ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Before: ADAMS, HIGGINBOTHAM and VAN DUSEN, Circuit Judges.
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
Taxpayer Emily Kahn appeals from summary judgment in favor of the United States in this tax penalty refund suit under 26 U.S.C. § 7422 (1982). She contests the assessment of a $500.00 civil penalty for filing a "frivolous income tax return," under 26 U.S.C. § 6702 (1982), summarily imposed as a result of her claiming a "war tax refusal" credit on her federal income tax return for 1982.
This controversy presents several important statutory and constitutional questions for this court's consideration, including whether Emily Kahn was properly subjected to the imposition of a civil penalty under the terms of 26 U.S.C. § 6702, and whether the imposition of the penalty violated Emily Kahn's first amendment right to freedom of speech. We believe, however, that the primary issue in this case is whether the due process clause of the fifth amendment requires that prior to the immediate imposition of a civil penalty, a taxpayer be afforded an opportunity for an administrative hearing in addition to the post-deprivation judicial review provided by the statute. 26 U.S.C. § 6703 (1982).
For the reasons that follow, we will affirm the decision of the district court.
As an appellate court reviewing the grant of a motion for summary judgment, we exercise plenary review. Our task is to determine whether there is no genuine issue as to any material fact in dispute and whether there is no genuine issue as to any material fact in dispute and whether the moving party, the United States, is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); In Re Japanese Electronic Products Antitrust Litigation, 723 F.2d 238, 257 (3d Cir. 1983). The parties here agree that the material facts are uncontroverted.
Emily Kahn filed an individual federal income tax return (Form 1040A) for 1982. She reported her adjusted gross income as $15,338.03 (lines 6-12), claimed a $25 charitable contribution deduction, a personal exemption of $1,000.00 and derived her taxable income of $14,313.03 (lines 13-16). She then calculated her tax of $2,175 from the table provided (line 19a). Line 19b, as set forth in the section of the form entitled "Tax, Credits and Payments", called for information as to the "Advance EIC payment (from W-2 (forms))." On line 19b, Emily Kahn crossed out the printed words and wrote "46% WAR TAX REFUSED ." She then subtracted this figure, $1,000.50 (i.e., 46% of $2,175.00), from the tax. Due to a $1.00 arithmetic error, the total tax liability on line 20 was reduced by the amount of $999.50 instead of $1,000.50, and the figure $1,175.50 rather than $1,174.50 was entered as the difference between $2,175.00 and $1,000.50. Since the return reported withholding in the amount of $2,296.94 (line 17b), Emily Kahn sought a refund, on line 21, in the amount of $1,121.44. Had she not sought the "war tax" refund, a $121.44 refund would have been due, the difference between $2,296.94 and $2,175.00. Appendix ("App.") at A.8.
Attached to the return was "An Open Letter to the IRS" stating the Emily Kahn was claiming a "War Tax Refusal Refund" equivalent to the estimate compiled by SANE (Citizen's Organization for a Sane World) of the proportion of her taxes to be applied by the United States government in 1983 to military expenditures. She suggested that the refund she was "demanding" by her return be sent directly to the "Conscience and Military Tax Campaign Escrow Account for a World Peace Tax Fund." She envisioned that the money would be held to collect interest and upon enactment of the World Peace Tax Fund Act, H.R. 4897, 97th Cong., 1st Sess., Cong. Rec. (daily ed. July 24, 1981), it would be returned to the Treasury to be included in a segregated portion of the taxes of conscientious objectors for non-military uses. App. at A.9.
The Internal Revenue Service ("the IRS") immediately assessed a $500.00 penalty against Emily Kahn pursuant to section 6702 for filing a "frivolous income tax return". She paid 15% of the penalty as required by section 6703(c) and as specified by the penalty notice. She then filed a claim for refund of the $75.00 portion of the assessed penalty of $500.00 (Form 843), stating:
I filed an accurate income tax return for the year 1982. It was complete and according to protocol except for one thing -- I requested a refund of $1000. in "war taxes" because I do not wish to pay to support the military policies of this administration. This was a symbolic gesture, as I did not expect the IRS to refund the $1000. In actuality, I am owed a small sum, however (I believe approximately $27.00 - I do not have a copy of my return.)
I was fined $500. for filing a "frivolous tax return." I contest, as I believe that this return was not, indeed, frivolous, but a peaceful and respectable political gesture, one I believe I have a right to make as a citizen of a country which permits freedom of speech. I do not intend to pay a $500.00 penalty, and am filing this claim for refund of my 15% payment enclosed. I would also like the money I was actually owed by the IRS.
The claim was disallowed by the Director of the Fresno, California, IRS Service Center for the reason that: "The claim is based on your view that certain laws are unconstitutional; only the courts have the authority to pass on such matters." App. at A.21.
On September 9, 1983, Emily Kahn brought this suit for refund in the United States District Court for the Eastern District of Pennsylvania, alleging that the assessment of $500.00 and the collection of $75.00 was "improper, illegal and erroneous." She asserted that her tax return did not violate section 6702 and that even if application of the provision was warranted, it "violates the United States Constitution." She sought a judgment, inter alia, abating the $500.00 penalty and refunding her $75.00 prepayment. App. at A.3 - A.4.
The United States filed a motion to dismiss, or in the alternative, for summary judgment, averring that Emily Kahn "asserted a frivolous position in her 1982 income tax return." App. at A.6. The government argued that the return came within section 6702(a)(1)(B) in that it contained "information that on its face indicates that the self-assessment is substantially incorrect." Moreover, the return implicated section 6702(a)(2)(A) because the "claiming of a war tax credit is frivolous." According to the government, section 6702 is constitutional and the penalty did not violate the first amendment because "the incidental suppression of speech . . . was justified . . . in order to maintain the integrity of the income tax system." App. at A.14.
Emily Kahn answered the government's motion and filed a cross-motion for summary judgment. She maintained that her tax return did not violate section 6702 and alternatively, even if section 6702 is deemed to apply, it is unconstitutional because it has the purpose and effect of limiting political speech. Plaintiff's Answer to Defendant's Motion to Dismiss Or, Alternatively, For Summary Judgment and Cross-Motion For Summary Judgment (E.D. Pa. No. 83-4406) at 3, 7. Judgment was entered in favor of the government from which the taxpayer now appeals.
During the pendency of these proceedings, collection of the balance of the penalty has been stayed pursuant to section 6703(c).
We must first decide whether section 6702 applies to the 1982 return filed because: (a) Emily Kahn's self-assessment was substantially incorrect and (b) her conduct was due to a position which is frivolous. Second, we must consider whether, even if the statute has been properly applied to her, it nonetheless violates her first amendment right to freedom of speech. Finally, we feel it necessary to discuss the procedural due process implications of the summary assessment and collection of this civil penalty without a prior administrative hearing.
By section 326(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, 96 Stat. 324, Congress provided for the immediate assessment of a civil penalty of $500.00 on "any individual [who] files what purports to be a return of [income tax]" after September 3, 1981 where (1) the document "does not contain information on which the substantial correctness of the self-assessment may be judged; " or it "contains information that on its face indicates that the self-assessment is substantially incorrect," 26 U.S.C. § 6702(a)(1)(B), and (2) such conduct arises either from "a position which is ...