David Andrew and Kathleen Stilwell Schmith - Page 5




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                              *   *   *   *   *   *   *                               
               *Note #1:  The word “income” is not defined in the                     
               Internal Revenue Code. * * * But, as stated above, it                  
               can only be a derivative of corporate activity.  * * *                 
               B.  Respondent’s Deficiency Notice and Petitioners’ Response           
               On June 16, 2000, respondent (acting through Deborah Decker,           
          Director of the Service Center in Ogden, Utah) issued a notice of           
          deficiency to petitioners for the taxable year 1997.  In the                
          notice, respondent determined a deficiency in petitioners’                  
          Federal income tax in the amount of $2,854 and an accuracy-                 
          related penalty under section 6662(a) and (b)(1) for negligence             
          or disregard of rules or regulations in the amount of $462.24.2             
          The deficiency in income tax was based on respondent’s                      
          determination that petitioners had failed to report wages,                  
          interest income, capital gain, and unemployment compensation.               
               By registered letter dated July 11, 2000, petitioners wrote            
          to the director of respondent’s Service Center in Ogden, Utah,              
          acknowledging receipt of the notice of deficiency dated June 16,            
          2000, but challenging respondent’s authority “to send us the                
          notice in the first place.”  Petitioners sent copies of their               
          letter by registered mail to Lawrence H. Summers, Secretary of              
          the Treasury, and Charles O. Rossotti, Commissioner of Internal             


               2  Insofar as their ultimate tax liability was concerned,              
          respondent gave petitioners credit for the amounts withheld from            
          their wages.  However, we note that the determination of a                  
          statutory deficiency does not take such withheld amounts into               
          account.  See sec. 6211(b)(1).                                              





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