Ianniello v. Comm'r of Internal Revenue
| Decision Date | 24 February 1992 |
| Docket Number | 37910-86.,Docket Nos. 29249-86,37909-86 |
| Citation | 98 T.C. 165,98 T.C. No. 14 |
| Parties | MATTHEW IANNIELLO AND BEATRICE IANNIELLO, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner husbands (Ps) were convicted of mail fraud, Federal income tax evasion, and violations of the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. secs. 1961-1968 (1988). Ps were each sentenced to prison, fined, and ordered to forfeit $666,667 as his share of the restaurant receipts they skimmed in violation of RICO during 1979 through 1982. Ps satisfied the judgments of forfeiture in 1989 and 1990. R determined Federal income tax deficiencies and fraud additions to tax under sec. 6653(b), I.R.C., for 1981 and 1982 arising from Ps' failure to report the skimmed receipts as taxable income. Ps question whether the receipts are gross income under sec. 61, I.R.C., on the ground that legal title to the receipts vested in the United States in the taxable years at issue. Ps contend that, if the receipts are gross income, Ps are entitled to loss deductions under sec. 165(a), I.R.C., in the taxable years at issue as a result of their forfeitures to the United States. In the alternative, Ps contend that holding them liable for Federal income tax and fraud additions to tax, in addition to the criminal forfeitures, would violate the Double Jeopardy Clause of the Fifth Amendment or the Excessive Fines Clause or Cruel and Unusual Punishments Clause of the Eighth Amendment to the U.S. Constitution.
Held, the skimmed receipts are gross income to Ps under sec. 61, I.R.C., and Ps are not entitled to loss deductions under sec. 165(a), I.R.C., in the taxable years at issue. Held further, Ps' constitutional rights under the Fifth and Eighth Amendments are not violated by holding them liable for Federal income tax and additions to tax for fraud under sec. 6653(b). I.R.C. Edward N. Lerner and Nancy M. Kostal, for petitioners.
Elise Frost Alair, for respondent.
Respondent determined deficiencies in Federal income tax and additions to tax as follows:
Unless otherwise noted, all section references are to the Internal Revenue Code as in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. All references to petitioners are to Matthew Ianniello and Benjamin Cohen, all references to Ianniello are to Matthew Ianniello, and all references to Cohen are to Benjamin Cohen.
Following petitioners' convictions for mail fraud, Federal income tax evasion, and violations of the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. secs. 1961-1968 (1988), respondent amended his answer in the case at docket No. 29249-86, asserting a $159,968 deficiency in the 1982 Federal income tax of Matthew and Beatrice Ianniello and additions to tax for fraud under section 6653(b) 2 for that taxable year. The parties in docket No. 29249-86 have stipulated that, except as controverted by petitioners' arguments in this proceeding, Ianniello's Federal income tax liabilities for the taxable year 1982 are:
+--------------------------------------------------------------+
¦ ¦Additions to tax ¦
+------------+-------------------------------------------------¦
¦Deficiency ¦Sec. 6653(b)(1) ¦Sec. 6653(b)(2) 1 ¦Sec. 6659 ¦
+------------+-----------------+-------------------+-----------¦
¦$160,150 2 ¦$80,075 ¦50% of the interest¦$23,045 ¦
+------------+-----------------+-------------------+-----------¦
¦ ¦ ¦due on $83,150 ¦ ¦
+------------+-----------------+-------------------+-----------¦
¦ ¦ ¦ ¦ ¦
+--------------------------------------------------------------+
The parties in docket No. 29249-86 also have agreed to be bound by the decision in docket No. 37791-86 as to whether Beatrice Ianniello was an innocent spouse” under section 6013(e). On August 22, 1991, we filed our opinion, Ianniello v. Commissioner, T.C. Memo. 1991-415, in docket No. 37791-86, holding that Beatrice Ianniello was an “innocent spouse” under section 6013(e) as to the unreported income unlawfully skimmed by Matthew Ianniello.
After concessions by the parties, the following issues remain for decision:
(1) Whether petitioners, on their Federal income tax returns for the taxable years at issue, understated their gross income under section 61 by the amount they skimmed from the receipts of P & G Funding Corp. d.b.a. the Mardi Gras (P & G Funding), and if so, whether petitioners are entitled to a section 165(a) loss deduction in the taxable years at issue by reason of their forfeitures to the United States of these amounts in 1989 and 1990 as a result of their 1985 RICO convictions; and
(2) whether the imposition of Federal income tax on the skimmed receipts and additions to tax for fraud under section 6653(b), coupled with the criminal forfeitures paid by petitioners to the United States, violates the Double Jeopardy Clause of the Fifth Amendment or the Excessive Fines Clause or the Cruel and Unusual Punishments Clause of the Eighth Amendment to the U.S. Constitution.
These cases were submitted fully stipulated, with facts and exhibits incorporated herein by this reference.
At the time the petitions were filed, Matthew and Beatrice Ianniello resided in Old Westbury, New York, and Benjamin Cohen resided in North Hills, New York. Matthew and Beatrice Ianniello filed a joint Federal income tax return, and reported their income on the basis of cash receipts and disbursements for each of the taxable years 1981 and 1982. Benjamin and Miriam Cohen filed a joint Federal income tax return, and reported their income on the basis of cash receipts and disbursements for the taxable year 1981.
On August 5, 1985, a Federal grand jury indicted petitioners and 12 other defendants on 67 counts, including membership in a RICO conspiracy, 18 U.S.C. sec. 1962(d); participation in a RICO enterprise, 18 U.S.C. sec. 1962(c); mail fraud, 18 U.S.C. sec. 1341; bankruptcy fraud, 18 U.S.C. sec. 152; conspiracy to defraud the United States, 18 U.S.C. sec. 371; corporate income tax evasion, sec. 7201; and personal income tax evasion, sec. 7201. The indictment alleged that petitioners were members of a RICO conspiracy and participated in a RICO enterprise by reason of having:
(1) Made false and fraudulent statements to the New York State Liquor Authority to conceal their financial and proprietary interests in several bars and restaurants located in New York City, including P & G Funding, during the years 1979 through 1982; (2) enriched themselves unlawfully by skimming receipts from these restaurants and bars during the years 1979 through 1982;
(3) enriched themselves unlawfully by looting the receipts of the Mar-Jear Restaurant, Inc. d.b.a. G.G. Barnum's and the Peppermint Lounge in a bankruptcy fraud scheme during the years 1979 through 1982;
(4) filed false and fraudulent financial statements with the Federal Bankruptcy Court during the years 1979 through 1982; and
(5) prepared false corporate books for the purpose of filing false and fraudulent New York State sales tax returns during the years 1979 through 1982.
Pursuant to 18 U.S.C. section 1963(c), the Comprehensive Crime Control Act, Pub. L. 98-473, title II, sections 302, 2301, 98 Stat. 2040, 2192 (1984), the indictment also requested forfeiture of interests maintained or acquired from the racketeering proceeds, as of the date they were acquired, maintained, and utilized.”
The U.S. District Court for the Southern District of New York, in ruling on the admissibility of evidence obtained by electronic surveillance in the criminal case, observed that the government was engaged in investigating a large-scale criminal enterprise” in pursuing the extensive Federal investigation leading to petitioners' indictment. United States v. Ianniello, 621 F. Supp. 1455, 1465 (S.D.N.Y. 1985), affd. 808 F.2d 184 (2d Cir. 1986). This Federal investigation included video and audio surveillance, from September 7 to December 27, 1982, of three different rooms in petitioners'...
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