Morse v. Comm'r , 99 T.C.M. 1161 ( 2010 )

T.C. Memo. 2010-40
UNITED STATES TAX COURT
JAMES ROBERT AND KATHY MORSE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
JAMES ROBERT AND KATHY S. MORSE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 17809-08, 26521-08. Filed February 25, 2010.
James Robert and Kathy S. Morse, pro sese.
Rollin G. Thorley, for respondent.
MEMORANDUM OPINION
GERBER, Judge: These consolidated cases were submitted
fully stipulated pursuant to Rule 122.1 For petitioners’ 2005
1
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
(continued...)
- 2 -
and 2006 tax years respondent determined the following income tax
deficiencies and an accuracy-related penalty:
Accuracy-
Related Penalty
Year Deficiency Sec. 6662
2005 $3,511 $702.20
2006 1,761 -0-
The deficiencies are attributable to petitioners’ failure to
report income. The questions for our consideration are whether
petitioners’ income from wages is taxable for both years and
whether they are liable for an accuracy-related penalty for 2005.
Background
Petitioners James Robert Morse (petitioner) and Kathy S.
Morse (Mrs. Morse) were residents of Arizona at the time their
petitions were filed. Mrs. Morse died on December 18, 2008,
after the filing of the petitions.2
For 2005 petitioners timely filed a joint Form 1040, U.S.
Individual Income Tax Return, reflecting zero gross and zero
adjusted gross income and claiming a $3.02 overpayment of
withholding tax. Respondent applied the $3.02 overpayment to
petitioners’ outstanding 2002 income tax liability. On their
1
(...continued)
years at issue.
2
Respondent has moved, with respect to both cases, to
dismiss Mrs. Morse for failure to prosecute as no representative
of her estate has come forward to pursue this proceeding.
Respondent’s motions to dismiss will be granted.
- 3 -
2005 income tax return, petitioners reported $29,500.59 and
$14,833.05 as wages solely for purposes of Social Security and
Medicare along with an explanation as to why said wages were not
taxable as income.
For 2006 petitioners timely filed a joint Form 1040EZ,
Income Tax Return for Single and Joint Filers With No Dependents,
reporting $4,225 of adjusted gross income from unemployment
compensation and claiming a $2,287.39 overpayment of withholding
tax. Respondent applied $2,148.86 of the $2,287.39 to
petitioners’ outstanding income tax liability for 2003 and the
remaining $138.53 to petitioners’ outstanding income tax
liability for 2004. On their 2006 return petitioners reported
wages solely for Social Security and Medicare purposes but not as
gross income.
Subsequently, respondent, on January 25, 2008, sent
petitioners letters advising that their 2005 and 2006 income tax
returns contained reporting positions that are considered to be
“Frivolous Tax Submissions” and that they might be subject to a
penalty under section 6702. Those same letters provided
petitioners with an opportunity to correct their 2005 and 2006
returns. In responses dated February 27, 2008, petitioner
advised respondent that his returns were correct and that his
position was fully explained therein. In addition, petitioner
posed numerous questions as to why respondent considered his tax
- 4 -
reporting position to be “frivolous”. Subsequently, respondent
assessed a $500 penalty against petitioner and against Mrs. Morse
under section 6702. Petitioners did not pay the $500 penalties,
and respondent proceeded to pursue collection activity.
Thereafter respondent verified the existence of petitioners’
wages and advised petitioners of the intention to determine
income tax deficiencies. Petitioners retorted that respondent
had no right to change their 2005 and 2006 returns. Respondent
issued notices of deficiency for the tax years 2005 and 2006 on
September 17 and May 5, 2008, respectively, from which
petitioners petitioned this Court.
Discussion
Petitioner admits that petitioners received “wages” during
2005 and 2006 but argues that those wages are not taxable.3
Petitioner’s argument is familiar to this and other courts and
has been soundly rejected on numerous occasions. Petitioner, in
an attempt to construct an argument, begins with definitions of
the terms “includes” and “including” and some general principles
of statutory construction. He then defines certain terms, such
as “United States”, “employee”, and related terms. Finally, he
refers the Court to section 3401(c), which concerns withholding
of tax from wages. By citing, out of context, selected text from
3
Petitioner also made arguments concerning the sec. 6702
penalties that had been assessed, but this Court is without
jurisdiction to address the merits of that assessment.
- 5 -
the withholding tax provisions, petitioner concludes that only
residents of the District of Columbia and Federal employees are
subject to the Federal income tax on their wages. Petitioner’s
position is without substance and has been rejected on numerous
occasions by this and other courts.
By selectively analyzing statutes out of context, petitioner
has reached the conclusion that petitioners’ wages received for
2005 and 2006 do not constitute taxable income. Petitioner has
followed in the footsteps of numerous others who have
unsuccessfully attempted to find a way to avoid paying Federal
income tax. We find petitioner’s arguments to be wholly without
merit and not worthy of further analysis. For example, it has
been explained that “Compensation for labor or services, paid in
the form of wages or salary, has been universally, held by the
courts of this republic to be income, subject to the income tax
laws currently applicable.” United States v. Romero, 640 F.2d
1014, 1016 (9th Cir. 1981); see Funk v. Commissioner, 687 F.2d
264 (8th Cir. 1982), affg. per curiam T.C. Memo. 1981-506;
Broughton v. United States, 632 F.2d 706, 707 (8th Cir. 1980);
Hayward v. Day, 619 F.2d 716, 717 (8th Cir. 1980); Rowlee v.
Commissioner, 80 T.C. 1111, 1120 (1983). Moreover, we are not
obligated to exhaustively review and/or rebut petitioner’s
misguided contentions. Crain v. Commissioner, 737 F.2d 1417 (5th
Cir. 1984).
- 6 -
We accordingly hold that petitioners’ wage income is subject
to the income tax and that respondent did not err in determining
income tax deficiencies against petitioners.
Finally, we consider whether petitioners are liable for an
accuracy-related penalty under section 6662. Section 6662(a) and
(b)(1) and (2) imposes an accuracy-related penalty of 20 percent
on the portion of an underpayment attributable to negligence or
disregard of rules or regulations, or to a substantial
understatement of income tax. An understatement is substantial
if it exceeds the greater of: (1) 10 percent of the tax required
to be shown on the return for the taxable year, or (2) $5,000.
Sec. 6662(d)(1)(A).
Petitioners did not have a substantial understatement as
their underpayment fell short of the statutory threshold.
Accordingly, we consider whether petitioners are subject to an
accuracy-related penalty attributable to negligence. Respondent
has carried the burden of production by showing that petitioners
failed to report income and that their reason for doing so was
frivolous.
An underpayment is not subject to an accuracy-related
penalty to the extent that the taxpayer shows that the
underpayment is due to reasonable cause and good faith. Sec.
6664(c); Neonatology Associates, P.A. v. Commissioner, 115 T.C.
- 7 -
43, 98 (2000), affd. 299 F.3d 221 (3d Cir. 2002); see also secs.
1.6662-3(a), 1.6664-4(a), Income Tax Regs.
Petitioners’ position reflected on their income tax returns
and the position presented to this Court are without substance
and have no support in case precedent. It is of no consequence
that petitioners presented a detailed explanation of their
statutory analysis, because it has been rejected by numerous
courts and because it is nothing more than sophistry.
Accordingly, we hold that petitioners were negligent and are
subject to the accuracy-related penalty for the 2005 tax
underpayment.
To reflect the foregoing,
Appropriate orders and
decisions will be entered.