Jimenez v. Dept. of Rev. ( 2021 )

618 December 3, 2021 No. 27
IN THE OREGON TAX COURT
REGULAR DIVISION
Mickey JIMENEZ
and Theresa Jimenez,
Plaintiffs,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Defendant.
(TC 5422)
On cross-motions for summary judgment, Plaintiffs argued that they were
not liable for personal income tax in multiple tax years because (1) their earnings
were not “wages” under the Internal Revenue Code, (2) the Internal Revenue
Service had issued them a refund of all tax withheld, (3) they had not availed
themselves of any federal privilege, and (4) the federal Constitution prohibits
the imposition of a federal income tax. Defendant Department of Revenue (the
department) asserted that the claims were frivolous and sought penalties under
ORS 305.437 and ORS 20.105. The court found that Plaintiff’s first two argu-
ments had been addressed and found “objectively unreasonable” and “frivolous”
in Routledge v. Dept. of Rev., 24 OTR 103 (2020), because federal law defines
gross income as “all income from whatever source derived,” not just “wages.” IRC
§ 61(a)(1). The court concluded that Plaintiff’s third argument completely contra-
dicted the plain text of IRC section 61(a). Plaintiff’s last argument was belied by
the text of the Sixteenth Amendment and has been rejected by federal courts as
absurd and frivolous. Due to Plaintiffs’ objectively unreasonable positions, the
court imposed a penalty of $4,000 under ORS 305.437.
Submitted on cross-motions for summary judgment.
Mickey Jimenez, Plaintiff, filed the motion pro se.
Samuel B. Zeigler, Senior Assistant Attorney General,
Department of Justice, Salem, filed the motion for Defendant.
Decision rendered for Defendant on December 3, 2021.
ROBERT T. MANICKE, Judge.
I. INTRODUCTION
This matter comes before the court on the parties’
cross-motions for summary judgment. Plaintiffs argue that
they are not liable for Oregon personal income tax for tax
Cite as 24 OTR 618 (2021) 619
years 2016, 2017, and 20181 because the money they received
from their employers is not income under Oregon or fed-
eral law.2 Defendant argues that Plaintiffs’ compensation
is income and that the amounts that Plaintiffs’ employers
reported as “wages” accurately reflect that income.
II. FACTS
A. Plaintiffs’ Original 2016 and 2017 Oregon Returns
For tax year 2016, Theresa Jimenez received Wage
and Tax Statements on Internal Revenue Service Form W2
(W-2s) showing wages from two employers: The University
of Western States and the City of Beaverton. Her employ-
ers withheld Oregon income tax as well as federal income,
social security, and Medicare taxes. Plaintiffs reported
the aggregate W-2 wage amounts as wages on a joint fed-
eral income tax return dated April 1, 2017. On a joint 2016
Oregon Personal Income Tax Return dated April 2, 2017,
1
Plaintiffs filed their Complaint on the form provided by the court, filling in
“2016, 2017, 2018” in the blank space provided for “tax year(s).” However, in their
prayer for relief Plaintiffs “ask that the court include the 2019 tax period” because
“the legal character of plaintiff’s common-right earnings has remained consis-
tent for said tax year.” Plaintiffs have submitted a copy of a Notice of Assessment
issued by Defendant for tax year 2019. Defendant objects to including tax year
2019 in this appeal, asserting that there is “no evidence” that Plaintiffs appealed
the assessment for tax year 2019 to the Magistrate Division as required by ORS
305.501(1). In fact, neither party has put the magistrate’s January 5, 2021, order
adjudicating the merits of Plaintiffs’ Magistrate Division appeal in the record in
this division, and no other documents in the record indicate which years were at
issue before the magistrate. This division generally does not look to documents on
file with the Magistrate Division because this division’s review is de novo and the
Magistrate Division is neither a court of record nor bound by formal evidentiary
rules. See ORS 305.425(1); ORS 305.501(4)(a); Salisbury v. Dept. of Rev., TC 5400,
2021 WL 1323313 at *6 (Or Tax, Apr 8, 2021). As an exception, however, the court
will take judicial notice of a magistrate’s dispositive order where appropriate—
in this case for the purpose of establishing which tax years were at issue. ORS
40.070(1). From the magistrate’s January 5, 2021, order, it appears that Plaintiffs
appealed only tax years 2016, 2017, and 2018. Jimenez v. Dept. of Rev., TC-MD
200039G, 2021 WL 37636 at *1 (Or Tax M Div, Jan 5, 2021). Plaintiffs do not chal-
lenge Defendant’s factual assertion that tax year 2019 was not at issue before the
magistrate, and an already-issued assessment for that year is not an appropriate
matter for “preventive” declaratory relief. See Beason v. Harcleroad, 105 Or App
376, 380, 805 P2d 700 (1991). The court concludes that it cannot decide any issues
arising from the 2019 assessment in this appeal.
2
The court’s references to the Oregon Revised Statutes (ORS) are to the 2015
edition. No changes were made to the relevant statutes as applicable to any of the
referenced tax years. References to the “IRC” are to the Internal Revenue Code
as in effect for 2016, 2017, and 2018. References to “Sections” refer to provisions
of the Code.
620 Jimenez v. Dept. of Rev.
Plaintiffs started with the federal adjusted gross income
amount shown on their federal return when computing their
Oregon taxable income.
For tax year 2017, Theresa Jimenez received a W-2
showing wages from the City of Beaverton. Mickey Jimenez
received W-2s showing wages from two employers: Timbercon
Inc. and Intel Corporation (Intel). Their employers withheld
Oregon income as well as federal income, social security, and
Medicare taxes. Plaintiffs reported the aggregate W-2 wage
amounts as wages on a joint federal income tax return dated
April 12, 2018. On a joint 2017 Oregon Personal Income Tax
Return dated April 12, 2018, Plaintiffs started with the fed-
eral adjusted gross income amount shown on their federal
return when computing their Oregon taxable income.
B. Amended 2016 and 2017 Oregon Returns
On or about August 21, 2019, Plaintiffs filed an
amended 2016 Oregon return reporting $0 in federal
adjusted gross income and $0 in Oregon taxable income
and claiming a refund of all Oregon tax due for the year.
Plaintiffs attached copies of their original and amended
2016 federal returns, as well as a Form 4852 (Substitute for
Form W-2). On Form 4852 they checked a box indicating “I
have been unable to obtain (or have received an incorrect)
Form W-2.” They entered the same withholding amounts
reported on the W-2s, but they left a blank in the box for
“wages, tips, and other compensation.”
On or about August 30, 2019, Plaintiffs filed an
amended 2017 Oregon return reporting $0 in federal adjusted
gross income and $0 in Oregon taxable income and claim-
ing a refund of all Oregon tax due for the year. Plaintiffs
attached a copy of their original and amended 2017 federal
returns, as well as two Forms 4852. On Forms 4852 they
checked the boxes indicating “I have been unable to obtain
(or have received an incorrect) Form W-2.” They entered the
same withholding amounts reported on the W-2s, but they
left a blank in the box for “wages, tips, and other compen-
sation.” At some point, Plaintiffs also sent Defendant a copy
of a notarized letter dated July 15, 2019, addressed to the
Internal Revenue Service (IRS), and entitled “Notification
of Revocation of Election and Request for Concurrence and
Cite as 24 OTR 618 (2021) 621
Update to above named affiants Taxpayer Status” purport-
ing to revoke their election to be subject to federal income
tax.
C. 2018 Oregon Return
For tax year 2018, Plaintiffs each received W-2s
showing wages from their respective employers: The City of
Beaverton and Intel Corporation. Their employers withheld
Oregon income tax as well as federal income, social security,
and Medicare taxes.
On or about the dates Plaintiffs filed their amended
2016 and 2017 Oregon returns, they also filed an original
2018 Oregon return, which reported $0 in Oregon taxable
income and claimed a refund of the entire amount of Oregon
tax that their employers had withheld for tax year 2018.
Their 2018 Oregon return was accompanied by their orig-
inal 2018 federal income tax return, W-2s, and two Forms
4852 explaining that the W-2s “provided by payer listed on
line 5 * * * erroneously alleged payments of IRC sections
3401(a) and 3112(a) ‘wages’.”
D. Prior Proceedings
In October 2019, Defendant issued two Notices of
Amended Return Denial, rejecting Plaintiffs’ 2016 and 2017
amended Oregon returns and thus denying the refunds of
tax they had paid through withholding by their employ-
ers. Plaintiffs filed written objections to both notices,
to which Defendant responded with Written Objection
Determinations rejecting Plaintiffs’ arguments.
In January 2020, Defendant sent a Notice of
Deficiency to Plaintiffs regarding their 2018 Oregon return,
explaining that the return had been adjusted to include their
reported Oregon wages from their W-2s, denying Plaintiffs’
requested refund, and finding a deficiency of $2,867 over and
above the amount of tax that Plaintiffs had paid through
employer withholding. Plaintiffs filed a written objection on
or about January 30, 2020, which Defendant rejected, and
Defendant issued a Notice of Assessment.
Plaintiffs appealed their Written Objection Deter-
minations for tax years 2016 and 2017, as well as their
622 Jimenez v. Dept. of Rev.
Notice of Assessment for tax year 2018, to the Magistrate
Division, which issued a final decision denying Plaintiffs’
appeal and imposing a penalty of $500 for filing a frivolous
appeal.
III. ISSUES
(1) Are the amounts shown as wages on Plaintiffs’ W-2s
income subject to Oregon personal income tax?
(2) Must the court award the penalty under ORS 305.437
and attorney fees under ORS 20.105?
IV. ANALYSIS
Tax Court Rule (TCR) 47 C provides that the court
will grant a motion for summary judgement “if the plead-
ings, depositions, affidavits, declarations, and admissions
on file show that there is no genuine issue as to any mate-
rial fact and that the moving party is entitled to prevail
as a matter of law.” A genuine issue of material fact does
not exist if “based upon the record before the court viewed
in a manner most favorable to the adverse party, no objec-
tively reasonable juror could return a verdict for the adverse
party” on the matter. TCR 47 C.
Plaintiffs do not dispute the authenticity of the
copies in the record of W-2s, returns, and other filings and
correspondence with Defendant. Plaintiffs nowhere deny
that they worked for the employers shown on the W-2s or
that those employers paid them the amounts shown for
their services. Plaintiffs’ motion does recite as part of their
“Statement of Facts” that they “had no federal tax liabil-
ity for the tax years at issue, thus had no taxable ‘income’
or ‘wages’ in accordance with relevant Revenue Laws.” The
court views the question whether Plaintiffs had federal tax-
able income as a legal issue, rather than a factual issue, and
the court concludes that no issue of material fact exists in
this case.
A. Are the amounts shown as wages on Plaintiffs’ W-2s
income subject to Oregon personal income tax?
Plaintiffs correctly point out that Oregon taxable
income is defined by reference to federal income; there-
fore, the main issue in this case is whether the money they
Cite as 24 OTR 618 (2021) 623
earned from their employers was income under federal law.
See ORS 316.022(6); ORS 316.048. Plaintiffs make four
main arguments.
Plaintiffs’ first position is that the amounts they
earned are not “ ‘wages’ in the statutory sense, as these
‘terms’ are defined in Internal Revenue Code, sections
3401(a) and 3121(a).” 3 Plaintiffs argue that the term “wages”
is limited to compensation for the performance of functions
of a public office under IRC section 7701. Like the taxpayer
in Routledge v. Dept. of Rev., 24 OTR 103 (2020), Plaintiffs
miss the point. Federal law defines income more broadly
than “wages”; gross income is defined as “all income from
whatever source derived.” IRC § 61(a)(1); see also Treas Reg
§ 1.61-1 (income includes “compensation for services”); Treas
Reg § 1.61-2 (defining “compensation for services”). Plaintiffs
do not deny that they received compensation for services
performed for their employers, or that the amount of their
compensation is as shown in the “wages” boxes of their vari-
ous W-2s. As the court explained in Routledge, Plaintiffs are
wrong to claim that “wages” means only compensation for
the performance of functions of a public office. See 2020 WL
1814309 at *2. However, even if Plaintiffs were right that
they received no payments that fit the federal definitions of
“wages,” they would still be wrong to claim that those pay-
ments are not “income.” See id. at *2-3.
Plaintiffs’ second argument is that “the IRS has
formally indicated that we do not owe federal excise tax
and therefore we do not owe the debt Defendant unlawfully
exacted.” As support for this argument, Plaintiffs cite a copy
of an account transcript apparently prepared by the IRS for
tax year 2018. That transcript appears to show that the IRS
issued Plaintiffs a refund of all tax withheld, plus interest,
for that year. Routledge addresses this point as well:
“When the IRS pays out a refund shortly after a taxpayer
files a return, the IRS has the benefit of periods of mul-
tiple years to recover the refund, including an unlimited
period if the taxpayer has filed a false or fraudulent return
3
IRC section 3401(a) defines “wages” for purposes of federal employment
taxes. IRC section 3121 defines “wages” for purposes of the Federal Insurance
Contributions Act (FICA), i.e., social security tax and Medicare tax.
624 Jimenez v. Dept. of Rev.
with the intent to evade tax. IRC § 6501(a) (general three-
year period of assessment, starting with filing of return);
IRC § 6501(c) (no limitations period if intent to evade tax).
The IRS also has significant collection tools, including
certain rights to claim priority as against other creditors.
See generally Boris I. Bittker & Lawrence Lokken, Federal
Taxation of Income, Estates and Gifts ¶ 113 (3rd ed 2019).
The fact that the IRS chose to accept Plaintiff’s claim at
face value * * * tells the court nothing about the IRS’s view
of the claim’s validity.”
24 OTR at 108-09. Even if the IRS had made a determination
as to Plaintiffs’ taxable income, it would not bind the court.
See, e.g., Dept. of Rev. v. U-Haul Co. of Oregon, 20 OTR 195,
208-11 (2010) (IRS determinations not binding on the court).
Third, Plaintiffs argue that both the federal income
tax and Oregon’s personal income tax “are exclusively an
excise tax on the gainful exercise or enjoyment of federal
privileges.” Plaintiffs claim that they have not availed them-
selves of any relevant federal privilege, and that their earn-
ings are thus not subject to either tax.
Plaintiffs are wrong as to both Oregon law and fed-
eral law. Oregon’s tax is measured by “taxable income,” as
defined in IRC section 63 subject to such modifications that
the Oregon legislature may adopt by law. ORS 316.037; ORS
316.022(6). “Taxable income” under IRC section 63 generally
means “gross income” minus deductions. The starting point,
therefore, under both Oregon law and federal law, is “gross
income,” which as shown above means “all income from what-
ever source derived.” IRC § 61(a) (emphasis added). Nothing in
state or federal law limits the income tax base to gain from
the exercise of any federal privilege. The Oregon and federal
taxes are, respectively, contemplated or authorized by pro-
visions of the state and federal constitutions.4 See Or Const,
Art IV, § 32 (an Oregon income tax may, if enacted, define
income by reference to federal law); US Const, Amend XVI
(“The Congress shall have the power to lay and collect taxes
4
As a state, Oregon has plenary power to tax, without further authorization,
subject only to any limits that the state or federal constitution may impose. King
v. City of Portland, 2 Or 146, 152-53 (1865). By contrast, the federal government
is a government of limited powers, but the Sixteenth Amendment specifically
authorizes imposition of the federal income tax.
Cite as 24 OTR 618 (2021) 625
on incomes, from whatever source derived, without apportion-
ment among the several States * * *.” (Emphasis added.)).
Finally, Plaintiffs argue that the United States
Constitution prohibits imposition of the federal income tax
because that tax is a “federal capitation[ ]” and a “direct
tax[ ]” that can be imposed only if apportioned among the
states based on population. US Const, Art I, § 2, cl 3; id. § 9,
cl 4. Plaintiffs argue that the adoption of the Sixteenth
Amendment did not lift this prohibition, a position belied by
the text of the Sixteenth Amendment itself. See US Const,
Amend XVI. The Ninth and Tenth Circuit Courts of Appeals
and other courts have declared this position absurd, frivo-
lous, and devoid of any arguable basis in law. In re Becraft,
885 F2d 547, 548-49 (9th Cir 1989); United States v. Collins,
920 F2d 619, 629-30 (10th Cir 1990); see also Bossard v.
Dept. of Rev., 2020 WL 7647699 at *5 (Or Tax M Div, Dec 23,
2020).
The court concludes that all of Plaintiffs’ argu-
ments are groundless and devoid of legal merit, and that
Defendant’s assessments must be sustained.5
B. Must the court award the penalty under ORS 305.437
and attorney fees under ORS 20.105?
The court now turns to the additional amounts that
Defendant claims against Plaintiffs: penalties under ORS
305.437 and attorney fees under ORS 20.105. These addi-
tional impositions require the court to analyze the reason-
ableness of Plaintiffs’ positions.6
Plaintiffs’ first two arguments are only slight vari-
ations on those the taxpayer presented in Routledge, which
5
Having determined that Defendant’s assessments are valid, the court does
not consider Plaintiffs’ claims relating to Defendant’s efforts to collect the tax,
such as relief under ORS 164.075 (Extortion); 26 USC 7214 (Offenses by Officers
and Employees of the United States); ORS 31.730 (Punitive Damages). The court
notes further that its jurisdiction does not extend to tort or criminal claims. See
ORS 305.410; Sanok v. Grimes, 294 Or 684, 662 P2d 693 (1983).
6
Both statutes use the word “shall” and thus are mandatory in the sense
that they require the court to impose the penalty or require payment of attorney
fees if the statutory conditions are fulfilled. See ORS 305.437 (defining “frivolous”
position as one with “no objectively reasonable basis”); ORS 20.105 (requiring
court to award attorney fees where no was “no objectively reasonable basis for
asserting the claim, defense, or ground for appeal.”).
626 Jimenez v. Dept. of Rev.
the court concluded were “objectively unreasonable” and
“frivolous.” Routledge, 2020 WL 1814309 at *11 (finding no
objectively reasonable basis for taxpayer’s claim that remu-
neration from his employer was not income and imposing a
$4,000 penalty under ORS 305.437); see also Clark v. Dept. of
Rev., 332 Or 236, 237, 26 P3d 821 (2001) (“Taxpayer’s views
concerning the * * * nontaxability of wages paid by private
employers for an individual’s labor, however honestly held,
are so incorrect as to render legal arguments based on them
frivolous.”); Glasgow v. Dept. of Rev., 356 Or 511, 340 P3d 653
(2014) (upholding $3,000 in frivolous appeal penalties under
ORS 305.437 where taxpayer refused to file tax returns for
three years arguing that her wages were not income).
Plaintiffs’ third argument, that Oregon’s tax is
imposed only on gain from the exercise of certain federal
privileges, completely contradicts the plain text of IRC sec-
tion 61(a). Their final argument contradicts the plain text
of the Sixteenth Amendment and has been rejected by the
federal courts as absurd and frivolous.
The court finds that Plaintiffs have taken objec-
tively unreasonable positions for purposes of the penalty
under ORS 305.437 and the attorney fee provisions under
ORS 20.105. Plaintiffs have maintained their unreason-
able arguments throughout this proceeding. For these rea-
sons the court awards a penalty of $4,000 pursuant to ORS
305.437, in lieu of the $500 that the magistrate awarded.
The court awards attorney fees in an amount to be deter-
mined, assuming Defendant seeks a supplemental judgment
of attorney fees as provided in TCR 68.
V. CONCLUSION
Now, therefore,
IT IS ORDERED that Plaintiff’s’ motion for sum-
mary judgment is denied;
IT IS FURTHER ORDERED that Defendant’s
motion for summary judgment is granted;
IT IS FURTHER ORDERED that Plaintiffs’ claims
are dismissed with prejudice; and
Cite as 24 OTR 618 (2021) 627
IT IS FURTHER ORDERED that Plaintiffs shall
pay a penalty of $4,000 to Defendant within 10 days after
judgment in this case is entered as provided in TCR 67.