Armstrong v. C.I.R.

• Decision Date: 08 February 1989
• Docket Number: Nos. 88-7125,88-7128,s. 88-7125
• Citation: 869 F.2d 1496
• Parties: Unpublished Disposition NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. John ARMSTRONG, Kathryn Armstrong, Petitioners-Appellants, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee. John S. CROSBY, Carol J. Crosby, Petitioners-Appellants, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1496

869 F.2d 1496

Unpublished Disposition

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

John ARMSTRONG, Kathryn Armstrong, Petitioners-Appellants, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee.

John S. CROSBY, Carol J. Crosby, Petitioners-Appellants, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee.

Nos. 88-7125, 88-7128.

United States Court of Appeals, Ninth Circuit.

Submitted Feb. 8, 1989. ^*

Decided March 6, 1989.

Before CANBY, WIGGINS, and O'SCANNLAIN, Circuit Judges.

MEMORANDUM ^**

The tax court determined that there were deficiencies in taxpayers Armstrong's and Crosby's income tax, invalidating the deductions taken for investments in a gold mining scheme. The tax court found the gold mining program to be a fraudulent factual sham. Taxpayers appeal on the grounds that (1) the tax court exhibited prejudice; (2) the tax court erred in excluding certain evidence; and (3) the tax court erred in refusing to apply collateral estoppel. We reject these contentions and affirm.

FACTS AND PRIOR PROCEEDINGS

The IRS disallowed deductions claimed by Mr. and Mrs. Armstrong and Mr. and Mrs. Crosby (taxpayers) relating to investments in a gold mining program, Gold for Tax Dollars (GFTD). GFTD investors leased gold claims using their own money, plus the proceeds of non-recourse notes (1978) or option sales (1979 and 1980). Taxpayers would then deduct as mining development expenses both their own investment and the amount of the non-recourse loan or option.

The tax court found the GFTD promotion was a fraudulent factual sham. The court found that the tax shelters involved in the instant case were identical to those presented in Saviano v. Commissioner, 80 T.C. 955 (1983), aff'd, 765 F.2d 643 (7th Cir.1985) and Smith v. Commissioner, T.C.M. 1986-101, and concluded that the deductions relating to nonrecourse loans in 1978 and option sales in 1979 and 1980 would be disallowed. The court also concluded that the transactions were entered into primarily for tax benefits, and were therefore nondeductible.

ANALYSIS

A. Bias of Tax Court Judge

Taxpayers challenge the fairness and impartiality of the tax court judge. We construe this claim as an argument that the judge should have disqualified himself pursuant to 28 U.S.C. Sec. 455, and as a due process claim.

1. Section 455

Although the question of whether taxpayers may properly raise the issue of judicial bias under section 455 for the first time on appeal appears to be unsettled in this circuit, Compare Noli v. Commissioner, 860 F.2d 1521, 1527 (9th Cir.1988) with Palila v. Hawaii Dept. of Land & Natural Resources, 852 F.2d 1106, 1110 n. 7 (9th Cir.1988), we assume arguendo that taxpayers could properly raise this issue for the first time on appeal.

Where, as here, no motion is made to the trial court judge, a party will bear a greater burden on appeal to demonstrate that the judge erred in failing to recuse himself under section 455. United States v. Sibla, 624 F.2d 864, 868 (9th Cir.1980); Noli, 860 F.2d at 1527. Taxpayers fail to carry this greater burden.

Taxpayers assert that the judge's prejudice was indicated by comments prior to the beginning of testimony and during the trial expressing doubts about the taxpayers contentions, his determinations allegedly based on insufficient evidence, his refusal to admit certain testimony and his failure to adopt the factual findings of a prior case.

These contentions do not support a finding of prejudice such that the judge erred in failing to recuse himself. A judge is not delinquent for expressing doubts about the merit of a particular case. Noli, 860 F.2d at 1527; United States v. Frias-Ramirez, 670 F.2d 849, 853 n. 6 (9th Cir.), cert. denied, 459 U.S. 842 (1982). Nor are adverse rulings on disputed legal issues evidence of bias. In addition, parties cannot attack a judge's impartiality on the basis of information and beliefs acquired by the judge while acting in his or her judicial capacity; to be disqualifying the alleged bias must stem from an extrajudicial source. Frias, 670 F.2d 849 n. 6; United States v. Grinnell Corp., 384 U.S. 563, 583 (1966). In the instant case, the judge explicitly stated on several occasions that his doubts about the validity of the transactions were based on evidence before the court.

2. Due Process

Allegations of bias will rise to the level of a due process violation only in the most extreme instances. Aetna Life Ins. v. Lavoie, 475 U.S. 813, 821 (1986). The behavior cited in the instant case does not reach this rigorous standard.

B. Exclusion of Evidence

Appellants also assign as error the court's decision to exclude the testimony of William Hoffius, testimony which would have allegedly shown that the mining operation was not a sham.

Rule 402 of the Federal Rules of Evidence states that evidence that is not relevant is not admissible. Fed.R.Evid. 402. On appeal to this court, the trial court's decision to admit or exclude evidence based on the issue of relevancy is reviewed for an abuse of discretion. Sochin v. Commissioner, 843 F.2d 351, 355 (9th Cir.1988).

Here, the court excluded the testimony because it found that the witness lacked personal information pertaining to the tax years in question and because he was not an expert as to the value of the property or its prospects. Under these circumstances, the decision of the tax court judge that this evidence did not possess sufficient probative value to justify receiving it into evidence was not an abuse of discretion.

Taxpayers make two further arguments. First, taxpayers suggest that the tax court's procedural disposition of the case was prejudicial. Second, taxpayers allege that the tax court erred in not allowing them to present evidence that the United States government interfered with their property and contract rights. We reject both arguments as without merit.

C. Collateral Estoppel

Taxpayers allege that collateral estoppel prevents the relitigation of issues of fact relating to the practicality of the mining operations that had been determined in SEC v. Rogers. No. 80-4841, slip op. at 43-52 (C.D.Cal.1985). The availability of collateral estoppel is...