McNalley v. United States, 1985 WL 6365 (N.D.Ohio)

United States District Court, N.D. Ohio, Eastern Division.

Anne K. McNally, Plaintiff

v.

United States of America, Defendant.

Civil Action No. C84-2328

ALDRICH, District Judge.

Memorandum and Order

Anne K. McNally was assessed a $500 civil penalty under 26 U. S. C. §  6702 for filing what the Internal Revenue Service ("IRS") deemed to be a frivolous income tax return.   In a complaint filed on July 25, 1984, she enlisted in the army of tax protesters who have challenged the penalty statute, which was added to the Internal Revenue Code of 1954 ("the Code") by §  326(a) of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA").   In adjudicating prior actions, federal courts have rejected each objection McNally voices against the IRS and the statute.   Finding their reasoning persuasive, this Court denies McNally's motion for partial summary judgment, grants summary judgment to the government, and dismisses the complaint. [FN1]

Jurisdiction rests on 28 U. S. C. §§  1340 and 1346 and 26 U. S. C. §  6703.

I.

Fed. R. Civ. P. 56(c) governs summary judgment motions and provides:

. . . The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. . . .

In reviewing summary judgment motions, this Court must view the evidence in the light most favorable to the nonmoving party to determine whether a genuine issue of material fact exists.  Adickes v. S. H. Kress & Co., 398 U. S. 144 (1970);  Hasan v. CleveTrust Realty Investors, Inc., 729 F. 2d 372 (6th Cir. 1984).  "[T]he party seeking summary judgment must conclusively show that there exists no genuine issue of material fact and that the movant is entitled to judgment as a matter of law."  Bender v. Southland Corp., 749 F. 2d 1205, 1210 (6th Cir. 1984) (citing Smith v. Hudson, 600 F. 2d 60, 63 (6th Cir.), cert. dismissed, 444 U. S. 986 (1979) (emphasis in original).

II.

The facts set forth in the record are not disputed.   Anne McNally is a taxpayer who for nearly two decades has supplemented her tax returns with written notes, letters, poems and newspaper clippings and frequently has crossed out the jurat before signing and dating the return.   She has also penned a number of angry letters to IRS officials.   For years, the IRS apparently processed her returns despite the striking of the jurat.

When she completed her IRS Form 1040A for tax year 1982, McNally made a number of handwritten alterations on the form.   For example, she (a) scribbled out the entire section concerning donation of $1 to the Presidential Election Campaign Fund (and declined to contribute to the fund);  (2) informed the IRS:  "You owe me $26.00 from 1981.   You didn't send me my refund.  . . . Now you owe me only $1.00+ Please send it";  and (3) inquired of the IRS, "What % of income in taxes is Reagan's constituency actually paying?"   Most significantly, she drew two wavy lines through the entirety of the jurat, which reads "I have read this return and any attachments filed with it.   Under penalties of perjury, I declare that to the best of my knowledge and belief, the return and attachments are correct and complete."   McNally then signed and dated the return.  Approximately thirty-five days after her return was filed, McNally received a refund.

In a notice dated April 9, 1984, the IRS informed McNally that she had been "assessed a [$500] penalty under section 6702 of the Internal Revenue Code for filing a frivolous income tax return."   McNally retained counsel, paid fifteen percent of the fine (a prerequisite for contesting the penalty), requested a hearing on the penalty, and gave to the IRS a list of reasons why her claim for a refund of the penalty should be allowed.   The IRS regional office in Cincinnati, Ohio disallowed her claim without a hearing.   Its director informed McNally that:

. . . This penalty was asserted because you struck through the jurat (under penalty of perjury statement) on Form 1040A filed for the period ended December 31, 1982.   An alteration to the jurat has the effect of converting the document from a valid return to a document insufficient to constitute a valid return.

The letter also informed McNally of her right to commence an action in federal court.

III.

The complaint and McNally's various memoranda on the pending motions contain a laundry list of statutory and constitutional challenges to the §  6702 penalty.

A. "Frivolous Return" Under TEFRA.  Title 26 U. S. C. §  6702 provides:

(a) Civil Penalty.  -If-

(1) any individual files what purports to be a return of the tax imposed by subtitle A but which- 

(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or 

(B) contains information that on its face indicates that the self-assessment is substantially incorrect;  and

(2) the conduct referred to in paragraph (1) is due to- 

(A) a position which is frivolous, or 

(B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500. 

(b) Penalty in Addition to Other Penalties.  -The penalty imposed by subsection (a) shall be in addition to any other penalty provided by law.

McNally contends first that returns such as hers were not the target of TEFRA, which was aimed at "tax protesters" -a group from which she claims to be excluded because she "did not assert a right not to pay tax, and she did not deliberately refuse to comply with the internal revenue statutes." Plaintiff's Memorandum in Support of Cross Motion for Partial Summary Judgment and in Opposition to Defendant's Motion to Dismiss or for Summary Judgment at 7.

The government's reply is that Congress painted with a broader brush. S. Rep. No. 494, 97th Cong., 2d Sess. 277, 277-78, reprinted in 1982 U. S. Code Cong. & Admin. News 781, 1024,

. . . provides four examples of instances in which the Section 6702 penalty applies.   First, the penalty may be assessed when a purported return appears to be an IRS Form 1040, but contains "altered or incorrect descriptions of line items or other provisions."   Second, the penalty applies with respect to a return or purported return in which "many or all of the line items are not filled in, except for spurious constitutional objections."   Third, a return or purported return which contains insufficient information by which to calculate the tax, or contains inconsistent information, or otherwise reveals a frivolous position or a desire to impede the tax laws is subject to the penalty. Finally, the Section 6702 penalty can "be imposed against any individual filing a 'return' showing an incorrect tax due, or a reduced tax due, because of the individual's claim of a clearly allowable deduction."

 This case involves the type of purported tax returns discussed in the Senate Report's first and third examples quoted above.   The plaintiff's purported 1982 return is a return which contains altered provisions, which contains insufficient information by which to judge the substantial correctness of the plaintiff's self-assessment, and which otherwise reveals a frivolous position and a desire to impede the administration of the tax laws.

Green v. United States [85-1 USTC P 9142], 593 F. Supp. 1341, 1343 (N. D. Ind. 1984);  Memorandum of the Defendant in Support of Its Motion to Dismiss or for Summary Judgment at 4-5.   This application of §  6702 to returns from which the jurat has been stricken is persuasive.   McNally's attempt to distinguish her case from the examples cited in the Senate Report by suggesting that a return has been improperly "altered" only when "modified" but not when a crucial provision has been "struck" is totally unconvincing.

McNally then suggests that she could not have filed a frivolous tax return because she did not enunciate her reasons for striking the jurat, and thus provided no indication of possessing frivolous intent.   A district court in this circuit has previously disposed of this argument:

. . . §  6702 does not say anything about a taxpayer's state of mind. This is not a criminal statute requiring a criminal intent to make out a violation.   Plaintiff's state of mind is irrelevant to an assessment of the penalty.

Cannon v. United States, 83-2 U. S. Tax Cas. (CCH) P 9699, at 88,501 (E. D. Mich. Nov. 9, 1983).

McNally's final contention concerning interpretation of §  6702 is that her return, even without a jurat, contains all the information necessary for determining the substantial correctness of her tax liability.   This insubstantial contention ignores both the requirements of 26 U. S. C. §§ 6061 and 6065 [FN2] and the fundamental governmental policies those statutes implement.   The court in Johns v. United States, 84-2 U. S. Tax Cas. (CCH) P 9899, at 85,750 (D. N. H. Dec. 12, 1984) observed:

It is clear that a return not signed under penalty of perjury is not a valid return and is accordingly not able to be processed.Cupp v. Commissioner [CCH Dec. 33,459], . . . 65 T. C. 68, 79 (1975) aff'd without opinion, 559 F. 2d 1207 (3rd Cir. 1977). . . .

Returns not signed in accordance with law and regulations are subject to penalty, and it does not matter that the IRS accepts unsigned returns and that tax is fully paid. Fowel v. Commissioner [CCH Dec. 17,970(M)], T. C. M. [P-H] P50,281 (1950).   By failing to sign his 1982 Form 1040 the plaintiff submitted a frivolous return.   Without his signature, the purported tax return was not certified and valid.   The IRS was unable to calculate the taxpayer's liability or judge the substantial correctness because the return was not properly verified.   Plaintiff's action delayed and impeded the administration of the tax laws.   Plaintiffs purported income tax return for 1982 fits within Section 6702 definition of a frivolous claim.   The assessment of the $500 penalty under Section 6702 was proper.

See also Green v. United States, 593 F. Supp. at 1347;  see generally  United States v. Moore, 627 F. 2d 830, 834 (7th Cir. 1980), cert. denied, 450 U. S. 916 (1981);  Lucas v. Pilliod Lumber Co. [2 USTC P 521], 281 U. S. 245 (1930).   McNally's affidavit stating that she did not desire to interfere with tax collection or processing hardly rewrites governing law or renders her filing nonfrivolous.

B. Other Statutory Claims.   The complaint asserts that assessment of §  6702 penalties "violates the Freedom of Information Act [("FOIA")] 5 U. S. C. §  552, and the Administrative Procedure Act, 5 U. S. C. §  706, because it is based upon unpublished agency guidelines."   Elaborating on this argument in her brief, McNally claims that if the penalty was imposed under IRS regulations interpreting §  6702, such regulations should have been published, whereas a failure to draft and implement such regulations left individual IRS employees free to impose penalties based on unguided, unrestrained, and unexplained determinations.   It is undisputed that no published regulations interpret §  6702.

Like its former colleague Judge Duncan, "the Court is somewhat at a loss to understand the nature of this argument.   It would be absurd to suggest that absent the promulgation and publication of administrative guidelines interpreting a statute, such a statute is unenforceable.  . . . The plaintiff [] [was] assessed a penalty directly pursuant to the language of the statute. No administrative guidelines were necessary prior to assessment of that penalty."   Hummon v. United States, 84-1 USTC P 9494 at 84,264 (S. D. Ohio May 1, 1984).   Nor does the absence of a published interpretive regulation demonstrate a violation of the Freedom of Information Act.  "Publication of an administrative interpretation is not required when '(1) only a clarification of existing laws or regulations is expressed;  and (2) no significant impact upon any segment of the public results.'   Both criteria are met here." Franklet v. United States [84-1 USTC P 9151], 578 F. Supp. 1552, 1558 (N. D. Cal. 1984) (citations omitted).   Consistent with its view that McNally's conduct was a clear violation of the statute, this Court does not believe that internal guidelines directing IRS employees to assess a penalty against her are within the scope of §  552.   In addition, as in Fink v. United States, 84-2 USTC P 9722 at 85,094 (D. N. H. July 10, 1984), the record is devoid of evidence that McNally has "complied with the regulations describing the application procedures for a FOIA request."

C. Constitutional Claims.   The complaint voices the following constitutional law contentions:  (1) that §  6702 "violates plaintiff's rights under the First Amendment . . . to freedom of speech, and the right to petition government for redress of grievances";  (2) that §  6702 "does not give notice of the conduct prohibited and has been applied here in an arbitrary and capricious manner, thus violating plaintiff's right to due process . . . ";  (3) that IRS procedures "in assessing the penalty violated by plaintiff's rights to procedural fairness guaranteed by the Fifth Amendment"; and (4) that §  6702 "violated plaintiff's right to equal protection of the laws under the Fifth Amendment . . . by subjecting her to a penalty not imposed on other similarly situated individuals."   These arguments have been consistently rejected by other courts.   A sampling of their holdings follows.

1. Freedom of Speech.   Judge Duncan's opinion in Hummon neatly summarizes the untenability of a First Amendment challenge to §  6702:

The Court does not dispute the paramount importance of the First Amendment right to free speech and expression.   However, the First Amendment's protection of speech is not absolute and not all forms of expressive conduct can be defended on First Amendment grounds.  . . . Moreover, the government can enforce reasonable time, place and manner restrictions which "are content- neutral, are narrowly tailored to serve a significant government interest, and leave open ample alternative channels of communication."  . . .

Even if the plaintiffs' conduct in this case is viewed as protected First Amendment activity, . . . this Court has little difficulty concluding that there is a compelling government interest which overrides any indirect effect this statute may have on First Amendment activity. 

The statute's legislative history, and indeed the entire history of the federal income tax system, demonstrate that the effective functioning of that system is impaired by the filing of frivolous tax returns such as the one at bar. . . . 

Since there is a compelling government interest in maintaining the integrity and effectiveness of the revenue system, . . . conduct which impairs the effectiveness of that system may be regulated.   The statute in question is both content neutral and narrowly tailored to serve legitimate, compelling government objectives.

84-1 USTC at 84,264-65.

2. Right to Petition for Redress of Grievance.   The government directs this Court's attention to Milazzo v. United States [84-1 USTC P 9167], 578 F. Supp. 248 (S. D. Cal. 1984).   Addressing a suggestion similar to the one raised here, that court aptly stated:

This argument is the height of silliness.   Plaintiffs appeared before this tribunal for the very purpose of seeking redress for the fines imposed upon them.   There is no sense in which their First Amendment rights have been abridged.

Id. at 253.

3. Due Process.   McNally's due process claim challenges the supposed vagueness of the statutory prohibition against "frivolous" tax returns, the alleged lack of specificity of the original penalty notice issued by the IRS, and the IRS decision declining her request for a hearing.

Franklet v. United States discussed the vagueness issue in detail:

Plaintiffs contend that the indeterminacy of the words "frivolous" and "selfassessment" renders §  6702 void for vagueness.   The claim cannot be supported.   All due process requires is a definition of the infraction "in terms that the ordinary person exercising ordinary common sense can sufficiently understand and comply with. . . ."  Civil Serv. Comm'n v. National Ass'n of Letter Carriers, 413 U. S. 548, 579 . . . (1973).   That standard is met here.

With respect to the term "frivolous," its interpretation and application will in most cases be beyond dispute.   In those cases, a taxpayer exercising the common sense of an ordinary person will know or have reason to know that the reductions he or she proposes are, as Congress defines the term, "clearly unallowable," see S. Rep. . . . at 278, reprinted in [1982] U. S. Code Cong. & Ad. News at 1024, or as the dictionary defines it, "hav[e] no basis in law or fact," Webster's Third New International Dictionary 913 (unabridged ed. 1971).  "[T]he general class of offenses to which the statute is directed is plainly within its terms, [and it] will not be struck down as vague, even though marginal cases could be put where doubts might arise."  United States v. Harriss, 347 U. S. 612, 618 . . . (1954).

578 F. Supp. at 1557. See also Lutz v. United States [84-2 USTC P 9735], 53 A. F. T. R. 2d P 84-368 at 84-519 (E.D. Mich. Dec. 6, 1983).   As noted in Part III-A, supra, a return not signed under penalty of perjury is not a valid return, cannot be processed, and is clearly within the definition of "frivolous" under §  6702 and its legislative history.   The vagueness challenge is without merit.

The constitutionality of IRS procedures in assessing §  6702 penalties has been affirmed in a number of opinions, including Fink v. United States:

Plaintiffs suggest that they were entitled to more detailed explanation of the reason by way of notice as to why the penalty was to be applied to them. This argument overlooks the fact that the notices here furnished were consistent with the provisions of 26 U. S. C. §  6703, which mandates the procedure the IRS is to follow in the assessment of penalties and which provides that the procedures normally required in deficiency or penalty assessments are inapplicable to such penalties.   As 26 U. S. C. §  6703 provides no requirements with respect to form or specificity of notice, and as the notice which plaintiffs here received recited the assessment of penalty, the taxable year for which it was assessed, and the statutory basis for such assessment, I find and rule that due process required no more. . . .

Nor is there merit to the argument of plaintiffs that due process is wanting because of lack of hearing prior to penalty assessment.   It has long been established that where only property rights are involved, the mere postponement of judicial inquiry does not deny due process if the opportunity given for ultimate judicial determination of liability is adequate.  . . . There is no showing of irreparable harm here demonstrated by the paying of a nominal sum of money, and so long as plaintiffs have been afforded the opportunity, as here, to litigate in a judicial forum, they cannot complain of the lack of pre- assessment hearing. . . .

84-2 USTC at 85,093 (citations omitted).

4. Equal Protection.   McNally contends that §  6702 "offends the Equal Protection Clause" by establishing "a classification of individuals based on their exercise of the fundamental right of free speech."   This Court agrees with the Fink court that, notwithstanding plaintiff's unsuccessful attempt to invoke the First Amendment, §  6702 as an income tax statute should be analyzed under a "rational relationship" rather than a "strict scrutiny" test. See generally Plyler v. Doe, 457 U. S. 202 (1982);  San Antonio Independent School District v. Rodriguez, 411 U. S. 1 (1973); Dandridge v. Williams, 397 U. S. 471 (1970).   As Fink noted, "the congressional concerns which caused enactment of this legislation were amply detailed in the legislative history," 84-2 USTC at 85,094, and those concerns constitute multiple reasonable justifications for the categorization of unsworn tax returns as frivolous filings subject to a $500 penalty.

McNally's related contention is that she is a victim of selective prosecution.   In light of Wayte v. United States, - U. S. -, 105 S. Ct. 1524 (1985), and United States v. Schmucker, - U. S. -, 105 S. Ct. 1860 (1985), vacating and remanding Schmucker v. United States, 721 F. 2d 1046 (6th Cir. 1983), this argument has become untenable.

IV.

McNally urges this Court to ignore the "spate of cases" which have rejected challenges to §  6702 penalty assessment, to "engage[] in a more detailed analysis of both the facts and the law," and to hold that a tax return filed without certification as to its accuracy is not frivolous.   Plaintiff's Memorandum at 2.   As indicated by its extensive citation of previous cases, this Court is neither impressed by McNally's arguments nor inclined to reinvent the wheel to articulate the same cogent points already made by a score of federal judges.

McNally's motion for partial summary judgment is denied.   The government's motion for summary judgment is granted.   The complaint is dismissed, with prejudice, at plaintiff's costs.

IT IS SO ORDERED.

Order

The court has filed its memorandum and order denying plaintiff's motion for partial summary judgment and granting defendant's motion for summary judgment. Therefore, pursuant to Rule 58, Federal Rules of Civil Procedure,

IT IS ORDERED that the complaint is hereby dismissed, with prejudice, at plaintiff's costs.

Footnotes:

FN1 The government's pleading is a motion to dismiss or for summary judgment.   Because "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56 . . ."  Fed. R. Civ. P. 12.

FN2 Title 26 U. S. C. §  6061 provides:

Except as otherwise provided by sections 6062 and 6063, any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall be signed in accordance with forms or regulations prescribed by the Secretary. 

Title 26 U. S. C. §  6065 provides:

Except as otherwise provided by the Secretary, any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury.