Jimenez v. Dep’t of Revenue

ORS 305.437(2) provides, in pertinent part, “(a) A taxpayer’s position is ‘frivolous’ if there was no objectively reasonable basis for asserting that position[; and] (b) ‘[p]osition’ means any . . . argument asserted by a taxpayer without regard to any other . . . argument asserted by the taxpayer.”

Taxpayers appealed the Oregon Tax Court’s order to pay $4,000 for a “frivolous or groundless proceeding.” Taxpayers assigned error to the Tax Court’s determination that ORS 305.437 mandated a penalty because Taxpayers’ arguments lacked an objectively reasonable basis. On appeal, Taxpayers argued that if even one of their arguments was objectively reasonable, the sanction may not be administered. ORS 305.437(2) provides, in pertinent part, “(a) A taxpayer’s position is ‘frivolous’ if there was no objectively reasonable basis for asserting that position[; and] (b) ‘[p]osition’ means any . . . argument asserted by a taxpayer without regard to any other . . . argument asserted by the taxpayer.” The Court found that Taxpayers’ first three arguments were contradicted by the plain text of the Sixteenth Amendment. The Court reasoned that Taxpayers’ reliance on an IRS tax refund as evidence of the legal significance of their fourth argument may have been a subjective understanding, but it was not an objectively reasonable basis for a claim. Moreover, the Court reasoned that under ORS 305.437(2)(b), any single frivolous argument is sufficient ground for applying sanctions. The Court concluded that the Oregon statute mandated the Oregon Tax Court issue sanctions due to Taxpayers’ frivolous claim. Affirmed.