Time: Thu May 29 06:45:11 1997
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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
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