2011 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-21-2011

David Jahn v. Comm IRS

Precedential or Non-Precedential: Non-Precedential

Docket No. 10-2526

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 10-2526

___________

DAVID JAHN,

Appellant

v.

COMMISSIONER OF INTERNAL REVENUE

____________________________________

On Appeal from the United States Tax Court

(T.C. No. 08-24302)

Tax Court Judge: Honorable Thomas B. Wells

____________________________________

Submitted Pursuant to Third Circuit LAR 34.1(a)

June 21, 2011

Before: FUENTES, GREENAWAY, JR., and COWEN, Circuit Judges

(Opinion filed: June 21, 2011 )

___________

OPINION

___________

PER CURIAM

David Jahn appeals from a decision of the Tax Court, arguing that the 

Commissioner should have been required to account for certain itemized deductions in 

calculating his tax deficiency and challenging the Tax Court’s imposition of a penalty

pursuant to Internal Revenue Code (“I.R.C.”) § 6673. For the following reasons, we will 
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affirm.

I.

This is the second time that Jahn is before us due to his failure to pay taxes. In the 

first proceeding, which arose out of Jahn’s failure to file a tax return for the 2004 tax 

year, Jahn filed a petition in Tax Court arguing that the Commissioner should have been 

required to account for itemized deductions in the substitute return he prepared on Jahn’s 

behalf. The Tax Court held that Jahn was not entitled to itemize deductions because he 

did not file a return relating to 2004. Jahn v. Comm’r, T.C. Mem. 2008-141, 2008 WL 

2128229, at *1 (T.C. May 21, 2008). On appeal, we affirmed the Tax Court’s holding 

that a taxpayer must file a return in order to itemize deductions. Jahn v. Comm’r, 392 F. 

App’x 949, 950 (3d Cir. 2010).

While that appeal was pending, Jahn was served with a notice of deficiency 

relating to the 2006 tax year. Since Jahn had also failed to file a tax return for the 2006 

tax year, the Commissioner calculated Jahn’s deficiency by preparing a substitute return 

for him pursuant to I.R.C. § 6020(b). As with the 2004 tax year, the Commissioner only

allowed Jahn the standard deduction.

Jahn filed a petition in Tax Court, challenging the calculated deficiency as he did 

with the 2004 tax year because the substitute return did not account for itemized 

deductions. In response, the Commissioner sent Jahn a letter requesting that he submit a 

return for the 2006 tax year in order to resolve the matter. Jahn took the position that he 

“shouldn’t be required to prepare and sign under penalty of perjury documents which [he]
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lack[s] the education and training to comprehend, and then potentially suffer fines and 

penalties or imprisonment due solely to [his] inability to understand and apply the 

complex tax laws to [his] situation.” (Ex. 6-J.) Accordingly, instead of preparing a 

return, Jahn submitted documentation of the deductions he sought and indicated that the 

Commissioner should prepare the return for him, taking those deductions into account.

The matter eventually proceeded to trial. Jahn’s case rested on the premise that 

the government should not be able to “compel you to do something you really don’t have 

the education or training to do,” i.e., file a tax return. (Trial Tr. 8.) He also reiterated his 

assertion that he should be entitled to itemize deductions. The Tax Court concluded that

Jahn’s failure to file a return precluded his eligibility for itemized deductions, and held 

that the Commissioner had established a deficiency and additions to tax in the amounts

reflected in the substitute return. Additionally, the Tax Court imposed a $10,000 penalty

on Jahn, pursuant to I.R.C. § 6673, for advancing frivolous arguments despite several 

warnings that his positions lacked merit. 

Jahn timely filed a motion to vacate, which the Tax Court denied. He then filed a 

timely appeal. 

II.

Our appellate jurisdiction arises under 26 U.S.C. § 7482(a). We exercise plenary 

review over the Tax Court’s legal conclusions, see PNC Bancorp, Inc. v. Comm’r, 212 

F.3d 822, 827 (3d Cir. 2000), and review its imposition of a penalty under § 6673 for 

abuse of discretion. See Pollard v. Comm’r, 816 F.2d 603, 604 (11th Cir. 1987) (per 
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curiam).

In this appeal, Jahn continues to maintain that he is entitled to itemize deductions 

despite his failure to file a return.

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 Jahn argues that I.R.C. § 63(e) allows a taxpayer to 

itemize regardless of who makes the return. And since the substitute return prepared by 

the Commissioner constitutes a return for purposes of establishing tax liability and 

imposing additions to tax, Jahn argues that it constitutes a return for the purpose of 

electing to itemize under § 63(e). We reject those arguments.

“Unless an individual makes an election under [§ 63(e)] . . . , no itemized 

deduction shall be allowed for the taxable year.” I.R.C. § 63(e)(1). That election “shall 

be made on the taxpayer’s return.” § 63(e)(2). Given the I.R.C.’s clear statutory 

language, it is fairly obvious that, unless a taxpayer files a return and makes the

appropriate election, he is not entitled to itemize. See Maxwell v. United States, 80 F. 

Supp. 2d 1352, 1353-54 (N.D. Ga. 1999). 

 

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The Commissioner asserts that collateral estoppel bars Jahn’s challenge because 

Jahn unsuccessfully pursued the same argument with respect to the 2004 tax year. 

Collateral estoppel is an affirmative defense that must be raised initially in tax 

court. See Shades Ridge Holding Co. v. United States, 888 F.2d 725, 727 (11th 

Cir. 1989); Sundstrand Corp. & Subsidiaries v. Comm’r, 96 T.C. 226, 349 (1991). 

Since the Commissioner never raised the issue of collateral estoppel before the 

Tax Court, we decline to consider the matter for the first time on appeal. See In re 

Ins. Brokerage Antitrust Litig., 579 F.3d 241, 261 (3d Cir. 2009). We note, 

however, that we find the Commissioner’s position to be somewhat disingenuous 

since he opposed Jahn’s motion to stay the instant case pending our ruling in the 

earlier appeal on the basis that “the outcome of [the appeal in the prior case] will 

not have affect [sic] on the instant case” since “[e]ach taxable year stands alone.” 

(Comm’r’s Notice of Objection ¶ 4.)
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Furthermore, although a substitute return prepared pursuant to I.R.C. § 6020(b) is 

treated like a return for certain purposes, it is not the equivalent of a return filed by the 

taxpayer. Section 6020(b) authorizes the Secretary to prepare a substitute return for a 

taxpayer who has failed to file, which is “good and sufficient for all legal purposes except 

insofar as any Federal statute expressly provides otherwise.” Treas. Reg. § 301.6020-

1(b)(3). Among those valid purposes are assessing the taxpayer’s deficiency and 

determining addition to tax. See I.R.C. §§ 6201(a)(1), 6651(g); United States v. Silkman, 

220 F.3d 935, 936 (8th Cir. 2000). But the substitute return does not relieve the nonfiling taxpayer of his duty to file, see United States v. Lacy, 658 F.2d 396, 397 (5th Cir. 

1981) (per curiam), and does not equate to a filed return unless signed by the taxpayer. 

See In re Bergstrom, 949 F.2d 341, 343 (10th Cir. 1991). 

Thus, a substitute return prepared under § 6020(b) is not a “taxpayer’s return”

within the meaning of § 63(e)(2). Jahn contends that, if a substitute return qualifies as a 

return for some purposes, due process and equal protection require that it constitute a 

return for every purpose. We find no basis for Jahn’s constitutional challenge.

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 The

Commissioner gave Jahn the standard deduction to which he was entitled. If Jahn wanted 

to itemize deductions, he should have filed his own return and made the appropriate 

election as he was invited to do by the Commissioner. Since he did not do so, he is not 

entitled to itemize deductions for the 2006 tax year. 

 

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Furthermore, we reject Jahn’s suggestion that he was unconstitutionally 

threatened by the Tax Court.
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Jahn also argues that the Tax Court abused its discretion in imposing a penalty 

under § 6673. “When taxpayers are on notice that they may face sanctions for frivolous 

litigation, the tax court is within its discretion to award sanctions under section 6673,” so 

long as the sanction does not exceed $25,000. Wolf v. Comm’r, 4 F.3d 709, 716 (9th Cir. 

1993); see I.R.C. § 6673(a)(1). An argument is frivolous “if it is contrary to established 

law and unsupported by a reasoned, colorable argument for change in the law.” Coleman 

v. Comm’r, 791 F.2d 68, 71 (7th Cir. 1986). 

First, Jahn’s contention that he was never warned that his positions lacked merit is 

flatly controverted by the record. The Commissioner specifically notified Jahn in a 

pretrial letter that he intended to seek penalties under § 6673 if Jahn persisted in arguing 

that he was entitled to itemize deductions without filing a return. Furthermore, the 

Commissioner clearly stated in his pretrial memorandum and in his opening argument at 

trial that he sought penalties in light of that argument as well as Jahn’s argument that the 

complexity of the tax code prevented him from filing a return. Indeed, when directly 

questioned by the Tax Court on the issue, Jahn acknowledged receiving notice that his 

positions were meritless.

Second, we do not believe that the Tax Court abused its discretion in penalizing 

Jahn for advancing groundless positions. The Tax Court found Jahn’s argument that he 

should not be compelled to file a tax return given the complexity of the tax code akin to 

tax protester-type arguments wholly lacking in merit. The Tax Court also noted that Jahn

continued to pursue arguments that he had unsuccessfully advanced with respect to the 
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2004 tax year, i.e., that he should be entitled to itemize. We agree that Jahn’s arguments 

have no support in the law and conclude that the Tax Court did not abuse its discretion in 

penalizing Jahn $10,000.3 See Jenkins v. Comm’r, 483 F.3d 90, 94 (2d Cir. 2007) 

(upholding penalty for argument that, while not foreclosed by precedent, was 

representative of arguments that had been universally rejected, especially since petitioner 

“previously raised a similar unsuccessful challenge in Tax Court”); Stearman v. Comm’r, 

436 F.3d 533, 537-38 (5th Cir. 2006) (upholding $12,500 penalty per case when taxpayer 

advanced arguments “characteristic of tax-protester rhetoric”) (quotations omitted). 

For the foregoing reasons, we will affirm the judgment of the Tax Court.

 

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Jahn argues that he should not have been penalized because he did not advance 

any of the arguments posted on the Internal Revenue Service’s website, which 

provides a list of arguments that have repeatedly found by courts to be frivolous.

Frivolous Tax Arguments in General, Internal Revenue Service (Jan. 1, 2011), 

www.irs.gov/taxpros/article/0,,id=159932,00.html. While that list may provide 

useful guidance to taxpayers, it is by no means exclusive and does not preclude 

imposition of a penalty for arguments that are not specifically identified.