Campbell v. Commissioner

T.C. Memo. 2001-51

UNITED STATES TAX COURT

JOSEPH B. CAMPBELL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8677-97. Filed February 28, 2001.

Lawrence H. Crosby, for petitioner.

Jonathan P. Decatorsmith and Tracy Anagnost Martinez, for

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: Respondent determined the following

deficiencies and additions to tax with respect to petitioner’s

Federal income taxes:1

1
All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
(continued...)
 - 2 -

Additions to Tax
Sec. Sec.
Year Deficiency 6651(a)(1) 6654(a)
1990 $7,447 $1,828 $480
1991 6,137 1,534 355
1993 6,934 1,734 290
1994 14,850 3,579 734

After concessions,2 the issues for decision are:

(1) Whether per capita distributions of $19,070, $40,933,

and $50,222 in 1991, 1993, and 1994, respectively, to petitioner

from the Prairie Island Indian Community of the State of

Minnesota (the tribe) arising out of the ownership and operation

of a gambling casino constitute gross income;

(2) whether petitioner may exclude $31,238 of discharge of

indebtedness income resulting from a foreclosure of mortgaged

1
(...continued)
Tax Court Rules of Practice and Procedure. Monetary amounts are
rounded to the nearest dollar.
2
Petitioner did not contest the following adjustments in his
petition: (1) Wage income of $1,754 and $2,450 in 1990 and 1994,
respectively; (2) interest income of $86, $92, $105, and $124 for
1990, 1991, 1993, and 1994, respectively; (3) patronage dividends
income of $31, $18, and $18 for 1990, 1991, and 1993,
respectively; (4) nonemployee compensation of $5,449 and $12,369
in 1990 and 1991, respectively; and (5) self-employment taxes, in
connection with the nonemployee compensation he received during
1990 and 1991, of $770 and $1,747, respectively. Petitioner did
not present evidence to dispute these adjustments at trial, and
petitioner did not present argument on these adjustments in
either his opening or reply brief. These adjustments are deemed
conceded in accordance with Rule 34(b)(4). At trial, respondent
conceded the “other income” adjustment of $16,250 determined in
his notice of deficiency for 1994.
 - 3 -

farm equipment during 1990 under section 108(a)(1)(C) as

qualified farm indebtedness;3

(3) whether petitioner is entitled to deduct expenses

incurred in connection with services rendered on behalf of the

tribe or the tribal council during 1993 and 1994;4

(4) whether petitioner is liable for additions to tax

pursuant to section 6651(a)(1) for failure to file returns for

1990, 1991, 1993, and 1994; and

(5) whether petitioner is liable for additions to tax

pursuant to section 6654(a) for failure to make estimated tax

payments for 1990, 1991, 1993, and 1994.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. We

incorporate the stipulation of facts into our findings by this

reference.

3
Petitioner did not contest this issue in his petition.
Petitioner contested this issue for the first time in his trial
memorandum, presented evidence on the issue at trial, and argued
in his opening brief that he was entitled to exclude the
discharge of indebtedness income. Respondent did not object to
the Court’s review of this issue. Thus, we deem this issue tried
by consent and consider it before the Court. See Rule 41(b);
Shea v. Commissioner, 112 T.C. 183, 190-191 n.11 (1999).
4
Petitioner did not contest the issue in his petition.
However, petitioner presented evidence on the issue at trial and
argued in his opening brief that he was entitled to the
deductions. Respondent did not object to the Court’s review of
this issue. Thus, we deem this issue tried by consent and
consider it before the Court. See Rule 41(b); Shea v.
Commissioner, supra.
 - 4 -

Petitioner resided in Welch, Minnesota, when the petition

was filed. As of the date the statutory notice of deficiency was

mailed to petitioner, he had not filed Federal income tax returns

or made any estimated tax payments for 1990, 1991, 1993, and

1994.

Petitioner is an enrolled member of the tribe and resided on

its reservation at all relevant times. Petitioner started

farming on the reservation in or around 1979. Petitioner raised

corn and soybeans on approximately 270 acres of reservation land

which he leased from the tribe until about 1992. In 1992, the

tribe reclaimed the land to expand its gambling operations.

The tribe approved its constitution and bylaws on June 20,

1936, and ratified its corporate charter on July 23, 1937.

Per Capita Distributions

The tribe owns and operates a gambling casino complex called

Treasure Island Casino & Bingo (the casino) on its reservation.

The tribe initially conducted class II gaming at the casino. On
 - 5 -

or about November 15, 1989, the tribe signed a compact5 with the

State of Minnesota for control of class III gaming.6

As an enrolled member of the tribe, petitioner is entitled

to receive per capita distributions attributable to income

derived from the tribe’s casino. During the years 1991, 1993,

and 1994, petitioner received per capita distributions of

$19,070, $40,933, and $50,222, respectively. No Federal income

taxes were withheld from petitioner’s per capita distributions.

Prior Litigation

Petitioner in this case was also the petitioner in Campbell

v. Commissioner, docket No. 9244-95 (Campbell I). At issue in

Campbell I was the proper Federal income tax treatment of a 1992

per capita distribution from the tribe to petitioner arising out

5
Under the Indian Gaming Regulatory Act (IGRA), Pub. L. 100-
497, secs. 1-22, 102 Stat. 2467 (1988), current version at 25
U.S.C. secs. 2701-2721 (Supp. 2000), a tribal-State compact
governing gaming activities on the Indian lands of the tribe
shall take effect only when notice of the approval of the compact
by the Secretary of the Interior is published in the Federal
Register. See 25 U.S.C. sec. 2710(d)(3)(B). The tribal-State
compact between the tribe and the State of Minnesota was approved
by the Secretary, and notice of the approval was published in the
Federal Register as required. See 55 Fed. Reg. 12292 (Apr. 2,
1990).
6
At trial, respondent objected to the admission of Exhibits
36-J through 39-J on grounds of relevance, and we reserved final
ruling on the admission of the exhibits. The exhibits included
the constitution and bylaws of the tribe, the tribe’s corporate
charter, the tribal-State compact, and the Gaming Revenue
Allocation Ordinance discussed infra. We overrule respondent’s
objection and admit the exhibits because we conclude that the
exhibits are relevant to our discussion of the collateral
estoppel issue, infra.
 - 6 -

of the ownership and operation of the casino. Campbell I was

tried before Special Trial Judge D. Irvin Couvillion on October

4, 1996, in St. Paul, Minnesota. The Court issued an opinion in

Campbell I on November 6, 1997, in which it held that the per

capita distributions were taxable as ordinary income rather than

exempt farm income as asserted by petitioner. See Campbell v.

Commissioner, T.C. Memo. 1997-502. On January 8, 1999, the Court

of Appeals for the Eighth Circuit affirmed the Tax Court on this

issue and remanded the case on another issue irrelevant to this

case. See Campbell v. Commissioner, 164 F.3d 1140 (8th Cir.

1999). The U.S. Supreme Court denied a petition for writ of

certiorari. See Campbell v. Commissioner, 526 U.S. 1117 (1999).

Gaming Revenue Allocation Ordinance

On or about October 19, 1994, the tribe passed a resolution

to amend its constitutional powers and adopted a Gaming Revenue

Allocation Ordinance (the ordinance) which regulates the

distribution of tribal profits to tribe members. The ordinance

was passed and adopted in accordance with the requirements of the

Indian Gaming Regulatory Act (IGRA), Pub. L. 100-497, secs. 1-22,

102 Stat. 2467 (1988), current version at 25 U.S.C. secs. 2701-

2721 (Supp. 2000). The ordinance stated, in part:

The Tribal Council shall insure that notification of
the application of federal tax laws to tribal per
capita payments be made when such payments are made.
The Tribal Administration shall also implement a
procedure by which qualified enrolled members who
receive per capita payments can have applicable taxes
 - 7 -

automatically deducted from per capita payments. The
Tribal Administration shall include in the notice of
the application of federal tax laws, a notice of the
existence of the withholding procedure.

In approximately November 1994, the Department of the

Interior notified the tribe that it had determined the ordinance

was in compliance with the IGRA and had approved the ordinance.

Discharge of Indebtedness

Petitioner borrowed money from the U.S. Department of

Agriculture, Farmers Home Administration (FmHA), on at least

three different occasions for operating expenses and other uses

with respect to his farming activity. On July 25, 1983,

petitioner borrowed $32,326 from the FmHA. On May 30, 1984,

petitioner borrowed $35,500 from the FmHA for annual operating

expenses and to purchase an irrigation system. On January 8,

1987, petitioner borrowed an unknown amount from the FmHA. In

order to receive loans from the FmHA, petitioner was required to

prepare and submit a projection or “prospective plan” for each

operating year the loan was effective.7 At some point,

petitioner entered into a security agreement for each of his FmHA

loans granting the FmHA a security interest in some of his

chattel, including a tractor, a combine, a planter, a wagon, a

plow, and other farming equipment (chattel).

7
The only projection included in the record concerned the
period Jan. 1 through Dec. 31, 1990.
 - 8 -

Around June 1989, petitioner received a notice from the FmHA

indicating that he had defaulted on his loans and that the FmHA

intended to enforce the security agreements against his chattel

by repossessing, foreclosing on, or obtaining a court judgment

against the property. Shortly thereafter, the FmHA foreclosed on

petitioner’s chattel. On or around November 18, 1989, the

chattel was sold at auction by Schlegel Auction & Clerking Co.

(Schlegel Auction) on behalf of the FmHA. On November 27, 1989,

Schlegel Auction issued a joint check to petitioner and the FmHA

for the auction proceeds of $13,790.

On January 31, 1990, the FmHA sent petitioner a letter

indicating that petitioner had defaulted on his 1983 and 1984

loans and that he had an outstanding balance of $35,554 as of

January 31, 1990. The letter also enclosed an Application for

Settlement of Indebtedness. In 1990, the FmHA relieved

petitioner of indebtedness in the amount of $31,238.8

Tribal Council Expenses

Petitioner served on the tribe’s council from October 1983

until March 1990. While serving as a member of the tribal

council, petitioner held various positions, including vice

chairman and assistant secretary/treasurer. Petitioner held

“about 17 different jobs” at various times, including Tobacco

8
The record does not indicate the reason for the discrepancy
in petitioner’s outstanding FmHA loan balance as of Jan. 31,
1990, and the amount of indebtedness relieved by the FmHA.
 - 9 -

Commissioner of the tribe, game warden, environmental specialist,

and various volunteer positions on behalf of the tribal

council. From about September 1988 until June 1990, and again in

1994, petitioner earned $150 per week as Tobacco Commissioner.

Any expenses petitioner incurred in connection with services

performed on behalf of the tribal council were covered by a

reimbursement policy. Under the reimbursement policy, petitioner

was entitled to receive from the tribal council $75 for every

meeting he attended, even when there were multiple meetings in a

single day (meeting payments). The meeting payments were an

incentive to persuade people to attend meetings. Under the

reimbursement policy, petitioner was also entitled to claim

reimbursement for meals, travel mileage, lodging, airfare, and

other miscellaneous expenses. According to the reimbursement

policy, petitioner was required to submit a form detailing the

expenses he incurred, with attached receipts, and requesting the

meeting payments he was entitled to receive. Petitioner kept

track of his expenses by keeping calendars and receipts.

Sometime around February 1992, the tribal council stopped

making reimbursements to petitioner. Petitioner stopped

submitting reimbursement requests around August 1993.
 - 10 -

OPINION

Per Capita Distributions

Respondent argues that the doctrine of collateral estoppel

precludes petitioner from relitigating the issue of whether

petitioner’s per capita distributions from the tribe are taxable

as ordinary income. Respondent asserts that the legal questions

raised in Campbell I with respect to this issue are identical to

those raised by petitioner in this case, and the only differences

are the years and the amounts of tax due. Respondent contends

there has been no change in the controlling facts or the

applicable law since the resolution of Campbell I. Petitioner,

on the other hand, argues that the primary issues and legal

arguments raised in this case differ significantly from those

raised in Campbell I.

The doctrine of collateral estoppel may be applied in

Federal income tax cases. See United States v. International

Bldg. Co., 345 U.S. 502, 505 (1953); Commissioner v. Sunnen, 333

U.S. 591, 598 (1948). “Under collateral estoppel, once an issue

of fact or law is actually and necessarily determined by a court

of competent jurisdiction, that determination is conclusive in

subsequent suits based on a different cause of action involving a

party to the prior litigation.”9 Montana v. United States, 440

9
Under the principles of res judicata, on the other hand, “a
judgment on the merits in a prior suit bars a second suit
(continued...)
 - 11 -

U.S. 147, 153 (1979) (citing Parklane Hosiery Co. v. Shore, 439

U.S. 322, 326 n.5 (1979)); see also Commissioner v. Sunnen, supra

at 599-600; Popp Telcom v. American Sharecom, Inc., 210 F.3d 928,

939 (8th Cir. 2000); Monahan v. Commissioner, 109 T.C. 235, 240

(1997), affd. without published opinion 86 F.3d 1162 (9th Cir.

1996); Kroh v. Commissioner, 98 T.C. 383, 401 (1992); Gammill v.

Commissioner, 62 T.C. 607, 613 (1974).

In Montana v. United States, supra at 155, the Supreme Court

established a three-prong test for applying collateral estoppel

that requires a court to find: (1) The issues presented in the

subsequent litigation are in substance the same as those issues

presented in the first case; (2) the controlling facts or legal

principles have not changed significantly since the first

judgment; and (3) other special circumstances do not warrant an

exception to the normal rules of preclusion. In Peck v.

Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525 (9th

Cir. 1990), we stated that the "three-pronged rubric provided by

the Supreme Court in the Montana case embodies a number of

detailed tests developed by the courts to test the

9
(...continued)
involving the same parties or their privies based on the same
cause of action.” Parklane Hosiery Co. v. Shore, 439 U.S. 322,
326 n.5 (1979). In this case, petitioner disputes different tax
years than in Campbell I. “Each year is the origin of a new
liability and of a separate cause of action.” Commissioner v.
Sunnen, 333 U.S. 591, 598 (1948); see also Peck v. Commissioner,
904 F.2d 525, 527 n.3 (9th Cir. 1990), affg. 90 T.C. 162 (1988).
Res judicata, therefore, does not apply.
 - 12 -

appropriateness of collateral estoppel in essentially factual

contexts." Building on the Supreme Court's analysis in Montana,

this Court identified five requirements that must be satisfied

for collateral estoppel to apply. See Peck v. Commissioner,

supra at 166-167; see also Commissioner v. Sunnen, supra at

599-600; Popp Telcom v. American Sharecom, Inc., supra at 939;

Gammill v. Commissioner, supra at 613-615; Kersting v.

Commissioner, T.C. Memo. 1999-197.

As articulated in Peck, the following requirements must be

satisfied to invoke the doctrine of collateral estoppel: (1) The

issue in the second suit must be identical in all respects with

the one decided in the first suit; (2) there must be a final

judgment rendered by a court of competent jurisdiction; (3) the

party against whom collateral estoppel is invoked must have been

a party or in privity with a party to the prior judgment; (4) the

parties actually must have litigated the issue and its resolution

must have been essential to the prior decision; and (5) the

controlling facts and applicable legal rules must remain

unchanged from those in the prior litigation. See Peck v.

Commissioner, supra at 166-167. The party asserting collateral

estoppel as an affirmative defense, in this case respondent,

bears the burden of proof.10 See Rule 142(a).

10
As required by Rule 39, respondent affirmatively pleaded
collateral estoppel by an amendment to answer filed by leave of
(continued...)
 - 13 -

In both Campbell I and this case, the ultimate issue

presented is whether per capita distributions to petitioner from

the tribe arising out of the ownership and operation of a

gambling casino constitute gross income. In this case, the

parties stipulated that the primary issue in Campbell I was the

tax treatment of a per capita distribution to petitioner in 1992

from the tribe arising out of the ownership and operation of the

casino.

In Campbell I, we specifically stated that the primary issue

for decision was:

Whether per capita distributions to petitioner from the
* * * [tribe] arising out of the ownership and
operation of a gambling casino constitute gross income,
or whether such income is “derived directly” from land
owned by the * * * [tribe] and is excludable from
taxation pursuant to laws, treaties, or agreements
between Indian tribes and the United States Government
* * *. [Campbell v. Commissioner, T.C. Memo. 1997-
502.]

The only differences between the issue in this case and the issue

in Campbell I are the dollar amounts and years in controversy.

The fact that the dollar amounts in controversy and the tax years

involved in this case are different from those in Campbell I,

however, does not preclude the application of collateral

estoppel. See Union Carbide Corp. v. Commissioner, 75 T.C. 220,

10
(...continued)
the Court.
 - 14 -

253 (1980), affd. 671 F.2d 67 (2d Cir. 1982). The first of the

Peck requirements is satisfied.

The second of the Peck requirements is also satisfied. This

Court issued an opinion in Campbell I on November 6, 1997, see

Campbell v. Commissioner, T.C. Memo. 1997-502; on January 8,

1999, the Court of Appeals for the Eighth Circuit affirmed the

Tax Court on this issue and remanded on another issue irrelevant

to this case, see Campbell v. Commissioner, 164 F.3d 1140 (8th

Cir. 1999); and the U.S. Supreme Court denied a petition for writ

of certiorari, see Campbell v. Commissioner, 526 U.S. 1117

(1999). The decision in Campbell I is final. See sec.

7481(a)(3)(B).

With respect to the third and fourth of the Peck

requirements, the parties do not dispute that petitioner was a

party in Campbell I, and a reading of the decisions in Campbell I

confirms the issue was actually litigated and was essential to

the resolution of the case. See Campbell v. Commissioner, T.C.

Memo. 1997-502, affd. on this issue 164 F.3d 1140 (8th Cir.

1999). Consequently, the third and fourth requirements are also

satisfied.

In deciding whether the fifth Peck requirement is satisfied,

we must analyze whether this proceeding involves “the same set of

events or documents and the same bundle of legal principles that

contributed to the rendering of” Campbell I. Commissioner v.
 - 15 -

Sunnen, 333 U.S. at 602. “If the legal matters determined in the

earlier case differ from those raised in the second case,

collateral estoppel has no bearing on the situation.” Id. at

599-600; see also Sydnes v. Commissioner, 647 F.2d 813, 814-815

(8th Cir. 1981), affg. 74 T.C. 864 (1980).

Petitioner’s principal argument against the application of

collateral estoppel is that the controlling facts and applicable

legal rules either have changed or differ significantly from

those considered in Campbell I. We reject petitioner’s principal

argument.11

Except for the taxable years and the amounts at issue, the

relevant facts in Campbell I and in this case are identical. The

per capita distributions made to petitioner during 1991, 1993,

11
In Commissioner v. Sunnen, 333 U.S. at 601 (fn. ref.
omitted), the Supreme Court suggested that “if the relevant facts
in the two cases are separable, even though they be similar or
identical, collateral estoppel does not govern the legal issues
which recur in the second case.” It is not clear whether
petitioner is relying on the separable facts doctrine articulated
in Sunnen; however, even if he is, we still must reject his
argument. The separable facts doctrine has been questioned and
limited by the Supreme Court in Montana v. United States, 440
U.S. 147 (1979). See also Peck v. Commissioner, 904 F.2d at 527-
528 (“The Supreme Court has rejected the separable facts doctrine
in general terms, but has implied that it might have continuing
validity in the tax context.”). In addition, two Courts of
Appeals have concluded that the separable facts doctrine is not
good law after Montana. See American Med. Intl., Inc. v.
Secretary of HEW, 677 F.2d 118, 120 (D.C. Cir. 1981) (per
curiam); Hicks v. Quaker Oats Co., 662 F.2d 1158, 1167 (5th Cir.
1981). Whether or not the separable facts doctrine has any
continued viability, we conclude that there is no basis for
applying the doctrine in this case.
 - 16 -

and 1994 were made in the same form and under the same

contractual agreements as the per capita distributions made in

1992 (the year at issue in Campbell I). In addition, petitioner

conceded at trial that the facts in this case, save the years in

dispute and amounts in controversy, are identical to the facts in

Campbell I.12 Because the context in which the issues of this

case arise has not changed since Campbell I, normal rules of

preclusion apply. See Montana v. United States, 440 U.S. at 161.

12
The only fact that arguably changed since Campbell I is
the fact that the Department of the Interior approved the tribe’s
“Gaming Revenue Allocation Ordinance” (ordinance) on or about
Nov. 20, 1994. Petitioner argues that before the approval of the
ordinance in 1994, the tribe “had the right to expect that its
per capita distributions could be received as tax-free per capita
distributions under its Constitution and Corporate Charter.” We
reject petitioner’s argument. Contrary to petitioner’s argument,
the clear language of 25 U.S.C. sec. 2710(b)(3), which was
enacted in 1988 (before Campbell I), provides that per capita
distributions may be made “only if--(A) the Indian tribe has
prepared a plan to allocate revenues to uses authorized by
paragraph (2)(B); (B) the plan is approved by the Secretary as
adequate, particularly with respect to uses described in clause
(i) or (iii) of paragraph (2)(B); * * *; and (D) the per capita
payments are subject to Federal taxation and tribes notify
members of such tax liability when payments are made.” In other
words, the tribe must have had an approved plan in effect in
order to make the per capita distributions in the first instance.
The statute does not allow tribes without such a plan to make
tax-free per capita distributions. Petitioner is not entitled to
rely on the tribe’s compliance, or noncompliance, with this
statute in order to escape taxation. Further, the decision in
Campbell I concerned tax year 1992, was tried in 1996, and was
decided in 1997; therefore, petitioner was aware of the fact that
the ordinance had been approved at the time of trial and could
have made an identical argument at trial in Campbell I. Based on
the above, the fact that the plan was not approved until 1994
does not alter the factual circumstances under which the per
capita distributions were made and is of no consequence to our
decision.
 - 17 -

The only question, therefore, is whether there has been a “change

in the legal climate” since the decision in Campbell I.

Commissioner v. Sunnen, supra at 606.

Petitioner has not referenced, and we cannot find, any

relevant change in the applicable law that warrants a second

analysis of petitioner’s case. Although the IGRA was amended

after the decision in Campbell I, none of the amendments are

relevant to the issue presented.13 Notably, petitioner does not

argue that any specific amendment to the IGRA would have had any

13
The first amendment to the IGRA was the addition of 25
U.S.C. sec. 2717a as part of the Department of the Interior and
Related Agencies Appropriations Act, 1990, Pub. L. 101-121, 103
Stat. 701, 718, current version at 25 U.S.C. sec. 2717a (Supp.
2000), which provides that, in fiscal year 1990 and thereafter,
fees to be collected pursuant to 25 U.S.C. sec. 2717 (Supp. 2000)
shall be available to carry out the duties of the National Indian
Gaming Commission (NIGC). The Technical Amendments to Various
Indian Laws Act of 1991, Pub. L. 102-238, sec. 2(a) and (b), 105
Stat. 1908, current version at 25 U.S.C. sec. 2703(E) and (F)
(Supp. 2000), added subpars. (E) and (F) to 25 U.S.C. sec. 2703
and added provisions to 25 U.S.C. sec. 2718 authorizing
appropriation of necessary funds for operation of the NIGC for
fiscal years beginning Oct. 1, 1991 and 1992. In 1992, the
Federal Indian Statutes: Technical Amendments, Pub. L. 102-497,
sec. 16, 106 Stat. 3255, 3261 (1992), current version at 25
U.S.C. sec. 2703 (Supp. 2000), struck out the words “or Montana”
following the word “Wisconsin” in 25 U.S.C. sec. 2703(7)(E). In
1997, the Department of the Interior and Related Agencies
Appropriations Act, 1998, Pub. L. 105-83, sec. 123(a) and (b),
111 Stat. 1543, 1566, current version at 25 U.S.C. secs. 2717 and
2718 (Supp. 2000), made minor changes to the wording of 25 U.S.C.
sec. 2717(a)(1) and (2), made minor wording amendments to 25
U.S.C. sec. 2718(a), and rewrote 25 U.S.C. sec. 2718(b). In
addition, the Department of Commerce, Justice, and State, the
Judiciary, and Related Agencies Appropriations Act, 1998, Pub. L.
105-119, sec. 627, 111 Stat. 2440, 2522, current version at 25
U.S.C. sec. 2718 (Supp. 2000), rewrote 25 U.S.C. sec. 2718(a).
 - 18 -

effect on the outcome of Campbell I or has any effect on this

case. Regardless of petitioner’s failure to point to any

specific changes in the law, we find that none of the amendments

enacted after the decision in Campbell I has any bearing

whatsoever on the resolution of the issue in this case. We also

note that we specifically addressed the IGRA in our decision in

Campbell I. See Campbell v. Commissioner, T.C. Memo. 1997-502.

Petitioner sets forth several alternative arguments in this

case to support his contention that the per capita distributions

should not be subject to Federal income taxes that were not made

in Campbell I.14 One of those arguments, which petitioner

describes as his “primary argument”, is that “the United States

approved a Constitution and a Corporate Charter for the

* * * [tribe] in Minnesota. * * * These documents indicate that

14
Petitioner also reiterated an argument he made in Campbell
I based on Squire v. Capoeman, 351 U.S. 1 (1956). Petitioner
asserted that under Squire v. Capoeman, supra at 4, income
“derived directly” from the land, including per capita
distributions, is exempt from taxation. Petitioner asserted that
a portion of the per capita distributions received was from
business income earned from operations other than gaming, such as
a restaurant, a buffet, two “snack-bars”, a gift shop, a tobacco
shop, a marina, and an RV park-campground. This exact argument
was the crux of petitioner’s argument in Campbell I, and we
decline to consider the argument a second time. See Campbell v.
Commissioner, T.C. Memo. 1997-502. In Campbell I, we
specifically considered Squire v. Capoeman, supra, and held:
“Income earned through the investment of capital or labor, such
as restaurants, motels, tobacco shops, and similar improvements
to the land, fails to qualify for the exemption * * *. Under the
rationale of these cases, the income derived from the operation
of a casino would not be derived directly from the land.”
(Citations omitted.).
 - 19 -

the tribe had the right to earn revenue or income and then to

distribute these funds directly to the members of the tribe as

per capita payments.” As petitioner stresses in his brief, the

tribal constitution and the corporate charter predate the IGRA by

approximately 50 years.

Evidence regarding the meaning and application of the tribal

constitution and the corporate charter could have been admitted

during the trial of Campbell I. It was not. See Jones v. United

States, 466 F.2d 131, 136 (10th Cir. 1972); Monahan v.

Commissioner, 109 T.C. at 246. Petitioner’s argument is nothing

more than an alternative argument in support of his position on

the identical issue presented in Campbell I. Petitioner did not

make this argument in the earlier proceeding. As a general rule,

taxpayers are not permitted to avoid the application of

collateral estoppel simply by advancing new theories on issues

decided against them in an earlier proceeding. See Leininger v.

Commissioner, 86 F.2d 791, 792 (6th Cir. 1936), affg. 29 B.T.A.

874 (1934); Estate of Goldenberg v. Commissioner, T.C. Memo.

1964-134; Pelham Hall Co. v. Carney, 27 F. Supp. 388 (D. Mass.

1939), affd. 111 F.2d 944 (1st Cir. 1940). Indeed, had the

present case been consolidated for trial with Campbell I, “one

uniform result would necessarily have obtained”.15 Peck v.

15
It is noteworthy that, in making his argument that the
applicable legal climate has changed since the year at issue in
(continued...)
 - 20 -

Commissioner, 90 T.C. at 168.

If the taxpayers’ case was not effectively presented at
the first trial it was their fault; affording them a
second opportunity in which to litigate the matter,
with the benefit of hindsight, would contravene the
very principles upon which collateral estoppel is based
and should not be allowed. [Jones v. United States,
supra at 136.]

See also Peck v. Commissioner, 904 F.2d at 530.

On brief, petitioner also made another alternative argument

to the effect that the “legal relationship between the Tribe and

the United States has changed over the tax years at issue since

no one from the Tribe has questioned the constitutionality” of

the IGRA. Petitioner argued that the IGRA is unconstitutional

insofar as it affords the United States the right to claim that

per capita distributions are subject to Federal taxation, because

under California v. Cabazon Band of Mission Indians, 480 U.S. 202

(1987), and Seminole Tribe v. Butterworth, 658 F.2d 310 (5th Cir.

1981), tribes have the right to economic self-determination over

all matters (including gaming operations).

A taxpayer is not collaterally estopped from challenging a

position on constitutional grounds not raised in the earlier

proceeding. See Jaggard v. Commissioner, 76 T.C. 222, 224-225

(1981); Neeman v. Commissioner, 26 T.C. 864, 866-877 (1956),

15
(...continued)
Campbell I (1992), petitioner makes no distinction between the
years at issue in this case that occurred before 1992 and the
years at issue in this case that occurred after 1992.
 - 21 -

affd. 255 F.2d 841 (2d Cir. 1958); Travers v. Commissioner, T.C.

Memo. 1982-498. In this case, however, petitioner’s

“constitutional” challenge is merely a bare assertion unsupported

by any references to the U.S. Constitution or by any evidence at

trial and in no way raises a valid constitutional claim. See

Morrow v. Commissioner, T.C. Memo. 1983-186. In addition, the

argument could have been raised in Campbell I. See Leininger v.

Commissioner, supra; Estate of Goldenberg v. Commissioner, supra;

Pelham Hall Co. v. Carney, supra. Both California v. Cabazon

Band of Mission Indians, supra, and Seminole Tribe v.

Butterworth, supra, were decided before the enactment of the

IGRA. Indeed, the IGRA was a congressional response to the

Supreme Court’s decision in California v. Cabazon Band of Mission

Indians, supra, which followed a long line of cases that began

with Seminole Tribe v. Butterworth, supra. See S. Rept. 100-446,

at 3071 (1988).

We hold that each of the requirements for applying the

doctrine of collateral estoppel in this case has been satisfied

and that collateral estoppel applies to preclude relitigation of

the proper tax treatment of the per capita distributions paid to

petitioner during the years at issue. We sustain respondent’s

determination that petitioner’s 1991, 1993, and 1994 per capita

distributions of $19,070, $40,933, and $50,222, respectively, are

subject to Federal income tax.
 - 22 -

Discharge of Indebtedness

Gross income means all income from whatever source derived,

including income from discharge of indebtedness. See sec.

61(a)(12); sec. 1.61-12(a), Income Tax Regs. Section

108(a)(1)(C) excludes from gross income discharge of indebtedness

income if the indebtedness discharged is qualified farm

indebtedness. Petitioner bears the burden of proof with respect

to whether he is entitled to an exclusion. See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

In order for income to be excluded under section

108(a)(1)(C), petitioner must prove: (1) The discharge was made

by a qualified person, see sec. 108(g)(1); (2) the indebtedness

was incurred directly in connection with the taxpayer’s operation

of the trade or business of farming, see sec. 108(g)(2)(A); and

(3) 50 percent or more of the taxpayer’s aggregate gross receipts

for the 3 taxable years preceding the taxable year in which the

discharge of such indebtedness occurs is attributable to the

trade or business of farming, see sec. 108(g)(2)(B). The

exclusion does not apply to a discharge to the extent the

taxpayer is insolvent. See sec. 108(a)(2)(B). Exclusions from

taxable income should be construed narrowly, and taxpayers must

bring themselves within the clear scope of the exclusion. See

Dobra v. Commissioner, 111 T.C. 339, 349 n.16 (1998) (citing
 - 23 -

Graves v. Commissioner, 89 T.C. 49, 51 (1987), supplementing 88

T.C. 28 (1987)).

Respondent contends that petitioner realized $31,238 in

gross income as a result of the FmHA’s discharge of petitioner’s

indebtedness during 1990. Respondent does not dispute, for

purposes of the section 108(a)(1)(C) exclusion, (1) that the FmHA

is a qualified person, see sec. 108(g)(1); (2) that petitioner’s

indebtedness was incurred directly in connection with

petitioner’s operation of the trade or business of farming, see

sec. 108(g)(2)(A); or (3) that petitioner was solvent, see sec.

108(a)(2)(B). Respondent argues, however, that petitioner fails

to satisfy the test in section 108(g)(2)(B). See Lawinger v.

Commissioner, 103 T.C. 428 (1994).

Petitioner testified that for 1987, 1988, and 1989 he earned

gross income of approximately $250 per acre multiplied by 270

acres of farmed land, totaling approximately $65,000 per year.

According to petitioner, he earned “somewhere in the neighborhood

of around $250 an acre for corn” and “just a little less than

that” for soybeans. On cross-examination, however, petitioner

testified that only 110 acres of that land were “under the

irrigator” and the remaining acres were not producing.

Petitioner testified further that he kept annual production

records as required by the FmHA in order to borrow money but that

he could not produce these records at trial because the FmHA had
 - 24 -

destroyed the documents. As evidence of his income, petitioner

did present a projection or “prospective plan” he had prepared

for the FmHA covering the period from January 1 through December

31, 1990, which was signed on March 5, 1990. The projection

estimated, among other things, production and sales of

petitioner’s crops, cash farm operating expenses, debt repayment,

and a summary of the year’s business. Petitioner, however,

introduced no credible evidence to prove his gross receipts from

farming in 1987, 1988, and 1989.

Petitioner’s income during 1987, 1988, and 1989 was not

derived solely from farming. Petitioner served on the tribal

council from October 1983 until March 1990. By his own

admission, petitioner held “about 17 different jobs” at various

times, besides the positions he held at the tribal council,

including Tobacco Commissioner, game warden, environmental

specialist, and various volunteer positions on behalf of the

tribal council. Petitioner testified that from about September

1988 until June 1990, he earned $150 per week as Tobacco

Commissioner. Petitioner did not testify about or produce any

evidence of his income from any other jobs he held for any of the

years at issue.

We are not required to accept petitioner’s self-serving

testimony as evidence of his income, particularly in the absence

of corroborating evidence. See Tokarski v. Commissioner, 87 T.C.
 - 25 -

74, 77 (1986); Peterman v. Commissioner, T.C. Memo. 1993-129

(citing Geiger v. Commissioner, 440 F.2d 688, 689 (9th Cir.

1971), affg. per curiam T.C. Memo. 1969-159, and Urban Redev.

Corp. v. Commissioner, 294 F.2d 328, 332 (4th Cir. 1961), affg.

34 T.C. 845 (1960)). Petitioner has not presented any

documentary evidence to prove his gross receipts from farming for

1987, 1988, and 1989. Petitioner’s testimony regarding the

income he estimated he earned from farming during the years at

issue was contradictory and inconsistent. On this record, we

cannot estimate, nor are we required to estimate, petitioner’s

income from farming. See Cohan v. Commissioner, 39 F.2d 540,

543-544 (2d Cir. 1930). In addition, we are not able to

ascertain what income he earned from other sources during the

years at issue. Petitioner has not met his burden of proving he

received gross receipts of 50 percent or more from farming as

required under section 108(g)(2)(B). Thus, we hold that

petitioner is not entitled to the exclusion under section

108(a)(1)(C), and he must include $31,238 in gross income by

reason of the discharge of his indebtedness.

Tribal Council Expenses

Petitioner claims he is entitled to deduct unreimbursed

business expenses, travel costs, and mileage incurred while

performing activities on behalf of the tribal council, or, in the

alternative, that he is entitled to deduct such expenses as a
 - 26 -

charitable deduction under sections 170 and 7871. In his brief,

petitioner claims that, for 1993, he has not been reimbursed by

the tribe for $7,072 in direct expenses and $4,950 in meeting

payments (66 meetings charged at $75 each)16 and, for 1994, he

has not been reimbursed for $9,089 in direct expenses and $7,725

in meeting payments (103 meetings charged at $75 each).

Respondent argues that in order to claim a deduction under

section 162(a), petitioner must have incurred and paid the

expenses he seeks to deduct, and, therefore, petitioner cannot

deduct the meeting payments. Respondent further argues that

petitioner has not presented credible evidence to substantiate

the deductions for direct expenses.

Section 162(a) Deduction

Section 162(a) permits a taxpayer to deduct the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business. See Commissioner v. Lincoln

Sav. & Loan Association, 403 U.S. 345, 352 (1971). In order for

a taxpayer “to be engaged in a trade or business, the taxpayer

must be involved in the activity with continuity and regularity

and * * * the taxpayer’s primary purpose for engaging in the

activity must be for income or profit.” Groetzinger v.

Commissioner, 480 U.S. 23, 35 (1987). An expense is ordinary if

16
Petitioner actually claimed in his brief that he was owed
$5,050 in meeting payments.
 - 27 -

it is normal, usual, or customary within a particular trade,

business, or industry or arises from a transaction “of common or

frequent occurrence in the type of business involved.” Deputy v.

du Pont, 308 U.S. 488, 495 (1940). An expense is necessary if it

is appropriate and helpful for the development of the business.

See Commissioner v. Lincoln Sav. & Loan Association, supra at

353; Commissioner v. Heininger, 320 U.S. 467, 471 (1943).

Section 262(a) disallows deductions for personal, living, or

family expenses. See also sec. 1.162-17(a), Income Tax Regs.

Section 162 also allows a taxpayer to deduct ordinary and

necessary business expenses in excess of reimbursements from the

taxpayer’s employer. See sec. 1.162-17(b)(3), Income Tax Regs.

If the employee’s ordinary and necessary business
expenses exceed the total of the amounts charged
directly or indirectly to the employer and received
from the employer as advances, reimbursements, or
otherwise, and the employee is required to and does
account to his employer for such expenses, the taxpayer
may * * * claim a deduction for such excess. [Id.]

If the taxpayer wishes to secure a deduction for such

excess, he must submit a statement with his return showing: (1)

“The total of any charges paid or borne by the employer and of

any other amounts received from the employer for payment of

expenses whether by means of advances, reimbursements or

otherwise”, sec. 1.162-17(b)(3)(i), Income Tax Regs.; and (2)

“The nature of his occupation, the number of days away from home

on business, and the total amount of ordinary and necessary
 - 28 -

business expenses paid and incurred by him * * * broken down into

such broad categories as transportation, meals and lodging while

away from home overnight, entertainment expenses, and other

business expenses”, sec. 1.162-17(b)(3)(ii), Income Tax Regs. To

account to his employer, within the meaning of section 1.162-

17(b)(3), Income Tax Regs., means to submit an expense account or

other written statement to the employer showing the business

nature and the amount of business expenses. See sec. 1.162-

17(b)(4), Income Tax Regs.

Section 274(d) generally provides that no deduction or

credit shall be allowed for travel, entertainment, or a gift

unless the taxpayer substantiates such expenditures by adequate

records or by sufficient evidence corroborating the taxpayer’s

own statement. See sec. 1.274-5(a), (c), Income Tax Regs.

“Ordinarily, documentary evidence will be considered adequate to

support an expenditure if it includes sufficient information to

establish the amount, date, place, and the essential character of

the expenditure.” Sec. 1.274-5(c)(2)(iii)(b), Income Tax Regs.

Section 274(d) prohibits deductions for expenditures based on

approximations or unsupported testimony of the taxpayer. See

sec. 1.274-5(a), Income Tax Regs.

Deductions are a matter of legislative grace, and the burden

of clearly showing the right to the claimed deduction is on

petitioner. See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
 - 29 -

U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S.

435, 440 (1934).

Petitioner has not met his burden of proving that the

expenses he allegedly incurred in 1993 and 1994 were incurred in

connection with a trade or business of petitioner. Petitioner

testified that he served on the tribal council from October 1983

until March 1990. Although the expenses he incurred were for

activities performed on behalf of the tribal council in 1993 and

1994, there is no evidence that he was performing services for

the tribal council “with continuity and regularity” or that his

primary purpose for performing the services was “for income and

profit”. Groetzinger v. Commissioner, supra at 35.

Even if we were to assume that the expenses allegedly

incurred by petitioner were in connection with a trade or

business, petitioner failed to prove that he did not, and would

not, receive the reimbursement to which he claimed he was

entitled under tribal council reimbursement policies. Moreover,

petitioner failed to substantiate the expenses he claimed he was

entitled to deduct. Although petitioner maintained some records

and offered those records into evidence at trial, the

documentation was inconsistent, incoherent, and insufficient to

enable us to determine which of the expenses, if any, were

deductible and which were not. Petitioner submitted three types

of proof to substantiate his expenses: (1) An “account of
 - 30 -

expenses”, (2) personal date books for 1993 and 1994, and (3)

photocopied receipts and correspondence for 1993 and 1994. The

“account of expenses” appears to have been prepared in

preparation for this proceeding, and we give it no weight other

than as a summary of items allegedly substantiated by other

documentary evidence. The personal date books contain

handwritten notes with a few numbers that do not appear to

correlate with the numbers in petitioner’s account of expenses.

The receipts and correspondence are incomplete and insufficient

to satisfy the requirements of section 162 and, where applicable,

section 274. For example, most of the documents dealing with

expenses that seem to be covered by section 274 do not provide

the date, amount, place, and essential character of the

expenditure as required by section 1.274-5(c)(2)(iii), Income Tax

Regs.

For the reasons described above, we are unable to discern

any adequate factual or legal basis for allowing petitioner a

deduction for any of the expenses claimed under these

circumstances. Accordingly, we hold that petitioner has not

proven he was entitled to deduct either the meeting payments or

his claimed unreimbursed direct expenses as ordinary and

necessary business expenses under section 162(a).
 - 31 -

Section 170 Deduction

Section 170 allows a deduction for any charitable

contribution payment made within the taxable year. For purposes

of section 170, the definition of charitable contribution

includes a contribution or gift to or for the use of a State,

among other things, if the contribution is made for exclusively

public purposes. See sec. 170(c)(1). Section 7871(a)(1)(A)

treats Indian tribal governments as States for purposes of

determining whether and in what amount any contribution or

transfer to or for the use of such States is deductible under

section 170. Petitioner bears the burden of demonstrating he is

entitled to the claimed deduction. See Rule 142(a); INDOPCO,

Inc. v. Commissioner, supra; New Colonial Ice Co. v. Helvering,

supra.

The only evidence presented on this issue at trial was

petitioner’s own affirmative response to his attorney’s question

of whether it is possible for individuals to give gifts or make

donations to the tribe. Further, petitioner’s overall testimony

regarding his expenses reflects that his intent was to be paid

$75 per meeting and to be reimbursed for his expenses, not to

donate his time and money to the tribal council.17 See

Commissioner v. Duberstein, 363 U.S. 278 (1960). Petitioner’s

17
For example, on direct examination, petitioner
characterized the unreimbursed expenses as “lost income” or a
“loss”.
 - 32 -

entire argument on brief in support of a deduction under section

170 consisted of the following sentence: “[Section] 7871 of the

Code treats tribes as States for charitable donation purposes.”

Petitioner has failed to meet his burden of proving he is

entitled to a deduction under section 170 for expenses he

allegedly incurred in connection with his activities for the

tribe, and, therefore, petitioner is not entitled to a deduction

under section 170.

Section 6651(a)(1) Additions to Tax

Section 6651(a) imposes an addition to tax for failure to

file a return, in the amount of 5 percent of the tax liability

required to be shown on the return for each month during which

such failure continues, but not exceeding 25 percent in the

aggregate, unless it is shown that such failure is due to

reasonable cause and not due to willful neglect. See sec.

6651(a)(1); United States v. Boyle, 469 U.S. 241, 245 (1985);

United States v. Nordbrock, 38 F.3d 440, 444 (9th Cir. 1994);

Harris v. Commissioner, T.C. Memo. 1998-332. A failure to file a

timely Federal income tax return is due to reasonable cause if

the taxpayer exercised ordinary business care and prudence and,

nevertheless, was unable to file the return within the prescribed

time. See sec. 301.6651-1(c)(1), Proced. & Admin. Regs. Willful

neglect means a conscious, intentional failure to file or

reckless indifference. See United States v. Boyle, supra.
 - 33 -

Petitioner conceded that, as of the date that respondent

mailed the statutory notice of deficiency to petitioner,

petitioner had not filed Federal income tax returns for 1990,

1991, 1993, or 1994. Petitioner failed to produce any evidence

that his failure to file returns was due to reasonable cause. We

also note that petitioner did not make an argument on this issue,

except for a subject heading in his reply brief, which states:

“Campbell should not be obligated to pay additions to tax based

on his per capita income.” We, therefore, sustain respondent’s

determination.

Section 6654(a) Additions to Tax

Section 6654(a) provides for an addition to tax in the case

of any underpayment of estimated tax by an individual. The

addition to tax under section 6654(a) is mandatory in the absence

of statutory exceptions. See sec. 6654(a), (e); Recklitis v.

Commissioner, 91 T.C. 874, 913 (1988); Grosshandler v.

Commissioner, 75 T.C. 1, 20-21 (1980). With one limited

exception,18 “this section has no provision relating to

reasonable cause and lack of willful neglect. It is mandatory

18
Sec. 6654(e)(3)(B) provides for an exception for newly
retired or disabled individuals where the taxpayer (1) either is
retired after having attained the age of 62 or became disabled in
the taxable year or the preceding taxable year in which the
estimated payments were required to be made, and (2) can
demonstrate that such underpayment was due to reasonable cause
and not to willful neglect. Sec. 6654(e)(3)(B) does not apply in
this case.
 - 34 -

and extenuating circumstances are irrelevant.” Estate of Ruben

v. Commissioner, 33 T.C. 1071, 1072 (1960); see also Grosshandler

v. Commissioner, supra at 21. None of the statutory exceptions

under section 6654(e) applies in this case.

Petitioner concedes that as of the date the statutory

notice of deficiency was mailed to him, he had not made any

estimated tax payments for 1990, 1991, 1993, and 1994.

Petitioner did not present any argument on this issue; therefore,

the issue is deemed conceded. Respondent’s determination is

sustained.

We have carefully considered the remaining arguments of both

parties for results contrary to those expressed herein, and, to

the extent not discussed above, find those arguments to be

irrelevant, moot, or without merit.

To reflect the foregoing and the concessions of the parties,

Decision will be entered

under Rule 155.