THE TAX COURT CORRECTLY IMPOSED A $5,000 SANCTION UNDER I.R.C. § 6673 BECAUSE TAXPAYER's POSITION WAS PATENTLY GROUNDLESS AND HE WAS AWARE OF THAT FACT
Standard of Review
This Court reviews the Tax Court's imposition of a penalty under I.R.C. § 6673 for abuse of discretion. Burke v. Commissioner, 929 F.2d 110, 116 (2nd Circuit 1991).
I.R.C. § 6673(a)(1) provides as follows:
Whenever it appears to the Tax Court that –
- proceedings before it have been instituted or maintained by the taxpayer primarily for delay,
- the taxpayer's position in such proceeding is frivolous or groundless, or
- the taxpayer unreasonably failed to pursue available administrative remedies,
the Tax Court, in its discretion, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.[2]
Damages under I.R.C. § 6673 are appropriate where a taxpayer brings suit without any legal justification, and solely for the purpose of protesting Federal tax laws. See, e.g., Burke v. Commissioner, 929 F.2d 110 (2nd Circuit 1991); Wilkinson v. Commissioner, 71 T.C. 633 (1979); Sydnes v. Commissioner, 74 T.C. 864 (1980), aff'd, 647 F.2d 813 (8th Circuit 1981). Damages or penalties under I.R.C. § 6673 also have been imposed when a taxpayer claims deductions or credits based on his objection to the use of his tax payments for military spending by the United States, particularly if the taxpayer does so with full knowledge that his claims are without legal merit. See Greenberg v. Commissioner, 73 T.C. 806 (1980); Graves v. Commissioner, T.C. Memo. 1981-154, aff'd without pub. opinion, 698 F.2d 1219 (6th Circuit 1982). This Court has also affirmed the imposition of penalties under other sections of the Internal Revenue Code where taxpayers brought groundless suits based on their religious objections to paying taxes that could be used to support the military. See Browne, 176 F.3d at 26; Packard, 7 F.Supp.2d 143 (District of Connecticut 1998), aff'd without pub. opinion, 198 F.3d 234 (2nd Circuit 1999).
Numerous courts have imposed sanctions under I.R.C. § 6702 (under which the maximum penalty is $500) for the filing of a frivolous return where taxpayers refused to pay their taxes or claimed deductions based on their objection to military spending or war. See Bradley v. United States, 817 F.2d 1400 (9th Circuit 1987); Dalton v. United States, 800 F.2d 1316, 1319-1320 (4th Circuit 1986); Nelson v. United States, 796 F.2d 164 (6th Circuit 1986); Jenney v. Commissioner, 755 F.2d at 1386-1387; Kahn v. United States, 753 F.2d at 1217; Collett v. United States, 781 F.2d 53 (6th Circuit 1985); Wall v. United States, 756 F.2d 52 (8th Circuit 1985); Welch v. United States, 750 F.2d 1101 (1st Circuit 1985); Clark v. United States, 630 F.Supp. 101 (D. Md. 1986); Carey v. United States, 601 F.Supp. 150 (E.D. Va. 1985); Franklet v. United States, 578 F.Supp. 1552 (N.D. Cal. 1984), aff'd 761 F.2d 529 (9th Circuit 1985); Woida v. United States, 609 F.Supp. 1271 (E.D. Wis. 1985); Drefchinski v. Regan, 589 F.Supp. 1516 (W.D. La. 1984).
This Court has affirmed the imposition of sanctions under I.R.C. § 6673 in cases where the taxpayers asserted arguments that had been frequently and uniformly rejected. Burke v. Commissioner, 929 F.2d 110, 116 (2nd Circuit 1991); O'Connor v. Commissioner, 770 F.2d 17, 20 (2nd Circuit 1985) (“The argument that they [wages] are not [income] has been rejected so frequently that the very raising of it justifies the imposition of sanctions.”) This Court has also held that the imposition of sanctions under I.R.C. § 6673 does not violate the constitutional rights of taxpayers. O'Connor, 770 F.2d at 19. Taxpayers do not have a constitutional right to bring groundless lawsuits. See Bill Johnson's Restaurants, Inc. v. NLRB, 461 US 731, 743 (1983).
Taxpayer here was fully aware that his claims lack legal merit. He acknowledged to the settlement officer in his CDP hearing (A. 21) that the federal tax collection system would need to be changed through the enactment of legislation in order to achieve his goal of directing his tax dollars to entirely non-military government expenditures. Taxpayer nonetheless has chosen to use the CDP hearing process, the Tax Court, and now this Court, as a forum for protest against the country's military expenditures, a practice that the Tax Court has attempted to discourage through the imposition of sanctions, as it did in this case.[3] As this Court has held in a slightly different context, persons who disagree with the current state of the law cannot simply disregard the law, or “resort to self-help,” without expecting to incur a penalty. Druker v. Commissioner, 697 F.2d 46, 53 n.5 (2nd Circuit 1982). In Druker, the taxpayers objected to the so-called “marriage penalty,” and calculated their tax liability as if they were “unmarried individuals,” although they knew that those rates did not apply to them. This Court reversed the Tax Court, and imposed a penalty for intentional disregard of rules and regulations, holding that even persons who sincerely disagree with the law must abide by it or suffer the consequences. Druker, 697 F.2d at 53 n.5. To refrain from imposing a penalty because the taxpayers raised constitutional objections to the law, this Court noted, would have the untenable result of carrying over to taxpayers “who sincerely dispute the legality of their being subjected to income taxation to support activities such as the Vietnam war or nuclear armament of which they strongly disapprove and who make fully disclosed deductions from their taxes on that account.” Ibid.
Taxpayer knew that his position lacked merit, and moreover he had been explicitly so informed by the Tax Court when he previously made such assertions in an earlier case (Jenkins v. Commissioner, unofficially published at T.C. Memorandum 1987-322). In the Tax Court's opinion in that case, in which taxpayer claimed a credit with respect to his opposition to military expenditures by the federal government, the Tax Court held that taxpayer's contentions had no merit, because “[i]t is a fundamental principle of tax law that a taxpayer has no right to reduce his Federal tax liability on the ground that governmental policies or expenditures conflict with his religious or moral convictions, no matter how sincerely those convictions may be held.” (A. 40.) The Tax Court declined to impose sanctions in that case, but taxpayer was on notice that sanctions could be imposed in the future. Nonetheless, taxpayer chose to request a CDP hearing in this case even though he did not intend to raise any issues that are permitted to be raised at CDP hearings. He did not dispute the existence or amount of his underlying tax liability, and he did not propose any collection alternatives. See I.R.C. § 6330(c) and (d). The settlement officer who handled his CDP hearing in this case warned him that he could be subject to sanctions if he persisted in his claims. (A. 21.)
Taxpayer asserts on appeal (Br. 27-28) that he should not be subject to sanctions because his arguments in the Tax Court were “not simply a rehash” of arguments that had been universally rejected, but were “a reasoned method” of applying the Ninth Amendment to elaborate on the free exercise clause of the First Amendment, which “was not invoked in any of the prior cases.” Taxpayer is mistaken. Although earlier taxpayers might not have used exactly the same language he employed below, it was more than sufficiently clear from the case law that neither the Ninth Amendment nor the First Amendment, separately or together, afford a basis for refusing to pay tax. See Barton v. Commissioner, 737 F.2d 822, 823-824 (9th Circuit 1984); Autenrieth v. Cullen, 418 F.2d 586, 588-589 (9th Circuit 1969); Tingle v. Commissioner, 73 T.C. 816, 817-821 (1980).
Taxpayer also contends (Br. 28) that his earlier Tax Court case raised different issues, but that even if there was “some overlap,” “it is hard to imagine that raising a constitutional issue once every 20 years constitutes willfulness and lack of good faith that warrants the imposition of a $5,000 penalty.” Taxpayer misses the point. Willfulness and lack of good faith are irrelevant to the imposition of penalties under I.R.C. § 6673. The bringing of a suit in which the taxpayer's position is legally groundless is all that is required for the imposition of penalties. I.R.C. § 6673(a)(1)(B). And taxpayer's earlier Tax Court case had more than a little overlap with the issues in this case. The Tax Court in that case characterized taxpayer's position as arguing “that he is conscientiously opposed to providing funds for military purposes and for this reason, as well as the dictates of his religious belief, he is unwilling to pay a tax which is used for military purposes.” (A. 40.) The Tax Court also stated in no uncertain terms in that opinion that it was “a fundamental principle of tax law” that no taxpayer can reduce his Federal tax liability on the basis of his religious or moral objection to governmental policies or expenditures. (A. 40.) The Tax Court considered whether to impose sanctions under I.R.C. § 6673, but declined to do so “under the particular circumstances of this case.” (A. 41.) Taxpayer was thus on notice that he could be subject to sanctions for bringing such a suit, and the Tax Court was justified in imposing such sanctions the second time around.
Taxpayer also suggests (Br. 28) that the fact that he appeared pro se in the Tax Court is a “special circumstance” that would mitigate against the imposition of sanctions, relying upon this Court's opinion in Maduakolam v. Columbia University, 866 F.2d 53 (2nd Circuit 1989). In Maduakolam, this Court reversed the lower court's imposition of Rule 11 sanctions, because it found that “[t]here is nothing in the record to indicate that Maduakolam knew or should have known that his ‘motion to reopen the case’ was time-barred.” 866 F.2d at 56. By contrast, in this case, it is clear that taxpayer knew that his petition was legally groundless. He had been warned of this by the Tax Court in his earlier case, and he had been told by the IRS settlement officer who conducted his CDP hearing. Taxpayer also should have known his petition was groundless because of the long line of cases in which the courts have uniformly rejected contentions substantially identical to the arguments he raised below. This Court has not been reluctant to affirm the imposition of sanctions on litigants, even those appearing pro se, who raise arguments that frequently and uniformly have been rejected. See Burke, 929 F.2d at 115-116; O'Connor, 770 F.2d at 19-20.
Finally, taxpayer asserts (Br. 28) that the amount of the penalty was “grossly disproportionate,” because the tax liability in issue was only $2,276. This argument, too, misses the point. The sanction amount is not related to the amount of the tax; the sanction is imposed in an attempt to dissuade taxpayers from bringing groundless lawsuits that clog the courts and create unnecessarily heavy workloads for an already overburdened judiciary. See May v. Commissioner, 752 F.2d at 1306. The maximum sanction under I.R.C. § 6673 is now $25,000. The Tax Court's imposition of a $5,000 sanction was not an abuse of discretion and was, in fact, a restrained response to a groundless protest case.
Many Americans, including respected leaders such as Henry David Thoreau and Martin Luther King, Jr., have engaged in civil disobedience as a form of protest against taxation for military spending or other issues of moral or religious significance. But, as the Third Circuit remarked in Kahn, 753 F.2d at 1215, a taxpayer cannot “rely on the privilege or the moral honor of civil disobedience without paying the price or penalty such disobedience necessarily incurs.” Here, taxpayer's energy would be better spent lobbying Congress. See Adams, 170 F.3d at 179-180 (Congress and not the courts should determine any exceptions to the tax laws); Babcock v. Commissioner, 51 T.C.M. (CCH) 931, 934 (1986) (rejecting Quaker's free-exercise challenge to income tax, stating that “[i]t is Congress, and not this Court, that can give refuge to [taxpayer]. The relief which [taxpayer] seeks is contained in the proposed United States Peace Tax Fund Act. [Religious Freedom Peace Tax Fund Act, H.R. 2660, 105th Congress, 1st Session (1996)]”[4])
- [2] The maximum penalty under I.R.C. § 6673 was initially $500, but was raised to $5,000 in 1982 in an attempt to stem the huge increase in the Tax Court's docket of tax protest suits. May v. Commissioner, 752 F.2d 1301, 1306 (8th Circuit 1985). The limit was raised to its present level in 1989. Pub. L. 101-239, § 7731(a), 103 Stat. 2106.
- [3] As far back as 1980, the Tax Court expressed a growing lack of patience with taxpayers who bring such suits (Tingle v. Commissioner, 73 T.C. 816, 822-823 (1980)):
As we have stated time and again, this Court is not a “forum for protest” for a taxpayer's objections to this country's military appropriations. This Court has before it a large number of cases which deserve careful consideration as speedily as possible, and “protest” cases needlessly disrupt our consideration of those genuine controversies. General grievances against the policies of the Government, or against the tax system as a whole, are not the types of controversies to be resolved in the courts; Congress is the appropriate body to which such matters should be referred.
- [4] The New York Yearly Meeting of the Religious Society of Friends has filed a brief as amicus curiae, in which it recites past accommodations of religious beliefs by the federal government, such as the exemption of the Amish from paying social security taxes. All of the examples given, however, are the result of legislation passed by Congress, and were not judicially created. This only serves to reinforce our point that taxpayer here is barking up the wrong tree in seeking judicial rather than legislative relief.