Easterbrook Strikes Again!

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LPC
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Easterbrook Strikes Again!

Post by LPC »

One of our favorite judges draws another tax nut, but the rhetoric is restrained, as are the sanctions (only $4,000).

However, the case was decided the same day it was submitted to the panel. I don't think I've ever seen that before.

Daniel G. Callahan et al. v. Commissioner, 2009 TNT 102-11, No. 08-3366 (7th Cir. 5/27/2009).
DANIEL G. CALLAHAN AND MARY E. CALLAHAN,
Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1

UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
CHICAGO, ILLINOIS 60604

Submitted May 27, 2009*
Decided May 27, 2009

Before

Frank H. Easterbrook, Chief Judge
Ann Claire Williams, Circuit Judge
John Daniel Tinder, Circuit Judge

Appeal from the United States Tax Court.

Nos. 10256-04, 10257-04, 23879-04

Joseph H. Gale, Judge.

ORDER

Daniel and Mary Callahan petitioned the United States Tax Court for redetermination of tax deficiencies and additions to tax assessed by the Commissioner of Internal Revenue after they failed to file income tax returns for four years. At trial, the Callahans contended that their income was not taxable because the Internal Revenue Code taxes only "the gain from wages" and not the wages themselves. The tax court rejected the Callahans' theory, characterizing it as a "frivolous tax-protester argument," and ordered them to pay the back taxes, additions, and sanctions of $1,500 because their litigation conduct had "wasted the time and resources" of the court.

On appeal, the Callahans principally renew their contention that their wages are exempt from tax under 26 U.S.C. § 61. The argument is beyond frivolous. See, e.g., United States v. Cooper, 170 F.3d 691, 691 (7th Cir. 1999) (such arguments are "frivolous squared"); Coleman v. CIR, 791 F.2d 68, 70 (7th Cir. 1986). It is well established that compensation received for labor is income subject to taxation. Cooper, 170 F.3d at 691.

The Callahans also advance several other equally frivolous arguments. First, they contend that they were denied due process because the IRS never issued a valid assessment and instead issued only a notice of deficiency. However, the government cannot issue an assessment while a taxpayer's challenge to a notice of deficiency is still pending. 26 U.S.C. § 6213(a); Reynolds v. CIR, 296 F.3d 607, 613 (7th Cir. 2002). Second, the Callahans complain that the IRS perpetrated a fraud when it created substitute 1040 forms for the years in which they failed to file tax returns. But the tax code authorizes the Commissioner to make a "return" from available information in order to calculate the tax liability of those who do not file returns. See 26 U.S.C. § 6020(b); Carlson v. United States, 126 F.3d 915, 926 (7th Cir. 1997). Next, the Callahans argue that they are exempt from filing tax returns because IRS Form 1040 lacks a valid "control number" in violation of the Paperwork Reduction Act of 1980, 44 U.S.C. §§ 3501-21, which requires agencies to obtain advance approval from the OMB before they can collect information. See 44 U.S.C. §§ 3507, 3512(a)(1). The Callahans, though, have given us no reason to doubt that the OMB control number that appears on Form 1040 is valid. Finally, the Callahans insist that the tax court judge denied them their Sixth Amendment right to confrontation by not requiring counsel for the Commissioner to testify at trial. But the Sixth Amendment does not apply to civil proceedings. See United States v. George, 403 F.3d 470, 473 (7th Cir. 2005).

The Commissioner has moved for sanctions against the taxpayers. See FED. R. APP. P. 38. We agree that the Callahans' appeal is frivolous. We therefore grant the motion and impose sanctions of $4,000, the presumptive sanction for filing a frivolous appeal in a tax case. See Szopa v. United States, 460 F.3d 884, 887 (7th Cir. 2006).

AFFIRMED.

FOOTNOTE

* After examining the briefs and the record, we have concluded that oral argument is unnecessary. Thus, the appeal is submitted on the briefs and the record. See FED. R. APP. P. 34(a)(2).

END OF FOOTNOTE
Dan Evans
Foreman of the Unified Citizens' Grand Jury for Pennsylvania
(And author of the Tax Protester FAQ: evans-legal.com/dan/tpfaq.html)
"Nothing is more terrible than ignorance in action." Johann Wolfgang von Goethe.
LPC
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Re: Easterbrook Strikes Again!

Post by LPC »

The Tax Court decision was a memorandum opinion, T.C. Memo. 2007-301, which I'm not going to duplicate here because it mostly concerned the impact of Wisconsin's marital property act (which is essentially a community property law). The only two passages relevant to tax protester arguments were as follows:
Tax Court wrote:Petitioners have admitted the receipt of each item of income respondent determined. Their arguments that this income was not taxable are frivolous tax-protester arguments that we need not “refute * * * with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.” Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984).
And:
Tax Court wrote:Respondent has moved for a penalty under section 6673(a)(1). Whenever it appears to the Court that proceedings have been instituted or maintained primarily for delay or the taxpayer’s position in such proceedings is frivolous or groundless, the
Court may require the taxpayer to pay a penalty not in excess of $25,000. Sec. 6673(a)(1).

Petitioners presented no substantive evidence in support of their positions. Instead, they advanced numerous frivolous tax-protester arguments, such as claiming that labor is property that gives rise to an “even” exchange when it is traded for money and that income is not defined in the Internal Revenue Code. Petitioners were warned at trial that their arguments were frivolous and could subject them to penalties under section 6673. Petitioners were directed to address in their brief the question of whether a section 6673 penalty should be imposed on them. They failed to do so, instead persisting in advancing frivolous tax-protester arguments.

Petitioners’ conduct in this case has wasted the time and resources of this Court. Their disregard of the Court’s warning indicates that stronger deterrents are appropriate. Consequently, the Court will exercise its discretion to impose a penalty of $1,500 upon each petitioner pursuant to section 6673(a)(1).
Dan Evans
Foreman of the Unified Citizens' Grand Jury for Pennsylvania
(And author of the Tax Protester FAQ: evans-legal.com/dan/tpfaq.html)
"Nothing is more terrible than ignorance in action." Johann Wolfgang von Goethe.
The Operative
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Re: Easterbrook Strikes Again!

Post by The Operative »

At trial, the Callahans contended that their income was not taxable because the Internal Revenue Code taxes only "the gain from wages" and not the wages themselves. The tax court rejected the Callahans' theory, characterizing it as a "frivolous tax-protester argument," and ordered them to pay the back taxes, additions, and sanctions of $1,500 because their litigation conduct had "wasted the time and resources" of the court.
That is one of Weston's arguments. Of course, he will claim the Callahans were using the same argument since the court didn't use his magic words.
Light travels faster than sound, which is why some people appear bright, until you hear them speak.