925 F. 2d 1471 - United States v. Ferrel

MEMORANDUM**

The Ferrels failed to pay federal income tax returns for the years 1976 through 1982. The Commissioner of Internal Revenue assessed income tax deficiencies and penalties against these four taxpayers for each of those years. The Ferrels filed petitions with the United States Tax Court requesting relief from the Commission's decision. Upon review, the tax court dismissed the cases for failure to state a claim upon which relief can be granted, and sustained all of the deficiencies and penalties. Additionally, the tax court imposed damages of $5,000 against each couple. Pursuant to 26 U.S.C. Sec. 6673, such damages are appropriate where the action is brought "primarily for delay" or is "frivolous or groundless." The taxpayers did not appeal the tax court's decision.

The Ferrels have refused or neglected to pay these tax deficiencies, penalties and interest. On August 12, 1985, the Internal Revenue Service made assessments for these taxes and the United States acquired tax liens under 26 U.S.C. Sec. 6321 upon certain property and rights to property held by these taxpayers.

The United States filed these civil actions in the federal district court to obtain judgment and to foreclose these tax liens. The Ferrels, appearing pro se, filed a motion to dismiss for failure to state a claim upon which relief can be granted. This motion was based on their assertion that, as Idaho residents, they are exempt from paying federal income taxes.

The United States moved for summary judgment based upon res judicata principles. The case was referred to United States Magistrate Mikel Williams, who recommended that the government's motion for summary judgment be granted. The district court, "having made an independent review of the record, ... accept[ed] in their entirety, and adopt[ed] as its own, the findings made by Magistrate Williams." On May 31, 1990, the district court entered its judgment holding that Dwight Ferrel was indebted to the United States in the amount of $238,784, plus interest; that Dorothy Ferrel was indebted in the amount of $189,949, plus interest; that Glen Ferrel was indebted to the United States in the total amount of $199,340, plus interest; and that Louise Ferrel was indebted to the United States in the total amount of $150,663, plus interest. The judgment provided that the United States had valid liens on real property held by the Ferrels and ordered foreclosure. The Ferrels appeal.

* The defendants' tax liability cannot be disputed nor relitigated as it has already been determined by the tax court. "If a claim of liability or nonliability relating to a particular tax year is litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim and the same year." Commissioner of Internal Revenue v. Sunnen, 333 U.S. 598 (1948).

The government has submitted admissible certificates of assessment and payments which are presumptively correct. Welch v. Helvering, 290 U.S. 115 (1933). Since the defendants are liable for these taxes, the district court had the authority to order foreclosure on any property in which the defendants had an interest in order to facilitate collection of taxes due. 26 U.S.C. Sec. 7403.

The Ferrels argue that they are not required to file federal income tax forms and question the authority of the federal government to tax. The Ferrels' spurious argument is that they are not citizens of the United States because they are citizens of Idaho. It is their suggestion that their state and federal citizenship cannot be concurrent. As held by the magistrate, "these arguments are clearly without merit and require little analysis."

As noted in the magistrate's report and recommendation, the United States Supreme Court in Federated Department Stores, Inc. v. Moitie, 452 U.S. 394 (1981), held that "the doctrine of res judicata is not a mere matter of practice or procedure inherited from a more technical time ... it is a rule of fundamental and substantial justice 'of public policy and of private peace' which should be cordially regarded and enforced by the courts...." (Citations omitted.) Id. at 401.

The Ferrels were required to file income tax returns. Moreover, it is indisputable that the government has the requisite authority to impose taxes. The government is specifically empowered to enforce liens against real property in satisfaction of unpaid tax liabilities. 26 U.S.C. Sec. 6321.

The magistrate recommended summary judgment entered in favor of the government and the district court adopted that recommendation. The Ferrels' contentions are clearly without merit. The record supports the finding that the defendants failed to file income tax returns and have been duly adjudged deficient. Consequently, the liens may be properly foreclosed upon by the government.

The government urges this court to impose sanctions upon the taxpayers for bringing a frivolous appeal. The decision to impose sanctions is within the discretion of this court. This court may award damages including attorney fees and costs, against an appellant who has brought a frivolous appeal. Such sanctions are authorized under 28 U.S.C. Sec. 1912 and Rule 38 FED.R.APP.P., which provides that, in the case of frivolous appeals, a court of appeals may award just damages and single or double costs. See, e.g., Hudson v. U.S., 766 F.2d 1292 (9th Cir.1985).

The government argues that the Ferrels should be sanctioned because their position is groundless and obviously without merit. The government suggests these taxpayers have in bad faith abused the appeals process and further delayed the collection of their tax liabilities.

The government has a point. The income taxes for which the government has been attempting to collect are for the years 1976 through 1982. Nine years later, the Ferrels are still forestalling tax collection. "Some people believe with great fervor preposterous things which just happen to coincide with their self interest. 'Tax protestors' have convinced themselves that wages are not income, that only gold is money, that the Sixteenth Amendment is unconstitutional, and so on." Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir.1986). Penalties, however, may be imposed by appellate courts at their discretion, when these frivolous arguments are vehicles of delay and vexation. This court has imposed sanctions for frivolous appeals in other cases. Larson v. Commissioner, 765 F.2d 939, 942 (9th Cir.1985), Gattuso v. Pecorella, 733 F.2d 709, 710 (9th Cir.1984). The government urges this court to award damages and costs in the amount of $1,500. In support of this amount, they suggest using the rationale of Coleman v. Commissioner, supra:

Even $1,500 cannot cover the indirect costs of this litigation--including the cost that befall serious litigants, who must wait longer for their cases to receive judicial attention. ... [The appellants] could have avoided the penalty, and other people should avoid it, by the most minimal concern for settled rules. They knew or should have known that their claims are frivolous, and they (rather than their adversary) must pay the cost of their self-indulgent litigation.

Id. at 73.

As the government concedes, an award of $1,500 may not cover all the costs incurred by this frivolous appeal. Such an award, however, may deter future frivolous appeals and at least partially recompense the government.

This court affirms the decision of the district court. This appeal is frivolous and without merit. Consequently, sanctions in the amount of $1,500 will be imposed against each of the appellants individually.

AFFIRMED.