           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                         November 19, 2009

                                     No. 09-60381                      Charles R. Fulbruge III
                                   Summary Calendar                            Clerk



ADOLFO SANDOR MONTERO

                                                   Petitioner - Appellant
v.

COMMISSIONER OF INTERNAL REVENUE

                                                   Respondent - Appellee




             Appeal from the Decision of the United States Tax Court
                                 No. 23166-07L


Before GARZA, CLEMENT and OWEN, Circuit Judges.
PER CURIAM:*
       Pro se Petitioner-Appellant Adolfo Sandor Montero appeals the Tax
Court’s decision upholding the Internal Revenue Service (“IRS”) Office of
Appeals’ determination that the IRS could collect frivolous return penalties from
Montero for the years 2003 and 2004. Montero also appeals the Tax Court’s
imposition of a $20,000 sanction for instituting a proceeding primarily for
purposes of delay and to advance a frivolous position.



       *
         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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
                                      No. 09-60381

       In 2003 and 2004, Montero worked at Dell Products, L.P. (“Dell”). Dell
issued Montero a 2003 Form W-2 reporting that it had paid him $150,143 in
wages, tips and other compensation, from which Dell withheld federal taxes. In
2004, Dell again issued Montero a Form W-2, reporting that it had paid him
$156,756 in wages, tips, and other compensation, with federal taxes withheld.
Montero filed Form 1040 income tax returns for both years, reporting his
compensation from employment as well as other income. He received refunds
for the amounts by which his income tax withholding exceeded his actual taxes
due.
       In 2006, Montero filed amended income tax returns (Forms 1040X) for
2003 and 2004, to which he attached Forms 4852. On the Forms 4852, Montero
reported that Dell had not paid him any wages in 2003 or 2004 and sought a
refund equal to the full amount of all taxes withheld minus the amount that the
IRS had already refunded to him. Montero contended on his amended returns
that Dell had erroneously categorized him as an “employee” earning “wages,” as
defined by I.R.C. §§ 3121 and 3401.1 The IRS subsequently assessed frivolous
return penalties of $500 against Montero for his 2003 and 2004 returns.
Montero contested these penalties and requested a collection due process
(“CDP”) hearing with the IRS Office of Appeals, primarily arguing that his
amended returns had correctly reported that he owed no federal taxes for 2003
and 2004.
       The Office of Appeals upheld the proposed levy to collect the frivolous
return penalties, and also warned Montero about the possibility of up to $25,000


       1
          This argument is based on the theories of Peter Hendrickson, tax protester and
author of Cracking the Code: The Fascinating Truth About Taxation in America. Hendrickson
relies on the statement in I.R.C. § 3401(c) that the term “employee” “includes” government
employees and corporate officers to contend that only the remuneration paid to these
categories of persons comprise “wages” subject to taxation. In other words, according to
Hendrickson, private sector compensation is not “wages” and therefore not taxable. The Sixth
Circuit has found this theory to be a frivolous tax-protestor argument. See infra.

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in monetary sanctions for bringing a frivolous action. Montero subsequently
filed a petition with the Tax Court, once more advancing the argument that he
had earned no taxable income in 2003 and 2004 and seeking both abatement of
the frivolous return penalties as well as a refund of all taxes withheld from his
2003 and 2004 paychecks. At both the calendar call and at trial, the Tax Court
warned Montero that his arguments were frivolous, and it reminded him of the
possibility of monetary sanctions up to $25,000. At trial, Montero presented his
opening statement, during which he continued to advance tax-protestor
arguments. The Tax Court declined to hear testimony from Montero’s witness,
whom Montero claimed had received a refund after advocating the same
arguments as Montero. The Tax Court upheld the determination of the Office
of Appeals to proceed with the proposed levies, and sanctioned Montero $20,000
pursuant to I.R.C. § 6673 for instituting or maintaining a frivolous proceeding
primarily, if not exclusively, to protest the federal tax system. Montero now
appeals.
       In a CDP case in which the underlying tax liability is at issue, we review
the underlying liability de novo and the Tax Court’s imposition of sanctions for
an abuse of discretion. Stearman v. Comm’r, 436 F.3d 533, 535 (5th Cir. 2006);
Jones v. Comm’r, 338 F.3d 463, 466 (5th Cir. 2003).
       The IRS may impose a $500 2 civil penalty against any individual if: (1) he
files “what purports to be” a federal income tax return; (2) the purported return
“contains information that on its face indicates that the self-assessment is
substantially incorrect;” and (3) this conduct is due to “a position which is




       2
        Congress later amended I.R.C. § 6702 to increase the penalty to $5,000, but to limit
the penalty for frivolous positions to those positions identified by the IRS as such. See Tax
Relief and Health Care Act of 2006, Pub. L. No. 109-432, § 407(a), 120 Stat. 2922, 2960-61
(2006).

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frivolous” or “a desire to delay or impede the administration of Federal tax laws.”
I.R.C. § 6702.
      The Tax Court properly found that the Forms 1040X, which Montero filed
in order to obtain income tax refunds for 2003 and 2004, “purported to be”
income tax returns because Montero filed the forms in order to obtain a refund
of taxes previously paid. See Davis v. United States, 742 F.2d 171, 173 (5th Cir.
1984) (finding documents comprised “tax returns” if the purpose of filing the
documents was to obtain a refund).          The Forms 1040X facially contained
incorrect information based on Montero’s legally frivolous positions.          For
instance, Montero reported that he had received no wages even though Dell had
sent him Forms W-2 reporting that it had paid him over $150,000 in both 2003
and 2004. His rationale for his amended filings was based on tax-protester
arguments alleging that he was not an “employee” and did not earn “wages”
under IRC definitions.
      However, Section 61 of the IRC defines “gross income” as “all income from
whatever source derived” including “[c]ompensation for services.” Montero’s
contention that compensation received from a private employer is not subject to
income tax has been rejected as frivolous numerous times. See, e.g., Parker v.
Comm’r, 724 F.2d 469, 471-72 (5th Cir. 1984) (refuting allegation that “the
income tax is an excise tax applicable only against special privileges” and finding
Congress empowered to levy income tax against any source of income); see also
United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) (finding taxpayer’s
argument that the IRC category of “employee” would “not include privately
employed wage earners” a “preposterous reading of the statute”). Furthermore,
the Sixth Circuit recently affirmed a district court order permitting the IRS to
recover tax refunds that it had erroneously issued to Peter Hendrickson, the
progenitor of Montero’s tax theories, and enjoining him from asserting his tax-
protestor arguments on future returns.        United States v. Hendrickson, 100

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A.F.T.R.2d (RIA) 5395 (E.D. Mich. 2007), aff’d by unpublished slip op., No. 07-
1510 (6th Cir. June 11, 2008). Thus, because Montero filed purported income tax
returns that were patently frivolous, the Tax Court correctly upheld the
imposition of the frivolous return penalties for 2003 and 2004.
      Montero also appeals the Tax Court’s imposition of $20,000 in sanctions
for instituting a proceeding primarily for the purposes of delay and maintaining
frivolous positions. The Tax Court may sanction a taxpayer whenever it appears
that he instituted or maintained a proceeding primarily for delay, or that his
position in the proceeding is groundless or frivolous. I.R.C. § 6673(a). This court
has upheld sanctions in cases where taxpayers advance frivolous arguments
similar to those advanced by Montero. See, e.g., Stearman, 436 F.3d at 538
(affirming $12,500 sanction after finding taxpayer maintained proceedings
primarily for delay); Tello v. Comm’r, 410 F.3d 743, 744 (5th Cir. 2005) (granting
motion for $6,000 in sanctions for frivolous appeal); Sandvall v. Comm’r, 898
F.2d 455, 459 (5th Cir. 1990) (levying $3,000 sanction against taxpayers for
frivolous appeal).
      In the instant matter, Montero continued to advance frivolous tax-
protestor arguments despite being warned))both before and at trial by the
Commissioner and the Tax Court))that his arguments were frivolous and that
he could be sanctioned if he persisted in advancing them. These warnings were
not “threats,” as Montero argues, nor do they represent bias on the part of the
Tax Court judge. A judge does not show bias by disregarding legally frivolous
arguments.    Liteky v. United States, 510 U.S. 540, 550-51, 554-56 (1994).
Accordingly, the Tax Court did not abuse its discretion in issuing sanctions
against Montero.
      Montero further argues that the sanctions were excessive in amount. The
Tax Court may sanction a taxpayer up to $25,000 for advancing frivolous
arguments. I.R.C. § 6673(a). The Commissioner requested $10,000 in sanctions

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at trial ($400 per hour for 25 hours of work). However, the Tax Court issued
$20,000 in sanctions, finding the $10,000 requested by the Commissioner “too
small given the number of years [taxpayer] has made these arguments and the
wages he has earned during this period of time.” Montero’s cumulative income
from Dell alone in 2003 and 2004 was over $300,000. Moreover, he has two
pending tax cases in which he advances frivolous tax-protestor arguments
regarding his wage earnings in 2005 and 2006, wasting further judicial
resources. Accordingly, the Tax Court did not abuse its discretion in assessing
a $20,000 sanction.
      For the foregoing reasons, we AFFIRM the decision of the Tax Court.




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