Woods v. Commissioner

William Woods (plaintiff) earned $32,844 in wages in 1983, on which he paid $3,813.77 in taxes via withholding. Woods did not file a tax return for 1983. The Internal Revenue Service (IRS) determined that Woods owed a $7,152 deficiency for 1983 and found Woods liable for, among other things, an addition to tax (i.e., a penalty) pursuant to 26 U.S.C. § 6651(a)(1) because Woods underpaid his tax due to his substantial understatement of income tax. Woods sued the IRS commissioner (defendant) in the United States Tax Court, arguing that (1) he did not owe a deficiency because his wages were not gross income, (2) reporting and paying taxes was voluntary, (3) he was not required to file a tax return, (4) the Fifth Amendment to the United States Constitution protected him from having to provide tax-return information, and (5) the Sixteenth Amendment to the United States Constitution was improperly ratified. Woods also argued that the IRS erroneously computed his § 6651(a)(1) addition to tax because it did not credit him for his withholding payments. Per Woods, § 6651(a)(1)’s use of the term “underpayment” meant the amount by which his payments were insufficient to satisfy his tax obligation. The commissioner responded that (1) Woods’s liability arguments were meritless tax-protestor contentions and (2) an “underpayment” under § 6651(a)(1) was the entire amount that Woods should have shown on his tax return if he had filed one. The commissioner based his interpretation of § 6651(a)(1) on the fact that 26 U.S.C. § 6661(b)(2) provided that § 6651(a)(1) should be read in coordination with 26 U.S.C. § 6659, which so defined the term “underpayment.”