Charczuk v. C.I.R., 83-2370

• Decision Date: 29 August 1985
• Docket Number: No. 83-2370,83-2370
• Citation: 771 F.2d 471
• Parties: -5740, 85-2 USTC P 9656 Paul E. CHARCZUK and Victoria Charczuk, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 471

771 F.2d 471

56 A.F.T.R.2d 85-5740, 85-2 USTC P 9656

Paul E. CHARCZUK and Victoria Charczuk, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 83-2370.

United States Court of Appeals, Tenth Circuit.

Aug. 29, 1985.

Thomas J. Carley, Rockville Centre, N.Y., for appellants.

Thomas A. Gick, Tax Div., Dept. of Justice (Glenn L. Archer, Jr., Asst. Atty. Gen. and Michael L. Paup, and Gary R. Allen, Tax Div., Dept. of Justice, with him on brief), Washington, D.C., for appellee.

Before HOLLOWAY and SEYMOUR, Circuit Judges, and BOHANON, Senior District Judge. ^*

BOHANON, District Judge.

Paul E. Charczuk and Victoria Charczuk jointly filed a Form 1040 for the taxable year 1977 reflecting income of $4,763.00. This amount was entered on the line for "business income" rather than on the line for "wages, salaries, tips and other employee compensation." Attached to the taxpayers' return were seven Form W-2 Wage and Tax Statements showing that the taxpayers received wages during 1977 totaling $12,276.00. Also attached was a Schedule C for each taxpayer claiming a "net profit" of $2,668.00 for Paul Charczuk and $2,095.00 for Victoria Charczuk. ¹ On June 9, 1980, the Commissioner sent taxpayers a notice of deficiency informing them that they owed $1,148.00 in taxes for 1977 based on disallowance of all expenses claimed on Schedule C for lack of verification. Subsequently, the taxpayers petitioned the Tax Court for a redetermination of the deficiency. In those proceedings the taxpayers did not attempt to challenge the Commissioner's determination by presenting evidence in support of their claimed deductions, but rather argued that the income tax itself was invalid as a matter of law. The Tax Court granted summary judgment in favor of the Commissioner. T.C. Memo. 1983-433. Taxpayers appeal from this judgment claiming the Tax Court misconstrued their arguments against the income tax and that its decision was contrary to law and "illogical." We affirm.

The issues taxpayers press on appeal are, stated in their own words, as follows:

1. Whether there is any Constitutional authority granted to Congress to impose an income tax on the individuals who are appellants herein for the year 1977, and if such authority is claimed to exist, what precise words of the Constitution are claimed as authority to impose an income tax on appellants for the year 1977?

2. Whether there is any law or statute imposing an income tax on appellants for the year 1977 and, if such a law or statute is claimed to exist, what is the precise citation of such law or statute?

3. Whether the word "income," as used in taxing statutes, is unconstitutionally vague and indefinite and, if it is claimed not to be unconstitutionally vague and indefinite:

a. What is the precise definition of "income" for income tax purposes?; and

b. Precisely how is "income" measured for income tax purposes?

It takes little consideration to determine that the arguments presented by taxpayers with respect to these issues are meritless and unreasonable. However, to forestall taxpayers' patently false claim that "[t]he issues in this case have never been addressed and answered by any Federal Article III Court" we will quote at length from the opinion of the United States Court of Appeals for the Second Circuit in Ficalora v. Commissioner of Internal Revenue, 751 F.2d 85 (1984), cert. denied --- U.S. ----, 105 S.Ct. 1869, 85 L.Ed.2d 162 (1985), which involved taxpayers who were represented by the same Thomas J. Carley who represents the taxpayers in the instant appeal. The quoted text which follows reveals that the Second Circuit in Ficalora was responding to arguments substantially identical to those taxpayers advance in this case.

I. Constitutional Authority to Impose An Income Tax on Individuals

We first address ourselves to the appellant's contention that neither the United States Congress nor the United States Tax Court possess the constitutional authority to impose on him an income tax for the taxable year 1980. Appellant argues that an income tax is a "direct" tax and that Congress does not possess the constitutional authority to impose a "direct" tax on him, since such a tax has not been apportioned among the several States of the Union. In support of his argument, appellant cites Article I, Section 9, clause 4 of the United States Constitution which provides that:

"No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."

He also relies on the case of Pollock v. Farmer's Loan and Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759 (initial decision), 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108 (decision on rehearing) (1895), wherein the United States Supreme Court held that a tax upon income from real and personal property is invalid in the absence of apportionment.

In making his argument that Congress lacks constitutional authority to impose a tax on wages without apportionment among the States, the appellant has chosen to ignore the precise holding of the Court in Pollock, as well as the development of constitutional law in this area over the last ninety years. While ruling that a tax upon income from real and personal property is invalid in the absence of apportionment, the Supreme Court explicitly stated that taxes on income from one's employment are not direct taxes and are not subject to the necessity of apportionment. Pollock v. Farmer's Loan and Trust Co., 158 U.S. at 635, 15 S.Ct. at 919. Furthermore, the Sixteenth Amendment to the United States Constitution, enacted in 1913, provides that:

"The Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Finally, in the case of New York, ex rel. Cohn v. Graves, 300 U.S. 308, 57 S.Ct. 466, 81 L.Ed. 666 (1937), the Supreme Court in effect overruled Pollock, and in so doing rendered the Sixteenth Amendment unnecessary, when it sustained New York's income tax on income derived from real property in New Jersey. Id. at 314-15, 57 S.Ct. at 468-69. Hence, there is no question but that Congress has the constitutional authority to impose an income tax upon the appellant.

II. Statutory Authority to Impose an Income Tax on Individuals and Definition of Taxable Income

The appellant contends that "[n]owhere in any of the Statutes of the United States is there any section of law making any individual liable to pay a tax or excise on 'taxable income.' " ... The essence of the appellant's argument is that 26 U.S.C. Sec. 1 does not impose a tax on any individual for any stated period of time; rather, it imposes a tax on an undefined: "taxable income".

Section 1 of the Internal Revenue Code of 1954 (26 U.S.C.) (hereinafter the Code) provides in plain, clear and precise language that "[t]here is hereby imposed on the taxable income of every individual ... a tax determined in accordance with" tables set-out later in the statute. In equally clear language, Section 63 of the Code defines taxable income as "gross income, minus the deductions allowed by this chapter ...", gross income, in turn, is defined in Section 61 of the Code as "all income from whatever source derived, including (but not limited to) ...: (1) Compensation for services ...". Despite the appellant's attempted contorted construction of the statutory scheme, we find that it coherently and forthrightly imposes upon the appellant a tax upon his income for the year 1980.

* * *

III. "Income"

Lastly, the appellant asserts that the term "income", as used in the taxing statutes, has no defined meaning and is unconstitutionally vague and indefinite. As discussed above, Section 61 of the Code defines gross income as "all income from whatever source derived". Even if we were to assume, arguendo, that this phrase is somehow vague or indefinite, Section 61 of the Code specifically cites "[c]ompensation for services ..." as a concrete example of what is meant by the term income. The wages which the appellant received for his services rendered to [his employer] in taxable year 1980, fall squarely within the definition of income contained in Section 61(a)(1) of the Code. The appellant's argument that the term "income", as used in the Code, is unconstitutionally vague and indefinite, is totally without merit.

Id. 751 F.2d at 87-88 (emphasis added).

Ficalora was decided on December 13, 1984. Thus some six months before oral argument in this case, taxpayers, through their counsel, knew that the arguments they raise in this case had in fact been considered in detail by an Article III court and, further, that that court had rejected these arguments as clearly lacking merit.

Ficalora, however, was not the first time an Article III court had rejected as without merit these same contentions argued by this same Thomas J. Carley. Lively v. Commissioner of Internal Revenue, 705 F.2d 1017 (8th Cir.1983) involved taxpayers who had used precisely the same tactic used by the Charczuks to understate their taxable income in this case. The following portion of the Eighth Circuit's brief opinion is quite relevant to the instant case:

The taxpayers argue further that the income tax is unconstitutional because it is a direct tax which is not apportioned, that there is no law imposing an income tax on them for 1977, ... that income cannot be defined or measured, and that an individual's "gross receipts" cannot be taxed. These arguments are wholly without merit.

This appeal is frivolous. Pursuant to Rule 38 of the Federal Rules of Appellate Procedure, we impose on the appellants double the costs of the Commissioner.

Id. at 1018. When Carley importuned for a rehearing in Lively, the court responded to him personally with great clarity:

the court finds that the petition for rehearing is frivolous. Therefore, in accordance with 8th Cir.R. 16(e), counsel is...