Mathews v. Comm'r

WHERRY, Judge: After a concession by respondent, ¹ the issues for decision are:

(1) Whether petitioner's military retirement pay is includable in gross income;

(2) whether petitioner is liable for an addition to tax under section 6651(a)(1) for failure to file his 2004 tax return; ²

(3) whether petitioner is liable for *261 an addition to tax under section 6651(a)(2) for failure to pay his 2004 taxes; and

(4) whether the Court should impose a penalty under section 6673 for petitioner's advancement of frivolous or groundless arguments in proceedings instituted primarily for protest or delay.

Some of the facts have been stipulated and are so found. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference. At the time he filed his petition with this Court, petitioner resided in Florida.

Petitioner served in the U.S. Air Force for 20 years before retiring as a master sergeant. For his service petitioner is entitled to military retirement pay (MRP). For 2004 the gross amount petitioner was entitled to receive as his MRP was $1,322 per month. ³ However, petitioner executed a Veterans Administration waiver pursuant to which he waived receipt of $205 each month. ^4*262

The Defense Finance and Accounting Service (DFAS) is the agency responsible for disbursing petitioner's MRP. For each month of 2004 the DFAS withheld approximately $716 from petitioner's MRP, $461 of which was subject to a Texas State court garnishment order for child support, and deposited the balance into petitioner's bank account. No withholdings were made for Federal income taxes. ⁵

Petitioner did not file *263 a Federal income tax return for 2004. Therefore, respondent prepared a substitute for return for petitioner under section 6020(b) showing a total amount due of $1,872. ⁶ On December 29, 2008, on the basis of this substitute for return, respondent mailed to petitioner at his last known address a notice of deficiency for the 2004 taxable year showing a deficiency of $1,872 and additions to tax under section 6651(a)(1) and (2) of $421.20 and $402.48, respectively.

Petitioner timely petitioned this Court. In his petition as well as in other filings made with this Court and at trial petitioner made broad arguments disputing the validity of the Texas State court garnishment *264 order. He claims widespread fraud, racial discrimination, and theft, conspiracy, and corruption on the part of various governmental entities instead of identifying or advancing specific arguments as to why he was not liable for the deficiency or the additions to tax.

This Court waived the filing fee for cause pursuant to petitioner's request. A trial was held in Miami, Florida.

As stated above, petitioner has failed to identify or advance specific arguments as to why he was not liable for the deficiency or additions to tax. Thus, petitioner fails to meet the requirement of Rule 34(b)(4) that a petition contain "Clear and concise assignments of each and every error which the petitioner alleges to have been committed by the Commissioner in the determination of the deficiency or liability." Even ignoring petitioner's failure to satisfy Rule 34(b), for the reasons set forth in this opinion we will sustain the deficiency and additions to tax.

As a general rule, the Commissioner's determination of a taxpayer's liability in the notice of deficiency is presumed correct, and the taxpayer bears the burden of proving that the determination is improper. *265 See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115, 54 S. Ct. 8, 78 L. Ed. 212, 1933-2 C.B. 112 (1933). However, pursuant to section 7491(a), the burden of proof on factual issues that affect the taxpayer's tax liability may shift to the Commissioner where the "taxpayer introduces credible evidence with respect to * * * such issue." The burden will shift only if the taxpayer has, inter alia, complied with applicable substantiation requirements and "cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews". Sec. 7491(a)(2). Petitioner did not raise the burden of proof issue, did not introduce any credible evidence, and failed to comply with the substantiation requirements. Accordingly, the burden of proof remains on petitioner.

Petitioner's main argument is that the garnishment order issued by the Texas State court is fraudulent and "More than a million dollars have been stolen through a very eleborate [sic] scam." ^7*266 Court records show this is at least the fifth time petitioner has raised this argument. ⁸

For reasons discussed below, this Court holds that (1) petitioner's MRP, including the amount garnished, is included in gross income and (2) this Court lacks jurisdiction to decide whether *267 the Texas State court garnishment order is fraudulent.

Section 61(a)(11) expressly defines gross income to include pensions. Petitioner's "Military retirement pay is pension income within the meaning of sec. 61(a)(11)." Wheeler v. Commissioner, 127 T.C. 200, 205 n.11 (2006), affd. 521 F.3d 1289 (10th Cir. 2008); see also Eatinger v. Commissioner, T.C. Memo. 1990-310; sec. 1.61-11, Income Tax Regs.

The fact that part of petitioner's MRP was garnished does not change this result. "The discharge by a third person of * * * [a taxpayer's obligation] is equivalent to receipt by the person taxed." Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 729, 49 S. Ct. 499, 73 L. Ed. 918, 1929-2 C.B. 222 (1929); see also Young v. Commissioner, 113 T.C. 152, 157 (1999), affd. 240 F.3d 369 (4th Cir. 2001). The fact that the transfer is involuntary, such as by garnishment, has no significance. See, e.g., Tucker v. Commissioner, 69 T.C. 675, 678 (1978); Chambers v. Commissioner, T.C. Memo. 2000-218 (holding amounts garnished from employee's wages for alimony and child support were includable in employee's income), affd. 17 Fed. Appx. 688 (9th Cir. 2001); Vorwald v. Commissioner, T.C. Memo. 1997-15*268 (holding that amounts transferred from taxpayer's retirement account to his former spouse in garnishment proceeding constituted deemed distributions to taxpayer from his retirement account and were, therefore, includable in his income).

A portion of petitioner's MRP was garnished pursuant to a Texas State court garnishment order for child support. The garnished funds were paid to satisfy a legal obligation petitioner owed and thus constitute petitioner's gross income.

Petitioner asserts that the Texas State court garnishment order is a result of fraud. This Court, as petitioner has been told on several occasions, lacks jurisdiction to address petitioner's allegations of fraud that may have occurred during the garnishment proceedings in the Texas State court. Child support determinations are matters of local law, and we are not permitted to reassess the merits of those judgments. See, e.g., Blair v. Commissioner, 300 U.S. 5, 9-10, 57 S. Ct. 330, 81 L. Ed. 465, 1937-1 C.B. 175 (1937) (holding that the validity of a trust assignment is a matter of local law and a State court's determination with regards to such assignment is not reviewable *269 by this Court); ^9*270 Chambers v. Commissioner, supra (refusing to address the validity of a garnishment order for alimony and child support after taxpayer alleged his civil rights had been violated in the underlying divorce proceedings).

The Court recognizes that petitioner does not agree with the Texas State court ruling regarding his child support obligations and subsequent garnishment. But we cannot address those allegations, and petitioner has not shown a basis for excluding any amount of his MRP from gross income. Therefore, the entire amount of petitioner's MRP, including the portion garnished, is included in gross income.

Generally, "any person made liable for any tax * * * shall make a return or statement according to the forms and regulations prescribed by the Secretary." Sec. 6011(a). Section 6651(a)(1) provides that in the case of a failure to file a return on time, there is imposed, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, an addition to tax of 5 percent of the tax required to be shown on the return for each *271 month or fraction thereof for which there is a failure to file, not to exceed 25 percent.

Section 6651(a)(2) provides for an addition to tax of 0.5 percent per month up to 25 percent for failure to pay the amount shown or required to be shown on a return unless it is shown that such failure is due to reasonable cause and not due to willful neglect. ¹⁰

The respondent bears the burden of production with regard to the section 6651(a)(1) and (2) additions to tax. ^11*272 Sec. 7491(c); see Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet his burden, respondent must produce sufficient evidence establishing that it is appropriate to impose the additions to tax. Id.

As stipulated, petitioner admits that he did not file his 2004 tax return and that he has not paid his 2004 taxes. Further, petitioner has not presented any evidence that such failure to file and pay was due to reasonable cause and not willful neglect. Respondent has thus met his burden of production and accordingly, we sustain the additions to tax under both section 6651(a)(1) and (2).

Section 6673(a)(1) gives this Court discretion to "require the taxpayer to pay to the United States a penalty not in excess of $25,000" whenever it appears that:

(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay,

(B) the taxpayer's position in such proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably failed to pursue available administrative remedies * * *

A position "is frivolous if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986). Petitioner's unsupported argument is frivolous or groundless. ¹² Petitioner is a habitual nonfiler who has failed to pay *273 the taxes due on his MRP and failed to advance any specific argument as to why he is not liable for the deficiency. Petitioner persists in arguing that his MRP was wrongfully garnished despite the fact that this Court has rejected this argument on jurisdictional grounds on several occasions. ¹³

Courts have ruled that arguments to avoid tax obligations and requirements, such as those arguments petitioner espouses are groundless and wholly without merit. See Williams v. Commissioner, T.C. Memo. 1999-277 (imposing section 6673 penalty for tax-protester arguments); Morin v. Commissioner, T.C. Memo. 1999-240 (same); Sochia v. Commissioner, T.C. Memo. 1998-294*274 (same).

Groundless litigation diverts the time and energies of judges from more serious claims; it imposes needless costs on other litigants. Once the legal system has resolved a claim, judges and lawyers must move on to other things. They cannot endlessly rehear stale arguments. Both appellants say that the penalties stifle their right to petition for redress of grievances. But there is no constitutional right to bring frivolous suits, see Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 743, 103 S. Ct. 2161, 76 L. Ed. 2d 277 (1983). People who wish to express displeasure with taxes must choose other forums, and there are many available. * * * [Coleman v. Commissioner, supra at 72.]

In addition to advancing a frivolous or groundless argument, petitioner appears to have instituted this proceeding primarily for delay. Section 6673 "was intended to apply to situations where a taxpayer repeatedly brings the same appeal * * * after having been informed that his basis * * * is groundless." Greenberg v. Commissioner, 73 T.C. 806, 814 (1980). In Dew v. Commissioner, 91 T.C. 615, 626 (1988), the Court imposed a section 6673 penalty against taxpayer, when he "persisted in pursuing" the case even after being told his *275 position was frivolous or groundless. In Dew v. Commissioner, supra at 626, the Court stated that "it seems inescapable that petitioner * * * instituted or at least maintained the proceedings primarily for delay." In Stephens v. Commissioner, 88 T.C. 1529, 1531 (1987), as in Coulter v. Commissioner, 82 T.C. 580, 582-583 (1984), the Court imposed a section 6673 penalty after the taxpayer repeated an argument that was deemed frivolous or groundless. By comparison, petitioner has raised the same frivolous or groundless argument in no less than five separate proceedings.

Notwithstanding petitioner's repeated failure to file returns and incessant frivolous claims regarding the State court's ordered monthly child support, we note petitioner's case resulted in respondent's concession of over half the determined tax deficiency. At trial respondent conceded the section 72(t) additional tax. ¹⁴ Therefore, the petition was initially neither frivolous nor dilatory in the sense that it caused to surface a meritorious section 72(t) issue and resulted in respondent's concession of over half the deficiency. ^15*277 However, once respondent conceded this issue at the beginning of the trial, petitioner's *276 resolute determination to proceed with his child support issue and argument was frivolous and resulted in a delay in resolving his case. Further, after the trial had concluded, petitioner continued to send this Court frivolous packets of information such as newspaper clippings and copies of letters sent to individuals including Katie Couric, Diane Sawyer, Brian Williams, President Barack Obama, Tim Geithner, and Ann Curry regarding this issue.

The imposition of a section 6673 penalty should come as no surprise to petitioner. We have given petitioner repeated warnings that he was in danger of being penalized. For example, in Mathews v. Commissioner, T.C. Memo. 2005-84, we told petitioner:

It is necessary to give petitioner a word of warning. The Court considers petitioner's position in this case to be frivolous or groundless. It also appears that he has instituted or maintained these proceedings primarily for delay. * * * Petitioner is hereby warned that the Court will not hesitate to impose a penalty under section 6673(a) against him in any appropriate case in the future.

At the commencement of trial in this case this Court reminded petitioner of the prior admonishment, reading directly from the earlier opinion as well as stressing that we *278 did not have jurisdiction over the validity of the Texas State court garnishment order. We told petitioner to restrict the prosecution of his case to issues involving his 2004 Federal income tax deficiency or we would not hesitate to impose a section 6673 penalty against him.

Petitioner responded to such warnings with allegations imputing corruption and fraudulent schemes to various governmental entities as well as accusations of racial bias. This Court then warned petitioner again that arguing issues we have no jurisdiction over is frivolous or groundless and manifestly for delay. Petitioner did not heed these numerous warnings. Instead, his trial testimony as well as the filings made in this case largely constitute an ongoing diatribe against "old crooked judges", "papers fraudulently obtained", "fictitious orders", "Texas being backwards", and racial prejudice against "black men in Texas".

In an effort to deter petitioner from continuing to file frivolous or groundless petitions, this Court concludes that a section 6673 penalty of $500 is appropriate. It is "inappropriate that taxpayers who promptly pay their taxes should have the cost of Government and tax collection improperly increased *279 by citizens apparently unwilling to obey the law or shoulder their assigned share of the Government cost." Burke v. Commissioner, 124 T.C. 189, 197 (2005).

We note that $500 does not "begin to indemnify the United States for the expenses which petitioner's frivolous and groundless action" have caused. Coulter v. Commissioner, supra at 585. But if petitioner persists in instituting and maintaining frivolous and groundless claims, we will be inclined to impose a significantly higher section 6673 penalty in the future. We call petitioner's attention to Wheeler v. Commissioner, T.C. Memo. 2010-188, a case that involved facts very similar to those at hand.

In Wheeler, the taxpayer received MRP from the DFAS but refused to report it as income. In holding the taxpayer liable for the deficiency and imposing the maximum section 6673 penalty because modest penalties had not deterred the taxpayer, the Court noted that "'given the further fact that petitioner's military retirement income is funded by taxpayer dollars, petitioner's persistence in pursuing a tax protest agenda is inexcusable'" and "A penalty in the maximum amount of $25,000 is appropriate when lesser amounts have not deterred a taxpayer's *280 defiance of the tax laws and of the rulings of the courts." Id. (quoting January 11, 2008, order and order to show cause).

The Court has considered all of petitioner's contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing,

Decision will be entered under Rule 155.