T.C. Memo. 1998-226
UNITED STATES TAX COURT
RICHARD A. FREY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23834-96. Filed June 29, 1998.
W. Waverly Townes, for petitioner.
Andrew M. Winkler, for respondent.
MEMORANDUM OPINION
GERBER, Judge: Respondent determined deficiencies in
petitioner's Federal income tax and penalties for fraud as
follows:
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Year Deficiency Sec. 6663
1990 $11,998 $8,999
1991 11,803 8,852
1992 11,225 8,419
1993 15,769 11,827
The deficiency in income tax and penalty for 1993 have been
reduced to $15,453 and $11,590, respectively, to reflect
respondent's concession that the unreported income amount
determined for petitioner's 1993 tax year is $52,000, rather than
the $52,989 determined in the notice of deficiency. The issues
for our consideration are: (1) Whether petitioner is estopped,
by reason of a prior conviction for criminal tax evasion, from
denying that the $188,000 he received was taxable income during
the years in issue; (2) whether petitioner is estopped from
denying that the deficiencies asserted against him for the years
at issue were due to fraud with the intent to evade tax; and
(3) whether the assessment and collection of the deficiencies in
income tax and penalties for petitioner's taxable years 1990,
1991, and 1992 are barred by expiration of the statutory period
of limitations.
This case was submitted fully stipulated pursuant to Rule
122.1 At the time the petition in this case was filed,
petitioner, Mr. Richard Frey, resided in Milan, Michigan.
1
The stipulation of facts and the attached exhibits are
incorporated by this reference. All Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
years in issue, unless otherwise indicated.
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Petitioner herein was the defendant in the criminal case of
United States v. Frey, docket No. 95CR00035-J, which was tried in
the U.S. District Court for the Western District of Kentucky.
Petitioner was indicted on April 5, 1995, with respect to
the criminal matter. The indictment charged that petitioner, who
was employed as the Director of Corrections for the Jefferson
County Department of Corrections, received bribes in exchange for
assisting a corporation in obtaining certain contracts. In
addition, the indictment charged that petitioner knowingly and
willfully attempted to evade Federal income tax for 1990, 1991,
1992, and 1993 by filing false and fraudulent joint returns in
violation of section 7201. Petitioner was charged with
underreporting income, on behalf of himself and his spouse, in
the amounts of $44,000, $48,000, $44,000, and $52,989 for tax
years 1990, 1991, 1992, and 1993, respectively. It was
petitioner's position that these amounts were received by him
during the years in issue as nontaxable loans. Petitioner was
found guilty of conspiracy to commit extortion, mail fraud, money
laundering, and tax evasion.
Respondent asserts that petitioner's conviction of tax
evasion under section 7201 collaterally estops him from rebutting
the determination that he is liable for civil fraud penalties
under section 6663 for the same years. Respondent further
maintains that the deficiencies in income tax and the penalties
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due from petitioner may be assessed at any time under section
6501(c)(1). Petitioner asserts that the doctrine of collateral
estoppel does not apply because: (1) the issues in the criminal
case are not the same as those in the instant case; and (2) the
complexity and number of counts in the indictment are special
circumstances that warrant an exception to the normal rules of
issue preclusion. Petitioner also maintains that the 3-year
limitation period under section 6501(a) bars the assessment and
collection of the deficiencies and penalties for 1990, 1991, and
1992.
The Supreme Court in Montana v. United States, 440 U.S. 147,
155 (1979), refined the parameters of applying collateral
estoppel by articulating a three-prong test: (1) Whether the
issues presented in the subsequent litigation are in substance
the same as those in the first case; (2) whether controlling
facts or legal principles have changed significantly since the
first judgment; and (3) whether special circumstances warrant an
exception to the normal rules of preclusion. See Meier v.
Commissioner, 91 T.C. 273, 282-286 (1988).
Petitioner argues that the complexity and number of counts
in the indictment are special circumstances that warrant an
exception to the rules of issue preclusion. With respect to the
special circumstances exception, the Supreme Court stated:
"Redetermination of issues is warranted if there is reason to
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doubt the quality, extensiveness, or fairness of procedures
followed in prior litigation." Montana v. United States, supra
at 164 n.11. Petitioner has offered no evidence that either the
complexity or the quantity of the counts in the prior criminal
indictment affected adversely the quality, extensiveness, or
fairness of the prior criminal procedure. We find that no
special circumstances exist warranting any exception, and
petitioner has not directed our attention to any change in
controlling facts or legal principles since the first judgment.
Thus, the only question we must resolve is whether the issues
involved in the instant case are sufficiently similar to those
resolved in the criminal proceeding so as to warrant the
application of collateral estoppel.
It is well established that a conviction for Federal income
tax evasion, either upon a plea of guilty or upon a jury verdict,
conclusively establishes fraud in a subsequent civil tax fraud
proceeding through application of the doctrine of collateral
estoppel. DiLeo v. Commissioner, 96 T.C. 858, 885-886 (1991),
affd. 959 F.2d 16 (2d Cir. 1992); Gray v. Commissioner, 708 F.2d
243, 246 (6th Cir. 1983), affg. T.C. Memo. 1981-1. The elements
of criminal tax evasion and civil tax fraud are identical. Gray
v. Commissioner, supra; Hicks Co. v. Commissioner, 470 F.2d 87,
90 (1st Cir. 1972), affg. 56 T.C. 982 (1971).
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Petitioner was found guilty of tax evasion for the taxable
years 1990, 1991, 1992, and 1993. In particular, petitioner was
charged with criminally underreporting income in the amounts of
$44,000, $48,000, $44,000, and $52,989 for the tax years 1990,
1991, 1992, and 1993, respectively. Petitioner admits to
receiving the amounts in issue; however, he argues that the
amounts received were nontaxable loans. The factual question of
whether this money constituted income was necessarily decided in
reaching the judgment in the criminal case. Petitioner was found
guilty of tax evasion for failure to report the amounts here in
controversy. Accordingly, petitioner is estopped from arguing
that no part of the amounts received was taxable income and from
denying that he filed false and fraudulent Federal income tax
returns with the intent to evade income tax for 1990, 1991, 1992,
and 1993.
Furthermore, because petitioner's fraudulent intent, for
purposes of the penalties under section 6663, has been
established for 1990, 1991, and 1992, it follows that the
assessment and collection of the deficiency in income tax and the
penalties are not barred by the expiration of the statutory
limitation period. Sec. 6501(c)(1); see Taylor v. Commissioner,
T.C. Memo. 1997-82.
To reflect the foregoing,
Decision will be entered
under Rule 155.