130 T.C. No. 3
UNITED STATES TAX COURT
DUDLEY JOSEPH CALLAHAN AND MYRNA DUPUY CALLAHAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5701-07L. Filed February 5, 2008.
For 2003, Ps submitted Form 1040, U.S. Individual Income Tax Return, and Form 843, Claim for Refund and Request for Abatement, to R. R assessed a frivolous return penalty under sec. 6702, I.R.C., on account of both Ps’ 2003 Form 1040 and their 2003 Form 843. After receiving a final notice of intent to levy, Ps requested a hearing under sec. 6330, I.R.C. During their hearing Ps challenged the assessment of the penalties. R’s Appeals officer issued a notice of determination denying relief from the penalties.
Held: Under sec. 6330(d)(1), I.R.C., as amended by the Pension Protection Act of 2006, Pub. L. 109-280, sec. 855, 120 Stat. 1019, we have jurisdiction to review R’s notice of determination when the underlying tax liability consists of frivolous return penalties.
Held, further: Ps may challenge their underlying tax liability, i.e., the frivolous return penalties, before this Court. -2-
Held, further: R has failed to carry his burden of proving that he is entitled to summary judgment.
Dudley Joseph Callahan and Myrna Dupuy Callahan, pro sese.
Scott T. Welch, for respondent.
OPINION
HAINES, Judge: This case is before the Court on
respondent’s motion for summary judgment filed pursuant to Rule
121.1 The issues for decision are:
(1) Whether we have jurisdiction to review respondent’s
determination issued under section 6330 when the underlying tax
liability consists of frivolous return penalties. We hold that
we do;
(2) whether in reviewing respondent’s determination under
section 6330, we may consider petitioners’ challenges to two
section 6702 frivolous return penalties. We hold that we may;
(3) whether respondent is entitled to summary judgment. We
hold that he is not.
1 Unless otherwise indicated section references are to the Internal Revenue Code in effect at the time the petition was filed. Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar. -3-
Background
Petitioners Dudley Joseph Callahan and Myrna Dupuy Callahan
(husband and wife) resided in Plaquemine, Louisiana, at the time
the petition was filed.
On October 13, 2004, petitioners filed a Form 843, Claim for
Refund and Request for Abatement, with the Internal Revenue
Service (IRS) seeking “Every penny you collected from us, plus
interest” for 2003. Petitioners also claimed a refund of
penalties along with millions of dollars in damages plus interest
attributable to respondent’s alleged violations of the law,
violations of their “civil rights and inhumane harassment”, as
protected by “Congress’ Taxpayer’s Bill of Rights, III”.
On October 19, 2004, petitioners filed with the IRS a joint
Form 1040, U.S. Individual Income Tax Return, for 2003. The
return reported adjusted gross income of $71,363, tax due of
$6,016, Federal income tax withheld of $13,813, and additional
payments of $9,600. Petitioners wrote in the margin that the
payments, totaling $23,413, are “Illegal Garnishments”.
Petitioners included petitioner husband’s pay stubs showing a
$9,600 levy from his wages.2 Petitioners claimed a refund of
$17,352.
2 Petitioners did not include on the Form 1040 the year or years to which the garnishments relate. Furthermore, neither respondent’s motion for summary judgment nor petitioners’ response states the year or years to which the garnishments relate. -4-
On September 19 and 26, 2005, respondent, on the basis of
their Form 1040 and Form 843, assessed two $500 penalties against
petitioners for filing a frivolous income tax return for 2003.
On April 24, 2006, respondent sent petitioner husband a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing.
On May 11, 2006, petitioners timely submitted to respondent a
Form 12153, Request for a Collection Due Process Hearing, for
taxable years 1979 through 2003. Petitioners attached a four-
page letter to the request. Respondent treated the request as a
request for a hearing for 2003, the only year addressed by the
final notice of intent to levy.
In their request petitioners made numerous arguments
including that the period of limitations on collection for 2003
had expired, respondent illegally offset their income tax refunds
against the unfair frivolous return penalties, and the frivolous
return penalties are unreasonable.
On August 17, 2006, respondent’s Appeals officer sent each
petitioner a letter offering to discuss their case by telephone
and inviting them to send correspondence with respect to the
issues of their appeal. On August 22 and November 1, 2006,
petitioners sent letters to the Appeals officer raising various
arguments, most of which are unrelated to the frivolous return
penalties and include various allegations of illegality and
impropriety by respondent. With respect to the frivolous return -5-
penalties, petitioners allege that they were improperly charged
with two penalties for 2003 and that the penalties are
unreasonable.
On February 6, 2007, respondent issued petitioners a notice
of determination, denying petitioners relief from the penalties.
Petitioners timely filed a petition with this Court. On November
8, 2007, respondent filed a motion for entry of order that
undenied allegations in the answer be deemed admitted as provided
in Rule 37(c). On December 10, 2007, we granted respondent’s
motion. Therefore, petitioners are deemed to have admitted that
the frivolous return penalties for 2003 were timely assessed
before the expiration of the 3-year period for assessment
applicable under section 6501(a).
Discussion
A. Summary Judgment
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988). The Court may grant
summary judgment when there is no genuine issue of material fact
and a decision may be rendered as a matter of law. Rule 121(b);
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.
17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753,
754 (1988). The moving party bears the burden of proving that
there is no genuine issue of material fact. Dahlstrom v. -6-
Commissioner, 85 T.C. 812, 821 (1985); Naftel v. Commissioner, 85
T.C. 527, 529 (1985). The Court will view any factual material
and inferences in the light most favorable to the nonmoving
party. Dahlstrom v. Commissioner, supra at 821; Naftel v.
Commissioner, supra at 529.
B. Our Jurisdiction Under Section 6330
Before the Commissioner may levy on any property or property
right, the taxpayer must be provided written notice of the right
to request a hearing during the 30-day period before the first
levy. Sec. 6330(a). If the taxpayer requests a hearing, an
Appeals officer of the Commissioner must hold the hearing. Sec.
6330(b)(1). Within 30 days of the issuance of the Appeals
officer’s determination, the taxpayer may seek judicial review of
the determination. Sec. 6330(d)(1).
On August 17, 2006, the Pension Protection Act of 2006 (the
PPA), Pub. L. 109-280, 120 Stat. 780, was enacted. PPA sec.
855(a), 120 Stat. 1019, amended section 6330(d)(1), which
provides our jurisdiction to review notices of determination
issued pursuant to section 6330. Before the passage of the PPA,
section 6330(d)(1) provided:
SEC. 6330(d). Proceeding After Hearing.--
(1) Judicial review of determination.–-The person may, within 30 days of a determination under this section, appeal such determination–- -7-
(A) to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter); or
(B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States. [Emphasis added.]
Under that version of section 6330(d)(1) we held that we
lack jurisdiction to review a notice of determination when the
underlying tax liability consists solely of frivolous return
penalties under section 6702.3 Johnson v. Commissioner, 117 T.C.
204, 208 (2001); Van Es v. Commissioner, 115 T.C. 324, 329
(2000); Dunbar v. Commissioner, T.C. Memo. 2006-184 (dismissing
the portion of the petition related to frivolous return penalties
for lack of jurisdiction, but not the portion related to income
tax); Henderson v. Commissioner, T.C. Memo. 2004-36. But see
Wagenknecht v. United States, 509 F.3d 729 (6th Cir. 2007)
(holding when the underlying tax liability consists of income tax
as well as section 6702 penalties, only the Tax Court has
jurisdiction to hear the entire appeal).
As we did not have jurisdiction to redetermine frivolous
return penalties assessed pursuant to section 6702, see sec.
6703(b) and (c), we lacked jurisdiction to hear a challenge to
3 The frivolous return penalty is in addition to any other penalty provided by law. Sec. 6702(b). It is assessed without a notice of deficiency first being sent to the taxpayer, thus generally depriving this Court of jurisdiction over the penalty. Sec. 6703(b). -8-
collection of the outstanding amounts for the frivolous return
penalties and related interest, Van Es v. Commissioner, supra at
328-329; Henderson v. Commissioner, supra; see also Yuen v.
United States, 290 F. Supp. 2d 1220, 1223 (D. Nev. 2003) (holding
that the U.S. District Court had jurisdiction to consider a
frivolous return penalty issue in the context of a section 6330
hearing); Loofbourrow v. Commissioner, 208 F. Supp. 2d 698, 706
(S.D. Tex. 2002) (appeal lies to the District Court where
frivolous return penalty was challenged at a section 6330
hearing). We interpreted section 6330(d)(1)(A) and (B) as not
expanding the Court’s jurisdiction beyond the types of taxes over
which the Court has jurisdiction. Serv. Employees Intl. Union v.
Commissioner, 125 T.C. 63, 67 (2005); Moore v. Commissioner, 114
T.C. 171 (2000).
However, the PPA amended section 6330(d)(1), expanding this
Court’s jurisdiction to include review of the Commissioner’s
collection activity regardless of the type of underlying tax
involved.4 Perkins v. Commissioner, 129 T.C. 58, 63 n.7 (2007).
Section 6330(d)(1) now provides:
(1) Judicial review of determination.–-The person may, within 30 days of a determination under this
4 The amendment to sec. 6330(d)(1) is effective only for determinations made after Oct. 16, 2006. Pension Protection Act of 2006, Pub. L. 109-280, sec. 855(b), 120 Stat. 1019. -9-
section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).
The Staff of the Joint Committee on Taxation, General
Explanation of Tax Legislation Enacted in the 109th Congress
(JCS-1-07), at 507 (J. Comm. Print 2007), explains the amendment
to section 6330(d)(1): “The provision modifies the jurisdiction
of the Tax Court by providing that all appeals of collection due
process determinations are to be made to the United States Tax
Court.” We, therefore, have jurisdiction to review a notice of
determination issued under section 6330 where the underlying tax
liability consists of frivolous return penalties.
C. Matters Considered at Hearing
Section 6330(c) prescribes the matters that a person may
raise at the hearing. Section 6330(c)(2)(A) provides that a
person may raise collection issues such as spousal defenses, the
appropriateness of the Commissioner’s intended collection action,
and possible alternative means of collection. See Montgomery v.
Commissioner, 122 T.C. 1, 5 (2004); Sego v. Commissioner, 114
T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 181-183
(2000). In addition, section 6330(c)(2)(B) establishes the
circumstances under which a person may challenge the existence or
amount of the underlying tax liability. Section 6330(c)(2)(B)
provides: -10-
(2) Issues at hearing.--
* * * * * * *
(B) Underlying liability.-– The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. [Emphasis added.]
We have interpreted the phrase “underlying tax liability” as
including any amounts a taxpayer owes pursuant to the tax laws
that are the subject of the Commissioner’s collection activities.
Katz v. Commissioner, 115 T.C. 329, 338-339 (2000); Van Es v.
Commissioner, supra. In Van Es, we determined that the
“underlying tax liability” was the frivolous return penalties.
Id. at 328; see also Wagenknecht v. United States, supra (section
6702 penalties are the “underlying tax liability”; Yuen v. United
States, supra at 1224 (the “underlying tax liability” as used in
section 6330(c)(2)(B) was the frivolous return penalties). The
frivolous return penalties in this case are owed by petitioners
pursuant to section 6702 and are the subject of respondent’s
collection activities. Therefore, petitioners may challenge the
existence or the amount of the frivolous return penalties at the
hearing if they did not receive a statutory notice of deficiency
or otherwise have an opportunity to dispute the liability. Lewis
v. Commissioner, 128 T.C. 48 (2007); sec. 301.6330-1(e)(3), Q&A-
E2, Proced. & Admin. Regs. -11-
Respondent argues that although petitioners did not have an
opportunity to dispute the liability, “section 6330(c)(2)(B)
applies only when a taxpayer is challenging a liability asserted
by the Service that differs in the amount from the taxpayer’s
self-determination.” Respondent’s argument that the frivolous
return penalties are self-determined is strained at best; simply
put, frivolous return penalties are determined and assessed by
the Commissioner. Nevertheless, even if we are to accept
respondent's argument that the penalties are self-determined,
petitioners would not be barred from challenging the underlying
liability, i.e., the frivolous return penalties, during a section
6330 hearing. Section 6330(c)(2)(B) permits taxpayers to
challenge the existence or amount of the tax liability reported
on their original tax return. Montgomery v. Commissioner, supra
at 10. U.S. District Courts have also held that a taxpayer may
challenge the frivolous return penalty in the context of a
section 6330 hearing. See Yuen v. United States, supra at 1224.
Petitioners did not receive a notice of deficiency with
respect to the frivolous return penalties because the statutory
deficiency procedures, sections 6211-6216, do not apply to
frivolous return penalties under section 6702.5 Sec. 6703(b);
Yuen v. United States, supra at 1224. Petitioners also have not
5 Sec. 6212 authorizes the Commissioner to send notices of deficiency. -12-
disputed the penalties during a prior conference with
respondent’s Appeals Office. See Lewis v. Commissioner, supra.
As petitioners have not otherwise had an opportunity to dispute
the imposition of the frivolous return penalties, they may
contest the penalties both at their section 6330 hearing and
before this Court.
D. Whether Respondent Is Entitled to Summary Judgment
Where, as in this case, the validity of the underlying tax
liability is properly at issue, we will review the matter de
novo.6 Sego v. Commissioner, supra at 610; Goza v. Commissioner,
supra at 181. Where the validity of the underlying tax liability
is not properly at issue, however, we will review the
Commissioner’s determination for an abuse of discretion. Sego v.
Commissioner, supra at 610; Goza v. Commissioner, supra at 181.
Respondent assessed a frivolous return penalty for both
petitioners’ 2003 Form 1040 and Form 843. Respondent argues that
“Even if the Court finds that the petitioners may challenge the
frivolous return penalties based on their self-filed returns,
respondent is still entitled to summary judgment.”
6 This standard of review comports with the standard of review used by the U.S. District Courts in sec. 6330 hearings where the underlying tax liability was a frivolous return penalty. See, e.g., Yuen v. United States, 290 F. Supp. 2d 1220, 1224 (D. Nev. 2003); Danner v. United States, 208 F. Supp. 2d 1166, 1171 (E.D. Wash. 2002) (citing Sego v. Commissioner, 114 T.C. 604, 610 (2000). -13-
Under section 6702, as applicable in this case, a $500 civil
penalty may be assessed against a taxpayer if three requirements
are met.7 First, the taxpayer must file a document that purports
to be an income tax return. Sec. 6702(a)(1). Second, the
purported return must lack the information needed to judge the
substantial correctness of the self-assessment or contain
information indicating the self-assessment is substantially
7 Sec. 6702 has been amended by the Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div. A, sec. 407(a), 120 Stat. 2960. The amendment is effective for submissions made and issues raised after the date on which the Secretary first prescribes a list of frivolous positions under sec. 6702(c). That list was announced on Mar. 15, 2007, in Notice 2007-30, 2007-14 I.R.B. 883. Petitioners’ 2003 Form 1040 and Form 843 were submitted in 2004; therefore, the amendment is not applicable to this case. Sec. 6702 as applicable to this case provides:
Sec. 6702(a). Civil Penalty.--If--
(1) any individual files what purports to be a return of the tax imposed by subtitle A but which--
(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and
(2) the conduct referred to in paragraph (1) is due to--
(A) a position which is frivolous, or
(B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws,
then such individual shall pay a penalty of $500. -14-
incorrect. Id. Third, the taxpayer’s position must be frivolous
or demonstrate a desire (which appears on the purported return)
to delay or impede the administration of Federal income tax laws.
Sec. 6702(a)(2). We generally look to the face of the documents
to determine whether a taxpayer is liable for a frivolous return
penalty as a matter of law.8 See Yuen v. United States, 290 F.
Supp. 2d at 1224.
Petitioners’ Form 1040 is an income tax return. Petitioners
appear to have reported all income from their Forms W-2, Wage and
Tax Statement, and Forms W-2G, Certain Gambling Winnings, on
their Form 1040. They calculated a total tax due of $6,016.
Petitioners had $13,813 withheld from their wages and gambling
income, and they requested the difference be refunded.
Petitioners also reported that they made additional payments of
$9,600 and that these were illegal garnishments from petitioner
husband’s wages. They requested a refund of that amount as well.
Petitioners’ 2003 Form 1040 is substantially incorrect in
that they cannot claim a refund of levied amounts related to a
previous tax year on their 2003 Form 1040. Petitioners will
therefore be liable for the frivolous return penalty if the
8 As we lack jurisdiction to hear a claim for refund in situations where a notice of deficiency has not been issued, see secs. 6512(b), 7422, we make no judgment as to the validity of petitioners’ claims for refund made on their Form 843 and Form 1040. -15-
return is based on a frivolous position or reflects a desire to
delay or impede the administration of Federal income tax laws.
The frivolous return penalty has been imposed upon taxpayers
who have taken one or more of a variety of positions. For
example, the frivolous return penalty has been imposed on
taxpayers who argue: (1) No provision of the Internal Revenue
Code makes a person liable for tax, e.g., Yuen v. United States,
supra at 1224; (2) wages are not income, or provide inaccurate or
no financial information, e.g., id.; Tornichio v. United States,
263 F. Supp. 2d 1090 (N.D. Ohio 2002); (3) general constitutional
objections or refuse to pay tax on general constitutional
grounds, e.g., Miller v. United States, 868 F.2d 236 (7th Cir.
1989); Leogrande v. United States, 811 F.2d 147 (2d Cir. 1987);
(4) the return violates the Fifth Amendment protection against
self-incrimination, Kloes v. United States, 578 F. Supp. 270
(W.D. Wis. 1984); and (5) moral or religious objections to the
payment of taxes which go toward military spending, e.g., McKee
v. United States, 781 F.2d 1043 (4th Cir. 1986); Franklet v.
United States, 578 F. Supp. 1552 (N.D. Cal. 1984), affd. 761 F.2d
529 (9th Cir. 1985).
Petitioners’ Form 1040 does not provide a reason that the
garnishments are illegal other than petitioners’ statement that -16-
they were “over-assessed”.9 Petitioners’ Form 1040 contains
handwritten notations in various sections, which explain the
entries, ask questions about certain items, and request
additional credits for which they qualify. These notations make
the return difficult to understand. Petitioners attached many
unnecessary pages to their return including a list of nontaxable
amounts received, allegations related to a civil suit against the
IRS, and updated depreciation schedules related to deductions
that were claimed in prior years.
Although petitioners’ Form 1040 is confusing and unorthodox,
their arguments are not substantially similar to positions
previously held to be frivolous or those that display a desire to
delay or impede the administration of Federal income tax laws.
Although not binding in this case, respondent has compiled a list
of 40 frivolous positions under section 6702(c) which are
applicable to submissions made after March 15, 2007. Notice
2007-30, 2007-14 I.R.B. 883. Petitioners’ arguments are not
substantially similar to any of those positions. Petitioners
appear to dispute respondent’s collection activities related to
2003 as well as prior years, and they make allegations related to
those disputes on their 2003 Form 1040. Until the record is
9 Petitioners vaguely expand upon their argument in their petition, arguing that because they have a case pending before a Court of Appeals, it is illegal to garnish wages under Congress’s Taxpayer Bill of Rights. -17-
better developed, we cannot say as a matter of law that
petitioners have taken a frivolous position or that they desired
to delay or impede the administration of Federal income tax laws.
We next turn to petitioners’ 2003 Form 843. Petitioners do
not claim that the Form 843, which is a claim for refund, is not
an income tax return. Nevertheless, we note that documents that
are filed to obtain a refund of tax have consistently been held
to be purported returns. Kelly v. United States, 789 F.2d 94, 97
(1st Cir. 1986); Sullivan v. United States, 788 F.2d 813, 815
(1st Cir. 1986); Davis v. United States, 742 F.2d 171, 173 (5th
Cir. 1984); see Farenga v. United States, 93 AFTR 2d 1775, 2004-1
USTC par. 50,240 (N.D.N.Y. 2004) (a collection review proceeding
in U.S. District Court in which the Commissioner imposed the
frivolous return penalty on account of both a Form 1040 and a
Form 843).
Petitioners’ Form 843 requests a refund of “every penny you
collected from us plus interest.” There is little explanation of
the amounts collected, or why that collection was improper. They
also claim a refund for all interest, penalties, and over-
assessments the IRS made each year. They further claim interest,
and “damages at twice the total amount as directed by Congress’
Taxpayer Bill of Rights III, part IV.” The Form 843 clearly does
not contain information on which the substantial correctness of
petitioners’ refund claim may be judged. -18-
However, like their Form 1040, petitioners’ Form 843 does
not contain arguments substantially similar to arguments
previously held to be frivolous or those that demonstrate a
desire to delay or impede the administration of Federal income
tax laws. Rather, petitioners appear to dispute respondent’s
collection activities related to 2003 and prior years. Without
more information, we cannot say as a matter of law that
petitioners have taken a frivolous position or that they desired
to delay or impede the administration of Federal income tax laws.
For the foregoing reasons, we hold that respondent has
failed to carry his burden of showing that there are no material
facts in dispute and that he should prevail as a matter of law.
To reflect the foregoing,
An appropriate order will
be issued denying respondent’s
motion for summary judgment.