## Facts

- William A. Woods II was a single taxpayer for 1983 and received $32,844 in wages and $53 in interest.
- Federal income tax of $3,813.77 was withheld from his wages.
- Woods did not file a federal income tax return for 1983.
- The Commissioner issued a notice of deficiency determining a $7,152 income tax deficiency and additions to tax under I.R.C. §§ 6651(a)(1), 6653(a)(1), 6653(a)(2), and 6661(a).
- Woods advanced constitutional and statutory objections, including that wages are not gross income, filing is voluntary, the Fifth Amendment excused filing, and the Sixteenth Amendment was invalid.
- Woods also argued that any “underpayment” used to compute additions to tax should be reduced by wage withholding.

## Issues

1. Whether wages constitute gross income and whether constitutional theories (voluntary tax system, blanket Fifth Amendment privilege, invalid Sixteenth Amendment) excuse filing and payment.
2. When no return is filed, whether “understatement/underpayment” for computing additions to tax—particularly under § 6661—equals the full tax required to be shown on a return (with tax shown treated as zero), or is reduced by amounts withheld.

## Decision

- The Tax Court sustained the Commissioner’s deficiency determination for 1983.
- The court rejected Woods’s tax-protester and constitutional arguments and held he was required to file and pay federal income tax on wages.
- The court upheld the § 6651(a)(1) addition to tax for failure to file and the § 6653(a)(1) and (2) negligence additions.
- The court upheld the § 6661(a) addition for substantial understatement, treating the understatement as the entire deficiency because no return was filed.
- The court sustained the validity and application of Treas. Reg. § 1.6661-2(d)(2), which treats the tax “shown on the return” as zero when no return is filed.

## Legal Principles

- Compensation for services is gross income under I.R.C. § 61(a)(1), and wages are taxable income.
- Federal income tax compliance is legally required; assertions that the system is “voluntary” do not negate the statutory duty to file and pay.
- The Fifth Amendment privilege against self-incrimination does not justify a blanket refusal to file a return; it may apply only to specific disclosures presenting a real hazard of incrimination.
- Challenges to the validity of the Sixteenth Amendment do not excuse federal income tax liability.
- For § 6661 purposes, in a no-return year the amount of tax “shown on the return” is treated as zero under Treas. Reg. § 1.6661-2(d)(2); thus, the “understatement” equals the full deficiency and may qualify as a substantial understatement if it exceeds the statutory thresholds.
- Additions to tax for failure to file and negligence apply when the taxpayer lacks reasonable cause and fails to comply based on positions contrary to settled law.

## Conclusion

The Tax Court held Woods liable for the 1983 deficiency and sustained additions to tax for failure to file, negligence, and substantial understatement, ruling that in a no-return case the § 6661 understatement equals the entire deficiency because the tax shown on the return is treated as zero.


Woods v. Commissioner, 91 T.C. 88 (1988)