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KARPOWYCZ v. UNITED STATES

May 8, 1984

IHOR B. KARPOWYCZ, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

To obtain summary judgment, the government as movant must clearly establish the nonexistence of any genuine issue of material fact that is material to a judgment in its favor. Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir. 1979). Karpowycz is entitled to all reasonable inferences that can be made in his favor from the evidence presented. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962).

Karpowycz filed his Individual Income Tax Return ("1040") for calendar year 1982 in April 1983. Both his form 1040 and his 1982 wage and tax statement ("form W-2") disclose that he had income from wages, salaries, tips, etc. of $25,138.69 in 1982. His form W-2 establishes that his employer was the Sun Electric Corporation of Crystal Lake, Illinois. After listing his income from wages, salaries, tips, etc. on form 1040 as $25,138.69, Karpowycz altered Line 29 of the form 1040 to read "NON-CONSTRUCTIVE RECEIPT", and entered $23,404.77 in that space. This left him with a total income of $2,048.75 for calendar year 1982. After claiming his $1,000 personal exemption, Karpowycz claimed a taxable income of $1,048.75, thus enabling him to report a total tax of $0.

On July 20, 1983, the IRS notified Karpowycz that his purported return failed to contain information as required by law, and did not comply with Internal Revenue Code Requirements. The IRS requested that Karpowycz file a proper return. Karpowycz subsequently filed a purported amended return form 1040 which listed $1,733.92 as wages, salaries, tips, etc. on Line 7, was altered to read "ONLY CONSTRUCTIVELY REC'D $'S, IF ANY". Karpowycz attached to his amended return a copy of form W-2 issued by Sun Electric Corporation, again indicating wages in the amount of $25,138.69 for 1982. He also attached a copy of IRS Form 1087-DIV for 1982, declaring that he is a "nominee-agent" for "PROFESSIONAL & TECHNICAL SERVICES (a TRST). c/o AMERICAN DYNAMICS CORP.", and reported an amount of $23,404.77 as non-taxable distributions. The amount he reported as wages, salaries, tips, etc. on this amended 1040 ($1,733.92) represents the difference between the amounts reported on his form W-2 ($25,138.69) and the IRS Form 1087-DIV ($23,404.77).

Based on Karpowycz's filing of his original and amended returns, the IRS assessed a frivolous return penalty in the amount of $500 pursuant to 26 U.S.C. § 6702. Karpowycz has paid 15% of the penalty, or $75, and has perfected his right to review under 26 U.S.C. § 6703.*fn1

Whether Karpowycz filed a frivolous tax return is a question of law. See United States v. Moore, 627 F.2d 830, 834 (7th Cir. 1980). The government has the burden of proving that any penalties assessed are justified. 26 U.S.C. § 6703.

According to 26 U.S.C. § 6702:

(a) Civil penalty. — If —

      (1) any individual files what purports to be
    a return of the tax imposed by subtitle A but
    which —
      (A) does not contain information on which the
    substantial correctness of the self-assessment
    may be judged, or
      (B) contains information that on its face
    indicates that the self-assessment is
    substantially incorrect; and
      (2) the conduct referred to in paragraph (1)
    is ...

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