Title: Jimenez v. Dept. of Rev.
Citation: N/A
Docket Number: S069204
State: Oregon
Issuer: Oregon Supreme Court
Date: December 15, 2022

No. 53	
December 15, 2022	
543
IN THE SUPREME COURT OF THE 
STATE OF OREGON
Mickey JIMENEZ  
and Theresa L. Jimenez,
Plaintiffs-Appellants,
v.
DEPARTMENT OF REVENUE,  
State of Oregon,
Defendant-Respondent.
(TC 5422) (SC S069204)
En Banc
On appeal from the Oregon Tax Court.
Robert T. Manicke, Judge.
Submitted on the briefs September 9, 2022.
Theresa L. Jimenez and Mickey Jimenez, Portland, filed 
the briefs pro se.
Denise G. Fjordbeck, Assistant Attorney General, Salem, 
filed the brief for respondent. Also on the brief were Ellen F. 
Rosenblum, Attorney General; Benjamin Gutman, Solicitor 
General; and Samuel B. Zeigler, Assistant Attorney General.
DeHOOG, J.
The judgment of the Tax Court is affirmed.
544	
Jimenez v. Dept. of Rev.
Cite as 370 Or 543 (2022)	
545
	
DeHOOG, J.
	
ORS 305.437 requires the Oregon Tax Court to 
impose a “penalty” of up to $5,000 when a taxpayer has 
taken a “position” in a Tax Court proceeding that “is friv-
olous or groundless.” Taxpayers, who did not dispute that 
they had in fact been paid substantial wages in tax years 
2016-18, nevertheless contended in the Tax Court that they 
owed no Oregon income tax for those years. The Tax Court 
concluded that their arguments in support of that conten-
tion were frivolous and therefore warranted a penalty under 
ORS 305.437. Accordingly, the court ordered taxpayers to 
pay the Department of Revenue (department) a penalty of 
$4,000. Taxpayers now appeal, challenging only the penalty 
award. We affirm the judgment of the Tax Court.
I.  FACTS
	
In this case, the Tax Court sanctioned taxpayers for 
their legal contentions regarding their income tax liability 
for tax years 2016, 2017, and 2018. As the facts are not dis-
puted,1 we take them from the summary judgment record 
and the Tax Court’s decision.
A.  Wages, Salary, or Other Compensation
	
For tax year 2016, taxpayers received Internal 
Revenue Service (IRS) Form W-2, Wage and Tax Statements, 
showing that one of them, Mrs.  Jimenez, had been paid 
“wages, tips, [or] other compensation” by her employers 
totaling $55,758.73.
	
For tax year 2017, taxpayers received W-2s showing 
that they had been paid wages by their employers totaling 
$81,825.89.
	
1  The Tax Court’s ruling explained:
	
“[Taxpayers] do not dispute the authenticity of the copies in the record 
of W-2s, returns and other filings and correspondence with [department]. 
[Taxpayers] nowhere deny that they worked for the employers shown on the 
W-2s or that those employers paid them the amounts shown for their ser-
vices. [Taxpayers’] motion does recite as part of their ‘Statement of Facts’ 
that they ‘had no federal tax liability for the tax years at issue, thus had no 
taxable “income” or “wages” in accordance with relevant Revenue Laws.’ The 
court views the question whether [taxpayers] had federal taxable income as a 
legal issue, rather than a factual issue, and the court concludes that no issue 
of material fact exists in this case.”
546	
Jimenez v. Dept. of Rev.
	
For tax year 2018, taxpayers received W-2s showing 
that they had been paid wages by their employers totaling 
$131,594.82.
	
Taxpayers have never disputed the fact that those 
sums were paid to them by their employers.
B.  Tax Returns; Tax Court Proceedings
	
Taxpayers filed tax returns for tax years 2016 and 
2017. Those initial tax returns disclosed taxpayers’ wages 
as reported in their W-2s and calculated taxpayers’ income 
tax accordingly.
	
In August of 2019, taxpayers filed amended state 
and federal tax returns for 2016 and 2017, as well as their 
initial state and federal tax returns for 2018. Their tax 
returns showed adjusted gross income of $0 and taxable 
income, both state and federal, of $0. Taxpayers sought a 
refund of all income taxes paid, state and federal, for all 
three years.
	
The department sent notices of denial for taxpayers’ 
amended 2016 and 2017 state tax returns. For the 2018 state 
tax return, the department issued a notice of deficiency for 
unpaid state income taxes. Taxpayers objected, and the 
department issued written determinations rejecting their 
objections.
	
Taxpayers appealed the department’s action to 
the Magistrate Division of the Tax Court. The magistrate 
rejected their arguments and imposed a $500 penalty under 
ORS 305.437 on the ground that their arguments were friv-
olous. (Because the Magistrate Division is not a court of 
record, see ORS 305.430(1), no details are available to us 
from the proceedings before that court.)
	
Taxpayers then appealed to the Regular Division of 
the Tax Court. See ORS 305.501(5)(a) (authorizing appeals 
from Magistrate Division to Regular Division).2 The Tax 
	
2  The Tax Court is a single court with two divisions: the Magistrate Division 
and the Regular Division. See Village at Main Street Phase II v. Dept. of Rev., 356 
Or 164, 167, 339 P3d 428 (2014) (so explaining). For purposes of this opinion, we 
will generally use “Tax Court” to refer to the Regular Division.
Cite as 370 Or 543 (2022)	
547
Court hears such matters de novo as “original, independent 
proceedings.” ORS 305.425(1). Taxpayers and the depart-
ment filed cross-motions for summary judgment. Taxpayers 
argued that the federal income tax laws were either uncon-
stitutional or so limited as to not apply to them and that 
they therefore owed no federal income tax. And because a 
person’s state income tax liability is based on federal income 
tax law (see, e.g., ORS 316.022(6) and ORS 316.048), tax-
payers maintained that they likewise had no state income 
tax liability.
	
In its summary-judgment ruling, the Tax Court 
addressed each of taxpayers’ four main arguments and 
explained why, in the court’s view, each was incorrect. 
Taxpayers had first contended that the statutory definition 
of “wages” in the Internal Revenue Code (Title 26, United 
States Code) was “limited to compensation for the perfor-
mance of functions of a public office[.]” The Tax Court held 
that taxpayers’ interpretation of the statutory term “wages” 
was legally incorrect and that, in any event, the compen-
sation that they admitted having received would fit the 
broader definition of taxable “income.”
	
Second, taxpayers had argued that both state and 
federal income taxes “ 
‘are exclusively an excise tax on the 
gainful exercise or enjoyment of federal privileges,’ 
” and 
contended that they had not availed themselves of any such 
federal privilege. The court explained that “[n]othing in 
state or federal law limits the income tax base to gain from 
the exercise of any federal privilege.” See US Const, Amend 
XVI (authorizing tax “on incomes, from whatever source 
derived”); 26 USC §  61(a) (defining “gross income” as “all 
income from whatever source derived”).
	
Third, taxpayers had asserted that the federal 
income tax was unconstitutional as a “ 
‘federal capitation[ 
]’ 
” 
and a “ 
‘direct tax[ 
]’ 
” that, they maintained, could be imposed 
only if apportioned among the states based on population. 
The Tax Court noted that their argument was directly con-
tradicted by the text of the Sixteenth Amendment, which 
authorizes Congress “to lay and collect taxes on incomes 
* 
* 
* without apportionment among the several States, and 
without regard to any census or enumeration.” US Const, 
548	
Jimenez v. Dept. of Rev.
Amend XVI. Further, the Tax Court cited several court 
decisions holding that the argument was “absurd, frivolous, 
and devoid of any arguable basis in law.”
	
Finally, taxpayers had made a derivative argument, 
one that effectively depended on at least one of their other 
three assertions having arguable merit. Based on an IRS 
account transcript for tax year 2018, they had noted that the 
IRS had paid them the full refund that they had requested 
for 2018 based on their declared taxable income of $0. 
Taxpayers reasoned that the IRS had accepted one or more 
of their underlying arguments and agreed with taxpayers 
that they had no federal income tax liability. Accordingly, 
taxpayers maintained, they likewise were not liable for 
state income tax. The Tax Court rejected that argument as 
well, citing authorities that indicated that the IRS’s pay-
ment of a refund did not reflect a final decision on the merits 
of a taxpayers’ claim because, among other things, the IRS 
has legal authority to recover a refund even years into the 
future. See 26 USC § 6501(a), (c) (general assessment period 
is three years from filing of return, with no limitation period 
if taxpayer intended to evade tax). Moreover, the court held, 
even if the IRS had made a final determination, it would not 
be binding on the Tax Court.
	
For those reasons, the Tax Court granted summary 
judgment for the department. The court then turned to the 
department’s request for a penalty under ORS 305.437. That 
statute states that the Tax Court “shall” award a penalty 
when a party has taken a position in the court that has 
“no objectively reasonable basis.” ORS 305.437(1) (imposing 
duty to award penalty); ORS 305.437(2)(a) (defining “frivo-
lous”). The court concluded that all of taxpayers’ arguments 
lacked an objectively reasonable basis. Because taxpayers 
had maintained their unreasonable arguments throughout 
the proceeding, the court awarded a penalty of $4,000 under 
ORS 305.437.
	
Taxpayers now appeal to this court, making only 
one assignment of error: that the Tax Court erred in award-
ing the $4,000 sanction under ORS 305.437. They argue 
that a sanction is not permitted if even one of a taxpayer’s 
positions is not frivolous, which they argue is the case here.
Cite as 370 Or 543 (2022)	
549
II.  ANALYSIS
	
We review the Tax Court’s conclusions of law for 
errors of law. ORS 305.445; Khalaf v. Dept. of Rev., 368 Or 
563, 569, 495 P3d 1258 (2021).
	
The Tax Court’s statutory obligation to award a 
sanction is found in ORS 305.437. That statute provides, in 
part:
	
“(1)  Whenever it appears to the Oregon Tax Court that 
proceedings before it have been instituted or maintained by 
a taxpayer primarily for delay or that the taxpayer’s posi-
tion in such proceeding is frivolous or groundless, a pen-
alty in an amount not to exceed $5,000 shall be awarded to 
the Department of Revenue by the Oregon Tax Court in its 
judgment. * 
* 
*
	
“(2)  As used in this section:
	
“(a)  A taxpayer’s position is ‘frivolous’ if there was no 
objectively reasonable basis for asserting the position.
	
“(b)  ‘Position’ means any claim, defense or argument 
asserted by a taxpayer without regard to any other claim, 
defense or argument asserted by the taxpayer.”
	
If the statutory conditions have been met, the Tax 
Court’s duty to award the penalty is mandatory. See ORS 
305.437(1) (under listed circumstances, “a penalty * 
* 
* shall 
be awarded to the Department of Revenue by the Oregon 
Tax Court” (emphasis added)).
	
Taxpayers contend that the statutory conditions 
warranting a penalty have not been met here. They argue 
that ORS 305.437 does not apply if a taxpayer has made at 
least one objectively reasonable argument. Taxpayers reason 
that the IRS’s payment of their requested refund amounted 
to a federal determination that one of the legal positions that 
they took in the Tax Court had arguable merit, or so they 
could reasonably believe. Specifically, they assert that their 
derivative argument—that, by issuing a refund for tax year 
2018, “ 
‘the IRS [had] formally indicated that we do not owe 
federal * 
* 
* tax and therefore we do not owe the debt [that 
Oregon] unlawfully exacted’ 
”—was objectively reasonable. 
And, taxpayers reason, because at least that one argument 
550	
Jimenez v. Dept. of Rev.
was objectively reasonable, the Tax Court erred in imposing 
any penalty.
	
As we will explain, taxpayers’ argument fails for 
two reasons. First, the fact that the IRS had issued them 
a refund was not an objectively reasonable basis to argue 
against taxpayers’ tax liability. Second, ORS 305.437 does 
not require that every position taken by a taxpayer be frivo-
lous to trigger the Tax Court’s obligation to impose a penalty.
A.  Whether Taxpayers’ Position Regarding the IRS Refund 
Was Objectively Reasonable
	
Before turning to taxpayers’ specific contention 
regarding the IRS refund, we note again that taxpayers do 
not dispute that each of their other arguments was frivo-
lous. That is, they do not contend on appeal that there was 
any objectively reasonable basis for their arguments that 
federal income tax applies only to wages of public officials 
or corporate officers; that federal income tax applies only 
to the exercise of a federal privilege; or that the Sixteenth 
Amendment does not authorize an income tax unless appor-
tioned among the states based on population. That implicit 
concession is well taken, as those arguments are all contra-
dicted by the plain text of the Sixteenth Amendment or the 
relevant statutes, as noted above.
	
Taxpayers only contend that their position regard-
ing the IRS refund was objectively reasonable. However, tax-
payers’ contention regarding the IRS refund is essentially 
derivative of their concededly meritless arguments. That is, 
taxpayers contend that the IRS, by giving a refund for a sin-
gle tax year, transformed one or more of those undisputedly 
meritless positions into a position that was objectively rea-
sonable. Citing Shannon v. Moffett, 43 Or App 723, 604 P2d 
407 (1979), taxpayers contend that the binding effect of a 
federal agency decision on state court proceedings is an open 
question under Oregon law. Taxpayers conclude, therefore, 
that it was objectively reasonable for them to argue before 
the Tax Court that the IRS’s decision to give them a tax 
refund meant that they had no state income taxes due.
	
By relying on Shannon, which addressed collat-
eral estoppel, taxpayers appear to invoke the doctrine of 
Cite as 370 Or 543 (2022)	
551
issue preclusion.3 Under that doctrine, “[i]f one tribunal has 
decided an issue, the decision on that issue may preclude 
relitigation of the issue in another proceeding.” Nelson v. 
Emerald People’s Util. Dist., 318 Or 99, 104, 862 P2d 1293 
(1993). Administrative adjudications can, under some cir-
cumstances, be given preclusive effect, “provided that the 
tribunal’s decision-making processes include certain requi-
site characteristics.” Drews v. EBI Companies, 310 Or 134, 
142, 795 P2d 531 (1990).
	
However, even if we were to assume that the IRS’s 
processing of a tax return could be an adjudication and that 
some IRS adjudications could satisfy the requirements for 
issue preclusion with respect to state court proceedings, we 
would conclude that taxpayers’ reliance on that principle is 
meritless here. The IRS’s issuance of a refund does not meet 
the requirements of issue preclusion. Among other things, 
issue preclusion requires that the issue was “essential to a 
final decision on the merits in the prior proceeding.” Nelson, 
318 Or at 104. The IRS’s mere issuance of a refund is not 
final even as to the IRS itself, because the IRS can later 
bring an action against the taxpayer to recover the refund. 
See 26 USC §  7405 (expressly authorizing civil actions to 
recover erroneous tax refunds). If the refund is not even 
binding on the IRS itself, it certainly cannot bind Oregon 
state courts.
	
Moreover, taxpayers’ own evidence of the refund—
the IRS account transcript for the 2018 tax year—shows 
that the IRS was in the process of questioning the propri-
ety of the 2018 refund. The IRS account transcript is dated 
 
July 21, 2021. It does show “[r]efund issued” on October 25, 
2019, as taxpayers noted—but there are additional entries. 
The next entry, dated March 3, 2020, is “[r]efund freeze.” 
The final entry, on December 7, 2020, is “[r]eview of unre-
ported income.” Thus, although the record does not show the 
final resolution of the IRS’s review, it does demonstrate that 
the IRS did not consider itself to have made the determina-
tion that taxpayers attribute to it: that one or more of tax-
payers’ legal positions had merit.
	
3  This court uses the more contemporary term “issue preclusion” rather than 
“collateral estoppel.” Nelson v. Emerald People’s Util. Dist., 318 Or 99, 103, 862 
P2d 1293 (1993).
552	
Jimenez v. Dept. of Rev.
	
We therefore agree with the Tax Court. Whatever 
taxpayers’ subjective understanding of the IRS’s decision 
may have been, there was “no objectively reasonable basis” 
for any of the legal positions that they took in the Tax 
Court. ORS 305.437(2)(a). All those positions were therefore 
“frivolous.”
B.  Whether ORS 305.437 Requires All of a Taxpayer’s 
Positions to be Frivolous
	
The other premise underlying taxpayers’ argument 
that ORS 305.437 does not permit a sanction here is that 
a sanction is authorized only if every position taken by a 
taxpayer is frivolous. Given our conclusion that each of tax-
payers’ positions before the Tax Court was, in fact, frivolous, 
that argument is misplaced. But, in any event, that argu-
ment also is belied by the plain text of the ORS 305.437. 
Paragraph (2)(a) defines a position as “frivolous” when there 
is “no objectively reasonable basis for asserting the position.” 
But “position” is also a defined term:
	
“ 
‘Position’ means any claim, defense or argument 
asserted by a taxpayer without regard to any other claim, 
defense or argument asserted by the taxpayer.”
ORS 305.437(2)(b).4 Thus, if a taxpayer presents a claim, 
defense, or argument that has no objectively reasonable 
basis, it is frivolous, “without regard to any other claim, 
defense or argument” that the taxpayer may assert.
C.  Remaining Arguments
	
Taxpayers make two final arguments. First, tax-
payers make a passing argument against the amount of the 
sanction, claiming that it was error for the Tax Court to 
sanction them $4,000 when the magistrate had sanctioned 
them only $500. We reject that contention. As noted, the Tax 
Court proceeding is de novo. ORS 305.425(1). The Tax Court 
thus was not bound by the magistrate’s decision. See Village 
	
4  The legislature amended the statute in 2009 to include a definition of “posi-
tion.” Or Laws 2009, ch 640, § 5. It thus overruled our decision in Dept. of Rev. v. 
Croslin, 345 Or 620, 633-34, 201 P3d 900 (2009) (because ORS 305.437 did not 
then define “position,” court had concluded that term meant “the entirety of a 
taxpayer’s assertions, that is, all the taxpayer’s claims, defenses, and supporting 
arguments in the proceeding”).
Cite as 370 Or 543 (2022)	
553
at Main Street Phase II v. Dept. of Rev., 356 Or 164, 168, 339 
P3d 428 (2014) (“The Regular Division is to * 
* 
* reach its 
own independent conclusions in any given case.” (Internal 
quotation marks and citation omitted.)).
	
Next, taxpayers claim that the award of a sanction 
violates their First Amendment right to petition for redress 
of grievances. That argument is not properly before us. 
First, it was not raised before the Tax Court. See, e.g., ORAP 
5.45(1) (“No matter claimed as error will be considered on 
appeal unless the claim of error was preserved in the lower 
court[.]”). Second, even in this court, taxpayers did not raise 
that issue until filing their reply brief, thus denying the 
department a chance to respond. See id. (preservation of 
error also requires that the matter be “assigned as error in 
the opening brief”); Ailes v. Portland Meadows, Inc., 312 Or 
376, 380 & n 4, 823 P2d 956 (1991) (when issue is presented 
for first time in reply brief, respondent has no obligation to 
move to strike or to seek opportunity to respond).5
III.  CONCLUSION
	
For the foregoing reasons, we agree with the Tax 
Court that taxpayers’ positions were frivolous and that a 
sanction under ORS 305.437 was therefore required.  We 
further conclude that the Tax Court did not err in determin-
ing that a sanction in the amount of $4,000 was appropriate.
	
The judgment of the Tax Court is affirmed.
	
5  Taxpayers also argue that preservation does not apply to arguments regard-
ing constitutional rights. Taxpayers are mistaken. See, e.g., State v. K.A.M., 361 
Or 805, 809 n 2, 401 P3d 774 (2017) (“[Y]outh did not raise a Fourth Amendment 
argument in the Court of Appeals. Having lost in that court, he cannot rely on 
the Fourth Amendment as a basis for reversing the Court of Appeals decision.”); 
State v. Cabanilla, 351 Or 622, 631 n 10, 273 P3d 125 (2012) (“Defendant himself 
never made those or any other constitutional arguments in the trial court or on 
appeal in this case. They are not preserved and we do not address them.”); see 
also United States v. Olano, 507 US 725, 731, 113 S Ct 1770, 123 L Ed 2d 508 
(1993) (“No procedural principle is more familiar to this Court than that a con-
stitutional right, or a right of any other sort, may be forfeited in criminal as well 
as civil cases by the failure to make timely assertion of the right before a tribu-
nal having jurisdiction to determine it.” (Internal quotation marks and citation 
omitted.)).