Moore v. United States

• Court: U.S. Court of Appeals — Fourth Circuit
• Writing for the Court: HAYNSWORTH, , and SOBELOFF and BOREMAN, Circuit
• Citation: Moore v. United States, 360 F.2d 353 (4th Cir. 1965)
• Decision Date: 07 December 1965
• Docket Number: No. 9895,9896.,9895
• Parties: Jerome H. MOORE and Mildred V. Moore, Appellees, v. UNITED STATES of America, Appellant. Jerome H. MOORE and Mildred V. Moore, Appellants, v. UNITED STATES of America, Appellee.

360 F.2d 353 (1965)

Jerome H. MOORE and Mildred V. Moore, Appellees, v. UNITED STATES of America, Appellant.

Jerome H. MOORE and Mildred V. Moore, Appellants, v. UNITED STATES of America, Appellee.

Nos. 9895, 9896.

United States Court of Appeals Fourth Circuit.

Argued June 30, 1965.

Decided December 7, 1965.

Modification of Decision of December 7, 1965.

Filed April 29, 1966.

Burton Berkley, Attorney, Dept. of Justice (Louis F. Oberdorfer, Asst. Atty. Gen., and Lee A. Jackson and David O. Walter, Attys., Dept. of Justice, and Thomas B. Mason, U. S. Atty., on brief), for appellant in No. 9895 and appellee in No. 9896.

James H. Michael, Jr., and Robert M. Musselman, Charlottesville, Va., for appellees in No. 9895 and appellants in No. 9896.

C. Moxley Featherston, Acting Asst. Atty. Gen., Lee A. Jackson, David O. Walter and Burton Berkley, Attys., Dept. of Justice, and Thomas B. Mason, U. S. Atty., on supplemental brief for United States.

James H. Michael, Jr. and Robert M. Musselman, Charlottesville, Va., on supplemental brief, for Mildred V. Moore.

Before HAYNSWORTH, Chief Judge, and SOBELOFF and BOREMAN, Circuit Judges.

SOBELOFF, Circuit Judge:

The principal question before us is whether a criminal conviction for tax evasion works a collateral estoppel on the issue of fraud in a subsequent civil suit over a fraud penalty.

The point arises in a suit for refund filed by Mr. and Mrs. Jerome H. Moore for taxes paid in 1960 for the years 1955-58. The Commissioner filed a counterclaim for additional taxes and fraud penalties assessed pursuant to 26 U.S.C.A. § 6653(b)¹ for the tax years in question. The only evidence offered by the Commissioner in support of the fraud assessment was the 1961 criminal conviction of Jerome Moore, after his plea of not guilty and trial, for willfully attempting to evade and defeat the payment of income taxes for the years in question in violation of 26 U.S.C.A. § 7201.² The Government took the position that the existence of fraud was necessarily determined in the prior criminal trial in which Moore was convicted. The District Court rejected this contention, holding that despite the prior criminal conviction the issue of fraud was not foreclosed in the civil proceeding. We are compelled to a different view.

An answer was recently given by the Fifth Circuit to the identical legal issue presented here. It held that fraud is a necessary element in a criminal conviction for evasion, and that the earlier conviction supplies the basis for a finding of fraud in the civil proceeding to determine tax liability. Tomlinson v. Lefkowitz, 334 F.2d 262 (5th Cir. 1964), cert. denied, 379 U.S. 962, 85 S.Ct. 650, 13 L.Ed.2d 556 (1965).³ We adopt, without repetition, Judge Tuttle's opinion in that case.

Though the evasion statute does not in terms require a finding of fraud, we can recall no case in our experience where, accepting the truth of the facts leading to conviction for evasion, one could say that there was not sufficient proof for a finding of fraud in the civil case. In fact, the taxpayers in the argument of this case have been unable to hypothesize a case contrary to this experience. The practicalities, as we have observed them, are dictated by the nature of the definition given to the respective provisions by the courts. Repeatedly it has been held that civil fraud is not committed when an understatement of income or an overstatement of deductions is due to "inadvertence, negligence or honest errors." See, e. g., Archer v. Commissioner of Internal Revenue, 227 F.2d 270, 274 (5th Cir. 1955). To constitute civil fraud it must be shown that there was conduct variously described as being "evil," "in bad faith," "deliberate and not accidental," or "wilful." Balter, Tax Fraud and Evasion 2.2 (1963). The criminal evasion statute specifically turns on "willfulness," one of the terms used to define civil fraud, and "willfulness" in turn is described in evasion cases as acting

"with a bad heart, and a bad intent; it means having the purpose to cheat or defraud * * *. It is not enough if all that is shown is that the defendant was stubborn or stupid, careless, negligent, or grossly negligent." Gaunt v. United States, 184 F.2d 284, 291 n. 4 (1st Cir. 1950), cert. denied, 340 U.S. 917, 71 S.Ct. 350, 95 L.Ed. 662 (1951). See Wardlaw v. United States, 203 F.2d 884 (5th Cir. 1953).

Several opinions, while not addressed specifically to the relationship of a conviction for criminal evasion to civil fraud, have stated that to satisfy the Government's burden of proof in a criminal evasion case, it must show an "attempt wilfully to defraud." United States v. Schenck, 126 F.2d 702, 704 (2d Cir.), cert. denied, sub nom. Moskowitz v. United States, 316 U.S. 705, 62 S.Ct. 1309, 86 L.Ed. 1773 (1942). An illustrative opinion uses this language:

"The real character of the offense lies * * * in the attempt to defraud the government by evading the tax." Gariepy v. United States, 220 F.2d 252, 259 (6th Cir.), cert. denied, 350 U.S. 825, 76 S.Ct. 53, 100 L.Ed. 737 (1955).

The only difference that has been discovered, in theory or practice, between the constituent elements of the two statutes is the larger quantum of proof required in a criminal evasion case:

"A civil case ripens into a criminal case when it has that elusive but additional ingredient of insidiousness that enables the government to prove its case beyond a reasonable doubt. In this respect, every civil evasion case may be considered as one that never fully ripened into a crime, and every criminal case as one that was too insidious to be disposed of on a purely civil level." Beck, When Avoidance: When Evasion, 18 N.Y.U. Inst. on Fed. Taxation 1093, 1104-05 (1960). See Balter, Tax Fraud and Evasion 2.2 (1963); Gutkin, Tax Law Violations and Enforcements: The Handling of Penalty Cases, 6 N.Y.U. Inst. on Fed. Taxation 189, 202 (1948).

Thus, while the criminal evasion statute does not explicitly require a finding of fraud, the case-by-case process of construction of the civil and criminal tax provisions has demonstrated that their constituent elements are identical.

The decision in United States v. Scharton, 285 U.S. 518, 52 S.Ct. 416, 76 L.Ed. 917 (1932), does not militate against the above analysis. There the taxpayer was indicted for criminal evasion more than three years after the tax year in question. The statute then in force provided for a three-year period of limitations for "offenses arising under the internal revenue laws * * *." The Government argued that the statutory exception "for offenses involving the defrauding of * * * the United States * * *" was applicable, in which case the applicable limitation period would have been six years. The Court affirmed a dismissal of the prosecution, holding that since a statute of repose must be narrowly construed the six-year exception could be applied only to those offenses where the indictment must specifically aver an intent to defraud. Thus the Court did not hold that fraud was not a constituent element of criminal evasion; rather, it merely held that the longer period of limitations was applicable to offenses in which the statute explicitly referred to fraud. Even this narrow holding was drawn into question in a later case that gave a more expansive reading to a similar statute providing a longer period of limitations in respect to violations involving an intent to defraud. United States v. Grainger, 346 U.S. 235, 73 S.Ct. 1069, 97 L.Ed. 1575 (1953).⁴

We reject as without substance the argument that the application of the doctrine of collateral estoppel deprives the taxpayer of his right to judicial review. The rationale of the doctrine of estoppel by judgment is that a competent tribunal has already given the question at issue full judicial review. Furthermore, the first proceeding being criminal in nature, it follows that the burden of proof met by the Government there was more exacting than that required of it in this civil case.

We therefore hold that this taxpayer is collaterally estopped to deny that he was guilty of fraud during the years in question. This estoppel applies to Mrs. Moore also even though she was not a party to the criminal action, since she signed the joint returns involved in the fraud. Ginsberg's Estate v. Commissioner of Internal Revenue, 271 F.2d 511 (5th Cir. 1959).

The taxpayer, in turn, contended in the District Court that the Government itself was collaterally estopped from redetermining the amount of taxes owed for the years in question, since it had stipulated in the earlier criminal proceeding the exact amount owed. The District Judge ruled that the Government was not estopped because the determination of an exact liability was not "essential to the judgment," a prerequisite to the application of the doctrine of collateral estoppel. Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 601, 68 S.Ct. 715, 92 L.Ed. 898 (1948). With this ruling we agree. As stated by the District Judge, "a conviction under 26 U.S.C.A. § 7201 does not require the proving of any definite sum of taxable income beyond a substantial amount." Moore v. United States, 235 F.Supp. 387, 391 (W.D.Va.1964). There is therefore no basis here for the application of the estoppel doctrine against the Government in respect to the amount of taxes due.

Affirmed in part and reversed in part.

Modification of Decision of December 7, 1965.

Jerome H. Moore and his wife, Mildred V. Moore, filed joint income tax returns for the years 1955-1958. In 1961 the husband was convicted after trial, pursuant to 26 U.S.C.A. § 7201, for willful evasion of taxes in those years. Subsequently a fraud assessment was made against both taxpayers pursuant to 26 U.S.C.A. § 6653(b), and when they sued in the District Court for a refund of certain taxes paid, the Government counterclaimed for the unpaid fraud penalties. In our original opinion, issued December 7, 1965, we agreed with the Government's...