Anderson v. Comm'r

• Decision Date: 07 September 2012
• Docket Number: No. 11–1704.,11–1704.
• Citation: 698 F.3d 160
• Parties: Walter C. ANDERSON, Appellant v. COMMISSIONER of INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Third Circuit

698 F.3d 160

Walter C. ANDERSON, Appellant

v.COMMISSIONER of INTERNAL REVENUE.

No. 11–1704.

United States Court of Appeals, Third Circuit.

Argued May 7, 2012.

Opinion filed: Sept. 7, 2012.

Steven J. Jozwiak, Esquire, (Argued) Cherry Hill, NJ, for Appellant.

Gilbert S. Rothenberg, Esquire, Acting Deputy Assistant Attorney General, Bethany B. Hauser, Esquire, (Argued)Robert W. Metzler, Esquire, Francesca U. Tamami, Esquire, United States Department of Justice, Tax Div., Washington, DC, for Appellee.

Before: SLOVITER and ROTH, Circuit Judges and POLLAK^*, District Judge.

OPINION

ROTH, Circuit Judge:

This appeal arises out of a civil tax fraud proceeding in United States Tax Court.The taxpayer challenges the Tax Court's determination that, under the doctrine of collateral estoppel, his previous guilty plea for criminal tax evasion conclusively established the taxability to him of specific income that his criminal indictment charged him with failing to report.He additionally argues on the basis of a number of preclusion doctrines that the Internal Revenue's (IRS) concession of all tax deficiency and penalty issues for certain years should have prevented it from obtaining recovery of such payments in other years because the issues for all years were identical.As explained below, we find that these arguments are without merit, and we will therefore affirm the Tax Court's judgment.

I.BACKGROUND

On September 30, 2005, PetitionerWalter Anderson was charged in a superseding indictment with federal tax evasion for tax years 1995 through 1999, in violation of 26 U.S.C. § 7201.During those years, Anderson was a telecommunications entrepreneur and venture capitalist who was actively involved in the operation of several international companies.Among these companies was Gold & Appel Transfer S.A.(G & A), a British Virgin Islands corporation which generated hundreds of millions of dollars of income during the tax years at issue.The government alleged that because G & A was a “controlled foreign corporation,” under Anderson's control, he was required to recognize a share of its income on his tax return and that he fraudulently failed to do so.The government alleged that for the five-year period at issue, Anderson had fraudulently underpaid his taxes by $184 million, 99% of which stemmed from the income of G & A.Pursuant to an agreement with the government, on September 8, 2006, Anderson pleaded guilty to the federal tax evasion charges for 1998 and 1999, while those same charges for 1995, 1996 and 1997 were dismissed.¹He was sentenced to 108 months imprisonment.

On July 17, 2007, the IRS issued a notice to Anderson determining civil tax deficiencies and fraud penalties for tax years 1995 through 1999. See26 U.S.C. §§ 6212,6663.(The deficiency amounted to the $184 million of underpaid taxes, resulting in a fraud penalty of $138 million.²)On September 7, 2007, while he was incarcerated in New Jersey, Anderson filed a petition in the United States Tax Court to redetermine these deficiencies.See26 U.S.C. § 6213(a).In response to motions by both parties, the Tax Court granted partial summary judgment to the IRS, finding that under the doctrine of collateral estoppel, Anderson's criminal conviction for tax evasion in 1998 and 1999 precluded him from contesting that he fraudulently underpaid his incomes taxes in those two years.The Tax Court denied summary judgment on the fraud issue for tax years 1995–1997, without prejudice to renew the motion “with a better record and more focused contentions.”

The holding on the 1998 and 1999 tax years had three principal effects.First, it established that Anderson had underpaid his income taxes in 1998 and 1999.Second, because a fraud penalty can only be assessed where a tax underpayment is due to fraud, it relieved the IRS of its burden of proving this penalty was applicable to Anderson for those two years.See26 U.S.C. § 6663(a).Finally, because the three-year statute of limitations on the assessment of a tax does not apply where a tax return has been filed falsely or fraudulently with the intent of evading tax, 26 U.S.C. § 6501(c)(1), it prevented Anderson from arguing that the IRS's attempts to collect taxes for 1998 and 1999 were untimely.³Though this decision established that Anderson had fraudulently underpaid his income taxes in 1998 and 1999, it left open for further proceedings the determination of the amounts of the tax deficiencies and penalties for those years.

Based on this ruling, the IRS filed a motion to sever tax years 1995, 1996, and 1997 from the case, stating that it “ha[d] decided to concede all tax and penalty issues for [those years] and wishe[d] to file a motion for entry of decision as to those years.”In its motion, the IRS explained that nearly 80% of the total deficiency and penalties for the five-year period stemmed from just 1998 and 1999, and that because proving fraud for 1995 through 1997 via trial would needlessly complicate and lengthen the case for a comparatively limited additional monetary recovery, it preferred to abandon its efforts for those years.The Tax Court found that, given its particular procedural rules, severing the case in this way would needlessly create clerical and administrative complexities, and it therefore denied the motion.It stated in its order, however, that it would “take notice of the [IRS's] concession of all tax and penalty issues for 1995, 1996, and 1997 and [would] reflect that concession in its eventual entry of decision in [the] case.”

This order led to the filing of a second set of summary judgment motions.Anderson argued in his motion that, notwithstanding the Tax Court's earlier holding that his criminal convictions for tax evasion collaterally estopped him from denying fraudulent underpayment of tax in 1998 and 1999, the IRS's subsequent concession of all tax and penalty issues for 1995, 1996, and 1997 established that the income of G & A and interest income from an account at Barclays Bank were not taxable to him even in 1998 and 1999.The IRS, meanwhile, argued in its motion that Anderson was precluded from contesting that the income of G & A in 1998 and 1999 constituted taxable income to him under Subpart F of the Tax Code.The Tax Court denied Anderson's motion and granted partial summary judgment to the IRS.It held, in favor of the IRS, that the concessionsrelated to tax years 1995 through 1997 did not resolve the deficiency and penalty issues for 1998 and 1999.It further agreed with the IRS's position that the proceedings in Anderson's criminal case established that G & A's income in 1998 and 1999 was taxable to him.The Tax Court rejected the IRS's argument, however, that Anderson's guilty plea estopped him from contesting that the income of G & A was taxable to him specifically under Subpart F of the Tax Code.Anderson now challenges the adverse holdings.

II.DISCUSSION

This Court has jurisdiction to review final orders of the Tax Court based on 26 U.S.C. § 7482(a)(1).⁴On March 7, 2001, pursuant to an agreement between the parties, the Tax Court entered an order determining the tax deficiency and fraud penalty for each year from 1995 through 1999, leaving no issues for it to decide and thus providing this Court with jurisdiction under that statute.We review the Tax Court's legal conclusions de novo and its factual findings for clear error.Capital Blue Cross v. Comm'r,431 F.3d 117, 123–24(3d Cir.2005).

A.The Preclusive Effect of Anderson's Criminal Conviction

Under the doctrine of collateral estoppel, “once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.”Montana v. United States,440 U.S. 147, 153–54, 99 S.Ct. 970, 59 L.Ed.2d 210(1979).It applies, however, only if: “(1) the issue sought to be precluded [is] the same as that involved in the prior action; (2) that issue [was] actually litigated; (3) it [was] determined by a final and valid judgment; and (4) the determination [was] essential to the prior judgment.”In re Graham,973 F.2d 1089, 1097(3d Cir.1992)(citations omitted).In light of these principles, we agree with the numerous courts that have held that, under the doctrine of collateral estoppel, a conviction for criminal tax evasion conclusively establishes the defendant's civil liability for tax fraud for the same year.SeeBlohm v. Comm'r,994 F.2d 1542, 1554(11th Cir.1993);Klein v. Comm'r,880 F.2d 260, 262(10th Cir.1989);Gray v. Comm'r,708 F.2d 243, 246(6th Cir.1983);Moore v. United States,360 F.2d 353, 356(4th Cir.1966).This is because the elements of evasion under 26 U.S.C. § 7201 and fraud under 26 U.S.C. § 6663 are identical.See, e.g., Gray,708 F.2d at 246.

Anderson nevertheless argues that the Tax Court erred in holding that his tax evasion conviction collaterally estopped him from litigating the taxability to him in 1998 and 1999 of the income of G & A in the civil tax fraud proceedings.Where, as here, a conviction is the result of a guilty plea, its preclusive effect extends to all issues that are necessarily admitted in the plea.SeeDe Cavalcante v. Comm'r,620 F.2d 23, 27 n. 9(3d Cir.1980);United States v. $448,342.85,969 F.2d 474, 476(7th Cir.1992);United States v. Wight,839 F.2d 193, 196(4th Cir.1987);United States v. Podell,572 F.2d 31, 35(2d Cir.1978).We find that Anderson admitted in his plea that the income of G & A was taxable to him in 1998 and 1999, and that this admission was necessary to his conviction.

Anderson pleaded guilty to a charge that in 1998“a substantial additional tax was due and owing to the United States” from him and that “[s]pecifically, he failed to report ... $126,303,951 Subpart F investment-type income from G & A.”He also pleaded guilty to another charge that alleged the same with respect to 1999, except that the...