Restaurant waiter gets served section 6673 penalties

[The Operative]

While this decision does not mention CTC, the facts seem similar...

JAMES STEPHEN FENNEL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

UNITED STATES TAX COURT - SUMMARY OPINION

T.C. Summary Opinion 2011-19

Docket Nos. 5360-09S, 16313-09S, 16315-09S.

Filed February 28, 2011.

PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.

James Stephen Fennel, pro se.

Randall B. Childs , for respondent.

MORRISON, Judge : These cases were heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed. Pursuant to section 7463(b), the decisions to be entered are not reviewable by any other Court, and this opinion shall not be treated as precedent for any other case. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue.

James Stephen Fennel worked as a server at Carrabba’s Italian Grill in Tallahassee, Florida. For his services to Carrabba’s, Fennel was paid $17,049.79 in 2004, $16,978.08 in 2005, and $22,655.73 in 2006. OS Restaurant Services, Inc., reported paying wages to Fennel in these same amounts for 2004, 2005, and 2006. 1 Payment for services is income that must be included in gross income. Sec. 61(a)(1). However, Fennel filed Forms 1040, U.S. Individual Income Tax Return, for the 2004, 2005, and 2006 tax years showing zero taxable wages and zero taxable income. Instead of attaching the Forms W-2, Wage and Tax Statement, issued by OS Restaurant Services, Inc., showing his actual income, Fennel attached Forms 4852, Substitute for Form W-2, Wage and Tax Statement, on which he reported zero wages, tips and other compensation (on line 7a) and zero income tax withheld (on line 7f). Question 9 of the Forms 4852 asked: “How did you determine the amounts on lines 7 and 8 above?” Fennel wrote: “Company provided records and the statutory language behind IRC sections 3401 and 3121 and others”. Question 10 of the Forms 4852 asked: “Explain your efforts to obtain Form W-2, Form 1099-R, or Form W-2c, Corrected Wage and Tax Statement.” Fennel wrote: “None. Most companies will refuse to issue forms correctly listing payments of ‘wages as defined in 3401(a) and 3121(a)’ for fear of IRS retaliation. However, the amounts listed as withheld on the W-2 it submitted are correct.”

*********

1 The Internal Revenue Service (IRS) claims that OS Restaurant Services, Inc., is the parent company of Carrabba’s Italian Grill. The relationship of OS Restaurant Services, Inc., to Carrabba’s Italian Grill is not important.

*********

The IRS issued notices of deficiency to Fennel. The notices determined, on the basis of his unreported income from Carrabba’s, that Fennel had deficiencies of $1,004 in 2004, $951 in 2005, and $1,756 in 2006. The IRS also determined that Fennel was liable for section 6651(a)(1) additions to tax of $251 for 2004, $237.75 for 2005, and $439 for 2006 for failing to file timely tax returns. The IRS also determined that Fennel was liable for section 6662 accuracy-related penalties of $200.80 for 2004, $190.20 for 2005, and $351.20 for 2006. Fennel filed petitions with the Tax Court to redetermine the deficiencies. The Court consolidated the three cases for trial. At the end of trial, the IRS moved for the imposition of a penalty under section 6673.

OPINION

1. Deficiencies in Tax

The first issue for decision is whether Fennel earned and failed to report income of $17,049.79 in 2004, $16,978.08 in 2005, and $22,655.73 in 2006. We find that he did. Fennel admitted that he received payments in these amounts for his services.

2. Additions to Tax for Filing Late Returns

The second issue for decision is whether Fennel is liable for additions to tax pursuant to section 6651(a)(1) of $251 for 2004, $237.75 for 2005, and $439 for 2006. Fennel is a calendar-year taxpayer. Income tax returns made on the basis of a calendar year must be filed on or before April 15 of the following year. Sec. 6072(a). The IRS may extend this deadline by up to 6 months. Sec. 6081(a). Fennel received a 6-month extension of the filing deadline for his 2005 and 2006 returns. None of Fennel’s Forms 1040 for 2004, 2005, and 2006 were filed by October 15 of the following year. Fennel’s Forms 1040 for 2004 and 2005 were filed on or after August 7, 2007. Fennel’s Form 1040 for 2006 was filed on or after November 3, 2007. If a person required to file a return fails to do so timely and such failure is not due to reasonable cause, then the person is required by section 6651(a)(1) to pay an additional 5 percent of the amount of tax required to be shown on the return. An additional 5 percent is added for each additional month that passes without a return’s being filed. Id . The maximum amount is 25 percent. Id . Fennel failed to show any reasonable cause for failing to file tax returns on time. He is therefore liable for the additions to tax.

3. Penalties for Inaccurate Returns

The third issue for decision is whether Fennel is liable for penalties pursuant to section 6662(a) of $200.80 for the 2004 tax year, $190.20 for the 2005 tax year, and $351.20 for the 2006 tax year. Section 6662(a) imposes a penalty “on any portion of an underpayment of tax required to be shown on a return” to which section 6662(a) applies. Section 6664(b) provides that the penalty applies only if “a return of tax is filed”. Fennel’s Forms 1040, filled with zeros, were not valid returns. Therefore, the section 6662 penalty cannot be imposed. See Turner v. Commissioner , T.C. Memo. 2004-251 (Form 1040 that contained zero entries for every line regarding income was not valid for purposes of imposing the section 6662(a) penalty).

4. Penalty for Frivolous Litigation

The fourth issue for decision is whether Fennel should be penalized under section 6673. Section 6673(a)(1) authorizes the Tax Court to impose a penalty of up to $25,000 if the taxpayer instituted the proceedings primarily for delay or if the taxpayer’s position is frivolous or groundless. Fennel’s main argument, which is that he is not subject to tax on his wage income because “OS Restaurant Services, Inc. is a private corporation organized under the laws of Delaware and has no connection with the United States government, its territories, or possessions”, is frivolous. In addition, we believe that these proceedings were instituted for delay, not to resolve a genuine dispute. Although we held that Fennel was not liable for the section 6662 penalty, we did so only because we found the Forms 1040 he filed to be so frivolous as to not be valid returns. We shall impose a $750 penalty under section 6673 in each case.

To reflect the foregoing,

Appropriate orders and decisions will be entered .

[Gregg]

The third issue for decision is whether Fennel is liable for penalties pursuant to section 6662(a) of $200.80 for the 2004 tax year, $190.20 for the 2005 tax year, and $351.20 for the 2006 tax year. Section 6662(a) imposes a penalty “on any portion of an underpayment of tax required to be shown on a return” to which section 6662(a) applies. Section 6664(b) provides that the penalty applies only if “a return of tax is filed”. Fennel’s Forms 1040, filled with zeros, were not valid returns. Therefore, the section 6662 penalty cannot be imposed. See Turner v. Commissioner , T.C. Memo. 2004-251 (Form 1040 that contained zero entries for every line regarding income was not valid for purposes of imposing the section 6662(a) penalty).

Victory!

Someone please resend the memo to this corrupt Judge that he can't go around finding against the government, it makes us look bad when we lose. Hell, a few more of these and the Judges won't even be corrupt anymore!

[LPC]

The above case regarding the assessment of deficiencies was not (and could not be) appealed, but the same taxpayer filed a second petition challenging frivolous return penalties, which the Tax Court denied, and the 11th Circuit has affirmed. (But no penalty for a frivolous appeal).

James Stephen Fennel v. Commissioner, No. 14-10060 (11th Cir. 9/2/2014), aff'ng No. 04697-11L (U.S.T.C. 6/5/2013) (bench opinion).

JAMES STEPHEN FENNEL,
Petitioner,
v.
COMMISSIONER OF IRS,
Respondent.

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

Non-Argument Calendar

Agency No. 4697-11 L

Petition for Review of a Decision of the U.S.Tax Court

(September 2, 2014)

Before MARCUS, PRYOR and ANDERSON, Circuit Judges.

PER CURIAM:

James Fennel appeals the U.S. Tax Court's denial of his pro se petition for review of a lien or levy action imposing penalties under 26 U.S.C. § 6702(a) for filing frivolous tax returns. The Internal Revenue Service ("IRS") imposed seven penalties for filing frivolous tax returns based on returns Fennel filed for tax years 1999 and 2001 through 2006 that claimed zero income and zero tax liability and also claimed a refund for the full amount of money withheld from his pay. At trial, Fennel acknowledged that he worked and received pay during tax years 1999 and 2001 through 2006. On appeal, he argues that: (1) the IRS presented insufficient evidence to impose penalties under § 6702(a); (2) he is not a "person" for purposes of § 6702; and (3) the IRS failed to prove that the penalty assessments against him received written supervisory approval. After thorough review, we affirm.

We review the Tax Court's conclusions of law de novo and findings of fact for clear error. Creel v. Comm'r of Internal Revenue, 419 F.3d 1135, 1139 (11th Cir. 2005). The IRS has the burden of proving the applicability of penalties for frivolous returns. 26 U.S.C. § 6703(a).

The Internal Revenue Code imposes a $5,000 penalty on a taxpayer who files a tax return that meets two criteria. 26 U.S.C. § 6702(a). The first criterion is satisfied if the return "(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or (B) contains information that on its face indicates that the self-assessment is substantially incorrect." Id. § 6702(a)(1). The second criterion is satisfied if the filing of the return either "(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or (B) reflects a desire to delay or impede the administration of Federal tax laws." Id. § 6702(a)(2). Subsection (c) provides that the Secretary shall prescribe, and periodically revise, a list of positions that have been identified as frivolous for purposes of this subsection. Id. § 6702(c). The Code further provides that "[n]o penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate." 26 U.S.C. § 6751(b).

IRS Notice 2007-30, released on March 16, 2007, and published on April 2, 2007, provided a list of positions identified as frivolous for purposes of § 6702(c). IRS Notice 2007-30, 2007-1 C.B. 883. Among the positions identified as frivolous was the position that a taxpayer has the option 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." Id.

Subtitle A of the Code sets forth the statutes governing the federal income tax. See generally 26 U.S.C. §§ 1-1563. Section 1 provides for the imposition of an income tax on all "taxable income." Id. § 1. Section 63 defines "taxable income" as "gross income" minus the deductions that the chapter allows. Id. § 63(a). In turn, § 61(a) defines "gross income" as "all income from whatever source derived, including (but not limited to) . . . [c]ompensation for services." Id. § 61(a)(1). Under § 3402(a)(1), "every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary." Id. § 3402(a)(1). "Wages" are defined in reference to that section as "all remuneration . . . for services performed by an employee for his employer." Id. § 3401(a). The Code defines employer as "the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person." Id. § 3401(d). Finally, the Code defines a "person" as, among other things, "an individual," and this definition applies throughout the Code "where not otherwise distinctly expressed or manifestly incompatible." Id. § 7701(a). Section 6671 provides that, for purposes of applying assessable tax penalties, the term "person . . . includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs." Id. § 6671(b).

We have said that arguments that wages are not taxable income have "been rejected by courts at all levels of the judiciary and are patently frivolous." Stubbs v. Comm'r of Internal Revenue Serv., 797 F.2d 936, 938 (11th Cir. 1986); see also Hyslep v. United States, 765 F.2d 1083, 1084 (11th Cir. 1985); Madison v. United States, 758 F.2d 573, 574 (11th Cir. 1985).

Here, Fennel fails to show that the Tax Court erred in upholding the IRS's penalty assessments under § 6702(a) or clearly erred in any of its underlying fact findings. To begin with, the record shows that the Tax Court did not err in determining that Fennel's returns, which listed zero income and zero tax liability in spite of the fact that he also stated that he worked a job and received pay that was withheld, contained information that on its face indicated that Fennel's self-assessment was substantially incorrect. See 26 U.S.C. § 6702(a)(1)(B). Moreover, [color-red]Fennel's position that he had zero taxable income and zero tax liability even though he received taxable income during each of the relevant tax years was a position identified as frivolous for the purposes of § 6702(a) at the time Fennel filed his returns from June to November of 2007.[/color] See id. § 6702(a)(2)(A), (c); IRS Notice 2007-30, 2007-1 C.B. 883; see also, e.g., Stubbs, 797 F.2d at 938. Finally, Fennel's argument that the penalty assessments did not receive written supervisory approval is belied by the record, and he clearly qualifies as a "person" for purposes of § 6702. See 26 U.S.C. §§ 6671(b), 7701(a).

AFFIRMED.

[LPC]

From another thread:

Freeman at last posted on lost horizons today [1/4/2012] looking for info on the Blagos because he read about their success in CTC and wants to use thei victory in his upcoming tax case.

Posted: Tue Jan 03, 2012 8:36 pm Post subject: Tax Court cases of CTC Petitioners
Does anyone in CTC know of the TC cases of Jim and Vivian Blaga, or James Fennel what the verdict was in their cases? I read in CTC how they had success in making the Commissioner prove every allegation of liability, and how the TC Judge denied each motion the Commissioner tried to disclaim or dismiss for not having to provide the evidence each CTC petitioner provided?

So there appears to be a link between Fennel and Hendrickson.

Unfortunately, the above posting to the LH forum was wiped during one of Hendrickson's purges of heretical writings, so there are no current references to Fennel on the LH site.