Bert v. Comptroller of the Treasury

DAVIS, J. This is a tax protestor case. 1 In his appeal from the judgment of the Circuit Court for Howard County (McCrone, ²⁴⁸ J.), Colvin I. Bert, appellant, seeks further judicial review of the decision of the Maryland Tax Court. 2 The circuit court affirmed the decision of the Tax Court, which in turn had upheld tax assessments and penalties regarding the income tax years of 1999, 2000, 2001, 2002 and 2004. Appellant, aggrieved by the decision of that court, seeks our review of a host of issues. 3 Recast to facilitate and clarify appellate review, the pertinent issues on appeal are as follows: ²⁴⁹ 1. Whether the Maryland Tax Court erred by concluding that Mr. Bert was not entitled to exclude from his income for tax year 2004 compensation that he had received from his employers, and whether the Maryland Tax Court erred by affirming the assessment of frivolous return penalties for tax years 1999, 2000, 2001, 2002 and 2004. 2. Whether the Maryland Tax Court abridged appellant’s privilege against self-incrimination or due process ²⁵⁰ rights, or otherwise erred in the conduct of its statutory review.

For the reasons set forth below, we shall affirm. Background This dispute between appellant and the Comptroller of Maryland involves appellant’s filings for tax years 1999 through 2002 and 2004. 4 We set forth pertinent facts related to each year. Tax Years in Question 1999 On July 31, 2000, appellant filed a Maryland Tax Form 503 for calendar year 1999. He attached a Form W-2 from the OAO Corporation in Greenbelt that reported wages in the amount of $79,043.25, and a Form 1099-G that reported unemployment compensation in the amount of $250 from the State of Maryland.

On the 1999 tax filing, appellant repre ²⁵¹ sented that his reportable net income was “$0.00.” On October 3, 2005, appellant filed an amended Maryland Tax Form 502X for the calendar year 1999, accompanied by an IRS Form 4852, “Substitute for Form W-2,” that reported his wages from OAO Corporation to be “$0.00.” 5 Appellant represented on the Form 502X that the adjusted gross income from the federal return was also “$0.00.” On the Form 4852, appellant explained the change in income: Company provided records and statutory language behind IRC sections 3401 and 3121 and others. Request, but the company refuses to issue forms correctly listing payments of “wages as defined in 3401(a) and 3121(a)” for fear of IRS retaliation. The amounts listed withheld on the W-2 it submitted are correct, however.[ 6 ] To explain his amended Maryland 1999 return, appellant represented: Submitting Form 4852. Original W-2 submitted with return was in error.

Employer issued forms incorrectly listing payments of wages as defined in IRC Sections 3401(a) and 3121(a). However, withholding amounts on W-2 are correct. ²⁵² 2000 On April 15, 2004, appellant filed a Maryland Tax Form 503 for calendar year 2000. The Form 503 listed appellant’s federal adjusted gross income from the federal tax return for that year as $2,000. 7 Appellant then filed an amended Form 502X for calendar year 2000 on a Form 502X that was signed on October 4, 2005. This filing was accompanied by four W-2 forms that reported a total of $81,680.69 in salary or wages for 2000. 8 Appellant also received $2,000 in unemployment compensation in calendar year 2000.

On October 4, 2005, appellant filed what purported to be an amended Maryland Tax Return on Form 502X for calendar year 2000. This filing was accompanied by four self-generated Forms 4852, each of which reported wages in the amount of ²⁵³ “$0.00.” On the Form 502X filing, appellant represented that his federal adjusted gross income for calendar year 2000 was $2,000, the amount he received as unemployment compensation. 2001 On October 5, 2005, appellant signed a purported Maryland Tax Return for calendar year 2001 and filed the Form 502 on that date or thereafter. He reported his adjusted gross income for that year as “$0.00,” and claimed a tax refund of $5,504.12. For 2001, the Data Computer Corporation reported that appellant had received compensation in the amount of $87,091.12 as reflected in the Form W-2 that was issued by that employer.

Notwithstanding, appellant’s self-generated Form 4852 reported his wages from Data Computer Corporation as “$0.00.” 2002 On October 7, 2005, appellant filed a Maryland Tax Form 502 for the calendar year 2002 and reported on this form an adjusted gross income from the federal return of “$0.00.” He also claimed a tax refund of $5,985.71 and attached a self-generated Form 4852 that represented that his wages from Data Computer Corporation were “$0.00.” The Data Computer Corporation W-2 for this period reported that appellant’s wages were $91,031.21. 2004 This pattern repeated itself on October 12, 2005, when appellant signed and, shortly thereafter, filed a Maryland Tax Form 503 for calendar year 2004. Although the W-2 form that had been issued by Data Computer Corporation reported appellant’s wages at $93,577.88, his self-generated Form 4852 represented that he had received no wages from this company that year. Comptroller’s Actions In 2006, the Comptroller acted on appellant’s tax filings. On March 27, 2006, the Comptroller sent appellant a notice of income tax assessment with respect to the 2004 tax year, ²⁵⁴ followed on March 31 by a similar assessment notice that addressed the tax years of 1999, 2000, 2001 and 2004. 9 In these assessments, the Comptroller advised appellant that the tax returns in question were each incorrect and assessed a $500 frivolous return penalty for each tax year in question. 10 The Comptroller also recomputed appellant’s 2004 income.

Appellant objected to these assessments and the Comptroller convened an informal hearing on July 10, 2006. On July ²⁵⁵ 23, 2007, the Comptroller issued a “Notice of Final Determination” with respect to the tax assessments for Tax Years 1999 through 2002. In this Notice, the Comptroller also upheld the adjustments to appellant’s 2004 filing. The Notice of Final Determination relevantly provided: This is the Comptroller’s final determination, on your request for revision of the income tax assessments, issued on March 31, 2006 for tax years 1999, 2000, 2001, and 2002, and on March 27, 2006 for tax year 2004, pursuant to Tax General Article, Section 13 — 508(c) of the Annotated Code of Maryland.

On July 10, 2006, an informal hearing was held regarding the above referenced assessments. At issue is the imposition of frivolous return penalties by the Comptroller for all years, and for tax year 2004, also the recomputation of tax due. Rita Bormuth, of the Compliance Division, appeared on behalf of the Comptroller of Maryland. She testified that Mr. Bert filed amended returns for tax years 1999 and 2000 showing only interest and unemployment income.

For tax years 2001 and 2002, Mr. Bert filed original returns reporting zero income. On March 31, 2006, Ms. Bormuth sent Mr. Bert a Notice of Income Tax Assessment which assessed a frivolous return penalty of $500.00 for each of the years 1999, 2000, 2001, and 2002. For tax year 2004, Mr. Bert filed a return reporting zero income and requesting a refund of his withholding in the amount of $7,076.13. Ms. Bormuth testified that she recomputed the return including the wages in the amount of $93,578.00 reported on the W2 from Data Computer Corp. of America.

Based on that recomputation, she calculated a tax refund due in the amount of $39.43. She assessed a $500.00 frivolous return penalty, and applied the refund amount toward that penalty, resulting in a balance due on the 2004 assessment of $460.57. The Comptroller outlined appellant’s arguments: Mr. Colvin Bert appeared on his own behalf at the hearing. Mr. Bert disputed the imposition of the frivolous ²⁵⁶ return penalties.

As to the amended returns, he stated that he was required by law to amend his Maryland returns because he had amended his federal returns for tax years 1999 and 2000. However, he also stated that the federal amendments had no effect on his Maryland liability. With regard to the amounts reported on all of the returns, Mr. Bert stated that he felt his Maryland returns were filed in accordance with applicable Maryland law. As directed by Tax-General Article § 10-204, he reported the same federal adjusted gross income on his Maryland return that he reported on his federal returns.

He further argued that by reporting these amounts, as well as the amounts he calculated on his substitute W2s, the information reported on the returns was not substantially incorrect on its face. With regard to tax year 2000, Mr. Bert also disputed the imposition of the frivolous return penalty with regard to the amended return, since he had already been assessed a frivolous return penalty when he filed his original 2000 Maryland return. Mr. Bert also questioned Ms. Bormuth’s authority to issue the assessments and the legality of those assessments. He referred to Ms. Bormuth’s job description and argued that nowhere in that description did he find authority to issue assessments or penalties.

Mr. Bert’s position is that because Ms. Bormuth’s job description does not specifically list assessing tax or penalty as one of the duties of her position, Ms. Bormuth acted outside the scope of her authority in issuing these assessments, thereby rendering the assessments illegal. The Comptroller then overruled appellant’s demand for copies of “original assessments”: Throughout the hearing, Mr. Bert demanded copies of “original assessments,” referring to assessments issued with regard to tax deficiencies discovered in tax years 1999, 2000, 2001 and 2002. Liabilities have been finalized with regard to those years which are outside the scope of this matter, ²⁵⁷ which for tax years 1999, 2000, 2001, and 2002, is limited to the appeal of the frivolous return penalties imposed. The Notice of Final Determination concludes: Pursuant to Tax-General Article § 10-102, a tax is imposed on the Maryland taxable income of each individual. “Maryland taxable income” is defined at Tax-General Article § 10-101(1) for an individual as “Maryland adjusted gross income, less the exemptions and deductions allowed under this Title.” Tax-General article § 10-203 provides that “the Maryland adjusted gross income of an individual is the individual’s federal adjusted gross income for the taxable year as adjusted under this Part II of this subtitle.” “Gross income” is defined in Internal Revenue code (IRC) § 61(a) as “... all income from whatever source derived, including (but not limited to) [cjompensation for services.” IRC § 3401(a) defines the term “wages” as “... all remuneration (other than fees paid to a public official) for services performed by an employee for his employer ...” Moreover, the courts have consistently found that wages are included in gross income.

Mr. Bert was compensated, in the form of wages, for the services he performed for Data Computer Corp. of America, and those wages are income. The Taxpayer has not met his burden of proving that his wages are not subject to federal and state income tax. Accordingly, I find that the adjustments to Mr. Bert’s 2004 return resulting in tax refund $39.43 were correct. Mr. Bert’s complaint challenging Ms Bormuth’s authority to issue the assessments is without merit.

The September 28, 2004 memorandum that Mr. Bert referred to as “Ms. Bormuth’s job description” begins with the following summary of Ms. Bormuth’s position: “The main purpose of this position is to audit questionable individual income tax returns to determine if the information on the return is correct and to adjust the returns when necessary based on the audit findings.” ²⁵⁸ A tax collector who in the course of examination or audit of a return finds a deficiency is required by § 13-401(a) to assess the deficiency. The language is unequivocal. Therefore, Ms. Bormuth, like any employee of the Comptroller who examines and audits returns, is required by the statute to assess a deficiency when she finds one. Being statutorily mandated, there is no question that issuing an assessment after finding a deficiency was within the scope of her employment.

As an employee of the Comptroller acting within the scope of her employment, I find that the deficiency discovered by Ms. Bormuth with regard to tax year 2004 (the variance between the refund claimed by Mr. Bert and the much lower refund calculated by Ms. Bormuth) was lawfully assessed. Likewise, the language of § 13-705, “shall assess a penalty,” is language of requirement. Based upon the findings of her investigation, Ms. Bormuth was compelled to assess the frivolous penalties at issue in this appeal for tax years 1999, 2000, 2001, 2002, and 2004. Accordingly, I reject Mr. Bert’s claim that the assessments were issued unlawfully.

Based on the evidence presented, I agree that the returns filed by Mr. Bert that are at issue in this appeal contain information that, on its face, indicated the tax reported is incorrect, and that this position for each year is frivolous because it has no basis in law or fact, is patently unlawful, and does not involve a legitimate dispute or reflect an inadvertent mathematical or clerical error. Mr. Bert acknowledged working for Computer Data Corp. of America and that he received wages for his work, despite his erroneous argument that the employer issued W2 is incorrect. As Mr. Bert has been made aware by the outcome of other appeals, those wages are taxable as income, and for him to take a contrary position is indeed frivolous. Mr. Bert’s assertion that he was required “under Maryland law” to file amended returns for tax years 1999 and 2000 because he filed amended federal returns for those years is also incorrect.

In the case where the Internal Revenue Service issues a final determination increasing ²⁵⁹ federal taxable income, Tax-General Article § 13 — 409(b) requires the individual to file a statement of the amount of increase within 90 days of the date of the Service’s determination. However, there is no legal requirement to file an amended return simply because an amended federal return was filed when the requested federal change would not result in an increase to federal taxable income. Accordingly, the assessments are affirmed in the amounts stated above. On August 23, 2007, appellant petitioned the Maryland Tax Court to review the Comptroller’s “Final Determination.” Tax Court Action The Tax Court conducted a hearing on appellant’s petition on March 13, 2008.

The Tax Court denied appellant’s petition and explained its ruling from the bench: Mr. Bert, I’m going to rule that you do in fact owe frivolous penalties for each and every one of your returns. Your arguments, if I can best summarize them, are that you had no taxable income in any one of those years because of your reading of the Tax Code that you fall within one or possibly more than one code section which would render every dollar that you earned as non-taxable. [T]he one that I find as frivolous as it could possibly be was the argument that there’s a Code section that says income earned out of the United States is exempt, and that your income would be exempt because at least some of your income was earned outside the United States. And then you pointed to the fact that you earned some income in the State of Maryland, which is not part of the United States. Patently frivolous. ...

I don’t think that it’s possible that there can be a sincere belief that earned income in the State of Maryland is exempt from State and Federal income tax because it was earned outside of the United States. You then pointed to another section that defined some people as employees. The Code section on its face does not ²⁶⁰ say these are the only employees. It does say, the term employee shall include.

But it doesn’t say those are the only employees, or the only possible employees, and it’s a fairly restrictive list. I don’t believe there’s any decisions anyplace that say that those are the only individuals that have taxable income from wages. And then you referred to some other sections with even less description as to how they might possibly apply to you. And then you came to the amazing decision that every single dollar of wage that you earned in every one of those years was exempt from Federal and Maryland income tax.

This is frivolous. Not one of these possible positions have any basis in fact, have any basis in law____But, in fact, you were asking for a refund of every penny that had been withheld and suggested that you had no income whatsoever, no taxable income whatsoever. This is frivolous. This on its face is impeding the process of the tax collection.

Individuals, the Comptroller’s Office, are wasting their time trying to come to an understanding of what your taxable income should be because you are providing incorrect information. The Tax Court then addressed the substitute W-2 Forms that depicted his income as “0” and the “zero” returns: ... the W-2 that you created has the same zero and the same zero on the Maryland return, so since they’re all three zeros they must be correct — no, they just all three zeros are the same — and provided no information, none at all, as to why any one of those zeros would be correct other than the fact that the State of Maryland is not part of the United States so your earnings in this State should not count. You stated before that no court has ever ruled against you, I don’t think that’s the case. I know the Tax Court has ruled against you any number of times.

Zeros for income for you are not appropriate, and it is not right. ²⁶¹ The Tax Court then addressed and rejected appellant’s argument with respect to the assessment of penalties 11 : [JUDGE SILBERG:] Just by accident, is there any issue that I haven’t addressed in my decision? Okay. MR. LANGBAUM: I don’t think so, Your Honor.

MR. BERT: You haven’t addressed the 13-705(b) statute that says if there’s no tax due then — 13—705(b) claims that the penalty is an additional penalty of 13-701. And so therefore ... JUDGE SILBERG: Okay.

Under the 13-705 return it says, does not contain information on which substantial correctness of the tax can be determined. If you’re suggesting to me that putting a zero down is substantially allowing anyone to determine the correctness of the tax, I just don’t follow it. It’s clearly, at best, just confusing the whole issue. MR.

BERT: No, I’m referring to 13-705(b). JUDGE SILBERG: That’s exactly what I’m reading. MR. BERT: No, (b).

JUDGE SILBERG: Additional to other penalty. MR. BERT: Right. JUDGE SILBERG: The penalty under subsection (a) is in addition to any other penalty assessed under this Code section.

That’s certainly true. I don’t know if anybody on any of these returns has assessed any additional penalties, but this would be in addition to those. I don’t think this section would require there be a penalty otherwise. But this is in addition to, not a substitute for.

On April 25, 2008, the Tax Court issued an Order affirming the Comptroller’s decision. The Order incorporated the reasons set forth by the opinion the Tax Court rendered from the bench at the conclusion of the hearing. ²⁶² Judicial Review On May 23, 2008, appellant petitioned for judicial review in the Circuit Court for Howard County. On December 8, 2009, the court conducted a hearing on appellant’s petition and ruled in favor of the Comptroller: [THE COURT:] Essentially, the four issues that are before the Court today are whether the Tax Court properly concluded the Petitioner was not entitled to exclude from income the wages he received from his employer in 2004. I find the record does contain substantial evidence to support the Tax Court’s decision.

Number Two, the question is whether the Maryland Tax Court properly affirmed the assessment of frivolous return penalties against the Petitioner for '99 through 2002 and for 2004, because Petitioner excluded wages from reported income when he filed his Maryland income tax. Again, I do find that the record is replete with substantial evidence to support the Tax Court’s conclusions. The third issue is whether the Tax Court properly allocated the burden of proof to the Petitioner in his claims for abatement of frivolous return penalty. I do find that the Tax Court properly allocated the burden of proof to the Petitioner.

And the fourth question is sort of a catch-all: did the Maryland Tax Court commit any other clear errors, and I find that they did not. The circuit court issued an order reflecting this holding on December 11, 2008. This appeal followed. Discussion Standards of Review The Maryland Tax Court is an administrative agency and its decisions are subject to the same standards of judicial review that are reserved for any appellate tribunals.

See Frey v. Comptroller, 184 Md.App. 315, 330 , 965 A.2d 923 (2009), aff'd on other grounds, 422 Md. 111 , 29 A.3d 475 (2011), ²⁶³ cert. denied, -U.S.-, 132 S.Ct. 1796 , 182 L.Ed.2d 618 (2012). See also Furnitureland South Inc. v. Comptroller, 364 Md. 126 , 138 n. 8, 771 A.2d 1061 (2001); Shell Oil Co. v. Supervisor of Assessments, 276 Md. 36, 38 , 343 A.2d 521 (1975); Arnold Rochvarg, Principles and Practice op Maryland Administrative Law, § 13.4 at 159-60 (2011) (discussing original jurisdiction of circuit court; noting that Tax Court remains administrative agency). Accordingly, we “undertake our own de novo review of the decision of the Tax Court.” Frey, 184 Md.App. at 330 , 965 A.2d 923 (citations omitted). Hence, “[w]hen this or any appellate court reviews the final decision of an administrative agency such as the [Tax Court], the court looks through the circuit court’s ... decision[ ], although applying the same standards of review, and evaluates the decision of the agency.” People’s Counsel v. Surina, 400 Md. 662, 681 , 929 A.2d 899 (2007) (citation omitted).

See Comptroller of the Treasury v. Science Applications International Corp., 405 Md. 185, 192-93 , 950 A.2d 766 (2008). Again, the appropriate inquiry is not whether the circuit court erred, but “whether the administrative agency erred.” Spencer v. Bd. of Pharmacy, 380 Md. 515, 524 , 846 A.2d 341 (2004). “ ‘Maryland courts play a limited role when reviewing adjudicatory decisions of administrative agencies[,]’ ” MVA v. Dove, 413 Md. 70, 79 , 991 A.2d 65 (2010) (quoting MVA v. Shepard, 399 Md. 241, 251 , 923 A.2d 100 (2007)), and a court’s role in conducting this review is “very narrow.” Shepard, 399 Md. at 252 , 923 A.2d 100 (citing Maryland Aviation Administration v. Noland, 386 Md. 556, 570-71 , 873 A.2d 1145 (2005)). Our review of an agency’s determinations of law is plenary, although an agency’s interpretation of its organic statute is entitled to some deference and its expertise entitled to respect. 12 Total AV v. Dep’t of Labor, 360 Md. 387, 394 , 758 ²⁶⁴ A.2d 124 (2000). See Spencer, 380 Md. at 529 n. 3, 846 A.2d 341 .

See also Frey v. Comptroller, 184 Md.App. 315, 331 , 965 A.2d 923 (2009), cert. denied, — U.S., 132 S.Ct. 1796 , 182 L.Ed.2d 618 (2012). Findings of fact by the administrative agency are reviewed under a more deferential “substantial evidence” standard. See Stansbury v. Jones, 372 Md. 172, 182-83 , 812 A.2d 312 (2002); Comptroller v. Colonial Farm Credit, ACA, 173 Md.App. 173, 177 , 918 A.2d 514 (2007). See also Comptroller v. Science Applications Int’l Corp., 405 Md. 185, 192 , 950 A.2d 766 (2008).

See generally, A. Rochvarg, Maryland Administrative Law § 4.33 at 137-39 (2007). Writing for the Court of Appeals, Judge Raker articulated the contours of substantial evidence review: When an agency decision encompasses a mixed question of law and fact, we review it under the “substantial evidence” standard provided in Md.Code (1984, 2004 Repl.Vol.), §§ 10-222(h)(3)(v) of the State Government Article---Substantial evidence review is narrow; the question is not whether we would have reached the same conclusions, but merely whether “a reasoning mind” could have reached those conclusions on the record before the agency----We appraise an agency’s fact finding in the light most favorable to the agency, and this deference extends to subsequent inferences drawn from that fact finding, so long as supported by the record.... The agency’s determination of factual issues will be upheld if the record of the agency ²⁶⁵ proceeding affords a substantial basis of fact from which the issue can be reasonably inferred. Schwartz v. Dep’t of Natural Res., 385 Md. 534, 554 , 870 A.2d 168 (2005) (citations omitted).

We review the evidence in the light most favorable to the Tax Court. Comptroller v. Citicorp, 389 Md. 156, 163 , 884 A.2d 112 (2005). An administrative agency “may be affirmed only on the basis of the grounds on which it decided the case.” Frey v. Comptroller, 422 Md. at 133 n. 12, 29 A.3d 475 ; Evans v. Burruss, 401 Md. 586, 593 , 933 A.2d 872 (2007). Introduction Appellant received total compensation in the tax years in question of approximately $434,424, including unemployment compensation of at least $2,000.

In his view, the compensation from his employers for this period is not subject to taxation. As noted above, appellant presents a variety of questions in his challenge to the decision by the Tax Court. See n. 2, ante. We have carefully reviewed his arguments and shall address his salient points below.

At this juncture, however, we consider the core issue presented, ie., we determine whether the Tax Court erred in ruling that appellant was not entitled to exclude from taxable wages the compensation he received from employers in 2004 and whether the frivolous return penalties assessed against him for the 1999 up to and including 2002 and 2004 were unlawful. Comptroller’s Calculation of 2004 Income and “Adjustment of Return ” As best can be determined, appellant complains that the Comptroller unlawfully adjusted his returns. Essentially, he asserts that the federal adjusted gross income is conclusive and binds the Comptroller, and that the Comptroller employee who made the adjustment and issued the assessment acted beyond her authority. 13 We disagree. ²⁶⁶ In Comptroller v. Colonial Farm Credit, ACA, ante, the Comptroller appealed the allowances by the circuit court of the refund claims of an Agricultural Credit Association (ACA) taxpayer that were based on amended tax returns. At issue was whether the Comptroller was bound by a settlement between the taxpayer and the Internal Revenue Service.

We concluded that the Comptroller was not. Writing for this Court, Judge Kenney pointed out that, while “Maryland tax law looks only to the total federal taxable income generated on the federal tax return,” he further observed that “other aspects of federal law that might ultimately affect the taxpayer’s federal tax liability” such as certain federal deductions do not enter into the Maryland tax calculus. Comptroller v. Colonial Farm Credit, ACA, 173 Md.App. at 182 , 918 A.2d 514 . We then emphasized: [T]he Comptroller is not required to accept the federal taxable income figure provided on a taxpayer’s federal tax return merely because that figure was accepted by the IRS.

To the contrary, the doctrine of conformity presupposes a truthful and accurate federal taxable income figure: “Obviously the Maryland law contemplates the truthful reporting of income on the federal return; otherwise a defrauding taxpayer, while subject to federal prosecution, would escape state prosecution, a result hardly contemplated by the legislature.” Winters v. State, 301 Md. 214, 236 , 482 A.2d 886 (1984). The Comptroller therefore has the authority to adjust a taxpayer’s taxable income to ensure that it is truthful and accurate under the IRC: If a taxpayer failed to report certain income on its federal tax return that the I.R.C. mandated it to report, and the IRS accepted that figure, [the Comptroller] should be permitted to recalculate the Maryland modified income because the federal taxable income figure it relies on would be incorrect. Likewise, if the IRS exercised its ²⁶⁷ discretion to create mandatory regulations that required the taxpayer to report certain income, and the taxpayer failed to do so, [the Comptroller] could follow those IRS regulations in recalculating the Maryland modified income. In both cases, the statute or regulation are rigid and objective in their determination of what is taxable income.

If we were to hold that [the Comptroller] could never apply such provisions, then taxpayers who evade their federal income taxes would be free, without considering criminal sanctions, to evade their Maryland income tax obligation as well. We should not attribute such an illogical intent to the Legislature’s 1967 revision of the state tax code. Comptroller v. Colonial Farm Credit, 173 Md.App. at 183-84 , 918 A.2d 514 (quoting Comptroller v. Gannett Co., 356 Md. 699, 716 , 741 A.2d 1130 (1999) (footnote omitted)). Cf Katzenberg v. Comptroller, 263 Md. 189, 205-06 , 282 A.2d 465 (1971) (State’s power to tax basic attribute of sovereignty).

Although appellant submitted a “zero return” to the Internal Revenue Service, and attempts to justify a similar, amended, Maryland return on the basis of the federal filing, the Comptroller was entitled, indeed obligated, to “recalculate the Maryland modified income because the federal taxable income figure it relies on would be incorrect.” Colonial Farm Credit, 173 Md.App. at 184 , 918 A.2d 514 . Appellant’s claim that his Maryland return is necessarily compelled by a federal filing is without merit. The federal adjusted gross income is not binding on the Comptroller if that figure is demonstrably incorrect. The Comptroller’s audit power is not constrained by an incorrect or fraudulent federal adjusted gross income.

Authority of Comptroller Employee Appellant insists that the employee of the Comptroller who assessed his frivolous return penalties lacked the authority to do so. He asserts: [Ms.] Gorman’s conclusion [in the Notice of Final Determination] concerning [Ms.] Bormuth’s authority to issue an assessment is erroneous because nowhere in [Ms.] Bor ²⁶⁸ muth’s job description does it state that an auditor making an adjustment to a tax return is a Tax Collector that can assess a tax or penalty. As a matter of fact her job description specifically states that she will attend appeal hearings regarding adjustments made as a result of an audit or a tax protestor case. [Ms.] Bormuth did not submit any evidence to support Gorman’s contention that an audit was conducted of [Mr.] Bert’s 2003 tax return and [Mr.] Bert is unaware of being identified as a tax protestor by [Ms.] Bormuth. Therefore, [Ms.] Bormuth may testify at a hearing as to why an adjustment is warranted, but nowhere does her job description state she has assessment authority.

It appears [Ms.] Gorman accomplishes the assessment authority in [Mr.] Bert’s case. This argument is without merit. We agree with the analysis, as set forth by Ms. Gorman in the “Notice of Final Assessment,” that Ms. Bormuth possesses the authority to assess a frivolous return penalty. The statutory definition of “Comptroller” embraces an employee acting within the scope of employment and also an “agent or representative of the Comptroller acting within the scope of the Comptroller’s authority.” 14 TG §§ 1-101(e)(2)(i), (ii).

The fact that Ms. Bormuth is authorized to “attend appeal hearings” does not, as apparently suggested by appellant, undermine her authority to assess penalties. TG § 13 — 101(c)(2)(ii) defines “tax collector” to include the “Comptroller,” and we conclude that the term “Comptroller” embraces any employee. TG § 13-401(a) provides that, “if a tax collector examines or audits a return and determines that the tax due exceeds the amount shown on the return, the tax collector shall assess the ²⁶⁹ deficiency.” TG § 13-705(a) authorizes the Comptroller to assess a frivolous return penalty. In each instance, we conclude that the Tax-General Article authorizes the Comptroller, and employees to whom the tax collection authority is delegated, to render necessary assessments.

We note in passing that, while the Tax-General Article does not define the term “assessment,” the Supreme Court has recognized in a case that addressed the Tax Injunction Act, 28 U.S.C. § 1341 , that “[i]n ... tax law generally, an assessment is closely tied to the collection of a tax, i.e., the assessment is the official recording of liability that triggers levy and collection efforts.” Hibbs v. Winn, 542 U.S. 88, 101 , 124 S.Ct. 2276 , 159 L.Ed.2d 172 (2004). According to a job description, the “purpose” of Ms. Bormuth’s position as a Revenue Specialist “is to audit individual income tax returns to determine if the information on the return is correct and to adjust the returns when necessary based on the audit findings.” Rendering an assessment, in our view, falls within the scope of Ms. Bormuth’s work. Appellant’s assertion to the contrary is baseless. 15 Ruling on 2004 Wages We now turn to the merits of appellant’s challenge to the 2004 Tax Year assessment. The Tax Court rejected appellant’s various theories as to why he should be allowed to avoid his tax obligations and upheld the Comptroller’s recalculation of appellant’s income for 2004.

We discern no error in this ruling. ²⁷⁰ The General Assembly has dictated that, except in cases not relevant here, “a tax is imposed on the Maryland taxable income of each individual[.]” Md.Code (1988, 2010 Repl.Vol.), § 10-102 of the Tax General Article (“TG”). Maryland residents are taxed under TG § 10-105, which establishes the State income tax rates, and are also subject to local income tax pursuant to TG §§ 10-103,10-106. See Frey, 422 Md. at 123-24 , 29 A.3d 475 . The point of departure for calculating a resident’s Maryland tax liability is the taxpayer’s federal adjusted gross income.

TG § 10-203. 16 Cf Comptroller v. Colonial Farm Credit, ACA, 173 Md.App. at 181 , 918 A.2d 514 (recognizing that “Maryland income tax liability is dependent, to some extent, on the taxpayer’s federal income tax liability.”) We further observed in Colonial Farm Credit : The Court of Appeals has explained the doctrine of conformity between state and federal tax law as follows: [T]he whole thrust of the Maryland Act is to impose a tax on the amount determined under the Internal Revenue Code as the adjusted gross income of an individual or the taxable income of a corporation. This is a formula or yardstick objectively derived which initially takes no account of the source, nature or composition of the funds; it is simply a figure developed by the federal return. Comptroller v. Colonial Farm Credit, 173 Md.App. at 181 , 918 A.2d 514 (quoting Katzenberg v. Comptroller, 263 Md. at 204-205 , 282 A.2d 465 ). “Maryland income tax law has consistently remained ‘inextricably keyed’ to the Internal Revenue Code.” Comptroller v. Chesapeake Corp. of Virginia, 54 Md. App. 208, 213, 218 , 458 A.2d 459 , cert. denied, 296 Md. 653 (1983). ²⁷¹ The federal adjusted gross income is, in turn, defined by the Internal Revenue Code (IRC) as the individual’s gross income minus certain deductions. 26 U.S.C. § 62 (a). The IRC defines “gross income” as follows: § 61.

Gross income defined. (a) General definition. — Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross income derived from business ... 26 U.S.C. § 61 (a). Appellant does not dispute the definition of “gross income” as that term is defined in the Internal Revenue Code. He instead asserts that he does not qualify as an “employee” subject to taxation: Bert is an employee of a domestic corporation and is not an officer of a corporation.

Therefore, Bert is not an employee as defined in the IRC § 3401(a) and Bert’s wages should not have been subject to withholding as taxable wages. We disagree. First, “wages” are income for purposes of the Internal Revenue Code. Section 3401(a) of the IRC, 26 U.S.C. § 3401 (a) defines “wages” in part as follows: § 3401.

Definitions (a) Wages For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; ... “Every court which has ever considered the issue has unequivocally rejected the argument that wages are not income.” United States v. Connor, 898 F.2d 942, 943 (3d Cir.1990). ²⁷² Appellant seizes on the definition of “employee” as set forth in IRC § 3401(c) to emphasize that he does not qualify as an “employee” and, presumably, did not earn taxable “wages.” IRC § 3401(c) reads in pertinent part: (c) Employee For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation. 26 U.S.C. § 3401 (a), (c). Appellant’s claim that he is not an “employee” is baseless. This position has specifically been disapproved by the Internal Revenue Service: Section 3401(a) provides that “wages” include all remuneration for services performed by an employee for his employer.

Section 3121(a) provides a similar definition of wages for FICA tax purposes. The argument that only federal employees and persons residing in Washington, D.C. or federal territories and enclaves are subject to tax is based on a misinterpretation of section 3401(c), which defines “employee” and states that the term “includes an officer, employee or elected official of the United States, a State, or any political subdivision thereof----” Section 31.3401(c)-l of the Employment Tax Regulations provides that the term “employee” includes every individual performing services if the relationship between that individual and the person for whom he performs such services is the legal relationship of employer and employee. Section 7701(c) states that the use of the word “includes” “shall not be deemed to exclude other things otherwise within the meaning of the term defined.” Thus, the word “includes” as used in the definition of “employee” under § 3401(c) is a term of enlargement, not of limitation. Courts have recognized that federal employees and officials are among those within the definition of “employee,” which also includes private citi ²⁷³ zens.

See Sullivan v. United States, 788 F.2d 813, 815 (1st Cir.1986) (contention that taxpayer was not an “employee” is meritless, section 3401(c) does not limit withholding to the persons listed therein); United States v. Latham, 754 F.2d 747, 750 (7th Cir.1985) (under section 3401(c), the category of “employee” includes privately employed wage earners; the word “includes” is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others); Pabon v. Commissioner, T.C. Memo 1994-476 (1994) (taxpayer’s frivolous position that she was not subject to tax because she was not an employee of the federal or state governments warranted sanctions of $2,500). The employment tax withholding provisions do not affect whether wages are gross income. Section 61 provides that compensation for services is includable in gross income. Whether the compensation for services is in the form of wages, or in some other form, is irrelevant.

The amount is still subject to income tax. All employees, not just federal employees and those living in federal territories and enclaves, are subject to income and employment taxes. Internal Revenue Service, Rev. Rul.2006-18 (April 10, 2006). Various federal and state courts are in accord.

In United States v. Latham, 754 F.2d 747 (7th Cir.1985), the defendant was convicted of willful failure to file income tax returns and for filing false W-4 statements. One of the six issues raised on Latham’s direct appeal from the judgments of conviction and sentence was that the district court erred by refusing to propound various jury instructions. The United States Court of Appeals for the Seventh Circuit rejected Latham’s claim of error with respect to two theories that are similar to appellant’s interpretation of the Internal Revenue Code; the court’s comment is instructive: The other jury instructions proffered by the defendant are equally inane. Thus we hold that the district court did not err in refusing the other instruction offered by Latham implying that 26 U.S.C. § 7343 defining “person” does not include natural persons.

Similarly, Latham’s instruction ²⁷⁴ which indicated that under 26 U.S.C. § 3401 (c) the category of “employee” does not include privately employed wage earners is a preposterous reading of the statute. It is obvious that within the context of both statutes the word “includes” is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others. United States v. Latham, 754 F.2d at 750 . In a footnote, the Seventh Circuit court quoted with approval the following observation by the Fifth Circuit: “The statute’s provision was not intended to exclude individuaos] or to limit the ordinary meaning of the term ‘person’ so as to exclude individuals or ‘natural persons’ ... from their responsibility to comply with the tax laws.” Id., 754 F.2d at 750 n. 2 (quoting United States v. Rice, 659 F.2d 524, 528 (5th Cir.1981)).

See United States v. Beale, 574 F.3d 512 , 518 n. 3 (8th Cir.2009); Chamberlain v. Krysztof, 617 F.Supp. 491, 496 (N.D.N.Y.1985) (“definition of ‘employee’, contrary to the interpretation urged by plaintiff, is more properly read to include all those persons with the ‘status of employee under the usual common law rules applicable in determining the employer-employee relationship.’ ”) (emphasis added) (quoting Marvel v. United States, 719 F.2d 1507, 1514 (10th Cir.1983) (distinguishing “employee” from “independent contractor”)); Peth v. Breitzmann, 611 F.Supp. 50, 53 (E.D.Wis.1985). See also Biermann v. C.I.R., 769 F.2d 707, 708 (11th Cir.1985) (rejecting claim that taxpayer not an “employee” subject to withholding within the meaning of IRC). We note the following observation by the First Circuit: To the extent Sullivan argues that he received no “wages” in 1983 because he was not an “employee” within the meaning of 26 U.S.C. § 3401 (c), that contention is meritless. Section 3401(c), which relates to income tax withholding, indicates that the definition of “employee” includes government officers and employees, elected officials, and corporate officers.

The statute does not purport to limit withholding to the persons listed therein. ²⁷⁵ Sullivan v. United States, 788 F.2d 813, 815 (1st Cir.1986) (emphasis in original). Cf. United States v. Hendrickson, 664 F.Supp.2d 793, 815-16 (E.D.Mich.2009) (rejecting claim that taxpayer was not a “person” under IRC § 7343). 17 We hold that appellant was an “employee,” as that term is defined in IRC § 3401(c). Source of Income — Taxpayer Status Before the Tax Court, appellant urged that there is no federal statute that dictates that income derived from sources within the United States was taxable and, thus, income derived from his employment in the State of Maryland was not taxable.

Appellant also advanced the argument that he earned compensation “outside the country.” His argument is without merit. At the hearing before the Tax Court, appellant’s testimony prompted the following exchange: JUDGE SILBERG: How much did you — In 1999 how much did you earn outside of the country? MR. BERT: All of it. [COMPTROLLER:] Okay.

Explain to the Court then what is the basis of your understanding that would have you conclude that your wages were earned outside of the country? A. That the United States only includes certain instrumentalities, government places.... JUDGE SILBERG: Oh! Let me ask a different question.

Where exactly did you earn this money in 1999? JUDGE SILBERG: Was it in the State of Maryland? MR. BERT: My company was in the State of Maryland, yes. ²⁷⁶ JUDGE SILBERG: Were you in the State of Maryland?

MR. BERT: Yes. Would do you mean, as far as — Sometimes I was in the State of Maryland, yes. Your Honor, this line — I object to all of this line of questioning.

The Tax Court sought to keep the hearing on point and reminded appellant that the court required a factual basis in order to rule on appellant’s legal theories: JUDGE SILBERG: Mr. Bert, we’re asking you factual questions. It’s up to the Court to interpret the Code and you can give us guidance in interpretation, but first we start with facts. Now are you going to answer our questions or not? MR.

BERT: I’m going to have to, to the best of my ability. JUDGE SILBERG: Okay. We’ll try it one last time: In 1999 where were you working that you think was outside of the United States? MR.

BERT: And I’m saying I can’t answer that question. [COMPTROLLER:] Can’t or won’t? MR. BERT: No. I can’t. All I can say is, according to the Code, I was not working in the United States.

JUDGE SILBERG: All right. Maybe I’ll try a different question. Were you working in one of the fifty states? MR.

BERT: No. JUDGE SILBERG: Were you working in the ... MR. BERT: What did you say, was I working in one of the fifty states? JUDGE SILBERG: Fifty states.

MR. BERT: Sometimes, yes. JUDGE SILBERG: Sometimes. MR.

BERT: Yes. JUDGE SILBERG: So some of your earnings were in one of the fifty states of the United States. MR. BERT: Yes, yes. ²⁷⁷ JUDGE SILBERG: And you didn’t include any of those as part of your tax ...

MR. BERT: No, because I was exempt. What I had, according to other Code sections, it was exempt. A. I said it’s the instrumentalities, it’s the possessions of the United — it’s the possessions.

There are a number of things that — that, um ... JUDGE SILBERG: Okay. We’ll try it: Is the State of Maryland part of the United States? MR.

BERT: On this, no. [COMPTROLLER:] Okay. Now we’re getting somewhere. Now we’re getting somewhere, Mr. Bert. Appellant’s claim fails.

Treasury Regulation 1.1 — 1(b) provides in part: (b) Citizens or residents of the United States liable to tax. In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States. 26 C.F.R. § 1.1 — 1(b). Similarly, the United States Court of Claims has emphasized that the determination of where income is derived or “sourced” is generally of no moment to either United States citizens or United States corporations, for such persons are subject to tax under I.R.C. § 1 and I.R.C. § 11, respectively, on their worldwide income. Great-W. Life Assurance Co. v. United States, 678 F.2d 180, 183 (Ct. Cl.1982).

One of appellant’s main contentions was that, for purposes of the Internal Revenue Code, Maryland was not part of the United States. This claim is without merit. In United States v. Sloan, 939 F.2d 499, 500-01 (7th Cir.1991) (citations and internal quotations omitted), the Seventh Circuit rejected the theory that an individual, for purposes of the IRC, was not subject to federal tax: ²⁷⁸ Also basic to Mr. Sloan’s “freedom from income tax theory” is his contention that he is not a citizen of the United States, but rather, that he is a freeborn, natural individual, a citizen of the State of Indiana, and a “master” — not “servant” — of his government. As a result, he claims that he is not subject to the jurisdiction of the laws of the United States.

This strange argument has been previously rejected as well. “All individuals, natural or unnatural, must pay federal income tax on their wages,” regardless of whether they requested, obtained or exercised any privilege from the federal government.... An individual is a “person” under the Internal Revenue Code. Moreover, the tax code imposes a direct nonapportioned [income] tax upon United States citizens throughout the nation, not just in federal enclaves, such as postal offices and Indian reservations. As one commentator observed: The Internal Revenue Code imposes an income tax on the income of every individual who is a citizen or resident of the United States.

Many protesters contend that they are not citizens of the United States but rather are one of the following: (1) freeborn, natural individuals; (2) citizens of State X; or (3) nonresident aliens. As a result, protesters claim they are not subject to the jurisdiction of the United States’ tax laws. This claim is based upon an interpretation of the 1913 Internal Revenue Act which defined the words “state” and “United States” to “include” United States territories and the District of Columbia. Protesters argue the word “include” is a term of limitation rather than of definition, and thus conclude that the term “individual” within the Internal Revenue Code only applies to persons within such jurisdictions.

The protesters’ argument is meritless. “While the Fourteenth Amendment does not create a national citizenship, it has the effect of making that citizenship ‘paramount and dominant’ instead of ‘derivative and dependent’ upon state citizenship.” Thus, all natural born individuals are United States citizens, irrespective of where they reside in the ²⁷⁹ United States. Accordingly, all citizens are subject to the Internal Revenue Code and therefore, to the federal income tax. Christopher S. Jackson, The Inane Gospel of Tax Protest: Resist Rendering Unto Caesar-Whatever His Demands, 32 Gonz. L.Rev. 291, 310-11 (1997) (footnotes omitted).

Cf. United States v. Beale, 574 F.3d 512, 515 (8th Cir.2009) (rejecting defendant’s theories, which, “[a]t their core” are that “citizens of the 50 states and Native Americans are immune from federal income taxation unless they are employees of the federal government or freed slaves.”). See also United States v. Gerads, 999 F.2d 1255, 1256 (8th Cir.1993) (rejecting contention that taxpayers not citizens of the United States, but rather “Free Citizens of the Republic of Minnesota” not subject to taxation) (citing United States v. Kruger, 923 F.2d 587,