Alt v. Commissioner
| Decision Date | 07 July 1994 |
| Docket Number | Docket No. 779-92. |
| Citation | 68 T.C.M. 38 |
| Parties | William J. Alt and Rosalinda Alt v. Commissioner. |
| Court | U.S. Tax Court |
This case is before the Court on petitioners' Motion for Leave to File Rule 162 Motion Out of Time. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years before the Court, and all Rule references are to the Tax Court Rules of Practice and Procedure.
By statutory notice of deficiency dated October 10, 1991, respondent determined deficiencies in petitioners' Federal income tax and additions to tax as follows:
Additions to Tax
--------------------------------------------------------------------------
Year Deficiency Section 6653(b)(1)1 Section 6653(b)(2)2 Section 6653(b) Section 6661
1982 ................ $ 78,510 $ 39,255 $ 57,363 -- $19,628
1983 ................ 176,832 88,416 104,480 -- 44,208
1984 ................ 160,170 80,085 94,066 -- 40,043
1986 ................ 227,466 170,600 83,314 -- 56,867
1987 ................ 231,610 173,708 62,000 -- 57,903
1988 ................ 224,635 -- -- $168,476 56,159
1 For the years ended December 31, 1986 and December 31, 1987, the section is 6653(b)(1)(A), instead of as
cited above
2 For the years ended December 31, 1986 and December 31, 1987, the section is 6653(b)(1)(B), instead of as
cited above
On January 10, 1992, petitioners filed their petition with this Court contesting all of the deficiencies and additions to tax for fraud and substantial understatement of tax for taxable years 1982, 1983, 1984, 1986, 1987, and 1988. Prior to the filing of the petition, petitioner William J. Alt (Dr. Alt) and his daughter, Karen Alt, had been tried in the United States District Court for the Western District of Michigan, Southern Division, on five counts of Federal tax violations. Dr. Alt was convicted on two counts: (count 1) conspiracy to evade his personal and corporate taxes in 1982, 1983, and 1984, and (count 3) evading and aiding and abetting in the evasion of personal income taxes for the year 1984.1 Dr. Alt was sentenced to 10-years imprisonment and fined $200,000. He appealed his criminal conviction to the United States Court of Appeals for the Sixth Circuit. The appeal of Dr. Alt's criminal conviction was pending at the time petitioners filed their petition in this Court. In the Answer, respondent asserted that Dr. Alt was estopped from denying the liability for civil fraud under the doctrine of collateral estoppel for the years 1982, 1983, and 1984. In their Reply to respondent's Answer, petitioners admitted Dr. Alt's criminal conviction but denied that the criminal conviction was relevant or material because the criminal case was still on appeal.
On August 31, 1992, respondent filed a motion to consolidate, for purposes of trial, briefing, and opinion, this case with 27 other related cases then pending before this Court.2 All of the 28 cases involve issues pertaining to income, expenses, and fraud for which the same evidence would be introduced at trial. On September 3, 1992, respondent's motion to consolidate the cases was granted.
By notice dated January 14, 1993, the 28 consolidated cases were calendared for trial in Chicago, Illinois, during the trial session of the Tax Court commencing on June 14, 1993. On February 26, 1993, the parties to all 28 consolidated cases, including petitioners, filed with this Court a Stipulation of Settlement in which the parties' liability and all of the deficiencies and additions to tax were agreed upon by the parties.3 In the Stipulation of Settlement, petitioners agreed that they were liable for deficiencies and additions to tax for civil fraud and substantial understatement of tax in the following amounts (without taking into consideration the jeopardy assessments made on August 15, 1991):
Additions to Tax
--------------------------------------------------------------------------
Year Deficiency Section 6653(b)(1)1 Section 6653(b)(2)2 Section 6653(b) Section 6661
1982 .............. $ 78,510.00 $ 39,255 3 -- $19,628
1983 .............. 176,832.00 88,416 3 -- 44,208
1984 .............. 160,170.00 80,085 3 -- 40,043
1986 .............. 222,251.50 166,689 3 -- 55,563
1987 .............. 230,685.51 173,014 3 -- 57,671
1988 .............. 221,008.52 -- -- $165,756 55,252
1 For the years ended December 31, 1986 and December 31, 1987, the section is 6653(b)(1)(A), instead of as cited above
2 For the years ended December 31, 1986 and December 31, 1987, the section is 6653(b)(1)(B), instead of as cited above
3 Fifty percent of the interest due on the deficiency from the due date of the return to the date of assessment of tax, or, if
earlier, the date of payment
On April 27, 1993, this Court entered a decision in this case pursuant to the Stipulation of Settlement filed by the parties.4
On June 18, 1993, the United States Court of Appeals for the Sixth Circuit, in United States v. Alt [93-2 USTC ¶ 50,385], 996 F.2d 827 (6th Cir. 1993), reversed the criminal convictions of Dr. Alt and Karen Alt and remanded the cases to the District Court for a new trial. The Court of Appeals acknowledged that, "At trial, the government produced evidence that defendants had under-reported both the corporate and personal income of William Alt, had taken improper deductions in a variety of ways, and had used Karen Alt's corporation, K.L. Financial Management, to make tracing of William Alt's personal and corporate income difficult." Id. at 828. The court held, however, that, under Cheek v. United States [91-1 USTC ¶ 50,012], 498 U.S. 192 (1991), the District Court's instruction that the jury had to presume the defendants' knowledge of their legal duty under Federal tax laws was plain error requiring reversal. United States v. Alt, supra at 829-830. The Court of Appeals noted, "The evidence concerning William Alt related only to his involvement in the financial transactions used to disguise or hide his income; there was no direct evidence of his knowledge of federal taxation." Id. at 829.
On March 28, 1994, petitioners filed the pending motion for leave to file a motion to vacate or revise the decision of this Court based on the Sixth Circuit's reversal of Dr. Alt's criminal conviction. Because petitioners have not made the necessary showing for either disregarding a valid settlement agreement or vacating a final decision of this Court, we will deny petitioners' motion.
The compromise and settlement of tax cases is governed by general principles of contract law. Robbins Tire & Rubber Co. v. Commissioner [Dec. 29,612], 52 T.C. 420, 435-436 (1969); Brink v. Commissioner [Dec. 25,815], 39 T.C. 602, 606 (1962), affd. [64-1 USTC ¶ 9257] 328 F.2d 622 (6th Cir. 1964). Where a decision is entered pursuant to a stipulated settlement, "only the existence of fraud or mutual mistake can justify reopening an otherwise valid settlement agreement". Brown v. County of Genesee, 872 F.2d 169, 174 (6th Cir. 1989); Estate of Jones v. Commissioner [86-2 USTC ¶ 13,675], 795 F.2d 566, 573-574 (6th Cir. 1986), affg. [Dec. 40,973(M)] T.C. Memo. 1984-53; Stamm International Corp. v. Commissioner [Dec. 44,584], 90 T.C. 315 (1988); Spector v. Commissioner [Dec. 26,738], 42 T.C. 110 (1964).5
Petitioners do not allege that there was a mutual mistake or a fraud in the settlement. Instead, they argue that because they were estopped to deny Dr. Alt's criminal tax fraud conviction and that conviction was subsequently reversed by the Court of Appeals, the basis for the decision no longer exists. Therefore, petitioners argue that the decision is inconsistent with substantial justice and manifestly unfair to petitioners and that this Court can and should vacate or revise the decision. We find petitioners' argument to be without merit.
In this case respondent had the burden of proving fraud. Sec. 7454(a); Rule 142(b). In a criminal case, due process requires that the Government prove beyond a reasonable doubt every fact necessary to constitute the crime with which a defendant is charged. In re Winship, 397 U.S. 358, 364 (1970). In a civil fraud case, however, respondent must prove each element only by clear and convincing evidence. Sec. 7454(a); Rule 142(b); Toussaint v. Commissioner [84-2 ustc ¶ 9839], 743 F.2d 309, 312 (5th Cir. 1984), affg. [Dec. 40,933(M)] T.C. Memo. 1984-25; Wright v. Commissioner [Dec. 42,013], 84 T.C. 636, 639 (1985).
Collateral estoppel precludes a party to a suit and his privies from relitigating, in a later suit on a different cause of action, the issues of fact and law that were actually and necessarily decided by the court in reaching its judgment in the first action. United States v. Mendoza, 464 U.S. 154, 158 (1984); Commissioner v. Sunnen [48-1 ustc ¶ 9230], 333 U.S. 591, 597-598 (1948). In the Answer, respondent asserted that petitioners were estopped to deny their liability for the additions to tax for fraud for the years 1982, 1983, and 1984 because of Dr. Alt's criminal conviction...
To continue reading
Request your trial