T.C. Memo. 2014-12
UNITED STATES TAX COURT
BOBBIE EPHREM a.k.a. BOBBY EPHREM AND DONNA SMITH-EPHREM,
Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1376-07. Filed January 14, 2014.
Marc David Blackman, for petitioners.
Kelley Andrew Blaine, for respondent.
MEMORANDUM OPINION
KROUPA, Judge: This matter is before the Court on respondent’s motion
for partial summary judgment filed pursuant to Rule 121.1 Respondent determined
1
All Rule references are to the Tax Court Rules of Practice and Procedure,
and all section references are to the Internal Revenue Code, as amended and in
(continued...)
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[*2] deficiencies in petitioners’ Federal income tax, additions to tax under section
6651(a)(1) and fraud penalties under section 6663 for 2004 and 2005 (years at
issue).2 The sole issue we are asked to decide now is whether an admission by
petitioner husband in a prior criminal proceeding establishes as a fact in this civil
proceeding the precise amounts by which petitioners understated their net income
for the years at issue. We hold that it does not.
Background
The facts have been assumed for purposes of resolving the pending motion.
Petitioners resided in Portland, Oregon, at the time they filed the petition.
I. Prior Criminal Proceedings
Petitioner husband had been in the business of selling used cars (business)
during the years leading up to and including 2006. In late 2006 Internal Revenue
Service Criminal Investigation Division special agents (agents) executed search
warrants on petitioners’ home and business locations. The agents seized more
1
(...continued)
effect for the years at issue, unless otherwise indicated.
2
For 2004 respondent determined a $523,986 deficiency in petitioners’
income tax, a $131,277 sec. 6651(a)(1) addition to tax and a $392,990 sec. 6663
fraud penalty. For 2005 respondent determined a $613,631 deficiency in
petitioners’ income tax, a $153,446 sec. 6651(a)(1) addition to tax and a $460,223
sec. 6663 fraud penalty. All amounts are rounded to the nearest dollar.
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[*3] than $2.7 million in cash from petitioners. The agents also seized a trove of
business records. Shortly thereafter, respondent made a jeopardy assessment on
the seized cash. The District Court for the District of Oregon found the jeopardy
assessment to be unreasonable, however, and required respondent to return the
seized cash.
Petitioners submitted Federal income tax returns for the years at issue in late
2006. As previously noted, respondent determined deficiencies in petitioners’
Federal income tax, additions to tax and fraud penalties for the years at issue.
Respondent then issued the deficiency notice to petitioners for the years at issue.
Petitioners timely filed a petition for redetermination of respondent’s
determinations in the deficiency notice. The deficiency proceedings were stayed
for a number of years, however, because of the ongoing criminal investigation
relating to petitioner husband’s business.
II. Plea Agreement
In 2010 the U.S. Attorney’s Office (US Attorney) filed an information
charging petitioner husband with one count of filing a false tax return in violation
of section 7206(1). In response, petitioner husband hired Cathryn Matthews, a
forensic accountant, to calculate his income and tax liabilities for the years at
issue. Ms. Matthews calculated that the business suffered a net loss for 2004 and
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[*4] had no tax liability. Ms. Matthews further calculated that the business had
$328,527 of taxable income for 2005 and a $109,555 tax liability.
In 2011 the US Attorney and petitioner husband entered into the plea
agreement, which closed the criminal investigation relating to petitioner husband’s
business. Paragraph 5 of the plea agreement concerns criminal sentencing factors
and contains the operative language for purposes of the pending motion.
The parties agreed under paragraph 5.a. of the plea agreement that the US
Attorney could establish that petitioner husband understated his net income by
$510,085 for 2004 and $505,940 for 2005. The parties further agreed under
paragraph 5.b. that the tax loss for purposes of sentencing was $109,000.3
Petitioner husband paid respondent $109,000 consistent with the plea agreement at
the time he was sentenced to prison.
III. Petition and Answer
As previously noted, respondent issued the deficiency notice for the years at
issue and petitioners timely filed a petition for redetermination. Respondent now
moves for partial summary judgment.
3
The tax loss of $109,000 resulted in a criminal offense level 16 with a
reduction of three levels for acceptance of responsibility.
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[*5] Discussion
I. Introduction
We are asked to decide whether petitioner husband’s admission in a prior
criminal proceeding that the US Attorney could establish that he understated his
net income by $510,085 for 2004 and $505,940 for 2005 establishes as a fact in
the present civil proceeding the precise amounts by which petitioners understated
their net income for the years at issue. Respondent urges this Court to conclude
that petitioner husband’s admission does just that.4 Petitioners counter that there
are issues of fact regarding the amounts by which petitioners understated their
income for the years at issue and, therefore, the pending motion must be denied.5
We agree with petitioners.
II. Standard of Review
We now consider the standard of review for granting a motion for partial
summary judgment. Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. See, e.g., FPL Grp., Inc. & Subs. v.
4
Respondent avoids using the usual collateral estoppel argument in favor of
an argument that appears to be one of its close relatives.
5
Petitioners also argue that issue preclusion is inapplicable to this issue.
Respondent has not argued that issue preclusion applies. We therefore need not
and do not address petitioners’ issue preclusion argument.
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[*6] Commissioner, 116 T.C. 73, 74 (2001). A motion for summary judgment or
partial summary judgment will be granted if the pleadings and other acceptable
materials, together with the affidavits or declarations, if any, show that there is no
genuine dispute as to any material fact and that a decision may be rendered as a
matter of law. See Rule 121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226,
238 (2002). The moving party bears the burden of proving that no genuine dispute
of material fact exists and that it is entitled to judgment as a matter of law. See,
e.g., Rauenhorst v. Commissioner, 119 T.C. 157, 162 (2002). Summary judgment
is not a substitute for trial and should not be used to resolve disputes over factual
issues. See Waxler v. Commissioner, T.C. Memo. 1979-425 (citing Cox v. Am.
Fid. & Cas. Co., 249 F.2d 616 (9th Cir. 1957)).
III. Admission Regarding Understatement of Net Income
We now consider whether petitioner husband’s plea agreement admission
establishes the precise amounts by which petitioners understated their net income
for the years at issue. A taxpayer’s admission in a plea agreement from a prior
criminal proceeding as to the precise amount by which he or she understated net
income constitutes strong evidence of the understatement amount. It does not,
however, establish that there is no issue of fact as to the precise understatement
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[*7] amount. See Uscinski v. Commissioner, T.C. Memo. 2006-200; Livingston v.
Commissioner, T.C. Memo. 2000-121.
Respondent concedes that petitioners are not collaterally estopped from
challenging the precise amounts by which they understated their net income for
the years at issue. Respondent nevertheless contends that we should grant partial
summary judgment to establish the precise amounts by which petitioners
understated their net income for the years at issue. Respondent relies on petitioner
husband’s plea agreement admission that the Government could establish that he
understated his net income by $510,085 for 2004 and $505,940 for 2005.
Petitioners contend that the statements in the plea agreement are merely a
recitation of what the Government could establish but are not an implicit or
explicit agreement as to the correctness of the precise amounts. Petitioners further
argue that the understatement amounts in paragraph 5.a. cannot be correct because
they would not result in the tax loss amount in paragraph 5.b. Petitioners continue
that the tax loss of $109,000 in paragraph 5.b. was the real amount at issue in the
criminal case because it had the potential to affect the length of petitioner
husband’s criminal sentence.
Petitioner husband’s admission in the prior criminal proceeding as to the
amounts by which he understated net income constitutes strong evidence of the
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[*8] understatement amounts. It does not, however, establish that there is no issue
of fact as to the precise understatement amounts. See Uscinski v. Commissioner,
T.C. Memo. 2006-200.
Resolving, as we must, all doubts against respondent as the party moving
for partial summary judgment, we conclude that respondent failed to carry his
initial burden to show that there is no triable issue of fact with respect to the
precise amounts by which petitioners understated their net income for the years at
issue. See id. Respondent’s motion will be denied.
In reaching these holdings, we have considered all of the parties’ arguments,
and, to the extent not addressed, we conclude that they are moot, irrelevant or
without merit.
To reflect the foregoing,
An appropriate order will be issued.