Meier v. Comm'r of Internal Revenue
| Decision Date | 22 August 1988 |
| Docket Number | Doket No. 10278-77 |
| Citation | 91 T.C. No. 24,91 T.C. 273 |
| Parties | JENNIE E. MEIER AND JOHN H. MEIER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
P and his former employer H were parties to a proceeding for an accounting in the Federal District Court for the District of Utah. H was successful in seeking an accounting from P and the District Court found that P had ‘secretly divert»ed† funds * * * for his own use and benefit * * *.‘ R, who was not a party to the accounting proceeding, seeks to offensively utilize collateral estoppel to preclude P from denying his diversion of the funds in connection with P's failure to report such amounts as income on his Federal income tax returns.
The use, in a current proceeding, of collateral estoppel as to factual matters was traditionally limited to use as an ‘ultimate‘ fact. The Evergreens v. Nunan, 141 F.2d 927 (2d Cir. 1944). This Court adopted the ‘ultimate facts‘ approach. Amos v. Commissioner, 43 T.C. 50 (1964), affd. 360 F.2d 358 (4th Cir. 1965). More recent commentators and court opinions recommend or use evidentiary or intermediate facts, which may be facts in support of ‘ultimate facts.‘ Synanon Church v. United States, 820 F.2d 421 (D.C. Cir. 1987). HELD, P is estopped to deny that he diverted funds for his own use and benefit. HELD FURTHER, this Court adopts the more contemporary standard for factual use of collateral estoppel and, to that extent and only to that extent, overrules the standard set forth in Amos v. Commissioner, supra.
HELD FURTHER, P fraudulently failed to report, for Federal income tax purposes, funds diverted from H for 1969 and 1970. HELD FURTHER, the statute of limitations on assessment and collection has expired for petitioners' 1968 taxable year. Robert H. Wyshack, for the petitioners.
Charles W. Jeglikowski and Joyce Sugawara, for the respondent.
Respondent, in a statutory notice dated May 24, 1977, determined deficiencies and additions to petitioners' income tax as follows:
+------------------------------------------+
¦Year¦Deficiency ¦Sec. 6653(b) addition1 ¦
+----+------------+------------------------¦
¦1968¦$26,141.28 ¦$13,070.64 ¦
+----+------------+------------------------¦
¦1969¦1,504,622.39¦752,311.20 ¦
+----+------------+------------------------¦
¦1970¦379,230.45 ¦189,615.23 ¦
+------------------------------------------+
The issues for our consideration are: (1) Whether petitioners are collaterally estopped from relitigating certain facts found by the Federal District Court in an action for an accounting brought by Hughes Tool Company against petitioner John Meier; 2 (2) whether petitioners failed to report income from the sale of mining claims to Hughes Tool Company during taxable years 1969 and 1970; (3) whether deposits to bank accounts and cash investments made by petitioners during 1968 and 1969 constituted taxable income in those years; (4) whether any part of any underpayment of tax for the years 1968, 1969 and 1970 is due to fraud; and (5) whether the statute of limitations bars the assessment and collection of the deficiencies and additions to tax for the years 1968, 1969 and 1970.
At the time of filing their petition in this case, petitioners resided in British Columbia, Canada.
The factual predicate for this case, at least as to the mining claim transactions, is relatively simple. However, for a number of reasons, drawing the facts from the record has been an unnecessarily complicated and arduous task. 3 For purposes of clarity, a simplified macroscopic factual picture is presented prior to our detailed findings.
Petitioner, John Meier (Meier), was employed by Hughes Tool Company (Hughes). In that capacity, he was apparently directed to acquire silver mining claims. In derogation of his duty to his employer, Meier, through agents or co-conspirators, purchased such claims for nominal amounts, and then sold them to Hughes at immensely inflated prices. The sales proceeds were then channeled overseas, at petitioner's direction and for his benefit, to avoid detection by his employer and to avoid the incidence of the United States income tax.
The major underlying source of the determined deficiencies concern five mining transactions, namely: (1) the Bogdanich sale; (2) the Hatsis sale; (3) the Belaustegui sale; (4) the Bida and Belaustegui sale; and (5) the Globe Minerals, Inc., sale. Some of the individuals involved in the mining transactions were:
Anthony Hatsis (Hatsis) a co-conspirator of Meier, and president of Globe Minerals, a corporation involved in buying and selling mining claims.
James Cowley (Cowley) — attorney for Hatsis.
John Suckling (Suckling) — attorney for petitioner.
Charles Adams (Adams) — a tax attorney used to help plan the transfer of the sales proceeds overseas.
Robert Kahan (Kahan) — a CPA used to help plan the overseas transfers.
Joseph Foley (Foley) — attorney for Hughes.
Bogdanich, Bida and Belaustegui — these individuals were apparently ‘straw men‘ that acquired the claims from the original owners for Meier and Hatsis and then were named as sellers in the Hughes transactions.
This sales agreement was dated May 15, 1969. Most of the claims that were eventually sold through Meier to Hughes were originally sold to Bogdanich for consideration of $99,000 and 100,000 shares of Westland Minerals stock (a company controlled by Hatsis). The full consideration was never paid. These mining claims were in turn sold for $2,900,000 to CPLD, a corporate shell of Hughes used to avoid publicity. The proceeds were deposited in an escrow account with Cowley as the escrow holder. Meier acted as agent for Hughes. Of the total consideration, Bogdanich received $150,000. John Suckling was paid $900,000 which was placed in his client's trust account. Hatsis was paid $350,000. Petitioner knew of the vast disparity between the relatively nominal acquisition cost of the mining claims and the inflated sale price to Hughes.
On June 17, 1969, Hatsis purchased these claims from Columbia Investment Corporation for $25,000 and 30,000 shares of Globe Minerals stock. Under an agreement dated June 20, 1969, Hatsis agreed to sell these claims to Hughes, through Meier, for $850,000. After legal and escrow fees, the escrow holder, Continental Bank and Trust Company, distributed approximately $751,000 to Hatsis, $480,000 of which was paid to Maatschappij Intermovie, N.V. (Intermovie), 5 a Dutch corporation.
Belaustegui acquired his interest in these mining claims for no consideration. Belaustegui then assigned his interest to an alleged venture of Hatsis, Belaustegui and Everd Van Walsum (Van Walsum). 6 By agreement dated September 4, 1969, Hughes, through John Meier, purchased these claims with Belaustegui named as the seller for $1,500,000. The escrow holder issued approximately $1,497,000 to Belaustegui, who turned the money over to James Cowley, who distributed $477,000 to Hatsis and $900,000 to Van Walsum.
The mining claims for this transaction were acquired for $25,000. Hatsis advanced most of the purchase price. By agreement dated October 20, 1969, Bida and Belaustegui, the named sellers, sold these claims to Hughes through John Meier for $1,900,000. The escrow holder issued $1,881,000 to the named sellers, who turned the money over to Cowley. Cowley reimbursed Hatsis the purchase price and distributed $165,000 to Bida and Belaustegui. Cowley also distributed $1,150,000 ultimately to Intermovie and approximately $550,000 to Hatsis.
The mining claims for this sale were acquired for $57,000, advanced by Suckling from the $900,000 he had received from Meier in the Bogdanich sale. 7 By agreement dated December 2, 1969, Globe Minerals, Inc. (Globe), the named seller, sold these claims to Hughes for $1,400,000. An agent for Globe received $1,387,00 from the escrowee, who delivered it to Cowley, who in turn delivered it to Van Walsum.
In all the above-described transactions, the mining claims were purchased for relatively nominal consideration and subsequently sold to Hughes at greatly inflated prices. Meier, as Hughes' agent for these transactions, signed the escrow agreements in the Hatsis, Belaustegui, and Belaustegui-Bida transactions and was extensively involved in these transactions on behalf of Hughes. Petitioner also signed numerous other documents on behalf of Hughes in negotiating and consummating these transactions. Meier directly acknowledged his authority to acquire claims for Hughes and negotiated with Foley to provide a shell corporation (CPLD) to avoid publicity in the Bogdanich sale.
The total sales proceeds received from Hughes for the mining claims involved in the five transactions was $8,550,000. After reductions for escrow expenses and authorized payments, sales proceeds netted $8,401,587.72 for distribution from the various escrowees. Suckling, Intermovie and/or Van Walsum received a total of $4,816,976.02 from the five sales, as follows:
+----------------------------------+
¦Hatsis sale ¦$480,000.00 ¦
+---------------------+------------¦
¦Bogdanich sale ¦900,000.00 ¦
+---------------------+------------¦
¦Belaustegui sale ¦900,000.00 ¦
+---------------------+------------¦
¦Bida-Belaustegui sale¦1,150,000.00¦
+---------------------+------------¦
¦Globe Mineral sale ¦1,386,976.02¦
+---------------------+------------¦
¦Total ¦4,816,976.02¦
+----------------------------------+
During the time these sales were taking place, Suckling engaged Charles Adams, Everd Van Walsum and Robert Kahan, among others, to do some ‘tax planning‘ for Meier. While Meier could not appear, directly or indirectly, to be the owner of these funds, he...
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