We reject the taxpayer's claim that the Social Security Administration has established trusts with individual taxpayers and hold that the Minnesota Tax Court did not err in determining that a taxpayer who earned taxable income cannot avoid tax liability through the mechanism of a purported Social Security trust.
Frivolousness, when imposing a penalty for the filing of a frivolous tax return, is determined under an objective standard. A position is frivolous if it has no basis in law or fact. Applying this standard, we conclude that the tax court did not err in affirming the Commissioner of Revenue's Order imposing a penalty for the taxpayer's filing of a frivolous return.
The opinion of the court was delivered by: Anderson, Paul H., Justice.
Concurring specially, Page and Anderson, Russell A., JJ.
Took no part: Anderson, G. Barry, J.
Considered and decided by the court en banc without oral argument.
Appellant Frederick O. Bond attempted to avoid all income tax liability for the year 2000 under a claim that "FREDERICK OGAN BOND is a constructive trust created by the United States under the governing statutes whose progeny rests in the Social Security Act of 1935." Based on this assertion, Bond filed a federal estates and trusts tax return and deducted all reported income for fiduciary fees, leaving a federal taxable income of $0.00. On his Minnesota income tax return, Bond reported $0.00 taxable income based on his federal return and claimed a refund of $2,304.53, the full amount of his state income tax payroll withholdings. The Minnesota Department of Revenue initially granted Bond a refund, but corrected its assessment when it audited his return. The Commissioner of Revenue issued an order correcting Bond's taxable income and assessing Bond $3,690.48 in total tax payments for the year 2000--$2,816.53 for additional taxes, $373.95 for interest, and $500 as a penalty for filing a frivolous return. Bond appeals from a Minnesota Tax Court order granting the Commissioner's motion for summary judgment and affirming the Commissioner's December 24, 2002 tax order. We affirm.
Frederick O. Bond earned $49,499 in the 2000 tax year--$48,638 in wages, $183 in taxable interest, and $678 in ordinary dividends. From his wages that year, his employer, Honeywell, Inc., withheld state income tax in the amount of $2,304.53. Payroll statements and the W-2 for 2000 from Honeywell were in the name of Frederick O. Bond.
Before filing his returns for tax year 2000, Bond attempted to secure from the Social Security Administration (SSA) an actual irrevocable written "Simple Social Security Trust" named "FREDERICK O. BOND."*fn1 Bond claims that the Trust already existed, having been established in March 1963, but he wanted the Trust's terms to be in writing. Using a form available on the Internet, Bond sent to the SSA a two-page document setting out the Trust's specific terms. He named the SSA as the Creator of the Trust, the SSA General Trust Fund as the Beneficiary, and himself as the Trustee. The Trust Document also allowed income from the Trust to pay "A Reasonable Wage" to the Trustee, including all of the Trustee's living expenses.
Bond signed the Trust Document, but the Trust Document did not provide a signature line for the SSA and no signature was obtained from the SSA. Nevertheless, Bond asserted that the SSA has manifested its approval of the Trust by issuing him a Social Security number and card and by holding open an account under his Social Security number. On July 22, 2003, Bond sent a follow-up letter to the SSA Commissioner, in which he stated that the SSA had already had sufficient time to respond to his January 10, 2001 letter, in which he enclosed the Trust Document. He then stated that the SSA needed to respond within 30 days or otherwise it would be collaterally estopped from denying the existence of the Trust. On August 25, 2003, Bond sent another letter to the SSA Commissioner stating that he interpreted the SSA's lack of response to his letters as its agreement to the Trust and that "this matter now stands secured by the maxim doctrine of Collateral Estoppel."
For his year 2000 federal income tax returns, Bond filed Form 1041 for estates and trusts rather than Form 1040 for individuals. He reported a total income of $49,499 in wages, taxable interest, and ordinary dividends, but he claimed a full deduction for "Fiduciary Fees," leaving his federal taxable income at $0.00. He then claimed a full refund for his federal income tax payroll withholdings. For his 2000 Minnesota tax return, filed on March 25, 2001, Bond filed an M-1 Individual Income Tax form rather than an M-2 return for trusts, but he modified all name and identification references to reflect that he was attempting to file a trust return. He reported $0.00 taxable income based on his 1041 filing and claimed a refund of $2,304.53, the full amount of his payroll withholdings for state income taxes. The Department of Revenue initially sent Bond a refund for this amount.
After auditing Bond's tax return, the Commissioner of Revenue notified Bond that his filing was incorrect and that, if he did not file an amended return within 20 days of the notice, he could be subject to a penalty for having filed a frivolous tax return. Bond did not file an amended return. Having determined that Bond's taxable income for 2000 was $43,024, the Department of Revenue sent Bond an Individual Income Tax Audit Report/Tax Order, dated December 13, 2002, assessing him $3,749.86 in total taxes for 2000, of which $2,816.53 was for additional taxes, $433.33 was for interest, and $500 was for penalties. On December 24, 2002, the amount of interest was corrected to $373.95, reducing the total amount ...