2011 D e c i sion s O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit

6-21-2011 

# D a v id J ahn v . C omm IR S

P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al
D ock e t N o . 10-2526

F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p://d i g it alc ommon s .l a w . v i l l a no v a . e du/thir dc ir c uit_2011

Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. I t h as be e n a c c e pt e d for inclusion in 2011 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min

. C a rl s on@l a

w . v i l l a no v a . e du

. R e c omme nde d C it a t ion

" D a v id J ahn v . C omm I R S " (2011). 2011 D e cisio n s . P a pe r 1065. h tt p://d i g it alc ommon s .l a

w . v i l l a no v a . e du/thir dc ir c uit_2011/1065NOT 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 Uni ted 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

(Op inion 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 d eficiency and challenging the Tax Court’s imposition of a penalty pursuant to Internal Revenue Code (“I.R.C.”) § 6673 . For the following reasons, we will2

affirm.
I. This is the second time that Jahn is before us due to his failure to pay taxes. In the
f irst 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 prepare d on Jahn’s
behalf. The Tax Court held that J ahn 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 Cou rt’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 fail ed 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 deduct ion

. 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, t he Commissioner sent Jahn a letter requesting that he sub mit 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 pena lty of perjury documents which [he]3

lack [s] the education and training to comprehend, and then potential ly 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 pre pare the return for him, taking those deductions into account

. The matter eve ntually pr oceeded 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 hi s eligibility for itemize d deductions , and held that the Commissioner had established a deficiency and additions to tax in the amount s reflected in the substitute return. Additionally, t he Tax Court imposed a $10,000 penalty
on Jahn , pursuant t o 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, s ee PNC Banco r p , Inc. v. Comm’r , 212 F.3d 822, 827 (3 d Cir. 2000), and review its imposition of a penalty under § 6673 for
abuse of discretion. See Pollard v. Comm’r , 816 F.2 d 603, 604 (11th Cir. 1987) (per4

curiam)

. In this appeal, Jahn continues to maintain that he is entitled to itemize deductions despite his failure to file a return

. 1 Jahn argues that I.R.C. § 63(e) allows a taxpayer to itemize regardless of who makes the return. And s ince the substitute return prepared by the Commissioner constitutes a return for purpose s of establishing tax liability and imposing addit ions to tax, Jahn argues that it constitute s 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 t he I.R.C.’s cl ear 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).

1 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 co urt

. 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). S ince the Commissioner never raised the issue of collateral estoppel before the Tax Court , we decl ine 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 hav e affect [sic] on the instant case” since “[e]a ch taxable year stands alone.” (Comm’r’s Notice of Objection ¶ 4.)5

Furthermore, a lthough 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

ta xpayer 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 an d determining addition to tax. S ee I.R.C. § § 6201(a)(1), 6651(g); United States v. Silkman , 22 0 F.3d 935, 936 (8th Cir. 2000). But the substitute return does not relieve the non

filing taxpayer of his duty to file, s ee United States v. Lacy , 658 F.2d 396 , 3 97 (5 t h 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

. 2 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 i s not
entitled to itemize deductions for the 2006 tax year

.

2 Furthermore, we reject Jahn’s suggestion that he was unconstitutionally threatened by the Tax Court.6

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 awa rd 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 Com missioner 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 deduction s 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, w hen directly questioned by the Tax Cour t 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
sho uld 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 the7

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 for e closed by precedent, was representative of arguments that had been universally rejected, especially since petitioner

“ previously raised a similar unsuccessful challenge in Tax Court ”) ; Stea rman 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.

3 Jahn argues that he should not have been penalized because he did not advance any of th e arguments posted on the Internal Revenue Service’s website, wh ich 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 guida nce to taxpayers, it is by no means exclusive and does not preclude imposition of a penalty for arguments that are not specifically identified

.