Cantrell v. Comm'r, T.C. Memo. 2017-170
| Decision Date | 30 August 2017 |
| Docket Number | Docket No. 7586-15.,T.C. Memo. 2017-170 |
| Parties | MICHAEL L. CANTRELL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Michael L. Cantrell, pro se.
Edwin B. Cleverdon and Horace Crump, for respondent.
GOEKE, Judge: This case presents petitioner's challenge to respondent's fraud penalty determination under section 66631 for tax years 2001 through 2005(years at issue). Petitioner concedes the related income tax deficiency determinations. The issues for decision are whether (i) petitioner is liable for fraud penalties under section 6663, (ii) petitioner properly filed Federal income tax returns, and (iii) petitioner's civil tax liabilities and civil fraud penalties for the years at issue were settled in his criminal case.
When the petition was filed, petitioner lived in Alabama. In the notice of deficiency, respondent determined the following deficiencies and penalties:
| Year |
| Deficiency |
| Penalty |
| sec. 6663 |
| 2001 |
| $34,377 |
| $25,783 |
| 2002 |
| 132,041 |
| 99,031 |
| 2003 |
| 63,450 |
| 47,588 |
| 2004 |
| 86,728 |
| 65,046 |
| 2005 |
| 34,926 |
| 26,195 |
Petitioner concedes the deficiencies in full but contests the section 6663 penalties for the years at issue.2
During the years at issue petitioner was employed at the United States Army Space and Missile Defense Command (USASMDC). USASMDC, at Redstone Arsenal in Huntsville, Alabama, is responsible for, among other things, the development of antiballistic missile technology. In performing its mission, USASMDC contracts with private companies that perform research and development. Among the entities within USASMDC that dealt directly with such contracts was the Joint Center for Technology Integration (JCTI). JCTI was subsequently reformed and named the Integrated Capabilities Management Directorate (ICMD).
From 2001 to 2005 petitioner was director of JCTI; and from 2005 to 2007 he was director of ICMD. In 1999 a subordinate of petitioner at USASMDC proposed to petitioner that they enter into an agreement with an owner of companies that contracted with USASMDC. Under the agreement, petitioner and his subordinate would receive things of value, including money, for their help in giving the owner preferences to proposals, contracts, funding of contracts, and approval of purchases from vendors and subcontractors.
In about 2000 the owner proposed a scheme to petitioner and his subordinate by which funding of USASMDC projects through congressional "plus-ups" or "adds" would be placed on existing USASMDC contracts, thereby permitting additional funds to be paid to the owner's companies. This proposal also included other schemes to siphon Government funds to the owner's companies.
From 2001 through 2007 in exchange for his activity in funding USASMDC contracts benefiting the owner's companies, petitioner received payment in the form of checks, cash, and wire transfers. From 2001 through 2005 petitioner received a total of $959,535 in bribes that he failed to report on his Federal income tax returns. Petitioner did not inform his then wife that he was receiving bribe income and indicated to her that he earned the money through investments.
Petitioner prepared his Federal income tax returns for the years at issue by himself. He used TurboTax software in preparing and submitting Federal income tax returns for taxable years before as well as during the years at issue. Because of an error, petitioner filed his 2004 return via paper filing. For tax years 2001, 2002, 2003, and 2005 petitioner purchased an updated copy of TurboTax each year, imported the prior year's information, completed the tax return, and transmitted it to the Internal Revenue Service (IRS).
Petitioner's Federal income tax returns include a perjury statement as follows:
UNDER PENALTIES OF PERJURY, I DECLARE THAT I HAVE EXAMINED THIS RETURN, INCLUDING ANY ACCOMPANYING STATEMENTS AND SCHEDULES AND, TO THE BEST OF MY KNOWLEDGE AND BELIEF, IT IS TRUE, CORRECT, AND COMPLETE.
Petitioner's tax returns also include a disclosure consent as follows:
I CONSENT TO ALLOW MY INTERMEDIATE SERVICE PROVIDER, TRANSMITTER, OR ELECTRONIC RETURN ORIGINATOR (ERO) TO SEND MY RETURN/FORM TO IRS AND TO RECEIVE THE FOLLOWING INFORMATION FROM IRS: 1) ACKNOWLEDGMENT OF RECEIPT OR REASON FOR REJECTION OF TRANSMISSION; 2) REFUND OFFSET; 3) REASON FOR ANY DELAY IN PROCESSING OR REFUND; AND, 4) DATE OF ANY REFUND.
The aforementioned income tax returns each include jurat information identifying petitioner and his then wife by date of birth and Social Security number. Each of the returns indicates that petitioner and his then wife overpaid their income tax and requests a refund of the overpayment. Petitioner does not dispute that he received refunds of these claimed overpayments.
The returns electronically submitted through Turbo Tax for tax years 2001, 2002, 2003, and 2005 do not bear petitioner's or his then wife's signature. For tax year 2004 petitioner concedes that he signed his paper-filed Federal income tax return. In his redacted plea agreement in the criminal matter, petitioner stipulated that he filed a Federal income tax return for taxable year 2002. Petitioner and his then wife filed Federal income tax returns for the years at issue in accord with the IRS procedures in place.
On November 1, 2007, the U.S. attorney's office filed a document titled "Information" with the District Court for the Northern District of Alabama, Northeastern Division, commencing petitioner's criminal case, United States v. Cantrell, CR 5:07-CR-0449-SLB. The Information set forth five counts against petitioner, on the basis of the above-described actions, including: knowingly, willfully, and with intent to defraud devising a scheme to defraud and to obtain money or property by means of false and fraudulent pretenses; knowingly and corruptly receiving and accepting something of value in return for being influenced in the performance of any official act; being influenced to commit and aid in committing and to collude in, and allow, a fraud, and to make opportunity for the commission of a fraud on the United States; and being induced to act or omit to do an act in violation of his official duty. Count 4 of the Information charged petitioner with tax evasion for taxable year 2002, as follows:
That on or about the 14th day of April 2003, * * * [petitioner] did willfully attempt to evade and defeat a large part of the income tax due and owing by him and his spouse to the United States of America for the calendar year 2002, by preparing and causing to be prepared, and by signing and causing to be signed, a false and fraudulent joint U.S. Individual Tax Return, Form 1040, on behalf of himself and his spouse, which was filed with the Internal Revenue Service, wherein it was stated that their joint taxable income for said calendar year was the sum of $156,785, and that the amount of tax due and owing thereon was the sum of $37,446, whereas, as he then and there well knew and believed, their joint taxable income for the said calendar year was the sum of $514,838, upon which said joint taxable income there was owing to the United States of America an income tax of $169,487, in violation of Title 26, United States Code, Section 7201.
On January 14, 2008, a redacted plea agreement was filed with the District Court, whereby petitioner pleaded guilty to all counts in the Information, including tax evasion for 2002. In the redacted plea agreement the Government recommended a sentence for petitioner that included payment of restitution in such amount as determined by the court. Petitioner agreed that the total tax loss for 2001 through 2005 for his failure to include his bribe income was $325,145, and he agreed to execute a restitution order for that amount, plus interest, payable to the IRS.
The redacted plea agreement does not refer to settlement of civil tax liabilities or civil penalties, and no IRS representative was involved in executing the redacted plea agreement. The redacted plea agreement states that it "does not limit any pending or prospective proceedings related to * * * [petitioner's] tax liabilities". Petitioner stipulated and testified that the facts stated in the redacted plea agreement are substantially correct and accurate.
Despite petitioner's agreeing "to file amended tax returns and to cooperate with the Internal Revenue Service in any administrative or civil proceedings", petitioner has not filed amended Federal income tax returns for the years at issue.
The District Court issued judgment in the criminal case on January 6, 2010. Petitioner was adjudged guilty of conspiracy to defraud the United States, bribery of a public official, and tax evasion for 2002. The judgment included a finding that the IRS was a victim of petitioner's criminal conduct and had sustained a loss of $358,145 for 2002 through 2005 which petitioner was ordered to pay as restitution. As of the date of the trial in this case, petitioner had not fully paid the restitution ordered.
By letter dated February 8, 2013, an IRS agent informed petitioner that a report had been prepared to determine the civil fraud penalty on petitioner's tax liabilities for tax years 2001 through 2005. On February 9, 2015, respondent issued petitioner a notice of deficiency.
OPINIONPetitioner concedes his liability for the tax deficiencies for the years at issue but raises three arguments in this case, summarized as follows:
1. Petitioner pleaded guilty to tax evasion in his criminal case for 2002, but he did not plead guilty for 2001, 2003, 2004, and 2005; therefore, he argues that the civil fraud penalties do not apply for 2001, 2003, 2004, and 2005.
2. Petitioner agrees he signed his Federal income tax return for 2004, but he claims he did not sign his Federal income tax returns for 2001, 2002, 2003, and 2005; therefore, he argues that the civil fraud penalties do not apply for 2001, 2002, 2003, and 2005.
3. Petitioner claims that his civil tax...
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