## Facts

- Victor Lepucki, an Inland Steel employee, submitted a Form W-4 claiming exemption from federal income-tax withholding.
- The IRS rejected the W-4 as containing false information, directed Inland Steel to withhold taxes from Lepucki’s wages, and assessed a $500 penalty plus interest.
- Represented by attorney John A. Hyde, Lepucki sued IRS officials and Inland Steel, asserting claims including defamation and wrongful withholding based on the IRS withholding directives and the employer’s compliance.
- The district court dismissed the action as frivolous and imposed costs and attorney’s fees against Lepucki.
- Lepucki appealed the dismissal and the sanctions; the appeal was consolidated with a related appeal also argued by Hyde involving similar theories attacking Federal Reserve notes and tax withholding.

## Issues

1. Whether the district court abused its discretion by dismissing Lepucki’s suit as frivolous.
2. Whether the district court abused its discretion by imposing costs and attorney’s fees as sanctions in response to frivolous litigation tactics and arguments.
3. Whether claims challenging IRS withholding directives and penalties for false W-4 information, and an employer’s compliance with those directives, stated any colorable basis for civil liability.

## Decision

- The Seventh Circuit affirmed the dismissal of Lepucki’s action.
- The Seventh Circuit affirmed the imposition of costs and attorney’s fees.
- The court treated the appeal as part of a pattern of meritless tax-protester litigation and concluded that sanctions were an appropriate response to counsel’s conduct.

## Legal Principles

- Attorneys have a duty to ensure filings are factually grounded and legally supportable; pressing baseless, previously rejected theories may warrant sanctions.
- Fed. R. Civ. P. 11 permits sanctions for filings not warranted by existing law (or a good-faith argument for its change) and for papers interposed for improper purposes.
- 28 U.S.C. § 1927 permits sanctions against counsel who unreasonably and vexatiously multiplies proceedings, causing excess costs and fees.
- Courts may impose monetary sanctions to compensate opposing parties and to deter repetition when litigation lacks any colorable legal basis.
- Broad attacks on federal income-tax withholding systems and related monetary theories do not supply a valid foundation for civil claims against IRS officials or employers complying with withholding directives.

## Conclusion

The Seventh Circuit affirmed dismissal of Lepucki’s lawsuit challenging IRS withholding action and penalties and upheld fee-and-cost sanctions, holding that the claims and appellate arguments were frivolous and that Rule 11 and related sanction authority properly deterred and remedied vexatious litigation conduct.


Lepucki v. Van Wormer, 765 F.2d 86 (7th Cir. 1985)