Frivolous arguments rejected by Tax Court

The Tax Court held that a taxpayer lacked any legal support for his frivolous arguments that his wages and retirement distribution were not taxable and assessed a $7,500 Sec. 6673(a)(1) frivolous-position penalty.

Facts: Albert Mark Fonda, born in New York and a resident of Texas, had not filed a federal income tax return since tax year 2012. During 2019, the tax year in issue, Fonda received wages of $125,519 reported on Form W-2, Wage and Tax Statement, and a $101,735 taxable retirement distribution reported on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., both of which were received by the IRS. Fonda subsequently sent the IRS a “corrected” Form W-2 and Form 1099-R where he simply crossed out the amounts originally printed on the forms and inserted zeros.

In July 2022, following an examination of Fonda’s 2019 tax year, the IRS prepared a substitute for return (SFR). The IRS then issued a notice of deficiency based on the SFR in April 2023, determining a deficiency of $62,083, calculated on $227,255 of unreported compensation, $120 of unreported investment income, and a 10% additional tax under Sec. 72(t) for an early distribution from a qualified plan. Pursuant to Secs. 6651(a)(1), 6651(a)(2), and 6654, the notice also determined additions to tax for failure to timely file, failure to timely pay, and failure to pay estimated tax. In response, Fonda timely petitioned the Tax Court for redetermination.

Fonda’s litigation strategy required the court to issue at least 25 pretrial orders, deny a succession of motions, and conduct a “lengthy” discovery hearing. In 2024, while denying one of his motions, the court advised Fonda that his filings contained frivolous arguments and warned him that it might impose the maximum $25,000 penalty under Sec. 6673(a)(1) if he continued to “maintain a frivolous or groundless position or continue[d] to maintain this proceeding primarily for delay.” Fonda, nevertheless, advanced his “entire panoply of frivolous arguments in subsequent Motions practice and at trial.”

Issues: At the beginning of the trial, the IRS conceded the $120 of investment income, the 10% additional tax, and the three additions to tax, leaving the taxability of Fonda’s wage and retirement income and the imposition of a Sec. 6673(a)(1) penalty as the remaining issues before the court.

Sec. 61(a)(1) provides that gross income means all income from whatever source derived, including compensation for services. Similarly, under Secs. 61, 72(a)(1), and 408(d)(1), distributions from qualified retirement plans are included in gross income.

Fonda conceded that he received the income that was reported on Forms W-2 and 1099-R but argued that it was not subject to tax, based on what the Tax Court called an “array of arguments lifted from the tax-protester arsenal.” These arguments, according to the court, included that “he occupies two separate identities, one individual and one legal, and urges that neither identity earned taxable income”; that “he is a citizen of a state, but not of the United States”; that “he is a nonresident alien and is thus taxable only on income ‘effectively connected with the conduct of a trade or business within the United States'” under Sec. 871(b)(1); and that “his wages are immune from tax because he is not an ’employee’ of the Federal government,” misconstruing the term “includes” in Sec. 3401(c) to mean that only federal employees or persons holding public office are taxed.

Citing a litany of cases, the Tax Court rejected Fonda’s arguments as frivolous, noting that they “have been rejected by the courts in hundreds of cases, and we will not dignify his position with further response” (see Crain, 737 F.2d 1417, 1417 (5th Cir. 1984) (per curiam); see also Wnuck, 136 T.C. 498, 501–13 (2011)). Given that Fonda had not met his burden of proving that the IRS had erred in including the wages and retirement distribution in his 2019 income, the court sustained the Service’s adjustments.

With respect to the Sec. 6673(a)(1) frivolous-position penalty, the court explained that Fonda lacked any legal support for his positions and had “cut and pasted gibberish from tax-protester websites.” Acknowledging that Fonda was not a lawyer, the court explained that, nonetheless, “had he made even a modest inquiry using an internet search engine he would have found the copious authorities refuting his stance.” Despite the court’s warnings to stop advancing frivolous arguments, Fonda adhered to his position while having “wasted the Government’s time and ours.” Therefore, the court imposed a Sec. 6673(a)(1) penalty of $7,500.

Holding: In sustaining the IRS’s adjustments resulting in the deficiency of $62,083, the Tax Court held that Fonda’s wages and qualified retirement distribution were clearly included in gross income and were taxable. Furthermore, it held that Fonda’s arguments to the contrary were frivolous and imposed a $7,500 Sec. 6673(a)(1) frivolous-position penalty.

• Fonda, T.C. Memo. 2025-60

— Matthew Geiszler, Ph.D., is a lecturer in accounting in the Brooks School of Public Policy, and John McKinley, CPA, CGMA, J.D., LL.M., is a professor of the practice in accounting and taxation in the SC Johnson College of Business, both at Cornell University. To comment on this column, contact Paul Bonner, the JofA‘s tax editor.