Bilzerian v. Commissioner, T.C. Memo. 2012-264
| Decision Date | 12 September 2012 |
| Docket Number | T.C. Memo. 2012-264,Docket No. 3648-98 |
| Parties | PAUL A. BILZERIAN AND TERRI L. STEFFEN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Paul A. Bilzerian and Terri L. Steffen, pro sese.
Michael J. Gabor, for respondent.
WELLS, Judge: This case is before the Court on respondent's motion for summary judgment pursuant to Rule 121.1 Respondent determined deficiencies,an addition to tax pursuant to section 6651(a)(1), and penalties pursuant to section 6662(a) with respect to petitioners' Federal income tax as follows:
+--------------------------------------------------------------------+
¦Year¦Deficiency¦Addition to tax Sec. 6651(a)(1)¦Penalty Sec. 6662(a)¦
+----+----------+-------------------------------+--------------------¦
¦1991¦$205,284 ¦--- ¦$41,057 ¦
+----+----------+-------------------------------+--------------------¦
¦1992¦1,493,481 ¦$367,660 ¦298,696 ¦
+----+----------+-------------------------------+--------------------¦
¦1993¦485,876 ¦--- ¦97,175 ¦
+--------------------------------------------------------------------+
After petitioners filed their petition on February 25, 1998, petitioner Terri L. Steffen filed, on May 29, 2001, a chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the Middle District of Florida, at case No. 01-9988-8G1 (Ms. Steffen's bankruptcy case). The instant case was stayed during the pendency of Ms. Steffen's bankruptcy case. Respondent submitted a proof of claim in Ms. Steffen's bankruptcy case with respect to petitioners' joint tax liabilities for 1991, 1992, and 1993 (years in issue). After the conclusion of numerous appeals, on February 5, 2010, the U.S. Bankruptcy Court for the Middle District of Florida (bankruptcy court) issued a final order allowing respondent's claim with respect to Ms. Steffen's tax liabilities for the years in issue in the amounts as follows:
+-----------------------------------------------+
¦Year¦Deficiency¦Addition to tax Sec. 6651(a)(1)¦
+----+----------+-------------------------------¦
¦1991¦$98,498 ¦--- ¦
+----+----------+-------------------------------¦
¦1992¦726,098 ¦$181,524 ¦
+----+----------+-------------------------------¦
¦1993¦52,835 ¦--- ¦
+-----------------------------------------------+
The issue we must decide is whether petitioners are barred by res judicata from relitigating those tax liabilities before this Court.2
The facts set forth below are based upon examination of the pleadings, moving papers, responses, and attachments. Petitioners are husband and wife who resided in Florida at the time they filed their petition.
The petition in the instant case was filed on February 25, 1998. On January 2, 2001, petitioner Paul A. Bilzerian filed a chapter 7 bankruptcy petition in the bankruptcy court. On January 12, 2001, petitioners filed a notice of bankruptcy in this Court, and on January 23, 2001, we issued an order that, pursuant to 11 U.S.C.sec. 362(a)(8) (2000), the proceedings in this Court be automatically stayed. On February 9, 2001, the bankruptcy court dismissed Mr. Bilzerian's bankruptcy petition for cause pursuant to 11 U.S.C. sec. 707(a) (2000) on the basis of its conclusion that, among other things, he lacked proper motives in filing his petition and that no significant debt of his was dischargeable in bankruptcy.3 See In re Bilzerian, 258 B.R. 850, 858 (Bankr. M.D. Fla. 2001). On May 29, 2001, Ms. Steffen filed a chapter 11 bankruptcy petition in the same bankruptcy court. Because of the filing of Ms. Steffen's bankruptcy case, this Court did not allow the instant case to go forward until December 6, 2010, after receiving notification that the bankruptcy court had lifted the automatic stay.
A full history of petitioners' litigation in the Federal courts would require volumes and, in any case, is beyond the scope of the issue before us. However, wewill endeavor to provide a brief summary insofar as that background is relevant to the issue we must decide.
The saga that led petitioners to repeatedly declare bankruptcy began during 1989 when Mr. Bilzerian was convicted in the U.S. District Court for the Southern District of New York of securities fraud, making false statements to the Securities and Exchange Commission (SEC), and conspiracy to defraud the SEC and the Internal Revenue Service (IRS). United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991) (affirming conviction). Mr. Bilzerian was sentenced to four years in prison and ordered to pay a $1.5 million fine. Id. On the basis of the same conduct that led to Mr. Bilzerian's criminal conviction, the SEC subsequently pursued a civil action against him in the U.S. District Court for the District of Columbia, and in 1993, that court ordered him to disgorge profits of $33,140,787 plus interest (disgorgement order). SEC v. Bilzerian, 814 F. Supp. 116, 124 (D.D.C. 1993). The Court of Appeals for the District of Columbia Circuit affirmed the disgorgement order. SEC v. Bilzerian, 29 F.3d 689 (D.C. Cir. 1994).
On the basis of Mr. Bilzerian's failure to make any payment towards the judgment, and, after lengthy litigation over the dischargeability of the judgment in bankruptcy, the SEC applied for, and was granted, an order holding Mr. Bilzerian in contempt of the disgorgement order. SEC v. Bilzerian, 112 F. Supp. 2d 12(D.D.C. 2000). The U.S. District Court for the District of Columbia also established a receivership estate "for the purpose of identifying, marshalling, receiving and liquidating his assets" to satisfy the disgorgement order. SEC v. Bilzerian, 127 F. Supp. 2d 232, 232 (D.D.C. 2000). Mr. Bilzerian subsequently commenced litigation in numerous other courts. See SEC v. Bilzerian, 815 F. Supp. 2d 324, 325-326 (D.D.C. 2011) (), aff'd, 2012 WL 1922465 (D.C. Cir. May 11, 2012). One of the actions he filed was the above-mentioned bankruptcy petition that originally stayed the instant proceedings. On February 9, 2001, the bankruptcy court dismissed Mr. Bilzerian's petition and concluded that the only reason he filed it was to hinder the SEC's collection efforts. In re Bilzerian, 258 B.R. at 858.
On May 29, 2001, Ms. Steffen filed a chapter 11 bankruptcy petition in the bankruptcy court. See Steffen v. United States (In re Steffen), 349 B.R. 734, 736 (M.D. Fla. 2006). On November 4, 2001, the IRS filed a proof of claim with the bankruptcy court for $5,856,992.75. Id. at 737. The proof of claim concerned petitioners' joint tax liabilities for their 1985, 1986,4 1991, 1992, and 1993 taxyears. In re Steffen, 294 B.R. 388, 390 (Bankr. M.D. Fla. 2003). On February 6, 2002, Ms. Steffen filed an objection to the IRS' proof of claim. Id.
On September 27, 2002, Mr. Bilzerian filed a document in Ms. Steffen's bankruptcy case entitled "Paul A. Bilzerian's Consent To Be Bound By The Decisions Of This Court In All Contested Matters Between The Internal Revenue Service And The Debtor" (consent to be bound). The consent to be bound stated: Mr. Bilzerian signed the consent to be bound.
On April 18 and June 17, 2003, the bankruptcy court issued opinions setting forth its determinations with respect to the IRS' proof of claim. See In re Steffen, 297 B.R. 645 (Bankr. M.D. Fla. 2003); In re Steffen, 294 B.R. 388. Mr. Bilzerian and Ms. Steffen had both testified at the evidentiary hearings, and their testimony informed the bankruptcy court's determinations. See In re Steffen, 297 B.R. 645, 649 (Bankr. M.D. Fla. 2003); In re Steffen, 294 B.R. at 391. On October 6, 2003, Ms. Steffen filed a motion for reconsideration with the bankruptcy court. On October 8, 2003, Mr. Bilzerian filed with the bankruptcy court a document entitled "Paul A. Bilzerian's Motion To Participate In The Hearing On The Debtor's Motion For Reconsideration Of Findings Of Fact, Conclusions Of Law And Memorandum Opinion Dated April 18, 2003". In that document, signed by Mr. Bilzerian, he stated: In a footnote, he wrote: "I have agreed to be bound by this Court's decision in this matter." Upon reconsideration, the bankruptcy court affirmed its opinion entered on April 18, 2003. In re Steffen, 305 B.R. 369 (Bankr. M.D. Fla. 2004).
Ms. Steffen appealed the bankruptcy court's opinions to the U.S. District Court for the Middle District of Florida, and, on April 28, 2009, the District Court issued an order affirming the bankruptcy court on all issues that it had resolved in favor of respondent and reversing the bankruptcy court on two issues it had resolved in Ms. Steffen's favor. Steffen v. United States (In re Steffen), 429 B.R. 32 (M.D. Fla. 2009). Ms. Steffen appealed the District Court's order to the Court of Appeals for the Eleventh Circuit, and the Court of Appeals affirmed. Steffen v. United States (In re Steffen), 375 Fed. Appx. 968 (11th Cir. 2010). On February 5, 2010, the bankruptcy court issued a final order allowing the IRS' proof of claim, and on November 9, 2010, the bankruptcy court issued an order granting the Government's motion to lift the automatic stay and authorizing the IRS "to conclude Terri L. Steffen and Paul A. Bilzerian's Tax Court case * * * for...
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