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Background
Petitioners are husband and wife. At the time of the filing
of the petition, petitioners resided in Las Vegas, Nevada.
On April 15, 1997, petitioners filed a 1996 Form 1040, U.S.
Individual Income Tax Return (tax return), reporting zero gross
income for the 1996 tax year. With the tax return, petitioners
submitted a document making the following assertions: (1) The
Internal Revenue Code does not establish an income tax liability;
(2) the tax return is not being filed voluntarily but out of fear
of illegal governmental prosecution; (3) the “Privacy Act Notice”
contained in the Form 1040 booklet informed petitioners that they
are not required to file a return; (4) regulations requiring the
filing of a tax return apply only to foreign earned income; (5)
laws requiring taxpayers to provide information to the Federal
Government violate taxpayers’ Fifth Amendment rights; (6) courts
have held that a Form 1040 with zeros inserted in the spaces
provided qualifies as a tax return; (7) petitioners had zero
income according to the Supreme Court’s definition of income; (8)
petitioners’ 1996 tax return does not constitute a “frivolous”
return for purposes of section 6702; and (9) no statute allows
the IRS to change petitioners’ tax return.
On August 13, 1998, respondent mailed a statutory notice of
deficiency to petitioners. In the notice, respondent determined
a corrected taxable income of $845,902, a deficiency of $312,721,
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