## Facts

- A private retirement plan administrator distributed $15,469 to Mary Anne Valentine-Whitaker in 2012, reported as fully taxable on Form 1099-R, with $3,094 of federal income tax withheld.
- Mary Anne asserted to the IRS that “private sector retirement income is not subject to Federal income tax” and demanded a refund of the withheld amount.
- In June 2014, Vincent Whitaker and Mary Anne filed a joint Form 1040 for 2012 reporting zero pension income, zero adjusted gross income, and zero taxable income, while claiming a $3,094 refund for withholding.
- The filing included a marked-up “Refuted” Form 1099-R, a self-prepared “corrected” 1099-R showing zeros, an affidavit advancing tax-protester-style assertions, and a letter claiming the withholding was unlawful.
- After the IRS mistakenly stated it had not received the 2012 return, the Whitakers sent a copy of the June submission in August 2014, and then submitted another substantively identical purported 2012 return in September 2014.
- The IRS assessed three $5,000 penalties under I.R.C. § 6702(a), one for each of the June, August, and September submissions.
- Following a notice of intent to levy and a Collection Due Process (CDP) hearing, IRS Appeals sustained collection; Whitaker petitioned the Tax Court. Before trial, the Commissioner conceded the August penalty was assessed in error.

## Issues

1. Whether the June and September 2014 filings “purported to be” returns and were frivolous returns subject to the $5,000 penalty under I.R.C. § 6702(a).
2. Whether Appeals abused its discretion in sustaining the notice of intent to levy to collect the two remaining § 6702(a) penalties in the CDP determination.

## Decision

- The court upheld collection by levy for two § 6702(a) penalties tied to the June and September purported returns.
- The court accepted the Commissioner’s concession and did not sustain the third penalty associated with the August copy submission.
- The court found no abuse of discretion in Appeals’ CDP determination as to the two valid penalties.

## Legal Principles

- A penalty under I.R.C. § 6702(a) applies when a document purports to be a return, contains facially insufficient or substantially incorrect information, and the incorrectness is due to a position identified as frivolous or reflects an intent to delay or impede tax administration.
- A Form 1040 signed and filed as a return may “purport to be” a return for § 6702(a) purposes even if it reports zero income contrary to third-party information reporting.
- Reporting zero taxable income and seeking a full refund despite an information return showing a taxable retirement distribution can establish a “substantially incorrect” self-assessment on the face of the filing.
- Assertions that private retirement income is not taxable, or that federal income tax does not apply based on employment status or residence in a “non-federal” state, are treated as frivolous positions for § 6702(a) purposes when identified as such by the Secretary.
- In a CDP case, the court may review the underlying liability for properly raised penalties, and it reviews the decision to sustain collection for abuse of discretion, including verification of legal requirements and the required balancing under § 6330(c)(3).

## Conclusion

The Tax Court held that the June and September zero-income filings, coupled with frivolous tax-protester arguments and contradicted by third-party reporting of a taxable retirement distribution, justified two separate § 6702(a) penalties and supported Appeals’ decision to proceed with levy, while abating the erroneously assessed penalty for the August copy submission.


Whitaker v. Commissioner, T.C. Memo. 2017-192 (2017)