T.C. Memo. 2019-75
UNITED STATES TAX COURT
PAUL STAPLES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24524-15. Filed June 13, 2019.
Paul Staples, pro se.
Jeffrey D. Heiderscheit and Brock E. Whalen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PUGH, Judge: In a notice of deficiency dated June 22, 2015, respondent
determined a deficiency in petitioner’s 2012 Federal income tax of $3,116 and
additions to tax under section 6651(a)(1) of $701 and section 6651(a)(2) of $390.1
1 Unless otherwise indicated, section references are to the Internal Revenue (continued...) -2-
[*2] After concessions,2 the issues for decision are whether petitioner: (1) has
unreported self-employment income, (2) is liable for the addition to tax under
section 6651(a)(1), and (3) is liable for a section 6673 penalty.
FINDINGS OF FACT
Some of the facts have been deemed stipulated under Rule 91(f), and the
stipulated facts are incorporated in our findings by this reference.
At the time the petition was timely filed petitioner resided in Texas. In
2012 petitioner earned income as an independent contractor with TVC Marketing
Associates, Inc. (TVC). He failed to file his 2012 Federal income tax return or pay
the tax due. Pursuant to section 6020(b), respondent prepared a substitute for
return for 2012 using a Form 1099-MISC, Miscellaneous Income, issued by TVC
to calculate petitioner’s unreported income.3 The Form 1099-MISC reported that
TVC paid petitioner $18,954 of nonemployee compensation in 2012.
(...continued) Code of 1986, as amended, in effect for the year at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. 2 Respondent conceded the addition to tax under sec. 6651(a)(2) in his Answering Brief. 3 The return respondent prepared is not part of the record. -3-
[*3] In the notice of deficiency respondent determined petitioner’s nonemployee
compensation to be $18,954 for 2012. Respondent allowed petitioner $11,089 in
adjustments, which included $1,339 for a self-employment income tax deduction,
$5,950 for a standard deduction, and $3,800 for exemption deductions.
Accordingly, respondent determined that petitioner’s 2012 taxable income was
$7,865.
Petitioner received the $18,954 reported on the Form 1099-MISC as
commissions for services he provided customers on behalf of TVC. Each
commission was recorded as an advance payment or commission that was offset
by a “debit” that TVC tracked. As the customer associated with the advance
commission and offsetting “debit” continued as a TVC customer and made
payments to TVC, each “debit” would be gradually reduced. Conversely, if a
customer did not pay TVC, any remaining “debit” for that customer would reduce
future commissions that TVC would pay to petitioner for services to other
customers. Petitioner was not obligated to repay to TVC any commissions that he
received from TVC, and he never did repay TVC any commissions that he
received. -4-
[*4] OPINION
I. Burden of Proof
Ordinarily, the burden of proof in cases before the Court is on the taxpayer.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under section
7491(a), in certain circumstances the burden of proof may shift from the taxpayer
to the Commissioner, including unreported income identified on information
returns. See sec. 6201(d); Portillo v. Commissioner, 932 F.2d 1128, 1133-1134
(5th Cir. 1991), aff’g in part, rev’g in part T.C. Memo. 1990-68. Petitioner has
acknowledged that he received the payments from TVC in the amount reported,
and we resolve the tax treatment of those payments on a preponderance of the
evidence in the record. See Knudsen v. Commissioner, 131 T.C. 185, 189 (2008),
supplementing T.C. Memo. 2007-340; Schank v. Commissioner, T.C. Memo.
2015-235, at *16.
II. Petitioner’s Income
Section 61(a) provides that gross income generally includes “all income
from whatever source derived, including * * * [c]ompensation for services,
including fees, commissions, fringe benefits, and similar items”. In addition, all
self-employment income is subject to self-employment tax. See sec. 1401. Self-
employment income includes any income derived by an individual from any trade -5-
[*5] or business carried on by that individual. See sec. 1402(a). Work performed
by an independent contractor is self-employment income subject to self-
employment tax. See, e.g., Jackson v. Commissioner, 108 T.C. 130, 133-134
(1997).
The record establishes, and petitioner concedes, that he received payments
from TVC for services he provided as an independent contractor. Petitioner also
does not dispute the amounts he received from TVC. He only disputes the legal
characterization of the payments from TVC as taxable income (rather than a loan)
and questions the validity and trustworthiness of the deficiency process in general.
First, petitioner argues that the payments he received from TVC for services
he provided as an independent contractor are not taxable because Congress has not
enacted a law making it mandatory for him as a U.S. citizen to either file a tax
return or pay Federal income tax. The arguments he offers in support of his
position are incomplete, misleading, and misguided, and we will not dignify them
further by analyzing each specific point in turn. See Crain v. Commissioner, 737
F.2d 1417, 1417 (5th Cir. 1984) (“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.”); see also Wnuck v.
Commissioner, 136 T.C. 498, 510-512 (2011) (adding that addressing frivolous -6-
[*6] arguments wastes time and resources and delays the assessment of tax);
Rowlee v. Commissioner, 80 T.C. 1111, 1120 (1983) (rejecting the taxpayer’s
claim that he is not a “person liable” for tax); Ebert v. Commissioner, T.C. Memo.
1991-629 (rejecting the taxpayer’s assertion that there is no section of the Internal
Revenue Code that makes a taxpayer liable for the taxes claimed), aff’d without
published opinion, 986 F.2d 1427 (10th Cir. 1993).
Second, we hold that the payments petitioner received from TVC are not
loans. Petitioner was never obligated to repay TVC for any payments that he
received, nor did he ever actually repay any amounts he received. Therefore, we
conclude that the $18,954 in payments petitioner received from TVC for services
performed as an independent contractor in 2012 are includable in his gross income
for 2012. We note that petitioner has not claimed that he incurred any self-
employment expenses in 2012, nor does the record support a deduction for self-
employment expenses.
III. Validity of Notice of Deficiency
Petitioner’s arguments regarding the validity of the notice of deficiency
center on the validity and trustworthiness of the deficiency process in general.
This Court has long held that we generally do not look behind the notice of
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T.C. Memo. 2019-75
UNITED STATES TAX COURT
PAUL STAPLES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24524-15. Filed June 13, 2019.
Paul Staples, pro se.
Jeffrey D. Heiderscheit and Brock E. Whalen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PUGH, Judge: In a notice of deficiency dated June 22, 2015, respondent
determined a deficiency in petitioner’s 2012 Federal income tax of $3,116 and
additions to tax under section 6651(a)(1) of $701 and section 6651(a)(2) of $390.1
1 Unless otherwise indicated, section references are to the Internal Revenue (continued...) -2-
[*2] After concessions,2 the issues for decision are whether petitioner: (1) has
unreported self-employment income, (2) is liable for the addition to tax under
section 6651(a)(1), and (3) is liable for a section 6673 penalty.
FINDINGS OF FACT
Some of the facts have been deemed stipulated under Rule 91(f), and the
stipulated facts are incorporated in our findings by this reference.
At the time the petition was timely filed petitioner resided in Texas. In
2012 petitioner earned income as an independent contractor with TVC Marketing
Associates, Inc. (TVC). He failed to file his 2012 Federal income tax return or pay
the tax due. Pursuant to section 6020(b), respondent prepared a substitute for
return for 2012 using a Form 1099-MISC, Miscellaneous Income, issued by TVC
to calculate petitioner’s unreported income.3 The Form 1099-MISC reported that
TVC paid petitioner $18,954 of nonemployee compensation in 2012.
(...continued) Code of 1986, as amended, in effect for the year at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. 2 Respondent conceded the addition to tax under sec. 6651(a)(2) in his Answering Brief. 3 The return respondent prepared is not part of the record. -3-
[*3] In the notice of deficiency respondent determined petitioner’s nonemployee
compensation to be $18,954 for 2012. Respondent allowed petitioner $11,089 in
adjustments, which included $1,339 for a self-employment income tax deduction,
$5,950 for a standard deduction, and $3,800 for exemption deductions.
Accordingly, respondent determined that petitioner’s 2012 taxable income was
$7,865.
Petitioner received the $18,954 reported on the Form 1099-MISC as
commissions for services he provided customers on behalf of TVC. Each
commission was recorded as an advance payment or commission that was offset
by a “debit” that TVC tracked. As the customer associated with the advance
commission and offsetting “debit” continued as a TVC customer and made
payments to TVC, each “debit” would be gradually reduced. Conversely, if a
customer did not pay TVC, any remaining “debit” for that customer would reduce
future commissions that TVC would pay to petitioner for services to other
customers. Petitioner was not obligated to repay to TVC any commissions that he
received from TVC, and he never did repay TVC any commissions that he
received. -4-
[*4] OPINION
I. Burden of Proof
Ordinarily, the burden of proof in cases before the Court is on the taxpayer.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under section
7491(a), in certain circumstances the burden of proof may shift from the taxpayer
to the Commissioner, including unreported income identified on information
returns. See sec. 6201(d); Portillo v. Commissioner, 932 F.2d 1128, 1133-1134
(5th Cir. 1991), aff’g in part, rev’g in part T.C. Memo. 1990-68. Petitioner has
acknowledged that he received the payments from TVC in the amount reported,
and we resolve the tax treatment of those payments on a preponderance of the
evidence in the record. See Knudsen v. Commissioner, 131 T.C. 185, 189 (2008),
supplementing T.C. Memo. 2007-340; Schank v. Commissioner, T.C. Memo.
2015-235, at *16.
II. Petitioner’s Income
Section 61(a) provides that gross income generally includes “all income
from whatever source derived, including * * * [c]ompensation for services,
including fees, commissions, fringe benefits, and similar items”. In addition, all
self-employment income is subject to self-employment tax. See sec. 1401. Self-
employment income includes any income derived by an individual from any trade -5-
[*5] or business carried on by that individual. See sec. 1402(a). Work performed
by an independent contractor is self-employment income subject to self-
employment tax. See, e.g., Jackson v. Commissioner, 108 T.C. 130, 133-134
(1997).
The record establishes, and petitioner concedes, that he received payments
from TVC for services he provided as an independent contractor. Petitioner also
does not dispute the amounts he received from TVC. He only disputes the legal
characterization of the payments from TVC as taxable income (rather than a loan)
and questions the validity and trustworthiness of the deficiency process in general.
First, petitioner argues that the payments he received from TVC for services
he provided as an independent contractor are not taxable because Congress has not
enacted a law making it mandatory for him as a U.S. citizen to either file a tax
return or pay Federal income tax. The arguments he offers in support of his
position are incomplete, misleading, and misguided, and we will not dignify them
further by analyzing each specific point in turn. See Crain v. Commissioner, 737
F.2d 1417, 1417 (5th Cir. 1984) (“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.”); see also Wnuck v.
Commissioner, 136 T.C. 498, 510-512 (2011) (adding that addressing frivolous -6-
[*6] arguments wastes time and resources and delays the assessment of tax);
Rowlee v. Commissioner, 80 T.C. 1111, 1120 (1983) (rejecting the taxpayer’s
claim that he is not a “person liable” for tax); Ebert v. Commissioner, T.C. Memo.
1991-629 (rejecting the taxpayer’s assertion that there is no section of the Internal
Revenue Code that makes a taxpayer liable for the taxes claimed), aff’d without
published opinion, 986 F.2d 1427 (10th Cir. 1993).
Second, we hold that the payments petitioner received from TVC are not
loans. Petitioner was never obligated to repay TVC for any payments that he
received, nor did he ever actually repay any amounts he received. Therefore, we
conclude that the $18,954 in payments petitioner received from TVC for services
performed as an independent contractor in 2012 are includable in his gross income
for 2012. We note that petitioner has not claimed that he incurred any self-
employment expenses in 2012, nor does the record support a deduction for self-
employment expenses.
III. Validity of Notice of Deficiency
Petitioner’s arguments regarding the validity of the notice of deficiency
center on the validity and trustworthiness of the deficiency process in general.
This Court has long held that we generally do not look behind the notice of
deficiency to question the procedures the Commissioner followed leading up to -7-
[*7] the issuance of the notice. See, e.g., Greenberg’s Express, Inc. v.
Commissioner, 62 T.C. 324 (1974).
We told petitioner that we do not look behind the notice of deficiency, but
he instead persisted in claiming frivolous defects, which we have rejected before.
See, e.g., id.; Davenport v. Commissioner, T.C. Memo. 2013-41, at *4 (rejecting
similar arguments regarding alleged procedural and legal defects including
information and codes allegedly missing from taxpayer’s “Individual Master
File”). We do so again now.4
IV. Addition to Tax Under Section 6651(a)(1)
Respondent determined that petitioner is liable for an addition to tax under
section 6651(a)(1) for failure to file his 2012 Federal income tax return timely.
The Commissioner bears the burden of production with respect to a taxpayer’s
liability for additions to tax. See sec. 7491(c); Higbee v. Commissioner, 116 T.C.
438, 446 (2001). Once the Commissioner carries the burden of production, the
taxpayer must come forward with persuasive evidence that the Commissioner’s
4 We do consider legitimate challenges to the determinations by respondent, including in particular determinations of unreported income based on information reporting, see Portillo v. Commissioner, 932 F.2d 1128, 1133-1134 (5th Cir. 1991), aff’g in part, rev’g in part T.C. Memo. 1990-68, but as noted above petitioner acknowledged that he received the amount reported by TVC. -8-
[*8] determination is incorrect or that the taxpayer has an affirmative defense. See
Higbee v. Commissioner, 116 T.C. at 446-447.
Section 6651(a)(1) authorizes the imposition of an addition to tax for failure
to file a return timely unless it is shown that such failure was due to reasonable
cause and not due to willful neglect. See United States v. Boyle, 469 U.S. 241,
245 (1985). A failure to file a Federal income tax return timely is due to
reasonable cause if the taxpayer exercised ordinary business care and prudence but
nevertheless was unable to file the return within the prescribed time, typically for
reasons outside the taxpayer’s control. See McMahan v. Commissioner, 114 F.3d
366, 369 (2d Cir. 1997), aff’g T.C. Memo. 1995-547; sec. 301.6651-1(c)(1),
Proced. & Admin. Regs.
Petitioner was required to file a return for 2012 and failed to do so. See sec.
6012(a)(1)(A). Petitioner failed to introduce any credible evidence showing that
he had reasonable cause for failing to file his 2012 return timely. His only
arguments against his obligation to file a return are frivolous. Accordingly,
respondent has carried his burden of production, and petitioner is liable for the
addition to tax under section 6651(a)(1). -9-
[*9] V. Section 6673 Sanction
Section 6673(a)(1) authorizes the Court to require a taxpayer to pay a
penalty to the United States in an amount not to exceed $25,000 whenever it
appears to the Court that the taxpayer instituted or maintained the proceeding
primarily for delay or that the taxpayer’s position in the proceeding is frivolous or
groundless.
Although respondent has not moved for imposition of a penalty, we warned
petitioner in several orders before trial that this penalty might be imposed if he
continued to advance his frivolous arguments. We also warned petitioner at trial
that we would take into account everything he said in his posttrial brief.
Notwithstanding that warning, petitioner’s posttrial brief repeated the same
rejected arguments. Therefore, we will impose a penalty of $1,000 on him for
continuing to advance his frivolous arguments.
We also warn petitioner that if he does not abandon his misguided and
rejected positions--e.g., that he is not subject to tax or required to file returns--a
greater penalty may be imposed in the future. If this penalty does not dissuade
him, imposing the penalty on him for his hardheaded persistence in making
frivolous arguments to avoid his obligation to pay tax may serve as a warning to
other taxpayers considering these or similar arguments. See, e.g., Banister v. -10-
[*10] Commissioner, T.C. Memo. 2015-10, at *12-*13, aff’d, 664 F. App’x 673
(9th Cir. 2016).
To the extent not addressed above, we have considered petitioner’s
remaining arguments, and we conclude that they also are frivolous and devoid of
any basis in law. See Crain v. Commissioner, 737 F.2d 1417; Wnuck v.
Commissioner, 136 T.C. 498.
To reflect the foregoing,
An appropriate order and decision
will be entered.