Corporation Sole Promoters Lose In the 9th

[The Observer]

FREDRIC A. GARDNER; ELIZABETH A. GARDNER,
Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

Release Date: JANUARY 12, 2017


FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

Tax Ct. No. 12016-06

OPINION

Appeal from a Decision of the
United States Tax Court

Submitted October 17, 2016/*/
San Francisco, California

Filed January 12, 2017

Before: Michael Daly Hawkins, Consuelo M. Callahan,
and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Callahan

SUMMARY/**/

Tax

The panel affirmed the Tax Court's decision denying a petition for redetermination of federal income tax deficiencies that challenged the taxability of alleged maintenance payments received by taxpayers who have taken vows of poverty.

Taxpayers contended that they did not earn taxable income and are exempt from paying taxes because they have taken vows of poverty. They explained that their maintenance is provided by Bethel Aram Ministries (BAM), a church for which taxpayer Elizabeth Gardner is its corporation sole. The panel explained that substantial evidence supports the Tax Court's determinations that the payments taxpayers received were not contributions to BAM but were instead quid pro quo payments for taxpayers' services (in setting up corporations sole and LLCs), and that taxpayers retained complete dominion and control over the payments even after they were deposited in BAM's accounts. Accordingly, the payments to taxpayers are taxable and subject to self-employment tax.

COUNSEL

Fredric A. Gardner and Elizabeth A. Gardner, Dewey, Arizona, pro se Plaintiffs-Appellants.

Janet A. Bradley and Bridget M. Rowan, Attorneys; Kathryn Keneally, Assistant Attorney General; Tax Division, United States Department of Justice, Washington, D.C.; for Respondent-Appellee.

OPINION

CALLAHAN, Circuit Judge:

Elizabeth and Fredric Gardner assert, in a nutshell, that Bethel Aram Ministries (BAM) is a church, that Elizabeth is its corporation sole, and that both Elizabeth and Fredric have taken vows of poverty (with their maintenance provided by BAM). They argue that based on these facts they did not earn taxable income and are exempt from paying taxes.

The Tax Court, however, determined that the payments received by the Gardners were not contributions to BAM and that the Gardners had complete control over BAM's assets. It concluded that because the Gardners "exercised dominion and control over BAM's accounts, all taxable deposits into those accounts are includable in their gross income."

We affirm. The Tax Court's determinations that the payments were quid pro quo payments for services and not contributions, and that the Gardners have unfettered control over BAM, are supported by substantial evidence.

I

Around 1978, the Gardners received degrees in theology from Christ for the Nations Bible College. In 1993, the Gardners formed BAM as "an unincorporated association in Arizona organized to be an 'ecclesiastical church ministry.'" However, they did not file with the IRS a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3). In 1999, the Gardners signed vows of poverty declaring their intent to divest themselves from earnings or wages from BAM and stating that BAM would provide for their needs as pastors of the church ministry. They then transferred all of their assets, including title to their home, to BAM. In 2001, Elizabeth filed articles of incorporation with the State of Nevada, naming her as the corporation sole of BAM. 1 Fredric held himself out as an "Elder, Teacher, Certified Estate & Financial Planner of BAM," and Elizabeth held herself out as a "Prophetess, Teacher, Pastor and Certified Paralegal" of BAM. Together they have unfettered control over BAM's operations and finances.

From 2002 until August 2004, BAM did not have any congregation. Rather, the Gardners traveled across the country offering their services in setting up corporations sole and limited liability companies (LLCs). Their promotional literature claimed the benefits of a corporation sole included: (1) the government was not able to interfere in any way; (2) all church workers would be classified as ministers of the gospel and not as employees; (3) there were no filing requirements of any kind; and (4) there were no withholding or self-employment taxes or income tax. The Gardners advised that if a corporation sole received an inquiry from the Internal Revenue Service (IRS), it should notify the IRS that it was a corporation sole and provide no other information.

The Gardners had a "donation" sheet setting forth the costs of their services. It instructed customers to "please make separate checks out" according to the following schedule: "(1) for a corporate sole, BAM for $ 1,200, Carol Spackman 2 for $ 80, and the State of Nevada for $ 85; [and] (2) for an LLC, BAM for $ 700, Ms. Spackman for $ 80, and the State of Nevada for $ 235." The record indicates that the Gardners established over 300 corporations sole and approximately 18 LLCs for others. 3

The Gardners failed to file tax returns for the years 2002 through 2004, and refused to provide the IRS with BAM's books and records. The IRS obtained bank records from BAM's Wells Fargo accounts through a third-party summons and undertook a bank deposit analysis. The IRS "determined that petitioners had gross bank deposits of $ 101,722, $ 219,481, and $ 281,232 and net taxable deposits of $ 100,070, $ 217,973 and $ 235,679 for 2002, 2003, and 2004, respectively." The IRS issued notices of deficiency and the Gardners petitioned the Tax Court for review.

II

The Tax Court noted that generally the Commissioner's determination of a taxpayer's liability is presumed correct, and the taxpayer bears the burden of proving that the determination is improper. Gardner v. Comm'r, 105 T.C.M. (CCH) 1433, at *3 (2013) (citing Welch v. Helvering, 290 U.S. 111, 115 (1933)). The Tax Court recognized that in the Ninth Circuit for the presumption of correctness to attach in a case involving unreported income, the IRS must "first establish an evidentiary foundation linking the taxpayer to the alleged income-producing activity." Id. (citing Weimerskirch v. Comm'r, 596 F.2d 358, 361-62 (9th Cir. 1979)). The Tax Court reasonably determined that the IRS had linked the Gardners to the payments and that therefore the Gardners bore the burden of proving the deficiencies arbitrary or erroneous. The Tax Court also determined that the bank deposit method of reconstructing income was properly used in this instance. Id. at *4; see Clayton v. Comm'r, 102 T.C. 632, 645 (1994) (holding that the "use of the bank deposit method for computing unreported income has long been sanctioned by the courts" (citing DiLeo v. Comm'r, 96 T.C. 858, 867 (1991), aff'd 959 F.2d 16 (2d Cir. 1992))). 4

The Tax Court determined that the payments the Gardners deposited into BAM's bank accounts constituted taxable income to the Gardners. Citing Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955), the Tax Court noted that the definition of gross income "is construed broadly and extends to all accessions of wealth, clearly realized, over which the taxpayer has complete control." Gardner, 105 T.C.M. (CCH) 1433 at *5. It further held that when the IRS reconstructs income using the bank deposit method, it may include gross income deposited into all accounts over which the taxpayer has dominion and control, even "where a taxpayer has dominion and control over an account titled in the name of a church or other religious organization." Id.; see Woods v. Comm'r, 58 T.C.M. (CCH) 673 (1989), aff'd, 929 F.2d 702 (6th Cir. 1991).

Relying on its decision in a strikingly similar case, Gunkle v. Commissioner, 104 T.C.M. (CCH) 527 (2012), aff'd, 753 F.3d 502 (5th Cir. 2014), the Tax Court rejected the Gardners' arguments that their deposits were gifts or donations to a legitimate church, that they had taken vows of poverty, and that they acted as agents of BAM. The Gunkles, with the Gardners' assistance, had established their religious organization as a corporation sole. The Gunkles then signed vows of poverty stating that their church would provide for their support. The Gunkles used funds in the pastoral account to pay living and personal expenses, but did not report deposits into the account as income. The Tax Court rejected the Gunkles' arguments that the deposits were nontaxable gifts and that their vows of poverty insulated them from taxation on the compensation they received for their services to their church. In rejecting the Gardners' similar clams, the Tax Court cited its holding in Gunkle that "[p]ayments or benefits received in exchange for services rendered by individuals and not on behalf of a separate and distinct principal are taxable to the individuals." Gardner, 105 T.C.M. (CCH) 1433 at *6.

The Tax Court found that the deposits into BAM's bank accounts "were compensation to petitioners for the services they performed in setting up corporations sole, LLCs, and trusts," and "were not gifts or donations [but] represented a quid pro quo exchange; i.e., the payors were receiving petitioners' services in consideration for their payments." Id.

The Tax Court next rejected the Gardners' arguments concerning their vows of poverty and that they were acting as agents of BAM. It noted that the Gardners did not have any personal bank accounts, used BAM's accounts as their own and for their own benefit, deposited the payments they received from setting up corporations sole and LLCs into BAM's accounts, withdrew funds from BAM's accounts to pay their personal expenses, and exercised complete dominion and control over BAM's accounts. The Tax Court noted that there was "no evidence that petitioners were accountable to anyone for the funds in BAM's accounts." Id. Accordingly, the Tax Court concluded that the deposits into the BAM accounts were includable in the Gardners' gross income.

In addition, the Tax Court held that the Gardners' self-employment income was subject to self-employment tax. It rejected the Gardners' claim that they were exempt from self-employment tax because they are ordained ministers. Id. at *7-8. The Tax Court determined that the Gardners failed to present "any credible evidence that they had submitted a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, for the years in issue that was approved by the IRS." Id. at 8. The Tax Court concluded that the Gardners had "failed to prove they were exempt from self-employment tax during the years in issue." Id. 5

III

We review decisions of the Tax Court on the same basis as decisions in civil bench trials in district court, and accordingly, we review conclusions of law de novo and questions of fact for clear error. Johanson v. Comm'r, 541 F.3d 973, 976 (9th Cir. 2008); Millenbach v. Comm'r, 318 F.3d 924, 930 (9th Cir. 2003).

A. The payments were not contributions.

In Hernandez v. Commissioner, 490 U.S. 680 (1989), the Supreme Court established a quid pro quo test for determining whether a payment was a contribution. Id. at 690-91 (noting that the sine qua non of a charitable contribution is a transfer of money or property without adequate consideration). The Court held that payments to the Church of Scientology for "auditing" or pastoral counseling were not contributions as "these payments were part of a quintessential quid pro quo exchange: in return for their money, petitioners received an identifiable benefit, namely auditing and training sessions." Id. at 691.

Similarly, the Gardners, in exchange for money, provided "identifiable benefits," -- the creation of corporations sole and LLCs. In addition, as in Hernandez, here the Gardners had a schedule of set amounts payable for the benefits they offered. 490 U.S. at 685. That the payments were referred to as suggested donations is not dispositive; it is the quid pro quo nature of the exchange that controls. Id. at 690-91. 6

The Gardners' First Amendment argument is similarly foreclosed by Hernandez, which rejected the Church of Scientology's argument that declining to treat the payments as contributions violated the Establishment Clause. Applying the test from Lemon v. Kurtzman, 403 U.S. 602 (1971), the Court found that the statute: (1) made no explicit or deliberate distinction between different religious organizations, but applied to all religious entities; (2) neither advanced nor inhibited religion; and (3) threatened no entanglement between church and state. Hernandez, 490 U.S. at 695-96. The Court further noted that even if it were necessary "to ascertain what portion of a payment was a purchase and what portion was a contribution," this would "not ineluctably create entanglement problems." Id. at 697. Applying the Lemon test to the Gardners' case produces the same conclusion. Treating the Gardners' recompense for setting up corporations sole and LLCs as taxable income does not distinguish between religious organizations, neither advances nor inhibits religion, and threatens no entanglement.

We conclude that the Tax Court properly applied Hernandez in holding that the payments to the Gardners for creating corporations sole and LLCs were not donations to BAM.

B. The Gardners had complete control over the payments to BAM.

The Tax Court's determination that the Gardners had complete control over the payments to BAM is a factual issue reviewed for clear error. See Nunley v. Comm'r, 758 F.2d 372, 373 (9th Cir. 1985). There is substantial evidence that the Gardners had complete dominion and control over the payments deposited in BAM's accounts and that they used those funds to cover their personal expenses, including a veterinarian bill. Indeed, the Gardners do not really deny that they exercised complete control over BAM and its accounts.

Rather than directly challenge the Tax Court's factual findings, the Gardners argue that the IRS and the Tax Court should have respected BAM's separate identity. This seems a little like arguing that Clark Kent is not Superman. Certainly Superman displays abilities that Clark Kent denies having, but they are one and the same. Similarly, here, there is no practical distinction between the Gardners and BAM.

The Gardners' assertion that their creation of a religious organization over which they have complete control insulates them from taxes is contrary to longstanding Supreme Court precedent. As early as 1930, the Supreme Court in Corliss v. Bowers, 281 U.S. 376, 378 (1930), held that "taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed -- the actual benefit for which the tax is paid." The Court concluded that "[t]he income that is subject to a man's unfettered command and that he is free to enjoy at his own opinion may be taxed to him as his income, whether he sees fit to enjoy it or not." Id. Over forty years later in United States v. Basye, 410 U.S. 441, 449-50 (1973), the Supreme Court reaffirmed that the principle "that he who earns income may not avoid taxation through anticipatory arrangements no matter how clever or subtle, has been repeatedly invoked by this Court and stands today as a cornerstone of our graduated income tax system." 7

Here, the Gardners' vows of poverty attempt to disguise their enjoyment of their personal income. Pursuant to Corliss and Basye, as long as the Gardners have complete control over the funds, it makes no practical difference whether the funds are titled in their names or in BAM's.

Our approach is in accord with the Fifth Circuit's opinion in Gunkle, which framed the nub of the controversy as follows:

Income received by the agent of a principal is deemed
to be the income of the principal and not the income
of the agent. It follows that income received by
a member of a religious order as the agent of the
order, promptly delivered to the order based on the
agent's vow of poverty, is deemed to be the income
of the order and not of the agent. Conversely, however,
a member of a religious order who earns or receives
income therefrom in his individual capacity cannot
avoid taxation on that income merely by taking a
vow of poverty and assigning the income to that religious
order or institution. The same rule applies to entities
organized as corporation soles. [A]n individual
has received income when he gains complete dominion
and control over money or other property, thereby
realizing an economic benefit.

753 F.3d at 507-08 (footnotes omitted). The Fifth Circuit did not expressly address the problem it identified: How does a court determine whether income is received by a member of a religious order as the agent of the order, or whether the member of a religious order earns or receives income therefrom in his individual capacity? However, it determined that the Gunkles had unrestricted dominion and control over their pastoral accounts and that their compensation was taxable. Id. at 508. Thus, the Fifth Circuit implicitly recognized that there was no real distinction between the Gunkles and their wholly-controlled religious entity. Clark Kent is not distinguishable from Superman.

This was also the holding of the Tax Court in Gunkle, which underlies the Tax Court decision in the Gardners' case, and which we now endorse. In Gunkle, the Tax Court explained that payments in exchange for services "rendered by individuals and not on behalf of a separate and distinct principal are taxable to the individuals." Gunkle, 104 T.C.M.(CCH) 527 at * 3 (emphasis added). Thus, consistent with the Supreme Court's admonition in Corliss, 281 U.S. at 378, that taxation is concerned with the "actual command over the property taxed," the Tax Court -- having determined that the Gardners retained dominion over the funds -- properly concluded that they had received the payments in their individual capacities, and not as agents of BAM.

The exercise of complete dominion and control over the funds at issue was also dispositive in Woods v. Commissioner, 58 T.C.M. (CCH) 673 (1980). There, the Tax Court explained that it was "not necessary to disregard the separate existence of the church or to challenge the tax status of the church as an entity in order to sustain respondent's determinations in this case" because however the petitioners obtained the funds "petitioners exercised complete dominion and control over deposits into the various bank accounts." Id. In Woods, as with the Gardners and the Gunkles, the taxpayers' complete control over their "churches" supports the determination that the taxpayers' receipts constituted taxable income for the taxpayers despite the assignment of those receipts to their churches.

The Gardners attempt to distinguish Gunkle on the ground that the Gunkles deposited Social Security payments and retirement pay, which were not earned as part of their ministry, into their corporation sole's accounts. In contrast, the Gardners suggest that creating corporations sole is consistent with their church's mission. But the rulings by the Fifth Circuit and the Tax Court, and our holding in this case, focus not on what the taxpayer did to obtain a payment, but on which party exercised dominion and control over the funds. As long as the individual taxpayer (the purported agent) remains, as a practical matter, in complete control over the income after it is transferred to the church (the purported principle) it is income to the individual. 8

The Tax Court's ruling that the payments are taxable is affirmed on the grounds that the Gardners, the purported agents of BAM, earned the payments as individuals and retained complete control over the payments even after their transfer to BAM, the purported principal.

IV

Finally, the Gardners argue that they are exempt from paying income taxes pursuant to 26 U.S.C. section 1402. They note that 26 C.F.R. section 1.1402(e)-2A(a)(1) states, in relevant part:

Subject to the limitations set forth in subparagraphs
(2) and (3) of this paragraph, any individual who
is . . . a duly ordained, commissioned, or licensed
minister of a church or a member of a religious order
(other than a member of a religious order who has
taken a vow of poverty as a member of such order)
. . . may request an exemption from the tax on self-employment
income (see section 1401 and section 1.1401-1) with
respect to services performed by him in his capacity
as a minister or member . . . as the case may be.

The Gardners contend that this regulation exempts them -- as members of a religious order who have taken vows of poverty -- from having to request an exemption from tax on self-employment income by filing a Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners.

Even assuming, however, that the Gardners reasonably determined that they were not required to file a Form 4361, it does not follow that they are exempt from self-employment tax. The exemption from self-employment tax is only applicable to "services performed by [one] in his capacity as a minister or member." 26 C.F.R. section 1.1402(e)-2A(a)(1); see Wingo v. Comm'r, 89 T.C. 922, 929 (1987). Because the Tax Court reasonably concluded that the Gardners received payment in exchange for their work in setting up corporations sole and LLCs, and not in the exercise of a ministry, this exception does not apply. 9 Accordingly, they have not shown that they qualify for exemption from self-employment tax under 26 U.S.C. section 1402.

V

Elizabeth and Fredric Gardner were free to create BAM, a corporation sole, but this did not exempt their personal income from taxation. The payments they received were quid pro quo payments for their services in setting up corporations sole and LLCs; they were not contributions to BAM. Moreover, the Gardners retained complete dominion and control over BAM and its accounts. Because the payments were made in exchange for the Gardners' services, and the Gardners retained complete dominion and control over the payments even after they were deposited into BAM's accounts, the Tax Court properly concluded that the payments received by the Gardners are taxable and that they are subject to self-employment tax. The Tax Court's decision is AFFIRMED.

//*// The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).

//**// This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.

FOOTNOTES:

/1/ The IRS's tax guide for Churches and Religious Organizations notes that "religious organizations may be legally organized in a variety of ways under state law, such as unincorporated associations, non-profit corporations, corporations sole, and charitable trusts." The IRS has defined a "corporation sole" as "a corporate form authorized under certain state laws to enable bona fide religious leaders to hold property and conduct business for the benefit of the religious entity.'" Rev. Ru. 2004-27, 2004-1 C.B. 625, 626, 2004 WL 389673, at *1.

/2/ Ms. Spackman served as the registered agent in Nevada for most of the corporations sole the Gardners established.

/3/ In March 2008, the U.S. District Court for the District of Arizona enjoined the Gardners from "[o]rganizing, promoting, marketing, or selling corporations sole or any tax shelter, plan or arrangement, that advises, assists, or encourages taxpayers to attempt to violate the internal revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities." United States v. Gardner, No. CV-05-3073-PCT-EHC, 2008 WL 906696, at *6 (D. Ariz. Mar. 21, 2008). The district court found that the Gardners had participated in an abusive tax shelter program promising unwarranted tax benefits from corporations sole. Id. at *5. The injunction was affirmed on appeal. United States v. Gardner, 457 F. App'x 611, 612 (9th Cir. 2011).

/4/ On appeal, the Gardners do not challenge the use of the bank deposit method.

/5/ The remainder of the Tax Court's opinion addresses issues not germane to this appeal.

/6/ The Gardners' argument that witnesses testified that they intended the payments to be contributions is not persuasive. Although the witnesses indicated that they referred to the payments as contributions, none denied that the payments were made in return for the Gardners' assistance in forming corporations sole. In other words, none denied the quid pro quo nature of the transactions.

/7/ We and our sister circuits have reiterated this position. See George v. Comm'r, 837 F.3d 79, 85 (1st Cir. 2016); C.M. Thibodaux Co., Ltd. v. United States, 915 F.2d 992, 994 (5th Cir. 1990); United States v. Tranakos, 911 F.2d 1422, 1431 (10th Cir. 1990); United States v. Krall, 835 F.2d 711, 714 (8th Cir. 1987); United States v. Russell, 804 F.2d 571, 574 (9th Cir. 1986); Fogarty v. United States, 780 F.2d 1005, 1008 (Fed. Cir. 1986); O'Donnell v. Comm'r, 726 F.2d 679, 681 (11th Cir. 1984); Armantrout v. Comm'r, 570 F.2d 210, 212 (7th Cir. 1978).

/8/ Of course, certain payments, although income, may not be taxable. For example, if an individual's compensation for an injury is not considered taxable income, it would not become taxable just because the individual assigned it to his church. Also, if Elizabeth Gardner sells copies of her book at cost, so that there is no net profit, she would have gross income, but this might not be taxable income. On the other hand, any profit from the sale of the books likely would be taxable income regardless of whether the books were purportedly sold by Elizabeth or BAM as long as Elizabeth continued to exercise complete dominion and control over the funds.


/9/ The Gardners do not actually claim that setting up corporations sole is part of their ministry. Indeed, creating corporations sole does not appear to have any relationship to BAM's mission. Its mission statement reads:

The mission of Bethel Aram Ministries an ecclesiastical
church is to manifest Yahshua/Jesus' glory throughout
the earth; to do the work of the ministry through
religious, charitable, educational and/or humanitarian
purposes for the perfecting of the saints; provide
scriptural education materials, establish congregations,
practice, teach, preach the Good News of Messiah
in order to bring people to a personal relationship
with Yahshua/Jesus the Messiah to obey the Commandments
of the Sovereign Holy Nation of the Most High and
the Good News of the Saviour in congregations through
affiliated fellowships of Saints of Yahshua/Jesus,
the Messiah and King of His Sovereign Kingdom.

[The Observer]

And Ms. Gardner. our stubborn stalwart sole corporation promoter, gets an impressive frivpen on her repeat performance in Tax Court.


ELIZABETH A. GARDNER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

UNITED STATES TAX COURT

Filed June 8, 2017

Elizabeth A. Gardner, pro se.

Derek S. Pratt and Doreen Marie Susi, for respondent.

MEMORANDUM OPINION

LAUBER, Judge: In this collection due process (CDP) case, petitioner seeks review pursuant to section 6330(d)(1) of the determination by the Internal Revenue Service (IRS or respondent) to uphold a notice of intent to levy to facilitate collection of her 2004 Federal income tax liability. 1 That liability consists of a tax deficiency and additions to tax as redetermined by this Court in Gardner v. Commissioner, T.C. Memo. 2013-67, appeal dismissed in relevant part, No. 13-72731 (9th Cir. Sept. 11, 2013) (dismissing appeal in the case at docket No. 11009-07), and aff'd, 845 F.3d 971 (9th Cir. 2017) (affirming decision in the case at docket No. 12016-06). Respondent has moved for summary judgment, contending that there are no disputed issues of material fact and that his determination to sustain the proposed collection action was proper as a matter of law. We agree and accordingly will grant the motion. Concluding as we do that petitioner has maintained this litigation "primarily for delay," we will also order her to pay under section 6673(a)(1) a penalty to the United States of $ 10,000.

Background

The following facts are based on the parties' pleadings and respondent's motion, including the attached affidavit and exhibits. Petitioner resided in Arizona when she filed her petition.

Petitioner and her husband are well-known tax shelter promoters with a lengthy history of litigation in this and other courts. 2 Their speciality is the "corporation sole" tax shelter, whereby a taxpayer takes a fictitious "vow of poverty" in connection with a purported "church" and declares herself thenceforth immune from Federal income tax. Petitioner promoted this scheme by writing several books, including How to Protect Everything You Own in This Life and After and Corporation Sole vs. 501(c)(3) Corporation. Petitioner also practiced what she preached: She and her husband established "Bethel Aram Ministries" in 1993, took fictitious "vows of poverty," and have not filed a Federal income tax return since. See Gardner, 105 T.C.M. (CCH) at 1434-1435.

Petitioner and her husband derived considerable income from peddling this scheme to gullible individuals. For 2004 in particular they had income of $ 235,542 on which they paid no tax. See id., 105 T.C.M. (CCH) at 1435. Following a bank deposits analysis the IRS determined for 2004 a tax deficiency of $ 99,261 and various additions to tax. In the case at docket No. 11009-07 we sustained most of that deficiency and the additions to tax under sections 6651(a)(1) and 6654(a). See Gardner, 105 T.C.M. (CCH) at 1436-1440. 3 In August 2013 petitioner filed a notice of appeal in the case at docket No. 11009-07, but the U.S. Court of Appeals for the Ninth Circuit dismissed her appeal for failure to pay the required docketing/filing fees. Gardner v. Commissioner, No. 13-72731 (9th Cir. Sept. 11, 2013) (dismissing appeal in the case at docket No. 11009-07).

When filing a notice of appeal from our decision, petitioner did not post an appeal bond under section 7485(a). The IRS accordingly assessed the liabilities in question, which she declined to pay after notice and demand. In an effort to collect her unpaid liability for 2004, the IRS in August 2015 sent her Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing. She timely requested a CDP hearing, asserting a challenge to her underlying tax liability on the theory that her "vow of poverty" precluded receipt of taxable income.

The case was assigned to a settlement officer (SO) who conducted a telephone CDP hearing on January 26, 2016. During the hearing petitioner insisted that the levy notice was invalid because she was appealing this Court's decision in the case at docket No. 12016-06, which concerned her 2002-2003 tax liabilities. See supra note 3. She did not request a collection alternative and did not provide the SO with the financial information necessary for him to consider one. Nor did she supply copies of executed tax returns for 2005 through 2014.

The SO concluded that petitioner could not challenge her underlying tax liability for 2004 because that liability was conclusively established by a Tax Court decision that had become final. See sec. 7481(a)(2). The SO verified that this tax liability had been properly assessed and that all other requirements of law and administrative procedure had been satisfied. On April 22, 2016, the IRS issued a notice of determination upholding the levy, and petitioner timely petitioned this Court. On March 14, 2017, respondent filed a motion for summary judgment to which petitioner has responded.

Discussion

A. Summary Judgment

The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(b), the Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Ibid. However, the nonmoving party may not rest upon the mere allegations or denials of his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.

In responding to the summary judgment motion petitioner presents a litany of arguments directed mainly to relitigating the validity of her "corporation sole" tax shelter scheme. She does not allege any dispute of material fact, and we discern none. We conclude that this case is appropriate for summary adjudication.

B. Standard of Review

Section 6330(d)(1) does not prescribe the standard of review that this Court should apply in reviewing an IRS administrative determination in a CDP case. Where the validity of a taxpayer's underlying tax liability is properly at issue, we review the IRS' determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Where the taxpayer's underlying liability is not properly at issue, we review the IRS decision for abuse of discretion only. Id. at 182. Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006); see also Keller v. Commissioner, 568 F.3d 710, 716 (9th Cir. 2009), aff'g in part T.C. Memo. 2006-166.

A taxpayer may raise a CDP challenge to the existence or amount of her underlying tax liability only if she "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." Sec. 6330(c)(2)(B). Petitioner received a notice of deficiency for 2004 and litigated her liability for that year in this Court. Section 6330(c)(2)(B) precluded her from disputing that liability a second time through the CDP process. We accordingly review the SO's actions for abuse of discretion only.

C. Analysis

The only question is whether the IRS properly sustained the proposed levy to facilitate collection of petitioner's unpaid 2004 tax liability. We review the record to determine whether the SO: (1) properly verified that the requirements of applicable law or administrative procedure have been met; (2) considered any relevant issues petitioner raised; and (3) considered whether "any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of * * * petitioner that any collection action be no more intrusive than necessary." See sec. 6330(c)(3).

Our review of the record establishes that the SO satisfied all of these requirements. The only relevant issue petitioner raised was her contention that the IRS could not pursue collection activity for 2004 while she had an appeal pending in the Court of Appeals.

The SO correctly rejected this argument. This Court's decision in the case at docket No. 11009-07, which concerned petitioner's 2004 tax liability, became final on December 10, 2013, when she did not file a timely petition for writ of certiorari from the Court of Appeals' order dismissing her appeal. See sec. 7481(a)(2)(A); 28 U.S.C. sec. 2101(c) (2012). The IRS was then free to proceed to collect her 2004 tax liability as determined by this Court. The fact that petitioner's appeal in the case at docket No. 12016-06 was still pending at the time of the CDP hearing was irrelevant because that case concerned her 2002-2003 tax liabilities.

Even if this Court's decision in the case at docket No. 11009-07 had not become final, section 7485(a) provides that, "notwithstanding any provision of law imposing restrictions on the assessment and collection of deficiencies," a request for appellate review "shall not operate as a stay of assessment or collection of any portion of the amount of the deficiency determined by the Tax Court" unless the taxpayer has filed a timely notice of appeal and "has filed with the Tax Court a bond in a sum fixed by the Tax Court" not exceeding a specified amount. The pendency of an appeal, in and of itself, does not stay IRS collection action. Because petitioner did not submit an appeal bond when filing her appeal in the case at docket No. 11009-07, the SO would not have abused his discretion in determining that collection action for 2004 should proceed, regardless of whether this Court's decision had become final.

Petitioner did not request a collection alternative, and she did not supply the SO with the financial information necessary to enable him to consider one. Far from being in compliance with her ongoing tax filing obligations, she has not filed a Federal income tax return since 1993. The SO did not abuse his discretion in declining to consider a collection alternative under these circumstances. See Hull v. Commissioner, T.C. Memo. 2015-86, 109 T.C.M. (CCH) 1438, 1441; Huntress v. Commissioner, T.C. Memo. 2009-161; Prater v. Commissioner, T.C. Memo. 2007-241; Roman v. Commissioner, T.C. Memo. 2004-20; Internal Revenue Manual pt. 5.14.1.4.2(18) (Sept. 19, 2014). Finding no abuse of discretion in this or in any other respect, we will grant summary judgment for respondent and affirm the proposed collection action.

D. Frivolous Position Penalty

Section 6673(a)(1) authorizes this Court to impose a penalty not in excess of $ 25,000 "whenever it appears to the Tax Court" that a taxpayer has instituted or maintained a proceeding "primarily for delay" or has taken a position that 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 resources. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); Bruhwiler v. Commissioner, T.C. Memo. 2016-18, 111 T.C.M. (CCH) 1071, 1074.

It is clear to us that petitioner has maintained this suit "primarily for delay" as part of her 25-year campaign to avoid or defer indefinitely the collection of her Federal income tax liabilities. Because our decision establishing her 2004 income tax liability became final more than three years ago, she had no plausible basis for challenging that liability through the CDP process. Her 30-page response to the motion for summary judgment includes only two paragraphs that bear any rational relationship to the issues this case presents. The vast bulk of that document is directed toward relitigation of the trial court and appellate decisions previously rendered against her. See supra note 2. In that connection she advances numerous frivolous arguments, including assertions that the IRS "continues to lie and defame Petitioner" and that the Commissioner and the courts have conspired to deny her First Amendment rights to freedom of speech and religion.

Petitioner has wasted the resources of respondent's counsel and this Court. We will accordingly require that she pay to the United States under section 6673(a) a penalty of $ 10,000. This opinion will serve as a warning that she risks a much larger penalty if she engages in similar tactics in the future.

To reflect the foregoing,

An appropriate order and decision will be entered.

FOOTNOTES:

/1/ All statutory references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar.

/2/ See, e.g., Gardner v. Commissioner, 145 T.C. 161 (2015) (upholding section 6700 penalties against petitioner for promoting abusive tax shelter scheme); Gardner v. U.S. IRS, 2012 WL 4764154 (D. Ariz. Oct. 5, 2012) (dismissing petitioner's fraud and racketeering suit against the United States and its officers), aff'd, 672 F. App'x 776 (9th Cir. 2017); Bethel Aram Ministries v. IRS, 2009 WL 1020828 (D. Ariz. Apr. 15, 2009) (dismissing quiet title action); United States v. Gardner, 2008 WL 906696 (D. Ariz. Mar. 21, 2008) (permanently enjoining petitioner from making false statements to promote tax shelter scheme), aff'd, 457 F. App'x 611 (9th Cir. 2011); Gardner v. Peters, 2006 WL 2092606 (D. Ariz. July 26, 2006) (dismissing frivolous wrongful levy suit by petitioner), aff'd, 280 F. App'x 602 (9th Cir. 2008).

/3/ The case at docket No. 11009-07 was consolidated for purposes of trial and opinion with the case at docket No. 12016-06, which involved petitioner and her husband's income tax liabilities for 2002 and 2003. We sustained most of the deficiencies and additions to tax that the IRS determined for those years, and our decision in the case at docket No. 12016-06 was affirmed by the U.S. Court of Appeals for the Ninth Circuit. Gardner, 105 T.C.M. (CCH) at 1436-1440, aff'd, 845 F.3d 971 (9th Cir. 2017).

[notorial dissent]

Id' say the courts weren't buying (any of) it.

[Judge Roy Bean]

I have a feeling the government will have spent far more trying to get blood out of these turnips than they'll ever actually recover.

[jcolvin2]

The further adventures of Elizabeth Gardner (bonus: this includes a $25k 6673 penalty):

https://www.ustaxcourt.gov/InternetOrde ... 5&Todays=Y

[NatInPW]

The IRS is pursuing taxes for 2002-2004. But they haven't filed since 1993? Why isn't the government going after those years as well? Or even last year? Wouldn't it be easier to prosecute them for all missing years at once? IANAL, so forgive me if this is naive. It's infuriating that these deadbeats can drag this out for 25 years.

I saw mention of a lien and obtaining records from their Wells Fargo account. Could the gov't have frozen those accounts then while the case moved forward? Is the money gone now?

The more I think about this, the madder I get. I hate paying taxes too, but I certainly do every year, and this freeloading is stealing from all of us....