Attorney Fails At Getting FrivPen

[The Observer]

MICHAEL CRAIG WORSHAM,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

Release Date: JULY 31, 2012

UNITED STATES TAX COURT

Filed July 31, 2012

Michael Craig Worsham, pro se.

Marissa R. Lenius, Elizabeth S. Henn, Peter N. Scharff, and Tyler N. Orlowski, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: By statutory notice of deficiency, respondent determined a $ 6,357 1 deficiency in petitioner's 2006 Federal income tax. Petitioner failed to file a 2006 Federal tax return. Respondent also determined a $ 1,430 addition to tax under section 6651(a)(1), 2 an $ 858 addition to tax under section 6651(a)(2), and a $ 301 addition to tax under section 6654(a). In an amendment to the answer to the petition, respondent asserted that the deficiency in tax was actually $ 67,298. In his amendment to answer respondent also asserted a $ 48,791 fraudulent failure to file addition to tax under section 6651(f), 3 as well as an increase of the section 6651(a)(2) addition to $ 16,825 and of the section 6654(a) addition to $ 3,185. The parties later stipulated certain amounts paid to petitioner during 2006, 4 as well as certain deductions. Finally, respondent filed a motion to impose sanctions against petitioner pursuant to section 6673(a)(1). The issues for our consideration are:

(1) whether petitioner failed to report taxable income
of $ 193,026 for 2006. We hold that he did;

(2) whether petitioner is liable for the section
6651(f) fraudulent failure to file addition to tax
for 2006. We hold that he is;

(3) whether petitioner is liable for the section
6651(a)(2) addition to tax resulting from his failure
to pay the tax shown on a substitute for return (SFR)
prepared by respondent. We hold that he is;

(4) whether petitioner is liable for additions to
tax for failure to pay estimated taxes under section
6654 for 2006. We hold that he is; and

(5) whether to impose sanctions under section 6673
on petitioner for presenting frivolous or groundless
arguments before the Court. We shall not.

FINDINGS OF FACT

At the time the petition was filed, petitioner resided in Maryland.

Petitioner has a bachelor of science in chemistry, a master of science in civil engineering and a juris doctor from the University of Baltimore School of Law. He moved to Maryland in 1993 to work for the U.S. Army Environmental Center at Aberdeen Proving Ground. Over the next several years he attended law school at night, was sworn in as a member of the Maryland bar in 1998, and left the army in 2001 to start a solo law practice from his home. Petitioner's practice was not in the area of tax, and he did not take any tax courses in law school.

Petitioner filed a Federal tax return every year from 1989 (when he had just begun graduate school to earn his master of science in civil engineering) through 2004. On his 2004 Federal tax return petitioner reported $ 26,294 of adjusted gross income, $ 8,359 of taxable income, and $ 7,712 of self-employment income. 5 Petitioner's practice of law became more profitable during 2005. An accountant suggested petitioner incorporate his business for tax reasons, which he did, incorporating it under the name Michael C. Worsham, P.C. (Worsham, P.C.). During 2006 Worsham, P.C., had a corporate charter in effect in the State of Maryland, elected to be treated as an S corporation, and was wholly owned by petitioner.

Petitioner testified that during 2006 "without looking for it" he discovered information which led him to conclude that he was not required to file Federal tax returns or pay Federal income taxes. As a result, petitioner has not filed a personal Federal tax return for any year since 2004. 6 However, petitioner did make a $ 2,000 estimated tax payment to the U.S. Treasury for the 2005 tax year and also made a payment to the U.S. Treasury of $ 45,000 in April 2006, in connection with the filing of a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, for 2005. The $ 45,000 payment was credited to petitioner's 2005 income tax account. 7 Petitioner did not make any payments with respect to his 2006 tax.

In payment for legal services petitioner performed, deposits totaling $ 192,410 were made to Worsham, P.C.'s business checking account during 2006. The parties stipulated that Worsham, P.C., incurred deductible expenses of $ 163,772 during 2006, including $ 118,000 in wages paid to petitioner. During 2006 petitioner also deposited $ 57,015 in settlement proceeds into a personal checking account. The proceeds were the result of personal lawsuits brought by petitioner in his own name. Finally, during 2006 petitioner made mortgage interest payments of $ 6,737, real property tax payments totaling $ 2,761, and charitable contributions of $ 840.

Before April 15, 2007, petitioner received three Forms 1099-MISC, Miscellaneous Income, reporting taxable payments of $ 20,000, $ 6,200, and $ 8,000 paid during 2006 to petitioner, Worsham, P.C., and the "Michael C. Worsham Trust Account", 8 respectively. Each of these payments was the result of either compensation for legal services or settlement of a personal lawsuit (brought in his own name) and was not part of the amounts earned by petitioner or Worsham, P.C., previously discussed. Before April 15, 2007, petitioner also received a Form 1099INT, Interest Income, prepared by Aberdeen Proving Ground Federal Credit Union reporting $ 961 of interest paid to petitioner on a personal account.

Using the information on the Forms 1099-MISC and Form 1099-INT (and not accounting for any deductions other than the standard deduction and one personal exemption as petitioner had not yet supplied information regarding home mortgage interest paid, property taxes paid, and charitable contributions made), respondent prepared an SFR for petitioner for 2006. This SFR showed tax due of $ 6,357. Respondent then issued a notice of deficiency to petitioner on September 28, 2009, determining a $ 6,357 deficiency in tax and the additions to tax described earlier.

After the petition was filed, respondent issued a subpoena duces tecum to each of petitioner's banks for statements of account for 2006. Respondent then performed bank deposits analyses for a Worsham, P.C. account at M&T Bank and petitioner's personal account at Aberdeen Proving Ground Federal Credit Union. As a result of the bank deposits analyses, respondent determined that petitioner's unreported income was substantially in excess of the amount determined in the notice of deficiency. We permitted respondent to amend the answer to assert an increased deficiency and to assert that petitioner is liable for the section 6651(f) fraudulent failure to file addition to tax.

After learning of the subpoenas duces tecum issued to his banks, petitioner filed a motion to dismiss seeking to have his case dismissed without prejudice. Petitioner mailed a letter to M&T Bank in which he stated: "Because I am dismissing this case, the Subpoena issued by the IRS to M&T Bank should no longer be valid, and M&T Bank should not be required to respond by producing copies of my account records." Shortly after he mailed this letter to M&T Bank, we denied petitioner's motion to dismiss.

OPINION

I. Burden of Proof

Generally, taxpayers bear the burden of proving, by a preponderance of the evidence, that the determinations of the Commissioner in a notice of deficiency are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner has not argued that the burden of proof with respect to the deficiency determined in the notice of deficiency should shift to respondent. However, respondent concedes that he bears the burden of proof with respect to the increased deficiency asserted in the amendment to answer. See Rule 142(a). Respondent also bears the burden of proving, by clear and convincing evidence, that the section 6651(f) fraudulent failure to file addition to tax applies. See sec. 7454(a). With respect to the additions to tax under sections 6651(a)(1) and (2) and 6654(a) determined in the notice of deficiency, respondent bears the burden of production. See sec. 7491(c). With respect to the additions to tax applicable to the increased deficiency asserted in the amendment to answer, respondent concedes he bears the burden of both production and proof. See sec. 7491(c); Rule 142(a). As discussed infra, we find that respondent has met any burden of proof (or production as the case may be) he bears with respect to each issue.

II. Whether Petitioner Failed
To Report Taxable Income of $ 193,026 for 2006

Section 1 imposes a Federal income tax on the taxable income of individuals. Taxable income is defined as gross income minus any allowed deductions. Sec. 63. Gross income is defined as all income from whatever source derived. Sec. 61(a). Section 61(a) specifically includes in the definition of income wages and compensation for services, including fees, and interest. Settlement proceeds are included in the broad definition of income under section 61(a) unless they are damages received on account of personal injuries or sickness. Sec. 104(a)(2); Commissioner v. Schleier, 515 U.S. 323, 328-329 (1995).

During 2006 petitioner received significant wages, compensation for legal services, settlement proceeds from personal lawsuits, and interest but chose to neither report these amounts nor pay any Federal income tax on them. Petitioner does not dispute that he received the amounts in question; indeed, he stipulated their receipt. Rather, petitioner makes a series of arguments that he owed no Federal taxes on his earnings during 2006.

In his posttrial brief petitioner argues that: (1) "there is no constitutional basis for federal taxes on the ordinary labor of a working American like Petitioner"; (2) "there is no federal statute that * * * establishes federal tax liability for money earned from the ordinary labor of Americans"; and (3) respondent has failed to account for the basis value of a person's labor which "would be valued at near or the same as the value of the gross receipts which that same labor generated". Petitioner has previously raised other issues, including: (1) "Respondent mislead [sic] Petitioner and others into believing that a Form 1040 [U.S. Individual Income Tax Return] was the only acceptable return" and that petitioner should not be liable for additions to tax because "Petitioner has not been given any or reasonable notice of a return or form to be filed other than Form 1040"; (2) "Whether * * * the Fifth Amendment may apply to Petitioner and the demands made upon Petitioner by Respondent"; (3) issues relating to internal revenue districts; (4) whether certain withholding actions taken by respondent were unlawful without an assessment and proper notice; (5) whether the Tax Court has jurisdiction to determine constitutional issues related to income tax determination and the statutory basis for the same; 9 (6) "whether a [Tax Court] Judge can preside over and rule in a case where constitutional issues are inexorably linked to and required for resolution of that case, given the conflict between the Court's limited constitutional jurisdiction and that Judge's sworn requirement as" a member of a State bar association to support and defend the Constitution; and (7) that Form 1040 violates the Paperwork Reduction Act, 44 U.S.C. section 3501-3520.

We decline the invitation to address in detail petitioner's numerous arguments. Courts confronting frivolous "tax protester" 10 arguments regarding the Federal income tax often quote Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984), which stated: "We perceive no need to refute these arguments with somber reasoning and copious citation of precedent". Addressing frivolous tax-protester arguments: (1) wastes the limited resources of the Court; (2) delays the assessment of tax; and (3) risks dignifying such arguments or suggesting that they have some colorable merit. Wnuck v. Commissioner, 136 T.C. 498, 510-513 (2011). We have also recognized that tax-protester arguments: (1) are unlimited; (2) may have little actual importance to those making them; (3) have already been answered; and (4) are patently frivolous. Id. at 501-505. Finally, we have noted that litigants who press frivolous tax-protester arguments often fail to hear their refutation. Id. at 504-505.

Petitioner repeatedly claims his arguments are not frivolous, but we disagree. Regarding petitioner's constitutional arguments, courts have previously stated that "The constitutionality of our income tax system -- including the role played within that system by the Internal Revenue Service and the Tax Court -- has long been established." Crain v. Commissioner, 737 F.2d at 1417-1418; see also Powers v. Commissioner, T.C. Memo. 2009-229; DiCarlo v. Commissioner, T.C. Memo. 1992-280. We therefore hold these constitutional arguments are frivolous.

Petitioner's argument that no Federal statute imposes a tax on a person's ordinary labor relies on selective and misguided readings of multiple statutes. Petitioner's argument that he had a basis in his labor is also frivolous. Courts have clearly held that the statutory law does impose a tax on payments for a person's ordinary labor and that taxpayers have no basis in their labor supplied. Howard v. Commissioner, T.C. Memo. 2000-222 (taxpayer claimed that payments for his labor were not income and that he had a basis in his labor equal to the amount of the payment received for it; we stated that "All of these arguments have been consistently rejected by the courts and can be accurately characterized as timeworn protester type rhetoric."); see also Rowlee v. Commissioner, 80 T.C. 1111, 1113, 1119-1121 (1983); Hyslep v. Commissioner, T.C. Memo. 1988-289; Cornell v. Commissioner, T.C. Memo. 1983-370. We therefore find these arguments are frivolous.

The arguments not already addressed were not argued in petitioner's posttrial brief and were either not well developed or not developed at all. We will not address them other than to say: "The short answer to all of petitioner's arguments is that he is not exempt from Federal income tax." Martin v. Commissioner, T.C. Memo. 1990-560 (citing Abrams v. Commissioner, 82 T.C. 403, 406-407 (1984)).

One final argument by petitioner relating to the deficiency 11 that we will fully address relates to the cases respondent cites in his opening brief. Petitioner claims that Tax Court opinions filed before September 25, 2005, are not available through searches on the Tax Court's Web site, and respondent has cited several such older cases in his brief without providing petitioner with copies of those cases. Petitioner argues that "in fairness * * * [we] should not consider arguments based on these older cases that are not available to Petitioner in a publicly accessible database." In support of this argument, petitioner cites rule 32.1(b) of the Federal Rules of Appellate Procedure, which provides that "If a party cites a federal judicial opinion * * * that is not available in a publicly accessible electronic database, the party must file and serve a copy of that opinion * * * with the brief or other paper in which it is cited."

We disagree with petitioner. Rule 1(a)(1) of the Federal Rules of Appellate Procedure provides that "These rules govern procedure in the United States courts of appeals." The Tax Court is not an appellate court, and the Federal Rules of Appellate Procedure therefore do not apply to cases disputed herein. In addition, the Tax Court Rules of Practice and Procedure contain no similar rule regarding cases not available on a public database.

Having found all of petitioner's arguments to be frivolous or inapplicable, we find that respondent has proved that petitioner failed to report taxable income of $ 193,026 for 2006 and is liable for the Federal tax he failed to pay on that income.

III. Whether Petitioner Is Liable for the Section 6651(f)
Fraudulent Failure To File Ad
dition to Tax for 2006

Section 6651(f) imposes an addition to tax of up to 75% 12 in the case of any fraudulent failure to file a tax return. Respondent has the burden of proving fraud by clear and convincing evidence. See sec. 7454(a); Rule 142(b). To satisfy the burden of proof, respondent must show: (1) an underpayment of tax exists; and (2) petitioner intended to evade taxes known to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of taxes. Clayton v. Commissioner, 102 T.C. 632, 646 (1994); see also Sadler v. Commissioner, 113 T.C. 99, 102 (1999); Parks v. Commissioner, 94 T.C. 654, 660-661 (1990).

A. Underpayment of Tax

The clear and convincing standard applies not merely to whether an underpayment is attributable to fraud, but also to whether an underpayment exists. Parks v. Commissioner, 94 T.C. at 660-661; Di Rocco v. Commissioner, T.C. Memo. 2009-300. Considering the facts and law discussed hereinabove, we find that respondent has proven by clear and convincing evidence that an underpayment of tax exists for 2006.

B. Fraudulent Intent

The Commissioner must prove by clear and convincing evidence that a portion of the underpayment for each taxable year in issue was due to fraud. See Prof'l Servs. v. Commissioner, 79 T.C. 888, 930 (1982). The existence of fraud is a question of fact to be resolved upon consideration of the entire record. King's Court Mobile Home Park, Inc. v. Commissioner, 98 T.C. 511, 516 (1992). The taxpayer's entire course of conduct may establish the requisite fraudulent intent. Stone v. Commissioner, 56 T.C. 213, 223-224 (1971). Because direct proof of a taxpayer's intent is rarely available, fraud may be proved by circumstantial evidence and reasonably inferred from the facts. Spies v. United States, 317 U.S. 492, 499 (1943); Niedringhaus v. Commissioner, 99 T.C. 202, 210 (1992); Rowlee v. Commissioner, 80 T.C. at 1123.

Petitioner has argued that although he failed to file his 2006 tax return, his failure to file was not fraudulent because he had a good-faith belief that he was not required to pay Federal tax on the amounts he earned. Petitioner's argument is similar to the argument made by the taxpayer in Rowlee v. Commissioner, 80 T.C. at 1123-1124. In that case we found that the taxpayer's failure to file was fraudulent, stating:

Failure to file tax returns, without more, is not
proof of fraud; such omission may be consistent with
a state of mind other than the intention and expectation
of defeating the payment of taxes. * * * Failure
to file, however, may be considered in connection
with other facts in determining whether any deficiency
or underpayment of tax is due to fraud. * * * Here,
there is no question that * * * [taxpayer's] purpose
was to avoid, and not merely to postpone, the payment
of taxes that he claims he was not obligated to pay.
On the basis of the entire record, the failure to
file must be viewed as conduct intended to conceal
* * * [taxpayer's] noncompliance with the law.
The burden on respondent to both locate and assess
a delinquent taxpayer is, in a sense, greater than
the verification of items reported on a return that
has been filed but may be false. And, as stated in
Helvering v. Mitchell, * * * [303 U.S. 391, 401
(1938)], it is that necessity for which the Government
is to be compensated by the addition to tax.

[Taxpayer] contends that he could not have intended
to conceal his conduct because of his attempts to
confront various agents of respondent. But those
attempts * * * occurred long after the time for filing
his returns had passed. * * * [Taxpayer] cannot
disregard the laws that have been passed by Congress
and upheld by the courts; fail to perform an affirmative
duty imposed upon him by those laws; proclaim, only
when he has been discovered, that those laws are
inconsistent with his or another's philosophy; and
then expect to avoid the consequences of his avowedly
freely exercised disobedience. [Citations and fn.
refs. omitted.]

Certain indicia, commonly known as badges of fraud, constitute circumstantial evidence which may give rise to a finding of fraudulent intent. Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff'g T.C. Memo. 1984-601. "Although no single factor is necessarily sufficient to establish fraud, the existence of several indicia is persuasive circumstantial evidence of fraud." Petzoldt v. Commissioner, 92 T.C. 661, 700 (1989). As discussed below, several badges of fraud are applicable in this case.

Failure to file a tax return is a badge of fraud and "An extended pattern of failing to file income tax returns * * * may be persuasive circumstantial evidence of fraud." DeVries v. Commissioner, T.C. Memo. 2011-185 (citing Marsellus v. Commissioner, 544 F.2d 883, 885 (5th Cir. 1977), aff'g T.C. Memo. 1975-368)); see also Bradford v. Commissioner, 796 F.2d at 307. In addition, when failure to file is viewed in the light of the previous filing of tax returns for prior years, the nonfiling "weighs heavily against" the taxpayer because it demonstrates the taxpayer's awareness of the filing requirement. Castillo v. Commissioner, 84 T.C. 405, 409 (1985). Petitioner filed a Federal tax return every year from 1989 through 2004 but has not filed a tax return since. We find that petitioner's pattern of failing to file tax returns after 2004 is persuasive evidence of fraud, especially when viewed in the light of his prior tax return filings and failure to make estimated tax payments. See Niedringhaus v. Commissioner, 99 T.C. at 213 ("We find that petitioner's failure to file returns, combined with his failure to make estimated tax payments, was a deliberate attempt to conceal his correct tax liability and to frustrate its collection.") (citing Miller v. Commissioner, 94 T.C. 316, 337 (1990)).

Petitioner argues that he stopped filing tax returns only upon discovering information in 2006 which led him to conclude that he was not required to file tax returns or pay taxes. We believe it more likely that petitioner stopped filing tax returns because of his larger tax burden resulting from the increasing profitability of his law practice.

Petitioner also argues that the years 1993 through 2001 are irrelevant because he was required to file returns and pay Federal income tax for those years as a Federal employee in the army. We have previously noted that the theory that only Federal employees are subject to Federal income tax "is a common, frivolous, tax-protester argument" of no merit. Hamilton v. Commissioner, T.C. Memo. 2009-271 (fn. ref. omitted).

While tax-protester arguments may not be evidence of fraud by themselves, they may be indicative of fraud if made in conjunction with affirmative acts designed to evade Federal income tax. DeVries v. Commissioner, T.C. Memo. 2011-185 (citing Kotmair v. Commissioner, 86 T.C. 1253, 1260-1261 (1986)). In the instant case petitioner has raised a multitude of frivolous, tax-protester arguments in conjunction with the failure to file a tax return or make estimated tax payments. Petitioner has also engaged in affirmative acts (relating to the subpoenas duces tecum) designed to evade Federal income taxes, as described infra. We therefore find petitioner's tax-protester arguments are indicative of fraud.

A taxpayer's education, training, business experience, and knowledge of income tax laws are relevant in deciding whether a taxpayer committed fraud. Drobny v. Commissioner, 86 T.C. 1326, 1349 (1986); Harker v. Commissioner, T.C. Memo. 1994-583, aff'd, 82 F.3d 806 (8th Cir. 1996). Petitioner is a highly intelligent individual with graduate degrees in both engineering and law. He is an accomplished businessman and attorney, having formed his own successful law practice which he incorporated as an S corporation for tax reasons after an accountant suggested doing so. Although he does not practice in the area of tax, nor did he take any tax courses in law school, petitioner has the intelligence and ability to recognize the frivolous, incorrect, and completely discredited nature of the arguments he has made in support of his failure to pay Federal taxes or file a Federal tax return. We find these facts are further evidence of fraud.

In addition to the previously described facts, we also note that after learning of the subpoenas duces tecum issued to his banks petitioner filed a motion to dismiss, seeking to have his case dismissed without prejudice. After filing the motion to dismiss, petitioner mailed a letter to one bank in which he stated: "Because I am dismissing this case, the Subpoena issued by the IRS to M&T Bank should no longer be valid, and M&T Bank should not be required to respond by producing copies of my account records." Essentially, once petitioner knew respondent was about to discover the true amount of income he received during 2006 he sought to avoid the consequences by paying only the smaller deficiency and additions to tax originally determined by respondent. We believe these facts are evidence that petitioner was more concerned with trying to conceal the true amount of income he received than with presenting good-faith (but misguided) arguments regarding his Federal tax liability and duty to file a Federal tax return.

Considering the evidence, we find respondent has proved by clear and convincing evidence that the underpayment for 2006 was due to fraud. As we have previously found, respondent has proved that an underpayment of tax existed for 2006. Petitioner is therefore subject to the section 6651(f) fraudulent failure to file addition to tax for 2006.

IV. Whether Petitioner Is Liable for the Section 6651(a)(2)
Addition to Tax for 2006

Section 6651(a)(2) imposes an addition to tax for any failure to pay the tax shown on a return on or before the date prescribed for payment. The addition is equal to 0.5% of the amount shown as tax on the return for each month, or fraction thereof, during which the failure to pay continues, up to a maximum of 25%. Sec. 6651(a)(2). The addition will not apply if it is shown that the failure to pay timely was due to reasonable cause and not due to willful neglect. Id. A failure to pay is due to reasonable cause if the taxpayer "exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship * * * if he paid on the due date." Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.; see also Ruggeri v. Commissioner, T.C. Memo. 2008-300. Willful neglect contemplates "a conscious, intentional failure or reckless indifference." United States v. Boyle, 469 U.S. 241, 245 (1985).

Under section 6020(b)(1), when a taxpayer fails to make any return required by law, the Commissioner "shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise." Under section 6651(g)(2), any return so prepared by the Commissioner shall be treated as the taxpayer's return for purposes of section 6651(a)(2). Respondent prepared such a return in this case which showed that petitioner owed $ 6,357 in tax before the addition of interest and additions to tax. 13

Petitioner has not paid any portion of the amount reported due on the return respondent prepared. Petitioner did not demonstrate reasonable cause for failing to pay. Rather, petitioner intentionally chose not to file and pay tax for 2006, making a variety of frivolous tax-protester arguments. Frivolous positions do not constitute reasonable cause for failure to timely pay tax due. McGowan v. Commissioner, T.C. Memo. 2006-154 ("Misguided interpretations of the Constitution or other typical tax protester arguments are not reasonable cause."). As a result, we find that petitioner failed to timely pay the tax shown due on the section 6020 return without reasonable cause and is liable for the addition to tax under section 6651(a)(2).

V. Whether Petitioner Is Liable for the Addition to Tax for
Failure To Pay Estimated Ta
x Under Section 6654 for 2006

Respondent determined an addition to his calculation of tax liability for 2006 for failure to pay estimated tax. Section 6654(d)(1)(B) provides that a taxpayer's required annual payment is limited to the lesser of 90% of the tax shown on the return for the taxable year (or, if no return is filed, 90% of the tax for such year), or 100% of the tax shown on the return of the individual for the preceding taxable year. 14 Petitioner did not address this issue but has argued that he had no tax liability for 2006. We have already found that petitioner was liable for tax for 2006. Therefore, petitioner is liable for the section 6654 addition to tax. The amount of the addition shall be determined by the parties in their Rule 155 calculations in accordance with the other holdings herein.

VI. Section 6673 Sanctions

Respondent filed a motion requesting that the Court impose sanctions against petitioner pursuant to section 6673(a)(1). Section 6673(a)(1) authorizes the Court to require a taxpayer to pay a penalty to the United States in an amount not to exceed $ 25,000 whenever it appears to the Court that the taxpayer instituted or maintained the proceeding primarily for delay or that the taxpayer's position in the proceeding is frivolous or groundless.

Petitioner has taken a multitude of frivolous and groundless positions characteristic of tax protesters. However, considering the facts of this case, 15 we decline to impose sanctions against petitioner, although we strongly warn petitioner that making such arguments before this Court in the future will likely result in the imposition of sanctions against him.

VII. Conclusion

We find petitioner failed to report taxable income of $ 193,026 for 2006 and is liable for the related deficiency. Further, we find petitioner liable for an addition to tax under section 6651(f), as well as additions to tax under sections 6651(a)(2) and 6654. However, we choose not to impose sanctions against petitioner under section 6673.

In reaching our holdings herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.

To reflect the foregoing,

An appropriate order and decision will be entered under Rule 155.

FOOTNOTES:

/1/ All dollar amounts are rounded to the nearest dollar.

/2/ Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for 2006, and all Rule references are to the Tax Court Rules of Practice and Procedure.

/3/ Because of the sec. 6651(f) fraudulent failure to file addition to tax he now seeks against petitioner, respondent is seeking imposition of the sec. 6651(a)(1) addition to tax only as an alternative should we not hold petitioner liable for the fraudulent failure to file addition.

/4/ Petitioner disputes that these amounts constituted taxable income paid to him.

/5/ In the five tax years from 2000 to 2004 the highest amount of Federal tax petitioner paid in any one year was $ 6,185 for 2000.

/6/ Petitioner also did not file a Federal tax return on behalf of Worsham, P.C., for tax year 2005 or 2006.

/7/ Petitioner testified that for 2005 he paid more in tax than he actually owed.

/8/ No information was provided about this trust or trust account.

/9/ For jurisdictional purposes we note that the Tax Court is a constitutional court with the power to address constitutional issues raised before it. See Cupp v. Commissioner, 65 T.C. 68, 84 (1975), aff'd without published opinion, 559 F.2d 1207 (3d Cir. 1977); Hawkins v. Commissioner, T.C. Memo. 2003-181 ("Petitioners contend that only a court established under Article III of the Constitution, rather than a legislative court established under Article I of the Constitution, can adjudicate the [constitutional] issues they have raised. Petitioners' arguments have no merit." (Fn. ref. omitted.); Broughton v. Commissioner, T.C. Memo. 1979-77 ("in many cases involving various claims we have ruled * * * that the income tax is a constitutional tax, that the provisions for a determination of deficiency by respondent are constitutional, [and] that this Court is a constitutional court").

/10/ "Persons who make frivolous anti-tax arguments have sometimes been called 'tax protesters'." Wnuck v. Commissioner, 136 T.C. 498, 502 n. 2 (2011).

/11/ This argument, as well as our response, is also applicable to the other issues considered in this opinion.

/12/ In this case the addition to tax is 75% of the underpayment of tax.

/13/ Respondent concedes that the sec. 6651(a)(2) addition to tax is not applicable to the increase in the deficiency later asserted because that increase was never shown on a tax return prepared by or for petitioner.

/14/ Petitioner did not file a 2005 Federal tax return.

/15/ We note that this is the first time petitioner has made such frivolous arguments before this Court.

[LPC]

Petitioner testified that during 2006 "without looking for it" he discovered information which led him to conclude that he was not required to file Federal tax returns or pay Federal income taxes.

Paraphrasing Judge Easterbrook: Some people are quite ready to believe preposterous things that just happen to coincide with their own self-interest.

[Edited by LPC to correct spelling and wording.]

[The Observer]

Our dauntless TP predictably pursues an appeal, and yet again, fails to garner a moral victory by not drawing a frivpen.

MICHAEL CRAIG WORSHAM,
Petitioner-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

Release Date: JUNE 27, 2013

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

Appeal from the United States Tax Court.
(Tax Ct. No. 031151-09)

Submitted: June 13, 2013

Decided: June 27, 2013

Before TRAXLER, Chief Judge, and NIEMEYER and MOTZ, Circuit Judges.

Affirmed by unpublished per curiam opinion.

Michael C. Worsham, Forest Hill, Maryland, for Appellant. Kathryn Keneally, Assistant Attorney General, Robert W. Metzler, Steven K. Uejio, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit.

PER CURIAM:

After a trial, the tax court found that Michael Worsham failed to report taxable income of $ 193,026 for 2006 and that he was liable for increased penalties because his failure to file was fraudulent. We affirm.

Worsham does not dispute that he failed to pay taxes on the income he earned in 2006, or the Commissioner's calculations as to the amount of the deficiency. However, he argues that Congress lacks authority to tax his income. This argument clearly fails. See U.S. Const. art. I, section 8, cl. 1 ("The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises. . . ."); U.S. Const. amend. XVI ("The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."). We find similarly unpersuasive Worsham's argument that the federal income tax infringes his fundamental rights.

Worsham also argues that his earnings as an attorney are not taxable income because they include the "basis value" of his labor. We agree with the numerous other courts to have addressed this argument that it is meritless. See, e.g., Boggs v. Comm'r, 569 F.3d 235, 238 (6th Cir. 2009); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985).

Finally, Worsham contends that the tax court erred in imposing a penalty under 26 U.S.C. section 6651(f) for fraudulent failure to file a tax return. "A finding of fraud requires that the Commissioner prove affirmatively by clear and convincing evidence actual and intentional wrongdoing on the part of the [taxpayer] with a specific intent to evade the tax." Grossman v. Comm'r, 182 F.3d 275, 277 (4th Cir. 1999) (internal quotation marks omitted). However, "ntent to defraud . . . may be proven by circumstantial evidence." Id. We review the tax court's finding of fraud for clear error. Romm v. Comm'r, 245 F.2d 730, 734 (4th Cir. 1957).

Worsham does not dispute that he failed to file a return. The tax court found several indicia of fraud present, including: 1) Worsham had filed tax returns in years preceding 2006, demonstrating his awareness of the filing requirement; 2) Worsham's tax liability increased in 2006 because his law practice became more profitable; 3) Worsham raised numerous frivolous arguments; and 4) Worsham is highly educated and has a law degree and thus should have been able to identify frivolous arguments. Worsham v. Comm'r, T.C. Memo 2012-219, at 17-21 (2012). The court found it particularly significant that Worsham previously moved to dismiss his case after learning that the Commissioner had subpoenaed his bank accounts; the court concluded that Worsham was more concerned with concealing the true amount of his income than with presenting good-faith arguments regarding his tax liability. Given these considerations, we cannot conclude that the tax court's finding of fraud was clearly erroneous.

In addition to the 26 U.S.C. section 6651(f) penalty, the tax court imposed penalties under 26 U.S.C. section 6651(a)(2) and 6654 for failure to pay the tax shown on a substitute for return and failure to pay estimated taxes. Worsham does not challenge those penalties beyond arguing that he never owed any income tax to begin with. We have rejected that argument and thus need not consider the issue further./*/

Accordingly, we affirm the judgment of the tax court. We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before the court and argument would not aid the decisional process.

AFFIRMED

//*//

The Commissioner has filed a motion seeking sanctions against Worsham, acting pro se, for noting a frivolous appeal. See 28 U.S.C. section 1912; Fed. R. App. P. 38. We deny that motion.

[jcolvin2]

A section 6673 penalty may be in the offing … stay tuned!

https://www.ustaxcourt.gov/UstcInOp/Opi ... x?ID=12065

T.C. Memo. 2019-132
UNITED STATES TAX COURT
MICHAEL C. WORSHAM, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 26210-16. Filed October 1, 2019.
Michael C. Worsham, pro se.
David A. Indek and Nancy M. Gilmore, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge: In a notice of deficiency issued December 8, 2016,
respondent determined that petitioner is liable for deficiencies and additions to tax
in the following amounts:

[*2] Additions to tax
Year Deficiency
Sec. 6651(a)(1)
Sec. 6651(a)(2)
Sec. 6654(a)
2005 47,537 $121 $134 $1,907
2007 9,578 2,155 2,395 436
2008 28,641 6,444 7,160 920
2009 7,155 --- --- 171
2010 24,779 5,575 6,195 531

Respondent determined no liability for petitioner under section 6651(a)(1)1
for 2009. Respondent determined that petitioner is, but now concedes that he is
not, liable under section 6651(a)(2) for 2005, 2007, 2008, and 2010 and under
section 6654(a) for 2005.

After concessions, the issues for decision are:

1. Whether petitioner had income, self-employment income, and deductions
for 2005, 2007, 2008, 2009, and 2010, in the amounts determined by respondent.
We hold that he did.

[*3] 2. Whether petitioner’s “basis in labor” is considered in deciding his
Federal income liability for his income from the performance of services. We hold
that it is not. As a related matter we will deny petitioner’s motion to show cause
for respondent to provide a factual basis for what petitioner refers to as “cost
determinations” relating to his income from labor.

3. Whether petitioner is liable for the tax on self-employment income and
entitled to the deduction for self-employment tax in the amounts determined by
respondent. We hold that he is.

4. Whether authority to issue the notice of deficiency was delegated to
Robert L. Bryant, Appeals team manager. We hold that it was, and we will deny
petitioner’s motion to dismiss for lack of jurisdiction in which petitioner
contended that no delegation had been made.

5. Whether petitioner is liable for the additions to tax for failure to timely
file tax returns and failure to make estimated tax payments. We hold that he is.

6. Whether the refund of petitioner’s overpayments, if any, is barred by the
statute of limitations. We hold that it is.

7. Whether, as petitioner contends, section 6673 is unconstitutional. We
hold that it is constitutional, and we will separately address respondent’s motion to
impose sanctions.

[*4] FINDINGS OF FACT

A. Petitioner

Petitioner has a bachelor of science degree in chemistry; a master of science
degree in civil engineering; and a juris doctor degree from the University of
Baltimore School of Law. He moved to Maryland in 1993 to work for the U.S.
Army Environmental Center at Aberdeen Proving Ground. During the next
several years he attended law school at night. He was sworn in as a member of the
Maryland bar in 1998 and left the Army to start a solo law practice from his home
in 2001. Petitioner’s law practice was not in the area of tax, and he took no tax
courses in law school.

Petitioner filed a Federal income tax return every year from 1989 (when he
had just begun graduate school for his master of science degree) through 2004.
Petitioner’s law practice became more profitable during 2005. An accountant
suggested that petitioner incorporate his business for tax reasons, which he did
under the name of Michael C. Worsham, P.C. (Worsham P.C.). During 2006
Worsham P.C. had a corporate charter in Maryland, elected to be treated as an S
corporation, and was wholly owned by petitioner. Also during 2006 petitioner
discovered information which led him to conclude that he was not required to file
[*5] Federal tax returns or pay Federal income tax. As a result petitioner has not
filed a personal Federal income tax return for any year since 2004.

B. Petitioner’s Income and Deductible Expenses for 2005, 2007, 2008, 2009, and 2010

In 2005 Worsham P.C. received $105,324 in gross receipts and was entitled
to $6,442 of deductions. Also in 2005 petitioner received $129 of taxable interest
income, net income of $72,153 reported on Schedule C, Profit or Loss From
Business (comprising $104,376 of gross receipts and $32,223 of expenses), and
$98,882 of net ordinary income through Worsham P.C.

In 2007 petitioner received $1,199 of taxable interest income, had $7,150 of
Schedule C gross receipts, and paid $6,200 for mortgage interest. In 2007
Worsham P.C. had gross receipts of $49,476 (which is $879 more than Worsham
P.C. reported on its 2007 return), and petitioner received $49,476 of net ordinary
income through Worsham P.C.

In 2008 petitioner received $2,580 of taxable interest income, had $49,879
of Schedule C gross receipts, and paid $3,403 for mortgage interest. In 2008
Worsham P.C. had gross receipts of $58,623, and petitioner received $58,623 of
net ordinary income through Worsham P.C.

[*6] In 2009 petitioner received $338 of taxable interest income and had $2,970
of Schedule C gross receipts. In 2009 Worsham P.C. had gross receipts of
$49,149.

In 2010 petitioner received $171 of taxable interest income and paid $969
for mortgage interest. In 2010 Worsham P.C. had gross receipts of $120,141, and
petitioner received $120,141 of net ordinary income through Worsham P.C.

C. Petitioner’s Tax Returns
Petitioner made tax payments on January 15, 2006, of $2,000 for 2005; on
April 15, 2006, of $45,000 for 2005; on May 4, 2009, of $4,000 for 2008; on April
15, 2010, of $10,000 for 2009; and on July 22, 2013, of $30,000 for 2007, $25,000
for 2008, $20,000 for 2009, and $20,000 for 2010.

Petitioner did not file Form 1040, U.S. Individual Income Tax Return, for
2005, 2007, 2008, 2009, or 2010. Petitioner submitted an unsigned Form 1040 for
2005 because respondent did not provide him with alternative text to the jurat.

On its 2007 Form 1120S, U.S. Income Tax Return for an S Corporation,
Worsham P.C. deducted $51,630, comprising $20,000 for officer compensation,
$323 for taxes and licenses, and $31,307 for other unspecified deductions. For
2007 petitioner is entitled to an itemized deduction of $6,200, which is larger than
the standard deduction to which he was entitled for that year.

[*7] On its 2008 Form 1120S, Worsham P.C. deducted $68,870, comprising
$30,000 for officer compensation, $335 for taxes and licenses, and $38,535 for
other deductions.

The notice of deficiency was signed on behalf of the Commissioner by
Appeals Team Manager Bryant.

OPINION

Except as provided in section 7491(c), the Commissioner’s determinations
are generally presumed to be correct, and the taxpayer bears the burden of proving
they are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
The burden of proof with respect to a factual issue relevant to a taxpayer’s liability
for income tax shifts from the taxpayer to the Commissioner if the taxpayer has
complied with substantiation requirements, maintained all records required by the
Internal Revenue Code, and cooperated with reasonable requests by the Secretary
for information, documents, and meetings. Sec. 7491(a)(2). A taxpayer bears the
burden of proving that he or she has met the requirements of section 7491(a). See
H.R. Conf. Rept. No. 105-599, at 239 (1998), 1998-3 C.B. 747, 993; S. Rept. No.
105-174, at 45 (1998), 1998-3 C.B. 537, 581. Petitioner does not contend and the
record does not establish that he meets the requirements of section 7491(a). Thus, [*8] the burden of proof does not shift under section 7491(a). See Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

A. Whether Petitioner Had Income and Deductions for 2005, 2007, 2008, 2009, and 2010 in the Amounts Determined by Respondent

Respondent determined that petitioner had Schedule C gross receipts of
$104,376 for 2005, $7,150 for 2007, $49,879 for 2008, and $2,974 for 2009; that
he is entitled to deduct expenses of $32,223 for 2005; and that he received net
self-employment income of $72,153 for 2005, $7,150 for 2007, $49,879 for 2008,
and $2,970 for 2009. Petitioner was required to file a tax return for each year at
issue because his gross income exceeded the sum of the personal exemption and
standard deduction for each year. See sec. 6012(a)(1)(A).

Worsham P.C. filed Forms 1120S for 2007 and 2008. On those returns,
Worsham P.C. claimed deductions for compensation for officers, taxes and
licenses, and other unspecified expenses. Petitioner provided copies of statements
for his personal credit card for the years at issue and copies of Verizon bills issued
to Michael C. Worsham, Attorney, for 11 months in 2008. However, petitioner
did not provide any testimony (other than conclusory statements that the records
support his deductions) or other evidence establishing Worsham P.C.’s entitlement
to these deductions for 2007 or 2008.

[*9] Petitioner does not dispute that he received income or had deductions in the
amounts determined by respondent. Respondent conceded all of the deductions
petitioner claimed on his returns except for $3,345 for charitable cash
contributions. Petitioner presented no documents or other evidence supporting
those deductions. Petitioner’s only argument that the amounts he received are not
taxable is his “basis in labor” contention, which we address next.

B. Whether Petitioner’s “Basis in Labor” Is Considered in Deciding His Income Tax Liability for His Law Practice Income

Petitioner contends that he is entitled to take into account his “basis in
labor” and that the value or cost of his labor is its fair market value. Petitioner
contends that his “basis in labor” contention is supported by sections 83, 1001,
and 1012 and various regulations under those sections. We disagree. It is well
established that the income tax applies to income for personal services and that
taxpayers have no basis in their labor for purposes of deciding their income tax
liability for income from personal services. Worsham v. Commissioner, 531 F.
App’x 310, 311 (4th Cir. 2013), aff’g T.C. Memo. 2012-219. Nothing in section
83, 1001, or 1012 provides otherwise. By citing those provisions, petitioner
continues to engage in what we observed in Worsham v. Commissioner, T.C. [*10] Memo. 2012-219, slip op. at 12, is “selective and misguided readings of
multiple statutes”.

Petitioner filed a motion to show cause for the Internal Revenue Service to
provide the factual basis for cost determinations relating to petitioner’s basis in
labor. None of the adjustments in the notice of deficiency involves the value of
property or any other issue for which cost basis is taken into account. We will
deny petitioner’s motion.

C. Whether Petitioner Is Liable for Self-Employment Tax

Respondent determined that petitioner is liable for self-employment tax of
$10,195 for 2005, $1,010 for 2007, $7,048 for 2008, and $420 for 2009 and that
he is entitled to deduct $5,098 for 2005, $505 for 2007, $3,524 for 2008, and $210
for 2009. Petitioner made no contrary argument. We sustain respondent’s
determination on this point.

D. Whether Authority To Issue the Notice of Deficiency Had Been Delegated to the Appeals Team Manager

In his motion to dismiss for lack of jurisdiction, petitioner contends that authority to issue the notice of deficiency had not been delegated to Appeals Team Manager Bryant. We disagree. Delegation Order 4-8 provides the authority for team managers to issue notices of deficiency. Internal Revenue Manual [*11] pt. 1.2.43.9 (Sept. 4, 2012). Thus, authority to issue the notice of deficiency was properly delegated to Appeals Team Manager Bryant, and we will deny petitioner’s motion to dismiss for lack of jurisdiction.

E. Whether Petitioner Is Liable for the Additions to Tax for Failure To Timely File Tax Returns and Failure To Make Estimated Tax Payments

Section 6651(a)(1) imposes an addition to tax for failure to file a required
tax return by the due date unless the failure is due to reasonable cause and not
willful neglect. Petitioner did not file individual tax returns for the years at issue
or show that his failure was due to reasonable cause. Thus, petitioner is liable for
additions to tax for failure to timely file tax returns for 2005, 2007, 2008, and
2010. See supra p. 2.

Section 6654(a) provides an addition to tax for underpayment of estimated
income tax. Petitioner made no estimated tax payments for 2005, 2007, 2008, or
2010. For 2009 petitioner made his first estimated tax payment for 2009 on April
15, 2010. None of the exceptions in section 6654(e) applies here. Thus, petitioner
is liable for additions to tax for failure to make estimated tax payments for 2005,
2007, 2008, 2009, and 2010.

[*12] F. Whether the Refund of Overpayments, if Any, Is Barred by the Statute of Limitations

Petitioner contends that refund of any tax overpayments he made for the
years at issue will not be time barred if it is decided that he overpaid his tax for
those years. A claim for refund is time barred if the claim is filed after the later of
either (1) three years from the date the return was filed or (2) two years from the
date of payment. The period in which to file a refund claim is two years from the
date of payment if the taxpayer did not file a return. Sec. 6511(a). Petitioner has
filed no tax returns for any of the years at issue. Thus we must decide whether
petitioner filed a refund claim within two years from the date of payment.
Petitioner’s latest date of payment of tax for any of the years at issue was
July 22, 2013. Petitioner does not claim that he previously made a claim for
refund. For purposes of deficiency litigation, the date that a notice of deficiency
was issued (here, December 8, 2016) is the date that a claim for refund was made
if the taxpayer has not previously filed a refund claim. Sec. 6512(b)(3)(B).

Petitioner contends that the prerequisite for requesting a refund for tax will not have occurred before we decide that he is liable for any tax for the years at issue. We disagree. Under sections 6511(a) and 6512(b)(3)(B) and contrary to [*13] petitioner’s contention, a claim not timely made before issuance of a notice of deficiency continues to be untimely if made after its issuance.

Petitioner cites Thomas v. Mercantile Nat’l Bank, 204 F.2d 943 (5th Cir.
1953), for the proposition that a tax cannot be paid until it is assessed. We
disagree. In Deaton v. Commissioner, 440 F.3d 223, 229-230 (5th Cir. 2006),
aff’g T.C. Memo. 2005-1, the Court of Appeals for the Fifth Circuit said:

We now hold that post-Baral [v. United States, 528 U.S. 431 (2000)], we are no longer bound by the Mercantile National Bank line of authority. In Baral, the Supreme Court explicitly rejected the taxpayer’s argument that a tax cannot be “paid” until tax liability is assessed and thereby abrogated the Mercantile National Bank rule that a pre-assessment remittance is a deposit rather than a payment. Baral, 528 U.S. at 434, 437 (“[T]he Code directly contradicts the notion that payment may not occur before assessment.”). * * *

Petitioner presented no evidence that he filed a timely claim for refund or
any reason why the refund of these overpayments, if any, would not be barred.
Petitioner made tax payments on April 15, 2005, for 2005; on May 4, 2009, for
2008; on April 15, 2010, for 2009; and on July 22, 2013, for 2007, 2008, 2009,
and 2010. Since the record does not show that petitioner filed a refund claim, we
look to the date of the notice of deficiency to decide whether he is entitled to the
refund of an overpayment.

[*14] Respondent issued the notice of deficiency on December 8, 2016, which
was more than two years after July 22, 2013. Thus, if or to the extent petitioner
made an overpayment for any of the years at issue here, refund of the overpayment
is barred by section 6511(b)(2)(B) and section 6512(b)(3)(B).

G. Whether, as Petitioner Contends, Section 6673 Is Unconstitutional

Respondent moved to impose a penalty under section 6673(a)(1). Petitioner
contends that section 6673 is unconstitutional on the grounds that it discourages
his First Amendment right to make legitimate arguments because it does not apply
equally to taxpayers and the Commissioner. We disagree. First, section 6673
does not apply to, and therefore does not discourage, legitimate arguments. There
is no constitutional right to litigate frivolous claims without being sanctioned.
Banat v. Commissioner, 80 F. App’x 705 (2d Cir. 2003); Sterner v. Commissioner,
867 F.2d 609 (4th Cir. 1989); Dixon v. Commissioner, 836 F.2d 546 (4th Cir.
1987), aff’g T.C. Memo. 1986-563; Larsen v. Commissioner, 765 F.2d 939, 941
(9th Cir. 1985). Second, petitioner cites no authority holding that it is
unconstitutional for a sanction to apply unequally to taxpayers and the
government, and section 6673(a)(2)(B) authorizes the Court to impose costs on
Government counsel who engage in unreasonable and vexatious litigation.
Section 7430 entitles taxpayers, but not the Government, to payment of litigation [*15] expenses under certain circumstances. Petitioner cites some rules from other
courts which apply to both parties, but the existence of those rules does not
address the constitutionality of a statute which does not apply equally to both
parties. Thus, we hold that section 6673 is not unconstitutional. We will decide
respondent’s motion separately.

An appropriate order and decision
will be entered.


1 Section references are to the Internal Revenue Code in effect at all relevant times. Rule references are to the Tax Court Rules of Practice and Procedure. We round monetary amounts to the nearest dollar. Petitioner resided in Maryland when the petition was filed.

[KickahaOta]

If I were Mr. Worsham, I would be terribly concerned about 'We will decide respondent's (6673) motion separately.' If the court was inclined to issue another caution or levy a small penalty, they probably would have just dropped that penalty in at the end of the opinion. Saving that issue for a separate order might suggest that the court plans to issue a Wnuck-style smackdown and penalize him with something close to the full $125K ($25K times 5 tax years at issue).

[KickahaOta]

Sadly, the briefs in Tax Court cases are not available on the public docket. However, if you want some indication of the quality of Mr. Worsham's filings:

The Tax Court handles proceedings rather differently than most other courts. After the usual flurry of motions, there's a trial in which both sides present their evidence. Then the two sides file legal briefs. Briefs are filed in two rounds; both sides file their opening briefs simultaneously, then both sides file responses to each other's briefs simultaneously.

Here's how that went in this case:

Mr. Worsham: "Here's my opening brief."
IRS: "Here's my opening brief."
Mr. Worsham: "Here's my response brief."
IRS: "Nah, we're good."

In other words, Mr. Worsham's opening brief was apparently so frivolous that the IRS didn't see the need to even file a brief pointing out that fact.

[notorial dissent]

I would say that was an extreme understatement. Anytime they start out with "basis in labor" you just know it is a preview for an oncoming train wreck. My impression here was that it was a case of lather rinse repeat, several times.

[AnOwlCalledSage]

His specialist area appeared to be suing companies for unsolicited commercial phone calls and faxes. To give some idea of the quality of his work, he had a case against Rudolph Gulliani dismissed in 2006. Apparently he didn't check whether the legislation applied to political calls!

https://www.courts.state.md.us/data/opi ... 442s07.pdf

[KickahaOta]

It's now been nearly a month, and the Tax Court still hasn't issued its ruling regarding the frivpen. The tension is palpable.

[jcolvin2]

Success! The Tax Court imposed a $3K section 6673 penalty:

https://www.ustaxcourt.gov/UstcInOp/Opi ... x?ID=12116

MICHAEL C. WORSHAM,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
UNITED STATES TAX COURT
Filed December 3, 2019
Michael C. Worsham, pro se.
David A. Indek and Nancy M. Gilmore, for respondent.
MEMORANDUM OPINION

COLVIN, Judge: This case is before the Court to decide respondent's motion to impose a penalty under section 6673(a)(1).1 For reasons discussed below, we will impose on petitioner a penalty of $3,000.

[*2] Background

The facts in this case were found in Worsham v. Commissioner (Worsham II), T.C. Memo. 2019-132, and are incorporated by this reference.

A. Petitioner

Petitioner has a bachelor of science degree in chemistry; a master of science degree in civil engineering; and a juris doctor degree from the University of Baltimore School of Law. He moved to Maryland in 1993 to work for the U.S. Army Environmental Center at Aberdeen Proving Ground. During the next several years he attended law school at night. He was admitted to practice law in Maryland in 1998. He left the Army and started a solo law practice in 2001.
Petitioner's law practice was not in the area of tax, and he took no tax courses in law school. Petitioner filed a Federal income tax return for every year from 1989 (when he had just begun graduate school for his master of science degree) through 2004. Petitioner's law practice became more profitable during 2005. An accountant suggested that petitioner incorporate his business for tax reasons, which he did under the name of Michael C. Worsham, P.C. (Worsham P.C.). During 2006 Worsham P.C. had a corporate charter in Maryland, elected to be treated as an S corporation, and was wholly owned by petitioner. Also during 2006 petitioner [*3] discovered information which led him to conclude that he was not required to file Federal tax returns or pay Federal income tax. As a result petitioner did not file an individual Federal income tax return for any year since 2004 through the time of trial.

B. Worsham I and Worsham II

In Worsham v. Commissioner (Worsham I), T.C. Memo. 2012-219, 2012 WL 3101491, aff'd, 531 F. App'x 310 (4th Cir. 2013), relating to petitioner's 2006 tax year, we held that he failed to report taxable income and was liable for additions to tax under section 6651(f) for fraudulent failure to file, section 6651(a)(2) for failure to pay reported tax, and section 6654 for failure to pay estimated income tax. We did not impose a penalty under section 6673, but we warned petitioner not to continue making frivolous arguments. In Worsham I, 2012 WL 3101491, at *4, petitioner argued that “there is no constitutional basis for federal taxes on the ordinary labor of a working American like Petitioner”, that “there is no federal statute that * * * establishes federal tax liability for money earned from the ordinary labor of Americans”, and that respondent failed to account for the basis value of a person's labor which “would be valued at near or the same as the value of the gross receipts which that same labor generated.”

[*4] In this case, which involves petitioner's 2005 and 2007-10 tax years, petitioner continued to argue that he is entitled to take into account his “basis in labor” and that the value or cost of his labor is its fair market value. Petitioner contends that sections 61, 83, 1001, and 1012 and various regulations under those sections support his “basis in labor” contention. In Worsham II we held that: (1) petitioner had income, self-employment income, and deductions in the amounts determined by respondent for the years at issue; (2) “basis in labor” is not considered in determining Federal income tax liability for income from performance of services; (3) petitioner is liable for tax on his self-employment income and entitled to the deductions for self-employment tax as determined by respondent; (4) we had jurisdiction over the case; (5) petitioner was liable for the additions to tax for failure to timely file tax returns and failure to make estimated tax payments; (6) the statute of limitations bars a refund of petitioner's overpayments (if any); and (7) section 6673 is not unconstitutional.

A. Respondent's Motion To Impose a Penalty Under Section 6673(a)(1)

Respondent filed a motion to impose a penalty of up to $25,000 on petitioner under section 6673(a)(1) for taking positions that are frivolous or groundless. In pertinent part, section 6673(a)(1) authorizes this Court to impose a [*5] penalty of up to $25,000 if the taxpayer has instituted or maintained proceedings before the Court primarily for delay or if the taxpayer's position in the proceedings is frivolous or groundless. “A taxpayer's position is frivolous if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the law.” Rader v. Commissioner, 143 T.C. 376, 392 (2014) (quoting Goff v. Commissioner, 135 T.C. 231, 237 (2010)), aff'd in part, 616 F. App'x 391 (10th Cir. 2015).
In Worsham I, 2012 WL 3101491, at *5, we said that “[p]etitioner's argument that no Federal statute imposes a tax on a person's ordinary labor relies on selective and misguided readings of multiple statutes. Petitioner's argument that he had a basis in his labor is also frivolous.” We noted that courts have previously held that taxpayers have no basis in their labor and that petitioner's claim to the contrary is frivolous. Id. We did not impose a penalty under section 6673, but we “strongly warn[ed] petitioner that making such arguments before this Court in the future * * * [would] likely result in the imposition of sanctions against him.” Id. at *10.

Worsham I was affirmed by the U.S. Court of Appeals for the Fourth Circuit, which held that petitioner “argues that his earnings as an attorney are not taxable income because they include the 'basis value' of his labor. We agree with [*6] the numerous other courts to have addressed this argument that it is meritless.” Worsham v. Commissioner, 531 F. App'x at 311. Petitioner filed his petition in this case in 2016 and continued to raise the “basis in labor” argument, even though the Court of Appeals had warned him that the argument is frivolous. In letters dated February 12, March 30, and April 2, 2018, respondent warned petitioner that raising the basis in labor argument could result in the imposition of a penalty under section 6673. Petitioner failed to heed these warnings from the courts and respondent.

B. Petitioner's Contentions

Petitioner contends that his positions in this case are not frivolous and are issues of first impression. We disagree. In Worsham I petitioner argued that labor has a basis determined from the value of gross receipts, while in this case he argued that labor has a basis determined from the fair market value of the labor. Petitioner cites authorities to support his argument different from those he cited in Worsham I, but his argument relies upon a selective and misguided reading of those authorities and does not establish an argument different in substance from his argument in Worsham I.
As we have previously told petitioner: “We perceive no need to refute * * * [frivolous] arguments with somber reasoning and copious citation of [*7] precedent.” Worsham I, 2012 WL 3101491, at *4 (quoting Craig v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)). Because petitioner continues to make frivolous arguments despite numerous warnings, we will require him to pay to the United States a penalty of $3,000 under section 6673.

An appropriate order and decision will be entered.


1 Section references are to the Internal Revenue Code in effect at all relevant times. We round all monetary amounts to the nearest dollar.
END FOOTNOTES

[notorial dissent]

Success at last.

[HardyW]

Success at last.

Surely "success at last" is only declared once the taxes and the penalty are actually paid?

I'm wondering if there are any statistics published about the success rate in collecting these penalties from these socalled taxpayers.

[notorial dissent]

The success was in him finally getting the penalty he was trying for.

As to collection, I don't know if he has the proverbial pot at this point. I would assume they thought he had sufficient assets when they went after him, otherwise why bother? As to now, good question.

[AndyK]

He appears to own a residence worth between 350,000 and 400,000. At least for the time being.

Liens, forced sales, etc.

He'll pay.

[The Observer]

He appears to own a residence worth between 350,000 and 400,000. At least for the time being.

Liens, forced sales, etc.

He'll pay.

Unless he has it mortgaged to the hilt.