T.C. Memo. 1996-6
UNITED STATES TAX COURT
JOSEPH C. STEPIEN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8161-95. Filed January 11, 1996.
Raymond N. McCabe, for petitioner.
Lynne Camillo and Matthew I. Root, for respondent.
MEMORANDUM OPINION
ARMEN, Special Trial Judge: This matter is presently before
the Court on respondent's Motion for Partial Summary Judgment.
Respondent seeks a partial summary adjudication that there
is an underpayment in petitioner's income tax for the taxable
year 1984, and that a portion of such underpayment is
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attributable to fraud within the meaning of section 6653(b).1 As
explained in more detail below, we agree with respondent that
partial summary judgment in respondent's favor is appropriate.
Background
Joseph C. Stepien (petitioner) failed to file Federal income
tax returns for the taxable years 1983, 1984, 1985, and 1986. On
April 11, 1990, a Federal grand jury sitting in the U.S. District
Court for the District of Hawaii returned an indictment charging
petitioner with criminal tax evasion under section 7201 for the
taxable years 1983, 1984, 1985, and 1986. On July 13, 1990,
petitioner negotiated a plea agreement with the U.S. Attorney for
the District of Hawaii whereby petitioner agreed to enter a
voluntary plea of guilty to the charge of criminal tax evasion
under section 7201 for the taxable year 1984 in exchange for an
agreement by the Government to dismiss the remaining counts of
the indictment. The District Court accepted petitioner's guilty
plea and entered a judgment of conviction against petitioner on
October 22, 1990.
In a notice of deficiency issued subsequent to petitioner's
conviction, respondent determined deficiencies in, and additions
to, petitioner's Federal income taxes as follows:
1
All section references are to the Internal Revenue Code
in effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
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Additions to Tax
Sec. Sec. Sec. Sec. Sec.
Year Deficiency 6653(b)(1) 6653(b)(1)(A) 6653(b)(2) 6653(b)(1)(B) 6654(a)
1983 $13,219 $6,610 -- 50% of the -- $808
interest due
on $13,219
1984 13,333 6,667 -- 50% of the -- 838
interest due
on $13,333
1985 8,435 4,218 -- 50% of the -- 484
interest due
on $8,435
1986 4,787 -- $3,590 -- 50% of the 146
interest due
on 4,787
In the alternative to her determination that petitioner is
liable for additions to tax for fraud under section 6653,
respondent determined that petitioner is liable for various
additions to tax under section 6651(a)(1), section 6653(a)(1) and
(2), and section 6653(a)(1)(A) and (B) for the taxable years in
issue.
Petitioner filed a petition for redetermination with the
Court disputing the deficiencies and the additions to tax
determined by respondent in the notice of deficiency. Respondent
filed an answer to the petition, including therein affirmative
allegations as follows: (1) Petitioner is liable for the
additions to tax for fraud for each of the taxable years in
issue; and (2) the doctrine of collateral estoppel applies to
preclude petitioner from contesting his liability for the
additions to tax for fraud under section 6653(b)(1) and (2) for
the taxable year 1984. Thereafter, petitioner filed a reply to
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respondent's answer in which petitioner denies that he is liable
for the additions to tax for fraud for any of the taxable years
in issue.
As indicated, respondent filed a motion seeking a partial
summary adjudication that there is an underpayment in
petitioner's income tax for the taxable year 1984 and that a
portion of such underpayment is attributable to fraud within the
meaning of section 6653(b). Respondent contends that petitioner
is collaterally estopped from denying that he fraudulently
attempted to evade Federal income tax for 1984 by virtue of his
conviction for tax evasion under section 7201 for that year.
Respondent's Motion for Partial Summary Judgment was
calendared for hearing in Washington, D.C., at which time counsel
for respondent appeared and presented argument in support of the
motion. No appearance was made by or on behalf of petitioner at
the hearing, nor did petitioner file a statement with the Court
pursuant to Rule 50(c).2 In effect, petitioner relies on the
denials set forth in his reply to the affirmative allegations of
respondent's answer.
Discussion
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. Florida Peach Corp. v.
2
Petitioner was reminded of the applicability of Rule
50(c) in the Court's Notice of Hearing dated Oct. 12, 1995.
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Commissioner, 90 T.C. 678, 681 (1988). 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); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving
party bears the burden of proving that there is no genuine issue
of material fact, and factual inferences will be read in a manner
most favorable to the party opposing summary judgment. Dahlstrom
v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.
Commissioner, 79 T.C. 340, 344 (1982).
Section 6653(b)(1) provides that if any part of any
underpayment of tax is due to fraud, there shall be added to the
tax an amount equal to 50 percent of the underpayment. Section
6653(b)(2) provides that there shall be added to the tax, in
addition to the amount provided by section 6653(b)(1), an amount
equal to 50 percent of the interest due on the portion of the
underpayment that is attributable to fraud.
Fraud is defined as an intentional wrongdoing with a
specific intent to evade a tax believed to be owing. Zell v.
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Commissioner, 763 F.2d 1139, 1142-1143 (10th Cir. 1985), affg.
T.C. Memo. 1984-152; Webb v. Commissioner, 394 F.2d 366, 377 (5th
Cir. 1968), affg. T.C. Memo. 1966-81. Respondent has the burden
of proving fraud by clear and convincing evidence. Sec. 7454(a);
Rule 142(b); Stone v. Commissioner, 56 T.C. 213, 220 (1971).
As indicated, respondent contends that petitioner is
estopped from denying the existence of fraud for 1984 by virtue
of petitioner's criminal conviction under section 7201. We
agree.
Collateral estoppel serves to protect litigants from the
burden of relitigating an identical issue and promotes judicial
economy by preventing unnecessary and redundant litigation.
Meier v. Commissioner, 91 T.C. 273, 282 (1988). Under the
doctrine of collateral estoppel, a valid, final judgment in a
prior suit precludes, in a second cause of action, litigation of
issues actually litigated and necessary to the outcome of the
first action. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326
(1979); Niedringhaus v. Commissioner, 99 T.C. 202, 213 (1992);
Meier v. Commissioner, supra.
A criminal conviction based upon a charge of willful attempt
to evade tax in violation of section 7201 necessarily carries
with it the ultimate factual determination that part of the
underpayment for the particular taxable year was due to fraud as
encompassed in section 6653(b). Plunkett v. Commissioner, 465
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F.2d 299, 305-306 (7th Cir. 1972), affg. T.C. Memo. 1970-274;
Amos v. Commissioner, 43 T.C. 50, 54-56 (1964), affd. 360 F.2d
358 (4th Cir. 1965). The doctrine of collateral estoppel applies
in this context whether the conviction under section 7201 arises
from a trial on the merits or a plea of guilty. Gray v.
Commissioner, 708 F.2d 243, 246 (6th Cir. 1983), affg. T.C. Memo.
1981-1; Plunkett v. Commissioner, supra at 305; Stone v.
Commissioner, supra at 221.
Consistent with the foregoing, petitioner's prior criminal
conviction under section 7201 in respect of his 1984 taxable year
is conclusive and binding on petitioner so that the doctrine of
collateral estoppel precludes him from denying in the present
civil tax proceeding: (1) There is an underpayment in his income
tax for 1984, and (2) a part of the underpayment is due to fraud
within the meaning of section 6653(b). Tomlinson v. Lefkowitz,
334 F.2d 262, 266 (5th Cir. 1964); C.B.C. Super Markets, Inc. v.
Commissioner, 54 T.C. 882, 893 (1970). Consequently, we shall
grant respondent's Motion for Partial Summary Judgment.
Conclusion
In order to reflect the foregoing,
An order will be issued
granting respondent's Motion for
Partial Summary Judgment.