Dexter, Timothy E. v. CIR ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-3873
TIMOTHY E. DEXTER,
Petitioner-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
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Appeal from the United States Tax Court.
No. 18847-30
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SUBMITTED MAY 2, 2005—DECIDED JUNE 3, 2005
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Before EASTERBROOK, RIPPLE and MANION, Circuit Judges.
PER CURIAM. The Commissioner of Internal Revenue
(Commissioner) moves to dismiss this appeal of a decision
by the Tax Court. For the following reasons, we grant the
motion.
For three near-consecutive years, Timothy Dexter’s in-
come tax returns were deemed frivolous by the Internal
Revenue Service (IRS). And for three years following that,
he failed to file any returns at all. The IRS penalized
Mr. Dexter $500 for each frivolous filing, 26 U.S.C. § 6702,
and levied assessments against him for his unpaid taxes.
2 No. 04-3873
After he neglected to pay, the IRS filed a tax lien against him
and notified him of his right to contest its decision. The
notice explained that Mr. Dexter could dispute the assess-
ments for the unpaid taxes by petitioning the Tax Court but
could challenge the penalties for his frivolous returns only
in federal district court. Mr. Dexter attempted to challenge
both determinations in the Tax Court by filing a pre-printed
“Tax Court Form 2,” see Tax Ct. R. 173, which provided that
he would be proceeding under the “small tax case” provi-
sions unless he checked a box on the form that indicated he
wished to proceed otherwise, see 26 U.S.C. § 7463(a); Tax Ct.
R. 171(a). Mr. Dexter did not check the box.
The Commissioner moved to dismiss the petition to the
extent Mr. Dexter sought to challenge the frivolous-return
penalties and moved for summary judgment regarding the
unpaid-tax assessments. Mr. Dexter was given notice of the
filings and a hearing on the matter but did not respond or
appear before the court. The Tax Court granted the
Commissioner’s motions, and, after concluding that
Mr. Dexter had instituted the proceedings for purposes of
delay, penalized him $2,500. Mr. Dexter appealed.
The Commissioner moves to dismiss Mr. Dexter’s appeal
on the ground that 26 U.S.C. § 7463(b) prohibits review of a
decision entered in a small tax case. Section 7463(b) pro-
vides that “[a] decision entered in any case in which the
proceedings are conducted under this section [relating to
disputes of less than $50,000] shall not be reviewed in any
other court and shall not be treated as a precedent for any
other case.” Mr. Dexter responds that the Tax Court’s deci-
sion to impose the $2,500 penalty violated his right to due
process, and argues that he could not have known that he
was subject to unreviewable sanctions when he elected to
proceed under the small tax case provisions.
No. 04-3873 3
The Commissioner advances several arguments in sup-
port of his position that this court lacks jurisdiction to hear
the appeal. First, the Commissioner notes that section 6673
allows the Tax Court to levy “in its decision . . . a penalty not
in excess of $25,000” if the court determines that the tax-
payer instituted the proceedings for delay or the taxpayer’s
position is frivolous. 26 U.S.C. § 6673(a)(1) (emphasis added).
The Commissioner points out that Congress used the same
term in section 7463(b), “[a] decision entered in any [small tax]
case . . . shall not be reviewed in any other court,” and again
in section 7481(b), “[t]he decision of the Tax Court . . . shall
become final upon the expiration of 90 days after the
decision is entered.” Compare id. § 7463(b) with id. § 7481
(emphasis added). The Commissioner contends that repeti-
tive use of the term “decision” shows that Congress intended
to include a penalty under section 6673 as part of a “deci-
sion” that is beyond judicial review. The Commissioner
further observes that Congress did not use the term “deci-
sion” in the provision of section 6673 that allows a Tax Court
to impose sanctions against an attorney, id. § 6673(a)(2), and
argues that this omission is further evidence that Congress
intended to insulate only certain “decisions” from review.
The Commissioner also observes that the Senate Report to
the Tax Reform Act of 1969 reveals Congress intended small
tax cases to be free from the kind of record-making that an
appeal from a decision would require. As the Report
explains:
While the Tax Court procedures are less compli-
cated in many respects than those of other courts, they
remain formal in nature because the Court and the
Internal Revenue Service must consider not just the
amount involved in any particular case but also the
precedent that it might provide for future cases. In
addition . . . a complete record must be prepared of
4 No. 04-3873
the proceedings in each case and the Court’s findings
of fact and opinion must be sufficiently detailed to
permit a proper review.
....
The bill provides that in small cases (where neither
the disputed amount of the deficiency nor the claimed
overpayment exceeds $1,000 as to any one taxable
year to an estate tax) a simplified and relatively in-
formal procedure is to be available to taxpayers. In
such a case the decision would be based upon a brief
summary opinion instead of formal findings of fact,
etc., would not be a precedent for future cases, and
would not be reviewable on appeal.
S. Rep. No. 91-552, reprinted in 1969 U.S.C.C.A.N. 2027, 2341-
42. The Commissioner contends that the reasons for creating
the simplified tax dispute procedure would be critically
undermined if a penalty were appealable to this court.
We find the Commissioner’s arguments persuasive. Both
the statutory language and legislative history demonstrate
that Congress intended to preclude judicial review of all
“decisions” in small tax cases—including the imposition of
a penalty for a frivolous petition. Moreover, section 6673 as
originally enacted (and which predates the small tax case
provisions) provided that the penalty for instituting frivol-
ous proceedings was meant to be considered and “collected
as a part of the tax” imposed. Internal Revenue Code of 1954,
ch. 736, 68A Stat. 828 (1954). We presume that Congress
knew of the Tax Court’s ability to impose a penalty when it
enacted the small tax case provisions and did not elect to
create an exception to the bar on judicial review.
Furthermore, our own research has found some 36 deci-
sions in which a penalty had been imposed in a small tax
case and no appeal had been taken. See, e.g., Cedric K. v.
No. 04-3873 5
Comm’r, 84 T.C.M. 403 (2002); Lopez v. Comm’r, 81
T.C.M. 1525 (2001); Harvey v. Comm’r, 74 T.C.M.
191 (1997); Sprunk v. Comm’r, 61 T.C.M. 1890 (1991).
And at least two other circuits have dismissed appeals from
a decision in a small tax case due to lack of jurisdiction. Cole
v. Comm’r, 958 F.2d 288, 289 (9th Cir. 1992); Rogers v.
Comm’r, No. 00-1534, 2001 WL 793703 (D.C. Cir. June 8,
2001) (unpublished per curiam order).
Finally, although we lack jurisdiction over the appeal, we
note that Mr. Dexter was not deprived of due process. Due
process requires notice and an opportunity to be heard, both
of which were provided. Fuentes v. Shevin, 407 U.S. 67, 80
(1972); Cooper v. Salazar, 196 F.3d 809, 814 (7th Cir. 1999).
Mr. Dexter was advised throughout the proceedings that his
tax protest was frivolous and was provided with a copy of
Pierson v. Comm’r, 115 T.C. 576, 580 (2000), which explains
that frivolous arguments to the court could result in a
penalty. Before the hearing, he could have asked the Tax
Court to convert the proceedings to a regular tax case, Cole,
958 F.2d at 290; Tax Ct. R. 171(c), thus allowing him the
possibility of an appeal, see Toushin v. Comm’r, 223 F.3d 642,
645-46 (7th Cir. 2000). Mr. Dexter nonetheless chose to
proceed under the small tax case provisions, although he
was expressly advised that the decision would be final and
non-appealable. Even so, Mr. Dexter was not without re-
course after being penalized, for he could have moved the
Tax Court to reconsider its decision. Tax Ct. R. 162.
Mr. Dexter chose not to do so.
For the foregoing reasons, we grant the Commissioner’s
motion to dismiss.
DISMISSED
6 No. 04-3873
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—6-3-05