Rhodes v. CIR

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
United States Court of Appeals
Fifth Circuit
F I L E D
October 4, 2005
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 04-61161
Summary Calendar
_______________________
ALEX B. RHODES, Jr.,
Petitioner-Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE
Respondent-Appellee,
Appeal from the United States Tax Court
United States Tax Court Docket Number 11158-01
_________________________________________________________________
Before JONES, BARKSDALE, and PRADO, Circuit Judges.
PER CURIAM:*
Alex B. Rhodes, Jr. pro se appeals the United States Tax
Court’s judgment for the Commissioner of Internal Revenue and
accompanying order that Rhodes pay an income tax deficiency of
$27,928.00 for 1998 and $28,547.00 for 1999; an additional tax of
$6,982.00 for 1998 and $7,048.25 for 1999 for failure to file a tax
return under 26 U.S.C. § 6651(a)(1); an additional tax of $1,277.94
for 1998 and $1,362.51 for 1999 for underpayment of estimated tax

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under 26 U.S.C. § 6654; and a penalty of $2,000.00 for the filing
of a frivolous petition under 26 U.S.C. § 6673(a)(1)(B). We
AFFIRM. The Commissioner moves for damages of $6,000.00 pursuant
to 28 U.S.C. § 1912 and FED. R. APP. P. 38. Rhodes in turn moves for
sanctions against Commissioner in the amount of $8,000.00 pursuant
to 28 U.S.C. § 1912 and FED. R. APP. P. 38. We AFFIRM the judgment
of the Tax Court, GRANT the motion of the Commissioner and DENY the
motion of Rhodes.
I. BACKGROUND
In 1998 and 1999, Rhodes, a U.S. citizen, resided in
Texas and received wage income from various consulting and
engineering jobs. Including investment income, Rhodes earned
$110,138 in 1998 and $110,826 in 1999. In both years, however,
Rhodes claimed to be exempt from federal income tax on the W-4
forms he submitted to employers. As a result, no federal income
tax was withheld from Rhodes’s wages in 1998 and 1999, and Rhodes
did not file federal income tax returns for either year.
II. ISSUES
As an initial matter, Rhodes claims that he cannot be found in
deficiency without there first being an assessment against him.
Second, Rhodes claims that he owed no tax for 1998 and 1999 because
wages paid to American citizens within the United States are not
taxable income, nor are such wages income in the “constitutional
sense.” Third, Rhodes claims that additional taxes against him are

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inappropriate, as he was within statutory exceptions to liability.
These arguments are contrary to established law and are without
merit.
III. DISCUSSION
A. Issues on Appeal
We review the factual findings of the Tax Court for clear
error, and its conclusions of law de novo. Cook v. Comm’r.,
349 F.3d 850, 853 (5th Cir. 2003).
Rhodes first contends that an assessment must precede
deficiency. This court has reached the opposite conclusion. State
Farm Life Ins. Co. v. Swift, 129 F.3d 792, 800 n.41 (5th Cir.
1997)(“An assessment is not a prerequisite to tax liability.”)
(quoting Moran v. United States, 63 F.3d 663, 666 (7th Cir. 1995).
That the Commissioner had not made an assessment against Rhodes
does not preclude a deficiency finding.
The claim that wages and investment income are somehow
exempt from federal taxation is a tired one, and has been
repeatedly rejected. In Lonsdale v. Comm’r., 661 F.2d 71, 72 (5th
Cir. 1981), this court labeled such claims “meritless,” “stale,”
and “long settled.” See also Capps v. Eggers, 782 F.2d 1341, 1343
(5th Cir. 1986)(such a claim is “manifestly and patently
frivolous”). The Constitution grants Congress the power to tax
“incomes. . . from whatever source derived . . . .” U.S. CONST.
AMEND. XVI. The federal income tax is to be imposed upon every

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citizen and resident of the United States. 26 U.S.C. § 1. Taxable
income is gross income less allowable deductions. 26 U.S.C. § 63(a). For tax
purposes, gross income is “all income from whatever source
derived.” 26 U.S.C. § 61(a). Indeed, “Congress supplied no
limitations as to the source of taxable receipts.” Comm’r. v.
Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473 (1955). Wages
and investment income are unquestionably part of Rhodes’s taxable
income, and the Tax Court’s finding of deficiency was proper.
The assessment of additional taxes against Rhodes was
similarly proper. An additional tax may be imposed for failure to
file a return, 26 U.S.C. § 6651(a)(1), and an additional tax may also be assessed for
underpayment of estimated tax. 26 U.S.C. § 6654(a). Under 26 U.S.C. § 7491(c),
the Commissioner bears the burden of proof for showing that
additional taxes are appropriate. Here, that burden is easily met,
as Rhodes concedes that he did not file a tax return for 1998 or
1999, and that with the exception of $354 withheld in 1999, he made
no tax payments in either year. In response to the Commissioner,
Rhodes produces no evidence beyond his misguided interpretation of
U.S. tax law, and therefore cannot demonstrate reasonable cause for
his actions. Rhodes’s reliance on frivolous legal claims does not
excuse his failure to file a tax return. Brittingham v. Comm’r.,
66 T.C. 373, 415 (1976), aff’d 598 F.2d 1375 (5th Cir. 1979). He
further offers no credible evidence that he falls within the
exceptions to 26 U.S.C. §§ 6651, 6654. As there is no clear error

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by the Tax Court, its assessment of additions was appropriate in
both instances.
The Tax Court’s imposition of a $2,000 penalty against
Rhodes under 26 U.S.C. § 6673 is reviewed for abuse of discretion.
Sandvall v. Comm’r., 898 F.2d 455, 459 (5th Cir. 1990). A claim is
“frivolous” under 26 U.S.C. § 6673(a)(1)(B) if “it is contrary to
established law and unsupported by a reasoned, colorable argument
for change in the law.” Coleman v. Comm’r., 791 F.2d 68, 71 (7th
Cir. 1986). Rhodes’s case is based upon frivolous claims that are
contrary to relevant statutes and case law, and Rhodes has
continued to assert these claims even after being made aware of
their frivolousness on several occasions. In light of the waste of
court resources caused by Rhodes, a $2,000 penalty was certainly
within the Tax Court’s discretion.
B. Motions
Commissioner now seeks sanctions against Rhodes for his
frivolous appeal. This court may impose “just damages and single
or double costs to the appellee.” FED. R. APP. P. 38. Damages are
appropriate when an “appeal is baseless, presents no colorable
claim of error, and raises repeatedly rejected contentions.”
Knoblauch v. Comm’r., 749 F.2d 200, 202 (5th Cir. 1984).
Similarly, this court may award “just damages...and single or
double costs” for delay caused by appeal. 28 U.S.C. § 1912.
Rhodes’s appeal is founded upon the repeatedly rejected contentions

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that wages are not taxable and that assessment is required prior to
deficiency. He offers no colorable claim of error. In spite of
being told throughout his trial that his claims were frivolous, and
being sanctioned by the Tax Court, Rhodes nevertheless brought this
appeal, recycling the same frivolous arguments. A lump sum
sanction is appropriate in this case, Parker v. Comm’r., 117 F.3d.
785, 787 (5th Cir. 1997), and $6,000.00 is a reasonable amount.
Rhodes’s cross motion for sanctions against the Tax Court
and Commissioner is impermissible under FED. R. APP. P. 38 and 28
U.S.C. § 1912, as he is the party appealing the judgment of the Tax
Court. It should be further noted that Commissioner, unlike
Rhodes, raised valid legal arguments at trial, and thus Rhodes is
without support for sanctions.
CONCLUSION
For the foregoing reasons, the decision of the tax court is
AFFIRMED, Commissioner’s motion for damages under Fed. R. App. P.
38 is GRANTED, and Rhodes’s motion for sanctions is DENIED.

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