Unpublished Disposition, 845 F.2d 1029 (9th Cir. 1987)

MEMORANDUM^** 

Ernest Colton paid income taxes of $8,024.58 based on income of approximately $30,000 for the 1981 calendar year. His income consisted of approximately $26,000 interest income, $3,500 dividend income, and $500 capital gains. On April 4, 1985, Colton filed an amended tax return requesting a refund of the $8,024.58 because he alleged that although he had nominal income of $30,000, he had no real income due to inflation. The Internal Revenue Service ("IRS") denied the refund.

On January 2, 1987, Colton filed his first amended complaint for tax refund in the district court. Colton alleged that his nominal income constituted merely a partial return of capital because the rate of inflation exceeded his rate of return. Therefore, he alleged, none of his income was taxable. Colton further alleged that he was entitled to either a $3,000 deduction or compensation in that amount, because he was forced to work as an agent for the IRS when he filed his return. He also alleged that requiring him to file a return constituted involuntary servitude. Finally, Colton alleged that the IRS violated his right under the fourth amendment to be secure in his effects¹ , and that he was denied his property without just compensation in violation of the fifth amendment.

In his prayer for relief, Colton sought the $8,024.58 plus inflation adjustment and interest thereon, and $1,000 for violation of his civil rights. He also sought attorneys' fees and costs. The district court dismissed Colton's action for failure to state a claim upon which relief can be granted. Colton timely appealed to this court and we now affirm.

Section 61 of the Internal Revenue Code ("Code"), 26 U.S.C. § 1 et seq., provides in pertinent part: "gross income means all income from whatever source derived, including ... [g]ains derived from dealings in property ... [i]nterest ... [and] [d]ividends." The Supreme Court has reasoned that Congress intended "to use the full measure of its taxing power" when it defined gross income. Commissioner of Internal Revenue v. Kowalski, 434 U.S. 77, 82 (1977) (quoting Helvering v. Clifford, 309 U.S. 331, 334 (1940)). The Court further reasoned that Congress "intended to tax all gains except those specifically exempted." Id. at 82-83 (quoting Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955))". There is no provision in the Code which allows an exemption based on inflation adjustments. Furthermore, Colton's assertion that Congress is only authorized, and Congress only intended, to tax real--inflation adjusted--income is meritless. "Congress has the power and authority to establish the dollar as a unit of legal value with respect to the determination of taxable income, independent of any value the dollar might also have as a commodity." Hellerman v. Commissioner of Internal Revenue, 77 T.C. 1361, 1364 (1981); see Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240 (1935). Congress intended to define "income" as the term is understood in common usage, not as an economist would define it. See Merchant's Loan & Trust Co. v. Smietanka, 255 U.S. 509, 519 (1921); United States v. Oregon-Washington R. & Nav. Co., 251 F. 211, 212 (2d Cir. 1918); Hellerman, 77 T.C. at 1366. We agree with every court that has addressed the issue that Congress intended, and has the authority, to tax gross income without adjusting for inflation. See, e.g., Stelly v. Commissioner of Internal Revenue, 804 F.2d 868 (5th Cir. 1986), cert. denied, 107 S. Ct. 1352; Birkenstock v. Commissioner of Internal Revenue, 646 F.2d 1185 (7th Cir. 1981); Hellerman, supra.² 

2. Colton is not entitled to a deduction or credit for the value of his time spent preparing his tax return

Deductions are a matter of legislative grace and will only be allowed when there is a clear provision authorizing them. New Colonial Ice Co. Inc. v. Helvering, 292 U.S. 435, 440 (1934). The Code does not provide for a deduction for the value of time spent preparing a tax return. See Walter v. Commission, 38 T.C.M. (CCH) 594 (1979). Furthermore, the Code does not provide for a credit for the value of the time it takes a taxpayer to prepare a return, and we cannot create one. Congress has the authority to require citizens to file tax returns without compensating those citizens for the value of their time and effort. See Kasey v. Commissioner of Internal Revenue, 457 F.2d 369, 370 (9th Cir. 1972) (requiring a taxpayer to file a tax return does not constitute involuntary servitude under the thirteenth amendment), cert. denied, 409 U.S. 869 (1972); Walter v. Commissioner of Internal Revenue, 38 T.C.M. (CCH) 594, 595 (1979) (every citizen has a duty to file a return that is as accurate as possible).

There is no basis in law or fact for any of Colton's claims. The judgment is therefore affirmed.