T.C. Memo. 1996-366
UNITED STATES TAX COURT
FREDERICK E. SLATER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 16898-94, 16899-94. Filed August 12, 1996.
Harry J. Kaplan, for petitioner.
William D. Reese, for respondent.
MEMORANDUM OPINION
RAUM, Judge: The Commissioner determined deficiencies in
petitioner's Federal income taxes as follows:
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Additions to Tax
Year Deficiency Sec. 6653(b)(1)1 Sec. 6661
1985 $ 58,899 $ 73,4072 $14,725
1986 82,667 103,0293 20,667
1987 104,190 118,5594 25,848
This matter is before the Court on the respondent's Motion for
Summary Judgment. Unless otherwise indicated, all section
references are to the Internal Revenue Code in effect for the
1
Sec. 6653(b) above refers to both sec. 6653(b)(1) and
(b)(2), which was in effect in 1985, and to sec. 6653(b)(1)(A)
and (b)(1)(B), which was in effect in 1986 and 1987.
Sec. 6653(b)(1) provided:
If any part of any underpayment (as defined in
subsection (c)) of tax required to be shown on a return
is due to fraud, there shall be added to the tax an
amount equal to 50 percent of the underpayment.
Sec. 6653(b)(1)(A) provided:
If any part of any underpayment (as defined in
subsection (c)) of tax required to be shown on a return
is due to fraud, there shall be added to the tax an
amount equal to the sum of * * * (A) 75 percent of the
portion of the underpayment which is attributable to
fraud * * * .
Both provisions require that 50 percent of the interest payable
under sec. 6601 is due with respect to that portion of the
understatement attributable to fraud. Secs. 6653(b)(2)(A),
6653(b)(2).
2
Plus 50 percent of the interest due on $58,899
3
Plus 50 percent of the interest due on $82,667.
4
Plus 50 percent of the interest due on $103,392.
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years in issue and all Rule references are to the Tax Court Rules
of Practice and Procedure.
Petitioner, Frederick E. Slater, resided in Saratoga,
California, at the time the petition in this case was filed. On
February 18, 1992, the grand jury of Santa Clara County,
California, indicted petitioner on three counts of violation of
26 U.S.C. section 7201 (1982) for each of the years 1985, 1986,
and 1987. In each count, the grand jury charged petitioner with
willfully attempting to evade income tax liability by
underreporting the amount of taxes knowingly owed. On November
17, 1992, petitioner was found guilty on all three counts of the
indictment. He was sentenced to 4 months' imprisonment and 2
years of supervised release, including 4 months of electronic
home detention, and fined $2,300 and "the cost of prosecution in
this case", $2,231.
After termination of the criminal proceeding, the IRS
attempted to conduct a civil audit of petitioner's income tax
returns for the years 1985, 1986, and 1987. Petitioner, through
his then-attorney, refused to provide books and records to the
auditors and asked that the notice of deficiency be issued
immediately. After the present Tax Court cases were docketed,
petitioner supplied the books and records to the IRS Appeals
Office.
The parties have stipulated that the deficiencies in income
tax due from petitioner for 1985, 1986, and 1987 are $614,
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$3,781, and $10,224, respectively. The parties also agree that
there are no additions to tax due from petitioner pursuant to
section 6661 for 1985 and 1986.
1. Section 6653(b)
Section 6653(b) imposes additions to tax on taxpayers who
fraudulently understate their income tax liability.5 The
Government has the burden of proving fraud by clear and
convincing evidence. Rule 142(b). It has met that burden in
this case with proof of Slater's convictions for tax evasion
under section 72016 for each of the years at issue. See Blohm v.
Commissioner, 994 F.2d 1542, 1554 (11th Cir. 1993), affg. T.C.
Memo. 1991-636.
The Double Jeopardy Clause of the Fifth Amendment to the
United States Constitution states "nor shall any person be
subject for the same offence to be twice put in jeopardy of life
or limb." Petitioner contends that imposition of the fraud
additions, when coupled with the prison time he has served and
the fines he has paid, violates the double jeopardy provisions of
5
See note 1.
6
Sec. 7201 provides:
Any person who willfully attempts in any manner to
evade or defeat any tax imposed by this title or the
payment thereof shall, in addition to other penalties
provided by law, be guilty of a felony and, upon
conviction thereof, shall be fined not more than
$100,000 ($500,000 in the case of a corporation), or
imprisoned not more than 5 years, or both, together
with the costs of prosecution.
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the Fifth Amendment. Petitioner's contentions have been recently
addressed and rejected in Louis v. Commissioner, T.C. Memo. 1996-
257, and Ward v. Commissioner, T.C. Memo. 1995-286. Without
recanvassing our complete analysis of the problem in Louis, we
think it is sufficient to note that we there called attention to
a very recent Ninth Circuit case that dealt with the issue,
Grimes v. Commissioner, 82 F.3d 286, 289-290 (9th Cir., Apr. 17,
1996), where it was stated:
Grimes argues that the imposition of fraud penalties
renders the proceeding quasi-criminal. Two recent
Supreme Court cases addressing the definition of
"punishment" for the purposes of the Double Jeopardy
Clause give this argument a superficial appeal. See
Department of Revenue v. Kurth Ranch, U.S. ,
, 114 S. Ct. 1937, 1948 (1994) (finding that a Montana
state tax on marijuana constitutes punishment); United
States v. Halper, 490 U.S. 435 (1989) (the "civil"
label does not determine whether a sanction is
punishment).
Both of these decisions, however, cite with
approval Helvering v. Mitchell, [38-1 USTC ¶ 9152], 303
U.S. 391 (1938), where the Court found the Tax Code's
civil fraud penalty remedial in nature and not punitive
for double jeopardy purposes. See Kurth Ranch,
U.S. , , 114 S. Ct. at 1946 n. 16; Halper, 490
U.S. at 442-43 * * * [Fn. ref. omitted.]
And the Sixth Circuit even more recently reached the same result.
United States v. Alt, 83 F.3d 779 (6th Cir., May 15, 1996). We
reject petitioner's double jeopardy argument.
2. Section 6661
The only year now in controversy to which section 6661
applies is 1987. Section 6661 provides:
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(a) * * * If there is a substantial understatement of
income tax for any taxable year, there shall be added
to the tax an amount equal to 25 percent of the amount
of any underpayment attributable to such
understatement.
(b)(1)(A) * * * For purposes of this section, there is
a substantial understatement of income tax for any
taxable year if the amount of the understatement for
the taxable year exceeds the greater of
(i) 10 percent of the tax required to be shown on
the return for the taxable year, or
(ii) $5,000.
* * * * * * *
(b)(2)(B) * * * The amount of the understatement under
subparagraph (A) shall be reduced by that portion of
the understatement which is attributable to
(i) the tax treatment of any item by the taxpayer
if there is or was substantial authority for such
treatment, or
(ii) any item with respect to which the relevant
facts affecting the item's tax treatment are
adequately disclosed in the return or in a
statement attached to the return.
Petitioner has stipulated that he understated his income tax
liability for 1987 by $10,224. The correct liability, as agreed
by the parties, was $28,954. Ten percent of $28,954 is $2,895.
The amount of the understatement, $10,224, exceeds the greater of
$2,895 or $5,000. Therefore, under section 6661(b)(1)(A), there
has been a substantial understatement.
Petitioner does not dispute that there was a substantial
understatement of tax on his return for 1987. However, he makes
two arguments against imposition of the section 6661(a) addition.
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First, he contends that imposition of the addition to tax results
in double jeopardy. This Court has already decided that double
jeopardy does not apply to section 6661(a) additions imposed
after criminal conviction pursuant to section 7201. See Miller
v. Commissioner, T.C. Memo. 1994-249.
Petitioner's second argument is hard to follow in the light
of section 6661(b). He states that his understatement "was the
result of a failure of proof as to items of deductions that arose
from improper record keeping." At most petitioner appears to be
stating that he would have been entitled to additional deductions
upon substantiation. However, even if one should accept
petitioner's statement as a factual matter, he still would not
have a valid defense against the section 6661 addition to tax,
and there would not be any genuine issue of triable material fact
in this connection.
An order will be issued
granting respondent's motion
for summary judgment and
decisions will be entered
under Rule 155.