Armstrong v. United States

• Decision Date: 17 December 1965
• Docket Number: No. 225-60.,225-60.
• Citation: 354 F.2d 274
• Parties: O.K. ARMSTRONG and M.M. Armstrong v. The UNITED STATES.
• Court: U.S. Claims Court

354 F.2d 274 (1965)

O.K. ARMSTRONG and M.M. Armstrong v. The UNITED STATES.

No. 225-60.

United States Court of Claims.

December 17, 1965.

Clarence T. Kipps, Jr., Washington, D. C., for plaintiffs. Miller & Chevalier, Washington, D. C., of counsel.

Philip R. Miller, Washington, D. C., with whom was Acting Asst. Atty. Gen. Richard M. Roberts, for defendant. C. Moxley Featherston, Lyle M. Turner, and Philip I. Brennan, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS and COLLINS, Judges.

PER CURIAM.

This income tax case, relating to the six years 1945 through 1950, was referred to Trial Commissioner W. Ney Evans with directions to make appropriate factual findings and to submit his recommendation for a conclusion of law. The commissioner has filed a report containing findings, an opinion, and a recommended legal conclusion. Exceptions have been taken, briefs filed, and oral argument had. The ultimate issues are: (1) whether, apart from the defense of collateral estoppel, the defendant has sustained its burden of showing that Mr. Armstrong committed fraud in filing his tax returns for these years; (2) whether plaintiffs have shown that the taxes assessed against them (exclusive of fraud penalties) were erroneous; and (3) whether plaintiffs are collaterally estopped, by a prior criminal conviction, from arguing that Mr. Armstrong committed fraud in his returns for 1947, 1948, and 1949. The commissioner's answers to these inquiries were that the Government had failed to prove that Mr. Armstrong committed fraud; that the plaintiffs had likewise failed to prove any error in the basic taxes assessed against them; and that the doctrine of collateral estoppel was inapplicable in the circumstances of this case. The defendant challenges the first and third of these conclusions; the plaintiffs accept the second in part.

On the first two of these issues the court adopts the portion of Commissioner Evans' opinion which deals with these questions. His conclusion results almost entirely from his evaluation of Mr. Armstrong as a person, in the past as well as the present — as gleaned from the latter's testimony before the commissioner, from Mr. Armstrong's life and background, and from the evidence pertaining to Mr. Armstrong's dealings with his tax responsibilities and problems, especially in 1945 through 1950. Giving due weight to the commissioner's opportunity to appraise Mr. Armstrong, his testimony, and the evidence of his past actions, the court sees no basis for overturning the trier's factual determination and evaluation and therefore accepts them. That part of the commissioner's opinion, together with the preliminary discussion, appears in Part I of this opinion (with minor changes). The court's views on the legal issue of collateral estoppel (which differ from those of the commissioner) are set forth in Part II. Our ultimate conclusion on the whole case is contained in Part III.

I

Commissioner Evans' opinion, except for the discussion of collateral estoppel, is as follows (with minor changes):

Taxpayer¹ seeks by this action to recover deficiency assessments and alleged overpayments of income taxes for the years 1945 through 1950. The defense alleges that for each of the 6 years in question plaintiff filed false or fraudulent income tax returns in an attempt to evade taxes properly due and owing.

The petition was filed on June 10, 1960. Theretofore, on April 13, 1955, taxpayer had been convicted under a three-count indictment of having willfully attempted to defeat and evade income taxes owed the United States by filing false returns for the 3 years 1947, 1948, and 1949. A fine of $500 per count was thereafter imposed.

When the present action came on for pretrial proceedings, the allegation of res judicata in defendant's answer to the petition was presented and considered in terms of collateral estoppel, i. e., whether or not plaintiff was estopped to deny fraud for the years 1947-1949 or to present evidence in support of such a denial.

At that time and later, when the case was brought to trial (in November 1963), well-reasoned precedents were divided sharply on the application of collateral estoppel. Under the circumstances, ruling on the question was reserved, and the trial proceeded pursuant to an understanding that the Government, having the burden of proving fraud, might adduce evidence of fraud as to any or all of the years in question, and the plaintiff might seek to refute any such evidence offered by the Government. Moreover, plaintiff was permitted, under this arrangement, to adduce evidence of overpayment of taxes for all years (including the years 1947-1949) in contemplation of the finding for which he contends that there was no fraud in any of the 6 years at issue in this suit.

In recent months (being since the conclusion of the trial of the instant case), the Tax Court of the United States has reversed field categorically and now is in accord with the Court of Appeals holding that collateral estoppel does apply. As a consequence, the overwhelming weight of authority now favors the position initially taken by the Government that plaintiff's prior conviction for having willfully attempted to defeat and evade income taxes lawfully due operates as an estoppel to preclude him from denying fraud for the years 1947-1949 or from presenting evidence in support of such a denial.

Meanwhile, the case has been tried pursuant to the ruling reserved and the understanding above recited, and the attorneys for the parties have submitted their requested findings of fact and their briefs on the law in conformity with the trial record as made. Since it is manifestly impossible to unscramble the omelet and apply collateral estoppel in pristine form nunc pro tunc, the findings of fact have also been prepared in conformity with the trial record as made, reserving the application of the law for the formal conclusion.

The conclusions which I have reached as findings of ultimate fact on the basis of the evidence are, on their face, contradictory. On the issue of fraud, as to which the defendant has the burden of proof, my conclusion is that defendant has failed to sustain the burden as to any year in issue; while on the issue of overpayment of taxes, as to which plaintiff has the burden of proof, my conclusion is that plaintiff has failed to carry the burden for lack of credibility. The facts will explain this paradox.

Plaintiff's father was a Baptist minister who held a pastorate at Willow Springs, Missouri, at the time his son was born, shortly before the turn of the century. The father later held pastorates in other small towns in southwest Missouri, at one of which (Carterville) plaintiff completed the eighth grade and was graduated from high school.

Plaintiff attended Drury College, in Springfield, Missouri, majoring in education and psychology, and was graduated with a bachelor of arts degree. He taught school for a year, and was in the military service for 2 years during World War I. Upon his release from the service, he studied law at Cumberland University, in Tennessee, receiving his degree in 1922. He was duly admitted to practice in Missouri, but elected instead to turn to journalism. He took a master's degree in journalism from the University of Missouri.

For 3 years during the late 1920's he taught journalism at the State University of Florida. He was caught up in the Florida land speculation of that era and incurred losses when the boom collapsed. He assumed personal responsibility for some of these losses, and completed payment of the debts in 1946.

In 1929, plaintiff returned to Missouri and became active in the Baptist Church and the Republican Party. He was elected to the Missouri General Assembly in 1932, 1934, and 1942, and to the House of Representatives of the United States Congress in 1950, where he served one term. Meanwhile, in 1938, he served by appointment of the Governor as an investigator of alleged corruption (gambling, racketeering, and prostitution) in Jackson County (Kansas City), Missouri.

While living in Florida, plaintiff, began a career as a free-lance writer. Upon his return to Missouri, in 1929, he continued writing part time, but devoted most of his efforts during the first 2 or 3 years to teaching at Drury College and serving as its alumni director, and later to the duties of public office, elective or appointive.

In 1938, he began writing articles for the Reader's Digest, on assignment or on speculation, and in 1944 was appointed an editorial staff writer with the status of expenses and remuneration for those of his articles which the magazine accepted for publication. He continued in this status during the years at issue in this suit (1945-1950) and thereafter. Sizable portions of his gross income during these years came from articles accepted for publication by the Reader's Digest and from the reimbursement of expenses incurred in the writing of such articles. He also wrote for other publications, and has written at least two books.

Two of his articles have concerned taxation, dealing primarily with efforts to lower taxes. In 1946, he was appointed chairman of an advisory committee created by the Senate Committee on Post Office and Civil Service, and has since described this assignment as being related to "the Senate Study on Taxation," although his duties were more concerned with the possibility of lowering the cost of Government operations with a view toward the consequent reduction of taxes.

During the 10 or 12 years material to this action (from 1944 through 1955), plaintiff was active (1) in civic affairs, being a member of the Kiwanis Club, the American Legion, and the Chamber of Commerce in his home town of Springfield, Missouri; (2) in church work, as a member of the University Heights Baptist Church, and as chairman and member of various regional councils and associations engaged in Baptist-related civic and...