T.C. Memo. 2007-146



                     UNITED STATES TAX COURT



                WILSON D. WATSON,1 Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 18616-03, 18991-03,   Filed June 12, 2007.
                 19206-03, 16592-04.



          R rejected the Forms 1040 submitted by P for 1998,
     1999, 2001, and 2002 (all of which reported zero tax
     owed) as frivolous and prepared substitute returns
     pursuant to which he determined deficiencies for all 4
     years and additions to tax under secs. 6651(a)(1),
     I.R.C., (for all years), 6651(a)(2), I.R.C., (for 2002)
     and 6654, I.R.C., (for 1999 and 2001). R conceded
     certain income inclusions for all years, the addition
     to tax under sec. 6651(a)(2), I.R.C., and the 2001
     addition to tax under sec. 6654, I.R.C. R’s income
     inclusions, after concessions, consist of (1)
     “wages/misc. income” for 1998 and 1999, (2) retirement
     distributions for all years, (3) interest income for
     1998, and (4) Social Security payments for 2001 and
     2002. R also asks us to impose a penalty under sec.


     1
        The cases were consolidated by orders of the Court dated
Feb. 17 and Oct. 13, 2004.
                                 - 2 -

     6673(a)(1), I.R.C. P puts forth frivolous tax-
     protester arguments in opposition to R’s proposed
     income inclusions and additions to tax.

          1. Held: R’s nonconceded inclusions in P’s
     income for 1998 and 1999 are sustained.

          2. Held, further, P had zero includable Social
     Security benefits for 2001 and 2002, and, because his
     adjusted gross income without those benefits is less
     than his standard deduction and personal exemption, he
     incurs no income tax deficiencies for those years.

           3. Held, further, P is liable for additions to
     tax under sec. 6651(a)(1), I.R.C., for 1998 and 1999
     and for an addition to tax under sec. 6654, I.R.C., for
     1999.

          4. Held, further, because P was not required to
     file returns for 2001 and 2002, he is not liable for
     additions to tax under sec. 6651(a)(1), I.R.C., for
     those years.

          5. Held, further, P is liable for a penalty under
     sec. 6673(a)(1), I.R.C.



     Wilson D. Watson, pro se.

     Randolph J. Buchanan, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     HALPERN, Judge:   By notices of deficiency, respondent

determined deficiencies in income tax and additions to tax for

petitioner’s taxable (calendar) years 1998, 1999, 2001, and 2002

as follows:
                                 - 3 -

                                         Additions to Tax
Year     Deficiency    Sec. 6651(a)(1)     Sec. 6651(a)(2)   Sec. 6654(a)

1998       $9,294         $1,862.25             --               --
1999        2,298            574.50             --             $111.21
2001       51,948         12,987.00             --            2,076.02
2002        1,759            395.78           $114.34            --

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

       Petitioner assigned error to those determinations.

Respondent has conceded that certain amounts included by him in

petitioner’s income for each of the years in issue were

improperly included.     He has also conceded (1) the $2,076.02

addition to tax under section 6654(a) for taxable year 2001 and

(2) the $114.34 addition to tax under section 6651(a)(2) for

taxable year 2002.    The remaining issues for decision are whether

petitioner (1) underreported his income during one or more of the

years in issue, and (2) is liable for the additions to tax under

section 6651(a)(1) for failure to timely file a return for each

of the years in issue and under section 6654 for failure to pay

estimated income taxes for 1999.

       On June 6, 2005, at the conclusion of the trial, respondent

moved to impose a penalty on petitioner under section 6673(a)(1).

We shall rule on that motion at the conclusion of this report.
                               - 4 -

                          FINDINGS OF FACT

     Some facts have been stipulated and are so found.    The

stipulation of facts, with attached exhibits, is incorporated

herein by this reference.

Residence

     At the time the petitions were filed, petitioner resided in

Midland, Texas.

Petitioner’s Forms 1040

     1998

     Petitioner obtained an extension of time to file his 1998

Federal income tax return until October 15, 1999.    On October 7,

1999, petitioner submitted to the Internal Revenue Service (IRS)

a Form 1040, Individual Income Tax Return, for 1998 (the 1998

Form 1040).   Petitioner reported $1,114.04 on line 16b (taxable

pensions and annuities), which was his only item of reported

income for 1998.   Because his standard deduction and personal

exemption exceeded his income, he reported a zero tax liability2

and sought a refund of the tax payments reported on lines 57

(Federal income tax withheld), 58 (1998 estimated tax payments

and amount applied from 1997 return), and 62 (excess Social

Security tax withheld), which totaled $5,534.36.    He attached

copies of (1) a Form W-2, Wage and Tax Statement, for 1998 from



     2
        For the same reason, petitioner reported a zero tax
liability for the other years at issue: 1999, 2001, and 2002.
                                - 5 -

Watson and Associates of Midland, Inc. (Watson, Inc.), reporting

the payment of $48,000 in wages to petitioner and withheld income

and Social Security taxes of $1,845 and $2,976, respectively

(both of which amounts were reflected on the 1998 Form 1040 and

included in the total amount for which petitioner sought refund),

and (2) a Form 1099-R, Distributions From Annuities, Retirement

or Profit Sharing Plans, IRAs, Insurance Contracts, etc., for

1998 from “Mobil Oil Corp Inc Pension Plan” (Mobil Pension Trust)

reporting a $1,114.04 distribution to petitioner, the amount

petitioner reported on line 16b of the 1998 Form 1040.   The 1998

Form 1040 does not include $80.22 of interest reflected on a Form

1099-INT, Interest Income, issued to petitioner by Amerus Life

Insurance Company, which form was not attached to the 1998 Form

1040.    Petitioner signed the 1998 Form 1040 under the preprinted

jurat,3 but, just above his signature, he wrote “UNDER PROTEST

Without Prejudice”.   Also, on line 7 of the 1998 Form 1040,

petitioner wrote “See attached letter to the Social Security

Administration”.    In that letter, dated October 4, 1999, and in

an attachment to it (a letter from petitioner to Watson, Inc.,

dated January 11, 1998 (the Watson, Inc., letter)), petitioner

argues, on the basis of regulations and cases cited therein, that


     3
        The jurat is the portion of the Form 1040 which reads:
“Under penalties of perjury, I declare that I have examined this
return and accompanying schedules and statements, and to the best
of my knowledge and belief, they are true, correct, and
complete.”
                                 - 6 -

he acted as a “private independent contractor” on behalf of

Watson, Inc. (as opposed to an employee or a self-employed

individual) and, therefore, has “no liability for tax under Title

26 USC, Sub Chapter [sic] C, Employment Taxes”.    In the Watson,

Inc., letter, petitioner states that he is providing the letter

to Watson, Inc., for its records, pursuant to section 31.3402(n)-

1, Employment Tax Regs.   Section 31.3402(n)-1, Employment Tax

Regs., is concerned with employees incurring no income tax

liability; it provides that an employer shall deduct and withhold

no tax if there is in effect with respect to an employee a

withholding exemption certificate furnished to the employer by

the employee containing statements that the employee incurred no

income tax liability for the employee’s preceding taxable year

and the employee anticipates that he will incur no income tax

liability for his current taxable year.   In the Watson, Inc.,

letter petitioner acknowledges that he will be paid for his work

for Watson, Inc., during 1998.

     1999

     Petitioner obtained an extension of time to file his 1999

Federal income tax return until August 15, 2000.   Sometime

thereafter, petitioner submitted to the IRS a Form 1040 for 1999

signed by him and dated August 17, 2001 (the 1999 Form 1040).

Petitioner reported $3,342.12 on line 20b (taxable Social

Security benefits), which was his only item of reported income
                                - 7 -

for 1999.   Petitioner did not report any taxes paid or withheld

for 1999, and he reported zero tax liability for the year.

Petitioner attached copies of (1) a Form W-2 for 1999 from

Watson, Inc., reporting the payment of $10,000 in wages to

petitioner and zero Federal income tax withheld, (2) a Form 1099-

MISC, Miscellaneous Income, for 1999 from Watson, Inc., reporting

the payment of $4,400 to petitioner, and (3) a Form 1099-R for

1999 from Mobil Pension Trust reporting a $3,342.12 distribution

to petitioner, the amount he (mistakenly) reported on line 20b of

the 1999 Form 1040.   Petitioner signed the 1999 Form 1040 under

the jurat and, as on the 1998 Form 1040, he wrote immediately

above his signature: “Under Protest Without Prejudice”.   On line

7 of the 1999 Form 1040 he wrote “SEE Attached”.   In addition,

along the length of the left margin of both pages of the 1999

Form 1040 and the page containing copies of the above referenced

Forms W-2 and 1099, petitioner inserted the following statement:

     This tax return is being filed under protest, without
     prejudice, see the attached 48 page protest document
     and memorandum, marked and identified by its U.S.
     registered mail number. It is a federal crime under
     Title 18 U.S.C., to remove this protest document from
     the attached tax return, it is to remain a permanent
     part of the records with the return.

     On page 1 of the 48 page protest referred to in the above

statement, petitioner states:

     All items of alleged income have been reported, even
     though the undersigned disagrees with the instructions
     of [sic] the IRS information. This is only done as a
     precaution, as to avoid criminal prosecution under 26
                              - 8 -

     U.S.C. §§ 7201, 7203, and 7206, and for no other
     reason.

Petitioner goes on to cite numerous statutes, regulations, and

cases and, in essence, argues that (1) he is not a person or

individual “as defined within the scope and purview of [sections

1 and 3]”, (2) as a “private independent contractor” he is either

entitled to a “reduced or compensatory” tax rate or “the same

compensation in benefits and economic protections as the federal

employee, appointed or elected official, or corporate or

partnership individuals”, and (3) only Federal and State

employees are subject to the Federal income tax.

     2001

     Petitioner obtained an extension of time to file his 2001

income tax return until August 15, 2002.   On that date petitioner

submitted to the IRS a Form 1040 for 2001 (the 2001 Form 1040).

Petitioner reported $3,342.12 on line 16b (taxable pensions and

annuities), which was his only item of reported income for 2001.

Petitioner did not report any taxes paid or withheld for 2001,

and he reported a zero tax liability for the year.   Petitioner

attached copies of (1) a Form SSA-1099-SM, Social Security

Benefit Statement, for 2001, which reported $17,616 in gross

Social Security benefits paid to petitioner (or for his benefit)

in 2001, (2) a “Social Security Benefits Worksheet” on which

petitioner computed zero taxable Social Security benefits, and

(3) a Form 1099-R for 2001 from Mobil Pension Trust reporting a
                                - 9 -

$3,342.12 distribution, the amount he reported on line 16b of the

2001 Form 1040.    Petitioner signed the 2001 Form 1040 under the

jurat, and, as on the 1998 and 1999 Forms 1040, he wrote

immediately above his signature:   “UNDER Protest, Without

Prejudice”.   Petitioner inserted along one of the margins of both

pages of the 2001 Form 1040 and the above-mentioned attachments

thereto essentially the same statement that he added to the 1999

Form 1040.    The protest document attached to the 2001 Form 1040

contains much of the same material and essentially the same

arguments as are contained in the corresponding document attached

to the 1999 Form 1040.

     2002

     Petitioner obtained an extension of time to file his 2002

Federal income tax return until August 15, 2003.   On August 14,

2003, petitioner submitted to the IRS a Form 1040 for 2002 (the

2002 Form 1040).   Petitioner reported $3,342.12 on line 7 (wages,

salaries, tips, etc.), which was his only item of reported income

for 2002.    Petitioner did not report any taxes paid or withheld

for 2002, and he reported a zero tax liability for the year.

Petitioner attached copies of (1) a Form 1099-R for 2002 from

Mobil Pension Trust reporting a $3,342.12 distribution, the

amount he (mistakenly) reported on line 7 of the 2002 Form 1040,

(2) a Form SSA-1099-SM for 2002, which reported $18,040.80 in

gross Social Security benefits paid to petitioner (or for his
                              - 10 -

benefit) in 2002 and (3) a worksheet, apparently photocopied from

the IRS Form 1040 instructions for 2002, on which petitioner

computed zero taxable Social Security benefits.    Petitioner

signed the 2002 Form 1040 under the jurat, and, as on the 1998,

1999, and 2001 Forms 1040, he wrote immediately above his

signature:   “Under Protest, Without Prejudice”.   Petitioner

inserted along one of the margins of both pages of the 2002 Form

1040 and the aforementioned attachments thereto essentially the

same statement that he had added to the 1999 and 2001 Forms 1040.

The protest document attached to the 2002 Form 1040 contains much

of the same material and essentially the same arguments as are

contained in the protest documents attached to the 1999 and 2001

Forms 1040, and includes an additional argument to the effect

that petitioner should be allowed to deduct costs associated with

the maintenance and depreciation of his “human machine”, just as

a company is allowed to depreciate and deduct repair costs

associated with machines used in its trade or business.

Respondent’s Rejection of Petitioner’s Forms 1040

     Respondent refused to treat the Forms 1040 submitted by

petitioner for the years in issue as valid returns and, instead,

prepared substitute returns, which form the basis for the

deficiencies and additions to tax determined by respondent.4    The


     4
        In letters dated Oct. 28, 1999, addressing the 1998 Form
1040, and Nov. 13, 2001, addressing the 1999 Form 1040,
                                                   (continued...)
                             - 11 -

items included in petitioner’s income by respondent (income

inclusions or inclusions), after concessions,5 are as follows:

(1) “wages/misc. income” of $48,000 for 1998 and $14,400 for

1999; (2) retirement income of $1,114.04 for 1998 and $3,342.12

for each of the other 3 years in issue (1999, 2001, and 2002);

(3) interest income of $80.22 for 1998; and (4) Social Security

income of $17,5786 for 2001 and $18,040.80 for 2002.




     4
      (...continued)
respondent describes as frivolous the positions taken and
arguments contained in those Forms 1040 and in the attachments
thereto.
     5
        Respondent proposed an increase in petitioner’s dividend
income for all 4 years in issue, but he has conceded those
adjustments because petitioner’s ex-wife was awarded the stock to
which those dividends related as part of a divorce decree. For
the same reason, respondent also has conceded a 1999 proposed
capital gain increase relating to gain from the sale of that
stock. Respondent has conceded an adjustment to petitioner’s
income for 2001 on account of discharge of indebtedness since no
discharge of the indebtedness occurred by the year’s end.
     6
        There is no explanation in the record of the apparent
discrepancy between the 2001 Form SSA-1099-SM attached to the
2001 Form 1040, which lists $17,616 of Social Security benefits
paid to petitioner (or for his benefit) for 2001, and the
Certification of Extract from Records issued by the Social
Security Administration, which lists $17,578 in total benefits
paid to petitioner (or for his benefit) for that year.
Respondent included the latter amount in petitioner’s income for
2001.
                                - 12 -

                                OPINION

I.   Income Inclusions

      A.    1998 and 1999

      The parties stipulated7 that petitioner worked for Watson,

Inc., in 1998 and 1999, and petitioner does not dispute his

receipt of the amounts reflected as wages or other compensation

on the Forms W-2 and 1099-MISC issued by Watson, Inc., for those

years.     Whether petitioner constituted an employee of Watson,

Inc., or performed services for that company as a “private

independent contractor” (petitioner’s position), he was in

receipt of either “compensation for services” or “gross income

derived from business” includable in his gross income under

either section 61(a)(1) or section 61(a)(2).    His failure to

include in income the amounts received from Watson, Inc. ($48,000

for 1998 and $14,400 for 1999), was improper.

     It is also stipulated that petitioner received from Mobil

Pension Trust Forms 1099-R reflecting gross distributions to him

of $1,114.04 and $3,342.12 for 1998 and 1999, respectively, and



      7
        The stipulations are identified as either “Respondent’s
Stipulations” (1-16) or “Petitioner’s Stipulations” (17-36).
Petitioner reserved the right to object to respondent’s
stipulations 3-16, and respondent reserved the right to object to
all of petitioner’s stipulations. At the trial, petitioner
stated that he had no objections to respondent’s stipulations 3-
16, and respondent did not raise any objection to petitioner’s
stipulations. The stipulation of facts was thereupon received
into evidence without objection. Therefore, we consider the
stipulations to be the parties’ joint stipulation of facts.
                              - 13 -

that he received a Form 1099-INT for 1998 from Amerus Life

Insurance Company reflecting the payment to him of $80.22 of

interest for that year.   Petitioner does not dispute the actual

receipt of those amounts, which are properly includable in his

gross income under section 61(a)(9) (annuities) and section

61(a)(4) (interest), respectively.

     Petitioner makes two arguments in opposition to the

inclusion in income of the foregoing amounts:   (1) the notices of

deficiency, which are a prerequisite to this Court’s jurisdiction

to redetermine a deficiency under section 6214,8 are invalid

(essentially because they were based upon substitute returns

prepared without valid regulatory authority and were printed on

the wrong IRS form), so that the Court lacks jurisdiction for

both years, and (2) the compensation and retirement payments to

petitioner constituted a return of petitioner’s human capital

and, therefore, were not income.

     Petitioner’s arguments respecting the propriety of the

substitute returns are meritless tax-protester arguments.    More

significantly, the Internal Revenue Code’s deficiency procedures

(sections 6211-6213) “do not require the Commissioner to prepare

a [substitute] return on a taxpayer’s behalf before determining

and issuing a notice of deficiency.”   Roat v. Commissioner, 847


     8
        See Hannan v. Commissioner, 

, 791 (1969) (“it
is * * * the Commissioner’s determination of a deficiency that
provides a predicate for Tax Court jurisdiction”).
                              - 14 -

F.2d 1379, 1381-1382 (9th Cir. 1988) (affg. this Court’s denial

of the taxpayers’ motions to dismiss for lack of jurisdiction).

Thus, there is no relationship between the Commissioner’s

preparation or nonpreparation of substitute returns under section

6020(b) and his right to issue a notice of deficiency.     See also

Geiselman v. United States, 

, 3 (1st Cir. 1992).

Moreover, there is no requirement that a notice of deficiency be

issued in any particular form.   The purpose of a notice of

deficiency “is only to advise the person who is to pay the

deficiency that the Commissioner means to assess him; anything

that does this unequivocally is good enough”.   Olsen v.

Helvering, 

, 651 (2d Cir. 1937); see also, e.g.,

Kellogg v. Commissioner, 

, 171 (1987) (“No particular

form [for a notice of deficiency] is required”); Foster v.

Commissioner, 

, 229 (1983) (all that is required “is

that the notice fulfill its purpose of providing formal

notification that a deficiency in tax has been determined”),

affd. in part and vacated in part 

(9th Cir. 1985);

Jarvis v. Commissioner, 

, 655 (1982) (“The Internal

Revenue Code * * * in neither section 6212(a) nor elsewhere

prescribes the form of a notice or the specifics to be contained

therein.”).   The deficiency notices issued to petitioner for the

years in issue clearly meet the above-described requirements and
                             - 15 -

are, therefore, adequate to sustain the Court’s jurisdiction

herein.

     Petitioner’s argument that his compensation and retirement

payments constituted a nontaxable return of human capital is

directly refuted by the requirement, under section 61, to include

those amounts in gross income and by numerous cases affirming the

intent of that section to reach any and all income from whatever

source derived unless specifically exempted.   See, e.g.,

Commissioner v. Glenshaw Glass Co., 

, 429-430 (1955).

     We sustain all of respondent’s nonconceded inclusions in

petitioner’s income for 1998 and 1999.9




     9
        On the Forms 1040 petitioner submitted to the IRS for all
of the years at issue, petitioner claimed a filing status of
“single”. For 1998 and 1999, however, respondent assumed
petitioner’s filing status to be “married filing separately”, and
in determining deficiencies for those years, he allowed the
standard deduction applicable to taxpayers with that filing
status. On brief, petitioner does not dispute respondent’s
“married filing separately” classification for him for 1998 and
1999. Nor does he allege that he reached age 65 during any of
the years in issue. Therefore, in computing, under Rule 155, the
deficiencies and penalties imposed herein, respondent may
attribute to petitioner a 1998 and 1999 filing status of “married
filing separately”. Also, respondent may assume, for all years
at issue, that petitioner did not attain age 65 and, therefore,
was not entitled to an additional standard deduction under sec.
63(f)(1)(A). Thus, for 1998 and 1999, petitioner is entitled to
the basic standard deduction provided, under secs. 63(c)(2)(D)
and 62(c)(4), to “married filing separately” taxpayers, and, for
2001 and 2002, to the basic standard deduction provided, under
secs. 63(c)(2)(C) and 62(c)(4), to “single” taxpayers.
Petitioner’s filing status is also potentially relevant in
determining whether he is required to file returns for the years
at issue. See infra discussion.
                                 - 16 -

     B.   2001 and 2002

           1.   2001

     As will become apparent, it is important to keep in mind

that respondent concedes two of the four proposed income

inclusions for 2001:      (1) cancellation of indebtedness income in

the sum of $169,302, because the debt had not been discharged by

the creditor, and (2) $57 of dividend income relating to stock

that belonged to petitioner’s ex-wife.       See supra note 5.

Respondent’s remaining proposed inclusions in petitioner’s income

for 2001 are (1) the retirement distribution of $3,342.12 from

Mobil Pension Trust (which was reported by petitioner on the 2001

Form 1040) and (2) Social Security benefits of $17,578.

     In arguing that petitioner “realized taxable income in 2001

in the amount of $17,578” from Social Security benefits,

respondent has apparently overlooked the impact of his

concessions for 2001 upon the computation of includable Social

Security benefits under section 86.       Pursuant to section

86(a)(1)(B), (b), and (c)(1)(A), petitioner is taxable on no more

than the excess of the sum of his modified adjusted gross income

(not including his Social Security benefits) plus one-half of his

2001 Social Security benefits over $25,000 (petitioner’s “base

amount” under section 86(c)(1)(A)).       Petitioner and respondent

agree that his only item of gross income, other than his Social

Security benefits (assumed, for this purpose, to be $17,616 (see
                                   - 17 -

supra note 6)), was the $3,342.12 retirement distribution from

Mobil Pension Trust.        That amount plus one-half of petitioner’s

2001    Social Security benefits ($8,808) equals $12,150.12, which

is less than $25,000.        Therefore, petitioner received zero

includable Social Security benefits in 2001.        Because his 2001

adjusted gross income of $3,342.12 is less than the sum of his

standard deduction and personal exemption ($4,550 plus $2,900, or

$7,450), petitioner owes no tax for 2001.        As a result,

petitioner is not liable for any tax deficiency for 2001.

            2.    2002

       For 2002, respondent alleges that petitioner is taxable on

the $3,342.12 retirement distribution from Mobil Pension Trust

(which was reported by petitioner on the 2002 Form 1040, line 7,

wages, salaries, tips, etc., rather than line 16b, pensions and

annuities), and on $18,040.80 of Social Security benefits

received in 2002.        In 2002, as in 2001, respondent failed to

compute petitioner’s includable Social Security benefits under

section 86.      In 2002, as in 2001, the sum of petitioner’s

adjusted gross income, other than Social Security benefits,

($3,342.12) plus one-half of his Social Security benefits

($9,020), a total of $12,362.12, is less than $25,000 so that

petitioner received zero includable Social Security benefits.

Because his 2002 adjusted gross income of $3,342.12 is less than

the sum of his standard deduction and personal exemption ($4,700
                                - 18 -

plus $3,000, or $7,700) petitioner owes no tax for 2002.

Therefore, he is not liable for any tax deficiency for 2002.

II.   Additions to Tax

      A.   Respondent’s Section 6651(a)(1) Determinations

            1.   Introduction

      Section 6651(a)(1) provides for an addition to tax in the

event a taxpayer fails to file a timely return (determined with

regard to any extension of time for filing), unless it is shown

that such failure is due to reasonable cause and not due to

willful neglect.    The amount of the addition is equal to 5

percent of the amount required to be shown as tax on the

delinquent return for each month or fraction thereof during which

the return remains delinquent, up to a maximum addition of 25

percent for returns more than 5 months delinquent.

      Respondent argues that petitioner’s language insertions

above the jurat and along the margins of his Forms 1040 submitted

to the IRS for the years in issue and the protests or other

documents attached to those forms contradict the declarations in

the jurat and, therefore, negate the status of those Forms 1040

as valid returns.    As a result, respondent argues that petitioner

has failed to file a valid return for any of the years in issue,

and he has imposed the full 25-percent penalty for each year.

      Alternatively, respondent argues:   “Assuming arguendo, that

the * * * [petitioner’s Forms 1040] constitute tax returns for
                              - 19 -

1998, 1999, 2001, and 2002, petitioner is still liable for the

addition to tax under * * * [section 6651(a)(1)] for failure to

timely file his tax returns for those years.”   In making that

argument, respondent apparently ignores the extensions for time

to file that are reflected in his own Certificate of Official

Record (Literal Transcript) for each year.   Taking those

extensions into account, it appears that only the 1999 Form 1040

was submitted to the IRS after the expiration of the extension

period, and that that Form 1040, based upon the August 17, 2001,

signature date, was delinquent by more than 1 year.10

     Petitioner argues that his “failure to file * * * was never

proved under the law * * * [and that] therefore the penalty does

not apply.”

          2.   Requirement To File a Valid Return; Petitioner’s
               Filing Status

     Recently, in Lange v. Commissioner, T.C. Memo. 2005-176, we

described the requirements for making a valid return:



     10
        That the 1999 Form 1040 was submitted more than a year
after the Aug. 15, 2000, extended due date (so that petitioner is
subject to the maximum 25-percent addition to tax under sec.
6651(a)(1)) is indicated by both the Aug. 17, 2001, signature
date and respondent’s letter to petitioner describing the 1999
Form 1040 as a “frivolous” return, which was dated Nov. 13, 2001.
Although that evidence is sufficient to support such a finding
and the resulting conclusion that petitioner is subject to the
maximum 25-percent penalty for 1999, for reasons discussed infra,
we are able to reach the same conclusion on the ground that
petitioner’s handwritten and typed additions and his protest
attached to the 1999 Form 1040 justify respondent’s treating it
as an invalid return.
                        - 20 -

     Section 6011(a) requires taxpayers to file returns
in accordance with the forms and regulations prescribed
by the Secretary. See sec. 1.6011-1(a), Income Tax
Regs. In addition, taxpayers are required to verify by
written declaration that their submitted returns have
been made under penalties of perjury. Sec. 6065; see
also sec. 1.6065-1(a), Income Tax Regs. A taxpayer
satisfies this requirement by signing the preprinted
jurat contained on the Form 1040, see Sloan v.
Commissioner, 

, 146-147 (1994), affd. 

(7th Cir. 1995), which is a declaration under
penalties of perjury that the return is “true, correct,
and complete”.

     Even where the taxpayer fails to follow the
prescribed forms, a document will be treated as a valid
return for purposes of section 6651(a) if it satisfies
the following: (i) It contains sufficient data to
calculate tax liability; (ii) it purports to be a
return; (iii) it represents an honest and reasonable
attempt to satisfy the requirements of the tax law; and
(iv) it is executed under penalties of perjury. Beard
v. Commissioner, 

, 777 (1984), affd. 

(6th Cir. 1986).

     In determining the validity of a return, this and
other courts have generally held that alterations of
the language of the jurat itself invalidates a return.
See [e.g.,] Hettig v. United States, 

, 795
(8th Cir. 1988) (per curiam); * * * .

     Where statements are added that do not modify the
specific language of the jurat, the validity of the
return depends upon whether the additional statements
disclaim liability or otherwise qualify the jurat by
casting doubt on the jurat's declaration that the
return is true, correct, and complete. For example,
the mere addition near the jurat of the words “under
protest” will not invalidate the return. See McCormick
v. Peterson, 73 AFTR 2d 94-597, 94-1 USTC par. 50,026
(E.D.N.Y. 1993); see also Todd v. United States, 

, 367 (9th Cir. 1988) (addition of words
“signed involuntarily under penalty of statutory
punishment” below the jurat did not invalidate return).
However, where the purported return refers to and
includes an accompanying statement that disclaims
liability for the tax reported on the return or appears
to contradict the declarations in the jurat, the return
                                - 21 -

     is invalid, as the accompanying statement vitiates the
     jurat. Williams v. Commissioner, 

(2000);
     Sloan v. 

. Doubts regarding whether
     the accompanying statement has qualified the jurat so
     as to invalidate the return are resolved in the
     Commissioner's favor. Sloan v. Commissioner, 

, 800 (7th Cir. 1995), affg. 

.

     However, not every individual with taxable income need make

a return.   In pertinent part, section 6012(a)(1) provides that an

individual whose filing status is “single” need not file a

Federal income tax return unless gross income for the taxable

year exceeds the sum of the applicable personal exemption amount

and the basic standard deduction, and that an individual whose

filing status is “married filing separately” need not file a

return unless gross income for the taxable year exceeds the

applicable personal exemption amount.    See sec. 6012(a)(1)(A)(i)

and (D).    As 

in note 10, for all of the years in

issue, petitioner claimed a filing status of “single”, but, for

1998 and 1999, respondent assumed a filing status for petitioner

of “married filing separately”, and applied the return filing

thresholds pertinent thereto:    $2,700 for 1998 and $2,750 for

1999.   That dispute, which we have resolved in respondent’s favor

(see supra note 9), is moot, however, because even if we assume

that the return filing thresholds applicable to “single” filers

apply to petitioner, $6,950 for 1998 and $7,050 for 1999,

petitioner’s gross income for both 1998 and 1999, as redetermined

herein, is far in excess of those thresholds, and he was required
                                - 22 -

to file a valid return for each year.    For 2001 and 2002, there

is no dispute that petitioner’s filing status was “single”.

Therefore, his return filing thresholds for those 2 years as a

single taxpayer under age 65 (see supra note 9) were $7,450 (for

2001) and $7,700 (for 2002), amounts that exceed his gross income

for each of those years, as redetermined herein:   $3,342.12.   As

a result, petitioner was not required to file a return for either

2001 or 2002.

          3.    1998 and 1999

     While petitioner’s additions of the qualification “under

protest without prejudice” between the jurat and his signature on

both the 1998 and 1999 Forms 1040, and his addition of the margin

language to his 1999 Form 1040, may not amount to a disclaimer of

tax liability or a negation of the jurat, we cannot say the same

with respect to the effect of the attachment to each Form 1040.

Petitioner referred to the attachment to the 1998 Form 1040 on

line 7 of that form, and he referred to the attachment to the

1999 Form on both line 7 of that form and in the margin language.

     In Sloan v. Commissioner, 

(1994), affd. 

(7th Cir. 1995), the taxpayers, after the jurats and before

their signatures on Forms 1040 submitted for several years, added

a reference to an accompanying statement of “denial and

disclaimer”, by which statement they erroneously denied any

Federal income tax liability for the year.   We stated that the
                              - 23 -

“Denial and disclaimer makes unclear whether petitioner had an

‘honest and reasonable intent to supply the information required

by the tax code.’”

     In Lange v. Commissioner, T.C. Memo. 2005-176, the taxpayer

attached a cover letter to the front of his Form 1040, which

contained a statement that was virtually identical to the

statement inserted into the margin on each page of petitioner’s

1999 Form 1040.   The taxpayer in Lange also attached a “protest

document” to his Form 1040, which contained many of the arguments

made in the protest document attached to petitioner’s 1999 Form

1040:   E.g., he is not an individual as that term is used in

sections 1 and 3, private sector employees should not be taxed at

the same rate as Government employees, and only Government

employment is subject to taxation.     In Lange, we determined that

such arguments are frivolous and that the taxpayer’s Form 1040

did not “represent an honest and reasonable attempt to satisfy

the requirements of the tax law” thereby failing to satisfy part

3 of the four-part test under Beard v. Commissioner, 

(1984), affd. 

(6th Cir. 1986).

     The attachment to the 1998 Form 1040 is different from the

attachment to the 1999 Form 1040.    Principally, it constitutes an

argument that petitioner, a self-proclaimed “private independent

contractor”, received no income subject to employment taxes from

his employer, Watson, Inc.   As part of that attachment, in the
                              - 24 -

Watson, Inc., letter, petitioner acknowledges that he will be

paid money for working for Watson, Inc., during 1998 but, in

part, he justifies his claim that he is not subject to employment

taxes on the basis that he anticipates that he will incur no

liability for income tax for 1998.     In 1998, petitioner received

$48,000 from Watson, Inc., that, beyond peradventure, is an item

of gross income, reportable, but not reported, on his 1998

Federal income tax return.   We view the attachment to the 1998

Form 1040, and, in particular, petitioner’s unsupported and

unjustified anticipation that he will incur no tax liability for

1998, as raising a serious question as to whether the 1998 Form

1040 was an honest and reasonable attempt to satisfy the

requirements of the tax law, and we conclude, and find, that it

was not.

     On the basis of Sloan v. 

, Beard v.

, and Lange v. 

, we hold

that neither the 1998 nor 1999 Form 1040 constituted a reasonable

attempt to satisfy the requirements of the tax law.    Therefore,

neither constituted a valid return, and petitioner is liable for

the 25-percent addition to tax under section 6651(a)(1) for

failure to timely file a return for 1998 and 1999.
                                  - 25 -

            4.    2001 and 2002

       Because petitioner was not required to file a return for

either 2001 or 2002, he is not liable for an addition to tax

under section 6651(a) for either year.

       B.   Respondent’s Section 6654 Determination

       Respondent determined that petitioner is liable for a

$111.21 addition to tax pursuant to section 6654 for 1999 for

failure to pay estimated tax.

       Section 6654 provides for an addition to tax in the event of

an underpayment of a required installment of individual estimated

tax.    Sec. 6654(a) and (b).     Each required installment is equal

to 25 percent of the “required annual payment”, which, in turn,

is equal to the lesser of (1) 90 percent of the tax shown on the

individual’s return for that year or, if no return is filed, 90

percent of his or her tax for such year, or (2) if the individual

filed a return for the immediately preceding taxable year, 100

percent of the tax shown on that return.      Sec. 6654(d)(1)(A),

(B)(i) and (ii).     The due dates of the required installments for

a calendar taxable year are April 15, June 15, and September 15

of that year and January 15 of the following year.      Sec.

6654(c)(2).      An individual’s tax, for purposes of section 6654,

consists of income and self-employment tax determined before the

application of any wage withholding credits which, under section

6654(g)(1), are treated as payment of estimated tax.      See sec.
                                - 26 -

6654(f).     Section 6654(e) provides certain specified exceptions

to the applicability of section 6654, none of which cover

petitioner.

       Because we find that petitioner did not file a valid return

for either 1998 or 1999, his “required annual payment” for 1999

was 90 percent of the tax owed for that year.     Sec.

6654(d)(1)(B)(i).     On the 1999 Form 1040, petitioner admits that

he paid no estimated taxes and that no tax was withheld for that

year.     The information returns attached to the 1999 Form 1040

corroborate that no income taxes were withheld from any 1999

payments to petitioner.    Therefore, we sustain respondent’s

determination of a section 6654 addition to tax for 1999 subject

to a downward adjustment reflecting respondent’s concessions

eliminating his inclusions of dividend income and capital gain.

III.    Respondent’s Motion To Impose a Penalty Under Section
        6673(a)(1)

        Respondent has moved to impose a penalty against petitioner

under section 6673(a)(1).

        In pertinent part, section 6673(a)(1) provides a penalty of

up to $25,000 if proceedings before the Tax Court have been

instituted or maintained by the taxpayer primarily for delay or

the taxpayer’s position in the proceeding is frivolous or

groundless.     “The purpose of section 6673 is to compel taxpayers

to think and to conform their conduct to settled principles

before they file returns and litigate.”     Takaba v. Commissioner,
                               - 27 -

, 295 (2002).    “A taxpayer’s position is frivolous if

it is contrary to established law and unsupported by a reasoned,

colorable argument for [a] change in the law.”

    “The

inquiry is objective.    If a person should have known that his

position is groundless, a court may and should impose sanctions.”

(1) he is not taxable on wages

and/or other compensation, and (2) the notices of deficiency for

all of the years in issue are invalid, are shopworn, frivolous,

tax-protester arguments that are contrary to settled principles

of law.    That petitioner made the former argument without

analysis or serious thought as to its merit is indicated by the

inclusion of the argument in attachments to his returns and in

his petitions for 2001 and 2002, years in which petitioner

received no wages or other compensation for services performed

during those years.    In addition, respondent’s counsel mailed a

letter dated May 5, 2005, to petitioner advising him that he was

advancing frivolous arguments and encouraging him “to consult

with a reputable tax practitioner before making such arguments in

Court.”    Respondent’s counsel attached to his letter excerpts

from an IRS publication entitled “The Truth About Frivolous Tax

Arguments”, which addresses all of petitioner’s aforementioned

arguments and demonstrates that they are contrary to established

law.    Under the circumstances, we shall grant respondent’s motion
                              - 28 -

for a penalty under section 6673(a)(1), and we will require

petitioner to pay a penalty to the United States of $15,000.

IV.   Conclusion

      To reflect the foregoing,


                                       An appropriate order will be

                                  issued, and decisions will be

                                  entered under Rule 155.