Firestenberg v. Dept. of Rev.

• Court: Oregon Tax Court
• Decided: July 24, 2025
• Docket: TC-MD 240512R
• Status: Unpublished

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax

JACQUELYN M. FIRESTENBERG, ) ) Plaintiff, ) TC-MD 240512R ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION

Plaintiff appeals Defendant’s Notice of Proposed Refund Adjustment dated March 18,

2024, for the 2019 tax year. A remote trial was held on March 5, 2025, via WebEx. David

William appeared on behalf of Plaintiff. Plaintiff testified on her own behalf. Mary L. Stewart,

an auditor, appeared and testified on behalf of Defendant. Plaintiff ’s Exhibits 1 to 3 and

Defendant’s Exhibits A to J were received into evidence.

I. STATEMENT OF FACTS

The facts of this case are not in dispute. In 2019, Plaintiff worked for Kaiser Foundation

Health Plan (Kaiser) in Portland, Oregon, and received $78,880.18 in wages. (Ptf Ex 1 at 9.)

Kaiser withheld from Plaintiff’s wages $5,419.94 for Oregon state income taxes. (Id.)

In 2023, Plaintiff filed a late federal income tax return for the 2019 tax year using Form

1040-NR, the U.S. Nonresident Alien Income Tax Return. On that return, she reported $254 in

federal gross income. (Ptf Ex 1 at 10.) She testified that, as an American citizen, she interpreted

the Internal Revenue Code (IRC) to permit her to file as a “nonresident alien individual” and that

her wages were not includable as income under IRC section 872(a). (Ptf Ex 1 at 13.) Plaintiff

did not report the $78,880.18 in wages in the “gross income” on her Form 1040-NR. (Ptf Ex 1 at

2.)

DECISION TC-MD 240512R 1 Plaintiff then filed a late 2019 Oregon state income tax return, reporting the same $254 in

federal gross income and claiming a refund of $5,420. (Def Ex B at 3-11.) Her Portland,

Oregon, home was listed as her address on the return. (Def Ex B at 1.) She included with her

return a copy of a December 2019 paystub from Kaiser showing a Portland business address.

(Def Ex B at 11.) Defendant adjusted Plaintiff’s federal adjusted gross income to $79,134 and

reduced the refund to $140.22. (Def Ex D at 19-23.)

II. ANALYSIS

The issue in this case is whether a resident of Oregon, with wages from an Oregon

employer, may file a federal Form 1040-NR (U.S. Nonresident Alien Tax Return) and Oregon

Form 40-NR, and have their wages be exempt from taxation on the basis of the return filed.

A. Plaintiff’s Claim

Plaintiff contends she was not required to include her earned wages in her federal or

Oregon tax returns as taxable income. She asserts that because she filed a federal Form 1040 -

NR and a corresponding Oregon Form 40-NR, she is properly treated as a “nonresident alien”

under IRS section 872(a). Based on this classification, and her assertion that Oregon is not

within the geographical territory of the United States, Plaintiff argues that her wages are exempt

from taxation.

Plaintiff further maintains that taxpayers may lawfully choose to file as nonresident

aliens, and that the ambiguity of federal and state law require this court to construe them in her

favor. She challenges Defendant’s reliance on IRC sections 61 and 3401 as irrelevant to her

circumstances and asserts that Oregon is bound by the IRS’s acceptance of her federal return,

including the issuance of a refund.

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DECISION TC-MD 240512R 2 To resolve this appeal, the court must address whether Plaintiff, as a U.S. citizen residing

and working in Oregon, may claim nonresident alien status; whether her wages are subject to

federal and state income tax; whether Defendant acted within its autho rity in disallowing the

claimed refund; and whether the appeal is so lacking in merit as to warrant the imposition of a

penalty under ORS 305.437. 1

B. General Principles of Oregon Tax Law

With limited exceptions, Oregon conforms to the IRC pursuant to ORS 316.048 . This

means that instead of the legislature passing a complete tax code for the state, it has for

convenience of taxpayers, chosen to use the bulk of the IRC. Although Oregon has adopted

definitions of the IRC, this state’s independent authority to tax its residents, as well as non-

residents who earn income within the state, is well established, and predates the U.S.

Constitution. New York ex rel. Cohn v. Graves (Cohn), 300 US 308, 57 S Ct 466, 8 L Ed 666

(1937).

Despite Plaintiff’s claim of being a nonresident alien, the evidence establishes she was a

resident of Oregon, with Oregon-source wages during the 2019 tax year and thus subject to

Oregon income tax. Oregon has independent authority to tax residents and non -residents with

Oregon-source income, and Plaintiff, as a resident with Oregon-source wages, is within the scope

of that taxing authority.

C. Plaintiff’s Oregon Wages Are Includable in Gross Income

IRC section 61(a) defines gross income to include “all income from whatever source

derived,” including compensation for services (wages). The Supreme Court has repeatedly

upheld the longstanding rule that “accessions to wealth” are income. Comm’r v. Glenshaw Glass

1 The court’s references to the Oregon Revised Statutes (ORS) are to 2017.

DECISION TC-MD 240512R 3 Co, 348 US 426, 477, 75 S Ct 473, 99 L Ed 483 (1955). The Ninth Circuit Court of Appeals has

confirmed that “wages are income,” period. U.S. v. Buras, 633 F2d 1356, 1361 (9 th Cir 1980).

Plaintiff admits that she earned wages in 2019 from Kaiser. Plaintiff’s wages fall squarely

within the definition of gross income under IRC section 61 and Oregon’s taxing framework; her

contention that they are not taxable is without legal support.

D. Plaintiff Cannot Claim “Nonresident Alien” Status

Plaintiff asserts she may elect to be treated as a “nonresident alien” for tax purposes

despite being a citizen of the United States of America. That position is not supported by law.

IRC section 7701(b)(1)(A) defines a “United States person” to include all U.S. citizens. In

contrast, IRC section 7701(b)(1)(B) defines a “nonresident alien” as someone who is not a U.S.

citizen and does not meet the substantial presence test. Plaintiff, as a U.S. citizen, is

categorically excluded from the definition of “nonresident alien.”

Courts have uniformly rejected the above arguments as frivolous. See United States v.

Hanson, 2 F3d 942 (9 th Cir 1993) (rejecting as meritless a citizen of Montana’s claim as a

nonresident alien.) Id. at 945; Zhengnan Shi v. Comm’r, TC Memo 2014-173 (2014) 2014 WL

4211299 (Chinese citizen was a resident alien, subject to taxation in the U.S., and filing a 1040-

NR was improper.) Id. at *5. Plaintiff’s reliance on these forms is thus legally invalid.

E. Plaintiff Misinterprets IRC Section 872(a)

Plaintiff asserts that her wages are not income from sources within the United States

under ORS section 872(a). IRC section 872(a) applies only to nonresident aliens. As explained

above, Plaintiff is a U.S. citizen and thus cannot be a nonresident alien. Even if IRC section

872(a) applied, wages earned in Oregon are income effectively connected with a U.S. trade or

business and are taxable. Plaintiff’s argument that Oregon is not part of the geographical United

DECISION TC-MD 240512R 4 States is nonsensical. Plaintiff’s reliance on IRC section 872(a) is misplaced, as the statute does

not apply to citizens of the United States, and even if it did, would not exempt wages earned in

Oregon from taxation. IRC §872(a)(1).

F. Defendant Is Not Bound by IRS Determinations

Plaintiff argues that, because the IRS accepted her nonresident alien return and issued a

refund, Oregon is required to do the same under ORS 316.007(1). This is incorrect. As the

Oregon Supreme Court held in Okorn v. Dept. of Rev., 312 Or 152, 818 P2d 928 (1991),

Oregon’s conformity with the IRC does not bind the department to follow federal

determinations. This state is empowered to make its own assessment under state law . See

Detrick v. Dept. of Rev., 311 Or 152, 156, 806 P2d 682 (1991) (the Department’s power to

impose a deficiency assessment is not dependent on the Internal Revenue Service’s having done

so. Further a taxpayer’s self-reported income, and the determination of taxable income from the

IRS, do not have any binding effect on this state’s determination of taxable income.) Id. at 155.

Oregon is not required to accept the IRS’s acceptance of Plaintiff’s return, and Defendant acted

within its statutory authority in adjusting Plaintiff’s Oregon return.

G. Plaintiff’s Other Arguments

Before analyzing whether Plaintiff is subject to a penalty, the court will address several

general arguments about how this court should interpret the law.

1. Taxpayer’s right to minimize taxes

Plaintiff cites Gregory v. Helvering, 293 US 465, 55 S Ct 266, 79 L Ed 596 (1935) to

argue she has a right to minimize taxes. But Gregory held that substance governs over form.

Plaintiff’s attempt to self-designate as a “nonresident alien” while acknowledging her U.S.

citizenship and Oregon residence is not tax minimization; it is legal fiction.

DECISION TC-MD 240512R 5 2. Ambiguous tax laws should be construed in favor of taxpayers

Plaintiff cites Gould v. Gould, 245 US 151, 38 S Ct 53, 62 L Ed 211 (1917) and other

cases for the proposition that ambiguity in tax statutes must favor the taxpayer. While that

statement is generally true, courts only apply this doctrine when there is actual ambiguity, not

fabricated ones. It is well established under federal and state law that wages constitute income

under IRC section 61, that citizens of the United States residing and earning wages in Oregon are

not nonresident aliens, and that Oregon is a state within the United States. Plaintiff’s arguments

are therefore without merit.

H. Plaintiff Is Subject to a Frivolous Appeal Penalty

Defendant requests the court find that Plaintiff’s “position are frivolous” and seeks

damages for frivolous appeal under ORS 305.437. That statute authorizes the court to impose a

penalty of up to $5,000 when an appeal is frivolous or made primarily for delay. Id. “A

taxpayer's position is ‘frivolous’ if there was no objectively reasonable basis for asserting the

position.” ORS 305.437(2)(a). Plaintiff is a U.S. citizen and an Oregon resident who earned

Oregon-source wages. Plaintiff’s claim that she is a nonresident alien with wages unrelated to

the U.S. is not objectively reasonable and is clearly frivolous for the reasons set forth earlier in

this Decision.

Because damages for frivolous appeal are discretionary, the court first considers prior

instances where the court imposed damages. In Glasgow v. Department of Revenue, TC-MD

120788N, 2013 WL 1928552 *1 (Or Tax M Div, May 10, 2013), the court imposed a $1,000

penalty for arguing wages were not subject to income tax.2

2 Taxpayer appealed to the Regular Division and was penalized an additional $2,000. Glasgow v. Dept. of Rev., 21 OTR 316, 319 (2013), aff’d on appeal, Glasgow v. Dept. v. Rev., 356 Or 511, 340 P3d 653 (2014). The U.S. Supreme Court denied review. Glasgow v. Oregon Dept. of Rev., 577 US 984, 136 S Ct 500, 193 L Ed 395 (2015). Despite this string of losses, Glasgow came back to this court with a similar frivolous appeal for a different

DECISION TC-MD 240512R 6 In a similar vein, Gordon v. Department of Revenue, TC-MD 170236R, 2018 WL

3146143 *3 (Or Tax M Div, June 26, 2018), the court imposed a $1,000 penalty when taxpayer

took the position that his wages as an employee were not subject to taxation.

In Routledge v. Department of Revenue, TC-MD 170396G, 2018 WL 3808557 *1 (Or

Tax M Div, Aug 6, 2018), taxpayer asserted “money received from private employers did not

qualify as ‘wages’ under the Internal Revenue Code (IRC) and was therefore not taxable.”

Taxpayer in that case filed a substituted W-2 showing zero income and filed a zero return. Id.

The court penalized taxpayer $1,000 for filing a frivolous appeal. Id. at *6. Taxpayer appealed

that case to the Regular Division and presented the same argument. Routledge v. Dept. of Rev.,

24 OTR 103, 2020 WL 1814309 at *1 (2020). The court noted that “[taxpayer’s] meritless sub-

arguments and procedural arguments at each step of the audit and during the judicial appeals, and

the additional time and expense associated with the appeal in this division ” amounted to

persistent abuse of process. Id. at *11. Accordingly, the court imposed a $4,000 penalty in lieu

of the $1,000 that the magistrate awarded.

With these prior decisions in mind, the court finds two aggravating factors here: (1) the

significant refund amount sought ($5,420), and (2) David William’s (Plaintiff’s representative)

prior sanctions in other jurisdictions for the same frivolous positions.

1. Significance of refund amount claimed

In Meacham v. Dept. of Rev., TC-MD 240527R, (Or Tax M Div, Oct 31, 2024), the

taxpayer who earned wages in Oregon, filed a nonresident alien return, reported zero income

from wages, and requested a refund. In that case, the court considered as one factor the amount

tax year. Glasgow v. Dept. of Rev., TC-MD 160033R, 2016 WL 4264626 (Or Tax M Div, Aug 12, 2016). In that case, the court increased the penalty to $3,000. Glasgow, 2016 WL 4264626 at *2.

DECISION TC-MD 240512R 7 of Plaintiff’s income and the amount sought in a refund from the state and imposed a higher

penalty. Plaintiff in this case had substantial earnings and was requesting a fraudulent refund of

more than $5,000. These amounts suggest a larger penalty is warranted given the greater impact

of the larger improper refund.

2. Plaintiff’s representative has been previously sanctioned for frivolous appeals

As seen in the Glasgow case cited above, previous frivolous appeals may influence the

severity of penalties. In this regard, the court takes judicial notice, pursuant to Oregon Evidence

Code 40.090 (rule 202(1)) and 40.065 (rule 201(b)(2)), that Mr. William was the representative

in prior frivolous appeals resulting in sanctions. First, In the Matter of the Appeal of William A.

Llanos, OTA Case 18010692, Jun 26, 2019, the Office of Tax Appeals for the State of

California, imposed a $5,000 frivolous appeal penalty for, among other things, asserting an

exemption from taxes based on nonresident alien status. 3 Second, In the Matter of the Appeal of

Janelle R. Roberts, OTA case 18011256, May 13, 2019, David Polk (aka David William)

represented a taxpayer asserting wages from Warner Brothers Studio were not income subject to

taxation because she “lives without the United States.” In that case, the tribunal imposed a

$2,500 frivolous appeal penalty.

The court finds Mr. William has represented taxpayers before tax tribunals who have

imposed sanctions for asserting wages are not income or that taxpayers living and receiving

wages in the United States are nonresident aliens. The prior sanctions should have informed him

that those arguments are frivolous and are subject to penalties.

3 California Revenue and Taxation Code (R&TC) §19714 provides for a penalty of up to $5,000 when a “taxpayer’s position is frivolous or groundless.” The purpose of the two states’ statutes is to deter abuse of the judicial process support consideration of those penalties in this case. Additionally, in that case the court also noted that the representative “David William” had previously represented individuals before that tribunal under the name “David William Polk.” See Llanos at fn 1.

DECISION TC-MD 240512R 8 Based on the frivolous nature of Plaintiff’s claims and prior decisions of this and other

tribunals, this court concludes that a $3,500 penalty under ORS 305.437 is warranted.

III. CONCLUSION

After careful consideration, the court finds that Plaintiff’s arguments are legally unsound

and frivolous. Her status as a U.S. citizen and her wages derived from this state preclude her

from filing tax Forms 1040-NR and 40-NR. Her interpretation of IRC section 872(a) is incorrect

and without merit. Wages earned in Oregon by a resident are clearly taxable under both federal

and state law. Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal for the 2019 tax year is

denied.

IT IS FURTHER DECIDED that, no later than 10 days after the judgment in this case

becomes final, Plaintiff shall pay to Defendant a penalty of $3,500 pursuant to ORS 305.437 for

filing a frivolous appeal.

RICHARD D. DAVIS MAGISTRATE

If you want to appeal this Decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your complaint must be submitted within 60 days after the date of this Decision or this Decision cannot be changed. TCR-MD 19 B.

This document was signed by Magistrate Richard D. Davis and entered on July 24, 2025.

DECISION TC-MD 240512R 9