Wright v. Comm'r of Internal Revenue
| Decision Date | 08 April 1985 |
| Docket Number | Docket No. 35147-83. |
| Citation | 84 T.C. 636,84 T.C. No. 41 |
| Parties | JOHN T. WRIGHT AND SUSAN L. WRIGHT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
HELD, petitioner's conviction under sec. 7206(1), I.R.C. 1954, does not collaterally estop petitioners from denying that any part of their underpayment for 1978 was due to fraud, within the meaning of sec. 6653(b), I.R.C. 1954. Respondent's motion for partial summary judgment denied. Goodwin v. Commissioner, 73 T.C. 215 (1979), and Considine v. Commissioner, 68 T.C. 52 (1977), overruled. JEFF P. EHRLICH and MATTHEW J. FRITZ, for the respondent.
STEVEN J. ROSENBERG, for the petitioners.
Deficiencies in petitioners' Federal income taxes having been agreed to and the resultant tax assessed, respondent determined the following additions to petitioners' Federal income taxes:
+------------------------------+
¦ ¦Additions to tax ¦
+------------+-----------------¦
¦Taxable year¦sec. 6653(b)1 ¦
+------------+-----------------¦
¦1976 ¦$743.98 ¦
+------------+-----------------¦
¦1977 ¦2,299.86 ¦
+------------+-----------------¦
¦1978 ¦6,905.03 ¦
+------------------------------+
The case is before this Court on respondent's motion for partial summary judgment under Rule 121(b) on the issues of petitioners' understatement of income for the years in issue, petitioners' underpayments of tax for the years in issue, and the addition to tax for 1978. After concessions, 2 the sole issue for our decision is whether petitioner John T. Wright's 3 conviction under section 7206(1) collaterally estops petitioners from denying, for purposes of section 6653(b), that part of their underpayment for 1978 was due to fraud.
At the time they filed their petition in this case, petitioners maintained their residence in Illiopolis, Illinois. Petitioners filed joint Federal income tax returns for 1976, 1977, and 1978.
Petitioners, in their response to respondent's motion, claim the following: In June 1975, petitioner's father died suddenly, leaving petitioner's mother to run the family farm. Petitioner was asked by his mother to assume responsibility for the farming operation. Prior to June 1975, petitioner had no business or farming experience, and had no training in bookkeeping, accounting, or business management. Petitioner managed the farm through the years in issue, and for purposes of income tax return preparation, turned his records of the farm's receipts and disbursements over to a local accountant skilled in farming bookkeeping methods. Petitioner's wife did not participate in either the farming business or the preparation of petitioners' income tax returns.
On their Federal income tax returns for the years in issue, petitioners understated their taxable income for 1976 by $8,824.46 and their tax table income for 1977 and 1978 by $24,167.18 and $29,904.82, respectively. Petitioners underpaid their Federal income taxes for the years 1976, 1977, and 1978 by $1,487.95, $4,599.72, and $13,810.05, respectively.
Petitioner was indicted in the United States District Court, Central District of Illinois, Springfield Division, on March 22, 1982 on two counts of violation of section 7206(1) and two counts of violation of section 7201, one of each of the counts relating to the taxable year 1977 and one of each of the counts relating to the taxable year 1978. On June 15, 1982, that court, based on petitioner's guilty plea, entered a finding of guilty for
Count 3 of the indictment charged:
That on or about the 10th day of January 1979, in the Central District of Illinois,
a resident of Illiopolis, Illinois, did willfully and knowingly make and subscribe to a United States Individual Tax Return (form 1040) for John T. and Susan L. Wright, which was verified by a written declaration that it was made under the penalties of perjury, and was filed with the Internal Revenue Service, when he did not believe said Income Tax Return to be true and correct as to every material matter in that the Income Tax Return stated that the grain sale and other income of John T. and Susan L. Wright was $84,665.69 whereas, as he then and there well knew and believed, he had received substantial income in addition to that here before stated.
All in violation of Title 26, United States Code, Section 7206(1).
Respondent issued the deficiency notice on which the instant case is based on September 26, 1983.
Rule 121(a) provides that ‘(e)ither party may move, with or without supporting affidavits, for a summary adjudication in his favor upon all or any part of the legal issues in controversy.‘ Decision is to be entered for the moving party
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. A partial summary adjudication may be made which does not dispose of all the issues in the case.
Rule 121(b). While we must view the facts and inferences to be drawn therefrom in the light most favorable to the party opposing the motion, such party has the burden of setting forth ‘specific facts showing that there is a genuine issue for trial.‘ Rule 121(d); Jacklin v. Commissioner, 79 T.C. 340, 344 (1982).
Respondent bases his motion on the allegedly preclusive effect of petitioner's conviction under section 7206(1) 4 upon the issue of fraud under section 6653(b). 5 Respondent contends that our opinions in Goodwin v. Commissioner, 73 T.C. 215 (1979), and Considine v. Commissioner, 68 T.C. 52 (1977), compel the conclusion that petitioner's conviction establishes as a matter of law that the underpayment for 1978 was ‘due to fraud,‘ for purposes of section 6653(b), and thus that respondent's motion should be granted. Petitioners contend that petitioner's lack of business acumen raises a genuine issue as to a material fact, and that respondent's motion should thus be denied. For the reasons hereinafter stated, we agree with petitioners.
The doctrine of collateral estoppel precludes relitigation of any issue of fact or law that is actually litigated and necessarily determined by a valid and final judgment. Montana v. United States, 440 U.S. 147, 153 (1979); see Restatement (Second) of Judgments sec. 27 (1982). Its purpose is to avoid repetitious litigation of issues between the same parties or their privies. See Jaggard v. Commissioner, 76 T.C. 222, 223 (1981). The doctrine, however, ‘must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged. ‘ Commissioner v. Sunnen, 333 U.S. 591, 599-600 (1948); see Cromwell v. County of Sac, 94 U.S. 351, 353 (1876). Thus, the question is whether the issue under section 6653(b) is ‘identical in all respects‘ to that decided under section 7206(1).
Under section 6653(b), respondent has the burden of proving, by clear and convincing evidence, that ‘any part of any underpayment * * * is due to fraud. ‘ See sec. 7454(a); Rule 142(b). The ‘due to fraud‘ language has been consistently interpreted to require proof of specific intent to evade a tax believed to be owing. See, e.g., Hebrank v. Commissioner, 81 T.C. 640, 642 (1983). 6 Section 7206(1) makes it a crime for one willfully to make and submit any return verified by a written declaration that it is made under the penalties of perjury which he or she does not believe to be true and correct as to every material matter. The indictment on which petitioner's conviction was based charged that he willfully filed a verified return that ‘he did not believe * * * to be true and correct as to every material matter‘ in that petitioner ‘well knew and believed (that) he had received substantial income in addition to‘ that which he reported.
In Considine v. Commissioner, 68 T.C. 52, a case in which the taxpayer had been convicted under section 7206(1) and was disputing the addition to tax under section 6653(b), we held that ‘a conviction under section 7206(1) for 'willfully’ making a return which the taxpayer does not believe to be true and correct is proof that the return is fraudulent,‘ and that the taxpayer was thus ‘collaterally estopped to deny that he willfully filed a false and fraudulent return.‘ Considine v. Commissioner, supra at 61, 68.
Our reasoning in Considine was as follows: (1) this Court, in Amos v. Commissioner, 43 T.C. 50, 55 (1964), affd. 360 F.2d 358 (4th Cir. 1965), had held that ‘the term 'willfully’ as used in section 7201 7 has authoritatively been defined in prior judicial decisions to encompass all of the elements of fraud which are envisioned by the civil penalty described in section 6653(b)‘; (2) the Supreme Court, in United States v. Bishop, 412 U.S. 346, 356-361 (1973), had held that ‘willfully‘ has the same meaning in each of sections 7201, 7202, 7203, 7204, 7205, 7206, and 7207; therefore, (3) a conviction under section 7206(1) actually and necessarily determined that there was, for purposes of section 6653(b), a specific intention to evade tax. Considine v. Commissioner, supra at 59-60. Our opinion in Considine and the rationale upon which it was predicated were followed in the Court-reviewed opinion in Goodwin v. Commissioner, 73 T.C. 215, 224 (1979), with six Judges dissenting.
Subsequent to our opinions in Considine v. Commissioner, supra, and Goodwin v. Commissioner, supra, the Court of Appeals for the Ninth Circuit had occasion, in Considine v. United States, 683 F.2d 1285, 1287 (9th Cir. 1982), to review the imposition of the...
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