Davis v. United States Government (742 F.2d 171, 1984)

PER CURIAM-

, „„„„ , In April 1983, taxpayers Melvin and Maria Davis filed a Form 1040 (individual income tax return) for their 1982 taxable year. Taxpayers claimed four exemptions and itemized deductions of $6,946. They reported no income, however, from “wages, salaries, [or] tips,” nor any other “gross income,” even though the four Forms W-2 from their employers in 1982 that were attached to the return indicated they had received in excess of $60,000 in wages or other compensation for that year.

Instead, taxpayers claimed a business loss of $3,551. They calculated this loss by reducing the amount of gross receipts by the “cost of labor” (an amount equal to the amounts of wages and other compensation shown on the Forms W-2) and by the costs of “materials and supplies” (in amounts ranging up to $40). In addition, taxpayers claimed deductions for “car and truck expenses” and “laundry and cleaning.”

The IRS determined that the return fell within the “frivolous return” penalty provisions of 26 U.S.C. § 6702 and accordingly assessed the $500 penalty provided by the statute. Pursuant to 26 U.S.C. § 6703(c), taxpayers paid 15% of the assessed penalty and filed a claim for refund. After their claim was denied, they timely filed a suit for refund, additionally seeking a refund of $33,444 in taxes paid by them from 1979 through 1982 and $50,000,000 in damages for “mental and physical suffering.” The district court granted the government’s motion for summary judgment. From this judgment taxpayers appeal.

F

The IRS may impose a $500 penalty on any individual who files “what purports to be” a tax return when such return (1) contains information that on its face indicates that the self-assessment is substantially incorrect, and (2) is based on a frivolous p0Siti0n. 26 U.S.C. § 6702. The return filed here by taxpayers clearly constitutes a return falling within these provisjons

First> taxpayers’ Form 1040, on its face, indicates that the self-assessment is substantially incorrect. The attached Forms W-2 demonstrate that taxpayers earned over $60,000 in wages during 1982. The return, however, failed to include any of the wages in gross income,

Second, taxpayers’ reasons for failing to include the income are clearly frivo*ous anc* have been rejected by us time and time a£ain- For example, taxpayers contend that the income tax is an excise tax applicable only against special privileges an