Cargill v. Commissioner of Internal Revenue

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
April 2, 2008
No. 07-14207 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
Tax Court No. 8832-06
JUDY C. CARGILL,
Petitioner-Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
________________________
Petition for Review of a Decision of the
United States Tax Court
_________________________
(April 2, 2008)
Before ANDERSON, HULL and FAY, Circuit Judges.
PER CURIAM:
Judy C. Cargill, pro se, appeals the U.S. Tax Court’s order (1) dismissing
Cargill’s petition for redetermination of a deficiency, pursuant to Rule 149(b) of
the Tax Court Rules of Practice and Procedure for failure to produce evidence,
(2) determining the amount of deficiency and additional tax due, and (3) ordering
that Cargill pay a $4,000 penalty as a sanction, pursuant to 26 U.S.C.
§ 6673(a)(1)(B). Cargill argues that the Tax Court abused its discretion by
dismissing her petition because it failed to acknowledge her signed 1999 tax return,
which, according to Cargill, shifted the burden to the Commissioner to show that
the deficiency was correct. In addition, Cargill maintains her argument that she
was exempt from filing a federal income tax return because the Internal Revenue
Service (“IRS”) 1040 Tax Form was not compliant with the 1995 Paperwork
Reduction Act (“PRA”), 44 U.S.C. §§ 3501-3520, due to the absence of a valid
Office of Management and Budget (“OMB”) control number. Cargill also argues
that the Tax Court abused its discretion by imposing a sanction against her for
maintaining a frivolous position. Both parties filed motions for sanctions in this
Court. For the reasons set forth more fully below, we affirm the decision of the
Tax Court. In addition, we grant the Commissioner’s motion for sanctions and
deny Cargill’s motion.
The Commissioner notified Cargill that she was deficient for the 1999 tax
year because she failed to report $19,147 in income. In her pro se original and
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amended petitions seeking a redetermination of the deficiency, Cargill claimed that
she was not required to file a federal tax return because the 1999 1040 IRS Tax
Form was not compliant with the PRA. Thus, Cargill argued that the burden
shifted to the Commissioner, pursuant to 26 U.S.C. § 7491, to prove the amount of
deficiency.
In its written order, the Tax Court stated that both the original and amended
petitions contained “frivolous and groundless arguments that merit no extended
discussion.” The court stated, “[s]uffice it to say that the lack of an OMB number
does not serve to invalidate an IRS notice nor does the lack of an OMB number
violate the [PRA,] . . . [and Cargill’s] argument regarding the exemption amount is
equally frivolous.” In a footnote, the court stated that Cargill had a previous tax
case dismissed for failure to state a claim and a $1,000 penalty was imposed
against her, pursuant to 26 U.S.C. 6673(a). The court ordered that Cargill file an
amendment to the petition in order to identify specific exemptions, deductions, and
credits.
In her “Amendment to Amended Petition,” Cargill again asserted her PRA
argument. Cargill attached a copy of an unsigned joint 1999 IRS 1040 return 1 and
a corresponding IRS Schedule A that itemized various deductions and an IRS
1
Cargill later provided a signed copy of the 1999 joint return. However, the
Commissioner maintains that the joint return is not valid because both Cargill and her husband
had already filed individual returns for the 1999 tax year.
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Schedule C that itemized various business expenses.
In its written order of dismissal and decision, the Tax Court dismissed the
petition, pursuant to Rule 149(b), because Cargill failed to produce evidence. The
court noted that it based its decision on the Commissioner’s stipulation of facts that
were deemed established. The court specifically found that Cargill failed to
substantiate her claimed deductions and business expenses set forth on her
unsigned joint IRS 1040 Form. The court also determined that, for the 1999 tax
year, there was (1) a deficiency in income tax due in the amount of $4,419, (2) an
addition to tax due in the amount of $662.85, pursuant to I.R.C. § 6651(a)(1), and
(3) a $4,000 penalty as a sanction, pursuant to I.R.C. § 6673. Cargill appeals the
Tax Court’s decision.
I.
We review a Tax Court’s dismissal for failure to appear or adduce evidence,
pursuant to Rule 149(b), for abuse of discretion. See Crandall v. C.I.R., 650 F.2d
659, 660 (5th Cir. Unit B July 13, 1981) (applying abuse of discretion standard to
dismissal for failure to properly prosecute, pursuant to Rule 123(b)). “The Tax
Court’s findings must stand unless clearly erroneous.” Webb v. C.I.R., 872 F.2d
380, 381 (11th Cir. 1989). A pro se appellate brief is entitled to liberal
construction. See Finch v. City of Vernon, 877 F.2d 1497, 1504 (11th Cir. 1989).
The Tax Court has promulgated Rules of Practice and Procedure governing
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the conduct of proceedings in that court. See 26 U.S.C. § 7453. Under Rule
149(b):
Failure to produce evidence, in support of an issue of fact as to which
a party has the burden of proof and which has not been conceded by
such party’s adversary, may be ground for dismissal or for
determination of the affected issue against that party. Facts may be
established by stipulation in accordance with Rule 91, but the mere
filing of such stipulation does not relieve the party, upon whom rests
the burden of proof, of the necessity of properly producing evidence
in support of facts not adequately established by such stipulation.
26 U.S.C. foll. § 7453, Tax Court Rule 149; see also Roat v. C.I.R., 847 F.2d 1379,
1383 (9th Cir. 1988) (determining that the Tax Court was within its discretion to
grant the Commissioner’s motions to dismiss because the taxpayer failed to argue
the merits of the deficiencies).
Under Rule 123(b) of the Tax Court Rules of Practice and Procedure:
For failure of a petitioner properly to prosecute or to comply with
these Rules or any order of the Court or for other cause which the
Court deems sufficient, the Court may dismiss a case at any time and
enter a decision against the petitioner. The Court may, for similar
reasons, decide against any party any issue as to which such party has
the burden of proof, and such decision shall be treated as a dismissal.
26 U.S.C. foll. § 7453, Tax Court Rule 123(b). Moreover, “a decision rendered . . .
in consequence of a dismissal, other than a dismissal for lack of jurisdiction, shall
operate as an adjudication on the merits.” Id., Tax Court Rule 123(d).
“The Commissioner’s determination of a deficiency is presumed correct, and
the taxpayer has the burden of proving it is incorrect.” Webb, 872 F.2d at 381.
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Nonetheless, “[i]f, in any court proceeding, a taxpayer introduces credible evidence
with respect to any factual issue relevant to ascertaining the liability of the
taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the
burden of proof with respect to such issue.” 26 U.S.C. § 7491(a)(1) (emphasis
added).
The PRA of 1980, Pub. L. No. 96-511, 94 Stat. 2812 (1980), states, in part,
that “no person shall be subject to any penalty for failing to maintain or provide
information to any agency if the information collection request involved . . . does
not display a current control number assigned by the [OMB] Director.” Neff, 954
F.2d at 699 (quoting 44 U.S.C. § 3512 (1980)) (emphasis added). As a result of
the 1995 Amendments, that provision now provides:
(a) Notwithstanding any other provision of law, no person shall be
subject to any penalty for failing to comply with a collection of
information that is subject to this subchapter if--
(1) the collection of information does not display a valid
control number assigned by the Director in accordance
with this subchapter; or
(2) the agency fails to inform the person who is to
respond to the collection of information that such person
is not required to respond to the collection of information
unless it displays a valid control number.
44 U.S.C. § 3512(a) (1995) (emphasis added). Tax forms are covered by the PRA.
See Dole v. United Steelworkers of Am., 494 U.S. 26, 32-33, 110 S.Ct. 929, 933,
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108 L.Ed.2d 23 (1990).
In Neff, we rejected the argument that a tax return need not be filed because
of the absence of an OMB control number on Treas.Reg. § 1.6091-2 (as amended
in 1978), which states where income tax returns must be filed. Neff, 954 F.2d at
699-700. Specifically, we stated that “Congress created [the taxpayer’s] duty to
file the Returns in 26 U.S.C. § 6012(a), and . . . Congress did not enact the PRA’s
public protection provision to allow OMB to abrogate any duty imposed by
Congress.” Id.; see also 26 U.S.C. § 7203 (stating penalties for willful failure to
file return, supply information, or pay tax); James v. United States, 970 F.2d 750,
753 n.6 (10th Cir. 1992) (noting that the lack of an OMB number on IRS notices
and forms does not violate the PRA).
At least one circuit court has determined that the 1995 PRA Amendments do
not alter the conclusion that the IRS 1040 Form is in compliance with the PRA.
See United States v. Patridge, 507 F.3d 1092, 1094 (7th Cir. 2007), pet. for cert.
filed, (U.S. Feb. 11, 2008) (No. 07-1045) (rejecting taxpayer’s argument that the
IRS 1040 Form lacked a valid OMB number and stating that “we have no doubt
that the IRS has complied with the [PRA],” even though the OMB number
displayed on the IRS 1040 Form has been constant since 1981).
Initially, Cargill’s claim that she was not required to file a federal tax return
because the IRS 1040 Form failed to comply with the 1995 PRA is without merit,
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and the 1995 Amendments did not alter that result.
Despite Cargill’s claim to the contrary, both the Commissioner and the Tax
Court acknowledged the Schedule A itemized deductions and the Schedule C
business expenses, even though the Commissioner maintained that the 1999 joint
return was invalid. However, the stipulation of facts, which was deemed admitted,
provided that Cargill had not filed a valid return for the 1999 tax year and had not
provided any substantiation to support the claimed deductions and expenses on her
unsigned joint return. Further, other than the addition of her signature, Cargill
failed to provide any evidence that she was entitled to those deductions and
expenses she claimed on the return, even though the Tax Court provided her with
ample opportunity to do so. Thus, the Commissioner’s deficiency determination
was presumptively correct, and Cargill failed to meet her burden of introducing
credible evidence with respect to the issue of whether she was entitled to the
deductions and expenses she claimed. Accordingly, because Cargill failed to
produce evidence on an issue of fact to which she had the burden of proof, the Tax
Court did not abuse its discretion by dismissing Cargill’s petition for
redetermination of a deficiency.
II.
We review the Tax Court’s imposition of sanctions for an abuse of
discretion. Roberts v. C.I.R., 329 F.3d 1224, 1229 (11th Cir. 2003).
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Section 6673 permits the Tax Court to impose sanctions in any amount up to
$25,000, if the taxpayer “institutes or maintains proceedings primarily for delay or
his position is frivolous or groundless.” Id.; see also 26 U.S.C. § 6673(a)(1)(A)-
(B). In Roberts, we affirmed sanctions where the law was settled prior to the
proceedings, and the taxpayer was “on notice that his claims were frivolous.”
Roberts, 329 F.3d at 1229; see also Pollard v. Comm’r, 816 F.2d 603, 604-05 (11th
Cir. 1987) (holding no abuse of discretion where (1) Tax Court specifically found
frivolous taxpayer’s argument that had been rejected by this Court on numerous
occasions, and (2) taxpayer had previously brought other frivolous tax claims);
Webb, 872 F.2d at 381 (holding that the Tax Court did not abuse its discretion by
imposing a $2,300 sanction against the taxpayers because, even though the
taxpayers claimed charitable contribution deductions on their federal income tax
returns, the taxpayers failed to demonstrate any charitable contributions to a
qualified organization).
Cargill’s claim that she was not required to file a federal tax return has been
rejected by this Court. Moreover, (1) Cargill was on notice that her claim was
frivolous and that she would be sanctioned, (2) Cargill continued to maintain her
position, and (3) Cargill previously had been sanctioned by the Tax Court.
Accordingly, the Tax Court did not abuse its discretion in imposing $4,000 in
sanctions against Cargill.
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III.
The Commissioner moves for sanctions to be imposed against Cargill for
maintaining a frivolous appeal, pursuant to Rule 38 of the Federal Rules of
Appellate Procedure and 28 U.S.C. § 1912. The Commissioner reports that the
average expense in attorney salaries and other costs incurred in the defense of
frivolous taxpayer appeals in which sanctions were awarded during 2004 and 2005
is greater than $11,000 and asks that this Court impose a sanction against Cargill in
the amount of $8,000.
Cargill also moves for sanctions against four attorneys with the Department
of Justice, Tax Division, Appellate Section. According to Cargill, this Court
should impose $8,000 in sanctions, pursuant to Rule 38 and Rule 11 of the Federal
Rules of Civil Procedure, for maintaining a frivolous position and denying Cargill
protection under the PRA.
Pursuant to Rule 38, “[i]f a court of appeals determines the appeal is
frivolous, it may, after a separately filed motion or notice from the court and
reasonable opportunity to respond, award just damages and single or double costs
to the appellee.” Fed.R.App.P. 38; see also 26 U.S.C. § 7482(c)(4) (“The United
States Court of Appeals and the Supreme Court shall have the power to require the
taxpayer to pay to the United States a penalty in any case where the decision of the
Tax Court is affirmed and it appears that the appeal was instituted or maintained
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primarily for delay or that the taxpayer’s position in the appeal is frivolous or
groundless”); 28 U.S.C. § 1912 (“Where a judgment is affirmed by the Supreme
Court or a court of appeals, the court in its discretion may adjudge to the prevailing
party just damages for his delay, and single or double costs”). “The advisory
committee notes to Fed.R.App.P. 38 clearly indicate that attorney’s fees, as well as
double costs, can be awarded to the appellee in the event that the appellant
prosecutes a frivolous appeal.” Biermann v. Comm’r, 769 F.2d 707, 708 n.1 (11th
Cir. 1985).
In light of the settled case law rejecting the position advanced by Cargill,
together with the explicit warnings offered by the Tax Court, Rule 38 sanctions
against Cargill are appropriate.
Cargill’s motion for sanctions against the Commissioner is without merit.
Accordingly, Cargill’s motion for sanctions is DENIED.
In light of the foregoing, the decision of the Tax Court is
AFFIRMED; the Commissioner’s motion for sanctions in the lump-sum of
$8,000 is GRANTED.
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