Judges: KROUPA
Attorneys: Scott Grunsted, Pro se. Lisa M. Oshiro and Melanie Senick , for respondent.
Filed: May 11, 2011
Latest Update: Nov. 21, 2020
Summary: SCOTT GRUNSTED, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 12954–09L. Filed May 11, 2011. P filed late purported income tax returns for 2002, 2003 and 2004 showing zero income and seeking refunds for taxes with- held. R notified P that two of the purported returns would not be accepted for lack of sufficient information and that they were based on frivolous positions. P resubmitted substantially identical purported tax returns for those two years. R assessed five frivo
Summary: SCOTT GRUNSTED, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 12954–09L. Filed May 11, 2011. P filed late purported income tax returns for 2002, 2003 and 2004 showing zero income and seeking refunds for taxes with- held. R notified P that two of the purported returns would not be accepted for lack of sufficient information and that they were based on frivolous positions. P resubmitted substantially identical purported tax returns for those two years. R assessed five frivol..
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SCOTT GRUNSTED, PETITIONER v. COMMISSIONER
OF INTERNAL REVENUE, RESPONDENT
Docket No. 12954–09L. Filed May 11, 2011.
P filed late purported income tax returns for 2002, 2003 and
2004 showing zero income and seeking refunds for taxes with-
held. R notified P that two of the purported returns would not
be accepted for lack of sufficient information and that they
were based on frivolous positions. P resubmitted substantially
identical purported tax returns for those two years. R
assessed five frivolous return penalties under sec. 6702,
I.R.C., against P for those years. P failed to pay the penalties.
R then commenced collection action against P. P argues that
R may not proceed with the proposed collection action as the
penalties were invalid assessments. P maintains that the pen-
alties were not properly assessed because no district director
exists. District directors were eliminated after the Internal
Revenue Service Restructuring and Reform Act of 1998, Pub.
L. 105–206, 112 Stat. 685. R moves for summary judgment.
1. Held: P is liable for the five frivolous return penalties
under sec. 6702, I.R.C., which were validly assessed because
the district director responsibilities were reassigned under the
savings provision of the Internal Revenue Service Restruc-
turing and Reform Act of 1998, Pub. L. 105–206, sec. 1001,
112 Stat. 689, and IRS Deleg. Order 1–23 (formerly IRS
Deleg. Order 193, Rev. 6), Internal Revenue Manual pt.
1.2.40.22 (Nov. 8, 2000).
455
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456 136 UNITED STATES TAX COURT REPORTS (455)
2. Held, further, R may proceed with collection.
3. Held, further, P is not subject to a penalty under sec.
6673, I.R.C., but is warned that continued frivolous argu-
ments may subject him to the sec. 6673, I.R.C., penalty in the
future.
Scott Grunsted, pro se.
Lisa M. Oshiro and Melanie Senick, for respondent.
OPINION
KROUPA, Judge: This collection review matter is before the
Court on respondent’s motion for summary judgment under
Rule 121. 1 The first issue for decision is whether petitioner
is liable for the five frivolous return penalties assessed for
the 2002, 2003 and 2004 tax years (the years at issue). We
find that he is liable. The second issue for decision is
whether respondent’s determination to proceed with the pro-
posed collection action is an abuse of discretion. We hold it
is not.
Background
Petitioner resided in Hayden, Idaho at the time he filed
the collection review petition. Petitioner is a husband, a
father and a college graduate.
Petitioner filed late purported income tax returns on Form
1040EZ for each of the years at issue. His purported returns
showed zero income. Petitioner attached letters to the pur-
ported returns supporting his zero income filings by claiming
that private sector payments for labor are not taxable. He
attached a Form 4852, Substitute for Form W–2, Wage and
Tax Statement, to each purported tax return. Petitioner
reported that his employer, Agency Software, Inc., had with-
held Federal income tax, State tax, local tax, Social Security
tax and Medicare tax. Petitioner sought refunds for all Fed-
eral taxes withheld and also requested refunds for Social
Security and Medicare taxes in his letters.
Respondent notified petitioner in a letter that the pur-
ported returns for 2002 and 2003 would not be accepted
because they lacked sufficient information and were based on
frivolous positions. Petitioner resubmitted substantially iden-
1 Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and
Procedure, and all section references are to the Internal Revenue Code.
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(455) GRUNSTED v. COMMISSIONER 457
tical purported tax returns for those two years, again
showing zero income and again seeking a refund of certain
amounts withheld from his wages. Respondent assessed
frivolous return penalties against petitioner for the three
years at issue. Respondent assessed a penalty for each of the
five purported returns filed in those years, in the amounts of
$500 and $500 for 2002, $500 and $5,000 for 2003 and $5,000
for 2004. 2
Petitioner failed to pay the penalties. Respondent issued a
Final Notice of Intent to Levy and Notice of Your Right to
a Hearing with respect to the five frivolous return penalties.
Respondent also filed two notices of Federal tax lien with the
relevant county recorder. One lien dealt with the two pen-
alties for 2002 and the one penalty for 2004. The other lien
dealt with the two penalties for 2003. Respondent notified
petitioner of the Federal tax liens, detailing the liens and
petitioner’s right to a collection due process (CDP) hearing.
Petitioner responded to the levy and lien notices, asserting
that no lawful assessments had been made and threatening
criminal complaints and civil action. Petitioner argued that
the penalties were invalid assessments because no district
director exists. Per petitioner, the Secretary is required
under regulations to appoint a district director for assess-
ment purposes, and no tax may be assessed without a dis-
trict director.
Respondent’s Appeals Office scheduled a CDP hearing and
requested petitioner to provide outstanding tax returns and
certain financial information. Petitioner failed to provide any
returns or financial information so that collection alter-
natives could be considered. Petitioner did, however, send a
long letter arguing that respondent had failed to follow
assessment procedures because the Secretary had not
appointed a district director in his geographical area. Peti-
tioner concluded that, because there was no district director,
there were also no assessment officers and therefore the pen-
alties could not be assessed against him. Petitioner also
asserted other arguments that his wages were zero and that
he was not subject to any frivolous return penalty.
2 The amount of the frivolous submission penalty was increased from $500 to $5,000 in De-
cember 2006. See Tax Relief and Health Care Act of 2006, Pub. L. 109–432, div. A, sec. 407,
120 Stat. 2960.
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458 136 UNITED STATES TAX COURT REPORTS (455)
Respondent’s Appeals Office again asked petitioner to pro-
vide tax returns and other information and notified peti-
tioner that his arguments were frivolous. After sending yet
another letter with substantially similar arguments, peti-
tioner had a telephone CDP hearing. Petitioner raised
substantially similar arguments at his hearing, and he failed
to provide the requested documents or propose collection
alternatives.
Respondent’s Appeals Office upheld respondent’s collection
action, including a proposed levy, and sent a determination
letter to petitioner. Petitioner timely filed a petition with this
Court. Petitioner’s only argument in his two-sentence peti-
tion is that he does not owe the frivolous return penalties
because proper assessment cannot be made in the absence of
a district director.
Respondent filed a motion for summary judgment, and
petitioner filed a response. This is the first time this Court
has addressed in a published Opinion the question of
whether the absence of a district director causes an assess-
ment to be invalid. 3
Discussion
Petitioner has followed in the footsteps of numerous others
who have unsuccessfully attempted to avoid paying Federal
income taxes. Petitioner wants only to contest his liability for
the frivolous return penalties in this collection review
matter.
We begin by noting that we have jurisdiction to review a
determination notice issued under section 6330 where the
underlying tax liability consists of frivolous return penalties.
See Callahan v. Commissioner, 130 T.C. 44, 47–49 (2008).
We also note that petitioner may contest the frivolous return
penalties before this Court. 4 See id. at 49–50. We next
review general rules that apply to summary judgment.
3 A Federal District Court has rejected the district director argument. United States v. Booth,
106 AFTR 2d 2010–6409, 2010–2 USTC par. 50,626 (E.D. Cal. 2010). We are not, however,
bound by the decision of the District Court for the Eastern District of California.
4 Petitioner did not receive a deficiency notice with respect to the frivolous return penalties
because the statutory deficiency procedures do not apply to frivolous return penalties. See sec.
6703(b); Yuen v. United States, 290 F. Supp. 2d 1220, 1224 (D. Nev. 2003). Petitioner also has
not disputed the penalties during a prior conference with respondent’s Appeals Office. See Lewis
v. Commissioner, 128 T.C. 48 (2007). As a result, petitioner may contest the penalties both at
a CDP hearing and before this Court.
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(455) GRUNSTED v. COMMISSIONER 459
The purpose of summary judgment is to expedite litigation
and avoid costly, time-consuming and unnecessary trials.
Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).
Summary judgment may be granted if the pleadings and
other acceptable materials, together with the affidavits, if
any, show that there is no genuine issue as to any material
fact and that a decision may be rendered as a matter of law.
Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518,
520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).
We next consider the standard of review under which we
evaluate respondent’s summary judgment motion. Where the
validity of the underlying tax liability is properly at issue, as
the case is here, we will review the matter de novo. See
Callahan v. Commissioner, supra at 50; Sego v. Commis-
sioner, 114 T.C. 604, 610 (2000). Where the validity of the
underlying tax liability is not properly at issue, we will
review the Commissioner’s determination for abuse of discre-
tion. See Callahan v. Commissioner, supra at 50–51; Sego v.
Commissioner, supra at 610.
We now review the frivolous return penalties in light of the
dual purpose of our review. A civil penalty for filing frivolous
returns may be assessed against a taxpayer if three require-
ments are met. First, the taxpayer must file a document that
purports to be an income tax return. Sec. 6702(a)(1). Second,
the purported return must lack the information needed to
gauge the substantial correctness of the self-assessment or
contain information indicating the self-assessment is
substantially incorrect. Id. Third, the taxpayer’s position
must be frivolous or demonstrate a desire to delay or impede
the administration of Federal income tax laws. Sec.
6702(a)(2). We generally look to the face of the documents to
determine whether a taxpayer is liable for a frivolous return
penalty as a matter of law. See Yuen v. United States, 290
F. Supp. 2d 1220, 1224 (D. Nev. 2003).
Respondent satisfied the first element by showing that
petitioner filed five documents for the years at issue that
each purported to be an income tax return. The five Forms
1040EZ purported to be income tax returns filed to obtain
tax refunds. See Callahan v. Commissioner, supra at 53.
Petitioner attached a Form 4852 to each purported return,
reporting amounts that petitioner’s employer had withheld
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460 136 UNITED STATES TAX COURT REPORTS (455)
for tax. Petitioner thus filed five purported tax returns for
the years at issue.
Respondent satisfied the second element as well. Petitioner
claimed on his purported returns and on the attached Forms
4852 that he received no wages. The same Forms 4852, how-
ever, indicated that Agency Software, Inc. had withheld cer-
tain taxes on wages to petitioner. Petitioner attached expla-
nations to his initial purported returns, clarifying that the
payments he received were for labor. These attached letters
made patently erroneous assertions, including that the Fed-
eral Government could tax only income ‘‘federally connected’’
and not the payments petitioner received from the private
sector. By the same token, none of the purported returns
petitioner submitted contained information on which the
substantial correctness of the self-assessment might be deter-
mined.
Finally, respondent satisfied the third element by showing
that the purported returns reflect frivolous positions. This
Court and others have repeatedly characterized returns
reflecting zero income and zero tax as frivolous. See Blaga v.
Commissioner, T.C. Memo. 2010–170; Ulloa v. Commissioner,
T.C. Memo. 2010–68; Hill v. Commissioner, T.C. Memo.
2003–144; Rayner v. Commissioner, T.C. Memo. 2002–30,
affd. 70 Fed. Appx. 739 (5th Cir. 2003). Petitioner advanced
meritless tax-protester arguments to report zero wages on
his purported returns. We do not address petitioner’s ground-
less arguments with somber reasoning and copious citations
of precedent, as to do so might suggest that these arguments
possess some degree of colorable merit. See Crain v. Commis-
sioner, 737 F.2d 1417, 1417 (5th Cir. 1984). We therefore find
that petitioner is liable for the frivolous return penalties
under section 6702 because all of the elements have been
met.
Petitioner argued to respondent’s Appeals Office and in his
petition that respondent cannot assess frivolous return pen-
alties against him, even if section 6702 would otherwise
apply, because the assessments for the penalties are invalid.
We disagree.
An assessment is made by recording the liability of a tax-
payer in the office of the Secretary in accordance with rules
or regulations prescribed by the Secretary. Sec. 6203. Assess-
ments are made by assessment officers who are appointed by
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(455) GRUNSTED v. COMMISSIONER 461
the district director and the director of the regional service
center. Sec. 301.6203–1, Proced. & Admin. Regs. Petitioner
argues that there is no district director; therefore no assess-
ment officers have been properly appointed and so there can
be no valid assessment of frivolous return penalties against
him. Petitioner is correct in arguing that there are no longer
any district directors. He errs, however, in concluding that
there were no valid assessments because of the absence of
district directors.
The IRS has been reorganized several times in recent his-
tory. The district director position and responsibilities were
assigned to others after the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA), Pub. L. 105–
206, 112 Stat. 685, required the Commissioner to eliminate
or substantially modify the IRS’ national, regional and district
structure. Id. sec. 1001, 112 Stat. 689. To ensure continuity
of operations, the RRA specifically included a savings provi-
sion. Id. sec. 1001(b). The savings provision applies to keep
in effect regulations that refer to officers whose positions no
longer exist. Id. It also provides that nothing in the reorga-
nization plan would be considered to impair any right or
remedy to recover any penalty claimed to have been collected
without authority. Id.
Furthermore, IRS Deleg. Order 1–23 (formerly IRS Deleg.
Order 193, Rev. 6), Internal Revenue Manual pt. 1.2.40.22
(Nov. 8, 2000), allows directors, submission processing field,
compliance services field and accounts management field to
appoint assessment officers. This order further implemented
Congress’ intent that the IRS’ normal duties, including that
of assessment, not be obstructed by the reorganization. 5 In
short, petitioner’s frivolous return penalties were properly
assessed and his argument, albeit novel, is without merit.
Petitioner has not advanced arguments or presented evi-
dence allowing us to conclude that the determination to sus-
tain the proposed collection action was arbitrary, capricious,
or without sound basis in fact or otherwise an abuse of
discretion. See, e.g., Giamelli v. Commissioner, 129 T.C. 107,
5 See H. Conf. Rept. 105–599, at 194 (1998), 1998–3 C.B. 747, 948 (‘‘The IRS Commissioner
is directed to restructure the IRS by eliminating or substantially modifying the present-law
three-tier geographic structure and replacing it with an organizational structure that features
operating units serving particular groups of taxpayers with similar needs. * * * The legality
of IRS actions will not be affected pending further appropriate statutory changes relating to
such a reorganization (e.g., eliminating statutory references to obsolete positions).’’).
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462 136 UNITED STATES TAX COURT REPORTS (455)
112, 115 (2007). Petitioner did not provide any collection
alternatives or present any other defenses. The record
indicates that the only issues petitioner raised throughout
the administrative process, in his petition and at the sum-
mary judgment hearing were frivolous tax-protester argu-
ments and groundless arguments about assessment
authority. We therefore conclude that respondent’s deter-
mination to proceed with the proposed collection action is not
an abuse of discretion. It is appropriate for us to grant
respondent’s summary judgment motion.
We now address whether it is appropriate for us to impose
a penalty against petitioner on our own motion under section
6673. This section authorizes the Tax Court to require a tax-
payer to pay to the United States a penalty of up to $25,000
whenever it appears that proceedings have been instituted or
maintained primarily for delay or that the taxpayer’s position
in such proceedings is frivolous or groundless. See sec. 6673;
Scruggs v. Commissioner, T.C. Memo. 1995–355, affd. with-
out published opinion 117 F.3d 1433 (11th Cir. 1997); Zyglis
v. Commissioner, T.C. Memo. 1993–341, affd. without pub-
lished opinion 29 F.3d 620 (2d Cir. 1994). The purpose of sec-
tion 6673, like that of section 6702, is to compel taxpayers
to think and to conform their conduct to settled tax prin-
ciples. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th
Cir. 1986).
We note that the type of argument petitioner raised, espe-
cially that his wages are not taxable, is the type of argument
that has been deemed by this Court to be frivolous and/or
sanctionable under section 6673. It is apparent from the
record that petitioner instituted this proceeding in continu-
ation of his refusal to acknowledge and satisfy his tax obliga-
tions. Such proceedings waste the Court’s and respondent’s
limited resources, taking time away from taxpayers with
legitimate disputes. We take this opportunity to admonish
petitioner that the Court will consider imposing a substantial
penalty if petitioner returns to the Court and advances
similar arguments in the future.
We have considered all remaining arguments the parties
made and, to the extent not addressed, we conclude they are
irrelevant, moot or meritless.
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(455) GRUNSTED v. COMMISSIONER 463
To reflect the foregoing,
An appropriate order and decision for
respondent will be entered.
f
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