Routledge v. Dept. of Rev.

No. 7 April 9, 2020 103

IN THE OREGON TAX COURT

REGULAR DIVISION

Robert ROUTLEDGE,

Plaintiff,

v.

DEPARTMENT OF REVENUE,

Defendant.

(TC 5344)

On cross-motions for summary judgment in this personal income tax case,

Plaintiff asserted that the renumeration from his employer was not “wages” for

federal income tax withholding purposes because his employer was not a public

employer. Defendant argued that Plaintiff’s earnings were subject to Oregon per-

sonal income tax and sought penalties, including the False Return with Intent

to Evade Tax penalty under ORS 314.400(6)(b). The court rejected Plaintiff’s

arguments and held that Plaintiff owed the tax. The court then determined that

the false return penalty applies if a taxpayer falsely prepares and files a return

with a purpose of using specious or fallacious arguments to avoid a tax the tax-

payer knows is owed. The court held that the penalty applied in this case because

(1) Plaintiff understood that he owed the tax when he filed a return with zero

Oregon income tax liability; and (2) his arguments were wholly illogical and

objectively unreasonable.

Submitted on cross-motions for summary judgment.

Robert Routledge, Plaintiff, filed the cross-motion pro se.

Daniel Paul, Senior Assistant Attorney General, Depart-

ment of Justice, Salem, filed the motion for Defendant

Department of Revenue.

Decision for Defendant rendered April 9, 2020.

ROBERT T. MANICKE, Judge.

I. INTRODUCTION

This matter comes before the court on the parties’

cross-motions for summary judgment regarding Plaintiff’s

personal income tax liability for tax year 2016.

II. FACTS

Plaintiff’s Form W2 (Wage and Tax Statement)1

for 2016 from his employer, VTech Communications, Inc.

1

Unless otherwise indicated, references to forms are to federal income tax

forms published by the Internal Revenue Service (IRS).

104 Routledge v. Dept. of Rev.

(VTech), indicates that VTech paid Plaintiff $129,967.23 in

“wages, tips, other compensation.” VTech withheld no fed-

eral or Oregon income tax, presumably at Plaintiff’s direc-

tion pursuant to a Form W4,2 but it did withhold $9,231.52

in federal Social Security and Medicare taxes.3 On or about

February 13, 2017, Plaintiff wrote a letter to the IRS stating

that the Form W2 he had received from VTech was erro-

neous because VTech “is not engaged in a ‘trade or busi-

ness’ defined as performing the functions of a public office

- IRC 7701(a)(26).” When Plaintiff filed his federal income

tax return for 2016, dated April 17, 2017, Plaintiff included

a Form 4852 (Substitute for Form W2) purporting to cor-

rect the Form W2 from VTech by reporting $0 in wages,

with the explanation that Plaintiff disputed having received

any “ ‘wages’ as defined in IRC § 3401(a) and IRC § 3121(a)”

because he did not “perform any services in the course of a

‘trade or business’ as defined [in] IRC § 7701(a)(26).” On his

federal return Plaintiff reported that he had $0 in income,

and he claimed a refund of the $9,231.52 that VTech had

withheld in Social Security and Medicare taxes, although he

characterized that amount as “Federal income tax withheld.”

(Emphasis added.) On or about October 30, 2017, the IRS

issued Plaintiff a full refund of the $9,231.52 requested. The

record does not indicate whether the IRS has since sought

to recover the refund of Social Security and Medicare taxes

or asserted a deficiency of federal income tax based on the

absence of any withholding of that tax. Plaintiff reported on

his Oregon tax return that he had $0 in taxable income for

2016.

2

The Form W4 for 2016 allowed an employee to control the amount of income

tax withholding from his or her wages (including eliminating withholding) by

adjusting the number of personal allowances claimed (such as for dependents) or

by claiming exemption from income tax withholding, and by delivering the form,

signed under penalty of perjury, to the employee’s employer. See https://www.irs.

gov/pub/irs-prior/fw4—2016.pdf (accessed Apr 1, 2020).

3

Federal law imposes Social Security and Medicare taxes at fixed percentage

rates multiplied by the amount of wages. In general, the employer is directly lia-

ble for one set of such taxes, and the employer must also collect an equal amount

of such taxes from the employee by withholding them from wage payments to the

employee. In contrast to income tax withholding, the employee cannot adjust the

amounts of Social Security or Medicare taxes that the employer must withhold.

See IRC § 3101 (imposing taxes on employee); IRC § 3111 (imposing taxes on

employer).

Cite as 24 OTR 103 (2020) 105

Defendant audited Plaintiff’s 2016 Oregon personal

income tax return and issued its findings and a notice of

deficiency on August 7, 2017. Defendant concluded that

Plaintiff’s federal taxable income for 2016 was $129,967.23;

that his Oregon taxable income was $127,812; and that

Plaintiff owed $11,292 in Oregon personal income tax.

Defendant also imposed penalties for substantial under-

statement, intent to evade, and filing a frivolous return.

On September 4, 2017, Plaintiff filed a written objec-

tion. Defendant responded to the written objection on

September 18, 2017, and issued a Notice of Assessment pur-

suant to ORS 305.265 on September 25, 2017.4 Plaintiff con-

tested the Notice of Assessment in the Magistrate Division,

which issued a final decision denying Plaintiff’s appeal and

imposing a penalty of $1,000 under ORS 305.437.

III. ISSUES

(1) Is Plaintiff’s remuneration from his employer

income?

(2) Are penalties and attorney fees justified?

IV. ANALYSIS

A. Is Plaintiff’s remuneration from his employer income?

Plaintiff’s position is that the remuneration he

received from his employer for services is not income for

federal income tax purposes and thus for Oregon personal

income tax purposes. Plaintiff acknowledges that he per-

formed services for VTech, which he describes as an “elec-

tronics manufacturer” that is not a public employer. He

acknowledges that the money VTech paid to him is “[r]emu-

nerations” for his services. He relies on the following legal

arguments:

1. Plaintiff’s argument under IRC section 3401(a)(11)

Plaintiff claims that his remuneration is excepted

from the definition of “wages” for federal income tax

4

References to the Oregon Revised Statutes (ORS) are to the 2015 edition.

References to the “IRC” or the “Code” are to the Internal Revenue Code as in

effect for 2016. References to “sections” refer to provisions of the Code or, in con-

text, to federal Treasury Regulations promulgated pursuant to the Code.

106 Routledge v. Dept. of Rev.

withholding purposes because his employer is not a public

employer.5 Under IRC section 3401(a)(11), “ ‘wages’ means all

remuneration * * * for services performed by an employee for

his employer, * * * except that such term shall not include

remuneration paid * * * for services not in the course of

the employer’s trade or business * * *.” Under IRC section

7701(a)(26), the term “trade or business” “includes the per-

formance of the functions of a public office.” Plaintiff argues

that IRC section 7701(a)(26) excludes from the definition of

“trade or business” any item that is not in the “same general

class” as a public office. From there, Plaintiff argues that “a

private enterprise is not within the class of a public office”;

therefore, a private enterprise (i.e., Vtech) does not engage

in a “trade or business.”

Plaintiff’s argument fails because it misses the

larger point that, regardless of whether his remuneration

fits within the federal definition of “wages,” it is nonethe-

less income and thus subject to Oregon personal income

tax. Under federal law, wages are only one possible source

of “income,” which is defined broadly as “all income from

whatever source derived.” IRC § 61(a)(1). The definition of

“income” goes on to include “[c]ompensation for services

* * *.” Id.; see also Treas Reg § 1.61-2 (defining “compensa-

tion for services”). Plaintiff acknowledges that the payments

he received from VTech are “remuneration” for his services.

Based on the plain meaning of the terms, “remuneration”

is synonymous with “compensation,” and Plaintiff does not

argue otherwise. See Webster’s Third New Int’l Dictionary

1921 (unabridged ed 2002) (Webster’s Third).6 Plaintiff’s pay

5

The Code contains separate definitions of “wages” for the various federal

employment taxes. The definition for income tax withholding purposes is in

IRC section 3401(a). The definition for Social Security and Medicare tax pur-

poses is in IRC section 3121(a). See also IRC § 3306(b) (definition under Federal

Unemployment Tax Act).

6

In a similar vein, Plaintiff also cites IRC section 6041(a) in arguing that his

compensation is not income. That statute governs annual “information report-

ing” on IRS Form 1099 and provides:

“All persons engaged in a trade or business and making payment in the

course of such trade or business to another person, of rent, salaries, wages,

premiums, annuities, compensations, remunerations, emoluments, or other

fixed or determinable gains, profits, and income (other than payments to

which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or 6050N(a) applies, and

other than payments with respect to which a statement is required under the

Cite as 24 OTR 103 (2020) 107

from VTech during 2016 is income to him under federal law,

and therefore also for purposes of Oregon personal income

tax. See ORS 316.022(6) (Oregon taxable income determined

by reference to federal taxable income).

Plaintiff’s argument also fails on its own terms

because the definition of “trade or business” does not begin

and end with IRC section 7701(a)(26). IRC section 7701(c)

provides: “The terms ‘includes’ and ‘including’ when used

in a definition contained in this title shall not be deemed to

exclude other things otherwise within the meaning of the

term defined.” Subsection (c) thus requires the court to include

within the meaning of a “trade or business” an employer’s

activities that are “otherwise” within the meaning of “trade

or business.” Plaintiff describes Vtech as an “electronics man-

ufacturer” and refers to it as a “private enterprise.” Plaintiff

nowhere asserts that Vtech’s activities are outside the defi-

nition of a trade or business in the ordinary meaning of the

term; he asserts only that IRC section 7701(a)(26) must be

read narrowly to exclude a private enterprise from the defini-

tion of “trade or business” as used in IRC section 3401(a)(11).

Based on subsection 7701(c), Plaintiff is wrong.

2. Plaintiff’s other arguments on the merits

Plaintiff also makes arguments under IRC sec-

tion 3121(a)(7)(A) and Treas Reg section 31.3121(b)4. Those

provisions have no bearing on whether Plaintiff’s remuner-

ation constitutes income for Oregon personal income tax

purposes because they do not “relat[e] to federal income

taxes” as required by ORS 316.012. In defining Oregon

authority of section 6042(a)(2), 6044(a)(2), or 6045), of $600 or more in any

taxable year * * * shall render a true and accurate return to the Secretary

* * * setting forth the amount of such gains, profits, and income, and the name

and address of the recipient of such payment.”

By its terms, section 6041(a) merely requires persons in a trade or business to

report certain forms of payments. It does not purport to define “income,” and it

lists only certain specific kinds of payments that must be reported. The provi-

sion also expressly excludes large classes of payments, such as wages paid and

payments aggregating less than $600, and a regulation under section 6041(a)

excludes payments to most corporations. See Treas Reg § 1.6041-3(p)(1). Given

the many items to which section 6041(a) does not apply, the fact that only persons

engaged in a trade or business are required to file Form 1099 does not support

Plaintiff’s argument that only payments from a person engaged in a trade or

business are income to the recipient.

108 Routledge v. Dept. of Rev.

taxable income, Oregon applies “the various provisions of the

Internal Revenue Code relating to the definition of income.”

ORS 316.007(2) (emphasis added). Section 3121 of the Code

is part of the Federal Insurance Contributions Act, which

imposes Social Security and Medicare taxes. As noted,

those taxes are measured exclusively by “wages” and not by

taxable “income.” Plaintiff’s references to section 3121 of the

Code and related Treasury Regulations do not help his case.

Plaintiff argues that the IRS “affirmed that the

remunerations received from Vtech Communication did not

constitute ‘wages’ or any other taxable income in multiple

written determination notices.”7 If this were true, it would

not matter, because IRS determinations in an individual

case are not binding on this court. See, e.g., Dept. of Rev.

v. U-Haul Co. of Oregon, 20 OTR 195, 208-11 (2010). But

Plaintiff also exaggerates the import of the two communica-

tions from the IRS on which he relies for this argument.

The first communication is a Notice of Adjusted

Refund on IRS Form CP12, dated October 30, 2017. The

notice states: “We believe there’s a miscalculation on your

2016 Form 1040, which affects the following area of your

return: * * * We made changes to your return that correct

this error. As a result, you are due a refund of $9,231.52.”

Elsewhere on the same page, the notice shows $0 after the

phrase “Tax you owed.” These formulaic statements tell the

court nothing about the IRS’s reasoning and have no persua-

sive value. When the IRS pays out a refund shortly after a

taxpayer files a return, the IRS has the benefit of periods of

multiple years to recover the refund, including an unlimited

period if the taxpayer has filed a false or fraudulent return

with the intent to evade tax. IRC § 6501(a) (general three-

year period of assessment, starting with filing of return);

IRC § 6501(c) (no limitations period if intent to evade tax).

The IRS also has significant collection tools, including

certain rights to claim priority as against other creditors.

See generally Boris I. Bittker & Lawrence Lokken, Federal

Taxation of Income, Estates and Gifts ¶ 113 (3rd ed 2019).

7

The court reads the quoted language as an indication that Plaintiff under-

stands that the concepts of “wages” and “income” are separate, and that wages

are only one type of income.

Cite as 24 OTR 103 (2020) 109

The fact that the IRS chose to accept Plaintiff’s claim at face

value, at least as of late 2017, tells the court nothing about

the IRS’s view of the claim’s validity.

The second communication on which Plaintiff relies

is even less helpful to the court. The IRS issued Plaintiff

a letter dated December 27, 2016, informing him that his

claim for a refund for the tax year 2012 was time-barred.

Nothing in the record tells the court on what basis Plaintiff

claimed a refund for 2012, but whatever the reason, the IRS

never reached it because the IRS concluded that Plaintiff

had made the request too late. Thus, the letter cannot rea-

sonably be read to have anything to do with Plaintiff’s argu-

ment in this case.

The court concludes that none of Plaintiff’s sub-

stantive arguments against Defendant’s assessment of tax

have merit. The court sustains the assessment of tax.

3. Procedural arguments

Plaintiff claims that he received no lawful “assess-

ment,” apparently relying on a position that an Oregon notice

of assessment is invalid unless it is signed and otherwise com-

plies with the requirements of Treas Reg section 301.62031.

Defendant issued a Notice of Assessment dated September 25,

2017. Plaintiff does not allege that the notice fails to comply

with Oregon law, and the court is not aware of any Oregon

law or rule that requires a notice of assessment to be signed.

Cf. Dept. of Rev. v. Faris, 345 Or 97, 190 P3d 364 (2008)

(rejecting taxpayer’s argument that notice of deficiency was

defective because not signed). Plaintiff overlooks the fact

that Oregon does not automatically incorporate federal tax

administrative or procedural requirements. See Allison v.

Dept. of Rev., 11 OTR 431, 434-35 (1990).

Plaintiff argues that there is a dispute of material

fact that precludes summary judgment. However, Plaintiff

cites only legal arguments, and the court sees no material

fact in dispute.

Citing no authority, Plaintiff claims that the doc-

trine of “estoppel” “warrants the waiver of any penalty and

interest” because Defendant took a year to issue its deter-

mination. The court is not authorized to waive penalties or

110 Routledge v. Dept. of Rev.

interest, and there is no evidence that Plaintiff has applied

for a waiver from Defendant.

B. Penalties and Attorney Fees

The court now turns to the various additional

amounts that Defendant claims against Plaintiff: the pen-

alties for substantial understatement of tax (ORS 314.402),

intent to evade tax (ORS 314.400(6)), and filing a frivolous

return (ORS 316.992); the penalty under ORS 305.437; and

attorney fees under ORS 20.105(1). All of these additional

impositions require the court to undertake some analysis

of the reasonableness of Plaintiff’s position. Overall, as dis-

cussed above, the court concludes that Plaintiff’s arguments

are wholly unreasonable. His substantive arguments depend

entirely on statutes that do not define “income”: (1) IRC section

3401, a withholding tax statute that defines “wages” (which

even Plaintiff acknowledges is only a subset of income); IRC

section 6401(a), a Form 1099 statute that likewise applies

only to certain subsets of income; and (3) Social Security and

Medicare tax statutes that do not define income for federal

income tax purposes, let alone for Oregon income tax pur-

poses. Plaintiff’s proffered definition of “trade or business”

is a distraction created by his selective reading of portions

of IRC section 7701. The elaborate nature of Plaintiff’s argu-

ments does not disguise their complete lack of logic. The court

now discusses each additional amount that Defendant seeks.

1. Substantial understatement of tax (ORS 314.402)

The 20 percent penalty for substantial understate-

ment of tax8 under ORS 314.402 is mandatory9 if a tax-

payer other than a C corporation or a personal holding cor-

poration understates the taxpayer’s net tax by more than

a stated amount, in this case, $2,400. See ORS 314.402(2).

However, an understatement is reduced to the extent that

the taxpayer either (a) had “substantial authority” for the

8

Defendant at one point erroneously refers to the 20 percent penalty under

ORS 314.402 as a penalty for “understatement of income,” presumably reflect-

ing an earlier version of the statute that measured the penalty by gross income

rather than the amount of tax. See Or Laws 2015, ch 32, § 1.

9

See ORS 314.402(1) (“there shall be added to the amount of tax required to

be shown on the return a penalty equal to 20 percent of the amount of any under-

payment of tax attributable to the understatement” (emphasis added)).

Cite as 24 OTR 103 (2020) 111

position or (b) had a “reasonable basis” for the position and

“adequately disclosed” the relevant facts on the return. See

ORS 314.402(4)(b). Thus, a taxpayer must show at least a

“reasonable basis” for the position in order to achieve any

reduction of the substantial understatement penalty. As the

analysis above shows, Plaintiff’s position is so lacking in

basic logic that the court must conclude that Plaintiff had

no reasonable basis for reporting taxable income of $0 on his

Oregon return for 2016.

2. False return with intent to evade tax (ORS 314.400

(6)(b))

The 100 percent penalty under ORS 314.400(6)(b) is

mandatory if the taxpayer filed a “falsely prepared” return

with an “intent to evade tax.”10 The court is not aware of deci-

sions of the Oregon Supreme Court or of this division of the

Tax Court that analyze this penalty, including its statutory

predecessors discussed below. Defendant seems to assume

that the penalty requires behavior constituting fraud and

asserts that Plaintiff’s sudden decision to report income of

zero after years of filing correct returns in reliance on a

frivolous legal argument indicates fraud. Plaintiff defends

on the grounds that he corresponded openly with the taxing

authorities and never concealed his position. (“All material

correspondences and replies with both the department and

the IRS were submitted and accepted into evidence, and cov-

ered under my personal testimony. The record and evidence

clearly show there was no intent to hide, conceal, or evade

any tax.”) He asserts further that Defendant bears the bur-

den of proof as to each element of this penalty and that he is

entitled to a “presumption of innocence until proven guilty.”

The court first determines the elements that must

be present for this penalty to apply, then the standard and

burden of proof. The court begins by examining the text of

the statute in context, along with any relevant legislative

history. See State v. Gaines, 346 Or 160, 171-72, 206 P3d

1042 (2009). ORS 314.400(6)(b) provides:

10

See ORS 314.400(6) (“A penalty equal to 100 percent of any deficiency

determined by the department shall be assessed and collected if * * * [t]here is a

failure to file a report or return with intent to evade tax; or [a] report or return was

falsely prepared and filed with intent to evade the tax.” (Emphases added.)).

112 Routledge v. Dept. of Rev.

“A penalty equal to 100 percent of any deficiency[11] deter-

mined by the department shall be assessed and collected

if:

“* * * * *

“(b) A report or return was falsely prepared and filed

with intent to evade the tax.”

a. Text analysis

The text requires the acts of preparing a return

falsely and filing the return, along with a mental state of

intent to evade the tax. The court has determined above

that Plaintiff’s return is false, and there is no dispute that

it was filed. The dispute is about the meaning of “intent to

evade.” The statute does not define any part of the statutory

sentence as a phrase, nor does it define any term separately.

The court, therefore, must first determine whether the legis-

lature intended to use a “technical term.” See, e.g., Comcast

Corp. v. Dept. of Rev., 356 Or 282, 296, 337 P3d 768 (2014).

If not, the court must determine the plain meaning of the

words the legislature chose. Both of these tasks require

the court to decide the date or dates when the legislature

adopted this language so that the court can determine the

plain meaning from sources contemporaneous with that

adoption. See id. at 295-96 & n 7 (consulting contemporane-

ous dictionaries).

(1) Reference date or dates to determine tech-

nical or plain meaning

The court starts with the most recent enactment,

on which Defendant relies, and concludes by working back-

ward in time that the provision at issue originated in 1929,

with a significant modification in 1951. The law in effect

for 2016, ORS 314.400(6)(b), was enacted in 1981; however,

the legislative history indicates nothing about the meaning

11

The court emphasizes that the penalty amount is 100 percent of the defi-

ciency. The deficiency is the additional amount that Defendant has determined

a taxpayer owes, over and above whatever the taxpayer has paid through with-

holding or other means. Without minimizing the import of this penalty, the court

notes that the amount is not 100 percent of a taxpayer’s net income, as is some-

times mistakenly understood. Nor is the penalty 100 percent of a taxpayer’s total

tax liability unless, as here, the taxpayer has elected no withholding and has not

made quarterly estimated tax payments or other payments.

Cite as 24 OTR 103 (2020) 113

of the term or terms, except that the legislature intended

to borrow the entire provision verbatim from ORS 305.265,

which the legislature left in place as a parallel provision.12

See former ORS 314.400(3)(b) (1981), renumbered as ORS

314.400(6)(b) (2007); ORS 305.265(13). ORS 305.265(13), in

turn, was enacted in 1977, but the legislative history indi-

cates that the legislature viewed that provision as simply a

recodification of a provision enacted in 1951 and codified in

1953 as ORS 315.605(2)(b). The 1951 provision was materi-

ally identical to the 1981 text:

“Penalties shall be imposed as follows:

“* * * * *

“(b) If the return was falsely prepared and filed with

intent to evade the tax imposed by this Act, 100 percent of

the deficiency.”

Or Laws 1951, ch 554, § 1; OCLA 110-1621(b). However, the

1951 language contained only one material difference from

text adopted in 1929, when the legislature first conceived

the personal income tax and the corporation excise tax. The

1929 text applicable to the personal income tax read:

“If the understatement [of income] is false or fraudulent,

with intent to evade the tax, the tax on the additional

income discovered to be taxable shall be doubled and an

additional 1 per cent per month or fraction of a month shall

be added.”

Or Laws 1929, ch 448, § 21; Oregon Code, title LXIX, ch 15,

§ 69-1521(4) (1930) (emphasis added); see also Or Laws 1929,

ch 427, § 21; Oregon Code, title LXIX, ch 13, § 69-1321(d)

12

The 100 percent penalty in ORS 305.265(13) applies to a wide range

of taxes for which a return or report is required. ORS 305.265(1) (“Except as

provided in ORS 305.305, the provisions of this section apply to all reports or

returns of tax or tax liability filed with the Department of Revenue under the

revenue and tax laws administered by it, except those filed under ORS 320.005 to

320.150.”). By contrast, the 100 percent penalty in ORS 314.400(6)(b) applies only

to income taxes and to any other taxes that incorporate the administrative provi-

sions of income tax law. See, e.g., ORS 403.230(1) (applying the provisions of ORS

chapters 305, 314, and 316 to the tax for emergency communications). Although

these two penalties overlap conceptually, they do not cumulate in amount. See

ORS 305.992(2) (“total amount of penalties imposed for any taxable year under

* * * ORS 305.265(13) [and] 314.400 * * * may not exceed 100 percent of the tax

liability”); see also OAR 150-305-0214(2).

114 Routledge v. Dept. of Rev.

(1930) (identical text applicable to corporation excise tax).

The 1929 legislature referred the newly adopted personal

income tax act to the voters, including the penalty provi-

sion, and the voters adopted it in 1930. See Official Voters’

Pamphlet, General Election, Nov 4, 1930, 26, 32, 62. Thus,

the words “false[ ] * * * with intent to evade the tax” have

been in place since 1929, and the legislative history of later

reenactments contains nothing indicating an intention to

assign any specific new meaning to the words.

(2) Technical meaning analysis

It is conceivable that the legislature in 1929 (and

the people in 1930) may have had in mind a technical mean-

ing for the complete phrase “false or fraudulent, with intent

to evade the tax.” As of those years, the Internal Revenue

Code contained nearly identical language in the penalty

and limitations period provisions, and the 1929 legislature

clearly was aware of the federal law, as evidenced by the

statutory requirement to attach a copy of the taxpayer’s

federal return when filing an Oregon return. See Or Laws

1929, ch 448, § 35 (“Every taxpayer shall, upon request of

the commission, furnish a copy of the return for the corre-

sponding year, which he has filed or may file with the federal

government of the United States * * *.”); Oregon Code, title

LXIX, ch 15, § 69-1535(4) (1930); 26 USC § 2293(b) (1925

& Supp. II 1928) (“Fraud. –If any part of any deficiency is

due to fraud with intent to evade tax, then 50 per centum of

the total amount of the deficiency * * * shall be so assessed

* * *.” (Emphasis added.)). However, the court concludes that

the Oregon legislature in 1951 departed from any such

technical meaning when it changed the phrase by dropping

any reference to “fraud.” None of the surviving materials

documenting the legislative history from the 1951 change

indicates any intent to use any portion of the new text as a

technical term.13

13

The Internal Revenue Code, meanwhile, has preserved virtually the same

phrase. See IRC § 6501(c) (referring to “a false or fraudulent return with the

intent to evade tax”). A body of federal case law has developed interpreting the

phrase as used in federal law, but those cases generally rely on the entire phrase,

including the term “fraudulent.” See, e.g., Neely v. Comm’r, 116 TC 79, 86 (2001)

(citing Parks v. Comm’r, 94 TC 654, 664-65 (1990) (looking at taxpayer’s behavior

to determine whether his understatement of income was a product of “fraudulent

intent”)). Because the Oregon Legislature changed the Oregon statute in 1951,

Cite as 24 OTR 103 (2020) 115

(3) Plain meaning analysis

Having identified no technical meaning, at least

after the 1951 law change, the court will consider dictionary

definitions of “intent” and “evade” that are contemporaneous

with the 1929 enactment, then test for any material change in

plain meaning by consulting dictionaries available through

1981. Because both terms have established legal meanings,

and also are used in ordinary writing, the court starts with

contemporaneous legal dictionaries. See, e.g., Dept. of Rev.

v. Croslin, 345 Or 620, 628, 201 P3d 900 (2009) (looking to

Black’s Law Dictionary for definition of “damages”). The 1933

edition of Black’s defines “intent” to mean

“[p]urpose; formulated design; a resolve to do or forbear a

particular act; aim; determination. In its literal sense, the

stretching of the mind or will towards a particular object

* * *.”

Black’s Law Dictionary 993 (3d ed 1933). The edition of The

Oxford English Dictionary published closest to 1951 defines

“intent” as

“[t]he act or fact of intending or proposing; intention, pur-

pose (formed in the mind) * * * [i]ntent or assiduous effort,

endeavor[,] * * * [d]esign, plan, project, scheme.”

The Oxford English Dictionary 377-78 (2d ed 1933).14 The

1934 edition of Webster’s defines “intent” as

“[a]n intending or purposing; also, that which is intended

or purposed * * * hence, design; purpose * * * [f]rame of

mind; understanding * * * import; significance; the purpose

this court must proceed carefully before treating federal cases as persuasive

authority in interpreting the 100 percent penalty statutes in Oregon law. In this

matter, the court sees no need to consider federal cases.

14

Dictionaries published after 1951 but before 1981 use similar words to

define “intent.” See The American Heritage Dictionary 682 (1st ed 1969) (“intent”

means “[t]hat which is intended; aim; purpose * * * [t]he state of mind operative

at the time of an action * * * [m]eaning; purport * * * [f]irmly fixed; concentrated

* * * [h]aving the attention applied; engrossed * * * [h]aving the mind fastened

upon some purpose”). A later edition of Black’s defines “intent” to mean “[d]esign,

resolve or determination upon which a person acts” adding that “intent” * * * [is]

rarely susceptible of direct proof, but must ordinarily be inferred from the facts.

It presupposes knowledge. * * * A mental attitude which can seldom be proved by

direct evidence, but must ordinarily be proved by circumstances from which it

may be inferred. * * *” Black’s Law Dictionary 727 (5th ed 1979).

116 Routledge v. Dept. of Rev.

or purport which gives intelligibility * * * [e]ndeavor; effort

directed to accomplishment.”

Webster’s New International Dictionary 1292 (2d ed,

unabridged 1934) (Webster’s Second). See Webster’s Third at

1176 (defining “intent,” in part, to mean “design or purpose

* * * an end or object proposed”).15 Inclusion of the word “pur-

pose” across all three sources suggests that the legislature

in 1929, the public in 1930, and the legislature thereafter

all would have understood the term “intent” to mean that

the taxpayer prepares and files the false return purpose-

fully, to avoid a tax that the taxpayer understands himself

or herself to owe.16

The 1933 edition of Black’s defines “evasion” as “a

subtle endeavor to set aside truth or avoid the punishment

of the law.” Id. at 693-94. For example:

“[I]f one person says to another that he will not strike him,

but will give him a pot of ale to strike first, and, accord-

ingly, the latter strikes, the returning the blow is punish-

able; and, if the person first striking is killed, it is mur-

der, for no man shall evade the justice of the law by such

a pretense. * * * In a general way the words ‘suppression,’

‘evasion, and concealment’ mean to avoid by some device

or strategy or the concealment or intentional withholding

some fact which ought in good faith to be communicated.”

Id. (citations omitted).

Webster’s Second does not include the word “con-

cealment” in its definition of “evade,” though, like the 1933

edition of Black’s, Webster’s Second suggests the term was

commonly understood to require avoidance of a known obli-

gation through subtle maneuvering:

“[evade:] [t]o escape; to slip away; * * * [t]o take refuge in

evasion; to use artifice in avoidance * * * [t]o get away from

by artifice; to avoid by dexterity, subterfuge, or ingenuity;

as, to evade a blow, a pursuer, a punishment; to evade the

force of an argument * * * [e]scape, shun; foil, steal away

from[,] * * * [t]o evade is to escape or avoid, often by the use

15

See State v. James, 266 Or App 660, 667 n 4, 338 P3d 782 (2014) (treating

Webster’s Third as a contemporaneous source for statutes dating from 1961 for-

ward because that dictionary’s primary content has remained static since 1961).

16

In other words, for the penalty to apply, the taxpayer must know better

than to file as he or she does.

Cite as 24 OTR 103 (2020) 117

of skill, dexterity, or contrivance; to elude (which implies

less of volition; cf. the implications of evasive, elusive), to

slip away from or baffle, often slyly, cunningly, or adroitly[.]”

Id. at 883. Webster’s Third defines “evade” using examples of

strategic behavior:

“[T]o slip away : give someone the slip * * * to take refuge

in evasion * * * use craft or stratagem in avoidance : avoid

facing up to something * * * to manage to avoid the perfor-

mance of (an obligation) : escape from doing or experiencing

(something disagreeable)[.]”

Id. at 786. According to the first edition of The American

Heritage Dictionary, published in 1969, “evade” can also

encompass mental trickery:

“To escape or avoid by cleverness or deceit: evade arrest

* * * [t]o avoid fulfilling, answering, or performing: evade

responsibility * * * [t]o baffle or elude: The accident evades

explanation * * * [t]o use cleverness or deceit in avoiding or

escaping.”

Id. at 453 (italics in original). Similarly, The Oxford English

Dictionary defines “evade” using examples of both physical

and psychological manipulation:

“to get away, escape; * * * [t]o escape by contrivance or

artifice from (attack, pursuit, adverse designs; an assail-

ant, pursuer, or adversary; to avoid, save oneself from (a

threatened evil or inconvenience); to elude (a blow), avoid

encountering (an obstacle); * * * [t]o contrive to avoid (doing

something); to ‘get out of’ performing (a duty), making (a

payment), etc.; * * * [t]o avoid giving a direct answer to (a

question, request, charge); to put off * * * [t]o escape yield-

ing to (an argument, claim, or obligation), admitting (a con-

clusion), acknowledging (a fact) by means of sophistry * * *

[t]o defeat the intention of (a law, stipulation, etc.), by spe-

cious compliance with its letter.”

Id. at 327.

The foregoing sources do not indicate that “evasion”

requires that a taxpayer conceal information from the tax-

ing authorities. As the example of the use of trickery to pro-

voke a barroom brawl shows, one can also “evade” by engage-

ment (“[t]o contrive to avoid (doing something),” id. (emphasis

118 Routledge v. Dept. of Rev.

added); “get away from by artifice; to avoid by dexterity, sub-

terfuge, or ingenuity,” Webster’s Second at 833 (emphases

added)). Proffering fallacious arguments (“sophistry”), or

“specious compliance” with the law, suffices when combined

with the intent to avoid a known obligation to pay tax.17

b. Statutory context and legislative history

The statutory development discussed above, includ-

ing the legislative history of each change, reveals nothing

that alters the plain meaning of the terms. The court has

found no legislative history on point for the 1929 act, and

nothing on point in the 1930 Voter’s Pamphlet. The few

items available documenting the legislative history of the

1951 act discuss none of the issues raised in this case.18

The court finds it unnecessary to reach a conclusion

regarding Defendant’s characterization of this penalty as a

“fraud” penalty. Despite the legislature’s removal of the word

“fraudulent” in 1951, there is some evidence that “fraud pen-

alty” may be an accurate label. According to the current edi-

tion of Black’s, “tax evasion” is synonymous with “tax fraud.”

See Black’s Law Dictionary 1763 (11th ed 2019). Similarly,

the 1933 edition of Black’s included the word “fraud” as a

synonym for “evasion.” Id. at 693-94.19 Nevertheless, the

17

The Internal Revenue Code, meanwhile, has preserved virtually the same

phrase. See IRC § 6501(c) (referring to “a false or fraudulent return with the

intent to evade tax”). A body of federal case law has developed interpreting the

phrase as used in federal law, but those cases generally rely on the entire phrase,

including the term “fraudulent.” See, e.g., Neely v. Comm’r, 116 TC 79, 86 (2001)

(citing Parks v. Comm’r, 94 TC 654, 664-65 (1990) (looking at taxpayer’s behavior

to determine whether his understatement of income was a product of “fraudulent

intent”). Because the Oregon legislature changed the Oregon statute in 1951,

this court must proceed carefully before treating federal cases as persuasive

authority in interpreting the 100 percent penalty statutes in Oregon law. In this

matter, the court sees no need to consider federal cases.

18

No relevant committee minutes exist, and the surviving committee

exhibits relate to a set of proposed changes to prior law that ultimately were

not adopted. See Jonathan Hay, Memorandum from the State Tax Commission,

Jan 16, 1951 (on file with the Oregon State Archives) (recommending new inter-

mediate “negligence penalty of 25 percent of the tax deficiency in order to bridge

the large gap which now exists in the statutes between the ordinary 5 percent

penalty and the 100 percent penalty imposed in cases of false and fraudulent

returns”). In the course of considering these amendments, the legislature with-

out explanation removed the reference to fraud from the 100 percent penalty.

19

In addition, the available legislative history of what are now ORS

305.265(13) and ORS 314.400(6)(b) shows that individual legislators have

Cite as 24 OTR 103 (2020) 119

court sees no need to analyze whether the elements of this

penalty match those required for fraud because the legisla-

ture eliminated the term “fraud” in 1951 and the foregoing

analysis suffices to define the elements of the penalty.

c. Conclusion applying Gaines analysis

Based on the text of ORS 314.400(6)(b), and taking

into account the statutory context and the limited legisla-

tive history available, the court concludes that the 100 per-

cent penalty applies if a taxpayer falsely prepares and files

a return with a purpose of using specious or fallacious argu-

ments to avoid a tax the taxpayer knows is owed.

d. Standard and burden of proof

Before applying the court’s conclusion to the facts

in this case, the court considers Plaintiff’s arguments that

a higher standard of proof applies to the penalty under ORS

314.400(6)(b) and that Defendant bears the burden of prov-

ing the elements of the penalty. ORS 305.427 provides:

“In all proceedings before * * * the tax court and upon

appeal therefrom, a preponderance of the evidence shall

suffice to sustain the burden of proof. The burden of proof

shall fall upon the party seeking affirmative relief and the

burden of going forward with the evidence shall shift as in

other civil litigation.”

The court is not aware of a statutory exception to the pre-

ponderance of evidence standard or to the requirement that

a plaintiff bear the burden of proof as the party seeking

affirmative relief from an assessment of tax and penalties.

Plaintiff’s assertion that he is entitled to “the presumption

of innocence until proven guilty” suggests that he views

sometimes referred to both penalties as “fraud penalties.” See Audio Recording,

Senate Subcommittee on Justice, SB 600, Mar 31, 1981, Tape 99, Side A and B at

44:05-48:51 (statements of Sen Jan Wyers and Sen Walter Brown). However, the

court views this as a shorthand label that may have originated with Defendant

rather than with the legislature. Defendant’s administrative rule has consis-

tently used the phrase “fraud penalty” since 1959, starting eight years after the

legislature removed the word “fraud” from the statute. Compare OAR 150-305-

0214 (“A fraud penalty imposed pursuant to ORS 305.265(13) is separate and

distinct from delinquency penalties as it relates to the nature of the deficiency

itself.”), with former State Tax Commission Regulation 4.405(5) (1959) (“The pen-

alties imposed pursuant to ORS 314.405(5) are separate and distinct from the

‘delinquency penalties’ * * *. [They] relate to the nature of the deficiency itself

* * *.”).

120 Routledge v. Dept. of Rev.

imposition of the penalty under ORS 314.400(6)(b) as a crim-

inal matter, which it is not. Cf. ORS 305.990 (defining various

tax-related acts as crimes).20 Nor is “a more exacting stan-

dard * * * constitutionally required.” See Robin v. Teacher

Standards and Practices Comm., 291 Or App 379, 388, 421

P3d 385, rev den, 363 Or 677 (2018) (applying three-part test

in Mathews v. Eldridge, 424 US 319, 96 S Ct 893, 47 L Ed 2d

18 (1976); holding that preponderance of evidence standard

for employment-related disciplinary proceedings based on

allegations of fraud or misrepresentation comported with

due process);21 see also Mutual of Enumclaw v. McBride, 295

Or 398, 667 P2d 494 (1983) (rejecting “clear and convinc-

ing” standard for proof of insurance fraud, the consequence

of which was forfeiture of contractual benefit). Imposition of

the penalty under ORS 314.400(6)(b) would neither deprive

Plaintiff of liberty nor violate an interest approaching the

kinds of fundamental interests that the United States

Supreme Court has held must be protected through an inter-

mediate standard of proof.22 Cf. Cruzan v. Director, Missouri

Department of Health, 497 US 261, 110 S Ct 2841, 111 L

Ed 2d 224 (1990) (clear and convincing standard required

to terminate an incompetent person’s life-sustaining treat-

ment); Santosky v. Kramer, 455 US 745, 768, 102 S Ct 1388,

71 L Ed 2d 599 (1982) (requiring clear and convincing stan-

dard for terminating parental rights); Addington v. Texas,

20

This court does not have jurisdiction over criminal matters. See ORS

136.001 (codifying right to jury trial “in all criminal prosecutions”); ORS

305.425(1) (no jury in Tax Court).

21

In contrast to the petitioner in Robin, Plaintiff has not alleged that impo-

sition of the penalty would interfere with a significant interest, such as employ-

ment prospects. Cf. Robin, 291 Or App at 389-90. Indeed, Plaintiff affirmatively

asked the IRS by letter to contact his employer to “correct this wage reporting

error, and issue a revised W2” on the grounds that “Vtech Communications is not

engaged in a ‘trade or business,’ ” reciting elements of his legal argument.

22

An intermediate standard of proof applies in United States Tax Court

cases involving the federal civil penalty for “fraud with intent to evade tax.” See

IRC § 7454(a). However, for those cases Congress has elected to shift the bur-

den of proof to the IRS, and the United States Tax Court, under broad statutory

authority to make procedural rules, has adopted a “clear and convincing evi-

dence” standard. See IRC § 7454(a) (assigning burden of proof); id. § 7453 (grant-

ing rulemaking power); US Tax Court Rule 142(b) (adopting clear and convinc-

ing evidence standard). By contrast, the Oregon legislature has not prescribed

burden-shifting in tax cases involving allegations of fraud or for any statutory

penalty, and the Oregon legislature has prescribed only one standard of review

in this court.

Cite as 24 OTR 103 (2020) 121

441 US 418, 427, 99 S Ct 1804, 60 L Ed 2d 323 (1979) (clear

and convincing standard for involuntary commitment pro-

ceedings comported with due process); Woodby v. INS, 385

US 276, 286, 87 S Ct 483, 17 L Ed 2d 362 (1966) (requiring

clear and convincing evidence in deportation proceedings);

Schneiderman v. United States, 320 US 118, 63 S Ct 1333,

87 L Ed 1796 (1943) (denaturalization proceedings). On the

other hand, the state has a very strong interest in collecting

income taxes and in deterring evasion; personal income tax

revenues dwarf any other source of tax revenue flowing to

Oregon state government. See Legislative Revenue Office,

2019 Oregon Public Finance: Basic Facts, A-7; cf., e.g., SEC v.

C.M. Joiner Leasing Corp., 320 US 344, 355, 64 S Ct 120, 88 L

Ed 88 (1943) (preponderance of evidence standard for securi-

ties fraud comported with due process); Herman & MacLean

v. Huddeston, 459 US 375, 388 n 27, 103 S Ct 683, 74 L Ed 2d

548 (1983) (same). The court concludes that due process does

not require a standard of proof higher than that required by

ORS 305.427. Oregon courts that have declined to impose

an intermediate standard of proof also have preserved the

ordinary civil standard of assigning the burden of proof to

the party seeking affirmative relief, rather than shifting

the burden to the opponent. See, e.g., Mutual of Enumclaw,

295 Or at 407; cf. Speiser v. Randall, 357 US 513, 78 S Ct

1332, 2 L Ed 2d 1460 (1958) (state procedural rule requir-

ing that taxpayer bear the burden of proof to show that he

did not advocate the violent overthrow of government vio-

lated due process because the rule indirectly permitted

the state to penalize taxpayer’s fundamental right to free

speech).

e. Conclusion: penalty under ORS 314.400(6)(b)

applies in this case

The court now applies these conclusions to the facts

in this case. The court must consider whether (1) Plaintiff

had the requisite mental state, namely whether he under-

stood that he owed the tax when he filed his return showing

zero Oregon income tax liability; and (2) whether he sought

to avoid paying the tax by “artifice,” such as “sophistry” or

“specious compliance” with the letter of the law or other

“evasion.” In this case, the nature of Plaintiff’s argument

122 Routledge v. Dept. of Rev.

informs the court’s application of both elements of the pen-

alty. Starting with element (2), as the court has explained

above, Plaintiff’s substantive argument that his remunera-

tion from his employer is not income is wholly illogical and

objectively unreasonable. As explained below, other tax-

payers have deployed it so often, without success, that the

legislature has included it in a list of “frivolous” arguments.

The court concludes that Plaintiff’s argument is the sort of

sophistry that, when used with the mental state described

in (1), constitutes evasion.

As to Plaintiff’s mental state, his written submis-

sions to this court give no indication that he lacks intelli-

gence.23 Two other facts evident from the written record

provide insight to Plaintiff’s state of mind. First, Plaintiff

has a history of paying tax in prior years, as evidenced by

his claims for refunds for 2013 through 2015. This rein-

forces that the deficiency that Defendant now asserts is due

entirely to Plaintiff’s legal arguments, and not due to a lack

of knowledge or an inability to understand his obligations.

Second, on his federal income tax return for 2016, Plaintiff

falsely reported the amount of $9,231.52 on the line des-

ignated for “Federal income tax withheld from Forms W2

and 1099.” In entering that amount, Plaintiff disregarded

the amount of $0 shown on the Form W2 from his employer

using exactly the same phrase. More significantly, he also

disregarded his own attempt to “correct” that Form W2.

When asking the IRS to preemptively “correct” the Form

W2, Plaintiff entered $0 as the amount of “federal income

tax withheld,” and he accurately reported on that same cor-

rection form the amounts of $7,347.00 as “Social security

tax withheld” and $1,884.52 as “Medicare tax withheld.”

However, when Plaintiff filed his federal tax return—having

received no “corrected” Form W2—Plaintiff added up the

amounts of the two nonincome taxes ($7,347.00 + $1,884.52)

and mischaracterized that sum as withheld income tax.24

23

Plaintiff, although not represented by counsel, called out Defendant twice

for failing to timely appear and defend, filing motions for default each time.

(Those motions failed based on the case law standards for granting default.) In

addition, Plaintiff otherwise has submitted motions or responses at each step of

this appeal.

24

The IRS does provide a straightforward way to recover overwithheld

Social Security and Medicare taxes by filing Form 843 (after asking the employer

Cite as 24 OTR 103 (2020) 123

Plaintiff’s false entry of $9,231.52 as income tax with-

holding was the sole basis for the federal refund that he

acknowledges receiving. The court concludes that Plaintiff

knew better than to claim a refund of federal income tax

he had never paid, but he made the claim regardless and

kept the money, even arguing to this court that the IRS’s

refund proved that the IRS agreed with his argument. If

there was any reason to doubt Plaintiff’s mental state, this

action removes it. The court concludes that Plaintiff knew

he owed the Oregon income tax at issue here but chose to

put forward a specious argument to try to avoid paying

it.

For these reasons, the court finds that Plaintiff filed

his false return for tax year 2016 with the intent to evade

tax he knew he owed. Defendant correctly applied the pen-

alty under ORS 314.400(6)(b).

3. $250 “frivolous position” penalty (ORS 316.992(1))

The $250 “frivolous position” penalty is mandatory

if an individual taxpayer files “what purports to be a return

* * * which * * * [c]ontains information that on its face indi-

cates that the self-assessment is substantially incorrect.”25

ORS 316.992(1). The penalty applies if the taxpayer took a

“position which is frivolous.”26 The statute defines “a posi-

tion which is frivolous” as including “[a]n argument that

wages or salary are not includable in taxable income.” ORS

316.992(5)(c). In this case, Plaintiff acknowledges that he

received “remuneration” from Vtech, but he asserts that the

remuneration is not taxable income. Plaintiff argues that

he never “disputed the taxability of wages.” But the entire

premise of Plaintiff’s argument is that no compensation paid

by a private employer is taxable, an argument that would

exclude from income the great majority of wages. The court

to provide the refund). See Internal Revenue Service, Instructions for Form 843

at 1 (“Use Form 843 to claim or request * * * [a] refund to an employee of excess

social security, Medicare, or RRTA tax withheld by any one employer, but only if

your employer will not adjust the overcollection.”).

25

See ORS 316.992(1) (“The Department of Revenue shall assess a penalty of

$250 * * *.” (Emphasis added.)).

26

Alternatively, the taxpayer must have intended to “delay or impede the

administration of the income tax laws of this state,” which Defendant does not

allege in this case. ORS 316.992(1)(b).

124 Routledge v. Dept. of Rev.

concludes that Plaintiff’s position is within the category of

arguments that the legislature intended to classify as frivo-

lous because they are wrong “on [their] face.”27

4. Penalty (ORS 305.437) and attorney fees (ORS

20.105(1)) for lack of objectively reasonable basis for

position

Defendant’s claims for a penalty under ORS 305.437

and for attorney fees under ORS 20.105(1) depend on whether

Plaintiff’s position lacked an “objectively reasonable basis.”28

The court already has explained the complete absence of any

logical basis for Plaintiff’s argument. The court is further of

the view that Plaintiff’s position that he owed no tax because

his remuneration for services happened to come from a pri-

vate employer is a mere variation on the kinds of arguments

that this court has previously found lacking in any objec-

tively reasonable basis. E.g., Clark v. Dept. of Rev., 332 Or

236, 237, 26 P3d 821 (2001) (“Taxpayer’s views concerning

27

The court notes that a common feature of many of the arguments that

the legislature included in the nonexclusive list of frivolous positions is a false

notion that the income tax laws contain fundamental flaws that render the tax

invalid for large numbers of unsuspecting taxpayers. See Clark v. Dept. of Rev.,

15 OTR 197, 198, adh’d to on recons, 15 OTR 209 (2000), aff’d, 332 Or 236, 26 P3d

821 (2001) (“Taxpayer’s arguments suggest that millions of Americans, including

citizens of Oregon, ‘have been duped’ by the taxing authorities into believing they

are required by law to pay an income tax, but taxpayer is enlightened and knows

the truth.”).

28

Both statutes use the word “shall” and thus are mandatory in the sense

that they require the court to impose the penalty or attorney fees, although

they leave some discretion to the court to determine the amount. ORS 305.437

provides:

“(1) Whenever it appears to the Oregon Tax Court that proceed-

ings before it have been instituted or maintained by a taxpayer primarily

for delay or that the taxpayer’s position in such proceeding is frivolous or

groundless, a penalty in an amount not to exceed $5,000 shall be awarded

to the Department of Revenue by the Oregon Tax Court in its judgment. The

penalty so awarded shall be paid within 10 days after the judgment becomes

final. If the penalty remains unpaid, the department may collect the amount

awarded in the same manner as income taxes are collected under ORS

314.430.

“(2) As used in this section:

“(a) A taxpayer’s position is ‘frivolous’ if there was no objectively reason-

able basis for asserting the position.

“(b) ‘Position’ means any claim, defense or argument asserted by a tax-

payer without regard to any other claim, defense or argument asserted by the

taxpayer.”

Cite as 24 OTR 103 (2020) 125

the voluntary nature of the income tax system and the non-

taxability of wages paid by private employers for an indi-

vidual’s labor, however honestly held, are so incorrect as to

render legal arguments based on them frivolous.”); Negrete

v. Dept. of Rev., 19 OTR 134 (2006) (taxpayer’s argument

that his wages were not taxable objectively unreasonable);

Sesma v. Dept. of Rev., 16 OTR 29 (2002) (same). Plaintiff

has not withdrawn his arguments during this proceeding.

The court finds that Plaintiff maintained an objectively

unreasonable position in his arguments on the merits for

purposes of the penalty under ORS 305.437 and the attor-

ney fee provision in ORS 20.105. The court awards attorney

fees in an amount to be determined, assuming Defendant

seeks a supplemental judgment of attorney fees as provided

in Tax Court Rule 68. Noting Plaintiff’s meritless subargu-

ments and procedural arguments at each step of the audit

and during the judicial appeals, and the additional time

and expense associated with the appeal in this division, the

court awards a penalty of $4,000 pursuant to ORS 305.437,

in lieu of the $1,000 that the magistrate awarded.

V. CONCLUSION

For the foregoing reasons, the court hereby orders:

(1) That Defendant’s assessment of tax, interest and

penalties be sustained; and

(2) That Plaintiff pay a penalty of $4,000 to Defen-

dant within 10 days after judgment in this case is

entered. Now, therefore,

IT IS ORDERED that Plaintiff’s cross-motion for

summary judgment is denied; and

IT IS FURTHER ORDERED that Defendant’s

motion for summary judgment is granted.