Opinion
5618-21
03-20-2023
KIMBERLY STOLTZ, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Emin Toro Judge
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is hereby
ORDERED that the Clerk of the Court shall transmit to petitioner and respondent a copy of the pages of the transcript of the oral finding of fact and opinion rendered at the conclusion of the trial in the above-referenced case, held before Judge Emin Toro in Kansas City, Missouri, on January 31, 2023.
In accordance with the Oral Findings of Fact and Opinion, an appropriate order and decision will be entered.
Kimberly Stoltz
v.
Commissioner of Internal Revenue
Docket No. 5618-21
January 31, 2023
Bench Opinion
Emin Toro, Judge
THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times. We round all monetary amounts to the nearest dollar.
In a Notice of Deficiency dated December 7, 2020, the Commissioner of Internal Revenue determined a deficiency of $8,333 in Kimberly Stoltz's federal income tax for 2017. The Commissioner also determined additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654(a) of $1,826, $1,461, and $194, respectively.
The issues for our decision are: (1) whether Ms. Stoltz's gross income for 2017 includes $56,365 in wages paid to her for her work as a nurse and reported to the Commissioner by CHC Payroll Agent, Inc. (CHC)(2) (CHC), (2) whether Ms. Stoltz is liable for an addition to tax under section 6651(a)(1) for failing to timely file an income tax return, (3) whether Ms. Stoltz is liable for an addition to tax under section 6651(a)(2) for failing to pay the tax shown on a return, (4) whether Ms. Stoltz is liable for an addition to tax under section 6654(a) for failing to make estimated tax payments, and (5) whether the Court should impose a penalty of $500 under section 6673. As we will explain, the Commissioner prevails on all issues.
We held trial of this case in person during the Court's January 30, 2023, Kansas City, Missouri, trial session. Ms. Stoltz represented herself, and Robert C. Teutsch II represented the Commissioner.
FINDINGS OF FACT
On the evidence before us, and using the burden-of-proof principles explained below, the Court finds the following facts. We draw the facts from the testimony and other evidence admitted at trial, as well as the parties' pleadings.
Throughout 2017, Ms. Stoltz worked as a nurse for a hospital system in Missouri. Ms. Stoltz resided in Independence, Missouri, when she filed her Petition.
CHC provides payroll services for the hospital for which Ms. Stoltz worked. CHC issued to Ms. Stoltz a Form W-2, Wage and Tax Statement, for 2017. Box 1 of the form reflects "Wages, tips, other comp" of $56,365. CHC's records also show that in 2017 Ms. Stoltz received 27 direct deposit transfers totaling $50,422.
Ms. Stoltz did not file a return for 2017. That return was due in April 2018. Based on third-party information return data, the Internal Revenue Service (IRS) prepared a substitute for return pursuant to section 6020(b) for Ms. Stoltz. The substitute for return includes the income CHC reported on the Form W-2.
According to the Notice of Deficiency, the deficiency in Ms. Stoltz's tax for 2017 arose from Ms. Stoltz's failure to report compensation of $56,365, the amount CHC reported to the IRS. As already noted, the Commissioner determined that Ms. Stoltz owed $8,333 in tax with respect to this amount and also determined additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654(a).
Following the issuance of the Notice of Deficiency, Ms. Stoltz timely filed a Petition with our Court seeking a redetermination of the deficiency and the additions to tax. Ms. Stoltz attached to her Petition 36 pages raising various frivolous arguments that her income is not subject to federal tax. For example, she contended that she was "Agent of Record for Principal / Taxpayer KIMBERLY STOLTZ;" that she "received 'No Gross Income ($00.00) derived from a source;'" that she was "NOT exercising a federal or state-granted commercial privilege as a 'source;'" that she earned "private income" "from [the] exercise of 'fundamental rights' as a private individual;" that such income was not taxable; and that taxing such income would be unconstitutional.
At the calendar call for the case, we alerted Ms. Stoltz to section 6673, which authorizes the Tax Court to impose a penalty not in excess of $25,000 whenever (among others) it appears to the Court that the taxpayer's position in a proceeding before the Court is frivolous or groundless. We further warned Ms. Stoltz that if she decided to continue pressing her frivolous and groundless arguments at trial she risked the imposition of penalty under section 6673. We also directed her to review the multitude of cases that refute her arguments. Undeterred, Ms. Stoltz proceeded to trial reiterating the frivolous arguments made in her Petition. At the conclusion of trial, the Commissioner moved for a $500 penalty under section 6673.
OPINION
I. Unreported Income
Section 61(a) provides that "gross income means all income from whatever source derived," including "[c]ompensation for services." I.R.C. § 61(a)(1). As a general rule, the Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving that the determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. Ill. 115 (1933). In cases of unreported income, the U.S. Court of Appeals for the Eighth Circuit, to which an appeal in this case would ordinarily lie, see section 7482(b)(1), has held that for the presumption to apply the Commissioner must produce some evidence linking a taxpayer to an income-generating activity, Day v. Commissioner, 915 F.2d 534, 537 (8th Cir. 1992), aff'g in part, rev'g in part on other grounds, and remanding T.C. Memo. 1991-140, or establish some foundation or evidence supporting the assessment, Page v. Commissioner, 58 F.3d 1342, 1347 (8th Cir. 1995), aff'g T.C. Memo. 1993-398.
More than adequate evidence in the record links Ms. Stoltz to the income giving rise to her tax liability for 2017. The Commissioner produced at trial a Form W-2 CHC issued to Ms. Stoltz reporting that she was paid wages of $56,365 for 2017 as well as records from CHC showing 27 direct deposits made to Ms. Stoltz in 2017. Ms. Stoltz agrees that she worked as a nurse and was paid wages of $56,365 in 2017. And she has not demonstrated (and the record does not support) that either section 6201(d) or section 7491(a) applies to shift the burden to the Commissioner. See Cook v. Commissioner, T.C. Memo. 2010-137. Therefore, the burden is on Ms. Stoltz to establish by a preponderance of the evidence that the Commissioner's determination of unreported income is arbitrary or erroneous.
This she has not done. The entirety of Ms. Stoltz's case consists of frivolous and groundless arguments that the income she concedes receiving is not subject to federal taxation. Courts, including our own, have rejected such meritless arguments countless times. See May v. Commissioner, 752 F.2d 1301, 1304 (8th Cir. 1985) (citing to Abrams v. Commissioner, 82 T.C. 403, 406-07 (1984)); see also United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993) ("[W]e have held that wages are within the definition of income under the Internal Revenue taxation."); Code . . . and are subject to taxation,"); Coleman v. Commissioner, 791 F.2d 68, 70-71 (7th Cir. 1986) (same and collecting authorities); Waltner v. Commissioner, T.C. Memo. 2014-35 (same), aff'd, 659 F. App' x 440 (9th Cir. 2016). We will not address those arguments further here. 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."); Wnuck v. Commissioner, 136 T.C. 498, 501-13 (2011).
The record here demonstrates that Ms. Stoltz has not raised any genuine dispute regarding the Commissioner's determination, and that she has not established by a preponderance of the evidence any error in the Commissioner's determination. Accordingly, we find that in 2017 Ms. Stoltz received taxable income of $56,365 as determined in the Notice of Deficiency.
II. Additions to Tax
We now turn to whether Ms. Stoltz is liable for additions to tax under sections 6651(a) (1), 6651(a) (2), and 6654(a). Under section 7491(c), the Commissioner has the burden of production with respect to a taxpayer's liability for any asserted addition to tax. To satisfy the burden of production, the Commissioner must produce evidence showing that the additions to tax are appropriate. Higbee v. Commissioner, 116 T.C. 438, 446-47 (2001).
A. Failure to File a Return
Section 6651(a)(1) imposes an addition to tax for failure to file a timely return unless the taxpayer proves that such failure is due to reasonable cause and not willful neglect. Wheeler v. Commissioner, 127 T.C. 200, 207 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008).
The Commissioner introduced evidence showing that Ms. Stoltz did not file an income tax return with the Commissioner for 2017. Accordingly, the Commissioner's burden of production under section 7491(c) is met. Aside from the frivolous arguments we have already discussed, Ms. Stoltz has not put forth any arguments that her failure to timely file a return was due to reasonable cause and not willful neglect. On the evidence before us, we find that Ms. Stoltz is liable for an addition to tax under section 6651(a)(1).
B. Failure to Pay Tax Shown on a Return
Section 6651(a)(2) imposes an addition to tax for failure to pay the amount of tax shown on a return unless the taxpayer shows the failure is due to reasonable cause and not willful neglect. Wheeler, 127 T.C. at 208. This addition to tax applies only when an amount of tax is shown on a return. Id. A return made by the Secretary under section 6020(b) is a treated as "the return filed by the taxpayer for purposes of determining the amount of the addition" under section 6651(a)(2). I.R.C. § 6651(g)(2); Wheeler, 127 T.C. at 208-09.
The Commissioner's burden of production under section 6651(a)(2) includes introducing "evidence that a return showing the taxpayer's tax liability was filed for the year in question." Wheeler, 127 T.C. at 210. When a taxpayer does not file a return, the Commissioner must introduce evidence that a substitute for return satisfying the requirements of section 6020(b) was prepared. Id.
The Commissioner produced at trial a copy of the return he prepared for Ms. Stoltz's 2017 tax year pursuant to section 6020(b) as well as Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, showing that Ms. Stoltz has not paid the amount shown on the return. Therefore, the Commissioner has met his burden of production under section 7491(c). And again, besides frivolous arguments, Ms. Stoltz has raised no argument that her failure to pay the tax shown on the return was due to reasonable cause and not willful neglect. Accordingly, we find that Ms. Stoltz is liable for an addition to tax under section 6651(a)(2).
C. Failure to Make Estimated Tax Payments
Section 6654(a) imposes an addition to tax on an individual taxpayer who underpays the amount of any estimated tax owed for the tax year.
To meet his burden of production under this provision, the Commissioner produced the return the IRS prepared for Ms. Stoltz's 2017 tax year under section 6020(b), a Form 4340 showing that Ms. Stoltz made no estimated tax payments for 2017, and a Form 4340 showing that Ms. Stoltz did not file a return for 2016. The Commissioner has thus met his burden of production. See Wheeler, 127 T.C. at 211-12, (explaining how section 6654(a) works); see also I.R.C. § 6654(d) (1) (B)-,- (flush text)(providing that the potentially more favorable limit set out in section 6654(d)(1)(B)(ii) does not apply "if the individual did not file a return for [the] preceding taxable year"). So Ms. Stoltz is liable for the addition to tax under section 6654(a) unless she shows that one of the statutory exceptions applies. See I.R.C. § 6654(e). She undertook no effort to make such a showing.
Accordingly, we conclude that she is liable for the addition to tax under section 6654(a).
III. Penalty Under Section 6673 Finally, we turn to the Commissioner's Motion that we impose a $500 penalty under section 6673.
As relevant here, as we have already noted, section 6673(a)(1)(B) authorizes the Tax Court to impose a penalty not in excess of $25,000 whenever it appears to the Court that 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 resources. Coleman v. Commissioner, 791 F.2d at 71-72, (collecting authorities); Takaba v. Commissioner, 119 T.C.285, 295 (2002); see also Wnuck, 136 T.C. at 513.
A position maintained by the taxpayer is "frivolous" where it is "contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Commissioner, 791 F.2d at 71; accord Winslow v. Commissioner, 139 T.C. 270, 276 (2012). "By comparison, the term 'groundless' has been applied to cases in which the taxpayer's position is unfounded in fact. In determining whether a groundless claim exists, the Tax Court has looked to the dictionary definition, noting that the word 'groundless' literally means 'having no ground or foundation: lacking cause or reason for support.'" Leyshon v. Commissioner, T.C. Memo. 2015-104, at *22 (citations and internal quotation marks omitted), aff'd, 649 Fed.Appx. 299 (4th Cir. 2016). Thus, "a position is groundless if it lacks merit or has no justiciable facts in the petition and no valid ground or basis." Id. at *23.
Section 6673 grants the Court discretion in deciding whether to impose the penalty. See Lukovsky v. Commissioner, 734 F.2d 1320, 1321 (8th Cir. 1984); Neonatology Assocs.,P.A. v. Commissioner, 115 T.C. 43, 102 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002). The Eighth Circuit has stated that the penalty may properly be imposed if "it is incontrovertible that the taxpayer did not institute the action or bring an appeal in good faith because he knew or should have known that the claim or argument was frivolous." May v. Commissioner, 752 F.2d at 1306; see also Coleman v. Commissioner, 791 F.2d at 72 (discussing May and noting that "[a]s originally published May used a subjective test [but] [t]he court later revised the opinion, stating the inquiry as whether the taxpayer 'knew or should have known' that the claim, return, or argument was groundless. 55 A.F.T.R.2d 747, 751 (8th Cir. 1985). 'Should have known' is an objective test.")-; Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th Cir. 1987)(section 6673 penalty upheld because taxpayer should have known claim was frivolous).
At the calendar call for the case, we drew Ms. Stoltz's attention to section 6673 and advised her that the arguments presented in her Petition and the additional materials she had presented to the Court had been roundly rejected by our Court and others. We directed Ms. Stoltz to consider those judicial decisions before deciding whether to proceed with trial. We also warned her that if she continued pressing her frivolous and groundless arguments at trial she risked the imposition of a penalty under section 6673.
Undeterred, Ms. Stoltz proceeded to trial. There she continued to advocate for a position "contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Commissioner, 791 F.2d at 71. Moreover, she offered no facts that supported her position. Indeed, the only relevant facts she presented at trial-that in 2017 she worked as a nurse in Missouri and got paid for her work-defeat her view that she received no taxable income.
In short, we are convinced that the position at trial was "frivolous" and "groundless." We are also convinced that Ms. Stoltz should have known that it was, especially after our invitation that she review the relevant law before proceeding further. Her self-serving assertions that she was proceeding in good faith to protect her rights do not defeat the application of the statute in light of the record here. See Day v. Commissioner, 975 F.2d at 538-r ("The Tax Court is not required to give credence to the self-serving testimony of interested parties.").
In view of the foregoing, we will grant the Commissioner's Motion and impose a penalty of $500 under section 6673. See Leyshon, T.C. Memo. 2015-104, at *24-29 (setting out factors we consider in deciding whether to impose a penalty); see also Hammers v. Commissioner, 894 F.2d 282, 282 (8th Cir. 1990) (affirming imposition of section 6673 damages under a prior version of section 6673), aff'g T.C. Memo 1989-121. In determining the amount of the penalty, we take into account all of the facts and circumstances reflected in the record, including the fact that Ms. Stoltz was courteous at trial. We take no pleasure in imposing this penalty. But Ms. Stoltz "should realize that if in the future [she] continues to persist with frivolous [and groundless] litigation . . ., then [she would] be communicating to the Court that a [$500] penalty is insufficient to affect [her] behavior and that the Court should instead consider a much larger penalty, up to the maximum of $25,000." Leyshon, T.C. Memo. 2015-104, at *33.
An appropriate order and decision will be entered.
This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 2:28 p.m., the above-entitled matter was concluded.)