## Facts

- Michael A. Cabirac filed purported income-tax returns for 1997 and 1998 reporting zeros on the lines used to compute tax, despite receiving wages, interest, and pension/IRA distributions.
- The IRS rejected the zero filings as frivolous and treated them as invalid returns.
- The IRS prepared substitute-for-return (SFR) documents under I.R.C. § 6020(b) for each year; these SFRs generally mirrored the rejected filings, showed no tax due, and were not signed by the Secretary or an authorized delegate.
- The IRS later issued a notice of deficiency determining income-tax deficiencies and additions to tax under §§ 6651(a)(1), 6651(a)(2), and 6654, and sought a penalty under § 6673(a)(1).
- In Tax Court, Cabirac stipulated he received the income amounts determined by the IRS but argued the income tax did not apply to him and contended the IRS lacked a valid “return” to support the § 6651(a)(2) failure-to-pay addition.

## Issues

1. Whether Cabirac’s wages, interest, and pension/IRA distributions for 1997 and 1998 were includible in gross income under I.R.C. § 61.
2. Whether Cabirac was liable for the 10% additional tax on early retirement distributions under I.R.C. § 72(t)(1).
3. Whether Cabirac was liable for additions to tax under §§ 6651(a)(1) and 6654.
4. Whether the IRS could impose the § 6651(a)(2) addition absent proof of a valid § 6020(b) return treated as the taxpayer’s return under § 6651(g)(2).
5. Whether a penalty should be imposed under § 6673(a)(1) for maintaining frivolous or groundless positions.

## Decision

- The Tax Court held Cabirac’s wages, interest, and retirement distributions were taxable gross income and rejected his excise-tax theory.
- The court sustained the 10% additional tax under § 72(t)(1) for early distributions because no statutory exception applied.
- The court sustained additions to tax under §§ 6651(a)(1) and 6654.
- The court disallowed the § 6651(a)(2) addition because the IRS failed to establish it made a valid § 6020(b) return for the years at issue.
- The court imposed a penalty under § 6673(a)(1) based on Cabirac’s frivolous and groundless arguments.

## Legal Principles

- Amounts received as wages, interest, and pension/IRA distributions are gross income under I.R.C. § 61; arguments that such receipts are not taxable are frivolous.
- The § 72(t)(1) additional tax applies to early distributions from qualified retirement arrangements unless the taxpayer proves a statutory exception.
- A “zero return” that does not contain truthful financial information necessary to compute tax is not a valid return for federal tax purposes, supporting additions for failure to file under § 6651(a)(1).
- The § 6651(a)(2) addition (failure to pay tax “shown on a return”) may be imposed on a nonfiler only if the IRS proves a qualifying return under § 6020(b), treated as the taxpayer’s return by § 6651(g)(2).
- To qualify as a § 6020(b) return, the IRS must establish a document (or properly linked set of documents) that is subscribed by an authorized official, contains sufficient data to compute the tax, and purports to be a return; an unsigned SFR, without a demonstrated composite return, is insufficient.
- The Tax Court may impose a § 6673(a)(1) penalty when a taxpayer pursues frivolous positions or uses proceedings primarily for delay.

## Conclusion

Cabirac was held liable for the underlying income tax, the § 72(t) additional tax, and additions under §§ 6651(a)(1) and 6654, but not for the § 6651(a)(2) addition because the IRS did not prove a valid, subscribed § 6020(b) return; the court also sanctioned Cabirac under § 6673(a)(1) for frivolous litigation.


Cabirac v. Comm’r, 120 T.C. 163 (2003)