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832 F.2d 986
Dan E. McLAUGHLIN, Petitioner-Appellant,
COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.
United States Court of Appeals,
Submitted Oct. 1, 1987.
Decided Oct. 16, 1987.
Amended Oct. 30, 1987.
Dan E. McLaughlin, pro se.
Michael L. Paup, Chief, Appellate Section, Tax Div., Dept. of
Justice, Washington, D.C., Roger M. Olsen, Ann B. Durney, John J. Doyle,
Asst. Atty. Gen., for respondent-appellee.
Before CUMMINGS, CUDAHY and FLAUM, Circuit Judges.
Tax protesters, those who persist in pressing losing arguments in an attempt
to challenge the legitimacy of the federal income tax, are thorns in the
side of the federal judiciary. Cf. Coleman v. Commissioner, 791 F.2d 68
(7th Cir.1986). In this case, Dan McLaughlin, a tax protester proceeding pro
appeals from a decision of the United States Tax Court which (i) dismissed
his petition for failure to state a claim, (ii) awarded statutory damages
to the respondent Commissioner, and (iii) sustained the Commissioner's
determination of deficiencies and statutory additions to tax. For the reasons
below, we substantially affirm the Tax Court (modifying only its award
of damages) and, in response to the government's request, impose sanctions
our own. The course of this litigation is well-known to the parties.
Moreover, in view of the complete lack of merit of the instant appeal, there
is no sense in undertaking to restate the facts underlying McLaughlin's groundless
contentions. This case has already consumed more than its fair share of judicial
The Tax Court's decision sustained the Commissioner's determination that for
the years 1980, 1981 and 1982 McLaughlin received wage and interest income
in the respective amounts of $36,403, $30,621, and $24,510. For those same
years, McLaughlin filed no federal income tax returns, reported no income tax
as due and had no taxes withheld from his wages. McLaughlin has not and presently
does not dispute the Commissioner's computation of deficiency or statutory
penalties; rather, he argues that he is, for a number of reasons, exempt from
the payment of income tax. Because McLaughlin's petition for review of the
Commissioner's assessments alleged no factual errors, as required by Tax Court
Rule 34(b)(4) and (5), [FN1] the Tax Court granted the Commissioner's motion
to dismiss, sustained the deficiencies and additions to tax and awarded the
Commissioner the maximum damages permitted under 26 U.S.C. s 6673, to wit:
FN1. Rule 34 of the Rules of the United States Tax Court states in relevant
part: (a) General. (1) Deficiency or liability actions. The petition with respect
to a notice of deficiency or a notice of liability shall be substantially in
accordance with ... and shall comply with the requirements of these Rules relating
to pleadings ... Failure of the petition to satisfy applicable requirements
may be ground for dismissal of the case ... (b) Content of petition in deficiency
or liability actions. The petition in a deficiency or liability action shall
* * *
(4) Clear and concise assignments of each and every error which the petitioner
alleges to have been committed by the Commissioner in the determination of
the deficiency or liability ... Any issue not raised in the assignment of errors
shall be deemed to be conceded ... (5) Clear and concise lettered statements
of the facts, on which petitioner bases the assignments of error.
On appeal, McLaughlin posits three arguments: (1) that his liability for federal
income tax is contractual in nature and he has rescinded that contract; (2)
that his religious scruples prevent him from "entering into contracts
with the inhabitants of the land;" and (3) that he receives no benefits
from the state and therefore owes nothing to the state. Each of these arguments
has been previously addressed by the courts and soundly rejected; by raising
them again in the Tax Court and on appeal to this court McLaughlin has understandably
provoked judicial ire.
The notion that the federal income tax is contractual or otherwise consensual
in nature is not only utterly without foundation but, despite McLaughlin's
protestations to the contrary, has been repeatedly rejected by the courts.
See, e.g., Newman v. Schiff, 778 F.2d 460, 467 (8th Cir.1985); United States
v. Drefke, 707 F.2d 978, 981 (8th Cir.), cert. denied, sub nom., Jameson v.
United States, 464 U.S. 942, 104 S.Ct. 359, 78 L.Ed.2d 321 (1983). Furthermore,
case law in this circuit is well-settled that individuals must pay federal
income tax on their wages regardless of whether they avail themselves of governmental
benefits or privileges. See Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir.1986);
Lovell v. United States, 755 F.2d 517, 519 (7th Cir.1984). And finally, McLaughlin's
contention that his religion excuses him from having to pay income tax is forestalled
by the Supreme Court's decision in United States v. Lee, 455 U.S. 252, 102
S.Ct. 1051, 71 L.Ed.2d 127 (1982), where the Court held that "because
the broad public interest in maintaining a sound tax system is of such high
order, religious belief in conflict with the payment of taxes affords no basis
for resisting the tax." Id. at 260, 102 S.Ct. at 1057. See also First
v. Commissioner, 547 F.2d 45 (7th Cir.1976) (per curiam).
We turn next to consideration of the Tax Court's award of statutory damages
of $5,000 against McLaughlin. Title 26 of the United States Code provides at
s 6673 for an award of damages, up to a maximum of $5,000, to the United States "[w]henever
it appears to the Tax Court that proceedings before it have been instituted
or maintained by the taxpayer primarily for delay or that the taxpayer's position
in such proceedings is frivolous or groundless...." While heartily concurring
in the Tax Court's decision to award damages to the government under s 6673,
we are uneasy upon review of the record in this case about levying the maximum
possible penalty against McLaughlin who appeared pro se and who does not appear
to be an habitual abuser of judicial process for these purposes. In Coleman
v. C.I.R., 791 F.2d 68 (7th Cir.1986), this Circuit rejected the proposition
that a showing of subjective bad faith was a prerequisite to the imposition
of sanctions pursuant to s 6673. Addressing the issue of what sort of factors
the Tax Court may take into account in determining how severe a sanction to
impose and recognizing that no single formula can be fashioned to calculate
the appropriate penalty in cases such as this, we determine that meaningful
appellate review of s 6673 damage awards requires an articulation by the Tax
Court of those particular factors, both objective and, in appropriate cases,
subjective, upon which it has relied in fixing the sum assessed. While in the
instant case, the record tends to support the Tax Court's determination that
McLaughlin's suit was groundless and likely to result in defeat, this Court
is unable, because of the absence of more specific findings, to conclude definitively
that McLaughlin's conduct was so egregious as to warrant the imposition of
the maximum sanction. The Tax Court's award of s 6673 damages is therefore
reduced from the $5,000 maximum allowable to $3,500.
Finally, the United States has asked us, pursuant to 28 U.S.C. s 1912 and
Fed.R.App.P. 38, to impose sanctions of our own against McLaughlin for filing
this appeal. The government's invitation is accepted. Where an appeal is both
frivolous and an appropriate one for the imposition of sanctions, and this
appeal surely satisfies both criteria, an appellate court may impose sanctions.
See Reid v. United States, 715 F.2d 1148, 1154-55 (7th Cir.1985). In lieu of
costs and attorneys' fees and in accordance with the government's suggestion,
McLaughlin is ordered to remit an additional $1,500 payable to the United States
Treasury. See Coleman v. C.I.R., 791 F.2d 68, 73 (7th Cir.1986). While the
Tax Court's adverse decision was no doubt unpleasant news to McLaughlin, the
court's admonition that the claims pressed there were utterly frivolous and
without any conceivable merit should have discouraged McLaughlin from rehashing
those same stale arguments in this forum.
AFFIRMED AS MODIFIED WITH SANCTIONS.
to Tax Protestor Exhibit