Lansden v. Marsh, 3:95-1093.
| Decision Date | 07 February 1997 |
| Docket Number | No. 3:95-1093.,3:95-1093. |
| Citation | 961 F.Supp. 1143 |
| Parties | Dick L. LANSDEN and Martha S. Lansden, Plaintiffs, v. Richard MARSH, Director, Internal Revenue Service Center, Memphis, Tennessee, Defendant. |
| Court | U.S. District Court — Middle District of Tennessee |
Dick L. Lansden, Waller, Lansden, Dortch & Davis, Nashville, pro se.
Robert Ladd DeLaney, DeLaney & Withers, Nashville, for Dick L. Lansden, Martha S. Lansden.
John M. Roberts, Office of the United States Attorney, Nashville, Shannon L. Hough, Department of Justice, Washington, DC, for Richard Marsh.
Pending before the Court are the following: (1) Defendant's Motion for Summary Judgment (Docket Entry No. 12), to which Plaintiffs have filed a Response; (2) Plaintiffs' Cross-Motion for Summary Judgment (Docket Entry No. 34), to which Defendant has filed a Response; and (3) Plaintiffs' Request for Oral Argument (Docket Entry No. 37). For the reasons discussed more fully in the accompanying Memorandum, Defendant's Motion for Summary Judgement is hereby GRANTED; Plaintiffs' Cross-Motion for Summary Judgment is DENIED; and Plaintiffs' Request for Oral Argument is DENIED as MOOT.
Plaintiffs challenge Defendant Internal Revenue Service's ("IRS's") imposition and collection of a tax upon Social Security benefits Plaintiffs received for the 1992 taxable year. Plaintiffs contend that Defendant's taxation of Plaintiffs' Social Security benefits violates the United States Constitution's prohibition against the levy of direct taxes without apportionment according to population. Plaintiffs also allege that the imposition of a tax on such benefits violates the doctrine of intergovernmental tax immunity. Finally, Plaintiffs claim that the statute imposing the tax on Social Security benefits is so indefinite and vague as to be void. Defendant filed a Motion for Summary Judgment, contending that Congress may constitutionally impose a tax on Social Security benefits without apportionment, and that progressive taxation of such benefits is not violative of the principle of intergovernmental tax immunity. Plaintiffs filed a Cross-Motion for Summary Judgment, asserting that the tax upon Plaintiffs' Social Security benefits constituted a direct tax upon Plaintiffs' personal property, requiring apportionment among the states, and that progressive taxation of Social Security benefits violates the principle of intergovernmental tax immunity.
In ruling on a motion for summary judgment, the Court must construe the evidence produced in the light most favorable to the non-moving party, drawing all justifiable inferences in his or her favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). A party may obtain summary judgment if the evidentiary material on file shows "that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of satisfying the Court that the standards of Rule 56 have been met. See Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir.1986). The ultimate question to be addressed is whether there exists any genuine issue of material fact that is disputed. See Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. If so, summary judgment is inappropriate. Both parties agree that summary judgment is the appropriate procedure to determine the legal issues in this case.
The circumstances leading to this litigation are apparently undisputed. The present action arose after Plaintiffs demanded a refund of $3,867.00 for income tax paid on Social Security benefits received during the 1992 taxable year on the ground that the imposition of such a tax was unconstitutional. Plaintiffs initially filed an administrative claim with Defendant, which request was denied on the ground that Social Security benefits constitute taxable income under the Code. Plaintiffs then wrote a letter to Defendant, again demanding a refund. Defendant responded that Plaintiffs' initial claim would not be reviewed, and that if Plaintiffs wished to proceed with their complaint they would have to file a formal appeal. Plaintiffs then instituted the present action. Because there is no factual dispute, and because the parties' cross-motions for summary judgment concern the same dispositive issues, the Court will consider both motions together.
The first issue presented is whether Social Security benefits may constitutionally be taxed as income, without apportionment among the states. Defendant contends that Social Security benefits are constitutionally included in the Internal Revenue Code's ("Code's") definition of taxable income because the receipt of such benefits constitutes a clearly realized accession to Plaintiffs' wealth. There is no dispute that Congress included Social Security benefits within the definition of taxable "gross income" in the Code. I.R.C. § 86.1 Congress' inclusion of such benefits in the calculation of taxable income does not end the inquiry, however — the inclusion must fall within Congress' constitutional power to impose income taxes without apportionment among the states. Eisner v. Macomber, 252 U.S. 189, 206, 40 S.Ct. 189, 193, 64 L.Ed. 521 (1920) ().
Under the Constitution, Congress' power to impose taxes on the general population is limited by Article I, Section 2, which states:
Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers ...
U.S. Const. art. I, § 2, cl. 3. The Sixteenth Amendment to the United States Constitution was ratified to provide an exception to this general restriction:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
U.S. Const. amend. XVI. In short, the Constitution permits Congress to tax incomes without apportionment, but prohibits Congress from levying direct taxes in this manner. Thus, the determinative issue in evaluating the constitutionality of a tax imposed without apportionment is whether the tax is a "direct" tax or an "income" tax. This inquiry requires the Court to determine whether that which is taxed — in this case, Social Security benefits — is "income." Eisner, 252 U.S. at 206, 40 S.Ct. at 193. See Comm'r of Internal Revenue v. Obear-Nester Glass Co., 217 F.2d 56, 59 (7th Cir.1954) () cert. denied, 348 U.S. 982, 75 S.Ct. 570, 99 L.Ed. 764 (1955).
The United States Supreme Court first addressed the issue of the scope of constitutionally taxable income in Eisner. In that case, the Court defined income as "the gain derived from capital, from labor, or from both combined." 252 U.S. at 207, 40 S.Ct. at 193 (citing Stratton's Independence v. Howbert, 231 U.S. 399, 415, 34 S.Ct. 136, 140, 58 L.Ed. 285 (1913); Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185, 38 S.Ct. 467, 469, 62 L.Ed. 1054 (1918)). The Court later held that Eisner's definition was not meant to be exhaustive, and that other forms of gain could constitutionally be counted as income. Helvering v. Bruun, 309 U.S. 461, 60 S.Ct. 631, 84 L.Ed. 864 (1940). In turn, the lower courts gradually expanded the scope of constitutionally taxable income. See Obear-Nester Glass, 217 F.2d at 62 (); General American Investors Co. v. Comm'r of Internal Revenue, 211 F.2d 522 (2d Cir.1954) (), aff'd, 348 U.S. 434, 75 S.Ct. 478, 99 L.Ed. 504 (1955); James F. Waters, Inc. v. Comm'r of Internal Revenue, 160 F.2d 596 (9th Cir.) (insurance proceeds), cert. denied, 332 U.S 767, 68 S.Ct. 77, 92 L.Ed. 353 (1947). Finally, in Comm'r of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct. 473, 99 L.Ed. 483 (1955), the Supreme Court expressly rejected the contention that the Eisner definition was meant to be all-inclusive, stating that Eisner "was not meant to provide a touchstone to all future gross income questions." Id. at 431, 75 S.Ct. at 477. The Court adopted a broad definition of income to include all "undeniable accessions to wealth, clearly realized, and over which the taxpayer[][has] complete dominion." Id. This expansive interpretation of income has remained controlling. See Comm'r of Internal Revenue v. Schleier, 515 U.S. 323, ___, 115 S. Ct. 2159, 2163, 132 L.Ed.2d 294 (1995). As such, the inquiry for this Court is whether Social Security benefits should be characterized as clearly realized accessions to Plaintiffs' wealth.
Plaintiffs assert that receipt of such benefits does not constitute an accession to wealth. Rather, Plaintiffs argue that Social Security payments represent a return by the federal government to Plaintiffs of their personal property. Specifically, Plaintiffs assert that, in deducting Social Security tax from their paychecks, the government borrowed Plaintiffs' money to invest for Plaintiffs' benefit upon their retirement. Plaintiffs state that "[t]he income derived from this investment was to become a part of the social security benefit ultimately paid to [Plaintiffs] along with a donation or gift by the Government to compensate for cost of living increases." Thus, Plaintiffs contend that, to the extent that the Social Security benefits they have received constitute a return of the money previously borrowed by the federal government, such benefits are not accessions to their wealth, and therefore cannot constitutionally be...
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