Court Opinion

ID: 39654
Source: CourtListenerOpinion
Date Created: 2010-04-25 20:32:27+00
Date Added: 2024-06-11T17:16:19.849092
License: Public Domain

United States Court of Appeals
                                                                      Fifth Circuit
                                                                   F I L E D
                    UNITED STATES COURT OF APPEALS
                         FOR THE FIFTH CIRCUIT                     October 4, 2005

                        _______________________                Charles R. Fulbruge III
                                                                       Clerk
                              No. 04-61161
                            Summary Calendar
                        _______________________

                          ALEX B. RHODES, Jr.,

                                                  Petitioner-Appellant,

                                  versus

                   COMMISSIONER OF INTERNAL REVENUE

                                                    Respondent-Appellee,

              Appeal from the United States Tax Court
          United States Tax Court Docket Number 11158-01
_________________________________________________________________

Before JONES, BARKSDALE, and PRADO, Circuit Judges.

PER CURIAM:*

           Alex B. Rhodes, Jr. pro se appeals the United States Tax

Court’s judgment for the Commissioner of Internal Revenue and

accompanying order that Rhodes pay an income tax deficiency of

$27,928.00 for 1998 and $28,547.00 for 1999; an additional tax of

$6,982.00 for 1998 and $7,048.25 for 1999 for failure to file a tax

return under 26 U.S.C. § 6651(a)(1); an additional tax of $1,277.94

for 1998 and $1,362.51 for 1999 for underpayment of estimated tax

     *
            Pursuant to 5TH CIR. R. 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
under 26 U.S.C. § 6654; and a penalty of $2,000.00 for the filing

of a frivolous petition under 26 U.S.C. § 6673(a)(1)(B).                    We

AFFIRM.   The Commissioner moves for damages of $6,000.00 pursuant

to 28 U.S.C. § 1912 and FED. R. APP. P. 38.         Rhodes in turn moves for

sanctions against Commissioner in the amount of $8,000.00 pursuant

to 28 U.S.C. § 1912 and FED. R. APP. P. 38.          We AFFIRM the judgment

of the Tax Court, GRANT the motion of the Commissioner and DENY the

motion of Rhodes.

                              I.   BACKGROUND

              In 1998 and 1999, Rhodes, a U.S. citizen, resided in

Texas   and    received   wage   income      from   various   consulting   and

engineering jobs.         Including investment income, Rhodes earned

$110,138 in 1998 and $110,826 in 1999.              In both years, however,

Rhodes claimed to be exempt from federal income tax on the W-4

forms he submitted to employers.             As a result, no federal income

tax was withheld from Rhodes’s wages in 1998 and 1999, and Rhodes

did not file federal income tax returns for either year.

                                 II.   ISSUES

     As an initial matter, Rhodes claims that he cannot be found in

deficiency without there first being an assessment against him.

Second, Rhodes claims that he owed no tax for 1998 and 1999 because

wages paid to American citizens within the United States are not

taxable income, nor are such wages income in the “constitutional

sense.” Third, Rhodes claims that additional taxes against him are

                                       -2-
inappropriate, as he was within statutory exceptions to liability.

These arguments are contrary to established law and are without

merit.

                                III.     DISCUSSION

A.     Issues on Appeal

            We review the factual findings of the Tax Court for clear

error, and its conclusions of law de novo.                    Cook v. Comm’r.,

349 F.3d 850, 853 (5th Cir. 2003).

                Rhodes first contends that an assessment must precede

deficiency. This court has reached the opposite conclusion. State

Farm Life Ins. Co. v. Swift, 129 F.3d 792, 800 n.41 (5th Cir.

1997)(“An assessment is not a prerequisite to tax liability.”)

(quoting Moran v. United States, 63 F.3d 663, 666 (7th Cir. 1995).

That the Commissioner had not made an assessment against Rhodes

does not preclude a deficiency finding.

            The claim that wages and investment income are somehow

exempt    from     federal    taxation    is    a   tired   one,   and    has   been

repeatedly rejected.          In Lonsdale v. Comm’r., 661 F.2d 71, 72 (5th

Cir. 1981), this court labeled such claims “meritless,” “stale,”

and “long settled.”          See also Capps v. Eggers, 782 F.2d 1341, 1343

(5th     Cir.    1986)(such     a   claim      is   “manifestly    and     patently

frivolous”).        The Constitution grants Congress the power to tax

“incomes. . . from whatever source derived . . . .”                      U.S. CONST.

AMEND.   XVI.     The federal income tax is to be imposed upon every

                                         -3-
citizen and resident of the United States.                     26 U.S.C. § 1. Taxable

income is gross income less allowable deductions.   26 U.S.C. §    63(a).      For tax

purposes,     gross     income     is   “all    income      from    whatever    source

derived.”       26 U.S.C. § 61(a).              Indeed, “Congress supplied no

limitations as to the source of taxable receipts.”                          Comm’r. v.

Glenshaw Glass Co., 348 U.S. 426, 431, 75 S. Ct. 473 (1955).                        Wages

and investment income are unquestionably part of Rhodes’s taxable

income, and the Tax Court’s finding of deficiency was proper.

             The assessment of additional taxes against Rhodes was

similarly proper.        An additional tax may be imposed for failure to

file a return, 26 U.S.C. § 6651(a)(1), and an additional tax may also be assessed for

underpayment of estimated tax. 26 U.S.C. § 6654(a).      Under 26 U.S.C. § 7491(c),

the Commissioner         bears    the   burden      of    proof    for   showing   that

additional taxes are appropriate. Here, that burden is easily met,

as Rhodes concedes that he did not file a tax return for 1998 or

1999, and that with the exception of $354 withheld in 1999, he made

no tax payments in either year.              In response to the Commissioner,

Rhodes produces no evidence beyond his misguided interpretation of

U.S. tax law, and therefore cannot demonstrate reasonable cause for

his actions.      Rhodes’s reliance on frivolous legal claims does not

excuse his failure to file a tax return.                   Brittingham v. Comm’r.,

66 T.C. 373, 415 (1976), aff’d 598 F.2d 1375 (5th Cir. 1979).                        He

further offers no credible evidence that he falls within the

exceptions to 26 U.S.C. §§ 6651, 6654.                   As there is no clear error

                                          -4-
by the Tax Court, its assessment of additions was appropriate in

both instances.

             The Tax Court’s imposition of a $2,000 penalty against

Rhodes under 26 U.S.C. § 6673 is reviewed for abuse of discretion.

Sandvall v. Comm’r., 898 F.2d 455, 459 (5th Cir. 1990).                A claim is

“frivolous” under 26 U.S.C. § 6673(a)(1)(B) 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).       Rhodes’s case is based upon frivolous claims that are

contrary     to    relevant    statutes   and   case    law,   and    Rhodes   has

continued to assert these claims even after being made aware of

their frivolousness on several occasions. In light of the waste of

court resources caused by Rhodes, a $2,000 penalty was certainly

within the Tax Court’s discretion.

B.   Motions

             Commissioner now seeks sanctions against Rhodes for his

frivolous appeal.       This court may impose “just damages and single

or double costs to the appellee.” FED. R. APP. P. 38.                 Damages are

appropriate when an “appeal is baseless, presents no colorable

claim   of   error,    and    raises   repeatedly      rejected     contentions.”

Knoblauch     v.    Comm’r.,    749 F.2d 200,     202   (5th    Cir.   1984).

Similarly, this court may award “just damages...and single or

double costs” for delay caused by appeal. 28 U.S.C. § 1912.

Rhodes’s appeal is founded upon the repeatedly rejected contentions

                                        -5-
that wages are not taxable and that assessment is required prior to

deficiency.   He offers no colorable claim of error.      In spite of

being told throughout his trial that his claims were frivolous, and

being sanctioned by the Tax Court, Rhodes nevertheless brought this

appeal, recycling   the   same   frivolous   arguments.   A   lump   sum

sanction is appropriate in this case, Parker v. Comm’r., 117 F.3d
785, 787 (5th Cir. 1997), and $6,000.00 is a reasonable amount.

          Rhodes’s cross motion for sanctions against the Tax Court

and Commissioner is impermissible under FED. R. APP. P. 38 and 28

U.S.C. § 1912, as he is the party appealing the judgment of the Tax

Court.   It should be further noted that Commissioner, unlike

Rhodes, raised valid legal arguments at trial, and thus Rhodes is

without support for sanctions.

                             CONCLUSION

     For the foregoing reasons, the decision of the tax court is

AFFIRMED, Commissioner’s motion for damages under Fed. R. App. P.

38 is GRANTED, and Rhodes’s motion for sanctions is DENIED.

                                  -6-