Scull v. United States, Civ. A. No. 83-132-NN

CourtUnited States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
Citation585 F. Supp. 956
Decision Date10 April 1984
Docket Number83-508-N and 83-522-N.,83-148-NN,83-133-NN,Civ. A. No. 83-132-NN
PartiesThomas E. SCULL, Plaintiff, v. UNITED STATES of America, Defendant. Timothy W. RUDISAL, Plaintiff, v. UNITED STATES of America, Defendant. JoAnn CREWS, Plaintiff, v. UNITED STATES of America, Defendant. Ricki L. CHEW, Plaintiff, v. UNITED STATES of America, Defendant. Ruth A. MANNING, Plaintiff, v. UNITED STATES of America, Defendant.

Thomas E. Scull, Timothy W. Rudisal, JoAnn Crews, Ricki L. Chew and Ruth A. Manning, pro se.

Michael A. Rhine, Asst. U.S. Atty., Norfolk, Va., for defendant.

ORDER

CLARKE, District Judge.

This matter is before the Court on cross-motions of the parties for summary judgment. The Court has reviewed the briefs of the parties and the motions are now ripe for disposition.

In these consolidated actions, the plaintiffs seek the abatement of a $500.00 civil penalty assessed against each plaintiff for filing a frivilous income tax return, pursuant to 26 U.S.C. § 6702.1 The plaintiffs also seek refunds of the 15% prepayment ($75.00) of the penalty they made pursuant to 26 U.S.C. § 6703(c)(1), plus interest, attorney's fees and costs.

The plaintiffs were assessed the penalty on the basis of their 1982 individual income tax returns. On those returns, the plaintiffs reported as income from wages the amount listed on the W-2 Wage and Tax Statements furnished by their employers. Each of the plaintiffs proceeded to report an amount exactly equal to his or her salary as a "cost of labor" on Schedule C-1, and then deducted that amount from their gross income on line 12 of their returns as a business loss. The result was that each plaintiff reported zero taxable income for 1982 and sought a refund of the entire amount that had been withheld from his or her wages.

The Internal Revenue Service (IRS) assessed a civil penalty of $500.00 against each of the plaintiffs, pursuant to 26 U.S.C. § 6702, for filing a frivolous income tax return. The plaintiffs each paid an amount equal to 15% of the penalty assessed against them and filed a claim for a refund of the amount paid, as permitted by 26 U.S.C. § 6703(c)(1). Subsequently, the plaintiffs were notified that their claims for a refund of the partial payment of the penalty had been denied by the IRS. The plaintiffs then filed these actions in federal court to determine their liability for the penalty assessed against them, pursuant to 26 U.S.C. § 6703(c)(2).

The United States has moved for summary judgment on the ground that there is no genuine issue of material fact in each of these consolidated cases. The United States also argues that the Court lacks jurisdiction over several of these claims. The plaintiffs have filed responses to the government's motion, as well as their own motions for summary judgment.

In these actions the plaintiffs have named as defendants the Secretary of the Treasury and the United States of America. The United States alleges that the Secretary of the Treasury is not a proper defendant in these actions, pursuant to 26 U.S.C. § 7422(f).

A suit for the refund of any penalty claimed to have been collected without authority may be maintained only against the United States and not against any officer or employee of the United States. 26 U.S.C. § 7422(f). The Court, therefore, lacks jurisdiction over the Secretary of the Treasury because sovereign immunity is waived under this Code section only as to suits against the United States. Accordingly, the Court hereby DISMISSES the Secretary of the Treasury as a defendant in these actions. Consequently, the United States is left as the sole defendant in these actions.

The United States also alleges that the Court lacks jurisdiction over several of these actions because the plaintiffs failed to file their suits in a timely manner. The plaintiffs assert that their suits were all filed within the statutory period.

The plaintiffs bring these actions pursuant to 26 U.S.C. § 6703(c)(2), which provides that suit must be brought in the appropriate United States district court within thirty days after the date on which the taxpayer's claim for a refund of the partial payment of the penalty is denied by the IRS. The United States alleges that several of the plaintiffs failed to file their actions within the thirty day statutory period.

Ricki L. Chew's claim for a refund was denied on June 30, 1983. He filed suit on July 29, 1983, twenty-nine days after the day on which his refund claim was denied.

JoAnn Crews' claim for a refund was denied on July 25, 1983. She filed suit on August 24, 1983, thirty days after the day on which her refund claim was denied.

Ruth A. Manning's claim for a refund was denied on July 7, 1983. She filed suit on August 8, 1983. The thirty day statutory period would have expired on August 6, 1983, which was a Saturday. Pursuant to Federal Rule of Civil Procedure 6(a), however, when the last day of a time period falls on a Saturday, Sunday, or legal holiday, the period is extended to the next day which is not a Saturday, Sunday, or legal holiday. Since the thirty day statutory period with respect to Manning's suit would have expired on Saturday, August 6, 1983, the period was extended to Monday, August 8, 1983, on which date her suit was filed.

The refund claims of both Timothy W. Rudisal and Thomas E. Scull were denied on July 5, 1983. Both of these plaintiffs filed suit on August 5, 1983, thirty-one days after the day on which their refund claims were denied. The thirty day statutory period expired on August 4, 1983.

Since the complaints of plaintiffs Rudisal and Scull were not filed within the thirty day statutory period, this Court does not have jurisdiction over these claims pursuant to 26 U.S.C. § 6703(c)(2). Accordingly, the complaints of plaintiffs Timothy Rudisal and Thomas E. Scull are hereby DISMISSED for lack of jurisdiction.

The Court FINDS that the complaints of plaintiffs Ricki L. Chew, JoAnn Crews, and Ruth A. Manning were filed in a timely manner. The Court will therefore consider these motions with regard to these three remaining plaintiffs.

The plaintiffs argue both that the penalty was improperly assessed against them and that the statute in question, 26 U.S.C. § 6702, is itself unconstitutional on a variety of grounds. The United States asserts that the penalty was properly assessed against these plaintiffs and that the statute is constitutional. The Court will examine each of the plaintiffs' allegations in turn.

Section 6702 of the Internal Revenue Code (26 U.S.C. § 6702) provides in pertinent part that a penalty of $500.00 shall be assessed if (1) an individual files a return which contains information that on its face indicates that the self-assessment is substantially incorrect, and (2) that conduct is due to a frivolous position or a desire to delay or impede the administration of the income tax laws. This section was added to the Code as a part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), and became effective on September 3, 1982. Pub.L. No. 97-248, Title III, § 326(a), 96 Stat. 617 (1982).

The legislative history of § 6702 indicates that Congress was concerned about the large increase in the number of illegal protest returns being filed. See S.Rep. No. 494, 97th Cong., 2d Sess. 277, reprinted in 1982 U.S.Code Cong. & Ad.News 781, 1023-24. In enacting this section, Congress sought to impose an immediately assessable penalty, in order to deter the filing of protest returns. Id. Under the previous laws, taxpayers who filed a protest return were subject to a penalty only if they also underpaid their tax. Id.

UNCONSTITUTIONAL ENACTMENT

The plaintiffs challenge the constitutionality of TEFRA, of which § 6702 was a part, alleging that it was enacted in violation of the origination clause, Article I, § 7, cl. 1 of the Constitution. That clause states: "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other bills."

This allegation is meritless. Several courts have rejected similar challenges to the constitutionality of TEFRA. See, e.g., Stamp v. Commissioner, 579 F.Supp. 168 (N.D.Ill.1984); Kloes v. United States, 578 F.Supp. 270 (W.D.Wis.1984); Milazzo v. United States, 578 F.Supp. 248 (S.D.Cal. 1984); Bearden v. Commissioner, 575 F.Supp. 1459, 1460-61 (D.Utah 1983); Frent v. United States, 571 F.Supp. 739, 742 (E.D.Mich.1983). The argument is flawed because TEFRA did in fact originate in the House of Representatives.

A review of the legislative history of TEFRA reveals that the bill that eventually became TEFRA originated in the House of Representatives as H.R.4961, a bill to make miscellaneous changes in the tax laws. H.R.Conf.Rep. No. 760, 97th Cong., 2nd Sess. 409, reprinted in 1982 U.S.Code Cong. & Ad.News 781, 1190. The Senate amended the House bill by striking out all of the text following the enacting clause and inserting a substitute text. Id.

The United States Supreme Court has held that the amendment in this manner by the Senate of a revenue bill which originated in the House does not violate Article I, § 7, cl. 1 of the Constitution as long as the amendment is germane to the subject matter of the original House bill. Flint v. Stone Tracy Co., 220 U.S. 107, 143, 31 S.Ct. 342, 346, 55 L.Ed. 389 (1911). In Flint, the Supreme Court held that the substitution by the Senate of a tax on corporate income for an inheritance tax in a House bill was not a violation of the origination clause. Id. at 143, 31 S.Ct. at 346.

TEFRA is not unconstitutional as being a revenue measure not originating in the House of Representatives under Article I, § 7, cl. 1 of the Constitution. To the contrary, TEFRA was enacted in complete accordance with the Constitution. See Bearden v. Commissioner, 575 F.Supp. at 1461; Frent v. United States, 571 F.Supp. at 742. The Senate ...

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