Assessment Procedures Are Just A Diabolical Plot

[The Observer]

And we can only guess what our fearless TP thinks of the frivpen he garnered...

JAMES R. GARBER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

Release Date: FEBRUARY 22, 2012

UNITED STATES TAX COURT

Filed February 22, 2012

James R. Garber, pro se.

Nathan M. Swingley, for respondent.

MEMORANDUM OPINION

RUWE, Judge: This matter is before the Court on the parties' cross-motions for summary judgment pursuant to Rule 121. 1 In his motion, respondent moves that no genuine issue exists as to any material fact and that the Court should sustain his determination of petitioner's deficiencies in income tax and the related additions to tax. Respondent further moves that the Court award a penalty to the United States pursuant to section 6673 on the basis that petitioner instituted these proceedings primarily for the purpose of delay and/or petitioner's position in the present case is frivolous or groundless.

In his motion, petitioner contends that respondent has not been able to provide him with "any Section of the IRS code which makes the petitioner LIABLE for the tax imposed in Section 1 of the Code" and that "f the respondent can locate any section of the code which makes the petitioner 'liable' or 'required' to file a return, the petitioner will immediately plead guilty thereby saving the court a great deal of time and money."

BACKGROUND

At the time the petition was filed, petitioner resided in Indiana.

On November 15, 2010, respondent mailed petitioner two separate notices of deficiency (notices) for the taxable years 2007 and 2008. Respondent determined a deficiency of $ 1,512 in petitioner's 2007 income tax, as well as additions to tax of $ 340.20 and $ 219.24 pursuant to section 6651(a)(1) and (2), 2 respectively. Respondent also determined a deficiency of $ 1,044 in petitioner's 2008 income tax, as well as additions to tax of $ 234.90 and $ 88.74 pursuant to section 6651(a)(1) and (2), respectively. Respondent made his determinations in the notices on the basis of substitutes for returns completed pursuant to section 6020(b) and in accordance with section 301.6020-1(b), Proced. & Admin. Regs.

Petitioner timely filed his petition with this Court. In his petition, petitioner does not dispute his receipt of income for the tax years 2007 and 2008 or the amounts of respondent's calculated deficiencies and additions to tax. Instead, petitioner contends that he never received an official assessment for 2007 or 2008 and, because he did not file a return for 2007 or 2008, respondent "had nothing" on which to base his "bogus assessments or Notices of Deficiency pursuant to "[sections] 6201(1) [and] 6211(1) (A)".

DISCUSSION

Summary judgment is intended to expedite litigation and to avoid unnecessary and expensive trials. Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974). A motion for summary judgment is granted where the pleadings and other materials show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. Rule 121(b); FPL Group, Inc. v. Commissioner, 116 T.C. 73, 74-75 (2001); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).

Petitioner's response to respondent's motion fails to indicate that there is a genuine issue for trial. Consequently, we conclude that there is no issue as to any material fact and that a decision may be rendered as a matter of law.

In his motion and in his response to respondent's motion, petitioner makes many unfounded arguments which lead him to his conclusion that no statutes render him liable for Federal income taxes. For example, petitioner's claims include statements such as: (1) respondent has not been able to provide him with "any Section of the IRS code which makes the petitioner LIABLE for the tax imposed in Section 1 of the Code"; (2) "a resident of the fifty states may choose to file a return thereby assessing himself or he 'may' choose not to do so. (A definition of 'may' can be found in any dictionary.)"; and (3) "The only person in the Code required to file a tax return for income taxes is the withholding agent referred to in Section 1461 and, the only Persons referred to in Section 7203 (the Section used to erroneously send Persons to prison) are Withholding Agents (See Section 7343)" * * * [and] "Petitioner is not a Withholding Agent referred to in Section 7343." Petitioner further argues that it "appears quite evident that the commissioner is trying to declare any law that might bolster a petitioner's case declared frivolous, thus attempting to rule by regulation in total disregard to the underlying LAWS and to THE CONSTITUTION." Petitioner concludes by stating that if respondent cannot produce the Code sections upon which his tax liabilities are premised, then "all of the Notices of Deficiency, Proposed Assessments, 4340 forms and Substitutes for Returns are null and void and just a diabolical plot to manufacture a fake 'Certificate of Assessment' of zero '0' in order to have a basis for illegal Notices of Deficiency. (You might say the IRS Position is 'FRIVOLOUS and WITHOUT MERIT.)".

As we have said of similar arguments on previous occasions, petitioner's arguments are frivolous and devoid of any basis in the law. We need not refute them with somber reasoning and copious citation of precedent; to do so might suggest that they have some colorable merit. See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); Wnuck v. Commissioner, 136 T.C. 498 (2011); Guthrie v. Commissioner, T.C. Memo. 2006-81. Petitioner has raised no issue in the pleadings to indicate that respondent's determinations in the notices were incorrectly computed, and there is no genuine issue of material fact surrounding whether respondent made any assessments regarding petitioner for 2007 or 2008. 3 Consequently, we find respondent's determinations in the notices for petitioner's 2007 and 2008 taxable years to be correct. Accordingly, we will grant respondent's motion for summary judgment.

Section 6673 Penalty

Respondent moved the Court to impose a penalty on petitioner under section 6673(a)(1). Section 6673(a)(1) authorizes the Court to impose a penalty not to exceed $ 25,000 if the taxpayer took frivolous positions in the proceeding or instituted the proceeding primarily for delay. A position "is frivolous if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986). This Court has ruled that arguments such as those petitioner asserts here are frivolous and wholly without merit. See Williams v. Commissioner, T.C. Memo. 1999-277 (imposing section 6673 penalty for tax-protester arguments). Accordingly, we find that petitioner advanced frivolous arguments primarily for the purpose of delay and require that he pay a penalty of $ 1,000 to the United States pursuant to section 6673(a)(1). We also warn petitioner that we will consider imposing a larger penalty if he returns to the Court and advances frivolous or groundless arguments in the future.

To reflect the foregoing,

An appropriate order will be issued granting respondent's motion and denying petitioner's motion, and decision will be entered for respondent.

FOOTNOTES:


/1/ Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code as amended.

/2/ The amount of any addition to tax pursuant to sec. 6651(a)(2) shall be determined pursuant to sec. 6651(a)(2), (b), and (c).

/3/ Attached to respondent's motion were copies of Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters, dated December 5, 2011, which reflect that no assessments or payments were made regarding petitioner's income tax liabilities for 2007 and 2008. Respondent also attached Form 3050, Certification of Lack of Record, showing that petitioner filed no return for 2007 or 2008.

[LPC]

Affirmed on appeal, with additional sanctions of $4,000 for a frivolous appeal.

James R. Garber v. Commissioner, No. 12-2278 (7th Cir. 2/15/2013)

(Incidentally, Richard Posner's name is well known, but Diane Wood is also well regarded, and has been mentioned a few times as a potential Supreme Court nominee.)

JAMES R. GARBER,
Plaintiff-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Defendant-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 February 14, 2013*
Decided February 15, 2013

Before

RICHARD A. POSNER, Circuit Judge

DIANE P. WOOD, Circuit Judge

JOHN DANIEL TINDER, Circuit Judge

No. 12-2278

Appeal from the United States Tax Court.

No. 2863-11

Robert P. Ruwe,
Judge.

ORDER

James Garber appeals the Tax Court's grant of summary judgment in favor of the Commissioner of Internal Revenue and imposition of sanctions in this suit protesting notices of deficiency for the 2007 and 2008 tax years. We affirm.

Garber did not file an income tax return in 2007 or 2008. After determining that he had earned about $20,000 each year, the Internal Revenue Service notified him that he owed $3,437 in back taxes and penalties. Garber petitioned the Tax Court for redetermination of the deficiencies and penalties, maintaining that the IRS could not assess deficiencies against him because he had not filed a tax return.

The Tax Court granted summary judgment for the Commissioner, finding that Garber's arguments were based on unfounded objections to the federal tax system rather than a colorable claim that the deficiency notices were incorrect. Because it found his arguments frivolous, the court also granted the Commissioner's motion for $1,000 in sanctions.

On appeal, Garber generally asserts that his wages do not constitute taxable income and that the Internal Revenue Code does not require him to file a tax return.

The federal courts, however, have roundly rejected such arguments. See United States v. Raymond, 228 F.3d 804, 812 (7th Cir. 2000); United States v. Cooper, 170 F.3d 691, 691 (7th Cir. 1999) (such arguments are "frivolous squared"); United States v. Middleton, 246 F.3d 825, 841 (6th Cir. 2001); Newman v. Schiff, 778 F.2d 460, 467 (8th Cir. 1985).

Garber further suggests that the IRS improperly sent him deficiency notices before making a final assessment of the taxes he owed. This argument misapprehends the significance of a tax assessment. An assessment is not a prerequisite to tax liability but a "formal determination that a taxpayer owes money." Moran v. United States, 63 F.3d 663, 666 (7th Cir. 1995); see also Stevens v. United States, 49 F.3d 331, 336 (7th Cir. 1995). IRS regulations prohibit the agency from making this determination before notifying a taxpayer of an alleged deficiency or, if the taxpayer disputes the deficiency, before the Tax Court's decision becomes final. See 26 U.S.C. § 6213(a). These regulations do not relieve Garber from tax liability.

The Commissioner has moved for sanctions against Garber. We agree that Garber's appeal is frivolous and 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)(C).

END OF FOOTNOTE

[jkeeb]

What the H*ll is this "presumptive penalty" BS?

[Famspear]

What the H*ll is this "presumptive penalty" BS?

Good question. Here is the text of the Szopa case, cited above:

EASTERBROOK, Circuit Judge.

Our first opinion, 453 F.3d 455 (7th Cir. 2006), not only affirmed the district court's decision but also concluded that the appeal is frivolous and granted the United States' motion for sanctions. We expressed skepticism, however, about the Tax Division's request to set the presumptive sanction in tax-protest cases at $8,000, which it says is $3,000 less than the average expense of handling frivolous appeals. We asked the parties to file additional memoranda concerning the legal services for which the United States must pay to defend such appeals. The government's response is packed with data but does not allay our concerns.

Our first opinion used a back-of-the-envelope approach to calculate that it costs the Tax Division about $1,136 per day (or $142 per hour) for an experienced appellate lawyer, including all support expenses. The statement that each appeal costs $11,000 thus implied that it takes about two working weeks to brief a frivolous appeal, a number we found hard to believe. The response shows that our estimate came pretty close: the Department of Justice uses $139 per hour as the full cost (including fringe benefits and overhead) for lawyers who staff the Tax Division's Appellate Section. Thus our inference—that the Appellate Section devotes something near 10 days to each frivolous appeal—turns out to be correct. The response tells us that the average is 89 attorney hours, or 11 + work days per appeal. Szopa's appeal required 53 attorney hours (45 by the attorney who wrote the brief and 8 hours for review within the Appellate Section) plus 8 hours of paralegal time at $83 per hour, for a total of $8,031. And this for a 15-page brief. That's about four hours a page, or 53 words per hour at a cost of $2.80 per 886*886 word. (The brief contained about 2,800 words.)

In one respect the response is reassuring. We asked why the cost of handling frivolous appeals had risen so fast since 1985, when the presumptive sanction of $1,500 was adopted. It turns out that the $1,500 was based on the average award by courts of appeals rather than the Tax Division's actual costs. So the proposed increase (from $2,700 in 2005 dollars to the $11,000 average cost, and the $8,000 per appeal sanction that the Department now wants us to adopt) no longer looks like a rapid decline in the Tax Division's productivity. What is not reassuring is the fact that productivity appears to have been low all along. Investing 11 days (on average) of legal time per frivolous appeal is not prudent; what makes an appeal frivolous, after all, is that the arguments have been presented and rejected before, and tax-protest appeals entail arguments rejected many times. Why does it take 89 hours on average (or 53 hours in Szopa's case) to prepare a brief pointing this out?

A court asked to award sanctions that compensate the prevailing party for attorneys' fees must ensure that the time was reasonably devoted to the litigation. See, e.g., Budget Rent-A-Car System, Inc. v. Consolidated Equity LLC, 428 F.3d 717 (7th Cir.2005) (holding that 13.7 hours of high-priced time to prepare and file a motion to dismiss a frivolous appeal was excessive). The Tax Division's rates are less than those of tax partners at private firms, but the time devoted to frivolous appeals still must be reasonable if the other side is to be called on to pay for it.

The Department's memorandum observes: "We have ... long seen it as our responsibility, even in the most frivolous cases, to spend the time necessary to parse through [sic] the often convoluted and unintelligible arguments of tax protesters so that their cases might be presented to the court in as coherent a fashion as possible. Lawyers in the private sector, who are not held to such a high standard by the courts, are under no similar compunction." The point is well taken, and the assistance is much appreciated. Still, the lawyers of the Tax Division are specialists, and when a given point is made and rejected over and over—often enough to be called frivolous when advanced again—it is not asking too much for the Tax Division to find a lawyer who has seen it before and can prepare a response in short order. This is why our first opinion remarked that half of the brief must have come from a word processor's glossary: The relation between a District Court and the Tax Court under 26 U.S.C. § 6330(d)(1) is hardly novel. We benefited from a compact statement of that relation in the appellee's brief, but this cannot have been the first time that the Tax Division prepared such a recap.

None of Szopa's filings was unclear. Her brief was neatly typed (unlike the scrawled longhand that we encounter all too often) and took only 9 double-spaced pages to present both the facts and the argument. Szopa's brief made it pellucid that everything depends on her assertion that the federal income tax is not, after all, on "income" but is on "employment" and that non-corporate citizens of the United States need not pay "income taxes." If that proposition is wrong—as it is—then affirmance follows directly. The district judge required less than one page to dispose of the litigation. No explication was necessary. Yet the Tax Division tells us that it still took 53 hours of tax specialists' time to prepare and review a 15-page brief. That cannot be understood as an investment necessary to translate a tax protester's gibberish into legal English.

The Tax Division has explained why the amounts chosen as presumptive sanctions in 1986 and 1996 should not be 887*887 used as the basis for sanctions today. It has not adequately justified a sanction that rests on an average of 89 hours of legal time (the $11,000 figure) or even 57.5 hours (which is what the requested $8,000 sanction works out to). Thirty hours is more plausible, and even this strikes us as generous to the Tax Division. So we adopt a presumptive sanction of $4,000 for a frivolous tax appeal. The choice is necessarily arbitrary; and to the extent there is doubt about whether this represents a reasonable average investment in legal time we resolve it in favor of the victim rather than the perpetrator of frivolous litigation. Consistent with our first opinion the presumptive award will be doubled for a recidivist litigator. The Department is free to request more when the case is especially complex or the tax protester's argument especially long and opaque.

Szopa is a recidivist, so her final sanction is $8,000, payable immediately. We told Szopa in the first opinion that if the interim award ($5,400) was not paid within 10 days, she would be barred from filing further civil suits in the courts of this circuit under the terms of Support Systems International, Inc. v. Mack, 45 F.3d 185 (7th Cir.1995). She has not paid one cent, so the Mack order takes effect today and will remain in force until the sanction has been satisfied, though as Mack provides a motion for modification may be filed after two years.

---Sophie A. Szopa v. United States, 460 F.3d 884 (7th Cir. 2006).

[Famspear]

I think the Court may have been using the term "presumptive" here, as in "presumptive sanction," merely as a way of talking about a rule of thumb for coming up with a dollar amount.

It's a bit unclear to me as to whether the Court is talking about the sanction under 28 USC section 1912 or, alternatively, the one under 26 USC section 7482(c)(4).

28 USC section 1912 provides:

Sec. 1912 - Damages and costs on affirmance

Where a judgment is affirmed by the Supreme Court or a court of appeals, the court in its discretion may adjudge to the prevailing party just damages for his delay, and single or double costs.

While section 1912 appears to cover appeals of any federal trial court decision, section 7482(c)(4) of the Internal Revenue Code deals only with appeals from decisions of the U.S. Tax Court, and provides:

Sec. 7482 - Courts of review
[ . . . ]

(c) Powers
[ . . . ]

(4) To impose penalties

The United States Court of Appeals and the Supreme Court shall have the power to require the taxpayer to pay to the United States a penalty in any case where the decision of the Tax Court is affirmed and it appears that the appeal was instituted or maintained primarily for delay or that the taxpayer’s position in the appeal is frivolous or groundless.

It would seem to me that if section 7482(c)(4) is involved, compensating the government for its own out of pocket costs should be only part of the total picture. A penalty is, by definition, "punitive," not merely compensatory. If the Court was using only section 1912, then maybe the government is limited to recovery of compensatory damages.

EDIT: There is also Rule 38 of the Federal Rules of Appellate Procedure.

[grixit]

Affirmed on appeal, with additional sanctions of $4,000 for a frivolous appeal.

James R. Garber v. Commissioner, No. 12-2278 (7th Cir. 2/15/2013)

(Incidentally, Richard Posner's name is well known, but Diane Wood is also well regarded, and has been mentioned a few times as a potential Supreme Court nominee.)

Is it possible? An explanation for some of the tp trial antics?

[Scene: A closed meeting of the Senate Judiciary Committee]

Chair: We will now hear from Agent Monkwood of Operation Temperment. Agent, we understand that you in the Secret Service have been evaluating Judge Jake Caversham. Do you have an evaluation yet?

Monkwood: Yes, Senator, we do. As you know, in the past year we have introduced into Caversham's docket a number of fictitious cases involving proported "sovereign citizens", portrayed by agents. These have engaged in a variety of pseudo legal strategems. One claimed that the government is illegitimate because Aaron Burr was supposed to be president. One attempted to serve the judge with a "Notice of Jubilee and Declaration of City of Refuge". One attempted to trick the judge into saying an unpronouncible word beginning with K. And another said they had no federal connection because they always used UPS.

Chair: And how did the judge react to these, ah colorful characters.

Monkwood: With tact, patience, sternness, and a little humor.

Sen Barnsmuck: And did Caversham ever show any signs of losing it?

Monkwood: No, Senator, not even when one appellant challenged him to "fly around the room, or admit that the Statute of Levitation had expired". He did start imposing higher frivpens by the end of the year, though.

Chair: I think we have a candidate.

Sen Octavio: Agent, last week you said you needed more time on Judge Bromley. Have you an update?

Monkwood: Alicia Bromley has been found. She booked an around the world balloon trip, and will be back next year. The agent she attacked is doing well, fortunately gavel splinters are not very sharp.

Sen Octavio: Sad, how it's come to this.

[Dr. Caligari]

One attempted to serve the judge with a "Notice of Jubilee and Declaration of City of Refuge".

I expect to see that phrase on SuiJuris within the next few days....