T.C. Memo. 2001-222
UNITED STATES TAX COURT
JOHN S. FAGAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 820-98. Filed August 14, 2001.
Dan S. Maccabee, for petitioner.
David R. Jojola and Angelique Neal, for respondent.
MEMORANDUM OPINION
PAJAK, Special Trial Judge: This matter is before the Court
on respondent’s motion for partial summary judgment.
For the year 1987, respondent determined a deficiency in
petitioner's Federal income tax in the amount of $370,360 and
additions to tax under section 6653(b)(1)(A) in the amount of
$277,770, under section 6653(b)(1)(B) in an amount to be
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determined of 50 percent of the interest due on $370,360, and
under section 6654 in the amount of $19,881. The deficiency was
based on respondent’s determination that petitioner had not
reported $970,000 of income from the distribution of marijuana.
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
Respondent’s motion for partial summary judgment is limited
to the issue of whether petitioner is collaterally estopped from
disputing that there is an underpayment of his tax for 1987 and
that some part of the underpayment is due to fraud within the
meaning of section 6653(b).
On September 29, 1993, the U.S. Attorney filed with the U.S.
District Court for the District of Nevada in United States v.
John Steven Fagan, Criminal No. N-92-61-HDM, a three count
Information: Count One--Conspiracy to import in excess of 1,000
kilograms of marijuana/asset forfeiture; Count Two--Unreported
exportation of currency in excess of $10,000; and Count Three--
Felony tax evasion. The Information further described Count
Three as Section 7201--Income tax evasion. In Count Three, the
Information set forth the accusation that John Steven Fagan
(Fagan) (petitioner in this case) had received taxable income of
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$970,000 from marijuana trafficking activities and that he “did
willfully attempt to evade and defeat the said income tax due” on
that amount in violation of section 7201.
On November 28, 1997, the District Court entered a judgment
in the criminal case against Fagan finding him guilty, inter
alia, of the offense of Income Tax Evasion under section 7201 for
the year 1987. Fagan had pleaded guilty to Counts One, Two, and
Three of the Information, described above. Fagan was represented
by his then attorney, Christopher H. Wing.
Section 6653(b)(1)(A) provides an addition to tax if any
part of the underpayment was due to fraud, in the amount of 75
percent of the portion of the underpayment attributable to fraud.
Section 6653(b)(1)(B) provides an addition to tax equal to 50
percent of the interest due with respect to the portion of the
underpayment that is attributable to fraud. To establish fraud
under section 6653(b) respondent must prove by clear and
convincing evidence: (1) That there was an underpayment of tax
for each year; and (2) that a portion of the underpayment for
each year was due to fraud. Sec. 7454(a); Rule 142(b).
To establish that there was an underpayment and that a
portion of the underpayment for each year was due to fraud,
respondent relies on petitioner’s criminal conviction under
section 7201. Respondent argues that petitioner’s conviction for
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willfully attempting to evade and defeat income tax for 1987 is
binding on petitioner and that under the doctrine of collateral
estoppel petitioner is estopped from denying that for the year
1987 there was an underpayment of his taxes due to fraud. We
agree.
This Court addressed the effect of convictions under section
7201 on determinations made under section 6653(b) in Amos v.
Commissioner, 43 T.C. 50, 55-56 (1964), affd. 360 F.2d 358 (4th
Cir. 1965). In Amos v. Commissioner, supra, this Court concluded
that the fraudulent intent required under section 6653(b) is
included within the fraudulent intent element of a conviction
under section 7201. A finding in a criminal proceeding that a
taxpayer willfully attempted to evade income tax under section
7201 therefore is binding on that taxpayer under the doctrine of
collateral estoppel in a subsequent civil proceeding involving a
tax deficiency for the same year. Tomlinson v. Lefkowitz, 334
F.2d 262 (5th Cir. 1964); Brooks v. Commissioner, 82 T.C. 413,
431 (1984), affd. without published opinion 772 F.2d 910 (9th
Cir. 1985); Amos v. Commissioner, supra at 55-56; Deletis v.
Commissioner, T.C. Memo. 1995-512; Knoff v. Commissioner, T.C.
Memo. 1992-624; Savage v. Commissioner, T.C. Memo. 1992-129.
Petitioner seeks to avoid the foregoing result by referring
to his statement and a Clarification of a Plea Agreement.
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Petitioner’s self-serving statement in a 1995 hearing in a
criminal matter relating to another individual to the effect that
petitioner thought he would not have to pay taxes on his
marijuana dealings is simply not relevant to the issue before the
Court.
On September 28, 1993, petitioner entered into a Plea
Agreement. On the same day, petitioner entered into a
Clarification of Plea Agreement (1993 Clarification), signed by
petitioner, by his counsel, and by an Assistant U.S. Attorney.
The 1993 Clarification states, in one of its two separate
paragraphs: “At this time, the United States and defendant JOHN
STEVEN FAGAN have been unable to resolve the tax issues
associated with this matter. Therefore, the parties are in
agreement that there will not be a resolution of any remaining
tax issues, either during, or by virtue of, the sentencing in
this matter.” (Emphasis supplied.) Petitioner now claims that
under this language of the 1993 Clarification petitioner is not
collaterally estopped from contesting the fraud addition to tax.
The 1993 Clarification was filed in petitioner’s criminal
case on November 26, 1997. This Clarification did not affect the
actions taken on November 28, 1997. What is significant here is
that on November 28, 1997, the District Court entered judgment
against petitioner under section 7201 for income tax evasion.
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Once accepted by the District Court, petitioner’s voluntary plea
of guilt for violation of section 7201, with its intrinsic
admission of each element of the crime, triggered the related
consequences attending such plea, including collateral estoppel
as to fraud under section 6653(b). Blohm v. Commissioner, 994
F.2d 1542, 1554 (11th Cir. 1993), affg. T.C. Memo. 1991-636.
Nothing petitioner has raised changes the conclusive facts that
he pleaded guilty and was found criminally guilty of violating
section 7201 by engaging in income tax evasion.
Based on the cited authorities, petitioner is collaterally
estopped from denying that some part of the underpayment in his
tax was due to fraud within the meaning of section 6653(b).
An appropriate order will
be issued.