Wagner v. Commissioner, Docket No. 7602-88.
| Decision Date | 05 August 1996 |
| Docket Number | Docket No. 7602-88. |
| Citation | 72 T.C.M. 309 |
| Parties | Edward A. Wagner and Barbara Wagner v. Commissioner. |
| Court | U.S. Tax Court |
This case is before us on respondent's motion for summary judgment under Rule 121(b)1 that petitioner Edward A. Wagner (petitioner) is liable for the fraud addition to tax for the year in issue. After concessions, the sole issue for decision is whether we should conclude, as a matter of law, that petitioner is liable for the section 6653(b) addition to tax for fraud for the taxable year 1975.
The facts set forth in the Background portion of this Opinion are stated solely for the purpose of deciding the motion and are not findings of fact for this case. Fed. R. Civ. P. 52(a); Boyd Gaming Corp. v. Commissioner [Dec. 51,348], 106 T.C. 343, 345 n. 5 (1996); Sundstrand Corp. v. Commissioner, [Dec. 48,191] 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶ 50,092] 17 F.3d 965 (7th Cir. 1994).
On May 26, 1982, a grand jury convened in the U.S. District Court for the Southern District of New York indicted petitioner and three alleged coconspirators for various crimes. The indictment described a scheme, as summarized below, to establish fraudulent tax shelters through the creation of limited partnerships, including Caldwell Properties (Caldwell), whose funds, contributed by individual investors solicited by the defendants, were used to finance the purchase of movie rights. The tax deductions and credits to which the investor-partners thereby ostensibly became entitled were grossly inflated by the reporting of purchase prices for the movies that greatly exceeded the prices actually paid by the purchasers. To perpetrate the deception, two sets of books were maintained, one to be shown to the Government and the other accounting for what had really happened. The set of books employed to prepare partnership returns of income and reports of the partners' distributive shares of deductions and credits was knowingly inflated. For some of the partnerships, not including Caldwell, checks drawn in amounts representing the inflated prices were provided to sellers of the films, who endorsed these checks and returned them to the conspirators. Thereafter, cash in lesser amounts than the face amounts of the checks was paid to the sellers in place of the checks, resulting in "skim money" to the conspirators. For other partnerships, including Caldwell, the conspirators interposed a third party, which they controlled, between the seller and the purchaser of the film and used this controlled third party to achieve a similar inflation of these partnerships' purchase prices for movies and concurrent diversion of skim money to the conspirators. For Caldwell, the interposed controlled third party was Cinepix Establishment, and the movie that was the subject of the transaction in issue was "Adios Amigos". In addition, contracts were backdated so as to allow some of the purchases to avoid the operation of a change in law providing, with effect on contracts not finalized prior to September 11, 1975, that nonrecourse notes could no longer be included in the cost of a movie for the purpose of computing losses for 1976 and later years.
Petitioner was the business and transactional lawyer for some of the partnerships, but respondent now concedes that he did not receive any of the skim money resulting from the inflated prices. In this respect, his position differs from that of his three coconspirators, who conceded the receipt of unreported income from skim money, and fraud additions, for some of their taxable years.
On November 8, 1982, following a 12-week jury trial in the U.S. District Court for the Southern District of New York, in which the defendants were petitioner and his three coconspirators, petitioner was convicted of (1) one count of conspiracy to defraud the United States in violation of 18 U.S.C. sec. 371 (1994); (2) thirteen counts of mail fraud in violation of 18 U.S.C. sec. 1341 (1994); (3) twenty-nine counts of aiding and assisting in the preparation of false tax returns in violation of section 7206(2); and (4) one count of knowingly making and subscribing a false and fraudulent personal income tax return in violation of section 7206(1).2 The indictment alleged, with respect to the last count under which petitioner was convicted, that, for purposes of section 7206(1), petitioner "unlawfully, wilfully and knowingly" made and subscribed his 1975 joint income tax return (Form 1040), which contained and was verified by a written declaration that it was made under penalty of perjury, and which he did not believe to be true and correct as to material matters, to wit, loss and investment tax credit on account of an investment in the Caldwell film development partnership, and income received from Cinepix Establishment.
Petitioner claims that the testimony at the criminal trial (only some of which is available to us) indicates that he was an investor in Caldwell who sublet an office to Murray Glantz, one of the coconspirators, who was the lawyer for Caldwell and who controlled the dummy general partner. Petitioner goes on to claim that Glantz did virtually everything connected with Caldwell and Cinepix, that there was no evidence that petitioner had anything at all to do with the transaction between the sellers and Cinepix, that petitioner had trouble obtaining Caldwell partnership documents from Glantz, that petitioner assisted in the sale of Caldwell interests but was not aware of the inflated purchase price, that petitioner was interested in Caldwell for its profit potential and sold it on that basis to one of the witnesses at the trial, that petitioner initiated an audit of the distributor and a lawsuit against the general partner when the profit was not paid to the partners, and that at trial the prosecutor's argument about Caldwell only referred to witnesses who did not incriminate petitioner on this point, made no effort to prove that petitioner intended to evade tax, and did not prove that petitioner knew that the Caldwell deal was based on an inflated purchase price or otherwise would lead to an evasion of tax. There was evidence at trial that can reasonably be interpreted to support many of these assertions.
On January 21, 1988, respondent sent petitioners two statutory notices, one for 1974 and 1975 and the other for 1973, 1976, 1977, and 1978.3 On April 18, 1988, petitioners timely filed their petition with this Court.4 When petitioners filed their petition, they resided in Harrison, New York.
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. American Manufacturers Mut. Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 278 (2d Cir. 1967); Boyd Gaming Corp. v. Commissioner, supra at 346; Florida Peach Corp. v. Commissioner [Dec. 44,689], 90 T.C. 678, 681 (1988). Rule 121(a) provides that "Either party may move, with or without supporting affidavits, for a summary adjudication in the moving party's favor upon all or any part of the legal issues in controversy." Summary judgment may be granted with respect to all or any part of the legal issues in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(b); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Williams v. Crichton, 84 F.3d 581, 587 (2d Cir. 1996); Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶ 50,042] 17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner [Dec. 44,714], 90 T.C. 753, 754 (1988); Naftel v. Commissioner [Dec. 42,414], 85 T.C. 527, 529 (1985).
The moving party must prove that there is no genuine issue of material fact, and all factual inferences are viewed in the light most favorable to, and all ambiguities resolved in favor of, the nonmoving party. Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456 (1992); United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); Sierra Club, Inc. v. Commissioner [96-2 USTC ¶ 50,326], 86 F.3d 1526, 1530, 1536 (9th Cir. 1996), affg. in part and revg. and remanding in part on this issue [Dec. 50,080] 103 T.C. 307 (1994) and affg. [Dec. 49,025(M)] T.C. Memo. 1993-199; Gottlieb v. County of Orange, 84 F.3d 511, 518 (2d Cir. 1996); Rosen v. Thornburgh, 928 F.2d 528, 532-533 (2d Cir. 1991); Boyd Gaming Corp. v. Commissioner, supra at 347. Whether an issue of material fact is genuine depends upon whether a reasonable trier of fact could find in favor of the nonmoving party. Eastman Kodak Co. v. Image Technical Servs., Inc., supra at 462, 469 & n. 14, 477; Anderson v. Liberty Lobby, Inc., supra at 248-252; Atkinson v. Denton Publishing Co., 84 F.3d 144, 148 (5th Cir. 1996); Sutera v. Schering Corp., 73 F.3d 13, 16 (2d Cir. 1995); Richman v. Commissioner [Dec. 48,836(M)], T.C. Memo. 1993-32. Assessments of credibility, choices between conflicting versions of events, and weighing of evidence are the prerogative of the finder of fact at trial, not matters for summary judgment. Anderson v. Liberty Lobby, Inc., supra at 255; Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir. 1996); Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992); Toushin v. Commissioner [Dec. 51,033(M)], T.C. Memo. 1995-573. Because summary judgment decides against a party before trial, we grant the remedy cautiously, only after carefully ascertaining that the moving party has met all the requirements. Associated Press v. United States, 326 U.S. 1, 6 (1945); P & X Markets, Inc. v. Commissioner [Dec. 51,400], 106 T.C. 441, 443 (1996).
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