dissenting: I disagree with that portion of the majority opinion which estops petitioner from showing that he did not file a fraudulent return for each of the years in controversy. Estopping petitioner in this respect, in my opinion, has led the majority to apply an erroneous standard in finding that some part of the deficiency for the years in issue was “due to fraud” within the meaning of Code section 6653(b).
As I understand the teaching of the Supreme Court in Commissioner v. Sunnen, 333 U.S. 591, 599-600 (1948), and the numerous cases which have followed it, application of the principle of collateral estoppel “must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged.” In Cromwell v. County of Sac, 94 U.S. 351, 353 (1876), a case upon which Sunnen relied heavily, the Supreme Court explained that when applying collateral estoppel “the inquiry must always be as to the point or question actually litigated and determined in the original action, not what might have been thus litigated and determined. Only upon such matters is the judgment conclusive in another action.” See also Restatement, Judgments, sec. 68(a) (1942).
Due to petitioner’s conviction under section 7206(1), the majority has estopped petitioner “from denying that he filed a fraudulent Federal income tax return from which was omitted substantial income for each of the years here involved.” The effect of the majority opinion is to equate the willful filing of a return containing a false statement with the commission of fraud with intent to evade tax. On this ground, it has limited respondent’s burden of proof to a showing “that a part of the underpayment of tax * * * was due to this fraud with intent to evade tax.” Estopping petitioner from denying that his returns were fraudulent is error, because the existence of fraud in petitioner’s returns was not alleged, litigated, or decided in the prior criminal case.
Section 7206(1)1 makes it a crime for one to willfully make and submit any return which is verified by a written declaration that it is made under the penalties of perjury and which he does not believe to be true and correct as to every material matter. The “intent to evade taxes is not an element of the crime charged under this section,” i.e., section 7206(1). Siravo v. United States, 377 F.2d 469, 472 n. 4 (1st Cir. 1967). Rather, the purpose behind section 7206(1) is to punish falsification in tax returns even absent fraud or, indeed, the existence of a deficiency.
Sustaining the conviction of a taxpayer who was charged with having falsified in his return the source of his income, the court in United States v. DiVarco, 484 F.2d 670, 673 (7th Cir. 1973), cert. denied 415 U.S. 916 (1974), noted “the need for accurate information concerning the source of income so that the Internal Revenue Service can police and verify the reporting of individuals and corporations.” The court thus concluded that “a misstatement as to the source of income is a material matter,” within the meaning of section 7206(1). The following statement by the trial court (343 F. Supp. 101, 103 (N.D. Ill. 1972)) was quoted with approval (484 F.2d at 673):
One of the more basic tenets running through all the cases is that the purpose behind the statute [sec. 7206(1)] is to prosecute those who intentionally falsify their tax returns regardless of the precise ultimate effect that such falsification may have. [Emphasis added.]
Other courts have agreed that section 7206(1) “impose[s] the penalties for perjury upon those who wilfully falsify their returns regardless of the tax consequences of the falsehood.” Gaunt v. United States, 184 F.2d 284, 288 (1st Cir. 1950), cert. denied 340 U.S. 917 (1951); cf. Silverstein v. United States, 377 F.2d 269, 270 (1st Cir. 1967). Indeed, proof that the falsification resulted in no tax deficiency is “not relevant to the issue raised” by an indictment under section 7206(1). Schepps v. United States, 395 F.2d 749 (5th Cir. 1968), cert. denied 393 U.S. 925 (1968); cf. Hoover v. United States, 358 F.2d 87, 88-89 (5th Cir. 1966), cert. denied 385 U.S. 822 (1966).
Here, the indictment under section 7206(1) charges that petitioner willfully filed a verified return which “he did not believe to be true and correct as to every material matter” in that petitioner “well knew and believed * * * [that his] correct total income * * * [was] substantially in excess of the” amount reported. To this charge for 1968, 1969, and 1970, petitioner pleaded guilty. Because petitioner’s crime under section 7206(1) was completed with the knowing omission of income, conviction was proper in his case even if petitioner, when filing his returns, thought he had deductions to offset the omissions, and in making the omissions, had no intent to defraud the Government of its lawful taxes but rather was attempting merely to conceal the kickbacks he had taken. Therefore, to borrow the words of Cromwell v. County of Sac, 94 U.S. at 353, the question of fraud was not “actually litigated and determined” in the criminal action. Hence, petitioner should not be estopped from denying in the instant case that the underpayment of tax was due to fraud.
I think the majority’s error in applying collateral estoppel in this context stems from the premise that “the willful subscribing to a false return [i.e., a return containing a false statement] is the filing of a fraudulent return.” This premise, which is essential to the majority’s position, was stated in Considine v. Commissioner, 68 T.C. 52, 61 (1977). In that case, at page 59, the Commissioner pointed to the following statement in Amos v. Commissioner, 43 T.C. 50, 55 (1964), affd. 360 F.2d 358 (4th Cir. 1965): “The term ‘willfully’ as used in section 7201 has authoritatively been defined in prior judicial decisions to encompass all of the elements of fraud which are envisioned by the civil penalty described in section 6653(b).” The Commissioner also emphasized that, in United States v. Bishop, 412 U.S. 346 (1973), and in United States v. Pomponio, 429 U.S. 10 (1976), the Supreme Court construed the word “willfully” to bear the same meaning in each of sections 7201, 7202, 7203, 7204, 7205, and 7206. Adopting the Commissioner’s argument, the Court concluded in Considine v. Commissioner, supra at 61, 68, that conviction under section 7206(1) constitutes “proof that the return is fraudulent” and that collateral estoppel prevents a petitioner convicted under section 7206(1) from denying that any underpayment for the same year was due to fraud; respondent’s burden was limited to showing that there was an underpayment of tax.
I think the Considine opinion erroneously reads the element of fraud into the word “willfully” contained in section 7206(1). As the majority here correctly states, “willfully” as used in section 7206(1) means “ a voluntary, intentional violation of a known legal duty.” United States v. Pomponio, supra at 12; United States v. Bishop, supra at 360. This definition says nothing about fraud. The Bishop court buttressed its conclusion that “willfully” has the foregoing uniform meaning in sections 7201-7207 by noting ways in which those statutes differ, one from the other, specifically in “the designation of certain express elements of the offenses.” United States v. Bishop, supra at 358-360. For example, the Court, at page 359, described the express element of the offense under section 7201 as the “attempt to evade.” In the following statement, the Court explicitly cautioned against interpreting the word “willfully,” as used in sections 7201-7207, to include the section 7201 requirement of “an attempt to evade” (412 U.S. at 360 n. 8):
Semantic confusion sometimes has been created when courts discuss the express requirement of an “attempt to evade” in section 7201 as if it were implicit in the word “willfully” in that statute. * * * This Court may be somewhat responsible for this imprecision because a similar analysis was employed in Spies v. United States, 317 U.S. 492, 497-499, 63 S.Ct. 364, 367, 87 L.Ed. 418 (1943). Greater clarity might well result from an analysis that distinguishes the express elements, such as an “attempt to evade,” prescribed by section 7201, from the uniform requirement of willfulness.
The language quoted above from the Amos opinion was used in the context of a discussion of the similarity of section 7201 (“willfully attempts * * * to evade * * * tax”) and section 6653(b) (“underpayment * * * due to fraud”). The element of fraud necessary for conviction under section 7201 was equated with that essential for the imposition of the civil penalty under section 6653(b). It is the attempt to evade tax which is tantamount to fraud. “The real character of the offense lies * * * in the attempt to defraud the government by evading the tax.” Gariepy v. United States, 220 F.2d 252, 259 (6th Cir. 1955), cert. denied 350 U.S. 825 (1955). Thus, it is correct to conclude, as we did in Amos, that a taxpayer’s conviction under section 7201 of having attempted to evade or defeat a tax for a taxable year estops that taxpayer from denying under section 6653(b) that part of his underpayment for the same year was “due to fraud.” See, e.g., Tomlinson v. Lefkowitz, 334 F.2d 262 (5th Cir. 1964), cert. denied 379 U.S. 962 (1965); Moore v. United States, 360 F.2d 353, 355 (4th Cir. 1966), cert. denied 385 U.S. 1001 (1967).
However, in my opinion, to hold that a conviction of “willfully” making a false statement in an income tax return within the meaning of section 7206(1) estops a taxpayer from denying that any underpayment of tax he may have made for the year of the return was “due to fraud” misapplies the principle of collateral estoppel. Conviction under section 7206(1) establishes that petitioner willfully, or voluntarily and intentionally, violated the legal duty not to make a false statement as to any material matter on his income tax return. It does not establish that he violated that duty with an intent, or in an attempt, to evade tax.
I am aware that the finding and judgment entered by the District Court states: “Defendant has been convicted as charged of the offense(s) of filing false and fraudulent income tax returns. 26:7206(1).” But, in entering this minute order, the court simply paraphrased the heading of section 7206, “Fraud and False Statements.” Paragraphs (2), (3), and (4) of section 7206 describe crimes involving fraud, but, as explained above, section 7206(1) does not.
While I disagree with the majority position that petitioner is estopped from denying fraud, I think petitioner is estopped to deny the question actually litigated and determined in the criminal action — in the words of the indictment, that he—
wilfully and knowingly * * * [filed an income tax return for each of the 3 years for which he was convicted which] he did not believe to be true and correct as to every material matter, in that * * * he then and there well knew and believed * * * the correct total income for the period reported was an amount substantially in excess of the reported total sum [in each such year].
Because “a fact decided in an earlier suit is conclusively established between the parties and their privies, provided it was necessary to the result of the first suit” (Hyman v. Regenstein, 258 F.2d 502, 510 (5th Cir. 1958); The Evergreens v. Nunan, 141 F.2d 927, 928 (2d Cir. 1944), cert. denied 323 U.S. 720 (1944); Fox v. Commissioner, 61 T.C. 704, 711 (1974)), petitioner is not entitled to relitigate the issue as to these omissions in the instant case.
In resolving the issue of whether any part of petitioner’s underpayments of tax were “due to fraud,” it will be important to weigh his failure to show he had deductions to offset these judicially-established omissions of income. See, e.g., United States v. Bender, 218 F.2d 869, 871 (7th Cir. 1955), cert. denied 349 U.S. 920 (1955). I do not think, however, such failure establishes fraud as a matter of law. Petitioner is entitled to litigate the fraud issue without regard to the principle of collateral estoppel. In other words, the Court must decide, in the light of all the evidence, whether the underpayments of tax were “due to fraud,” i.e., whether petitioner made the income omissions with “the specific purpose to evade a tax believed to be owing.” Carter v. Campbell, 264 F.2d 930, 936 (5th Cir. 1959); Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. a Memorandum Opinion of this Court. I respectfully dissent because it is not clear that the evidence has been weighed under this standard.
Drennen, Tannenwald, and Hall, JJ., agree with this dissenting opinion.SEC. 7206. FRAUD AND FALSE STATEMENTS.
Any person who—
(1) Declaration under penalties of perjury. — Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; * * *
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shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than 3 years, or both, together with the costs of prosecution.