Opinion
10957-20
10-29-2021
Jack Donald Supinger, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER OF SERVICE OF TRANSCRIPT
David Gustafson, Judge
Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to the Commissioner a copy of the pages of the transcript of the trial in this case before the undersigned judge at the Columbia, South Carolina, remote session containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, decision will be entered for respondent.
Bench Opinion by Judge David Gustafson
October 8, 2021
THE COURT: The Court has decided to render the following as its oral findings of fact and opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459 (b) of the Internal Revenue Code and Tax Court Rule 152; and it shall not be relied upon as precedent in any other case. References in this opinion to rules are to the Tax Court Rules of Practice and Procedure, and references to sections are to the Internal Revenue Code (26 U.S.C.), as amended and in effect at the relevant times. Some dollar amounts are rounded.
This is a deficiency case brought pursuant to section 6213(a), in which petitioner, Jack Donald Supinger, asks us to redetermine a deficiency in his Federal income tax for the year 2017, as determined by respondent, the Commissioner of the Internal Revenue Service ("IRS"), and as set forth in the statutory notice of deficiency ("SNOD") sent to Mr. Supinger on February 5, 2020. (Ex. 1-C.) Mr. Supinger's deadline to file a petition with the Tax Court would ordinarily have expired on May 5, 2020. See sec. 6213(a). However, in response to the C0VID-19 pandemic, the IRS issued Notice 2020-23, which extended this deadline to July 15, 2020. Mr. Supinger's petition bears a postmark of July 14, 2020, and it is therefore treated as timely filed. See sec. 7502(a)(1). We accordingly have jurisdiction over this case.
Trial of this case was conducted remotely on October 4, 2021, with the parties and the Court attending virtually via zoomgov.com from their respective locations. Mr. Supinger represented himself, and Timothy J. Driscoll, Jr., represented the Commissioner.
The issues for decision are: (1) whether there is a deficiency in Mr. Supinger's Federal income tax for the year 2017; (2) whether he is liable for the section 6662(a) accuracy-related penalty for the year 2017; and (3) whether he should be required to pay to the United States a penalty pursuant to section 6673(a)(1) for maintaining frivolous or groundless positions in this Court. We will hold Mr. Supinger liable for a deficiency and accuracy-related penalty for 2017. We will also require Mr. Supinger to pay a $5,000 penalty to the United States for maintaining frivolous or groundless positions in this Court.
On the evidence before us, and using the burden-of-proof principles explained below, the Court finds the following facts:
FINDINGS OF FACT
Mr. Supinger resided in South Carolina at the time he filed his petition in this case.
Petitioner's income
Mr. Supinger was employed in 2017 as a plumber's assistant by J.R. Putman, Inc., and Frontier Communications (see Exs. 3-P, 4-P), and he received "payments" (see Ex. 5-P) for his labor by direct deposit to his bank account. He earned $4,083 from Putman in January and February and earned $59,388 from Frontier in February through December. (Exs. 7-R, 10-R to 13-R). Both Frontier and Putman prepared and sent to him and to the Government Forms W-2, "Wage and Tax Statement", showing the amounts of wages he received and of federal and state taxes withheld. Frontier issued his W-2 from a California subsidiary and by mistake issued a duplicative Form W-2 from a Connecticut subsidiary. Mr. Supinger also received from FMS Investment Corp. a Form 1099-MISC, "Miscellaneous Income", reporting non-employee compensation of $1,000. (Ex. 7-R, at 007-008).
Petitioner's income tax return
Mr. Supinger filed his Form 1040EZ, "Income Tax Return for Single and Joint Filers With No Dependents", for the 2017 year on or before April 15, 2018. (Ex. 2-P.).
On his return, Mr. Supinger reported income of $0 and claimed entitlement to a refund of $5,993 (apparently calculated by aggregating the withholding amounts listed on his Forms W-2 for Federal income tax, social security tax, and Medicare tax). (Ex. 2-P.) Mr. Supinger also filed two Forms 4852, "Substitute for Form W-2, Wage and Tax Statement * * *", which listed the same amounts of tax withholdings as his Forms W-2 but listed wages as $0. (Exs. 3-P, 4-P). Also attached to his 2017 income tax return is a letter (Ex. 5-P) signed by Mr. Supinger, which stated:
The Form 4852 submitted with the Form lO4Oez is to rebut, and correct information on a document W-2 known to have been submitted to the IRS by the party on line 5 of Form 4852 referred to as "payer", erroneously alleging that I received payments connected to taxable activities, as described in the Internal Revenue Code (IRC) Section 3121 and 3401 "wages". That report is hereby disputed.
The payments made to me did not result from any federally taxable activity whatsoever and do not constitute any taxable income under relevant income tax law. I rebut the characterization of non-taxable payments to me as reportable "wages".
Please note that any "Social Security Tax" withheld and "Medicare Tax" withheld were withheld from non-taxable payments and are included on Form 4852 and Form 1040EZ.
Examination and deficiency determination
Upon processing Mr. Supinger's 2017 Federal income tax return, the IRS froze his claim for a refund and opened the return for a correspondence examination. (Ex. 9-R.) During the examination, the IRS adjusted Mr. Supinger's 2017 return to include wages of about $123,000 (i.e., including twice the wages reported by Frontier) and self-employment income of $1,000, and recalculated his income tax liability to equal $24,730, plus self-employment tax of $141, for a total deficiency of $24,871. (Ex. 1-C at 5). The examining agent made an initial determination that a 20-percent accuracy-related penalty under section 6662 was appropriate, and his immediate supervisor approved the assertion of the penalty by typing an entry in computerized "Case Notes" for Mr. Supinger's 2017 year. (Ex. 1-C at 6.) The IRS sent to Mr. Supinger an SNOD, explaining the adjustments to his return, the resulting tax deficiency and penalty, and his balance due. (Ex. 1-C).
Tax Court proceedings
Mr. Supinger filed his petition for redetermination of the deficiency, and his case was eventually set for trial.
In the Commissioner's pre-trial memorandum (Doc. 7), he conceded that the amount of the deficiency, as set forth in the SNOD, was excessive because of the duplicative Form W-2 from Frontier. The Commissioner also conceded the $1,000 of non-employee compensation reported by FMS Investment. To account for these concessions, the Commissioner presented a calculation (Doc. 7, Ex. A) showing that the correct amount of Mr. Supinger's deficiency for 2017 is $9,008, and that his income tax withholding was $1,137, rather than the larger amount he reported.
To assure preparation for the upcoming trial, the Court held a telephone conference call with the parties on September 15, 2021. The Court then issued an order (Doc. 12) that memorialized the call and stated:
During the call, the Court warned Mr. Supinger that a Tax Court petitioner who makes frivolous contentions (such as that the income tax is unconstitutional, or that wages are not income, etc.) can become liable for a penalty of up to $25,000, pursuant to section 6673(a). There are many cases imposing penalties against suchfrivolous contentions, and the Court draws Mr. Supinger's attention to the following two examples: Ulloa v. Commissioner, T.C. Memo. 2010-68, and Wnuck v. Commissioner, 136 T.C. No. 24 (2011) . The Court would take no pleasure in imposing such a penalty here, but would rather adjudicate Mr. Supinger's tax liability, determining both his taxable income and also deductions or credits to which Mr. Supinger might be entitled that would reduce his tax liability.
On September 28, 2021, the Court held with the parties a video conference "dress rehearsal" to confirm their ability to participate remotely via zoom.gov, and in that video conference the judge repeated his warning about the section 6673 penalty for frivolous positions.
Trial
At trial Mr. Supinger testified that he had no taxable income for 2017, but he effectively refused to say anything further about the income he received. He professed to be unable to state his relationship to Frontier and Putman. When questioned by counsel and the Court, he professed not to understand the meaning of "employed" or of having "received" money, and he claimed not to be able to remember whether he worked as a plumber's assistant in 2017 nor whether money was deposited into his bank account. In several instances, when directed by the Court to answer such questions, he declined to answer on the grounds that it might incriminate him to do so.
The Commissioner therefore called as witnesses personnel from Frontier and Putman. They authenticated company records showing that Mr. Supinger was an employee and showing payments consistent with the Forms W-2.
At the conclusion of the trial, the judge stated that he expected to read a bench opinion in which he would sustain the deficiency (as recomputed). He also stated that he was undecided about the amount of any penalty under section 6673(a)(1), and he invited Mr. Supinger to make any statement he wished to make that might affect the amount of the penalty. In particular, the judge suggested that Mr. Supinger might "assure me that you would not do this again", but Mr. Supinger declined to offer any such assurance.
OPINION
I. General Legal Principles A. Burden of Proof
1. Deficiency
Generally, the Commissioner's determination of a deficiency is presumed correct, and the taxpayer has the burden of proving it wrong. See Rule 142(a). In unreported income cases, that presumption attaches when the Commissioner "provide[s] some predicate evidence connecting the taxpayer to the charged activity". Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979), discussed in Williams v. Commissioner, 999 F.2d 760, 764 (4th Cir. 1993). Once the Commissioner presents that predicate evidence, the taxpayer bears the burden of proving that he did not receive the income and that the Commissioner's determination of a deficiency is incorrect.
2. Penalties
The Commissioner bears the burden of production with respect to the liability of an individual for any penalty. Sec. 7491(c). To satisfy his burden, the Commissioner must present sufficient evidence to show that it is appropriate to impose the penalty in the absence of available defenses. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). One element of the Commissioner's burden of production is to show compliance with section 6751(b)(1), which requires the IRS to obtain written supervisory approval before it formally communicates to the taxpayer that he is liable for the penalty. See Clay v. Commissioner, 152 T.C. 223, 249-250 (2019).
Once the Commissioner meets his burden of production on penalties, the taxpayer must come forward with persuasive evidence that the Commissioner's showing is incorrect. Rule 142(a); Higbee, 116 T.C. at 447. Or he may defend against the penalty with a showing of "reasonable cause" and "good faith" under section 6664(c) (1) .
B. Treatment of Frivolous Arguments
Litigants who advance frivolous arguments in the Tax Court are not entitled to, and should not expect to receive, opinions rebutting their positions. Wnuck v. Commissioner, 136 T.C. 498 (2011). The IRS publishes and updates a list of frivolous positions pursuant to section 6702(c). See I.R.S. Notice 2010-33, 2010-17 I.R.B. 609. One of these frivolous positions is that a "taxpayer has an option under the law to * * * elect to file a tax return reporting zero taxable income and zero tax liability even if the taxpayer received taxable income during the taxable period for which the return is filed, or similar arguments described as frivolous in Rev. Rul. 2004-34, 2004-1 C.B. 619."
Under section 6673(a)(1), "the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000" for instituting proceedings primarily for delay, maintaining frivolous positions, or unreasonably failing to pursue available administrative remedies.
II. Income Tax Deficiency for 2017
Section 61(a)(1) defines a taxpayer's gross income as "all income from whatever source derived," including "[c]ompensation for services". Sec. 61(a) (1). The trial record includes credible evidence-including Mr. Supinger's own Forms 4852 (Exs. 3-P, 4-P)-that he was employed in 2017, and his own letter admits that he received "payments" (see Ex. 5-P) for his labor. (See also Exs. 7-R, 8-R, 10-R to 13-R.) Mr. Supinger therefore bore the burden to prove that the Commissioner's determination was incorrect. However, he did not offer any evidence that he either did not receive compensation for his employment in 2017, or that the compensation he received qualifies for any actual exclusion from his taxable income under the Federal income tax laws, but rather he contended that his "self-assessment" of zero taxable income and zero tax liability is somehow conclusive. But under well-settled principles of Federal income tax law, Mr. Supinger owes tax on the compensation he received in 2017--though not, of course, on the duplicative wages twice reported by Frontier and not on the $1,000 from FMS Investment that the Commissioner also conceded. We will accordingly sustain the determination of a deficiency against Mr. Supinger for 2017, in the lower amount as computed by the Commissioner to reflect his concession of the conceded amounts.
III. Section 6662(a) Accuracy-Related Penalty for 2017
Section 6662(a) imposes an "accuracy-related penalty" equal to 20 percent of the portion of the underpayment that is attributable to (among other things) a "substantial understatement of income tax", sec. 6662(b)(2). For the purposes of section 6662(b)(2), an understatement of income tax is "substantial" if it exceeds the greater of "10 percent of the tax required to be shown on the return" or $5,000. Sec. 6662(d)(1)(A). Mr. Supinger reported liability of $0 on his 2017 Federal income tax return. (Ex. 2-P). The deficiency for 2017, as redetermined after the Commissioner's concessions, equals $9,008. (Doc. 7, Ex. A.) Because Mr. Supinger's understatement of his Federal income tax liability was thus greater than $5,000, it was a "substantial understatement" for purposes of section 6662(a) and (d).
As part of his burden of production on penalties, the Commissioner must prove compliance with the written supervisory approval requirements of section 6751(b)(1). To meet this burden the Commissioner offered the testimony of the immediate supervisor, Adam R. Fisher, and a certified copy of the entry that Mr. Fisher typed to record his approval. We hold that the Commissioner has carried his burden to show compliance with section 6751(b)(1). Accordingly, we will sustain the determination of the 20-percent penalty against Mr. Supinger for 2017, in the lower amount computed by the Commissioner to correspond to the lower deficiency amount.
IV. Section 6673 Penalty for 2017
Mr. Supinger's position based on his "self-assessment" and his zero return was plainly frivolous and is therefore potentially subject to the penalty of section 6673(a)(1), in an amount as high as $25,000. To guide our discretion in deciding whether to impose a section 6673(a) (1) penalty and, if so, in what amount, this Court "has considered any relevant facts and circumstances", including a dozen possible circumstances we listed in Leyshon v. Commissioner, 109 T.C.M. 1535, 1540-1542 (2015).
In Mr. Supinger's favor, we note that the amount of the deficiency was not the nearly $25,000 determined in the SNOD but rather only about $9,000. Consequently his filing of his petition did thus result (no thanks to his frivolous position) in a redetermination in his favor. Moreover, we can say that Mr. Supinger was polite in the conduct of the trial. He timely submitted his pretrial memorandum and cooperated with the logistics of the remote trial proceeding by electronically filing his exhibits.
Furthermore, as far as we know Mr. Supinger has not previously made frivolous contentions in court nor been penalized for doing so.
However, his conduct after the Commissioner had made his concessions, when the only income in dispute was obviously taxable to Mr. Supinger, was frivolous. He was warned multiple times by this Court before trial that the arguments contained in his petition and pretrial memorandum regarding his "self-assessment" of the taxability of his income in 2017 were frivolous and risked incurring the imposition of a section 6673 penalty. Most telling was Mr. Supinger's refusal to answer basic questions about his employment status and compensation in 2017, when instead he professed to not remember basic facts, to not know the meaning of words such as "employed," "received," and "income," and to be unable to answer the questions without "incriminating" himself. He manifestly realized that if he gave frank answers to those questions-if he simply admitted that he worked for Frontier and Putman and that they paid him the amounts they reported-then he would be liable for the tax at issue. He fully understood that his "self-assessment" theory could not survive an honest account of his situation. So he dodged, evaded, and obfuscated. He put the Commissioner to the expense and trouble of producing witnesses to prove facts for which Mr. Supinger had no rebuttal. These were facts that Mr. Supinger should have stipulated, see Rule 91(a); and had he done so, the case could have been decided without the expense and trouble of a trial. This is the sort of behavior for which section 6673(a)(1) was invented.
Mr. Supinger's conduct in this litigation after partial concession by the Commissioner and at trial demonstrates bad faith, and we conclude that the imposition of a penalty under section 6673(a) (1) is justified. However, taking account of the mitigating circumstances noted above (chiefly that this is Mr. Supinger's first known offense and that this case did result in a reduction of the deficiency from $25,000 to $9,000), we will impose against him a penalty under section 6673(a)(1) of only $5,000. Mr. Supinger should know that, if a $5,000 penalty proves insufficient to deter him from making frivolous arguments in the future, then he is liable to incur a more substantial penalty up to a maximum of $25,000.
V. Reconsideration
We point out to Mr. Supinger (as we stated at the end of trial) that the deadline to file a motion for reconsideration is 30 days after the Court serves the transcript of this opinion, see Rule 161. If Mr. Supinger perceives any mathematical error in the computation of the $9,008 deficiency attached to the Commissioner's pretrial memorandum (Doc. 7, Ex. A), then he could offer a correction in such a motion.
Moreover, in a motion for reconsideration, Mr. Supinger could address the penalty issue by offering the Court his assurance that he will not hereafter repeat his frivolous arguments in future litigation but will acknowledge that, under the law as the courts unanimously construe it, he owes Federal income tax on the compensation he receives for his work. An unequivocal commitment to that effect by Mr. Supinger could prompt a reduction in the amount of the penalty. However, we warn Mr. Supinger that, if he should attempt to use a motion for reconsideration as an opportunity to repeat his frivolous contentions, then he would be at risk for a penalty even greater than $5,000 to be imposed in this case. See Wnuck v. Commissioner, 136 T.C. at 513-514. VI. Conclusion
Mr. Supinger received compensation for his labor in 2017, for which he owes Federal income tax. We will accordingly sustain the deficiency, but in the reduced amount ($9,008) consistent with the Commissioner's partial concession. In filing a "zero-return," Mr. Supinger substantially understated his income tax and triggered imposition of the 20-percent section 6662(a) accuracy-related penalty, which we will sustain, again in the reduced amount ($1,801) consistent with the Commissioner's partial concession. Furthermore, Mr. Supinger's persisting in his frivolous position after the Commissioner made his concessions demonstrates bad faith and warrants imposition of a $5,000 penalty under section 6673(a)(1). Decision to that effect will be entered in favor of the Commissioner.
This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 2:23 p.m., the above-entitled matter was concluded.)