Time: Thu May 29 06:45:11 1997 by primenet.com (8.8.5/8.8.5) with ESMTP id GAA12841; Thu, 29 May 1997 06:05:49 -0700 (MST) by usr03.primenet.com (8.8.5/8.8.5) with SMTP id GAA08554; Thu, 29 May 1997 06:05:42 -0700 (MST) Date: Thu, 29 May 1997 06:44:12 -0700 To: "Dr. Braces" <drbraces@smart1.net> From: Paul Andrew Mitchell [address in tool bar] Subject: SLS: frivolous arguments [sic], Coleman v. CIR (7th Cir., 1986) Alex, Thanks very much! I am forwarding to all clients of the Supreme Law School. /s/ Paul Mitchell http://www.supremelaw.com copy: Supreme Law School At 08:40 AM 5/29/97 -0400, you wrote: >i'm sure that you a familiar with this case but i'm sendding it along >just in case. i'm looking for the one where the court found the >argument that the defendant was not a United States citizen as >frivilous. >-- 791 F.2d 68 > > Norman E. COLEMAN, Petitioner-Appellant, > v. > COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. > Gary HOLDER, Plaintiff-Appellant, > v. > SECRETARY OF the TREASURY and United States of America, > Defendants-Appellees. > Nos. 85-1202, 85-1601. > United States Court of Appeals, > Seventh Circuit. > Submitted Dec. 17, 1985. > Decided May 7, 1986. > > Before WOOD, FLAUM, and EASTERBROOK, Circuit Judges. > EASTERBROOK, Circuit Judge. > Some people believe with great fervor preposterous things that >just happen to coincide with their self-interest. "Tax protesters" have >convinced themselves that wages are not income, that only gold is money, >that the Sixteenth Amendment is unconstitutional, and so on. These >beliefs all lead--so tax protesters think--to the elimination of their >obligation to pay taxes. The government may not prohibit the holding of >these beliefs, but it may penalize people who act on them. > It is an important function of the legal system to induce >compliance with rules that a minority firmly believes are misguided. >Legal penalties change the balance of self-interest; those who believe >taxes wicked or unauthorized must nonetheless pay. When the legal >system depends on honest compliance as much as the income tax system >does--and when disobedience is potentially rewarding to those affected >by the rule--it is often necessary to impose steep penalties on those >who refuse to comply. We have consolidated the cases of two such >people. > Norman Coleman did not file tax returns for 1979, 1980, or 1981. > The Internal Revenue Service reconstructed Coleman's income for these >years and concluded that he owed taxes of $4,806 for 1979, $6,454 >for1980, and $3,692 for 1981. The IRS also concluded that Coleman owed >additions to tax exceeding $2,300. Coleman sought review in the Tax >Court, demanding that the IRS prove the correctness of its computations >and arguing, among other things, that wages are not income. Coleman >declined to offer any evidence concerning his income; he insisted that >the IRS bear the whole burden of production. The Tax Court granted >summary judgment to the IRS, concluding that Coleman had presented no >evidence that might undermine the presumption that the Commissioner's >notice of deficiency is correct. Because Coleman had filed tax returns >for the years before 1979 and demonstrated through the briefing an >awareness of the legal obligation to file, the court imposed a penalty >of $5,000 under 26 U.S.C. s 6673, which authorizes the Tax Court to >award damages when it concludes that the case has been "maintained by >the taxpayer primarily for delay or that the taxpayer's position in such >proceedings is frivolous orgroundless...." > Gary Holder filed a tax return for 1980 but then filed an >amended return on which he subtracted his wages from his gross income, >leaving only $68.13 in taxable income. Holder attached to the amended >return as creed insisting that wages are not income. The amended return >requested a refund of $4,555.20. The IRS imposed a $500 penalty under >26 U.S.C. s 6702 for filing a frivolous return. Holder paid 15% of the >penalty and filed suit in the district court to recover the payment. 26 >U.S.C. s 6703. There he argued not only that wages are untaxable but >also that s 6702 is unconstitutional. The district court concluded that >the suit is as frivolous as the tax return. It granted summary judgment >to the government and ordered Holder to pay the attorneys' fees the >government incurred in defending the action. > The billingsgate in appellants' briefs is customary in cases of >this nature. Coleman says that wages may not be taxed because they come >from his person, a depreciating asset. The personal depreciation >offsets the wage, leaving no net income. Coleman thinks that only net >income may be taxed under the Sixteenth Amendment--net income as Coleman >defines it, rather than as Congress does. Holder, who styles >himself a "private citizen," insists that wages may not be taxed because >the Sixteenth Amendment authorizes only excise taxes, and in Holder's >world excises may be imposed only on "government granted privileges." >Because Holder believes that he is exercising no special privileges, he >thinks he may not be taxed. These are tired arguments. The code >imposes a tax on all income. See 26 U.S.C. s 61. Wages are income, and >the tax on wages is constitutional. See, among hundreds of other cases, >United States v. Thomas, 788 F.2d 1250, 1253 (7th Cir.1986); Lovell v. >United States, 755 F.2d 517 (7th Cir.1984); Granzow v. CIR, 739 F.2d >265, 267 (7th Cir.1984); United States v. Koliboski, 732 F.2d 1328, >1329 & n. 1(7th Cir.1984). See also Brushaber v. Union Pacific R.R., >240 U.S. 1, 12,24-25, 36 S.Ct. 236, 239, 244-45, 60 L.Ed. 493 (1916). > Both Coleman and Holder also argue that the income tax is a >taking, which abridges their right to earn income. Taxes indeed "take" >income, but this is not the sense in which the constitution uses >"takings." Article I, section 8, clause 1 of the constitution grants to >Congress "Power To lay and collect Taxes". The power thus long predates >the Sixteenth Amendment, which did no more than remove the apportionment >requirement of Art. I, sec. 2, cl. 3 from taxes on "incomes, from >whatever source derived". Although the government might try to achieve >through special taxes what the Takings Clause of the Fifth Amendment >forbids if done directly, the general tax levied by the Internal Revenue >Code does not offend the Fifth Amendment. Brushaber, supra. > Coleman argues that the IRS had to prove the amount of his >income; he needed to show nothing. The statute is otherwise. People >must make an honest report of their income to the government. If they >fail to do this, they must establish any inaccuracies in the >Commissioner's reconstruction of their income. 26 U.S.C. s 6020(b). >His further argument that the Seventh Amendment requires a jury trial in >the Tax Court is empty. Even in ordinary litigation, the Seventh >Amendment does not require a jury trial when there are no facts in >dispute, and Coleman put none in dispute. The Seventh Amendment at all >events does not apply to civil litigation against the United States. >McElrath v. United States, 102 U.S. (12 Otto) 426, 440, 26 L.Ed. 189 >(1880); see also Atlas Roofing Co. v. OSHRC, 430 U.S. 442, 450-51, 97 >S.Ct. 1261, 1266-67, 51 L.Ed.2d 464 (1977). Our circuit has apparently >never held squarely that there is no right to a jury trial in the Tax >Court, but other circuits have held this, and we agree with them. E.g., >Parker v. CIR, 724 F.2d 469, 472 (5th Cir.1984); Funk v. CIR, 687 F.2d >264, 266 (8th Cir.1982). > Both appellants challenge the penalties imposed on them, >contending that "frivolous" is too vague a designation to support a >penalty. This is a staple term of civil litigation, however, and we >have sustained against constitutional challenge 28 U.S.C. s 1927, which >allows awards against counsel for "vexatious" conduct. In re TCI, Ltd., >769 F.2d 441, 449 (7th Cir.1985). Statutes need not be unambiguous in >every application to be constitutional. Many words acquire meaning >through judicial and administrative construction over the years, and >this evolutionary process is constitutional. E.g., CSC v. Letter >Carriers, 413 U.S. 548, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973); cf. Rose >v. Locke, 423 U.S. 48, 96 S.Ct. 243, 46 L.Ed.2d 185 (1975). Courts have >been imposing penalties for frivolous litigation for hundreds of years, >cf. Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-67, 100 S.Ct. >2455, 2463-65, 65 L.Ed.2d 488 (1980), and the ambiguities that lurk in >"frivolous" (or any other word) in marginal cases do not prevent the >imposition of penalties. Uncertainty is a fact of legal life. The "law >is full of instances where a man's fate depends on his estimating >rightly, that is, as the jury subsequently estimates it, some matter of >degree." Nash v. United States, 229 U.S. 373, 377, 33 S.Ct. 780, 781, >57 L.Ed. 1232 (1913). "Whenever the law draws a line there will be cases >very near each other on opposite sides. The precise course of the line >may be uncertain, but no one can come near it without knowing that he >does so, if he thinks, and if he does so it is familiar to the ... law >to make him take the risk." United States v. Wurzbach, 280 U.S. 396, >399, 50 S.Ct. 167, 169, 74 L.Ed. 508(1930). See also, e.g., United >States v. Powell, 423 U.S. 87, 96 S.Ct. 316, 46 L.Ed.2d 228 (1975). > The purpose of 26 U.S.C. ss 6673 and 6702 is to compel taxpayers >to think and to conform their conduct to settled principles before they >file returns and litigate. A petition to the Tax Court, or a tax >return, is frivolous if it is contrary to established law and >unsupported by a reasoned, colorable argument for change in the law. >This is the standard applied under Fed.R.Civ.P. 11 for sanctions in >civil litigation, and it is a standard we have used for the award of >fees under 28 U.S.C. s 1927 and the award of damages under Fed.R.App.P. >38. See Indianapolis Colts v. Mayor and City Council of Baltimore, 775 >F.2d 177 (7th Cir.1985); In re TCI, supra; Lepucki v. Van Wormer, 765 >F.2d 86 (7th Cir.) (attorneys' fees awarded), cert. denied, --- U.S. >----, 106 S.Ct. 86, 88 L.Ed.2d 71, damages awarded, --- U.S. ----, 106 >S.Ct. 403, 88 L.Ed.2d 355 (1985); Steinle v. Warren, 765 F.2d 95, 102 >(7th Cir.1985) ($2,500 damages awarded); Oglesby v. RCA Corp., 752 F.2d >272, 279-80 (7th Cir.1985). The inquiry is objective. If a person >should have known that his position is groundless, a court may and >should impose sanctions. See Thornton v. Wahl, 787 F.2d 1151, 1154 (7th >Cir. 1986). > Things are otherwise under ss 6673 and 6702, the appellants say; >these statutes require not only a lack of objective support but also >subjective bad faith. Coleman cites May v. CIR, 752 F.2d 1301 (8th >Cir.1985), for this proposition. As originally published May used a >subjective test, although the court found that May himself acted in >subjective bad faith. The court later revised the opinion, stating the >inquiry as whether the taxpayer "knew or should have known" that the >claim, return, or argument was groundless. 55 A.F.T.R.2d 747, 751 (8th >Cir.1985). "Should have known" is an objective test. We used an >objective test for penalties under the tax laws in Lovell v. United >States, supra, and there is no reason to change that approach. Section >6673, for example, states alternative tests: whether the suit was >"maintained ... primarily for delay" or whether the position is >"frivolous or groundless." The former is a subjective inquiry, the >latter is objective; either will support a penalty. See also In re >TCI, supra, 769 F.2d at 445 (subjective bad faith is important under s >1927 only when the litigation is objectively colorable). > The purpose of ss 6673 and 6702, like the purpose of Rules 11 >and 38 and of s 1927, is to induce litigants to conform their behavior >to the governing rules regardless of their subjective beliefs. >Groundless >litigation diverts the time and energies of judges from more serious >claims; it imposes needless costs on other litigants. Once the legal >system has resolved a claim, judges and lawyers must move on to other >things. They cannot endlessly rehear stale arguments. Both appellants >say that the penalties stifle their right to petition for redress of >grievances. But there is no constitutional right to bring frivolous >suits, see Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 743, >103 S.Ct. 2161, 2170, 76 L.Ed.2d 277 (1983). People who wish to express >displeasure with taxes must choose other forums, and there are many >available. Taxes are onerous, no doubt, and the size of the tax burden >gives people reason to hope that they can escape payment. Self-interest >calls forth obtuseness. An obtuse belief--even if sincerely held--is no >refuge, no warrant for imposing delay on the legal system and costs on >one's adversaries. The more costly obtuseness becomes, the less there >will be. > The contentions in this case are objectively frivolous. They >have been raised and rejected so often that this circuit now handles >almost all similar cases by unpublished orders. The Tax Court and the >IRS were entitled to impose sanctions. We, too, regularly impose >sanctions in these cases. In Van Wormer this court awarded attorneys' >fees as a sanction for similar claims, and the Supreme Court added >$1,000 in damages. Our unpublished orders in cases of this sort >regularly end with awards of double costs and attorneys' fees in favor >of the government. Precisely because the substantive claims are so weak, >and the opinions are therefore unpublished, litigants may be unaware of >our practice. The routine use of sanctions does not deter unless people >know what lies in store. See also, e.g., Connor v. CIR, 770 F.2d 17, 20 >(2d Cir.1985) (the argument that wages are not income "has been rejected >so frequently that the very raising of it justifies the imposition of >sanctions."). > Our usual practice has been to invite the government to submit >an itemized request for attorneys' fees. The keeping of time and >expense records, and the preparation of affidavits supporting requests >for fees, are themselves avoidable costs of baseless litigation. The >government's brief in No. 85-1601 informs us that the average amount of >fees it has been awarded in tax protester litigation between July 26, >1984, and June 12, 1985, is $1,258 per case. This includes only the >fees that can be directly attributed to litigation. In order to make >simpler the task of computing and awarding fees, courts sometimes impose >uniform sanctions on the authority of Fed.R.App.P. 38. The Supreme >Court awarded a flat $1,000 in Van Wormer on top of the fees we had >earlier granted. We, too, have occasionally named a penalty rather than >requesting an individual computation of fees. E.g., Steinle, supra; >Ruderer v. Fines, 614 F.2d 1128, 1132-33 (7th Cir. 1980); and Clarion >Corp. v. American Home Products Corp., 494 F.2d 860, 865-66 (7th Cir.), >cert. denied, 419 U.S. 870, 95 S.Ct. 128, 42 L.Ed.2d 108 (1974), each of >which imposes $2,500 as damages for frivolous appeals; and Hilgeford v. >Peoples Bank, 776 F.2d 176, 179 (7th Cir.1985); and Wisconsin v. Glick, >782 F.2d 670(7th Cir.1986), each of which imposes a $500 penalty for a >frivolous appeal. And compare Hallowell v. CIR, 744 F.2d 406, 408 (5th >Cir.1984) ($2,000 per tax protest); and Crain v. CIR, 737 F.2d 1417, >1418 (5th Cir.1984) (same), with Knoblauch v. CIR, 749 F.2d 200, 202-03 >(5th Cir.1984) (individual calculation). > Because average awards of actual attorneys' fees in tax protest >cases exceed $1,000, we choose to impose sanctions of $1,500 in lieu of >attorneys' fees. Even $1,500 cannot cover the indirect costs of this >litigation-- including the costs that befall serious litigants, who must >wait longer for their cases to receive judicial attention. The decision >to name a penalty rather than invite proof of the government's actual >attorneys' fees produces some imprecision, doubtless. Coleman's case is >a little more complex than Holder's--Coleman's brief is 38 pages, the >government's 31; Holder's brief is 10 pages, the government's 16. >There should be no weeping over this imprecision, however. Coleman and >Holder could have avoided the penalty, and other people should avoid it, >by the most minimal concern for settled rules. They knew or should have >known that their claims are frivolous, and they (rather than their >adversary) must pay the cost of their self-indulgent litigation. > The judgments are affirmed, with double costs and $1,500 damages >in each case. > > > >With Love, Liberty and Justice for All, >Alex >http://www.drbraces.com >e-mail: drbraces@drbraces.com > >"When the people fear their government you have tyranny. >When the government fears the People, you have liberty." > Thomas Jefferson > >Liberty is NEVER an option... only a condition to be lost! > > ======================================================================== Paul Andrew, Mitchell, B.A., M.S. : Counselor at Law, federal witness email: [address in tool bar] : Eudora Pro 3.0.1 on Intel 586 CPU web site: http://www.supremelaw.com : library & law school registration ship to: c/o 2509 N. Campbell, #1776 : this is free speech, at its best Tucson, Arizona state : state zone, not the federal zone Postal Zone 85719/tdc : USPS delays first class w/o this ========================================================================
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