Minnesota Individual Income Tax Return Zero Income Case

This case comes before the Tax Court on appeal from the Orders by the Commissioner dated January 9, 2003, January 23, 2003, and January 27, 2003. Appellant, a Minnesota resident, filed Minnesota individual income tax returns for the years 1999, 2000, and 2001, reporting zero income. Subsequently, the Commissioner requested that Appellant file amended returns correctly reporting his Minnesota income and informed Appellant that frivolous return penalties would not be assessed if Appellant promptly filed. Appellant did not file amended returns. During the years at issue, Appellant received wages, compensation for services that he provided as a non-employee, interest, dividends, and capital gains from stock transactions. He argues that he has no federal taxable income, and therefore no Minnesota taxable income, because he did not receive any income as defined in Treas. Reg. 1.861-8(f)(1) (" 861"). Further, Appellant claims that the Commissioner has no authority to assess tax based upon anything other than the amounts that Appellant reported on his federal tax return, which was zero income, and that his returns were not frivolous because inserting zeros in the spaces provided for reporting income qualifies as a return. Moreover, Appellant alleges that since the payment of federal income tax is voluntary because no Internal Revenue Code section creates liability for income tax or requires payment, he may choose not to participate by filing amended returns or paying taxes for the years at issue. Appellant had taxable income Appellant argues that he has no income from the sources described in 861 and, therefore, he has no taxable income. We disagree. Section 861 lists circumstances in which taxable income must be allocated between United States and non-United States sources and applies only when it is necessary to separate taxable income into income from sources within and outside the United States. Appellant's second argument is that the Commissioner may not audit amounts appearing on his federal income tax returns to determine Appellant's correct Minnesota taxable income. Again, we disagree. Minn. Stat. 289A.35 authorizes the Commissioner to re-determine what amounts are properly included in Appellant's taxable income regardless of what information the Appellant has provided to the Internal Revenue Service. See Specktor v. Commissioner of Revenue, 308 N.W.2d 806, 807-09 (Minn. 1981). Thus, the Commissioner appropriately adjusted the amounts from Appellant's federal income tax returns in order to determine the amount of Minnesota income taxes, interest, and penalties due for the years at issue. Third, Appellant claims that income taxes are voluntary and he chooses not to volunteer. However, Minn. Stat. 290.014, Subd. 1 provides that "all net income of a resident individual is subject to tax..." in this state. the provision is not optional and does not permit Appellant to choose whether or not to comply with it. The Court, therefore, affirms the Orders imposing tax liability upon Appellant for the years at issue. Appellant's tax returns are frivolous Appellant filed a return with zeros in all of the blanks, failing to provide any information regarding the wages, compensation for services that he provided as a non-employee, interest, dividends, and capital gains from stock transactions that he received during the years at issue. All authority is contrary to the positions Appellant asserts. Such assertions have resulted in sanctions against taxpayers advocating them. See, e.g., Lucero v. Commissioner of Revenue, 2002 Minn. (Minn. Tax Ct., July 24, 2002) (upholding frivolous return penalty where taxpayer claimed that compensation he received for services rendered was not "income"); Brintnall v. Commissioner of Revenue, 2003 Minn. (Minn. Tax Ct. Apr. 8, 2003); Knutson v. Commissioner of Revenue, 2002 Minn. (Minn. Tax Ct., Apr. 2, 2002); McGinley v. Commissioner of Revenue, 1984 Minn. (Minn. Tax Ct., Feb. 13, 1984) (taxpayer found to have commenced a frivolous appeal because the law is very clear that compensation for services is income subject to tax). While Appellant may have been acting in good faith initially, the Commissioner gave Appellant a chance to avoid penalties by correcting the record and filing amended returns for the years at issue. He chose not to do so, despite the Commissioner's warning, knowing that he could be liable for frivolous return penalties. In Weed v. Commissioner of Revenue, 489 N.W.2d 525, 527 (Minn. 1992), the Court stated that "if a taxpayer files what purports to be a tax return... but which does not contain information on which the substantial correctness of the assessment may be judged or contains information that on its face shows that the assessment is substantially incorrect and the conduct is due to a position that is frivolous or a desire to delay or impede the administration of Minnesota tax laws," the taxpayer is liable for a penalty for filing a frivolous tax return. Based upon the facts of this case, we affirm the Commissioner's determination that Appellant is liable for penalties for the years at issue.