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Tax Protestor Cases Exhibit
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ADOPTED OCTOBER 3, 2000

CALIFORNIA STATE BOARD OF EQUALIZATION

PERSONAL INCOME TAX APPEAL

DECISION

Proposed Assessment Appellant Year Tax Penalty

Les R. Reid 1997 $1,753 $438.25 Case No. 30974 (delinquent) $479.75 (demand)

Representing the Parties:

For Appellant: Les R. Reid For Franchise Tax Board: Andrew O'Boyle, Staff Service Manager

Counsel For Board of Equalization: Donald L. Fillman, Tax Counsel

QUESTIONS: (1) Whether appellant's California wages are subject to California's tax laws.

(2) Whether respondent properly determined appellant's tax liability.

(3) Whether appellant has maintained a frivolous or groundless position before this Board.

FINDINGS AND DETERMINATION [1] Facts and Contentions. Appellant did not file a timely or valid California personal income tax return for 1997. On December 9, 1998, respondent mailed a written notice and demand to appellant requesting that he file (within 30 days) a 1997 return or provide proof that he was not required to file a return. No return was filed and no proof was provided that appellant was not required to file. Appellant sent a letter dated January 8, 1999, contending that only income from sources on the list contained in Internal Revenue Code section 861 is subject to income tax. Respondent issued a Notice of Proposed Assessment (NPA) on February 3, 1999, based upon information on appellant's California income available at that time. ¹ Appellant timely protested but did not demonstrate error in the NPA. Respondent issued a Notice of Action (NOA) on July 6, 1999, which affirmed the NPA. Appellant appealed.

[2] Appellant filed his opening brief on December 8, 1999. Attached were several documents including a copy of a 1997 income tax return form that was filled-in with zeros; a California Form 3525 (substitute Form W-2), dated "12-6-99," that attempted to change appellant's reported wages for 1997 to zero; a Form W-2 for 1997 from Vista International that showed California wages for appellant of $60,830.05; and, copies of prior correspondence with respondent and the Internal Revenue Service. Appellant made a number of contentions that do not attempt to dispute the correctness of the amounts contained in the NOA. Rather, appellant's contentions are the same type as those heard and uniformly rejected by the Board on numerous occasions, and which both California and United States courts have rejected for many years.

[3] For example, appellant contends that the tax laws do not authorize respondent to tax "Citizens of the California Republic." (App. Br., p. 9.) Appellant attempts to exclude his type of income from that to which the tax laws apply. Appellant cites the Internal Revenue Code (IRC), the California Revenue and Taxation Code (R&TC), as well as various regulations and judicial decisions, most of which are either irrelevant or grossly misapplied. He correctly cites R&TC section 17071 as defining gross income with reference to IRC section 61. Section 61 defines gross income as "all income from whatever source. . . ." Yet appellant proceeds to miscite and misapply the history of this section of the law (App. Br., p. 11) to conclude that only certain narrow types of income are subject to the tax laws. This limited list is contended to include only sources of income listed in IRC section 861 (App. Br., p. 12). The United States Tax Court, in Solomon v. Commissioner, 1993 RIA TC Memo 93,509 dismissed this contention as frivolous, and imposed a $5,000 penalty for pursuing a frivolous position before the tax court. Thus, appellant's gross and obvious misapplication of plain language is clearly a groundless and frivolous position.

[4] The United States Court of Appeal for the Ninth District (which includes California) considered a similarly argued case in United States v. Romero (9th Cir. 1981) 640 F.2d 1014. In upholding the taxpayer's criminal conviction on all five counts, the court stated at page 1016, as follows:

"Courts are established at public expense to try issues, not to
play games.

"Romero's proclaimed belief that he was not a "person" and that the wages he earned as a carpenter were not "income" is fatuous as well as obviously incorrect. 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

[Romero] is attempting willfully and intentionally to shift his burden to his fellow workers by the use of semantics. He seems to have been inspired by various . groups across the land who postulate weird and illogical theories of tax avoidance, all to the detriment of the common weal and of themselves." [5] Appellant has not established any error in respondent's assessment of tax. None of appellant's arguments answer or even address why appellant believes that the NOA amount is incorrect. Appellant's arguments are of a type this Board has uniformly rejected (see: Appeal of Alfons Castillo, 92-SBE-070, July 20, 1992; Appeal of Walter R. Bailey, 92-SBE-001, Feb. 20, 1992; Appeals of Fred R. Dauberger, et al., Cal. St. Bd. of Equal., Mar. 31, 1982), a fact pointed out to appellant in our letter of September 7, 1999, accepting this appeal. Respondent's determination is presumed correct and appellant bears the burden of proving that it is erroneous. (Todd v. McColgan (1949) 89 Cal.App.2d 509.) When a taxpayer fails to present credible, competent, relevant, and uncontradicted evidence as to the issues in dispute, respondent's determination cannot be successfully rebutted. (Appeal of James C. and Monablanche A. Walshe, Cal. St. Bd. of Equal., Oct. 20, 1975.) Appellant has failed to meet this burden.

[6] Revenue and Taxation Code section 19714 provides for a penalty of up to $5,000 for maintaining a frivolous or groundless position before this Board. Appellant was notified of this fact in both the NOA issued on July 6, 1999, and our letter of September 7, 1999, accepting this appeal. Despite this information, appellant filed the present appeal and has failed to identify any legitimate grounds upon which respondent's action may be challenged. We conclude that a frivolous appeal penalty should be imposed against appellant in the amount of $750.

[7] The action of respondent is affirmed in all respects. In addition, a frivolous appeal penalty in the amount of $750, pursuant to section 19714, is imposed.

FOOTNOTE

¹ We note that respondent based its NPA on reported income of $41,300. However, appellant's Form W-2 shows California wages of $60,830.05. It appears that, to date, respondent has only assessed appellant on a portion of his California income for 1997.

END OF FOOTNOTE

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