Tax Court Got No Splaining to Do But Splaining Anyway

Originally published on Passive Activities and Other Oxymorons on July 1st, 2011.
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Scott F. Wnuck v. Commissioner, 136 T.C. No. 24

Mr. Wnuck didn't think the Tax Court explained itself well enough when it ruled against him.  So the Court gave him a fairly elaborate explanation as to why it sometimes doesn't explain.  Here are some excerpts:

R determined a deficiency in P's 2007 income tax on the basis of wages that P did not report. At trial P admitted, “I exchanged my skilled labor and knowledge for pay”. In a bench opinion the Court held for R, ruled that P's arguments were frivolous, imposed on P a penalty of $1,000 pursuant to I.R.C. sec. 6673(a), and warned P that if he repeated his frivolous positions he faced the risk of a steeper penalty. After the Court entered decision, P moved for reconsideration on the grounds that the Court had not adequately addressed his arguments.

R is "Respondent" i.e. the IRS.  P is "Petitioner" i.e. Mr. Wnuck.

Courts confronting frivolous arguments against the constitutionality, validity, applicability, and mandatory character of the income tax often aptly quote Crain v. Commissioner, 737 F.2d 1417, 1417 [54 AFTR 2d 84-5698] (5th Cir. 1984), which stated, “We perceive no need to refute these arguments with somber reasoning and copious citation of precedent”. We take this occasion to explain why it is usually not expedient to discuss and refute in detail the frivolous arguments that some litigants attempt to press in the Tax Court, and why litigants who press such arguments are not entitled to and should not expect to receive opinions rebutting their frivolous arguments.
At trial the only issue was whether Mr. Wnuck received taxable income in 2007; and he frankly stated, “I do not dispute that I exchanged my skilled labor and knowledge for pay” . However, he explained, “I have come to believe that the— my earnings from the companies that I worked for did not constitute taxable income.”Mr. Wnuck did admit, however, that he is not trained in the law.

The Court both sustained the deficiency as determined by the IRS and imposed on Mr. Wnuck, pursuant to section 6673(a), a penalty of $1,000 for taking frivolous positions. The Court stated:

We take no pleasure in doing so, and we there[fore] impose a relatively modest penalty, given that we have the discretion to impose a penalty as high as $25,000. Mr. Wnuck should be aware, however, that if he should ever repeat his maintenance of frivolous tax litigation, he would stand in peril of a much steeper penalty. Undeterred, Mr. Wnuck has now filed a motion for reconsideration, in which he reasserts (1) his argument that his earnings are not taxable “wages”; (2) his argument based on provisions in title 27 of the Code of Federal Regulations; and (3) his argument about supposed errors in his “Individual Master File” maintained by the IRS—all three of which he had asserted at trial. Mr. Wnuck complains about the Court's characterization of his arguments as “frivolous”, especially since the Court did not separately discuss each argument: 

So why does the Court not always thoroughly explain why it is rejecting frivolous arguments ?

A.The number of potential frivolous anti-tax arguments is unlimited.

If one is genuinely seeking the truth, if he focuses on what is relevant, and if he confines himself to good sense and logic, then the number of serious arguments he can make on a given point is limited. However, if one is already committed to a position regardless of its truth, if he is willing to say anything, if he is willing to ignore relevance, good sense, and logic, and if he is simply looking for subjects and predicates to put together into sentences in ostensible support of a given point, then the number of frivolous arguments that he can make on that point is effectively limitless.

B. A frivolous anti-tax argument may be unimportant even to its proponent.

Experience shows that a given frivolous argument may have little actual importance to the person making it. Frivolous anti-tax arguments are often obviously downloaded from the Internet; and by cut-and-paste word processing functions, these arguments are easily plunked into a party's filing. In other instances a promoter of frivolous anti-tax arguments is feeding those arguments to a litigant who adopts them uncritically and submits them to the Court.
The frivolous argument, made from this position of witting and willful ignorance, seems to be merely an incidental ornament that adorns an article of faith—namely, the belief that I don't owe taxes. The tax defier firmly holds that postulate above and apart from any arguments. Anything in favor of that postulate may be advanced, no matter how silly; anything against it can be ignored. If a given frivolous argument is decisively rebutted, then it may or may not be retired; but even if the individual argument is retired, the cause is not abandoned. Thus, the specific argument hardly matters even to the litigant. 

C. Many frivolous anti-tax arguments have already been answered.

This Court and other courts have addressed and rejected many of the recurring frivolous anti-tax arguments, including (as is especially pertinent here) the general argument that wages are not subject to the income tax 4 and the particular argument that (1978), affd. 614 F.2d 159 [45 AFTR 2d 80-591] (8th Cir. 1980), this Court explained the fallacy of the argument that wages are not taxable income.
D. The litigant who presses the frivolous anti-tax argument often fails to hear its refutation.



E. Many frivolous anti-tax arguments are patently so. The fallacies of some frivolous arguments are gross and palpable

Held : P was not entitled to a Court opinion addressing his frivolous arguments, and his motion for reconsideration will be denied.

Here is an example of one of his arguments:

To resist paying income tax on his wages, Mr. Wnuck makes this frivolous argument: He points out that “wages” are remuneration for “employment”, see sec. 3121(a), that “employment” means service performed “within the United States”, see sec. 3121(b), and that "[t]he term `United States' when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa”, sec. 3121(e)(2) (emphasis added). Mr. Wnuck contends that the term “United States” therefore excludes everything else (such as the 50 States) and that his services performed in Pennsylvania (not in Puerto Rico, etc.) were not performed in the “United States” and therefore did not yield taxable wages. His argument fails for obvious reasons: a. “Includes” does not mean “includes only”.

Section 7701(c) provides that “includes” “shall not be deemed to exclude other things”. Anyone fluent in English knows that the word “includes” cannot be assumed to mean “includes only”—especially when such a meaning would have the ludicrous result of excluding from “United States” all 50 States. No tax research at all is necessary to conclude that Mr. Wnuck's position is frivolous. b. The cited statute does not apply.

So Mr. Wnuck has gotten the satisfaction of hearing the Tax Court explain why Pennsylvania is included as part of the United States. something we all know (I have to admit to having doubts about North Dakota, but that's a different story).  You need Pennsylvania though - Liberty Bell, Constitutional Convention, Philadelphia Cheese Steak Sandwiches.

I hope it was worth it to him.  It cost him 4 grand.

Mr. Wnuck then submitted a motion for leave to file a motion for reconsideration (which we treat as a motion to vacate the decision) and a separate motion for reconsideration. The motion to vacate will be granted, but the motion for reconsideration will be denied, and decision will again be entered in favor of the IRS and against Mr. Wnuck, but this time with an increased penalty of $5,000.