Opinion
4784-23
05-13-2024
CHRISTOPHER J. WENDELL & NANCY A. WENDELL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Mark V. Holmes Judge
This case is on the Court's May 20, 2024 trial calendar for St. Paul, Minnesota. The Commissioner has moved for summary judgment.
Background
Christopher Wendell is a licensed physician who specializes in anesthesiology. In 2019-the year at issue-he was employed by Associated Anesthesiologists, P.A. (AAPA) in Minnesota, though he and his wife Nancy are Wisconsin residents. He performed anesthesiology services for this group, and it issued him a W-2 showing more than $500,000 in wages along with nearly $140,000 in federal income-tax withholding.
On his 2019 joint return the Wendells claimed (and then) received a refund of the amount withheld from Dr. Wendell's paychecks. They did so, according to a sworn statement that accompanied the return, because the payments made by AAPA to Dr. Wendell "did not result from any federally taxable activity whatsoever and do not constitute any taxable income under relevant Income Tax Law . . . ."
This figure apparently included withholding for Social Security and Medicare.
They had reported zero taxable income.
The IRS is not insensate to such positions and, despite Dr. Wendell's circumlocutious way of expressing his views, interpreted the doctor's return position as an unsubtle variation of "wages aren't income." In 2022, the Wendells got a Letter 3176 - a form letter that the IRS sends taxpayer to notify them of what it considers a frivolous position on a tax return. The Wendells did not take this opportunity to change their position, and the IRS assessed a section 6702 penalty for filing a frivolous return. The Commissioner then issued the Wendells a notice of deficiency, which included an understatement penalty under section 6662(a).
The Commissioner included with his motion an examination support sheet showing the revenue agent in this matter received supervisory approval for the penalty determination. This satisfied his burden of production under our case law. See Kraske v. Commissioner, 161 T.C. No. 7 (2023). The Wendells' understatement qualifies as substantial under section 6662(d)(1)(A) and they did not even try to show that their zero return was supported by reasonable cause and good faith under section 6664(c)(1).
The Commissioner moved for summary judgment for the deficiency he determined. And he wants an additional penalty under section 6673 for a frivolous filing. The Wendells object, and also moved to strike various portions and exhibits of respondent's motion on the grounds that they violate Rule 52.
Discussion
We may grant summary judgment when there's no dispute of material fact and we can enter decision as a matter of law. Rule 121(b); see, e.g., Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). The Wendells, as the party opposing summary judgment, must set forth specific facts that show a genuine question of material fact exists. Wood v. Commissioner, 92 T.C.M. (CCH) 294, 295 (2006), Grant Creek Water Works, Ltd. v. Commissioner, 91 T.C. 322, 325 (1988). Relying on allegations or denials in the pleadings isn't enough.
The Wendells try to knock out the Commissioner's motion by dressing up legal arguments as disputes about evidence - arguing that there is a genuine dispute about whether the notice of deficiency here was valid, that the Commissioner has no legal authority to impose a penalty under section 6662, as well as the tattered legal argument that the income tax is an unconstitutional unapportioned direct tax. And respondent doesn't, as the Wendells contend, need to lay a testimonial foundation for the IRS's records such as petitioner's account transcript. These are all self-authenticating documents under rule 902(4) of the Federal Rules of Evidence because the Commissioner's lawyer is a "person authorized to make the certification that they are IRS records" because he is legally entitled to custody of the records involved. See United States v. Farris, 517 F.2d 226, 228 (7th Cir. 1975).
The Wendells thus haven't sufficiently alleged a material fact in genuine dispute.
Now we turn to the law.
The Code defines gross income as all income from whatever source derived. I.R.C. § 61. This includes wages or money paid for services-however the Wendells seek to define the AAPA paychecks, the money AAPA transferred to Dr. Wendell was compensation for his services. Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986). All federal courts routinely rule against taxpayers who argue that this isn't the case. See, e.g., Talmage v. Commissioner, 71 T.C.M. (CCH) 2370, 2372 (1996) (citations omitted).
The Code also permits the Court to impose a penalty not to exceed $25,000 if a taxpayer's position is frivolous or groundless. I.R.C. § 6673(a)(1)(B). A petition to the Tax Court, or a tax return, is "frivolous if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the the law." Coleman, 791 F.2d at71.
The Commissioner supports his motion with uncontested proof that he warned Dr. Wendell that his position was frivolous. We observe that there can be no dispute that a doctor earning more than half a million dollars from his practice is highly educated. And that the State of Minnesota likewise warned him in his parallel state-income tax proceeding that his argument was frivolous.
Because of Dr. Wendell's education and persistence in frivolity we conclude a $5,000 penalty is called for.
We turn then to the Wendells' motion to strike. They identified some 21 paragraphs in respondent's motion that they say the Commissioner included only to embarrass or vex them.
We disagree. These portions of the Commissioner's motion simply describe the procedural history of the Wendells's case, a similar case involving them in the Minnesota Tax Court, and copious legal authority demonstrating that wages are income as defined by the Code.
Let's not be mistaken, though. We need not rely on a state case or case law to resolve this motion. Section 61 makes it clear enough that wages are income. By performing services for and receiving money from AAPA-as evidenced by a W-2- Dr. Wendell received income. Sanctions are appropriate here for taking a frivolous position and-we stress to petitioners-the amount of sanctions can always increase for repeated offenses.
Therefore, it is
ORDERED that respondent's motion for summary judgment is granted. It is also
ORDERED that petitioners' motion to strike portions of respondent's motion for summary judgment and its attached declaration is denied. It is also
DECIDED that petitioners are liable for a $5,000 section 6673(a) penalty. It is also
DECIDED that there is a deficiency and penalty due from petitioners as follows:
Year Deficiency Penalty IRC 6662(a) 2019 $134,784.00 $26,956.80