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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