Opinion
No. 3:02-0417
June 12, 2003
ORDER
Presently pending before the Court is Defendant's Motion for Summary Judgment (Docket Entry No. 21) to which no response has been filed. For the reasons explained in the Memorandum entered contemporaneously herewith, Defendant's Motion is GRANTED and this action is DISMISSED WITH PREJUDICE. Plaintiff is hereby ordered to pay the frivolous return penalty of $500 assessed by the Internal Revenue Service. The Court finds that under the facts and circumstances of this case, Defendant is entitled to reasonable attorney fees and is granted leave to file an application for fees pursuant to Local Rule 13(e).
It is so ORDERED.
MEMORANDUM
Presently pending before the Court is Defendant's Motion for Summary Judgment (Docket Entry No. 21).I.
Plaintiff Leslie E. White initiated this cause of action on April 25, 2002, against the united States under 26 U.S.C. § 6330(d)(1). Plaintiff allegedly owes taxes under 26 U.S.C. § 6330, and has been assessed a "frivolous return penalty" under 26 U.S.C. § 6702. Plaintiff contends that the Internal Revenue Service ("IRS") did not conduct a Collection Due Process Hearing in accordance with Sections 6320 and 6330, and Treasury Regulations 301.6320-IT and 301.6330-IT. Plaintiff additionally contends that the frivolous return penalty was unsupported by any evidence. In his Complaint, Plaintiff seeks declaratory relief, reimbursement for costs, and punitive damages.
In an Order entered on January 10, 2003, the Court dismissed Plaintiff's claims under 26 U.S.C. § 6330 challenging the Collection Due Process Hearing (Docket Entry No. 16). Accordingly, the only remaining claim in this case is Plaintiff's claim that the frivolous return penalty under 26 U.S.C. § 6702 was unsupported by any evidence. Defendant now moves for summary judgment on that claim.
II. FACTS
Plaintiff failed to respond to Defendant's Statement of Undisputed Facts (Docket Entry No. 25). Therefore, pursuant to Local Rule 8(b)(7) (g) the facts asserted by Defendant are not disputed for the purpose of Summary Judgment. On or about April 15, 1998, Plaintiff filed his 1997 federal income tax return (Docket Entry No. 21, Ex. 1). Plaintiff filled in $0.00 for his wages, salaries and tips. Pages 3 and 4 of Plaintiff's 1997 tax return consist of a thirteen paragraph statement, including out-of-context citations to cases, Internal Revenue Code provisions, and Regulations, of why Plaintiff believes he does not owe any income taxes for 1997. Plaintiff's primary argument is that the wages listed on his W-2 form do not constitute "income." Plaintiff's W-2 form shows that he earned $11,610 in wages during 1997 (Docket Entry No. 21, Ex. 2), which was not reported on Plaintiff's income tax return.
On June 8, 1999, the IRS mailed Plaintiff a letter informing him that his 1997 income tax return was frivolous and that his position had no basis in law. (Docket Entry No. 21, Ex. 3). The letter stated that he would be subject to the $500 frivolous return penalty, pursuant to 26 U.S.C. § 6702, if he did not correct his position and send a corrected return within 30 days. (Id.) On June 21, 1999, Plaintiff responded to the IRS's letter, appealing the notice of intent to assess Plaintiff with the frivolous return penalty. (Docket Entry No. 21, Ex. 4). The letter included six pages of further arguments supporting his position that wages in general do not constitute income, and therefore he was entitled to file a $0.00 income tax return. Plaintiff never filed an amended return, and his appeal of the frivolous return penalty was denied. On September 13, 1999, the IRS assessed the $500 frivolous return penalty against Plaintiff. (Docket Entry No. 21, Ex. C).
Plaintiff was issued a Final Notice of Intent to Levy from the IRS on June 23, 2001, which proposed a levy to collect the $500 owed for the frivolous return penalty. Plaintiff filed a request for a Collection Due Process Hearing, pursuant to 26 U.S.C. § 6330 (b), on July 19, 2001. Mr. Scott Biggs, a Settlement Officer with the Office of Appeals of the IRS, was assigned to conduct the hearing. Prior to the Collection Due Process Hearing, Plaintiff informed Biggs that Plaintiff questioned the validity of the Notice of Deficiency and the frivolous return penalty. Among other things, Plaintiff requested documentation of the frivolous return penalty.
The Collection Due Process Hearing took place on March 14, 2002. At the Hearing, Mr. Biggs did not provide any of the specific documentation requested by Plaintiff. With regard to the frivolous return penalty, Biggs was unable to inform Plaintiff which individual person imposed the frivolous return penalty, and whether that person was authorized to impose such penalties. At the hearing, Plaintiff refused to discuss any collection alternatives with Biggs, who informed Plaintiff and verified that all statutory, regulatory, and administrative requirements were met before the Notice of Intent to Levy was issued. Plaintiff was provided with a copy of Form 4340, Certificate of Assessments and Payments, which showed the date and amount of the frivolous return penalty assessment. He challenged the underlying liability for the frivolous return penalty by making frivolous "constitutional" arguments commonly made by individuals who deny the government's authority to collect income taxes.
Plaintiff submitted a copy of the transcript of the Collection Due Process hearing (Docket Entry No. 1, Ex. E). A sample of the dialogue is as follows:
Mr. Biggs: What's your objection to the civil penalty?
Mr. White: Look it up. I can't understand why you can't answer my questions. I thought that's what this hearing was about. Especially since my rights at the beginning have been, of due process, have just been run overrun through this whole process.
Mr. Biggs: Do you have any issues regarding the civil penalty?
Mr. White: Yes, I do. I've got to look at my notes. So do you have that masterfile with you that you've been working from? You do not have the master file.
Mr. Biggs: The masterfile is that transcript.
Mr. White: It doesn't have a 1040 in it. I don't understand.
Mr. Biggs: This is your last opportunity to tell me what your objection is to the civil penalty.
Mr. White: I'm looking for my notes. Be patience [sic] a minute here. Well first of all, I don't have a civil penalty because I don't have no [sic] tax liability and you haven't shown me that. Because I don't have a 1040. If you want to obtain a 1040 and show it to me later, I think maybe this meeting has . . . maybe we need to reschedule the meeting. Because I need to be shown that I have tax liability and I haven't been shown that according to the IRS Code. So without liability there can't be a penalty.
Mr. Biggs: I find your objection unfounded and deem the liability correct. Do you want to discuss any collection alternatives?
Mr. White: Incorrect under what law and what regulation.
Mr. Biggs: IRC 6702.
. . . .
Mr. Biggs: You filed a 1040?
Mr. White: Yes, I did and it says zero. All you got to show me is the 1040 that changes it.
Mr. Biggs: That's a frivolous argument then, that we won't discuss.
On March 28, 2002, following the Collection Due Process Hearing, the IRS mailed Plaintiff a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330. The attachment to the Notice of Determination states that the IRS deems the levy action under Section 6330, including levy for the frivolous return penalty, appropriate.
III. STANDARD OF REVIEW
In ruling on a motion for summary judgment, this Court must construe the evidence produced in the light most favorable to the non-moving party, drawing all justifiable inferences in his or her favor.See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A party may obtain summary judgment if the evidentiary material on file shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of satisfying the court that the standards of Rule 56 have been met.See Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir. 1986). The ultimate question to be addressed is whether there exists any genuine issue of material fact that is disputed.See Anderson, 477 U.S. at 248. If so, summary judgment dismissal is inappropriate.
To defeat a properly supported motion for summary judgment, an adverse party "must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e). The nonmoving party's burden of providing specific facts demonstrating that there remains a genuine issue for trial is triggered once the moving party "show[s] — that is, point [s] out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
IV. ANALYSIS
Defendant contends that Summary Judgment should be granted on the remaining claim, Plaintiff's frivolous return penalty, because there is no question of fact that (1) Plaintiff's 1997 income tax return is frivolous on its face, and (2) the IRS did not abuse its discretion in assessing the tax.
A. Plaintiff's 1997 Income Tax Return is Frivolous on its Face
The frivolous return penalty was assessed pursuant to 26 U.S.C. § 6702, which states:
(a) Civil penalty. — If —
(1) any individual files what purports to be a return of the tax imposed by subtitle A but which —
(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and
(2) the conduct referred to in paragraph (1) is due to —
(A) a position which is frivolous, or
(B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500.
The recent case of Gillet v. U.S., 233 F. Supp.2d 874 (W.D. Mich. 2002), in the Western District of Michigan is instructive. InGillet, Plaintiff entered zeros on his 1998 and 1999 tax returns, despite the fact that his W-2 forms showed the payment of wages, tips, or other compensation. Id. at 878. He was assessed a frivolous return penalty for his 1999 tax return. The court stated that:
[t]he test for frivolousness under section 6702(a) is an objective one, and is met when the position taken by the individual has no basis in fact or law. Numerous federal courts have upheld the imposition of the $500 sanction by the IRS pursuant to where, as here, a tax form is filed stating that an individual had no income, but the attached W-2 forms show wages, tips, or other compensation of greater than zero.Id. at 881 (citations omitted).
Other cases in this district clearly support the conclusion that Plaintiff's position has no basis in law, because wages are income. The court in Hill v. U.S. noted that with regard to the fact that wages are income, "any contention to the contrary is patently frivolous." 599 F. Supp. 118, 121 (M.D. Tenn. 1984). The court further held in Beckelhimer v. U.S. that:
any document which purports to be a federal income-tax return (or an amended return) and which attempts to reduce one's tax-liability by excluding wages or salary from taxable-income, on the ground that they do not constitute taxable-income, is frivolous within the meaning of 26 U.S.C. § 6702 (a); and that where one has filed such a document with the IRS, the assessment of the $500 civil-penalty mandated by § 6702(a) is proper.623 F. Supp. 115, 116 (M.D. Tenn. 1985). In a recent case, Stanco v. U.S., 1999 WL 907510 at *3, 84 A.F.T.R.2d 99-6243 (M.D. Tenn. 1999), the plaintiff entered zero for income and asserted that wages are not income for income tax purposes. The court stated that "it is well settled law that wages are indudable in gross income." Id. In that case, the court held that "[g]iven that the plaintiffs' sole justification on their 1997 tax return for their refund claim is that Joseph Stanco's wages are not indudable in his gross income, the Magistrate Judge concludes that this return is frivolous as a matter of law." Id. at *3,
B. IRS Did Not Abuse Its Discretion
Defendant also asserts that the IRS did not abuse its discretion in rejecting Plaintiff's position. The Sixth Circuit has not yet adopted a standard of review for administrative decisions in the IRS penalty context. However, several district courts "within this circuit have adopted the abuse of discretion standard in IRS cases. . . ." Carroll v. U.S., 217 F. Supp.2d 852, 856 (W.D. Tenn. 2002); see Bonfante v. U.S., 2002 WL 373407, 89 A.F.T.R.2d 2002-1109 (S.D. Ohio 2002); Gellar v. U.S., 2001 WL 1346669, 88 A.F.T.R.2d 2001-6494 (S.D. Ohio 2001). As stated by the Western District of Tennessee, the abuse of discretion review of "a determination will be affirmed unless the court determines with a `definite and firm conviction' that a clear error of judgment has been committed." Carroll, 217 F. Supp.2d at 856 (quotingCincinnati Ins. Co. v. Byers, 151 F.3d 574, 578 (6th Cir. 1998)).
Because the validity of the underlying tax is not at issue before the Court, the only question is whether the IRS abused its discretion in imposing and upholding the frivolous return penalty. Plaintiff did not respond to Defendant's Motion, but asserted in the Complaint that Biggs did not provide the hearing in accordance with the law. The Collection Due Process hearing is governed by 26 U.S.C. § 6330, which provides in pertinent part:
(c) Matters considered at hearing. — In the case of any hearing conducted under this section —
(1) Requirement of investigation. — The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.
(2) Issues at hearing. —
(A) In general. — The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including —
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.
(B) Underlying liability. — The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.
(3) Basis for the determination. — The determination by an appeals officer under this subsection shall take into consideration —
(A) the verification presented under paragraph (1);
(B) the issues raised under paragraph (2); and
(C) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.
It is evident from the transcript submitted by Plaintiff that Biggs asked him several times for a valid argument as to why he should not be assessed a frivolous return penalty. Plaintiff simply continued to repeat that he did not owe any income tax and that he should be shown documentation that he owed income tax based on his wages. Biggs also asked Plaintiff several times to discuss collection alternatives, which Plaintiff would not do. Plaintiff did not raise any non-frivolous challenges to the appropriateness of the collection action, and he did not dispute that he received notice of the assessment of the frivolous return penalty.
As required by 26 U.S.C. § 6330(b)(3), the hearing was conducted by Biggs, an impartial officer who had nothing to do with Plaintiff's case prior to the Collection Due Process Hearing. Biggs verified that the IRS complied with all statutory, regulatory, and administrative requirements. (Docket Entry No. 21, Ex. 5, ¶ 7). Plaintiff was provided a copy of Form 4030, Certificate of Assessments and Payments, showing the date and amount of the frivolous return penalty assessment. The basis for Biggs's determination that the frivolous return penalty should be assessed was clear, and it should have been clear to Plaintiff. Rather than provide any basis for his allegation that Biggs abused his discretion, Plaintiff continues to assert the same frivolous claims in his Complaint. His primary argument rests on the notion that Biggs did not provide any documentation at the Collection Due Process Hearing that he owes any taxes. There were no arguments raised at the Collection Due Process Hearing with regard to the frivolous return penalty, other than the fact that Plaintiff believes that because he was entitled to enter $0.00 for income on his tax return, that he cannot be assessed a frivolous return penalty.
The Court has determined, as have all Courts considering this issue, that wages are income. Therefore, the Court finds that no clear error of judgment was committed. Finding the return to be frivolous, and that no abuse of discretion occurred at the Collection Due Process Hearing where Plaintiff had the ability to dispute the assessment of the frivolous return penalty, there is no genuine issue of fact, and Defendant's Motion for Summary Judgment shall be GRANTED.
VI. ATTORNEY FEES
In its Memorandum, Defendant asserts that attorney fees and costs should be assessed against Plaintiff. As in Carroll, supra, the Court finds that based upon the frivolous and spurious nature of Plaintiff's arguments, Plaintiff maintained this action in bad faith. Thus, the United States is entitled to recover a reasonable attorney's fee and related expenses under 28 U.S.C. § 2412(a). The Sixth Circuit has cautioned that "[l]itigants are warned that in future cases in which the lower court has clearly explained, as it has here, the frivolous nature of the taxpayer's claim that earned income is not taxable, we will not hesitate to award actual attorney fees to the Commissioner. . . ." Perkins v. C.I.R., 746 F.2d 1187, 1188-89 (6th Cir. 1984). Even taking into account the fact that Plaintiff proceeded pro se, it is well settled that "litigants who might persist in claiming that wages or salary are not taxable-income that they risk being assessed with a reasonable attorney's fee in favor of the United States because `it is highly unlikely that any similar lawsuit could be maintained in anything other than bad faith.'" Beckelhimer, 623 F. Supp. at 116 (quoting Hill, 599 F. Supp. at 122) (assessing reasonable attorney's fees and costs to a pro se plaintiff). Accordingly, the Court finds that Defendant is entitled to reasonable attorney fees.
VII. CONCLUSION
For the reasons stated herein, Defendant's Motion for Summary Judgment (Docket Entry No. 21) will be GRANTED, and Defendant will be granted leave to file an application for attorney fees in accordance with Rule 13(e), Local Rules of Court.
An appropriate Order will be entered.