In a recent Tax Court case, the Tax Court upheld the IRS assessments against the taxpayer (though he would not call himself that) for unreported income and failure to file, and even assessed sanctions under IRC 6673 for advancing frivolous arguments.[1] However, as discussed below, he was able to avoid the accuracy related penalty under IRC 6662.
The taxpayer in the case, Jack Supinger, was employed as a service technician in South Carolina during 2018, the year at issue, and earned wages of $102,533 according to his W-2. While no income tax was withheld from his pay, he did have Social Security tax of $6,357 and Medicare tax of $1,487 withheld. Supinger filed a 2017 income tax return showing zero income and claiming a refund of $7,844, the amount of Social Security and Medicare taxes withheld. The IRS selected his return for examination, and as a result, issued a Notice of Deficiency (the “NOD”) for the unreported income as well as accuracy related penalties under IRC 6662, or in the alternative, failure to file penalties under IRC 6651. Supinger filed a Petition with the Tax Court to contest all of the positions in the NOD. In response the IRS asked the Court to impose sanctions under IRC 6673 for Supinger’s frivolous arguments.
As stated in the opinion, Supinger came up with a wide array of reasons as to why he was not liable for any income tax, including:
- There “is no evidence that [petitioner] was involved in taxable activity during the year in question,”
- The IRS “has failed to cite which statute makes [petitioner] subject to and liable for a tax due and owing [to] the United States Treasury,”
- Supinger “completed a self-assessment for the year in question in compliance with 26 C.F.R. 861-8 finding that he had insufficient taxable income to create a tax liability,”
- “The [Internal Revenue Service (IRS)] has failed to provide evidence that [petitioner] derived income while engaged in a revenue taxable activity as shown by certified copies of contracts in interstate commerce,”
- There is no contract between petitioner and respondent to pay a tax,
- The income tax is an excise tax,
- There is no law requiring the average American to file and pay income taxes,
- “The Internal Revenue Service is not an agency of government in accordance with 28 U.S. Code § 3002(15)(A), 28 U.S. Code § 3002(15)(B) and 28 U.S. Code § 3002(15)(C),”
- Supinger himself “has no verifiable evidence that [he] is a `taxpayer’ as defined by IRC 7701(A)(14)…and [he] believe[s] that no such evidence [*4] exists,”; and
- Supinger “is not a U.S. citizen” and “[n]o evidence exists to the contrary.” As part of this, he provided a document the Department of Homeland Security had sent him in response to a FOIA request about his citizenship, which simply stated : “No records responsive to your request were located.” (the “DHS Letter”).
The Court noted that Supinger has a history of making these frivolous arguments, taking judicial notice of two more cases in which Supinger was currently involved: No. 10957-20 (2017 tax year) and No. 4810-23 (2019 tax year). These other two cases had very similar facts to the case at hand. In fact, the 2017 case was almost identical but for the numbers, and the Court had repeatedly warned Supinger that he could be sanctioned under IRC 6673 if he continued to advance frivolous arguments. The Court issued a bench opinion in the 2017 case ruling for the IRS and assessing tax on unreported income as well as accuracy related penalties. As for the 2019 case, after repeated warnings from the Court, Supinger finally caved and voluntarily dismissed his Petition.
At trial for the case at hand, the Court again warned Supinger of the possibility of sanctions under IRC 6673 as well as the fact the Court had taken judicial notice of the 2017 and 2019 cases. In response, Supinger caved on all but one of his arguments, stating “right now I’m only relying on the Department of Homeland Security document. I’m not making any of those previous arguments. None of that. So that’s the only thing I have to offer for this entire case right now.” Based on the DHS Letter, Supinger stated that he did not believe he was a citizen and thus was not subject to tax. The citizenship argument was all that he had left, and this was the hill he would die on.
During cross examination, the IRS asked Supinger some very basic questions including who his employer was during 2018, whether he had been paid by his employer, and how he made a living. In the Court’s words, Supinger “gave nonresponsive and evasive answers to all of respondent’s questions or stated that he did not understand the words that respondent’s counsel used in formulating her questions.”
The Court made quick work of the deficiency related to the unreported income. The Court first noted the longstanding rule that the burden of proof is on the taxpayer.[2] The Court next moved on the IRC 61 which states that gross income “all income from whatever source derived”, and further, under Treas. Reg. 1.61-2(a), “Wages and salaries are compensation for services includible in gross income.”
The Court next moved on to the accuracy related penalty under IRC 6662. It is here where the taxpayer perhaps caught a break, having previously been assessed this penalty on almost identical facts for the 2017 tax year. IRC 6662(a) provides for a 20% penalty on the “underpayment of tax required to be shown on a return.” However, the Court noted that this penalty only applies where a valid return has been filed.[3] The test set out for a valid return is as follows:
First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.[4]
Supinger’s zero income return filed for 2018 did not satisfy the first or third requirement. Accordingly, a valid return was not filed and thus the penalty under IRC 6662 was not applicable. Supinger caught a break here but it was short lived as the Court moved next to penalties under IRC 6651 for failure to file, and sanctions for frivolous arguments under IRC 6673, both of which did not go in his favor.
Moving on to IRC 6651 and the failure to file penalty, the Court noted first that the burden here is on the IRS.[5] The IRS satisfied this burden by producing the 2018 income tax return with zero income that Supinger had filed. Under IRC 6651(a)(1), there is a penalty imposed for failure to a required return, unless it shown that such failure was due to reasonable cause not willful neglect. There was nothing to show Supinger had any reasonable cause, and his evasive testimony further bolstered the Court’s opinion here, and thus the penalty was upheld.
Last, the Court addressed the imposition of sanctions under IRC 6673. IRC 6673 provides for sanctions of up to $25,000 when “the taxpayer’s position in such proceeding is frivolous or groundless”, among other reasons. Here, the Court had repeatedly warned Supinger of this in both the current case and his 2017 and 2019 cases. While he did drop many of his frivolous arguments, he refused to let go of the citizenship argument, and this decision would cost him $10,000. It appears his citizenship argument was based on a “common tax-protester argument” that all citizens are citizens of individual states, not of the country as a whole. The Court noted the following in a footnote:
In the Affidavit in support of the Motion for Summary Judgment, petitioner stated: “I Jack Supinger am a native-born Ohioan.” This statement is a predicate for a common tax-protester argument based on the Fourteenth Amendment to the U. S. Constitution that all Americans are citizens of individual states rather than citizens of the United States and therefore, the U.S. government does not have the power to tax citizens. We have rejected this argument before. See Roytburd v. Commissioner, T.C. Memo. 2008-, at *2-3.
The Court noted there was little logic behind Supinger continuing his fight other than delaying the payment of tax, and in doing so, he wasted a lot of time and resources of his own, of the IRS, and of the Court. The Court noted he was “deserving of a substantial penalty” based on all the prior warnings. However, the Court did show some mercy and only assessed a penalty of $10,000 instead of the full $25,000, because Supinger had abandoned his many other frivolous arguments. The Court warned Supinger he may be subject to the full $25,000 penalty in the future should he “persist and continue to raise frivolous or groundless arguments.”
In the end, all of Supinger’s arguments were common “tax-protester” arguments that have been dealt with before and dismissed as frivolous. I’m all for being creative in arguments, but unfortunately in doing so, you must have a basis in the law for your position. Here, Supinger failed to provide any logical legal basis for any of his arguments and paid the price. At least we got some entertainment out of it!
[1] Supinger v. Commissioner, T.C. Memo. 2025-93.
[2] Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
[3] IRC § 6664(b); Williams v. Commissioner, 114 T.C. 136, 139-43 (2000).
[4] Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d per curiam, 793 F.2d 139 [58 AFTR 2d 86-5290] (6th Cir. 1986).
[5] IRC § 7491(c); Wheeler v. Commissioner, 127 T.C. 200, 206 (2006), aff’d, 521 F.3d 1289 [101 AFTR 2d 2008-1696] (10th Cir. 2008)
