Lovell v. United States, 755 F.2d
517 (7th Cir. 12/18/1984)
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UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
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No. 84-1547
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1984.C07.40025 <http://www.versuslaw.com>; 755
F.2d 517
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*fn**fn**:
December 18, 1984.
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MICHAEL W. LOVELL AND PHYLLIS D. LOVELL,
PLAINTIFFS-APPELLANTS,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE
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Appeal from the United States District Court for the Western
District of Wisconsin, Nos. 83 C 812, 83 C 813, John C. Shabaz,
Judge.
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Author: Per Curiam
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Per Curiam.
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Plaintiffs appeal from a district court order granting summary
judgment to the government and assessing a $500 frivolous return
penalty under 26 U.S.C.A. § 6702 (a). The district court also
awarded attorneys' fees to the government because plaintiffs'
legal position was patently frivolous. We affirm.
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I.
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In April 1983, plaintiffs filed separate Forms 1040 for the 1982
tax year. Each plaintiff claimed no income from wages or salaries
during 1982, although each claimed a refund of all the federal
income and Social Security taxes that had been withheld during the
year. The Lovells also filed Schedule C forms on which they
claimed that their gross receipts a "labor contractors"
were totally offset by adjustments for the "cost of
labor." Neither plaintiff signed the return; instead, they
each wrote on the signature line: "not a tax return (see
attached letter)." The letter explained that they sought a
refund and that the forms filed were not tax returns but
supporting documentation for their refund claims.
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The IRS assess a $500 frivolous return penalty under § 6702(a);*fn1
plaintiffs paid 15 % of the penalties and filed claims for refund
which were denied by the IRS. Plaintiffs then filed the instant
action in district court.
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II.
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Plaintiffs contend on appeal that § 6702(a) does not apply to
their case because the documents they filed did not purport to be
tax returns within the meaning of the statute. This assertion is
utterly meritless. The Fifth Circuit recently rejected an
identical argument and we agree with the court's reasoning there.
Davis v. United States Government, 742 F.2d 171,
173 (5th Cir. 1984) (per curiam). A return must be filed in order
to obtain the refunds plaintiffs requested. 26 C.F.R. §
301.6402-3(a)(1) (1984).
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Since the plaintiffs' stated purposes was to obtain a refund,
the documents submitted must be deemed to be purported tax returns
for purposes of section 6702. It is true that the plaintiffs wrote
on the forms that they were not returns, but this disclaimer has
no effect in light of the plaintiffs' stated purpose to have the
documents treated as returns. If such a disclaimer were sufficient
to avoid liability under section 6702, tax protestors could flood
the IRS with frivolous tax returns bearing similar disclaimers
without penalty. Section 6702's purpose of deterring frivolous
filings would be completely undermined.
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Nichols v. United States, 575 F. Supp. 320, 322 (D. Minn. 1983).
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The government has established all of the requisite elements for
§ 6702(a) liability. The returns filed by plaintiffs indicate
that the self-assessments are substantially incorrect. The fact
that taxes were withheld demonstrates that plaintiffs received
income in 1982; yet their returns indicated that they earned no
income. See Davis, 742 F.2d at 172; Holker v. United States, 737
F.2d 751, 753 (8th Cir. 1984) (per curiam). And there is
absolutely no doubt that the legal contentions advanced by the
plaintiffs are frivolous; indeed, plaintiffs' arguments are
patently absurd.
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Plaintiffs argue first that they are exempt from federal
taxation because they are "natural individuals" who have
not "requested, obtained or exercised any privilege from an
agency of government." This is not a basis for an exemption
from federal income tax. See Holker v. United States. All
individuals, natural or unnatural, must pay federal income tax on
their wages, regardless of whether they received any
"privileges" from the government. Plaintiff also contend
that the Constitution prohibits imposition of a direct tax without
apportionment. They are wrong; it does not. U.S. Const. amend.
XVI; Parker v. Commissioner, 724 F.2d 469, 471 (5th Cir. 1984).
Finally, plaintiffs' assertion that money received in compensation
for labor is not taxable has been rejected by numerous courts.
See, e.g., Davis, 742 F.2d at 172; Simanonok v. Commissioner, 731
F.2d 743, 744 (11th Cir. 1984) (per curiam). Cf. United States v.
Koliboski, 732 F.2d 1328, 1329 n.1 (7th Cir. 1984). Plaintiffs'
other arguments against the income tax are equally frivolous.
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This court recently warned taxpayers who put forth frivolous
arguments in bad faith that we would not hesitate to impose
sanctions pursuant to Fed. R. App. P. 38. Granzow v. Commissioner,
739 F.2d 265, 269-70 (7th Cir. 1984). See also Edgar v. Inland
Steel Co., 744 F.2d 1276, 1278 (7th Cir. 1984); United States v.
Ekblad, 732 F.2d 562 (7th Cir. 1984). Other circuits have imposed
sanctions in § 6702 cases, see Martinez v. IRS, 744 F.2d 71 (10th
Cir. 1984) (per curiam); Davis, 742 F.2d at 173; Baskin v. United
States, 738 F.2d 975, 977 (8th Cir. 1984) (per curiam); Crain v.
Commissioner, 737 F.2d 1417, 1418 (5th Cir. 1984), and we believe
sanctions are appropriate in this case. Accordingly, the United
States shall recover, from plaintiffs, reasonable attorneys' fees
and costs incurred in defending this appeal. The government shall
file with this court, within 15 days of the date of this order, a
submission as to the fees and costs it has incurred on appeal. The
judgment of the district court is AFFIRMED.
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General Footnotes |
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*fn* November 28,
1984, Submitted: After preliminary examination of the briefs, the
court notified the parties that it had tentatively concluded that
oral argument would not be helpful to the court in this case. The
notice provided that any party might file a "Statement as to
Need of Oral Argument." See Rule 34(a), Fed. R. App. P.
Circuit Rule 14(f). No such statement having been filed, the
appeal has been submitted on the briefs and record.
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*fn** This appeal
was originally decided by unreported order on December 18, 1984.
See Circuit Rule 35. The court has subsequently decided to issue
the decision as an opinion.
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Opinion Footnotes |
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*fn1 26 U.S.C.A. §
6702(a) (West Pocket Part 1984) provides:
(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.
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