Court Opinion

ID: 4485193
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:14.276929+00
Date Added: 2024-06-11T14:53:46.938145
License: Public Domain

Chabot, J., concurring in part and dissenting in part: I agree with the majority’s holdings as to the following issues: (1) Petitioner’s wages are income, subject to tax, and he is not entitled to an offsetting deduction for "Non-taxable receipts”. (2) Petitioner intentionally disregarded respondent’s rules and regulations in claiming the unwarranted deduction for "Non-taxable receipts”, and so is liable for an addition to tax under section 6653(a). (3) Petitioner is liable for damages under section 6673, for instituting proceedings in the Court merely for delay. (When he filed the petition in the instant case, the only matter in dispute was the deficiency, no additions to tax or damages having yet been asserted. In the words attributable to a sports figure in the 1930’s, petitioner "should of stood in bed”.) (4) Petitioner is not entitled to a jury trial. From the majority’s determination to grant summary judgment that the Form 1040 filed by petitioner was not a tax return, I respectfully dissent. In Badaracco v. Commissioner, 464 U.S._,_(1984), the Supreme Court confronted the contention of the taxpayers therein that the first documents they had filed "were 'nullities’ for the statute of limitations purposes.” In the course of its analysis, the Supreme Court stated as follows: a document which on its face plausibly purports to be in compliance, and which is signed by the taxpayer, is a return despite its inaccuracies. * * * Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934), which petitioners cite, affords no support for their argument. The Court in Zellerbach held that an original return, despite its inaccuracy, was a "return” for limitations purposes, so that the filing of an amended return did not start a new period of limitations running. In the instant cases, the original returns similarly purported to be returns, were sworn to as such, and appeared on their faces to constitute endeavors to satisfy the law. Although those returns, in fact, were not honest, the holding in Zellerbach does not render them nullities. An examination of the Form 1040 in question (see Appendix, pp. 788-789 infra) shows the following: (1) It is a document which on its face plausibly purports to be in compliance with the law; (2) it is signed by the taxpayer (under penalties of perjury); (3) it does not make believe that only gold and silver coins need be reported; (4) it is not chock-full of refusals to provide information (indeed, it provides all the information requested as to petitioner’s "Wages, salaries, tips, etc.”, and respondent does not contend that petitioner had any other reportable income); (5) the income is reported on the correct line of the return; (6) an unwarranted deduction is reported on a line reserved for deductions; and (7) apparently the Form 1040 includes everything respondent needed in order to determine petitioner’s income tax liability. Compare the instant case with Reiff v. Commissioner, 77 T.C. 1169, 1177-1179 (1981), and the cases cited therein. Nothing in the majority’s opinion or on the face of the Form 1040 shows that respondent is led into error because of the change in the text of any line on the Form 1040. I would hold that the document filed by petitioner constitutes a tax return under the standards adopted by the Supreme Court, as most recently articulated in Badaracco v. Commissioner, supra. We deal with this matter in the context of respondent’s motion for summary judgment, a context in which, as the majority concede (p. 772 supra), "the factual materials presented 'must be viewed in the light most favorable to the party opposing the motion.’ ” The majority fail to make a finding of fact that any problem described in their opinion results from any of the eight alterations petitioner made on his Form 1040, whether the alterations are taken singly or in combination. The majority’s opinion, at pages 776-777 supra, states that petitioner’s alteration of the Form 1040 had "the net effect of * * * the creation of a zero tax liability” and that "because of these numerous irregularities, [it had to] be handled by special procedures and must be withdrawn from normal processing channels.” This misdescribes the situation. Both the zero tax liability, and the requirement of special procedures, result from the unwarranted deduction. These problems would exist — because of the deduction — even if there were no alterations to the Form 1040. On page 779 of their opinion, the majority state that— to compute a tax from this tampered form, one must effectively ignore the margin and line descriptions, imagining instead the correct ones from an official Form 1040, or one must simply select from the form, including the Form W-2, that information which appears to be applicable and correct, and from the information so selected, irrespective of its label, compute a tax. The Form 1040 in question shows the necessary income information, and does so on the correct line, and that line has not been altered. This information is in accord with the Form W-2 (and not in conflict with it, as was the case in Reiff v. Commissioner, supra, relied on by the majority). There is no need to imagine the correct margin and line descriptions from an official Form 1040 because respondent’s problems are no different, with the altered Form 1040, than they would be with an official Form 1040. The majority emphasize (p. 775 supra) the explanation by the Supreme Court in Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944), that "The purpose is not alone to get tax information in some form but also to get it with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished.” I agree that we must follow the Supreme Court’s analysis in applying section 6651(a)(1). However, the record in the instant case does not show — and the majority have not found — that the alterations to the Form 1040 (as distinguished from the unwarranted deduction) interfered in any manner with the accomplishment of the physical task of handling and verifying income tax returns. I understand and share the majority’s frustration at having to deal with frivolous arguments such as the "equal exchange” theory. However, this Court should not confuse the law as to what is a tax return, just to punish a particular individual or even a class of individuals. The Congress has given the courts more effective tools. We have used these tools to impose damages of up to $5,000 for frivolous or groundless actions. (Sec. 6673.) The District Courts have used these tools to uphold penalties of $500 for frivolous filings. (Sec. 6702.) As the majority note (p. 771 note 14 supra), the injunction has been used to prevent conduct which interferes with proper administration of the Internal Revenue laws. (Secs. 7402(a), 7407.) When civil fraud is found, the sanction therefor now includes an additional amount under section 6653(b)(2). The criminal fraud fine has been increased from a maximum of $10,000 to a maximum of $100,000 ($500,000 in the case of a corporation). (Sec. 7201.) I would hold that petitioner’s Form 1040 is a tax return. Since there is no finding that it was filed late, I would not impose an addition to tax under section 6651(a)(1). From the majority’s contrary holding, I respectfully dissent. Swift, J., agrees with this concurring and dissenting opinion. APPENDIX The Form 1040 filed by petitioner is as follows (the oval markings having been added by the author of this opinion in order to indicate the places where the form was altered): [[Image here]] [[Image here]] FORM-NON-TAXABLE RECEIPTS: Eisner v. Macomber, 252 U.S. 189 (1920) This Form is supplied by the individual taxpayer, who after studying the tax laws (Title 26, U.S.C.) and Supreme Court decisions, in particular the Supreme Court case of Eisner v. Macomber, 252 U.S. 189 (1920), realizes that certain earnings, or more generally certain receipts, are not taxable. After a thorough analysis of this landmark case, when viewed in light of the tax law sections cited below, the individual taxpayer using this Form now puts the processor and/or examiner of this Form — 1040 tax return for 1981 on notice that what is claimed must be followed and that the return must be processed as filed. The compulsion to follow the return flows from three factors: (1) the tax code sections cited and used to determine any tax liability are law and must be followed and enforced as such, (2) this ruling is a Supreme Court ruling which is therefore part of the United States Constitution and thus part of the Supreme Law of the Land, and (3) the Internal Revenue Service, by it own admission through the Tax Courts(quasi-judicaI courts), states that the I.R.S. is only bound to follow the U.S. Constitution and Supreme Court decisions. Since this Supreme Court ruling has never been changed by subsequent decisions, the ruling remains good "law” and hence the processor/examiner is thereby compelled to follow it and process the return as filed. Looking to the specifics of this case, the processor/examiner is hereby notified that to be better prepared to perform his/her job he/she should have a full understanding of what the Supreme Court said and the implications following therefrom. Although the case deals with the taxability of a stock dividend issued to the taxpayer and the Court held that such a dividend was not taxable as income, the Court laid down in its opinion rulings that have a far more reaching effect than to just situations dealing with stock dividends. Mr. Justice Pitney recognized the importance of the Supreme Court in dealing with questions of interpretation of the taxing power afforded Congress through the Constitution and the 16th Amendment when he stated at page 206, " A proper regard for its genesis, as well as its very clear language, requires also that this Amendment shall not be extended by loose construction, so as to repeal or modify, except as applied to income, those provisions of the Constitution that require an apportionment according to population for direct taxes upon property, real and personal. This limitation still has an appropriate and important function, and is not to be overridden by Congress or disregarded by the courts. In order, therefore, that the clauses cited from Article I of the Constitution may have proper force and effect, save only as modified by the Amendment, and that the latter also may have proper effect, it becomes essential to distinguish between what is and what is not "income”, as the term is there used; and to apply the distinction, as cases arise, according to truth and substance, without regard to form. Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, form which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.” So the next question to be answered is what did the Court say is income? Income is defined very succinctly by the Court in its definition which had been formulated in earlier cases, and was stated at this time at page 207, "Income may be defined as the gain derived from capital from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets...” And the Court elaborated on this definition when applied to a stock dividend further on in its opinion by emphasizing the necessity for the severance of the gain from the investment, in order for the gain to be taxed as income. So what the Supreme Court defines as income is what is to be applied when assessing a taxpayer’s tax liability, and not what the Congress may say income is or what is to be used as the yardstick is such situations, if such definitions conflict with Supreme Court rulings. In pointing out to the processor/examiner that although the Internal Revenue Code of 1954, 26 U.S.C. § 61 attempts to define what is GROSS INCOME and later what is TAXABLE INCOME, Congress is precluded from doing so by this case ruling. But the tax laws do provide for the proper determination of income (gain) from wages, which when used properly do not conflict with the holding of Eisner, supra. Looking to the Internal Revenue Code of 1954, Title 26, U.S.C., the rule for the determination of gain (income) from the sale or other disposition of property (of which the exchange of labor for wages is an instance) is found in sections 1001(a), 1001(b), 1011(a), and 1012. 26 U.S.C. 1001(a): "the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis.” 26 U.S.C. 1011(a): "the adjusted basis...shall be the basis (determined under section 1012)”. 26 U.S.C. 1012: "The basis of property shall be the cost of such property...” In summary, the gain from the exchange of labor for wages is the excess of the amount of wages realized therefrom over the cost of labor. Section 1001(b) defines "amount realized” as "the sum of money received plus the fair market value of the property (other than money) received.” This section recognizes that in the determination of a potential gain, the amount received can be determined either in the form of money or in the fair market value of property other than money. The employee gets his amount realized in money, while the employer, in labor which has a fair market value determined by contract and accepted by government to be the value of wages. It is thus clear that it is the value of the amount received and not its form that is used to determine gain (income). The law permits my employer to use this standard of "value” to declare that the value of my labor is equal to his costs in the form of money (or wages) lost to him, and which he has a right to renew before he receives an excess of that cost, that is, a gain or income. I, as an individual, require that this same standard of "value” allow me to declare that the value of his wages paid to me is equal to my costs or losses in the form of valuable labor (time lost forever and skilled energy lost until renewed by the requirements of rest and food, etc. through wages). Therefore, according to section 1001(a), if the law is evenly applied, there would be zero (0) excess of amount realized over the cost of my labor, since the cost of my labor is its fair market value, which is identical to the amount received in wages. The individual using this Form would also like to warn the processor/ examiner not to fall into the same mistake as the Government did in Eisner, supra at page 213, "Throughout the argument of the Government, in a variety of forms, runs the fundamental error already mentioned — a failure to appraise correctly the force of the term "income” as used in the Sixteenth Amendment, or at least to give practical effect to it.” Other court decisions which may be helpful in clarifying the position held by the individual using this Form are as follows. In Conner v. U.S., 303 F.2d 202 (1969), the court stated "Whatever may constitute income, therefore, must have the essential feature of gain to the recipient. This was true when the Sixteenth Amendment became effective, it was true at the time of the decision of Eisner v. Macomber, supra, it was true under section 22(a) of the Internal Revenue Code of 1954. If there is no gain, there is no income”. From Champlin v. C.I.R., 123 F.2d 202 (1941) it is stated "Where property is given in exchange for other property, the cost of the property acquired is the value of the property given exchanged therefore”. Hence, the values of labor and wages are equivalent. "The moral requirement implicit in every contract of employment, viz, that the amount paid and the service rendered shall bear to each other some measure of just equivalence... In principle, there can be no difference between the case of selling labor and the case of selling goods (property).” Adkins v. Childrens Hospital, 261 U.S. 525 (1923). ' Thus a proper appraisal must be made on an individual to individual basis in assessing taxes. Therefore the individual comes to the inescapable conclusion that this Form, NON-TAXABLE RECEIPTS, when viewed in light of the tax law sections cited and Eisner v. Macomber, supra, is proper and binding on the tax processor and/or examiner. The following computations were used and the figures transferred to the Form-1040 in arriving at the proper tax to be payed. COMPUTATION OF NON-TAXABLE RECEIPTS SECTION: 1. Total receipts (taken from line 21, Form-1040). 24,401/89 2. Wages, salaries, tips, etc. 24,401/89 3. Other receipts which do not meet Eisner test...._0/00 4. Total Non-taxable receipts (add lines 2 & 3). 24,401/89 transfer this amount to line 23, Form-1040 5. Adjusted Gross Income (subtract line 4 from line 1)..0/00 transfer to line 31, Form-1040 only if no other Adjustments to Receipts Under penalties of perjury, I declare that I have examined this Form and to the best of my knowledge and belief, it is true, correct, and complete. (S) Robert D. Beard_, Date 2-22-82_ FORM-NOÑ-TAXABLE RECEIPTS