Loofbourrow v. C.I.R.

Citation208 F.Supp.2d 698
Decision Date15 April 2002
Docket NumberNo. CIV.A. H-01-3060.,CIV.A. H-01-3060.
PartiesTravis S. LOOFBOURROW, Plaintiff, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Defendant.
CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas

Travis S. Loofbourrow, Houston, TX, Pro se.

Jonathan R. Williams, Asst. U.S. Atty., Dallas, TX, for Commissioner of Internal Revenue Service.

MEMORANDUM AND ORDER

CRONE, United States Magistrate Judge.

Pending before the court is Defendant United States' Motion to Dismiss or for Summary Judgment (# 12). The United States, on behalf of the Commissioner of the Internal Revenue Service ("IRS"), seeks dismissal or summary judgment on Plaintiff Travis S. Loofbourrow's ("Loofbourrow") Petition for Reversal of Penalty Determination (# 1). Having reviewed the pending motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that dismissal and/or summary judgment is warranted.

I. Background

On March 22, 2000, Loofbourrow, a mechanical engineer residing in Houston, Texas, filed his federal income tax return (Form 1040) for tax year 1999 claiming zero taxable wages. Along with the return, he submitted a Form W-2 from his employer, Air Liquide America Corp. ("Air Liquide"), reflecting that he had received $75,849 in wages during 1999. Loofbourrow also attached a document entitled "Asservation of Claimed Gross Income" to his tax return. In this document, Loofbourrow set forth his position that his wages did not constitute taxable income pursuant to 26 C.F.R. §§ 1.861 and 1.863. According to Loofbourrow, he did not have "gross income" as defined in 26 U.S.C. § 861 and its implementing regulations and, therefore, the "remuneration" paid to him by Air Liquide was "exempt income," free from taxation.

On April 24, 2000, the IRS notified Loofbourrow that it was proposing to assess a $500 penalty pursuant to 26 U.S.C. § 6702 for what it deemed frivolous arguments asserted in connection with his tax return and gave him thirty days in which to file a proper return. Instead of filing a revised return, Loofbourrow responded by letter dated April 25, 2000, advancing the same arguments he had previously asserted. Subsequently, on June 5, 2000, the IRS notified Loofbourrow that it had assessed the $500 penalty for filing a frivolous return.

Thereafter, Loofbourrow requested a collection due process hearing before the IRS Office of Appeals. On April 13, 2001, Appeals Officer Bob Sanders ("Sanders") requested that Loofbourrow, as a precursor to the hearing, submit a short statement explaining why he did not believe the assessed frivolous filing penalty was applicable. On April 18, 2001, Loofbourrow responded by letter contending, inter alia, that he should have been afforded an administrative hearing prior to the penalty assessment. He also explained his position that because his income was not derived from a "taxable source," it was excluded from the definition of "gross income" and constituted "exempt income" not subject to federal income taxation. Loofbourrow argued that the definition of "gross income" as well as the definition of "wages" refer to 26 U.S.C. § 911, which addresses the taxation of United States citizens living abroad. Loofbourrow maintained that because he was not living abroad during the taxable period, he had no remuneration includable in "gross income" under § 911 and that his remuneration did not constitute "wages." Loofbourrow asserted that the list of income that is not "exempt income" is foreign-earned income as defined in § 911, pointing out that the regulation makes no mention of United States sourced income "not" being exempt.

By letter dated June 1, 2001, Sanders notified Loofbourrow that his request for an adjustment of the penalty was denied because his explanation did not meet the requirements established by statutes and regulations for making an exception to the penalty. Specifically, Sanders found that Loofbourrow is a United States citizen who received United States "sourced" wages, which were subject to income tax under 26 U.S.C. § 61. Sanders advised Loofbourrow that having established his liability for the penalty, the next step available to him was a collection due process hearing, which could be conducted either in person or by telephone.

On July 12, 2001, Appeals Officer C. Jay Helm, Jr. ("Helm") notified Loofbourrow that a conference had been set for August 1, 2001, at 9:30 a.m. in the INS offices on South Gessner in Houston, Texas. After noting that Loofbourrow appeared to be relying on an incorrect interpretation of the Internal Revenue Code and applicable regulations and to be raising constitutional issues, Helm clarified that the only issue that would be considered at the hearing was whether the levy action was appropriate. He explained that the points to be discussed included Loofbourrow's ability to pay the penalty and if and when it was to be paid. Helm elaborated, "I will discuss any other argument relative to the frivolous return penalty if it is not based on the incorrect interpretation of the Code, Regulations and/or court cases or is constitutional in nature. The incorrect interpretation being W-2 wages are not taxable." He further cautioned, "If you raise any argument citing the inaccuracy of the Code, Regulations and court cases or any other constitutional issue, I will immediately end the conference and will proceed to issue a Determination Letter supporting the use of the levy to enforce compliance with the tax law. The above position is not negotiable."

By letter dated July 17, 2001, Loofbourrow replied to Helm's letter, disclaiming that he was taking the position that "wages" are not "taxable income" or that he was raising any constitutional issues. Loofbourrow explained, "What I have stated, Mr. Helm, is that the regulations under the IRC determined what constitutes a `source' of income for purposes of the definition of `gross income' and `taxable income' relevant to the Federal income tax, and that the remuneration that I earned within the United States is excluded from any taxable sources within the United States by these same regulations. As far as `wages' being considered as `taxable income,' they are in some instances, but only if they are from a `taxable source' listed within the law." The balance of the letter consists of a rambling, tortuous attempt to explain how certain regulations applying to foreign income exempted Loofbourrow's domestic wages from taxation.

Helm responded to Loofbourrow by letter dated July 20, 2001, noting that courts have defined income many times in the past and have uniformly found W-2 wages to be taxable income. Helm reiterated that the Appeals Office would "not entertain any further discussion of the issue" and that if Loofbourrow continued to reargue his position, he would immediately end the conference and proceed to issue a Determination Letter supporting the use of the levy to enforce compliance with the tax laws. Helm informed Loofbourrow that the letter he received via fax from Loofbourrow on July 18, 2000, "addresses issues which will not be discussed in the conference. I find your arguments to be without merit. I will not consider the frivolous argument you are raising." Helm further advised Loofbourrow that if he wished to argue the frivolous return penalty before the United States Tax Court, to notify him and he would issue a Determination Letter to allow him to do so. Finally, Helm repeated that the frivolous return penalty itself would not be addressed in the conference and that he would not reverse the decision of the Compliance section regarding the assessment of the penalty.

On August 9, 2001, the IRS, through Appeals Team Manager Judith Clark ("Clark"), issued Loofbourrow a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330." The notice contains the following Summary of Determination:

While the levy is an intrusive means of collection of the penalty, it is the only means available to the Government to obtain compliance. The taxpayer is unwilling to concede his position and the issue has been previously litigated.

It is determined the levy action proposed is warranted in this case.

Clark further notified Loofbourrow that if he wished to dispute the determination in court, he had thirty days in which to file a complaint in the appropriate United States District Court for a redetermination.

On September 7, 2001, Loofbourrow instituted this action. In his Petition for Reversal of Penalty Determination, Loofbourrow seeks review under 26 U.S.C. § 6330(d)(1)(B) of the IRS Office of Appeals' decision upholding the assessment of the $500 frivolous return penalty for tax year 1999. Although Loofbourrow named the Commissioner of the IRS as the Defendant, he failed to effectuate proper service; however, because this suit is in the nature of a tax refund action under 26 U.S.C. § 7422, the United States is the only proper party. See 26 U.S.C. § 7422(f).

II. Analysis
A. Dismissal for Lack of Subject Matter Jurisdiction under Rule 12(b)(1)

A motion to dismiss filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure challenges the subject matter jurisdiction of the federal district court. See FED. R. CIV. P. 12(b)(1). "`A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.'" Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir.1998) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.1996)). Federal courts are courts of limited jurisdiction and, absent jurisdiction conferred by statute or the Constitution, lack the power to adjudicate claims. See Stockman v. Federal Election Comm'n, 138 F.3d 144, 151 (5th Cir.1998); Coury v. Prot, 85 F.3d 244, 248 (5th Cir.1996); Veldhoen v. United States Coast Guard, 35 F.3d 222, 225 (5th Cir.1994). The burden of...

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