Coleman v. Commissioner, T. C. Memo. 1987-196 (1987)

Frivolous tax arguments can lead to sanctions under section 6673 of the Internal Revenue Code.

Summary

In Coleman v. Commissioner, the Tax Court upheld sanctions against a taxpayer for repeatedly making frivolous arguments about the nature of income and the constitutionality of the tax code. The petitioner, Coleman, argued that wages of a married person in Texas were not income and sought to vacate a prior decision. The court found these arguments frivolous and previously rejected, imposing a $2,000 sanction under section 6673 for delaying proceedings and maintaining a groundless position. This case illustrates the court’s authority to penalize taxpayers for frivolous claims, emphasizing the need for valid legal arguments in tax disputes.

Facts

Petitioner Coleman resided in Slaton, Texas, and filed a petition challenging a notice of deficiency. At trial on December 2, 1986, Coleman stated he had no evidence to present, leading to the respondent’s motion to dismiss for failure to prosecute, which was granted. The court also awarded $1,000 in damages to the United States under section 6673 for Coleman’s frivolous arguments, including claims that the Internal Revenue Code was unconstitutional and that wages were not income. On April 23, 1987, an order and decision were entered incorporating the dismissal and the damages. Coleman later moved to vacate this decision, repeating the same frivolous argument about wages in Texas not being income.

Procedural History

Coleman’s case was initially heard on December 2, 1986, where the Tax Court dismissed the case for failure to prosecute and awarded $1,000 in damages to the U. S. under section 6673. On April 13, 1987, the court issued a memorandum opinion (T. C. Memo. 1987-196) detailing the frivolous nature of Coleman’s arguments. The court entered a final order and decision on April 23, 1987. Coleman then filed a motion to vacate, which led to this subsequent opinion, where the court upheld the prior decision and increased the damages to $2,000.

Issue(s)

1. Whether the Tax Court should vacate its prior decision dismissing the case and awarding damages under section 6673.
2. Whether additional damages should be awarded for Coleman’s motion to vacate based on the same frivolous arguments.

Holding

1. No, because Coleman’s motion to vacate was based on the same frivolous argument previously rejected by the court.
2. Yes, because Coleman’s motion to vacate was filed primarily to delay proceedings, warranting an additional $1,000 in damages under section 6673.

Court’s Reasoning

The Tax Court’s decision was grounded in section 6673, which allows for damages when a taxpayer’s position is frivolous or groundless and intended to delay proceedings. The court emphasized that Coleman’s arguments, including the claim that wages of a married person in Texas are not income, were frivolous and had been rejected in prior cases, including Stephens v. Commissioner. The court noted that Coleman’s motion to vacate was filed with the same frivolous argument, indicating an intent to delay. The court quoted, “The only possible purpose petitioner could have had in filing his motion to vacate was to delay the proceedings before this Court. ” This reasoning justified the original $1,000 sanction and an additional $1,000 for the motion to vacate.

Practical Implications

This case reinforces the Tax Court’s authority to sanction taxpayers for frivolous arguments under section 6673. Practitioners must advise clients against pursuing such claims, as they can lead to significant financial penalties. The decision highlights the importance of pursuing valid legal arguments and utilizing administrative remedies before resorting to court action. It also serves as a warning to taxpayers that repeated frivolous filings can result in increased sanctions. Subsequent cases, such as Takaba v. Commissioner, have cited Coleman to support sanctions for similar frivolous tax arguments.