## Facts

- Scott Philips received taxable income from multiple sources over a period of several years.
- Philips did not file federal income tax returns for those years and did not pay federal income tax on the income he received.
- The Internal Revenue Service issued Philips a notice of deficiency.
- Philips filed a document purporting to be a petition in the United States Tax Court challenging the deficiency.
- Philips’s initial filing did not comply with Tax Court form and content requirements for petitions and advanced arguments commonly associated with tax-protester claims, including that wages are not taxable income and that the Sixteenth Amendment is unconstitutional.
- The Tax Court rejected Philips’s defective filing and ordered him to submit an amended petition.
- Philips resubmitted essentially the same defective document.
- The Commissioner moved to dismiss the case and requested sanctions.
- Philips later filed another amended petition that satisfied the Tax Court’s procedural requirements, and the court denied the Commissioner’s motion to dismiss.
- At trial, Philips conceded that he had received income and had not paid federal income tax on it, but he continued to deny liability based on the same protester arguments and additional irrelevant legal terminology.
- The Commissioner renewed the request for sanctions based on Philips’s frivolous positions and the burdens imposed on the court and the government.

## Issues

1. Whether Philips was liable for the federal income tax deficiency determined by the IRS for the years at issue.
2. Whether the Tax Court should impose a penalty (sanctions) because Philips maintained frivolous, groundless positions and used the proceeding in a manner associated with delay.

## Decision

- The Tax Court sustained the IRS’s deficiency determination against Philips.
- The court rejected Philips’s tax-protester and constitutional arguments as frivolous and without legal merit.
- The court imposed sanctions, concluding that Philips’s conduct and positions justified a penalty for pursuing frivolous litigation.

## Legal Principles

- A taxpayer who receives taxable income and does not file returns or pay tax remains liable for federal income tax; denying liability without a valid legal theory does not defeat a deficiency determination.
- “Wages are not income” and similar tax-protester contentions are legally baseless; compensation for services is included in gross income.
- Constitutional attacks on the federal income tax system, including claims that the Sixteenth Amendment is invalid, are frivolous.
- The Tax Court may require a petitioner to submit a petition that complies with its procedural rules, and repeated noncompliance can support dismissal and sanctions.
- The Tax Court may impose a penalty under I.R.C. § 6673 when a taxpayer advances frivolous or groundless positions and wastes judicial and governmental resources.

## Conclusion

In *Philips v. Commissioner*, the Tax Court upheld the IRS’s deficiency after Philips conceded he received income and did not pay federal tax, yet continued to argue that wages were not taxable and that the income tax was unconstitutional. Because Philips persisted in frivolous positions and imposed unnecessary costs on the court and the government—after initially filing noncompliant pleadings—the court imposed sanctions under its authority to penalize frivolous Tax Court litigation.


Philips v. Commissioner, T.C. Memo. 1995-540 (1995)