Weed v. Commissioner of Revenue

• Decision Date: 11 August 1992
• Docket Number: No. C7-92-339,C7-92-339
• Citation: 489 N.W.2d 525
• Parties: Michael A. WEED, Appellant, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Court of Appeals

Page 525

489 N.W.2d 525

Michael A. WEED, Appellant, v. COMMISSIONER OF REVENUE, Respondent.

No. C7-92-339.

Court of Appeals of Minnesota.

Aug. 11, 1992.

Review Denied Sept. 15, 1992.

Syllabus by the Court

An income tax return which claims a refund of the entire amount of wages withheld based on a "constitutional" exemption is a frivolous return within the meaning of Minn.Stat. § 289A.60, subd. 7 (1990) (frivolous return penalty statute), even though the return states, at one point, the correct amount of tax owed.

Michael A. Weed, pro se.

Hubert H. Humphrey, III, Atty. Gen., Thomas K. Overton, Sp. Asst. Atty. Gen., Tax Litigation Div., St. Paul, for respondent.

Considered and decided by KLAPHAKE, P.J., and RANDALL and HARTEN, JJ.

OPINION

RANDALL, Judge.

The Commissioner of Revenue for the State of Minnesota assessed penalties totalling $2000 against appellant Michael A. Weed for filing frivolous income tax returns for the years 1987, 1988, 1989, and 1990. Weed appealed to the Minnesota Tax Court. The case was transferred to Minnesota district court, and the trial court affirmed the rulings of the commissioner. This appeal followed. We affirm.

FACTS

The facts of this case are not in dispute. On his 1990 Minnesota income tax return, appellant reported that his Minnesota tax was $1568. He also reported that $1577 had been withheld from his wages. Appellant went on to then claim a refund of $1577, the entire amount that had been withheld. Next to the refund line, appellant wrote: "Exempt from Minnesota income tax on constitutional grounds." Appellant crossed out part of the pre-printed statement, appearing above the signature line, which stated: "I know I owe the amount of tax I have listed above, and I give up my rights to contest any court order requiring me to pay this amount." The commissioner assessed a $500 penalty against appellant pursuant to Minn.Stat. § 289A.60, subd. 7 (1990) ($500 penalty for filing a frivolous return). ¹

Appellant filed similar income tax returns for the years 1987, 1988, and 1989 except that for those years, appellant crossed out the entire pre-printed statement, which stated, in addition to the confession of judgment, "I declare that this return [form] is correct and complete to the best of my knowledge and belief." ² The commissioner assessed additional penalties of $500 for each of these years.

Appellant challenged the penalties by appealing to the Minnesota Tax Court. The case was transferred to Minnesota district court. The trial court affirmed the rulings of the commissioner of revenue.

ISSUE

Are the returns filed by appellant for the years 1987, 1988, 1989, and 1990 frivolous returns subject to penalty under Minn.Stat. § 289A.60, subd. 7?

ANALYSIS

Minn.Stat. § 289A.60, subd. 7, provides:

Penalty for frivolous return. If an individual files what purports to be a tax return required by chapter 290 but which does not contain information on which the substantial correctness of the assessment may be judged or contains information that on its face shows that the assessment is substantially incorrect and the conduct is due to a position that is frivolous or a desire that appears on the purported return to delay or impede the administration of Minnesota tax laws, then the individual shall pay a penalty of $500. In a proceeding involving the issue of whether or not a person is liable for this penalty, the burden of proof is on the commissioner.

The Minnesota penalty statute is identical in relevant part to the federal frivolous return penalty statute, 26 U.S.C.A. § 6702 (1989).

To subject a taxpayer to penalty for filing a frivolous return under the statute, three requirements must be met: 1) the taxpayer must file what purports to be a return; 2) the return must either fail to contain sufficient information to ascertain whether the assessment is correct or the return must contain information which indicates on its face that the assessment is substantially incorrect; and 3) the incorrect assessment is due to a position which is frivolous or the incorrect assessment is due to a desire to delay or impede the administration of the income tax laws. See Snyder v. United States, 714 F.Supp. 761, 763 (D.Md.1989) (interpreting the federal frivolous return penalty statute).

The assessment.

Appellant first argues that the entry made on the refund line is not part of the "assessment" within the meaning of Minn.Stat. § 289A.60, subd. 7, and therefore, his actions fall outside of the scope of the statute. Appellant argues that because he properly entered the correct tax amount on one line of the return, his "assessment" was correct. We do not agree.

There is federal authority directly contrary to appellant's position. In Kahn v. United States, 753 F.2d 1208, 1211 (3d Cir.1985), the taxpayer properly reported the full tax liability, but then claimed a refund of part of the tax. On her return, the taxpayer wrote the words, "46% war tax refused (see attached letter)." The letter explained that she was claiming a "war tax refusal refund" equivalent to the proportion of her taxes estimated by SANE (Citizens' Organization for a Sane World) to be applied to military expenditures by the federal government in 1983. Id. at 1211. The taxpayer in Kahn argued, as appellant argues here, that the "assessment" was not incorrect because at one point in the return she properly reported the amount of tax owed. Therefore, the taxpayer argued, the penalty statute did not apply to her actions of improperly reporting the amount of her refund. Id. at 1213.

Rejecting this argument, the court held that where the amount of refund claimed was incorrect on its face, the return was "substantially incorrect on its face" within the meaning of the federal frivolous return statute. Id. The court stated:

[T]he system of self-assessment is the basis of our American scheme of income taxation and the duty of the taxpayer to self-assess is not met unless the return is properly filled out in its entirety.

Id. (emphasis added). The court noted that even though the return contained sufficient information for the IRS to judge its correctness and to recalculate so as to assess the proper amount of tax owed, the return was "plainly incorrect" for purposes of the penalty statute. Id. The term "assessment" as used in the penalty statute "clearly includes a taxpayer's representations on the return as to the tax due or the refund claimed." Id. (quoting Franklet v. United States, 578 F.Supp. 1552, 1555 (N.D.Cal.1984), aff'd, 761 F.2d 529 (9th Cir.1985)); see also Snyder, 714 F.Supp. at 763.

Appellant's return is not correct because the correct tax appears on one line. The analysis does not end on that line. Two lines down from the reported tax owed, appellant claimed a refund of all monies withheld for the purpose of paying the taxes he properly reported as due. By claiming a refund of all withholdings, appellant directly contradicts that part of his return showing that he owed taxes.

The facts support a finding that each of appellant's assessments contained information which, on its face, showed the assessments were substantially incorrect. Cf. Kahn, 753 F.2d at 1213.

Frivolous position.

The federal penalty statute was enacted to deter tax protesters from filing frivolous returns. Baskin v. United States, 738 F.2d 975, 977 (8th Cir.1984); Snyder, 714 F.Supp. at 763; Schoffner v. United States, 627 F.Supp. 167, 168 (S.D.Ohio 1985), aff'd, 812 F.2d 292 (6th Cir.1987). For purposes of the federal penalty statute, a position is "frivolous" if it has no basis in law or fact. Kahn, 753 F.2d at 1214. An objective standard is applied to determine whether a position is frivolous. Id. What is required to reach the threshold of frivolity is that a position is without merit from the perspective of the tax laws. Id. Appellant reached the threshold.

In Kahn, the court concluded that because there is no provision in the tax code which provides for a credit or deduction based on dissatisfaction as to the use of the tax payment, the taxpayer's position was frivolous as a matter of law. Id.; see also Snyder, 714 F.Supp. at 763 (because there is no provision in the tax code authorizing war tax deduction, deduction is frivolous).

Various federal courts have held that where the taxpayer files a return but refuses to reveal information based on the fifth amendment privilege against self-incrimination, the taxpayer has filed a frivolous return and the penalty applies. See Boomer v. United States, 755 F.2d 696 (8th Cir.1985); Baskin, 738 F.2d at 977; Ueckert v. Commissioner of Internal Revenue, 721 F.2d 248 (8th Cir.1983); Schoffner, 627 F.Supp. at 168; Miller v. United States, 604 F.Supp. 804 (E.D.Mo.1985).

Federal courts have found frivolous returns where the taxpayer claimed a war tax reduction. See Wall v. United States, 756 F.2d 52, 53 (8th Cir.1985); Kahn, 753 F.2d at 1214; Snyder, 714 F.Supp. at 763. We carefully note that imposition of the frivolous return penalty was not considered a penalty on the taxpayers for protesting taxes, for protesting military spending, or for expressing their moral and/or religious beliefs. Rather, in Wall, the penalty was imposed for filing a return that contained "substantially incorrect" assessments. Wall, 756 F.2d at 53 (penalty did not violate taxpayer's first amendment right of free speech or free exercise of religion). In Snyder, the penalty was imposed for taking a deduction not authorized by the IRS. Snyder, 714 F.Supp. at 763 (if a deduction or credit has not been specifically legislated, it does not exist; therefore, a return taking such a deduction is frivolous).

Appellant argues the legal theory upon which he bases his exemption claim is not frivolous. Appellant's legal theory is that the fourteenth amendment of the federal constitution operates to prohibit the states from imposing an income tax upon United States citizens. Appellant argues that because this position has not been...