Barash v. Department of Revenue ( 2012 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
HOWARD M. BARASH, )
)
Plaintiff, ) TC-MD 120058N
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) DECISION
Plaintiff appeals Defendant‟s Notices of Determination and Assessment dated
November 17, 2011, for the 2007, 2008, and 2009 tax years. Plaintiff filed his Motion for
Summary Judgment (Motion) on April 23, 2012. Department filed its Response to Motion for
Summary Judgment (Response) on May 1, 2012. On June 6, 2012, Plaintiff filed its reply.
There is no dispute of material fact and this matter is now ready for the court‟s decision.
I. STATEMENT OF FACTS
Plaintiff failed to file Oregon personal income tax returns for the 2007, 2008 and 2009
tax years. (See Ptf‟s Compl at 3, 5, 7.) Even though Plaintiff earned taxable income in the years
at issue, Plaintiff alleges that he has “no such liability for the payment of any tax, neither federal
nor State, nor any requirement to file any tax return with either government.” (Id. at 2.) In his
Motion, Plaintiff argues that the State of Oregon cannot constitutionally impose a direct non-
apportioned income tax on its citizens. (Ptf‟s Mot for Summ J at 7.) Plaintiff supports that
argument by acknowledging that “the Oregon State personal income tax is predicated on an
individual‟s subjectivity to the federal tax and its filing requirement.” (Ptf‟s Compl at 2.) After
performing his own analysis of statutes and case law, Plaintiff concludes that “the federal income
tax is only required by law to be paid by the payors [sic] of ‘gross income’, but not the recipients
DECISION TC-MD 120058N 1
or earners of the income, in what would be an unconstitutionally direct manner that was
specifically rejected by the Court in its controlling decisions.” (Ptf‟s Mot for Summ J at 8
(emphasis in original).) Plaintiff argues that, based on his analysis of federal law, “as a person
who has no federally ‘taxable income’ as defined in federal law, and who has no statutory
requirement to file a federal personal tax return form 1040 or pay any federal income tax; that
[he] is therefore also a person who has no requirement to file an Oregon state income tax return
or pay any Oregon State personal income tax.” (Id. at 10 (emphasis in original).)
In response, Defendant states that “Plaintiff believes that because he is a resident of the
State of Oregon and a citizen of the United States of America, that he does not owe any tax even
though he received compensation for his services.” (Def‟s Resp at 1.) Citing several tax
statutes, Defendant concludes that “[t]he statutes clearly establish a tax on residents. Because
[Plaintiff] chose not to file a return, the Department established the Assessment based on the best
information available as allowed under ORS 305.265.” (Id. at 2.) Defendant also requests
damages for frivolous appeal, because “Plaintiff has not presented any reasonable basis for
asserting his position[.]” (Id.)
II. ANALYSIS
The issues before the court are whether the Plaintiff is liable for Oregon income tax for
the 2007, 2008, and 2009 tax years and whether Defendant is entitled to damages under ORS
305.437 (2011).1 The Oregon Legislature intended to make Oregon personal income tax law
identical to the Internal Revenue Code (IRC) for purposes of determining Oregon taxable
income, subject to adjustments and modifications specified in Oregon law. ORS 316.007. The
legislature sought to “achieve this result by the application of the various provisions of the [IRC]
1
All references to the Oregon Revised Statutes (ORS) are to 2007 unless otherwise noted. The 2005 ORS is
applicable to the 2007 tax year. The 2005 version of ORS 316.007 is identical to the 2007 version.
DECISION TC-MD 120058N 2
relating to the definition of income, exceptions and exclusions therefrom, [and] deductions
(business and personal) * * *.” ORS 316.007(2). The legislature then imposed “a tax on
residents of this state measured by taxable income wherever derived * * *.” ORS 316.007(3).
ORS 316.037(1)(a) imposes an income tax on the “entire taxable income” of residents.
ORS 316.022(6) defines taxable income as “the taxable income as defined in * * * section 63 of
the [IRC], with such additions, subtractions and adjustments as are prescribed by this chapter.”
IRC section 63(a) provides that “the term „taxable income‟ means gross income minus the
deductions allowed by this chapter * * *.” Gross income is “all income from whatever source
derived” and includes “[c]ompensation for services * * *.” IRC § 61(a). Plaintiff does not
dispute that he earned wages during the tax years at issue, but disagrees that those wages are
taxable income.
Plaintiff argues that the United States Constitution does not authorize a direct non-
apportioned income tax on citizens of the United States, and therefore citizens are not subject to
federal income tax or state income tax. “Other taxpayers have attempted the same or similar
arguments in the past to no avail.” Negrete v. Dept. of Rev. (Negrete), 19 OTR 134, 137 (2006)
(citing Combs v. Dept. of Rev. (Combs), 15 at OTR 60, 61 (1999) aff’d 331 Or 245, 14 P3d 584
(2000) (holding that such a claim was “unrealistic and uninformed” and that “wages are clearly
taxable”); Christenson v. Dept. of Rev., 18 OTR 269, 273 (2005) (holding that such a position “is
without merit”); Clark v. Dept. of Rev. (Clark), 15 OTR 197, 200 (2000) aff’d 332 Or 236, 26
P3d 821 (2001) (stating that such a view is “patently distorted and removed from reality”)).
It has been long recognized that the federal Constitution allows for a direct, non-
apportioned federal income tax on citizens of the United States. Plaintiff‟s wages are clearly
DECISION TC-MD 120058N 3
taxable income and Defendant properly determined Plaintiff‟s state income tax liability based
on the best information available for 2007, 2008, and 2009 as required by ORS 305.265.
Defendant seeks an award of damages under ORS 305.437, which provides that damages
not to exceed $5,000 are to be awarded to the department “[w]henever it appears that * * * the
taxpayer‟s position * * * is frivolous or groundless * * *.” ORS 305.437(1). “A taxpayer‟s
position is „frivolous‟ if there was no objectively reasonable basis for asserting the position.”
ORS 305.437(2)(a). To determine whether the basis for the claim was objectively reasonable,
the court “assesses whether taxpayer‟s claims, defenses, or grounds for appeal were entirely
devoid of legal or factual support at the time [they] were made.” Christenson v. Dept. of Rev., 18
OTR 269, 274 (2005) (citation omitted). “The argument that wages are not taxable income * * *
has been repeatedly ruled frivolous by this court and the Oregon Supreme Court, as well as the
United States Supreme Court.” Negrete, 19 OTR at 137-38 (citing Combs, 331 Or at 248).
Plaintiff‟s reasoning is no different from others who have asserted that earnings paid by an
employer are not subject to taxation by the state of Oregon. See Clark, 15 OTR at 200 (holding
that it “is a wholly irrational view” to assert that “personal salary and compensation is not
technically included within the federal definition of income adopted by reference into Oregon
law”). Plaintiff‟s claim lacks any factual or legal support and is, therefore, objectively
unreasonable and frivolous. Accordingly, the court awards damages to Defendant in the amount
of $500.
III. CONCLUSION
After careful review of the pleadings, the court concludes that Plaintiff is required to pay
state personal income tax for the 2007, 2008, and 2009 tax years. Plaintiff‟s contention that the
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DECISION TC-MD 120058N 4
Constitution does not allow for direct non-apportioned personal income tax is without legal or
factual support and is, therefore, frivolous. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff‟s Motion for Summary Judgment
is denied and Plaintiff‟s appeal is denied.
IT IS FURTHER DECIDED that Defendant shall be awarded damages for frivolous
appeal under ORS 305.437 in the amount of $500.
Dated this day of July 2012.
ALLISON R BOOMER
MAGISTRATE
If you want to appeal this Decision, file a Complaint in the Regular Division of
the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your Complaint must be submitted within 60 days after the date of the Decision
or this Decision becomes final and cannot be changed.
This document was signed by Magistrate Allison R. Boomer on July 27, 2012.
The Court filed and entered this document on July 27, 2012.
DECISION TC-MD 120058N 5