Bond v. Commissioner of Revenue

• Citation: 691 N.W.2d 831
• Decision Date: 10 February 2005
• Docket Number: No. A04-564.,A04-564.
• Parties: Frederick O. BOND, Appellant, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Supreme Court of Minnesota (US)

691 N.W.2d 831

Frederick O. BOND, Appellant, v. COMMISSIONER OF REVENUE, Respondent.

No. A04-564.

Supreme Court of Minnesota.

February 10, 2005.

Frederick O. Bond, Champlin, MN, for Appellant.

Mike Hatch, Attorney General, Craig R. Anderson, Assistant Attorney General, St. Paul, MN, for Respondent.

Considered and decided by the court en banc without oral argument.

OPINION

ANDERSON, PAUL H., Justice.

Appellant Frederick O. Bond attempted to avoid all income tax liability for the year 2000 under a claim that "FREDERICK OGAN BOND is a constructive trust created by the United States under the governing statutes whose progeny rests in the Social Security Act of 1935." Based on this assertion, Bond filed a federal estates and trusts tax return and deducted all reported income for fiduciary fees, leaving a federal taxable income of $0.00. On his Minnesota income tax return, Bond reported $0.00 taxable income based on his federal return and claimed a refund of $2,304.53, the full amount of his state income tax payroll withholdings. The Minnesota Department of Revenue initially granted Bond a refund, but corrected its assessment when it audited his return. The Commissioner of Revenue issued an order correcting Bond's taxable income and assessing Bond $3,690.48 in total tax payments for the year 2000 — $2,816.53 for additional taxes, $373.95 for interest, and $500 as a penalty for filing a frivolous return. Bond appeals from a Minnesota Tax Court order granting the Commissioner's motion for summary judgment and affirming the Commissioner's December 24, 2002 tax order. We affirm.

Frederick O. Bond earned $49,499 in the 2000 tax year — $48,638 in wages, $183 in taxable interest, and $678 in ordinary dividends. From his wages that year, his employer, Honeywell, Inc., withheld state income tax in the amount of $2,304.53. Payroll statements and the W-2 for 2000 from Honeywell were in the name of Frederick O. Bond.

Before filing his returns for tax year 2000, Bond attempted to secure from the Social Security Administration (SSA) an actual irrevocable written "Simple Social Security Trust" named "FREDERICK O. BOND."¹ Bond claims that the Trust already existed, having been established in March 1963, but he wanted the Trust's terms to be in writing. Using a form available on the Internet, Bond sent to the SSA a two-page document setting out the Trust's specific terms. He named the SSA as the Creator of the Trust, the SSA General Trust Fund as the Beneficiary, and himself as the Trustee. The Trust Document also allowed income from the Trust to pay "A Reasonable Wage" to the Trustee, including all of the Trustee's living expenses.

Bond signed the Trust Document, but the Trust Document did not provide a signature line for the SSA and no signature was obtained from the SSA. Nevertheless, Bond asserted that the SSA has manifested its approval of the Trust by issuing him a Social Security number and card and by holding open an account under his Social Security number. On July 22, 2003, Bond sent a follow-up letter to the SSA Commissioner, in which he stated that the SSA had already had sufficient time to respond to his January 10, 2001 letter, in which he enclosed the Trust Document. He then stated that the SSA needed to respond within 30 days or otherwise it would be collaterally estopped from denying the existence of the Trust. On August 25, 2003, Bond sent another letter to the SSA Commissioner stating that he interpreted the SSA's lack of response to his letters as its agreement to the Trust and that "this matter now stands secured by the maxim doctrine of Collateral Estoppel."

For his year 2000 federal income tax returns, Bond filed Form 1041 for estates and trusts rather than Form 1040 for individuals. He reported a total income of $49,499 in wages, taxable interest, and ordinary dividends, but he claimed a full deduction for "Fiduciary Fees," leaving his federal taxable income at $0.00. He then claimed a full refund for his federal income tax payroll withholdings. For his 2000 Minnesota tax return, filed on March 25, 2001, Bond filed an M-1 Individual Income Tax form rather than an M-2 return for trusts, but he modified all name and identification references to reflect that he was attempting to file a trust return. He reported $0.00 taxable income based on his 1041 filing and claimed a refund of $2,304.53, the full amount of his payroll withholdings for state income taxes. The Department of Revenue initially sent Bond a refund for this amount. After auditing Bond's tax return, the Commissioner of Revenue notified Bond that his filing was incorrect and that, if he did not file an amended return within 20 days of the notice, he could be subject to a penalty for having filed a frivolous tax return. Bond did not file an amended return. Having determined that Bond's taxable income for 2000 was $43,024, the Department of Revenue sent Bond an Individual Income Tax Audit Report/Tax Order, dated December 13, 2002, assessing him $3,749.86 in total taxes for 2000, of which $2,816.53 was for additional taxes, $433.33 was for interest, and $500 was for penalties. On December 24, 2002, the amount of interest was corrected to $373.95, reducing the total amount due to $3,690.48. Bond appealed the Commissioner's order to the regular division of the tax court. The Commissioner responded and, on September 18, 2003, moved for summary judgment.

On October 24, 2003, before the hearing on the summary judgment motion, Bond deposed an Illinois Certified Public Accountant (CPA) as a purported expert witness in an effort to support his theory for tax reporting. The CPA testified that the two notices that Bond received from the IRS granting refunds to the Frederick O. Bond Trust for tax years 2001 and 2002 were administrative proof that the IRS agrees that the Trust exists. More particularly, on December 9, 2002, the IRS sent Bond, as Trustee, a notice informing him that it had changed his return and that a refund would be sent to him in the total amount of taxes paid, or $8,463, unless the Trust owed other taxes. Bond received the same notice on September 15, 2003, for the 2002 tax year, granting him a refund of $2,012. The CPA contended that if the IRS accepts a taxpayer's filing, it deems it as valid.

The tax court heard the Commissioner's motion for summary judgment on November 14, 2003. On February 10, 2004, the court issued an order finding that the parties did not dispute the facts and that Bond's legal contentions were without merit because "when a person who is the source of the trust income has control over the trust corpus, he cannot avoid income tax liability by the operation of a trust." The court noted that "[s]ubstance prevails over form" — Bond's wages were paid to him and not to the SSA. The court granted the Commissioner's motion for summary judgment and affirmed the Commissioner's Order assessing Bond $2,816.53 in taxes, plus interest, for the tax year 2000, and $500 as penalty for filing a frivolous tax return.

Claiming that the tax court made clerical errors and mistakes in its fact-finding, Bond moved for relief from the court's judgment. Among several claims, he said that the record did not support the court's finding that he "[did] not deny that he earned income from wages" or that the wages were not paid to a Social Security Trust Fund. The court denied Bond's motion for relief. At that time, Bond had already filed a petition for a writ of certiorari to our court.

I.

We review tax court decisions to determine whether the court lacked jurisdiction, whether the court's decision is supported by the evidence and is in conformity with the law, and whether the court committed any other error of law. Jefferson v. Comm'r of Revenue, 631 N.W.2d 391, 394-95 (Minn.2001). We are not bound by decisions of the tax court. A & H Vending Co. v. Comm'r of Revenue, 608 N.W.2d 544, 546 (Minn.2000). But, before we will overrule the tax court, we must conclude that the court's decision is clearly erroneous because the evidence as a whole does not reasonably support the decision. Lewis v. County of Hennepin, 623 N.W.2d 258, 261 (Minn.2001).

Minnesota Rules of Civil Procedure 56 provides that a court shall grant summary judgment if the record shows "that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." Minn. R. Civ. P. 56.03. The Minnesota Rules of Civil Procedure apply to tax court proceedings where they are not inconsistent with tax court procedures. See Minn. R. Civ. P. 81.01. When reviewing an order for summary judgment, we determine (1) whether there are any genuine issues of material fact and (2) whether the lower court erred in its application of the law. In re Daniel, 656 N.W.2d 543, 545 (Minn.2003). The substantive law identifies which facts are material. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see also Zappa v. Fahey, 310 Minn. 555, 556, 245 N.W.2d 258, 259-60 (1976)

(stating "[a] material fact is one of such a nature as will affect the result or outcome of the case depending on its resolution."). On issues of material fact, we view the evidence in the light most favorable to the party against whom summary judgment was granted. Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320, 324 (Minn.2004). We review de novo the tax court's conclusions of law, interpretation of statutes, and application of the law. Chapman v. Comm'r of Revenue, 651 N.W.2d 825, 830 (Minn.2002).

We must first address Bond's contention that genuine issues of material fact are in dispute. Specifically, Bond argues that the tax court erred when it granted the Commissioner's motion for summary judgment because the following "material facts" were at issue: (1) "overwhelming evidence via several motions supported by law"; (2) a sworn expert deposition about the validity of Bond's return; and (3) "documentary evidence establishing...