Davis v. Commissioner , 301 F. App'x 398 ( 2008 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 08a0698n.06
Filed: November 14, 2008
No. 07-2388
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
LAURA DAVIS, et al., )
)
Petitioners-Appellants, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES TAX COURT
COMMISSIONER OF INTERNAL REVENUE, )
)
Respondent-Appellee. )
)
)
Before: MARTIN, DAUGHTREY, and KETHLEDGE, Circuit Judges.
KETHLEDGE, Circuit Judge. Jeffrey Davis and his attorney, Robert Jones, appeal the
United States Tax Court’s orders imposing monetary sanctions on them for pursuing frivolous claims
and unnecessarily multiplying litigation concerning Davis’s tax liability. We dismiss Jones’s appeal
and affirm the sanctions on Davis.
I.
Jeffrey and Laura Davis—like Robert Jones’s clients in Gillespie v. Comm’r, 2008 WL
4218808 (7th Cir. 2008)—“are, or at least were, tax protestors.” Id. at *1. The Davises underpaid
their joint federal income taxes in 1997, 1998, and 1999 by diverting their income to a sham trust.
The trust also underpaid its taxes in 1999. Upon discovering the underpayments, the Internal
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Revenue Service sent various notices of deficiency to both the Davises and to the trust. These
notices provided the Davises with an opportunity to challenge the alleged deficiencies in the United
States Tax Court.
Jeffrey Davis, but not Laura, filed such a challenge with respect to the 1997 and 1998
deficiencies. But he failed to prosecute the challenge or to answer the Commissioner’s discovery
requests. The tax court upheld the IRS’s determination and imposed a $25,000 penalty on Davis
pursuant to 26 U.S.C. § 6673(a)(1) for instituting or maintaining the case primarily for delay. (That
is not the sanction at issue here.) Davis did not appeal. Neither the Davises nor the trust disputed
the 1999 deficiency notices. Consequently, the IRS issued tax assessments against both Davises and
the trust for all three tax years.
The Davises did not pay the assessments. As a result, the IRS sent them a “Final
Notice–Notice of Intent to Levy and Notice of Your Right to a Hearing,” for each tax deficiency.
In response, the Davises retained Jones as their attorney, and requested a Collection Due Process
(CDP) hearing. They alleged the existence of “impermissible whipsaws,” and claimed that Laura
Davis was “an ‘innocent spouse.’” But Laura Davis did not submit an IRS Form 8857, which is a
prerequisite to obtaining tax relief as an innocent spouse.
The IRS Settlement Officer for the case, Michael Freitag, set the CDP hearing date for July
19, 2004. At Jones’s request, Freitag postponed the hearing until August 24, 2004. Jones failed to
appear on that date. The hearing was eventually held by telephone on September 7, 2004.
At the hearing, Freitag found that, by statute, the Davises and the trust could not contest their
underlying tax liability because each had received a notice of deficiency and because the tax court
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had already determined that Jeffrey Davis was liable for payments in tax years 1997 and 1998.
Freitag also noted that he could not consider any collection alternatives because the Davises had not
presented any. Freitag therefore issued notices of determination sustaining the government’s filings
and proposed tax levies.
The Davises then filed petitions for review of that ruling in the tax court. They claimed the
IRS had wrongly disallowed certain deductions and had used “impermissible whipsaws.” J.A. 85.
They also alleged they had not been allowed to present collection alternatives, and had not been
granted “sufficient time to retrieve IRS documentation[.]” Finally, they claimed that the assessments
violated the statute of limitations, and that Laura Davis was an “innocent spouse.”
The Commissioner moved for summary judgment as to each of the assessments, which the
tax court granted as to most issues. The court held that the Davises had improperly attempted to
challenge their underlying tax liability, and that their “whipsaw” claim was “without content or
explanation[.]” The court also held that Freitag had not entertained collection alternatives for the
simple reason that the Davises had not provided any. Similarly, the court held that the IRS had no
obligation to provide documents the Davises had never requested. Id. at 584. The court further held
that Laura Davis’s failure to file a Form 8857 precluded her claim for relief as an innocent spouse.
Id. at 586. The court did not grant summary judgment as to the Davises’ statute of limitations
defense, because the court “fail[ed] to understand petitioner’s argument, which may involve a
material issue of fact.” Id.
The court then considered sanctions. It noted its impression that the Davises may have
“instituted and maintained this proceeding primarily to delay” collection of taxes, that they had
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“raised frivolous arguments and relied on groundless claims,”and that “counsel [Jones] may have
taken actions to multiply this proceeding unreasonably and vexatiously.” Id. at 587. The court
ordered the parties to appear and “show cause why a penalty pursuant to section 6673(a)(1) should
not be imposed” upon Jeffrey Davis and Robert Jones. Id.
The parties appeared for the hearing on February 28, 2006. They announced they had
reached a settlement as to the taxes owed, and that the Davises had abandoned their statute of
limitations defense. The hearing then proceeded on the sanctions issue. The court issued its decision
on July 24, 2006, imposing a $15,000 sanction on Jeffrey Davis. The court found that Davis had
brought and maintained his claims “primarily for delay,” and that “he raised frivolous arguments and
relied on groundless positions.” Davis v. Comm’r, 94 T.C.M. 81 (2007) at *9.
The court also sanctioned Jones for “intentionally abus[ing] the judicial process by bringing
and continuing these cases.” The court cited several cases in which Jones—unsuccessfully—made
near-identical arguments on behalf of other taxpayers. Id. at *12. The court also stated that it had
“no doubt that Mr. Jones has known all along that petitioners’ claims lack merit.” Id. The sanctions
against Jones totaled $25,800.00.
This appeal followed. Both Davis and Jones now seek to challenge the sanctions imposed
on them.
II.
This case appears to be virtually identical to Gillespie—in which Jones was counsel. The
result we reach here is identical to the result the Seventh Circuit reached there.
A.
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Like the Seventh Circuit in Gillespie, we lack jurisdiction to consider Jones’s appeal of the
sanctions imposed on him. “A notice of appeal must specify the party or parties taking the appeal
by naming each appellant in either the caption or the body of the notice of appeal.” Fed. R. App. P.
3(c). “The requirements of Rule 3(c) are jurisdictional in nature, and the court of appeals may not
waive or diminish the rule's requirements.” Maerki v. Wilson, 128 F.3d 1005, 1007 (6th Cir. 1997).
Jones did not meet those requirements here with respect to his putative appeal of the
sanctions imposed on him. Jones filed a single notice of appeal. Its caption listed “Laura K. Davis,
et al.” as Petitioners. The body of the notice read as follows:
Notice is hereby given that Laura K. Davis and Jeffrey Davis, hereby appeal to the
United States Court of Appeals for the Sixth Circuit from the Order and Decision of
this Court entered in the above captioned proceeding on the 24th day of July 2007,
T.C. Memo. 2007-201.
Respectfully submitted this 16th day of October, 2007.
Robert Alan Jones, esq. [sic]
Attorney for Laura K. Davis and Jeffrey Davis
(Emphasis added.)
Thus, in this case, as in Gillespie, “neither the caption nor the body of the notice of appeal
mentions Jones, who is not a party to the proceeding in the Tax Court.” Id. at *1. And here, as there,
“he signed the document as counsel . . . not as an appellant.” Id. (emphasis added). Consequently,
“the notice of appeal does not present for decision any issues concerning Jones.” Id. Binding
precedent from this court—namely, Maerki—compels the same conclusion. There, as here, a party
and his attorney were each sanctioned by the lower court. Maerki, 128 F.3d at 1007. Each sought
to overturn the award. Id. And there, as here, the attorney sought to argue his own appeal after failing
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to list himself as an appellant on the notice of appeal. Id. at 1008. We held that, “[b]ecause it is
possible that only one party will appeal a judgment entered against multiple parties, and because the
notice of appeal in this case clearly indicated [the client’s] intent to appeal, it cannot be said that the
notice’s reference to the March 19 judgment provided objectively clear notice of [the attorney’s]
intent to appeal.” Id. at 1007-08.
The same is true here. The notice of appeal nowhere mentions Jones’s intent to appeal. We
therefore lack jurisdiction to hear his appeal of the sanctions award against him.
B.
We next address Davis’s appeal. We review for abuse of discretion the tax court’s imposition
of sanctions under 26 U.S.C. § 6673(a)(1). Hauck v. Comm’r, 64 Fed. App’x 492, 493 (6th Cir.
2003) (unpublished).
Section 6673(a)(1) allows the tax court to impose sanctions on a party where “proceedings
before [the court] have been instituted or maintained by the taxpayer primarily for delay,” or “the
taxpayer's position in such proceeding is frivolous or groundless,” or “the taxpayer unreasonably
failed to pursue available administrative remedies[.]” 26 U.S.C. § 6673(a)(1).
Here, the tax court found Davis’s claims to be meritless and instituted primarily for delay.
The court observed that Davis had no basis to challenge his underlying tax liability, because he had
received notices of deficiency and an adverse judgment. The court also noted that Laura Davis had
not filed a Form 8857, and thus had no basis for seeking relief as an innocent spouse. The court then
turned to Davis’s statute of limitations theory. Davis, the court held, “neglect[ed] even to discuss .
. .[the] theory in his written responses to our orders to show cause, which suggests to us that he no
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longer attaches any value to [it].” In sum, the court found, “[n]either by his testimony . . . nor his
written responses . . . has Mr. Davis shown us the merit of any averment, claim, or argument
advanced by him.” Moreover, the court stated, it need not make a finding of bad faith before
imposing a monetary sanction on a party pursuant to 26 U.S.C. § 6673(a)(1)(B). Therefore, it held,
sanctions totaling $15,000 were appropriate.
That holding was not an abuse of discretion. Davis’s challenge to the amount of his
underlying tax liability was indeed proscribed by 26 U.S.C. § 6330(c)(2)(B). See, e.g., Living Care
Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 624 (6th Cir. 2005); Gillespie, 2008 WL
4218808 at *1; Kindred v. Comm’r, 454 F.3d 688, 694 n. 15 (7th Cir. 2006) (holding that the
Kindreds—represented by Jones—could not challenge their underlying tax liability after receiving
notices of deficiency). Davis likewise lacked any legal authority supporting his statute of limitations
defense, which was based on a dubious theory advanced by a putative expert witness who was herself
not authorized to represent taxpayers before the IRS. In addition, Laura Davis’s innocent-spouse
claim was, as the tax court held, flatly precluded by her failure to file a Form 8857. See Kindred, 454
F.3d at 698 (holding that Mrs. Kindred—represented by Jones—could not claim innocent-spouse
relief where she failed to file a Form 8857). The Davises complained about the IRS’s failure to
consider collection alternatives that they never proposed, and its failure to produce documents they
never requested—which again were precisely the stalling tactics attempted, and sanctioned, in
Gillespie. See 2008 WL 4218808 at *1; see also Kindred, 454 F.3d at 696 (“The Kindreds’ argument
that they should have been allowed to submit an offer in compromise is frivolous” because “the
Kindreds failed to ever actually make an offer in compromise”).
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All of this is more than “enough to show that the petition was frivolous, as the Tax Court
found.” Gillespie, 2008 WL 4218808 at *2. None of Davis’s other arguments on appeal—most of
which lack any citation to legal authority—diminish this core holding. “There is no right to engage
in frivolous litigation in order to delay collection.” Id. The tax court did not abuse its discretion in
imposing sanctions upon Davis pursuant to 26 U.S.C. § 6673(a)(1).
III.
For these reasons, we affirm the orders of the tax court.
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