Fitzpatrick v. Commissioner
| Decision Date | 20 November 1995 |
| Docket Number | Docket No. 9269-94. |
| Citation | 70 T.C.M. 1357 |
| Parties | Michael J. Fitzpatrick v. Commissioner. |
| Court | U.S. Tax Court |
Michael J. Fitzpatrick, pro se. Thomas F. Eagan and Daniel K. O'Brien, for the respondent.
Respondent determined deficiencies in and additions to petitioner's Federal income taxes as follows:
Additions to Tax
---------------------------------
Sec. Sec. Sec
Year Deficiency 6653(b) 6653(b)(1) 6653(b)(2)
1981 ........................................ $30,601 $15,301 -- --
1982 ........................................ 96,418 -- $48,209 *
* 50 percent of the interest due on $96,418, the understatement of tax for the calendar year
1982 attributable to fraud
This case is before us on respondent's motion for partial summary judgment under Rule 121,1 petitioner's motion to dismiss on grounds of estoppel, and petitioner's motion to dismiss on grounds of double jeopardy attaching.
Petitioner resided in Taos Ski Valley, New Mexico, at the time the petition was filed.
In the 1981 and 1982 calendar years, petitioner was a loan officer at the Bank of New York. With respect to certain activities undertaken in this capacity, two indictments were filed against petitioner. The first indictment charged petitioner with violation of 18 U.S.C. sec. 1952 (1988) (), and conspiracy to violate the Travel Act, 18 U.S.C. sec. 371 (1988). On May 19, 1989, the District Court for the District of Rhode Island entered a judgment of guilty on both counts, following a trial upon the merits. Said judgment was affirmed by the U.S. Court of Appeals for the First Circuit on December 27, 1989. United States v. Fitzpatrick, 892 F.2d 162 (1st Cir. 1989).
The second indictment charged petitioner with willfully attempting to evade and defeat the income tax due and owing on unreported income in the amounts of $67,253 and $206,087 for the 1981 and 1982 taxable years, respectively, by filing false and fraudulent U.S. individual income tax returns in violation of section 7201, and conspiracy to defraud the U.S. Government by hindering the function of the Internal Revenue Service in its efforts to collect income taxes. On May 19, 1989, the District Court for the District of Rhode Island, following a trial upon the merits, entered a judgment of guilty on the first two charges, regarding income tax evasion, and not guilty on the conspiracy charge.
Among the issues of fact determined in connection with the tax charges was whether petitioner did in fact willfully file false and fraudulent income tax returns for 1981 and 1982 with the intent to evade and defeat income tax, and whether he did in fact by such means understate a part of the income tax due and owing by him to the United States for each of the years.
Petitioner was sentenced to 3 years of imprisonment for each of the Travel Act charges, to run concurrently, and 15 months' imprisonment on the first tax evasion charge, to run consecutively to the aforesaid sentence. For the remaining tax evasion charge, petitioner received a 2-year suspended sentence and was placed on probation consecutive to the expiration of the aforesaid terms of imprisonment. Petitioner was also ordered to pay a fine of $10,000 to the United States.
On September 20, 1991, respondent issued a letter to petitioner stating that an examination of his returns for the 1981 and 1982 years showed no change was necessary in the reported tax (no-change letter).
Shortly thereafter, an agent of respondent began the process of reopening the examination of petitioner's 1981 and 1982 tax years. It was explained in the agent's request for approval of the reopening, dated December 12, 1991, that, upon notification by the U.S. Attorney's office that petitioner had requested the District Court to vacate his conviction based on the no-change letter, the chief, examination division, who had not been a party to the original decision, had reviewed the circumstances and information relating to the decision to issue the no-change letter. As a result, it was determined that, based upon the tax evasion conviction and various unresolved questions, failure to reopen would result in serious criticism of the Service's administration of the tax laws, and establish a precedent that would seriously hamper future actions.
Subsequently, on December 13, 1991, respondent issued a letter to petitioner signed by the chief, examination division, requesting that petitioner make available his books and records for a reexamination (reopening letter). On June 2, 1994, the notice of deficiency herein was issued.
Petitioner's first motion to dismiss is predicated on the argument that respondent is collaterally and equitably estopped from issuing a notice of deficiency due to the earlier issuance of the no-change letter to petitioner for the same tax years. Petitioner asks that the notice of deficiency be cancelled.
Petitioner has not directly raised any issue as to the impropriety, under section 7605(b), of a second examination after the issuance of the reopening letter. The record does not indicate whether a second examination occurred.2 In any event, even if there was a second examination, the record provides no basis for concluding that there was any impropriety. United States v. Powell [64-2 USTC ¶ 9858], 379 U.S. 48 (1964). Petitioner's emphasis on the absence of "new information", obtained by respondent after the issuance of the no-change letter suggests that he may be seeking support for his claim on the basis that respondent violated her reopening policy as set forth in Rev. Proc. 85-13, 1985-1 C.B. 514.3 We are not so persuaded. We think the reasons for the reopening fall well within the parameters of that policy. In any event, it is clear that Rev. Proc. 85-13 is a directory, not mandatory, internal procedural set of rules which do not provide a basis for rejecting a deficiency notice because of a violation of its provisions. Collins v. Commissioner [Dec. 32,483], 61 T.C. 693, 700-701 (1974).4 Petitioner makes no argument that the deficiency notice does not otherwise meet the requirements of section 6212. See Abeles v. Commissioner [Dec. 45,203], 91 T.C. 1019, 1025-1027 (1988). In view of the foregoing, the validity of the deficiency notice is not open to challenge, and we need not explore whether we would have jurisdiction to cancel the notice if the circumstances were such as to taint it. Collins v. Commissioner, supra at 700 n. 4.5 We shall, however, treat petitioner's motion to dismiss as a motion for summary judgment based upon claimed estoppel as a result of the no-change letter.
Petitioner argues that respondent is equitably estopped from issuing a notice of deficiency for the 1981 and 1982 tax years due to the earlier issuance of a no-change letter for those years, along with his acquittal on the charge of conspiracy to defraud the United States. He explains that following the issuance of the no-change letter, his filing a motion for a new trial with the District Court in Rhode Island spurred the prosecutor to meet with respondent's agents with respect to the no-change letter. He further explains that this meeting led to the issuance of the reopening letter with respect to the 1981 and 1982 tax years. Petitioner argues that this letter resulted in the denial of his request for a new trial, and nearly 1 year of additional incarceration. He contends that there was no new information on which to base the reopening letter, only a desire to accommodate the prosecutor "and continue the illegal incarceration of the Petitioner." He thus asserts that he may rely upon the no-change letter under the doctrine of equitable or collateral estoppel.
We see no need to dissect the various elements of equitable estoppel6 except to note that it is applied against respondent with the utmost caution and restraint. Norfolk S. Corp. v. Commissioner [Dec. 50,409], 104 T.C. 13, 60 (1995) modified on another issue [Dec. 50,574] 104 T.C. 417 (1981); Boulez v. Commissioner [Dec. 37,661], 76 T.C. 209, 214-215 (1981), affd. [87-1 USTC ¶ 9177] 810 F.2d 209 (D.C. Cir. 1987). A no-change letter simply does not provide the necessary foundation for estopping respondent herein. Opine Timber Co. v. Commissioner [Dec. 33,355], 64 T.C. 700 (1975), affd. without opinion 552 F.2d 368 (5th Cir. 1977); Lawton v. Commissioner [Dec. 18,205], 16 T.C. 725 (1951); cf. Estate of Freeland v. Commissioner [68-1 USTC ¶ 9278], 393 F.2d 573, 585 (9th Cir. 1968), affg. [Dec. 28,298(M)] T.C. Memo. 1966-283.7 Moreover, petitioner's basis for claiming detrimental reliance on the no-change letter, a key condition which a taxpayer claiming estoppel of the Government must satisfy, Boulez v. Commissioner [Dec. 37,661], 76 T.C. at 215, is totally inadequate. The extent of petitioner's argument in respect of reliance are statements that he believed in the "authenticity" of the no-change letter, and that he requests we "allow him to proceed with the remainder of his life unencumbered by the effects of spurious and venal allegations concerning events dating back 15 years which were reviewed for years resulting in the issuance of the `No Change Letter'." Clearly, these assertions do not reflect any actions taken by petitioner in reliance upon the no-change letter.
Petitioner also argues that he may rely upon the no-change letter under the doctrine of collateral estoppel. Under that doctrine, "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...
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