By notices of deficiency dated May 9, 2011 (notices), respondent determined deficiencies in, and
Additions to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2)
$2,706 cn co to CD LO O O Cd
2,491 ^ o L-a M CD O O <N
Petitioner assigned error to those determinations, averring only: “The true amount of the tax and interest and penalties owing is $0.00.” Petitioner did not, as required by our standing pretrial order, file a pretrial memorandum, which, among other things, would have described his view of the issues in the case. From his testimony at trial, we understand petitioner’s principal objections to respondent’s determinations to be that the determinations are not based on properly made substitutes for returns and that the notices are invalid because improperly issued. At trial, respondent moved for the imposition of a sanction against petitioner under section 6673(a)(1), which, as pertinent, empowers us to sanction a taxpayer on account of instituting or maintaining a proceeding primarily for delay or for maintaining a frivolous or groundless position.
Petitioner bears the burden of proof. See Rule 142(a), Tax Court Rules of Practice and Procedure. 2
FINDINGS OF FACT
At the time the petition was filed, petitioner resided in Illinois.
During 2005 and 2006 (the years in issue), petitioner was employed by Dell Medical Corp. and, in return for his services, received compensation from it of $28,630 and $27,529 for those years, respectively. During the years in issue, he also received dividend payments of $24 and $28 for those years, respectively. Because for the years in issue he received no income tax returns from petitioner, respondent, using
OPINION
I. Introduction
Although petitioner’s objections to respondent’s determinations concern principally procedural aspects of those determinations, he did at trial argue that the compensation and dividends he received were not taxable. The short answer is that compensation for services and dividends are items of gross income and, as such, are taxable. See sec. 61(a)(1), (7). Petitioner’s arguments to the contrary — i.e., that he is not an employee under the Internal Revenue Code unless he works for a controlled group of corporations; the attribution rules applicable to farming corporations bring into question the taxability of dividends generally — are nonsense and require no further discussion. See Crain v. Commissioner,
Petitioner argues that the substitutes for returns were not properly made because the individual certifying them, Ms. Green, had not been delegated the authority to do so. Likewise, he argues that the notices were invalid because the individual executing them, Mr. Slaughter, had not been delegated the authority to do so.
The Secretary is responsible for collecting the taxes imposed by the internal revenue laws of the United States. See sec. 6301. Because one individual cannot be responsible for so much, Congress has enacted statutes authorizing the delegation of that authority. The delegation of authority is contained in a clear line of statutory provisions. With respect to substitutes for returns, section 6020(b)(1) provides: “If any person fails to make any return required by any internal revenue law or regulation * * * the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.” With respect to deficiencies in tax determined by the Secretary, section 6212(a) authorizes him to send notice of the deficiency to the taxpayer. The term “Secretary” is defined as meaning “the Secretary of the Treasury or his delegate.” Sec. 7701(a)(ll)(B). The term “‘or his delegate’ * * * when used with reference to the Secretary of the Treasury, means any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context”. Sec. 7701(a)(12)(A)(i).
Delegation Order 5-2, set forth in Internal Revenue Manual (irm) pt. 1.2.44.3 (May 5, 1997), delegates to specific agents and managers, including SB/SE tax compliance officers, the authority to “prepare or execute returns required by any internal revenue law or regulation when the person required to file such return fails to do so.” Delegation Order 4-8, set forth in irm pt. 1.2.43.9 (Feb. 10, 2004), delegates to specific managers, case leaders, reviewers, and directors, including SB/SE field directors, the authority to “sign and send to the taxpayer by registered or certified mail any notice of deficiency.”
Mr. Slaughter was authorized to issue the notices. Mr. Slaughter’s position is “Director, Collection Area — Western”; he “serves as one of several field directors of SB/SE’s collection activities”. Delegation Order 4-8 specifically delegates the authority to issue notices of deficiency to SB/SE field directors. Mr. Slaughter was delegated that authority.
The substitutes for returns were properly made and executed, and the notices were properly issued.
III. Section 6651(a)(1) Additions to Tax
Section 6651(a)(1) provides for an addition to tax in the event a taxpayer fails to timely file a return (determined with regard to any extension of time for filing) unless the taxpayer shows that such failure is due to reasonable cause and not due to willful neglect. The amount of the addition is equal to 5% 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
Respondent’s account transcripts for petitioner for the years in issue indicate that he filed no Federal income tax returns for those years, and that is sufficient for us to find, and we do, that petitioner filed no return for either year. See, e.g., Green v. Commissioner,
IV. Section 6651(a)(2) Additions to Tax
Section 6651(a)(2) imposes an addition to tax when a taxpayer fails to pay the amount of tax shown on a return by the prescribed date unless the taxpayer shows that such failure is due to reasonable cause and not due to willful neglect. The amount of the addition is equal to 0.5% of the tax for each month or fraction thereof during which the tax remains unpaid, up to a maximum addition of 25%. Under section 6651(g)(2), a substitute for return prepared pursuant to section 6020(b) is treated as the taxpayer’s return for purposes of section 6651(a)(2). 3
Petitioner filed no return for either of the years in issue, and respondent properly made substitutes for returns for him. Petitioner has not paid the tax shown on those substitutes for returns. Respondent has, therefore, met his burden under section 7491(c) to produce evidence that imposition
V. Section 6673(a)(1) Penalty
In pertinent part, section 6673(a)(1) provides for a penalty of up to $25,000 if the taxpayer has instituted or maintained proceedings before the Tax Court primarily for delay or the taxpayer’s position in the proceeding is frivolous or groundless. We described as nonsense petitioner’s arguments that the compensation and dividends he received were not taxable. “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,
VI. Conclusion
For the foregoing reasons, petitioner is liable for the deficiencies, section 6651(a)(1) additions to tax, and section 6651(a)(2) additions to tax. Additionally, we impose a penalty on petitioner pursuant to section 6673(a)(1).
An appropriate order and decision will be entered.
Notes
Section references are to the Internal Revenue Code of 1986, as amended and in effect for the years in issue.
Petitioner has not raised the issue of sec. 7491(a), which shifts the burden of proof to the Commissioner in certain situations. In any event, sec. 7491(a) does not apply here because petitioner has not shown that he has satisfied the preconditions for its application. See sec. 7491(a)(2).
We note in passing that, while a properly made substitute for return is necessary before a sec. 6651(a)(2) addition to tax for failure to pay the tax shown on return can be imposed on a nonfiler, a substitute for return is not a prerequisite to the Commissioner’s determining a deficiency in tax. E.g., Root v. Commissioner,