Michael Wells & Lynn Kirchner-Wells

[Famspear]

I came across this case by accident. These folks might have been using Peter Hendrickson's Cracking the Code tax scam.

MICHAEL JAMES WELLS AND LYNN ANITA KIRCHNER-WELLS, Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.


United States Tax Court

[case no. 009693-17
T.C. Memo 2018-188]

Filed November 8, 2018.

MEMORANDUM FINDINGS OF FACT AND OPINION

GERBER, Judge.

This matter is before the Court on respondent's motion for summary judgment filed pursuant to Rule 121.[Footnote 1] Respondent determined a deficiency in petitioner Michael James Wells' 2012 Federal income tax of $52,051 and additions to tax of $7,349.85, $7,186.52, and $547.03 under sections 6651(a)(1) and (2) and 6654, respectively.[Footnote 2] Respondent also determined a deficiency in petitioners' 2013 Federal income tax of $93,807.[Footnote 3]

FINDINGS OF FACT

At the time the petition was filed, petitioners resided in Texas.

During the years at issue Mr. Wells worked in marketing at TransCanada and petitioner Lynn Anita Kirchner-Wells worked in sales at Hewlett-Packard. Petitioners filed joint Federal income tax returns for taxable years 2012 and 2013 that reported zero wages and zero income except for $10.59 in interest for taxable year 2012. Petitioners sought refunds for the full amounts of tax withheld from their paychecks for both years. Attached to their returns were Forms W-2, Wage and Tax Statement, from TransCanada and Hewlett-Packard which reflected the amounts of wages and tax withheld for each year and corrected Forms 1099-DIV, Dividends and Distributions, and other documents.

Petitioners also attached Forms 4852, Substitute for Form W-2, Wage and Tax Statement, to each of the returns indicating zero wages and the same amounts of tax withheld as was shown on each Form W-2. The Forms 4852 included the following tax protester statements:

I am a private-sector worker, not an employee as defined in IRC 3401(c) and IRC 3121. I worked with a private-sector company, not a federal employer as defined in IRC 3401(d). I did not engage in a trade or business as defined in USC Section 7701(a)(26).

* * * * * * *

Did not ask Payer to issue corrected forms listing my payments of wages as defined in IRC 3401(c) and IRC 3121 for fear of creating a conflicted work environment. Line 7(e)(h)(I) reflect accurately withheld values submitted by Payer on W-2.

Respondent did not treat petitioners' 2012 and 2013 returns as valid or timely. Instead, respondent prepared substitutes for returns (SFR) for both years pursuant to section 6020(b) and pursuant to section 6702(a) assessed frivolous return penalties against petitioners with respect to both returns. The SFRs showed tax liabilities of $52,051 and $93,807 for the 2012 and 2013 taxable years, respectively.

On May 3, 2017, petitioners filed a petition with the Court, and this case was called from the calendar at the Court's February 12, 2018, Houston, Texas, trial session, where respondent filed a motion for summary judgment. Petitioners filed an opposition to respondent's motion for summary judgment on February 15, 2018, and a hearing was held on the matter on February 16, 2018.

OPINION

Summary judgment may be granted if there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b). Factual inferences are viewed in a light most favorable to the nonmoving party, and the moving party bears the burden of proving that there is no genuine dispute of material fact and that he is entitled to judgment as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). However, the nonmoving party "must set forth specific facts showing that there is a genuine dispute for trial." Rule 121(d); see Sundstrand Corp.v. Commissioner, 98 T.C. at 520.

I. Petitioners' Deficiencies

Gross income includes "all income from whatever source derived". Sec. 61(a). Payments that are "undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion" are taxable income unless an exclusion applies. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). Petitioners do not dispute that they received the income on which the deficiencies are based. Instead petitioners argue that they are not liable for Federal income tax. Petitioners' assertions that they are not employees and their wages do not constitute taxable income are common tax protester arguments that this Court has repeatedly rejected as groundless and frivolous. See, e.g., Grunsted v. Commissioner, 136 T.C. 455 (2011); Bonaccorso v. Commisioner, T.C. Memo. 2005-278; Deputy v. Commissioner, T.C. Memo. 2003-210; Rayner v. Commissioner, T.C. Memo. 2002-30, aff'd, 70 F. App'x 739 (5th Cir. 2003).

We will not refute petitioners' arguments with somber reasoning and copious citations as if such arguments possessed some colorable merit. See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). Petitioners have alleged no facts in their objections to respondent's motion for summary judgment or argued that any material facts are in dispute relating to respondent's determination of their tax liabilities. Therefore, respondent's deficiency determinations are sustained.

II. Additions to Tax Imposed Against Mr. Wells

Respondent determined Mr. Wells is liable for additions to tax under sections 6651(a)(1) and (2) and 6654 for the 2012 taxable year. Under section 7491(c), the Commissioner has the burden of production to show that the imposition of an addition to tax or penalty is appropriate. Respondent satisfied the burden of production by means of petitioners' return, third-party information returns relating to petitioners' income, and petitioners' Forms 4852 attached to their return and the SFR for 2012.

Section 6651(a)(1) requires an imposition of an addition to tax for failure to file a timely return unless the taxpayer proves that such failure was due to reasonable cause and not due to willful neglect. To determine whether a taxpayer has filed a valid return for purposes of section 6651(a)(1), the Court looks to the test in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986). See, e.g., Holmes v. Commissioner, T.C. Memo. 2011-31.

The four-part test in Beard v. Commissioner, 82 T.C. at 777, requires that: (1) the document contains sufficient data to calculate tax liability, (2) the document purports to be a return, (3) there is a honest and reasonable attempt to satisfy the requirements of the tax law, and (4) the taxpayer execute the return under penalties of perjury. Respondent contends that the 2012 tax return Mr. Wells filed did not constitute a valid return because it did not meet the first and third requirements of the Beard test. We agree with respondent. First, a majority of courts and this Court have consistently held that a tax return containing only zeros is not a valid return because it does not contain sufficient information for the Commissioner to calculate and assess a tax liability. See United States v. Mosel, 738 F.2d 157 (6th Cir. 1984); United States v. Smith, 618 F.2d 280, 281 (5th Cir. 1980); Cabirac v. Commissioner, 120 T.C. 163, 169 (2003), aff'd without published opinion, 94 A.F.T.R.2d (RIA) 2004-5490 (3d Cir. 2004); Arnett v. Commissioner, T.C. Memo. 2006-134, aff'd, 242 F. App'x 496 (10th Cir. 2007). Second, zero returns accompanied by arguments that have been consistently rejected by the courts do not constitute an honest and reasonable attempt to satisfy the requirements of the tax law. See Cabirac v. Commissioner, 120 T.C. at 169-170; Halcott v. Commissioner, T.C. Memo. 2004-214. Mr. Wells did not file a valid return for taxable year 2012 and did not argue or show that his failure to file was due to reasonable cause. Therefore, respondent's determination that Mr. Wells is liable for the addition to tax for failure to file under section 6651(a)(1) is sustained.

Section 6651(a)(2) imposes an addition to tax for failure to pay timely the amount of tax shown on a return. Like the addition to tax for failure to timely file, this addition will not be imposed when a taxpayer demonstrates that failure to pay was due to reasonable cause and not willful neglect. Sec. 6651(a)(2). Mr. Wells did not file a valid return for 2012. However, respondent prepared an SFR for Mr. Wells' 2012 taxable year (2012 SFR) pursuant to section 6020(b). An SFR prepared by the Secretary under section 6020(b) is treated as the return filed by the taxpayer for purposes of section 6651(a)(2). See sec. 6651(g)(2). The record contains the 2012 SFR respondent prepared and issued to Mr. Wells and shows that the requirements of section 6020(b) are met. See Rader v. Commissioner, 143 T.C. 376, 382 (2014), aff'd in part, appeal dismissed in part, 616 F. App'x 391 (10th Cir. 2015). Mr. Wells did not dispute that he failed to pay the tax shown on his 2012 return and did not argue or show that his failure to pay was due to reasonable cause. Therefore, respondent's determination that Mr. Wells is liable for the addition to tax for failure to timely pay under section 6651(a)(2) is sustained.

Section 6654 imposes an addition to tax for underpayment of a required installment of estimated tax. The Commissioner's burden requires him to produce evidence that the taxpayer had a "required annual payment" under section 6654(d). To do so the Commissioner must establish the tax shown on the taxpayer's return for the preceding year or demonstrate that the taxpayer filed no such return. See Wheeler v. Commissioner, 127 T.C. 200, 208-211 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008). Respondent was able to show that Mr. Wells was required to file a Federal income tax return for 2012 but that the return he filed was invalid.

Respondent produced a valid SFR showing a $52,051 tax liability for Mr. Wells' 2012 taxable year. Further, respondent's motion for summary judgment included evidence showing that Mr. Wells did not file an income tax return for 2011. Mr. Wells does not dispute that he did not make estimated tax payments for 2012. Mr. Wells does not contend he qualifies for any of the exceptions under section 6654(e) and presented no argument with respect to the section 6654 addition to tax. Therefore, we sustain respondent's determination that Mr. Wells is liable for the addition to tax under section 6654.

The Court may on its own determine whether to impose a penalty not to exceed $25,000 when it appears to the Court that a taxpayer's position is frivolous or groundless. Sec. 6673. We did not find in the record that petitioners have made these or similar frivolous claims in the Court before or that they have been previously forewarned. Thus we will not impose one here, nor does respondent seek a section 6673 penalty in this case. However, we caution petitioners that future advancement of these or similar arguments are likely to be sanctioned and will result in penalties of up to $25,000 under section 6673.

We have examined all the materials in the record and construed facts most favorably for petitioners, and we conclude that there is no genuine dispute as to any material fact for trial in this case. Therefore, respondent's motion for summary judgment will be granted.

To reflect the foregoing,

An appropriate order and decision will be entered.

FootNotes

1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2. Upon motion by respondent and after a hearing, the case was dismissed solely as to Ms. Kirchner-Wells' 2012 taxable year for lack of jurisdiction on the ground that the petition was not timely filed with respect to the notice of deficiency for 2012 issued to her on August 29, 2016.

3. Respondent conceded the sec. 6662(a) penalty for petitioners' 2013 taxable year.

Another victory for the rule of law.

[Famspear]

These people have another Tax Court case, number 022852-17. A trial is scheduled in Houston on November 4, 2019.

[wserra]

I came across this case by accident. These folks might have been using Peter Hendrickson's Cracking the Code tax scam.

MICHAEL JAMES WELLS AND LYNN ANITA KIRCHNER-WELLS, Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
...
petitioner Lynn Anita Kirchner-Wells worked in sales at Hewlett-Packard.

and now works as an account exec at Lenovo. What is the matter with otherwise smart people?

[notorial dissent]

Since this case was for 2012-2013 it follows that the current case would be for the following years, 2014-2016/7?? Lather, rinse, repeat. Serial fail and stupid. Probability for the enhanced penalty(s) this time around?

I don't think there is really any question about this being Pete's fault. He is either directly responsible or else he has a an imitator/plagiarist, and just how sad and pathetic and at the bottom of the heap do you have to be to plagiarize Pratlin' Pete?

Greed is the obvious answer but still it takes a special kind of stupid to do this when there is so much evidence that it is a total and utter failure in both reality and court.

[The Observer]

I don't think there is really any question about this being Pete's fault.

I can't agree. Certainly Hendrickson was responsible for pushing his CtC theories to idiots like the Wells. But once they lost in court, the Wells had every opportunity to not repeat the madness. Fault therefore rests with the Wells, not Pete, in my humble opinion.

Greed is the obvious answer but still it takes a special kind of stupid to do this when there is so much evidence that it is a total and utter failure in both reality and court.

Of course, as well as pride/ego in demonstrating that stupidity is the common bedfellow of all these factors.

[notorial dissent]

I meant in the general sense of getting them started. If they continue, the stupid is on them, but Pete started it.

[jcolvin2]

The stupid continues! After warning the TPs in a prior case, this time the Tax Court imposed a $10k penalty.

https://www.ustaxcourt.gov/USTCInOP/Opi ... x?ID=12079

T.C. Memo. 2019-134
UNITED STATES TAX COURT
MICHAEL JAMES WELLS AND LYNN ANITA KIRCHNER-WELLS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22852-17. Filed October 7, 2019.

Michael James Wells and Lynn Anita Kirchner-Wells, pro sese.
Thomas Lee Fenner, for respondent.

MEMORANDUM OPINIO
PUGH, Judge: This matter is before the Court on respondent’s Motion for
Summary Judgment, filed July 15, 2019, pursuant to Rule 121.1

[*2] In a notice of deficiency dated September 2, 2017, respondent determined a
deficiency of $104,029 in petitioners’ 2014 Federal income tax and an accuracy
related penalty of $17,251 under section 6662(a) which respondent later conceded.

Background

Some of the facts were stipulated and are so found. The stipulated facts are
incorporated in our findings by this reference. When the petition was filed,
petitioners resided in Texas.

During the year in issue petitioner Michael James Wells worked for
TransCanada, and petitioner Lynn Anita Kirchner-Wells worked for Hewlett
Packard. Petitioners filed a joint Form 1040, U.S. Individual Income Tax Return,
for 2014 that reported zero wages and zero income, claimed the standard
deduction, and sought refunds for the full amounts of tax withheld from their
paychecks. Attached to their Form 1040 were Forms W-2, Wage and Tax
Statement, from TransCanada and Hewlett-Packard which reflected the amounts of
wages and tax withholding, corrected Forms 1099-DIV, Dividends and
Distributions, and other documents.

[*3] Petitioners also attached Forms 4852, Substitute for Form W-2, Wage and
Tax Statement, indicating zero wages and the same amounts of tax withheld as
was shown on each Form W-2. Each Form 4852 included the following statement:

I am a private-sector worker, not an “employee” as defined in IRC 3401(c) and IRC 3121. I worked with a private-sector company, not a federal employer as defined in IRC 3401(d). I did not engage in “trade or business” as defined in USC Section 7701(a)(26).
* * * * * * *
Did not ask Payer to issue corrected forms listing my payments of “wages” as defined in IRC 3401(c) and IRC 3121 for fear of creating a conflicted work environment. Line 7(e)(h)(i) reflect accurately withheld values submitted by Payer on W-2.

Respondent did not treat petitioners’ Form 1040 as valid. Instead,
respondent froze their claimed refund and assessed a frivolous return penalty
pursuant to section 6702(a) of $5,000 against each petitioner. After this case was
scheduled for trial, respondent timely filed a motion for summary judgment to
which petitioners objected.

Discussion

Summary judgment may be granted if there is no genuine dispute as to any
material fact and a decision may be rendered as a matter of law. Rule 121(b).
Factual inferences are viewed in the light most favorable to the nonmoving party,
and the moving party bears the burden of proving that there is no genuine dispute [*4] of material fact and that he is entitled to judgment as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965
(7th Cir. 1994). However, the nonmoving party “must set forth specific facts
showing that there is a genuine dispute for trial.” Rule 121(d); see Sundstrand
Corp. v. Commissioner, 98 T.C. at 520. Petitioners do not dispute any material
facts; rather, as in their prior case before us, Wells v. Commissioner, T.C. Memo.
2018-188, they make only frivolous legal arguments. In Wells we sustained
respondent’s determination of petitioners’ income tax liability for 2013 and Mr.
Wells’ income tax liability for 2012. Therefore, summary adjudication is
appropriate.

Gross income includes “all income from whatever source derived”. Sec.
61(a). Payments that are “undeniable accessions to wealth, clearly realized, and
over which the taxpayers have complete dominion” are taxable as income unless
an exclusion applies. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431
(1955). Petitioners do not dispute that they received the wages, dividends,
interest, and capital gains on which respondent’s deficiency determination is
based. Instead they argue that they are not liable for Federal income tax. As we
explained in Wells v. Commissioner, at *5 (and cases cited thereto), petitioners’
assertions that they are not employees and their wages do not constitute taxable
[*5] income are groundless and frivolous. Petitioners’ objection illustrates why
we do not try to refute their arguments with somber reasoning and copious
citations as if their arguments possessed some colorable merit. See Crain v.
Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). They are making the same
arguments that we rejected in Wells, except that now they also argue that
respondent was wrong to treat their 2014 return as frivolous. Petitioners have
alleged no facts in their objections to respondent’s motion for summary judgment
or argued that any material facts are in dispute relating to respondent’s
determination of their tax liability. Therefore, respondent’s deficiency
determination will be sustained.

The Court may on its own determine whether to impose a penalty not to
exceed $25,000 when it appears to the Court that a taxpayer’s position is frivolous
or groundless. Sec. 6673. We did not impose this penalty on petitioners in Wells
v. Commissioner, at *9, but cautioned them that if they persisted in making these
or similar arguments in the future, the Court was likely to impose penalties of up
to $25,000 under section 6673. They then had over nine months to reconsider
their position in this case: We filed our opinion in Wells on November 8, 2018,
respondent filed the motion for summary judgment in this case on July 15, 2019,
and petitioners filed their response on August 15, 2019. They did prevail in Wells
[*6] on one issue--the accuracy-related penalty--but respondent conceded that
issue in his pretrial memorandum filed on November 30, 2018. So the penalty was
not at issue when they filed their response in this case in August. By then they
knew the Court’s position on their arguments, but they persisted in making them
anyway. Because they persisted, we now will impose a penalty of $10,000. We
again warn them that a higher penalty may be imposed should they continue to
make these and similar arguments in the future.

We have examined all the materials in the record and construed facts most
favorably for petitioners, and we conclude that there is no genuine dispute as to
any material fact for trial in this case. Therefore, respondent’s motion for
summary judgment will be granted.

To reflect the foregoing,
An appropriate order and decision
will be entered.


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

[Famspear]

The Wells of Stupidity are deep.

[notorial dissent]

The Wells of Stupidity are deep.

And fulsome.

[LaVidaRoja]

Tax Court docket does NOT show any subsequent years. However, that does not mean these persons have given up on their position. Possibly, no notice of deficiency has been issued yet for 2015.

[grixit]

I wonder if they'll go for the full $25K penalty.

[jcolvin2]

I wonder if they'll go for the full $25K penalty.

Only $10k:
https://www.ustaxcourt.gov/InternetOrde ... sID=305189