appearance in this Court, and he co-

operated with respondent’s counsel by executing stipulations of fact and preparing

the case for submission without trial under Rule 122. We will thus refrain from

imposing any penalty at this time. But we warn petitioner that he will risk a severe - 11 -

[*11] penalty if he advances frivolous positions in any future appearance before

this Court.

We have considered all remaining arguments petitioner made and, to the

extent not addressed, we find them to be irrelevant or meritless.

To reflect the foregoing,

An appropriate order and decision

will be entered for respondent.