Brodman v. Comm'r

T.C. Memo. 2003-230

UNITED STATES TAX COURT

CHARLES BRODMAN AND TERESA BRODMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16598-02L. Filed August 1, 2003.

Jerry Arthur Jewett, for petitioners.

Michelle M. Lippert, for respondent.

MEMORANDUM OPINION

COHEN, Judge: The petition in this case was filed in

response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330. The issues for

decision are whether there was an abuse of discretion in a

determination that collection action could proceed and whether

the Court should impose a penalty under section 6673. Unless
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otherwise indicated, all section references are to the Internal

Revenue Code in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

Background

All of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in Carey, Ohio, at the time they filed

their petition.

Petitioners timely filed Forms 1040, U.S. Individual Income

Tax Returns, for 1996, 1997, and 1998, reporting income received

in the amounts of $8,595, $9,593, and $8,618, respectively. On

the Form 1040 for 1998, petitioners inserted above their

signatures a reference to signing the return “under duress”. On

March 30, 2000, respondent sent to petitioners a notice of

deficiency, determining deficiencies of $9,621, $6,313, and

$4,173 for 1996, 1997, and 1998, respectively, and penalties

under section 6662(a) for each of those years.

Petitioners did not file a petition in response to the

notice of deficiency. In their petition in this case, they

acknowledge receipt of the notice of deficiency but claim that it

was not valid because it “was not signed by the Secretary of the

Treasury or his authorized delegate, and the person who signed

the ‘notice of deficiency’ did not have authority to do so
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because no delegation order exists which authorizes that person

to sign notices of deficiency for the Secretary of the Treasury.”

After petitioners defaulted on the March 30, 2000, notice of

deficiency, assessments of accuracy-related penalties and

additional income tax liabilities were made. Erroneously claimed

earned income credits were reversed on petitioners’ accounts for

the years in issue. A “Final Notice - Notice of Intent to Levy

and Notice of Your Right to a Hearing” was sent to petitioners on

December 18, 2000. A Notice of Federal Tax Lien was filed with

the Wyandot County Recorder on January 8, 2001, and a “Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under IRC

6320" was sent to petitioners on January 9, 2001.

Petitioners received the notices sent on December 18, 2000,

and January 9, 2001, marked them “Refused for Fraud”, and

returned them to the Internal Revenue Service (IRS), with

instructions that they be filed as a permanent part of

petitioners’ records. On January 11, 2001, petitioners filed a

Request for a Collection Due Process Hearing. In their request,

petitioners demanded a variety of forms, including a Form 23C, a

Form 17-A, a delegation order of the Revenue agent who sent the

notice of levy, and demanded “the law that makes us liable for

income taxes.” Among other things, petitioners demanded:

13. Provide the documents from the Internal Revenue
Code, the Code of Federal Regulations, United
States Statutes at Large, or Public Law that
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supports the IRS contention that a 1040 or 1040A
is a type of tax.

14. I demand that you send me the proof that I am a
Virgin Island resident (see your TC-150 coding of
me as per your manual 30(55)4.2).

15. Please send me a copy of the court order to seize,
confiscate or take my money as per fair debit
collection act.

16. Send the Regulations listing the Taxable activity
which is the bases for this 1058 Letter.

17. Provide me with a copy of the letter in which the
district Director ordered me to keep records per
26 I.R.C. 6001, and what type of books and records
to keep. See US vs. Mercer, Sixth Circuit
District Court, Cincinnati, Ohio, 1996.

18. Form 6809 Civil Penalty Report.

19. Please send me the logo the, the Bureau of
Alcohol, Tobacco, and Firearms or the Secret
Service should be using on their correspondence to
us. In Title 31 U.S.C., Chapter 3, Subtitle 1 -
Organization, does not list these organizations as
being part of the Department of the Treasury.

20. Title 26 of the Internal Revenue Code is literally
the repealed National Prohibition Act which was
repealed in 1933 and classified to Title 26 in
1939 as the Internal Revenue Code of 1939 which is
evidenced by 48 USC 1402. Do you have any
evidence that we are subject to the National
Prohibition? If so please disclose now.

21. Send us a copy of any “Dummy Returns” or
“Substitute for Return” that have been created by
the IRS pertaining to us. [Exhibit refs.
omitted.]

Petitioners’ request for a hearing continued with frivolous

arguments and included the following paragraph:

As honest citizens of Ohio state we desire to comply
with any and all laws that compel us to action. We are
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willing to file any and every form or return that we
are required by law to file. We desire to pay every
penny of tax that we are required by law to pay. We
have no desire to obstruct or hamper any valid
government agency or function. Just send us the law
making us liable for paying income tax.

On January 23, 2002, Jerry Arthur Jewett (Mr. Jewett)

executed a power of attorney, Form 2848, Power of Attorney and

Declaration of Representative. On February 25, 2002, Mr. Jewett

sent to the IRS Appeals Office a letter incorporating and adding

to petitioners’ frivolous arguments and asserting:

1. The individual or individuals named above are
not “persons or a person” liable for the income tax or
required to file a Form 1040, by virtue of non-
residence in, or lack of income earned within, or
effectively connected to, any U.S. Territory,
Possession and/or enclave deriving authority from
Article I, Sec. 2 Cl. 17 or Article 4, Sec. 3, Cl. 2 of
the Constitution of the United States. The individual
or individuals named herein are natural born Citizens
of one of the 50 Republic states, under the
Constitution and Law.

Although the pages of the letter were unnumbered, it consisted of

33 pages of tax protester boilerplate.

A hearing pursuant to petitioners’ request was conducted on

March 21, 2002, with a court reporter present. A transcript of

the proceedings was made. At the hearing, Mr. Jewett repeated

his frivolous arguments. Among other things, Mr. Jewett argued:

MR. JEWETT: * * * So the only case which
addresses the issue of wages not being income and a
tax, an individual is not a taxpayer within the meaning
of the Internal Revenue Code is the John Cheek case and
it supports the position of my clients.
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HEARING OFFICER KANE: I’m not familiar with that
case. It sounds like the Supreme Court said a
technicality, instructions weren’t given to the jury
properly, it didn’t say that that position was, was
based on law and a solid position. I’m not familiar
with that, but there are dozens of court cases where
these arguments have been presented and I’m not aware
of any of them that have been successful.

MR. JEWETT: Well, the Supreme Court is the
ultimate arbiter and when the Supreme Court tells us
something, I tend to believe it. They’re the only,
they’re the only court whose word is final.

HEARING OFFICER KANE: But it didn’t tell us what
you’re saying it told us, at least if I heard you
correctly.

MR. JEWETT: It said that that belief is an
absolute, it is a defense to a charge of failing to
file a return, and my clients rely on that. You know,
my clients subsequently filed for these years 1040X’s
in which they indicated that, that they actually didn’t
have any income, they had zero income for Federal
income tax purposes. Now, the reasons why are
extensive and they have been dealt with in the
paperwork that I’ve given you, so I’m not going to go
into that.

The Appeals officer provided to petitioners literal

transcripts of their account. On April 17, 2002, a copy of Form

4340, Certificate of Assessments, Payments, and Other Specified

Matters, was sent to petitioners.

On September 18, 2002, a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 was sent to

petitioners. The notice indicated the frivolous nature of

petitioners’ arguments and stated: “It has been determined that

the lien filing and proposed levy action are sustained. The
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Internal Revenue Service has complied with code and procedural

requirements in collecting the tax.”

In the petition in this case, signed by Mr. Jewett,

petitioners again challenge the authority of the officers issuing

the notice of deficiency, the notice of intent to levy and the

notice of lien, and the procedures by which the Appeals officer

verified the validity of the assessment; claim that they were

entitled to challenge the underlying liabilities because they

received no valid notice of deficiency; and assert that no

provision of the Internal Revenue Code makes them liable for the

income tax and penalties determined in the statutory notice. The

same arguments were repeated in petitioners’ trial memorandum

signed by Mr. Jewett and filed with the Court.

On May 30, 2003, Mr. Jewett and counsel for respondent

placed a conference telephone call to the Court in one of the

essentially identical cases on the Cleveland, Ohio, June 2, 2003,

calendar in which Mr. Jewett represented taxpayers.1 The

conference telephone call concerned the desire of the taxpayers

in one of Mr. Jewett’s cases to withdraw him as counsel and to

work with the IRS in attempting to resolve their tax liability.

During the conference telephone call, the Court advised

1
Three of those cases were submitted fully stipulated and
are in the same posture as this case. James Benson and
Melanie A. Dunham, docket No. 7029-02L; Gregory R. Brown, docket
No. 8368-02L; Harold V. and Imogene N. Pahl, docket No.
11572-02L.
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Mr. Jewett that, upon review of his trial memoranda, it appeared

that he was making arguments that had led to penalties under

section 6673 against many taxpayers and that penalties had

recently been affirmed by the Court of Appeals for the Sixth

Circuit, to which this case is appealable. See, e.g., Hauck v.

Commissioner, T.C. Memo. 2002-184, affd. 64 Fed. Appx. 492 (6th

Cir. 2003) ($10,000 penalty affirmed). The Court also cited to

Mr. Jewett the cases of Roberts v. Commissioner, 118 T.C. 365

(2002), affd. 329 F.3d 1224 (11th Cir. 2003); Takaba v.

Commissioner, 119 T.C. 285 (2002); Edwards v. Commissioner, T.C.

Memo. 2003-149, in which awards were made under section

6673(a)(2) against the taxpayers’ counsel in addition to

penalties against the taxpayers in cases where frivolous

arguments were made. The Court also referred to Everman v.

Commissioner, T.C. Memo. 2003-137, in which Mr. Jewett was

counsel of record and his arguments about delegation of authority

were rejected. When this case was called from the calendar on

June 2, 2003, Mr. Jewett acknowledged the Court’s warning to him,

stated that his clients had been apprised of the Court’s

position, and asserted that his clients nonetheless wished to

pursue the arguments that the Court had identified as frivolous.

Mr. Jewett stated that he had not had time to read the cases

cited to him by the Court.
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Discussion

All of the arguments that petitioners have presented in this

case, in one form or another, have been rejected in prior cases.

Those arguments dealing with the taxability of their income are

irrelevant in any event. Because they received the statutory

notice of deficiency for 1996, 1997, and 1998, petitioners were

not entitled to challenge their underlying tax liability at the

hearing conducted under section 6330. Sec. 6330(c)(2)(B). They

did not raise any bona fide issues or collection alternatives at

the hearing, and they have not raised any genuine issues in this

case. There was no abuse of discretion with respect to the

determination that collection should proceed.

Numerous cases establish that no particular form of

verification is required, that no particular document need be

provided to taxpayers at a hearing conducted under section 6330,

and that Form 4340 provided to the taxpayers after the hearing

satisfies the requirements of section 6330(c)(1). See, e.g.,

Roberts v. Commissioner, supra; Nestor v. Commissioner, 118 T.C.

162, 167 (2002); Hauck v. Commissioner, supra; Kuglin v.

Commissioner, T.C. Memo. 2002-51. Scores of cases have disposed

of claims indistinguishable from petitioners’ claims by summary

judgment, with imposition of a penalty under section 6673. See,

e.g., Roberts v. Commissioner, supra; Hill v. Commissioner, T.C.

Memo. 2003-144; Holguin v. Commissioner, T.C. Memo. 2003-125;
 - 10 -

Hodgson v. Commissioner, T.C. Memo. 2003-122; Bourbeau v.

Commissioner, T.C. Memo. 2003-117; Williams v. Commissioner, T.C.

Memo. 2003-83; Kaye v. Commissioner, T.C. Memo. 2003-74; Smith v.

Commissioner, T.C. Memo. 2003-45; Eiselstein v. Commissioner,

T.C. Memo. 2003-22; Gunselman v. Commissioner, T.C. Memo. 2003-

11; Young v. Commissioner, T.C. Memo. 2003-6; Tornichio v.

Commissioner, T.C. 2002-291; Land v. Commissioner, T.C. Memo.

2002-263; Perry v. Commissioner, T.C. Memo. 2002-165; Smeton v.

Commissioner, T.C. Memo. 2002-140; Newman v. Commissioner, T.C.

Memo. 2002-135; Coleman v. Commissioner, T.C. Memo. 2002-132;

Williams v. Commissioner, T.C. Memo. 2002-111; Weishan v.

Commissioner, T.C. Memo. 2002-88, affd. 66 Fed. Appx. 113 (9th

Cir. 2003). In some such cases, penalties have been imposed by

the Court sua sponte. See, e.g., Robinson v. Commissioner, T.C.

Memo. 2003-77; Keene v. Commissioner, T.C. Memo. 2002-277;

Schmith v. Commissioner, T.C. Memo. 2002-252; Schroeder v.

Commissioner, T.C. Memo. 2002-190.

Section 6673(a)(1) provides:

Procedures instituted primarily for delay,
etc.--Whenever it appears to the Tax Court that--

(A) proceedings before it have been
instituted or maintained by the taxpayer
primarily for delay,

(B) the taxpayer’s position in such
proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably failed to
pursue available administrative remedies,
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the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not
in excess of $25,000.

Section 6673 is a penalty provision, intended to deter and

penalize frivolous claims and petitions. Cf. Bagby v.

Commissioner, 102 T.C. 596, 613-614 (1994). The purpose “is to

compel taxpayers to think and to conform their conduct to settled

principles before they file returns and litigate.” Takaba v.

Commissioner, supra at 295.

In this case, respondent did not move for summary judgment

or for a penalty, and the case was submitted fully stipulated.

Petitioners were specifically warned here, and taxpayers (and

their counsel) were warned in Pierson v. Commissioner, 115 T.C.

576, 581 (2000), and by the numerous subsequent cases, of the

likelihood of a penalty under section 6673 if they abused the

protections afforded by sections 6320 and 6330.

Petitioners in this case should be treated the same as

taxpayers similarly situated. They should not be treated the

same as taxpayers who abandon frivolous arguments before trial.

The Court takes judicial notice that, in three other cases on the

Cleveland calendar in which Mr. Jewett represented the taxpayers

in presenting frivolous claims in the petition, the taxpayers did

not pursue those claims at the time of trial. In two of those

cases, disposition was prior to trial by agreement of the

parties. In a third case, mentioned above, Mr. Jewett was
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withdrawn as counsel. The taxpayers who continue to pursue those

claims are not entitled to a free ride. We conclude that a

penalty of $5,000 against petitioners should be awarded to the

United States in this case.

It is particularly egregious for taxpayers to be aided in

pursuing frivolous claims by attorneys trained in the law. A

frivolous claim is one that is contrary to established law and

unsupported by a meritorious argument for change in the law.

See, e.g., Nis Family Trust v. Commissioner, 115 T.C. 523, 544

(2000); cf. Harper v. Commissioner, 99 T.C. 533, 548 (1992).

Attorneys who practice in this Court are bound by the ABA Model

Rules of Professional Conduct (Model Rules). Rule 201(a). Rule

3.1 of the Model Rules states in part:

A lawyer shall not bring or defend a proceeding,
or assert or controvert an issue therein, unless there
is a basis in law and fact for doing so that is not
frivolous, which includes a good faith argument for an
extension, modification or reversal of existing law.
* * *

Section 6673(a)(2) provides in part as follow:

Counsel’s liability for excessive costs.--
Whenever it appears to the Tax Court that any
attorney or other person admitted to practice
before the Tax Court has multiplied the
proceedings in any case unreasonably and
vexatiously, the Tax Court may require--

(A) that such attorney or other person
pay personally the excess costs, expenses,
and attorneys’ fees reasonably incurred
because of such conduct * * *
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Rule 33(b) provides:

(b) Effect of Signature: The signature of counsel
or a party constitutes a certificate by the signer that
the signer has read the pleading[s]; that, to the best
of the signer’s knowledge, information, and belief
formed after reasonable inquiry, it is well grounded in
fact and is warranted by existing law or a good faith
argument for the extension, modification, or reversal
of existing law; and that it is not interposed for any
improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of
litigation. The signature of counsel also constitutes
a representation by counsel that counsel is authorized
to represent the party or parties on whose behalf the
pleading is filed. * * * If a pleading is signed in
violation of this Rule, the Court, upon motion or upon
its own initiative, may impose upon the person who
signed it, a represented party, or both, an appropriate
sanction, which may include an order to pay to the
other party or parties the amount of the reasonable
expenses incurred because of the filing of the
pleading, including reasonable counsel’s fees.

Petitioners’ counsel here did not cite at any time the law

applicable to the stipulated facts of this case. He failed even

to read the cases cited to him by the Court before he submitted

the case. In recent cases, counsel for a taxpayer has been

ordered to pay the fees and costs of respondent’s counsel

incurred in responding to frivolous arguments. See Takaba v.

Commissioner, 119 T.C. at 296-305; Edwards v. Commissioner, T.C.

Memo. 2003-149. It seems particularly appropriate that counsel

should bear costs when his clients have been penalized. Cf.

Johnson v. Commissioner, 289 F.3d 452 (7th Cir. 2002), affg. 116

T.C. 111 (2001). In Edwards v. Commissioner, T.C. Memo. 2002-

169, we explained:
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All litigants, especially members of the bar who
have received training in law and professional
responsibility, are expected to read the cases cited
for the Court, to assure that those cases remain
current, and to advance only those legal arguments that
are warranted by existing law, by nonfrivolous argument
for its extension, modification, or reversal, or by the
establishment of new law. See, e.g., Fed. R. Civ. P.
11(b)(2); Coleman v. Commissioner, 791 F.2d 68, 72 (7th
Cir. 1986) (“The purpose of sections 6673 and 6702,
like the purpose of Rules 11 and 38 and of sec. 1927
[of 28 U.S.C.], is to induce litigants to conform their
behavior to the governing rules regardless of their
subjective beliefs. Groundless litigation diverts the
time and energies of judges from more serious claims;
it imposes needless costs on other litigants. Once the
legal system has resolved a claim, judges and lawyers
must move on to other things. They cannot endlessly
rehear stale arguments.”).

Mr. Jewett asserted, when the case was submitted, that he is

proceeding in good faith. His failure to consult or address the

established law renders his assertion untenable. Unlike counsel

in Takaba v. Commissioner, supra, and in Edwards v. Commissioner,

T.C. Memo. 2003-149, however, he did not extend these proceedings

by meaningless motions and other delays. (Perhaps that is why

respondent did not request a penalty in this case.) Determining

the amount of excessive costs in this case would require further

proceedings and would add to the delays already caused by the

frivolous arguments asserted by petitioners and Mr. Jewett.

Other grounds for sanctions might also be considered. Cf.

Matthews v. Commissioner, T.C. Memo. 1995-577, affd. without

published opinion 106 F.3d 386 (3d Cir. 1996); Leach v.

Commissioner, T.C. Memo. 1993-215. See generally Chambers v.
 - 15 -

NASCO, Inc., 501 U.S. 32 (1991); First Bank v. Hartford

Underwriters Ins. Co., 307 F.3d 501 (6th Cir. 2002).

We have decided not to extend these proceedings for the

purpose of imposing further sanctions, but Mr. Jewett and other

counsel are reminded of the consequences to them if they repeat

or persist in similar claims in the future. See also Martin v.

Commissioner, 756 F.2d 38, 41 (6th Cir. 1985), affg. T.C. Memo.

1983-473.

To reflect the foregoing,

Decision will be entered

for respondent.