Opinion
3:00-CV-2786-M.
November 16, 2001.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendants' Motion for Summary Judgment, filed on July 30, 2001, and Plaintiff's Motion for Summary Judgment, filed on October 29, 2001. For the reasons stated herein, the Plaintiff's Motion for Summary Judgment is DENIED and Defendant's Motion for Summary Judgment is GRANTED.
Introduction of Issues
Allison McCoy ("McCoy") has filed suit against the United States, claiming a refund of federal income taxes for tax years 1995-98. Additionally, McCoy has claimed damages from the IRS Director, Memphis, Tennessee; the IRS District Director, Austin, Texas; the Chief of Collections, Memphis, Tennessee; the Chief of Collections, Austin, Texas; Pam C. Bigelow, Director, Austin Customer Service Center; Nancy Sposter, Chief, Customer Service Division, Austin, Texas; and H. Gadday, Department of the Treasury, Austin, Texas.McCoy timely filed her 1995-97 tax returns. On February 20, 2000, McCoy filed a Form 1040X, Amended U.S. Individual Tax Return with a "cover letter" in which she outlined her basis for requesting a tax refund for 1995-97. On February 20, 2000, McCoy also submitted an untimely 1998 federal income tax return in which she claimed she earned no wages, and requested a refund of $2,749 in federal income tax withheld by her employer. McCoy asserted her wages are not income, but rather private earnings, and consequently claims they are not taxable.
On March 1, 2000, the IRS sent McCoy a notice that her 1998 tax return constituted a frivolous return. The IRS gave McCoy thirty days to file a corrected return. McCoy submitted the same form, in which she claimed she earned no wages, with a letter entitled "1998 Return." The letter argued her rights were being interfered with and the matter was being "neglected" and "poorly handled." On April 17, 2000, the IRS assessed a $500 frivolous return penalty against McCoy. On June 2, 2000, McCoy re-filed her Amended 1040X forms for 1995-97 and included a letter entitled "Amended Return Follow Up," in which she again argued her rights were being interfered with and the matter was being "neglected" and "poorly handled."
Analysis
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, the Defendants and Plaintiff move for summary judgment. Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the moving party is entitled to judgment. Kerr v. Lyford, 171 F.3d 330, 336 (5th Cir. 1999). "[T]he substantive law will identify which facts are material." Stucky v. City of San Antonio, 260 F.3d 424, 429 (5th Cir. 2001).
The moving party bears the initial burden of identifying those portions of pleadings and discovery in the record that they believe demonstrate an absence of genuine issues of material fact, but they are not required to negate elements of the nonmoving party's case. Edwards v. Your Credit Inc., 148 F.3d 427, 431 (5th Cir. 1998). Once the burden on the movant is met, the burden then shifts to the nonmovant to show, either by referring to evidentiary material in the record or by submitting additional evidence, that genuine issues of material fact exist. Kee v. City of Rowlett, Tex., 247 F.3d 206, 210 (5th Cir. 2001). The nonmovant must go beyond the pleadings and designate specific facts in the record showing that there are issues for trial. Moore v. Willis Indep. Sch. Dist., 233 F.3d 871, 874 (5th Cir. 2000). The record before the court must be considered in the light most favorable to the nonmovant. Taita Chem. Co. v. Westlake Styrene Corp., 246 F.3d 377, 385 (5th Cir. 2001). However, neither "conclusory allegations" nor "unsubstantiated assertions" will satisfy the nonmovant's burden. Id.
Both parties agree that Section 651(a) of the Tax Code provides that a claim for refund of overpayment of any tax must be filed within three years of the time the return is filed. McCoy should have filed her claim regarding 1995 taxes by April 15, 1999. She did not. McCoy concedes that a refund for 1995 taxes is barred by the statute of limitations.
McCoy argues she should not have to pay taxes for 1996-98 because under Code Section 3401 she was not an "employee," which she contends is defined as an elected or appointed employee or official of the federal government. McCoy clearly misconstrues Section 3401(c). The definition of "employee" includes private-sector employees, employees of the federal government, as well as elected and appointed officials. The very language of the Code is inclusive, not limited to the examples of included persons. Additionally, Treasury Regulation Section 31.3401(c)-1(a) states: "employee includes every individual performing services if the relationship between him and the person for whom he performs such services is the legal relationship of the employer and employee." Treas. Reg. § 31.3401(c)-1(a). McCoy was an employee of the United States during 1996 and 1997 when she was a Marine in the United States Marine Corps. In 1998, McCoy was an employee of Intermedia Communications Inc. and Point-to-Point Communications where she earned wages and performed services consistent with an employer-employee relationship.
26 U.S.C. § 3401(c) reads:
[T]he term `employee' includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term `employee' also includes an officer of a corporation.
Addressing this argument, the Seventh Circuit has said, "[t]his distorted analysis fully illustrates what should be rejected by would-be tax protesters." U.S. v. Davenport, 824 F.2d 1511, 1513 (7th Cir. 1987); see also Peth v. Breitzman, 611 F. Supp. 50, 53 (E.D. Wis. 1985) (plaintiff mistakenly assumes that this definition of `employee' excludes all other wage earners).
McCoy's next argument is that income, not wages, is used to assess taxes, and that wages and income are different. The argument is without merit. 26 U.S.C. § 3401(a) defines wages: "`wages' means all remuneration . . . for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash." 26 U.S.C. § 3401(a). Further, 26 U.S.C. § 61(a)(1) specifically states, "compensation for services" is included in gross income. Treasury Regulation Section 1.61-2(a)(1) states "[w]ages, salaries . . . pay of persons in the military or naval forces of the United States . . . are income to the recipients unless excluded by law."
The wages McCoy received in the United States Marine Corps during 1996 and 1997 are gross income subject to federal taxation. Similarly, wages she received in 1998 from Intermedia Communications Inc. and Point-to-Point Communications are part of gross income under Code Section 61(a)(1). Since McCoy received wages which constitute gross income, she is subject to federal income taxation for the 1996-98 tax years. If her overall adjusted gross income, including deductions, was negative, she would not be required to pay taxes, but otherwise she would.
McCoy further argues Texas is a foreign country. She asserts 26 U.S.C. § 7701(a)(31) excludes from gross income compensation earned in foreign countries, and thus her compensation while working in Texas is not gross income. Texas is not a foreign country, but that issue is irrelevant, since § 7701(a)(31) is limited to wages related to an "estate or trust," not effectively connected with the conduct of business in the United States. None of McCoy's wages relate to an "estate or trust" not effectively connected with the conduct of business in the United States.
McCoy incorrectly reads Murdock v. Pennsylvania, 319 U.S. 105 (1943), as supporting her contention that since working is a right protected by the Constitution, a State may not impose a charge for the enjoyment of that right. Murdock does address the right of persons to carry on interstate commerce. The Court noted that the State may "tax the property used in, or income derived from that commerce" but not tax the right to carry on interstate commerce. Id. at 1 13. Here, the United States is not taxing McCoy's right to work, but rather the income she receives from working. Murdock expressly sanctioned such a tax.
McCoy argues income tax is a direct tax on citizens' private earnings and are not properly apportioned as required by the Constitution. Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916), which McCoy cites, states the purpose of the Sixteenth Amendment was to authorize an income tax, and to exclude the source from which a taxed income was derived as the criterion by which to determine the applicability of the constitutional requirement as to apportionment of direct taxes. Id. at 11. The income taxes McCoy argues are unconstitutional fall directly under the taxes authorized by the Sixteenth Amendment.
McCoy cites no authority for her argument that the individual employees of the IRS are interfering with her property rights by failing to remit her refund. To the extent McCoy is suing these individuals in their official capacity, the suit must be treated as a suit against the United States. See State of Hawaii v. Gordon, 373 U.S. 57, 58 (1963). Sovereign immunity bars suits against the United States unless the United States has expressly consented to the suit. Conner v. Matthews, 134 F. Supp.2d 797, 799 (N.D. Tex. 2001). McCoy has not identified any cause of action arising with respect to the actions of the IRS employees, and therefore, McCoy has not asserted any basis for finding the United States consented to be sued. McCoy has not met the threshold required by Bivens v. Six Unknown Federal Agents, 403 U.S. 388 (1971), which, if satisfied, would allow her to recover money damages. The named IRS employees were not depriving McCoy of her constitutional right to property. The property McCoy claims they were depriving her of is not her private property. There is no constitutional deprivation by, and no right of damages against, the IRS employees.
Bivens requires a showing of (1) the existence of an express or implied agreement among the defendants to deprive someone of constitutional rights, and (2) an actual deprivation of those rights resulting from the agreement. Bivens, 403 U.S. at 396.
McCoy again cites no authority for her assertion that the United States is estopped from making arguments that oppose those contained in her letters and affidavits sent to the IRS. Equitable estoppel can rarely be asserted successfully against the government. U.S. v. Bloom, 112 F.3d 200, 205 (5th Cir. 1997). McCoy's affidavits were not requests for admissions, as there was no litigation going on at the time. McCoy was not entitled to require a response from the government to her baseless pre-litigation letters and affidavits. These arguments should not receive court sanction merely because the government ignored them.
McCoy, citing California Bankers Assoc. v. Schultz, 416 U.S. 25 (1974), and 26 U.S.C. § 7805, incorrectly argues the government has no authority to impose a civil penalty on plaintiffs. California Bankers is irrelevant in that it discusses the Secretary of Treasury's authority under the Bank Secrecy Act of 1970. California Bankers, 416 U.S. at 26. The Secretary of the Treasury has broad discretion to "prescribe all needful rules and regulations for the enforcement of this title." 26 U.S.C. § 7805. A civil penalty of $500 can be imposed on a frivolous income tax return. 26 U.S.C. § 6702(a). The IRS sent McCoy notice that her 1998 tax return constituted a frivolous return and gave her thirty days to file a corrected return. McCoy responded, but failed to file a corrected return for 1998.
McCoy has failed to state a legitimate refund claim for her 1996, 1997 and 1998 tax payments. Thus, the Plaintiff's Motion for Summary Judgment is DENIED and Defendants' Motion for Summary Judgment is GRANTED. This case is dismissed, with all costs taxed against the Plaintiff.
SO ORDERED.