Quatloos! Tax Protestor Cases -- Dennis Gavigan

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Tax Protestor Cases Exhibit
("Damn, We Lost Again! And why is it that people who sell
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DENNIS AND LAURA GAVIGAN
Plaintiffs
v.
UNITED STATES OF AMERICA
Defendant.

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

RULING ON MOTION FOR SUMMARY JUDGMENT

[1] The plaintiffs in this action, Dennis and Laura Gavigan, seek a refund of income tax payments that they allegedly overpaid during the years 1993 through 1996. They also seek a refund of certain penalties imposed and collected by levy as a result of their filing frivolous income tax returns. Now pending before the court is the defendant's motion for summary judgment. For the reasons that follow, the defendant's motion for summary judgment [doc. #19 (3:99CV697 (DJS))] is GRANTED.

I. FACTS

[2] After an examination of the complaint, affidavits, and other documents on file, the court finds the following relevant facts. In the Spring of 1997, the plaintiffs filed a tax return for the year 1996 and amended tax returns for the years 1993 through 1995. On each of these returns the plaintiffs indicated that both their adjusted gross Income and their taxable income was zero dollars, thereby concluding that they were entitled to a full refund of all monies paid in the form of income taxes for those years. The plaintiffs claimed that, according to their calculations, they were entitled to a total refund of $24,525.14.

[3] In response to these filings, the Internal Revenue Service (IRS) assessed a $500 frivolous-return penalty on each return pursuant to 26 U.S.C. section 6702. The amount of the penalties totaled $2000, and in November 1998, the IRS levied Dennis Gavigan's bank account and collected $2,199.74 in penalties and interest. This lawsuit followed.

II. STANDARD

[4] Under Rule 56(c) of the Federal Rules of Civil Procedure, a court must grant summary judgment if the pleadings and supporting documents "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). All ambiguities must be resolved and all inferences drawn in favor of the nonmoving party. Eastway Constr. Corp. v. New York, 762 F.2d 243, 249 (2d Cir. 1985).

III. DISCUSSION

A. PLAINTIFFS' REQUEST FOR REFUND OF TAXES PAID

[5] The plaintiffs argue that they are entitled to a tax refund because wages and compensation for personal services do not constitute income for tax purposes. Though the allegations and legal claims contained in the complaint and accompanying papers are garbled and difficult to follow, the plaintiffs appear to advance the following two-fold argument: a taxpayer is not liable for taxes unless those taxes are first "assessed" by the Treasury Secretary, and, in any event, compensation for personal services rendered is not encompassed within the definition of income under the Internal Revenue Code because the Code limits the definition of income to gain resulting from corporate activities.

[6] The plaintiffs' arguments are wholly without merit. First, the IBS [sic] need not make a formal assessment of tax liability before payment is necessary. See Brown v. United States, 199 F.3d 1331, 1331 (9th Cir. 1999); see also Tornichio v. United States, No.5:97CV2794, 1998 WL 381304, at *2 (M.D. Ohio Mar. 12, 1998) (rejecting a similar attempt to distinguish between "imposing" a tax and "creating" a tax liability). "An assessment is merely a bookkeeping procedure that permits the government to bring its administrative apparatus to bear in collecting a tax." Zeier v. United States, 80 F.3d 1360 (9th Cir. 1996) (rejecting an argument, in an estate tax context, similar to the one advanced by the plaintiffs in the case at bar). Although most taxes are collected without an assessment, an assessment serves as the basis on which the IRS acts against those who do not voluntarily and timely pay their taxes. See Brown, 199 F.3d at 1332.

[7] Second, the frivolous argument that wages are not income "has been rejected so frequently that the very raising of it justifies the imposition of sanctions." Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985); Bey v. New York, 164 F.3d 617, 617 (2d Cir. 1998). Section 61(a) of the Internal Revenue Code clearly defines gross income as "all income from whatever source derived," which includes wages, salaries, and compensation for services. 26 U.S.C. section 61(a); 26 C.F.R. section 1,61-2(a). The plaintiffs erroneously rely on cases that have defined the scope of corporate income to argue that non-corporate income is not taxable. "To the contrary, . . . many of these cases state: 'income may be defined as gain derived from capital, from labor, or from both combined.'" Tornichio, 1998 WL 381304, at *3 (citations omitted). The plaintiffs' claim that they are owed a refund because they had no tax liability for the years 1993 through 1996 is therefore foreclosed by well- established law.

B. PLAINTIFFS' REQUEST FOR REFUND OF PENALTIES PAID

[8] The plaintiffs also seek a refund of $2,199.74 for the penalties they were assessed as a consequence of filing frivolous returns. As the defendant correctly argues, the United States, as sovereign, may only be sued to the extent that it so consents. United States v. Sherwood, 312 U.S. 584, 586 (1941). Moreover, the statute that authorizes civil actions against the United States for a refund, 26 U.S.C. section 7422, ¹ mandates, as a jurisdictional prerequisite to such suit, the filing of a claim for a refund. See 26 U.S.C. section 7422. According to the record before the court, the plaintiffs failed to file any such claim for a refund of the penalties. In light of the foregoing, this court lacks jurisdiction to entertain the plaintiffs" claim that they are entitled to a refund of the penalties levied and collected. See Pechan v. United States, 686 F.Supp. 410, 412 (E.D.N.Y. 1988) (citing Oldland v. Kurtz, 528 F. Supp. 316, 322 (D. Colo. 1981)); Porto v. I.R.S., No.88CV6955(RWS), 1989 WL 52343, *1 (S.D.N.Y. May 8, 1989).

IV. CONCLUSION

[9] For the above reasons, the motion for summary judgment (doc. #19 (3:99CV697 (DJS))] is GRANTED. The clerk is directed to close this case.

[10] So ordered.

[11] Dated at Hartford, Connecticut this 30th day of November 2000.

/s/
Dominic J. Squartrito
United States District Judge

FOOTNOTE

¹ Section 7422(a) provides the following:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof. 26 U.S.C. section 7422(a) (emphasis added).

END OF FOOTNOTE

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