T.C. Memo. 1997-133
UNITED STATES TAX COURT
HAROLD WAPNICK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 269-94. Filed March 13, 1997.
Harold Wapnick, pro se.
Monica E. Koch, for respondent.
MEMORANDUM OPINION
GALE, Judge: This matter is presently before the Court on
respondent's motion for partial summary judgment, in which
respondent argues that the conviction of Harold Wapnick
(petitioner) under section 72011 collaterally estops him from
disputing that there is an underpayment of income tax, and that
1
Section references are to the Internal Revenue Code. Rule
references are to the Tax Court Rules of Practice and Procedure.
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some part of the underpayment is due to fraud within the meaning
of section 6653(b), for each of the 1985, 1986, and 1987 taxable
years. Respondent supports her motion with three exhibits: (1) A
grand jury indictment of petitioner, Seth Wapnick, Jon Wapnick
and Steven Wolfson, (2) a judgment in a criminal case entered
against petitioner by the U.S. District Court for the Eastern
District of New York, and (3) the opinion of the U.S. Court of
Appeals for the Second Circuit affirming the convictions of
petitioner, Seth Wapnick, Jon Wapnick, and Steven Wolfson in the
U.S. District Court for the Eastern District of New York.
Petitioner claims that the doctrine of collateral estoppel
is inapplicable for the 1985, 1986, and 1987 taxable years
because the prior proceedings did not determine the amount of
underpayment, the elements for collateral estoppel are not
otherwise met, and the facts support an exception to the
applicability of collateral estoppel. Thus, the Court must
decide whether petitioner is collaterally estopped from disputing
that a portion of the deficiencies in his Federal income tax for
1985, 1986, and 1987 was due to fraud within the meaning of
section 6653(b) on account of his criminal conviction under
section 7201. We hold that he is.
Background
Harold Wapnick filed a Federal income tax return for each of
the 1985 and 1986 taxable years, but not for the 1987 taxable
year.
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By notice of deficiency dated October 21, 1993, respondent
determined deficiencies in, and additions to, petitioner's
Federal income tax as follows:
Additions to Tax
Year Deficiency Sec.6653(b)(1) Sec.6653(b)(2) Sec.6661
1985 $296,275.88 $155,784.40 1 $74,056.47
Additions to Tax
Sec.6653 Sec.6653
Year Deficiency (b)(1)(A) (b)(1)(B) Sec.6661
1986 $389,855.00 $169,812.76 1 $97,463.75
Additions to Tax
Sec.6653 Sec.6653
Year Deficiency (b)(1)(A) (b)(1)(B) Sec.6654
1987 $387,838.00 $290,878.50 1 $119.43
1
50% of the interest due on the portion of the underpayment
attributable to fraud.
Petitioner petitioned the Court to redetermine respondent's
determination of deficiencies on January 3, 1994, at which time
he resided in Brooklyn, New York. Respondent's answer included
affirmative allegations that petitioner is liable for additions
to tax for fraud under section 6653(b)(1) and (2) for the 1985
taxable year and under section 6653(b)(1)(A) and (B) for the 1986
and 1987 taxable years.
Previously, petitioner was a defendant in the criminal case
of United States v. Wapnick, docketed in the U.S. District Court
for the Eastern District of New York. The indictment charged,
inter alia, that petitioner willfully attempted to evade and
defeat Federal income tax due and owing by him for the 1985,
1986, and 1987 taxable years in violation of section 7201. On
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July 23, 1993, petitioner was convicted of, inter alia, criminal
tax evasion under section 7201 for the 1985, 1986, and 1987
taxable years in the U.S. District Court for the Eastern District
of New York. Petitioner's conviction under section 7201 was
affirmed by the U.S. Court of Appeals for the Second Circuit on
July 10, 1995. Petitioner filed a writ of certiorari with the
Supreme Court of the United States, which was denied on June 24,
1996. Petitioner filed a petition for rehearing with the Supreme
Court of the United States on July 9, 1996, on which there has
been no action to date.
Discussion
Summary judgment may be granted as to all or any part of the
legal issues in dispute "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);
Zaentz v. Commissioner, 90 T.C. 753, 754 (1988). The following
principles control in disposing of a motion for summary judgment
under Rule 121(b): (i) The moving party must show that there is
no dispute as to any material fact and that he is entitled to
judgment as a matter of law; (ii) the factual materials, and
inferences to be drawn from them, must be viewed in a light most
favorable to the opposing party; and (iii) the opposing party
must set forth specific facts to show there is a genuine issue of
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material fact for trial and cannot rest upon mere allegations or
denials. Brotman v. Commissioner, 105 T.C. 141, 142 (1995).
Moreover, summary judgment may be used to establish matters
covered by collateral estoppel. Id.
For 1985, section 6653(b)(1) provides that if any part of an
underpayment is due to fraud, there shall be an addition to the
tax equal to 50 percent of the underpayment. For 1986 and 1987,
section 6653(b)(1)(A) provides for an addition to tax equal to 75
percent of the portion of the underpayment that is attributable
to fraud. Section 6653(b)(2)2 provides that there shall be
added to the tax an amount equal to 50 percent of the interest
due on the portion of the underpayment attributable to fraud.
Fraud is defined as an intentional wrongdoing with a
specific intent to evade a tax believed to be owing. Zell v.
Commissioner, 763 F.2d 1139, 1142-1143 (10th Cir. 1985), affg.
T.C. Memo. 1984-152. Respondent has the burden of proving by
clear and convincing evidence both (i) an underpayment and (ii)
that some portion of the underpayment is due to fraud. Sec.
7454(a); Rule 142(b); Parks v. Commissioner, 94 T.C. 654, 660-661
(1990).
As noted, respondent contends that petitioner's prior
criminal conviction under section 7201 collaterally estops him
from denying that there is an underpayment of income tax for each
2
For 1986 and 1987, sec. 6653(b)(1)(B).
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of the 1985, 1986, and 1987 taxable years and that part of such
underpayment is due to fraud within the meaning of section
6653(b). We agree. Under the doctrine of collateral estoppel, a
judgment in a prior proceeding precludes litigation, in a second
proceeding, of issues actually litigated and necessary to the
outcome of the first proceeding. Parklane Hosiery Co. v. Shore,
439 U.S. 322, 326 (1979); Niedringhaus v. Commissioner, 99 T.C.
202, 213 (1992). A criminal conviction under section 7201 based
upon a charge of willful attempt to evade tax necessarily
involves the ultimate factual determinations necessary for a
finding of fraud under section 6653(b); namely, that part of the
underpayment for the taxable year in issue was due to fraud.
Amos v. Commissioner, 43 T.C. 50, 54-56 (1964), affd. 360 F.2d
358 (4th Cir. 1965). Thus, petitioner is precluded from
disputing that part of the underpayment of his income tax is due
to fraud for purposes of section 6653(b) for each of the years in
issue.
Many of petitioner's arguments appear to be based on the
fact that in the prior criminal proceeding the Government did not
prove the exact amount of income received by him or the exact
amount of tax owed by him. A determination of the amount of the
underpayment is not an element for a criminal conviction under
section 7201, nor is it a precondition for use of collateral
estoppel on the issue of fraud under section 6653(b). Further,
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use of the doctrine of collateral estoppel to establish fraud
will not preclude the taxpayer from litigating the amounts of the
deficiencies at issue in this case. See, e.g., Fitzpatrick v.
Commissioner, T.C. Memo. 1995-548.
Petitioner challenges whether the elements required for
application of the doctrine of collateral estoppel have been met.
First, petitioner claims that the issues in the criminal
proceeding for tax evasion and the subsequent proceeding for
civil tax fraud are not identical. Second, petitioner claims
that the issues material to liability for civil tax fraud were
not actually litigated or actually decided in the criminal
proceeding. As discussed above, it is well settled that a
conviction under section 7201 necessarily involves the ultimate
factual determinations necessary for a finding of fraud under
section 6653(b). Amos v. Commissioner, supra at 54-56.
Therefore, the foregoing arguments of petitioner are without
merit.
Petitioner also argues that an exception to collateral
estoppel should apply because he did not have a full and fair
opportunity to litigate in the prior proceeding, in that
witnesses necessary to his defense did not appear and his counsel
was ineffective. These alleged deficiencies are not of the
character to warrant an exception to the application of
collateral estoppel. See Klein v. Commissioner, 880 F.2d 260
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(10th Cir. 1989), affg. T.C. Memo. 1984-392; Calcutt v.
Commissioner, 91 T.C. 14, 25 (1988) (evidence which, by due
diligence, could have been produced in the prior proceeding is
considered to have been available at the prior proceeding and
therefore will not preclude the application of collateral
estoppel); see also Schachenmayr v. Commissioner, T.C. Memo.
1991-281, affd. without published opinion sub nom. H & W Motel
Corp. v. Commissioner, 979 F.2d 846 (2d Cir. 1992). Furthermore,
such alleged defects in the prior proceeding are appropriately
raised on the appeal of that decision. Lilley v. Commissioner,
T.C. Memo. 1989-602, affd. without published opinion 925 F.2d 417
(3d Cir. 1991).
Finally, petitioner claims that respondent's determinations
are precluded because the 6-year period of limitations has run.
Because there is fraud as to the years 1985, 1986, and 1987
resulting from the application of the doctrine of collateral
estoppel, the period of assessment remains open for such years.
Aslam v. Commissioner, T.C. Memo. 1981-159.
Accordingly, based upon the foregoing,
An appropriate order
will be issued.