MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE,
Respondent determined Federal income tax deficiencies, additions to tax, and penalties against Gary C. Lizalek (petitioner) and Karen N. Lizalek for 2001 through 2005 arising from income petitioner received as follows:
*3*Additions to Tax | ||||
Year | Deficiency | |||
2001 | $ 18,988 | $ 3,111 | $ 3,457 | $ 530 |
2002 | 4,114 | 926 | 987 | 137 |
2003 | 4,254 | 957 | 766 | 111 |
2004 | 11,794 | 2,654 | 1,415 | 342 |
2005 | 3,329 | 749 | 200 | 134 |
*4*Additions to Tax/Penalty | |||||
Year | Deficiency | ||||
2001 | $ 13,864 | $ 3,119 | $ 3,466 | $ 554 | --- |
2002 | 4,613 | --- | --- | --- | $ 923 |
2003 | 4,254 | 957 | 766 | 111 | --- |
2004 | 11,794 | 2,654 | 1,415 | 138 | --- |
2005 | 3,329 | 749 | 200 | 134 | --- |
Respondent seeks increased deficiencies and additions to tax against petitioner in the event the Court finds that his income is not attributable to Karen Lizalek pursuant to the Wisconsin Uniform Marital Property Act.
As a protective measure, respondent issued a notice of deficiency to the Gary C. Lizalek Trust (Lizalek Trust) for 2003, 2004, and 2005 in the event that we find that petitioner and/or Karen Lizalek are not subject to tax on the income at issue. 2 Respondent determined Federal income tax deficiencies and penalties against the Lizalek Trust as follows:
Penalty | ||
Year | Deficiency | |
2003 | $ 25,438 | $ 5,088 |
2004 | 59,448 | 11,890 |
2005 | 23,432 | 4,686 |
Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar.
The issues for decision are:
(1) Whether petitioner is subject to tax on wages, capital gains, dividends, and/or interest income at issue for 2001 through 2005 or whether the 2009 Tax Ct. Memo LEXIS 124">*126 income may be reported on trust returns. We hold he is subject to tax;
(2) whether Karen Lizalek is taxable on half of petitioner's income as community property. We hold she is not;
(3) whether petitioner is liable for additions to tax for failure to file under
(4) whether Karen Lizalek is liable for additions to tax for failure to file under
(5) whether petitioner is liable for a
(6) whether petitioner is liable for a penalty under
(7) whether respondent is liable for a
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulations of facts and the accompanying exhibits are incorporated by this reference. Petitioner and Karen Lizalek resided in Wisconsin at the time of filing their petitions.
In 2001 petitioner was an employee of both Motorola, Inc., and Innovatec Communications, LLC (Innovatec), and earned wage income of $ 22,172 and $ 62,019, respectively. In 2001 petitioner received retirement distributions from Advanced Clearing, Inc., Arrowhead Trust, Inc., Sterling Trust Co., and First Trust Corp. of $ 29,322, $ 3,000, $ 2,525, and $ 16,481, respectively. In 2001 petitioner received a capital gain distribution of $ 14 from Salomon Smith Barney, Inc.
In 2002 petitioner was an employee of Innovatec and Administaff Cos. II, LP (Administaff), and earned wage income of $ 32,539 and $ 34,473, respectively. In 2002 petitioner also received interest income of $ 11 from Sovereign Bank.
In 2003 petitioner was an employee 2009 Tax Ct. Memo LEXIS 124">*128 of Administaff and earned wage income of $ 75,122.
In 2004 petitioner was an employee of Administaff and Silver Springs Networks and earned wage income of $ 21,131 and $ 61,216, respectively. In 2004 petitioner sold a 50-percent interest in a residence located in Glendale, Wisconsin, for $ 90,000.
In 2005 petitioner was an employee of both Silver Springs Networks and Invivo Corp. & Subs. (Invivo) and earned wage income of $ 59,141 and $ 6,460, respectively.
For the years at issue petitioner's employers reported his wages on Forms W-2, Wage and Tax Statement. None of the employers withheld Federal or State income taxes from petitioner's wages. Some of the Forms W-2 listed various Wisconsin addresses for petitioner. Others listed petitioner's address as Oak Lawn, Illinois. In addition, petitioner received a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for each retirement distribution, and Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, for the capital gain distribution. The Forms 1099-R and Form 1099-B listed a Wisconsin address for petitioner. Petitioner reported the wages and other income 2009 Tax Ct. Memo LEXIS 124">*129 on Forms 1041, U.S. Income Tax Return for Estates and Trusts, filed for the Lizalek Trust, listing an address in Milwaukee, Wisconsin.
On each Form 1041 filed for the Lizalek Trust for the years at issue, the Lizalek Trust claimed deductions that offset any income reported. Accordingly, the Forms 1041 did not report any tax due. Respondent prepared substitute returns under
1.
Petitioner submitted a Form W-4 to Silver Springs Networks for 2005 that indicated he was "exempt" from withholding. On the Form W-4 petitioner certified that he had no tax liability for 2004 and he did not expect to have a tax liability for 2005. During 2005 Silver Springs Networks did not withhold Federal income tax from petitioner's wages. On January 9, 2006, respondent assessed a $ 500 civil penalty against petitioner for submitting a false Form W-4. Before assessing the penalty, respondent provided petitioner with an opportunity to provide a new Form W-4. However, petitioner continued 2009 Tax Ct. Memo LEXIS 124">*130 to claim that he was exempt from withholding. After making several unsuccessful requests for payment of the civil penalty, respondent issued a final notice of intent to levy on July 1, 2006, with respect to the unpaid civil penalty. On July 11, 2006, petitioner requested a collection due process hearing (CDP hearing) for the levy.
On October 31, 2006, the settlement officer assigned to petitioner's case held a hearing by telephone. During the CDP hearing petitioner claimed that he was exempt from withholding because the Lizalek Trust earned the wages at issue. He argued that the Internal Revenue Service (IRS) accepted that the Lizalek Trust existed when it assigned an employer identification number (EIN) to the Lizalek Trust in 2000. Petitioner refused to discuss payment of the penalty and did not provide any collection alternatives. The settlement officer determined that petitioner's position was frivolous. On January 16, 2008, respondent issued a notice of determination sustaining the assessment of the
2.
On March 11, 2008, respondent filed a motion to impose sanctions against petitioner in docket No. 14298-07 for instituting the action primarily 2009 Tax Ct. Memo LEXIS 124">*131 for delay and for advancing frivolous and groundless arguments. On April 28, 2008, petitioners filed a motion to impose sanctions against respondent in each of the docketed cases claiming respondent violated his fiduciary duties and withheld exculpatory evidence relating to tax forms.
OPINION
A.
Petitioner contends that the Social Security Administration (SSA) created the Lizalek Trust when it issued a Social Security card to petitioner, which constituted a transfer of property. Petitioner further contends that he serves as trustee and the United States is the sole beneficiary. Petitioner asserts that he submitted a written indenture for the Lizalek Trust to the SSA reflecting this relationship that the SSA accepted based on its failure to respond as required by the Privacy Act and the Administrative Procedure Act. Similarly, petitioner argues that the IRS accepted that the Lizalek Trust existed when it assigned an EIN to the Lizalek Trust upon submission of a Form SS-4, Application for Employer Identification Number. Finally, petitioner argues that the Lizalek Trust was the employee that earned the wages and other income at issue and that the trust properly reported the income on Form 1041. Respondent contends that the purported trust does not exist in fact or alternatively the Lizalek Trust is a sham or grantor trust. 42009 Tax Ct. Memo LEXIS 124">*133
Petitioner has not established that a valid trust exists. The issuance of a Social Security card is not a transfer of property that creates a trust as petitioner contends. Petitioner's submission of a purported trust document to the SSA and a Form SS-4 to the IRS does not create or in any way acknowledge the existence of a trust. Petitioner has not provided any legitimate trust documents forming the purported trust. The purported trust does not reflect economic reality and is not recognized for Federal tax purposes. Accordingly, we hold that petitioner earned the wages and other income at issue, and the income is includable in his gross income. See
For 2004 respondent determined that petitioner is subject to capital gains tax on $ 90,000 from the sale of a 50-percent interest in real estate. Although petitioner claims that he had a basis of $ 67,000 in the property, he did not attempt to substantiate his basis. Nor did petitioner establish 2009 Tax Ct. Memo LEXIS 124">*134 that he qualifies for the exclusion of gain from the sale of a principal residence under
B.
The deficiency determinations against Karen Lizalek are based upon Wisconsin community property laws that attribute an undivided one-half interest in one spouse's income during the marriage to the other spouse. See
For Federal tax purposes the State law of the marital domicile generally controls the determination of marital status. See
Although petitioner denies that he was domiciled in Wisconsin during the years at issue, it is not necessary to determine his State of domicile because we find that petitioner and Karen Lizalek were not married during the years at issue. Accordingly, they are not subject to Wisconsin community 2009 Tax Ct. Memo LEXIS 124">*136 property laws irrespective of petitioner's State of domicile. Petitioner testified that he is married to Karen Lizalek under the laws of God. However, he testified that they do not have a valid State-issued marriage license and they did not participate in a civil marriage ceremony. We find petitioner's testimony to be credible. Common law marriage is not recognized in the State of Wisconsin.
Respondent amended his answer to assert increased deficiencies and additions to tax against petitioner in the event that we find that the income at issue is not marital property. Respondent bears the burden of proof with regard to any increased deficiencies. See
Respondent determined that petitioner is liable for additions to tax for failure to timely file a return under
Petitioner did not file individual returns for 2001 through 2005 and did not pay estimated tax 2009 Tax Ct. Memo LEXIS 124">*140 for those years. In addition, he did not file an individual return for 2000. We do not find that a statutory exception to the addition to tax applies for any year at issue. Therefore, petitioner is liable for the
Respondent also determined additions to tax and a penalty against Karen Lizalek. Because we hold that Karen Lizalek does not have unreported income and does not owe a tax deficiency for any year at issue, she is not liable for the additions to tax or the penalty.
D.
Taxpayers have a right to a hearing before a levy is made on any property.
Following the hearing, the Appeals officer 2009 Tax Ct. Memo LEXIS 124">*141 must determine whether to proceed with the collection action, taking into account verification that the requirements of applicable law and administrative procedures have been met, any relevant issues the taxpayer raised, and whether the collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary.
For determinations made after October 16, 2006, we have jurisdiction to review all determinations in
In addition, the settlement officer did not abuse his discretion in sustaining the levy against petitioner. The settlement officer verified that all requirements of applicable law and administrative procedure were met and considered the arguments petitioner raised. See
E.
Respondent filed a motion for sanctions against petitioner in docket No. 14298-07 for maintaining this action primarily for delay and asserting frivolous arguments. Petitioners filed a cross-motion for sanctions against respondent in each of the docketed cases alleging that respondent breached his fiduciary duties and withheld exculpatory evidence. Petitioners assert numerous frivolous arguments to support sanctions against respondent relating to the Office of Management and Budget numbers on tax forms and the Paperwork Reduction Act of 1995,
Although petitioner raised frivolous arguments in these proceedings, we decline to impose sanctions against 2009 Tax Ct. Memo LEXIS 124">*145 him at this time because this is the first instance that he presented the arguments in Federal court. Accordingly, we shall deny respondent's motion for sanctions without prejudice to renew. We warn petitioner that his argument that an SSA-created trust earned the wages and other income at issue and his use of Form 1041 to report his personal income are frivolous and without merit. This Court may impose a
To reflect the foregoing,
1. Cases of the following petitioners are consolidated herewith: Karen N. Lizalek, docket No. 14297-07; Gary C. Lizalek, docket No. 14298-07; Gary C. Lizalek, docket No. 14299-07.↩
2. The term "trust" is used in this opinion for convenience only and is not intended to be conclusive as to the characterization of the Lizalek Trust for Federal tax purposes.↩
3. Because we hold that petitioner is subject to tax on the income at issue, we do not sustain the deficiencies and penalties determined against the Lizalek Trust.↩
4. On brief petitioners raise evidentiary issues with respect to certain exhibits respondent offered. The Court addressed the admissibility of the exhibits at trial, and there is no basis to reconsider the admission of the exhibits into evidence.
5. The trust also reported the sale of a 50-percent interest in the same property in 2002. Respondent did not determine a deficiency with respect to the 2002 sale.↩