Admissions
Page1
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Evidence: Admissions
[Dec.
40,211(M)] Clem Moore and
Janice Moore, et al. 1
v. Commissioner
Docket Nos. 8538-79, 8539-79, 8540-79, 8541-79, 8542-79, 8543-79,
8544-79, 21865-80, 46 TCM 473, T.C.Memo. 1983-352, Filed June 15, 1983
[Appealable, barring stipulation to the contrary, to CA-8.--CCH]
[Code Secs.
704 and 761 ]
Partnerships: Partner's distributive share: Liquidations: Employment
distinguished.--A partnership existed where a bank account was
established and supplies were purchased in the partnership name, the
partner denying its existence at times introduced himself to others as a
partner, and that same partner in documents prepared in another lawsuit
described certain property as partnership property. Therefore, the
transfer of that property to another partner was a distribution in
liquidation of a partnership interest and not the payment of wages for
services rendered.
[Code Sec.
7203 ]
Tax Court: Failure to pay tax: Evidence: Admissions.--A complaint filed
by taxpayers in a lawsuit to determine the legal interests of the
parties was admissible as evidence against taxpayers, since it was
verified by them as being true and correct. Also admitted was a brief
filed by taxpayers' attorney in that prior action, since it was a
statement made within the scope of the attorney's agency. Pleadings
filed by taxpayers' opponents in the prior action were inadmissible for
the obvious reason that they did not represent a statement by
taxpayers.--CCH.
D.
Derrell Davis, for the petitioners in docket Nos. 8358-79 through
8544-79. H. David Blair, for the petitioners in docket No. 21865-80.
Rebecca W. Wolfe, for the respondent.
Rebecca
W. Wolfe, for the respondent.
Memorandum
Findings of Fact and Opinion
GOFFE,
Judge:
The
Commissioner determined deficiencies in the petitioners' Federal income
tax for the taxable years as set forth below:
Petitioners Year Deficiency
Clem Moore and FYE
Janice Moore ............ 3/31/75 $11,645.00
Alan F. Moore and
Linda B. Moore .......... 1974 1,060.00
Donna J. Moore .......... 1974 137.16
Andrew N. Moore and
Reba Nell Moore ......... 1974 965.00
Andrew N. Moore, III .... 1974 137.16
Christie E. Moore ....... 1974 137.16
Tera J. Moore ........... 1974 137.16
George L. Davis and
Hester L. Davis ......... 1974 42,491.59
After
concessions, the issues for decision are: (1) Whether petitioners George
L. Davis and Clem Moore were partners in a partnership. Based upon our
resolution of this issue, we must then decide (2) how the various
petitioners should treat, for tax purposes, the transfer of certain
property to George Davis, to wit: as a distribution in liquidation of a
partnership interest or as the payment of wages for services rendered,
and if as wages, whether certain petitioners should recognize capital
gain on the transfer.
Findings
of Fact
Some
of the facts have been stipulated. The stipulation of facts and
stipulated exhibits are incorporated herein by this reference.
All
petitioners resided in the State of
Arkansas
at the time they filed their petitions in this matter.
Petitioners
Clem and Janice Moore filed a joint Federal income tax return for the
taxable year ended March 31, 1975. A statutory notice of deficiency for
the taxable year ended March 31, 1975, was timely mailed to petitioners
Clem and Janice Moore on March 19, 1979.
Petitioners
Alan F. and Linda B. Moore filed a joint Federal income tax return for
the taxable year 1974. A statutory notice of deficiency for the taxable
year 1974 was timely mailed to petitioners Alan F. and Linda B. Moore on
March 19, 1979.
Petitioners
Andrew N. and Reba Nell Moore filed a joint Federal income tax return
for the taxable year 1974. A statutory notice of deficiency for the
taxable year 1974 was timely mailed to petitioners Andrew N. and Reba
Nell Moore on March 19, 1979.
Petitioners
Donna J. Moore, Andrew N. Moore, III, Christie E. Moore, and Tera J.
Moore did not file Federal income tax returns for the taxable year 1974.
On March 19, 1979, these petitioners were timely mailed statutory
notices of deficiency for the taxable year 1974.
Petitioners
George L. and Hester L. Davis filed a joint Federal income tax return
for the taxable year 1974. A statutory notice of deficiency for the
taxable year 1974 was timely mailed to petitioners George L. and Hester
L. Davis on September 29, 1980.
On
March 8, 1961, George L. Davis entered into a contract with Nelse W.
Barnett to purchase certain real property, consisting of approximately
806 acres in
Independence County
,
Arkansas
. As part of the purchase price for the 806 acres, George Davis conveyed
his equity interest in his home and 30 acres to Nelse Barnett. Under the
terms of the contract dated March 8, 1961, George Davis was to pay Nelse
Barnett an additional $10,000 in yearly installments of $500, plus
interest at 6 percent per annum. The first interest payment was due on
January 1, 1962, and the first payment on the principal was due on
January 1, 1964.
George
Davis and Mr. Barnett had a disagreement as to certain additional
obligations of Mr. Barnett under their agreement, so on December 15,
1961, Barnett sold the property to Clem Moore, subject to George Davis'
rights under the March 8, 1961, contract. George Davis then, by oral
agreement, formed a partnership with Clem Moore's son, Andy, to raise
cattle on the Barnett land, in which both he and Clem Moore had an
interest. Under their agreement George Davis and Andy Moore were equal
partners. Clem Moore agreed to lend the partnership, at 6-percent
interest, the money it needed to operate. Andy contributed a herd of
cattle to the partnership.
Davis
was to receive a one-half interest in all the partnership property once
the
Moores
were repaid their investment. They operated on this basis for several
years.
In
1965 Clem Moore, who had bought some land adjoining the land that George
Davis and Andy Moore had been ranching, contributed this land to the
partnership and Andy, Clem and George all became equal partners with a
one-third share each of the partnership. This was done by oral agreement
among the three men. At this time Andy was going off to college.
Clem
Moore kept the books of the partnership. These books consisted of a
single-entry book of account in which he recorded al items of expense
and income and all capital contributions and expenditures. None of the
partners received any profits from the cattle operation. All profits
were applied to repay the working capital loan due to Clem Moore and to
pay Clem Moore for his interest in the land used by the partnership.
Beginning
after Andy went to school, the partnership agreed to pay George Davis
$100 a month to do Andy's share of the work. The partnership, throughout
its history, was indebted to Clem Moore for the capital which he lent
it. The partnership was unable to pay down the principal on this loan,
so the partners agreed that in any month in which George Davis would
forgo his $100 a month payment then $300, or $100 from each partner,
would be applied to offset the principal amount of the partnership debt
to Clem Moore.
From
1961 through 1973 the cattle partnership operated under the name of
Davis and Moore.
In
1970, Clem Moore formed a family patnership with his children and
grandchildren, the other petitioners in this case. Gifts of real
property totaling approximately 2200 acres, including the real property
involved in the cattle operation, were made by Clem and Janice Moore to
the family partnership. At the time this property was transferred from
Clem Moore to the family partnership, Clem Moore acknowledged to his
accountant that George Davis had a "working interest" in the
property. On occasion Clem Moore introduced himself as George Davis'
partner.
In
1971, Clem Moore indicated to George Davis that he wanted to sell all of
the assets of the cattle operation. These assets were not sold because
George Davis objected.
After
the formation of the family partnership, Clem Moore turned the books of
account for the cattle operation over to George and Hester Davis. Hester
Davis opened a bank account for the partnership in the name of Davis and
Moore Farms.
On
April 17, 1973, George L. Davis filed a suit against Clem and Janice
Moore in the Chancery Court of Independence County, Arkansas. On June 6,
1974, this suit was settled pursuant to an agreement between George
Davis and Clem and Janice Moore. As a result of the above agreement,
Clem and Janice Moore transferred approximately 540 acres valued at
$82,940 to George and Hester Davis by deed dated June 6, 1974, and
equipment valued at $5,349.
On
its partnership Federal income tax return for the reporting year 1974,
the
Moore
family partnership reported an ordinary loss in the amount of $74,934
which included a deduction for labor hired in the amount of $88,289 for
the distribution of property to George Davis. It also separately
reported $53,145 as long-term capital gain resulting from the
distribution of property to George Davis. Clem and Janice Moore reported
on their Federal income tax return for the fiscal year ended March 31,
1975, an ordinary loss from partnership income in the amount of $23,980
and a net long-term capital gain from partnerships in the amount of
$17,005, representing their distributive share of the family
partnership's items of income and expense. Alan F. and Linda B. Moore
reported on their Federal income tax return for the taxable year 1974 an
ordinary loss from partnership income in the amount of $5,995 and a net
long-term capital gain from partnerships in the amount of $4,252,
representing their distributive share of the family partnership's items
of income and expense. Andrew N. and Reba Nell Moore reported on their
Federal income tax return for the taxable year 1974 an ordinary loss
from partnership income in the amount of $5,995 and a net long-term
capital gain from partnerships in the amount of $4,252, representing
their distributive share of the family partnership's items of income and
expense. Donna J. Moore, Andrew N. Moore, III, Christie E. Moore and
Tera J. Moore did not file Federal income tax returns for the taxable
year 1974.
George
and Hester Davis did not report any income from the distribution of land
and equipment on their Federal income tax return for the taxable year
1974.
The
Commissioner, in his statutory notices of deficiency for the
Moore
petitioners, determined that the amount claimed by the partnership as
wages paid to George Davis was a settlement of a partnership interest
and therefore not deductible. He also determined that the land
transferred to George Davis was in settlement of a partnership interest
and not a sale of land. Accordingly, he made adjustments to the reported
incomes of Clem and Janice Moore, Alan F. and Linda B. Moore, and Andrew
N. and Reba Nell Moore to reflect increases to their reported ordinary
income to the extent of their share of the claimed wage deduction and
decreases in their reported capital gain to the extent that their
capital gain was attributable to the land distributed to George Davis.
In his statutory notices of deficiency for the
Moore
petitioners who did not file Federal income tax returns for the taxable
year 1974, the Commissioner determined that these petitioners had
taxable income to the extent of their distributive share of partnership
income as that partnership income was determined by the Commissioner.
In
the statutory notice of deficiency for George and Hester Davis, the
Commissioner determined that their taxable income should be increased by
a distribution of $94,113.32 from the
Davis
&
Moore
partnership representing compensation for services rendered.
Ultimate
Finding of Fact
George
Davis, Andy Moore and Clem Moore were members of a partnership for
Federal tax purposes. The real property and equipment transferred to
George Davis was a distribution in liquidation of his partnership
interest.
Opinion
In
1961 George Davis entered into a contract to purchase some land on which
he hoped to raise cattle. After transferring certain property to the
seller he and the seller had a disagreement which ultimately resulted in
the seller selling the property to Clem Moore, subject to
Davis
' rights under the contract.
Davis
then went into partnership with Clem Moore's son, Andy, to raise cattle
on the land. They started with
Davis
' interest in the land that was also owned by Clem Moore, with some
cattle that Andy contributed to the partnership and with Clem Moore's
agreement to lend the partnership the money it needed to operate.
Davis
was to receive a one-half interest in all partnership property once the
Moores
were repaid their investment. The profits of the partnership were paid
to Clem Moore as interest on his operating capital loan and to pay him
for his interest in the land.
In
1965 Clem Moore contributed some adjoining land that he had purchased
and became a third, equal partner in the partnership of Davis and Moore.
The
parties eventually had a falling out and
Davis
sued Clem and Janice Moore for his share of the partnership property.
Clem and Janice transferred certain land and equipment to George and
Hester Davis in settlement of this lawsuit. This property had been
transferred by Clem and Janice Moore to a family partnership.
Before
addressing the issues on their merits, we will consider certain
evidentiary questions that were not decided at trial but were briefed by
the parties for our subsequent resolution.
The
Moore
petitioners object to the admission of certain exhibits as evidence.
These exhibits are (1) Ex. 16-P, complaint filed by George Davis in the
Chancery Court of Independence County, Arkansas, in the matter of George
L. Davis versus Clem Moore and Janice Moore (the Complaint by Davis);
(2) Ex. 19-S, entitled Agreement, which represents the settlement
agreement entered into by the parties as a result of the legal action
brought by George Davis (the Settlement Agreement); (3) Ex. 20-T,
Complaint in Equity filed by Clem and Janice Moore in the Chancery Court
of Independence County, Arkansas, in the matter of Clem Moore and Janice
Moore, his wife, versus George L. Davis and Hester L. Davis, his wife,
(the Complaint by Moore); and (4) Ex. 31-AE, a brief entitled Reply to
Amended Memorandum Brief of Defendants, filed by the attorneys for Clem
and Janice Moore in the matter commenced by Clem and Janice Moore as
described in (3), above, (the Moore Brief).
Petitioners
Moore
object to Ex. 19-S, the Settlement Agreement as inadmissible under Rule
408, Federal Rules of Evidence. Rule 408 provides as follows:
Rule
408. Compromise and Offers to Compromise
Evidence
of (1) furnishing or offering or promising to furnish, or (2) accepting
or offering or promising to accept, a valuable consideration in
compromising or attempting to compromise a claim which was disputed as
to either validity or amount, is not admissible to prove liability for
or invalidity of the claim or its amount. Evidence of conduct or
statements made in compromise negotiations is likewise not admissible.
This rule does not require the exclusion of any evidence otherwise
discoverable merely because it is represented in the course of
compromise negotiations. This rule also does not require exclusion when
the evidence is offered for another purpose, such as proving bias or
prejudice of a witness, negativing a contention of undue delay, or
proving an effort to obstruct a criminal investigation or prosecution.
The
evidence the Moore petitioners seek to exclude is the Settlement
Agreement pursuant to which the property in question was transferred
from Clem and Janice Moore and the Moore family partnership to George
Davis. It was this transfer which resulted in the taxable transaction at
issue. Respondent argues that the Settlement Agreement was not offered
to prove the liability of Clem and Janice Moore but to enable the Court
to be fully informed of the transfer. We will admit Ex. 19-S for the
limited purpose of showing the terms of their settlement.
The
Moore petitioners object to the remaining documents in dispute as
"hearsay * * * [that] cannot be admitted as admissions on behalf
of" Clem and Janice Moore. They argue that the Federal Rules of
Civil Procedure provide for very liberal construction of pleadings and
in this context statements in these documents referring to a partnership
between Clem Moore and George Davis do not reflect affirmative
allegations of a partnership nor admissions of a partnership but merely
the draftsman's careless use of language.
Although
the Moore petitioners do not refer to the Federal Rules of Evidence in
stating their argument, they presumably rely on the general Rule 802,
Federal Rules of Evidence, that hearsay is not admissible except to the
extent provided in the Federal Rules of Evidence. Respondent, however,
maintains that the disputed documents are not hearsay because they
represent admissions by a party-opponent under Rule 801(d)(2), Federal
Rules of Evidence. The pertinent part of that rule provides:
(d)
Statements which are not hearsay.--A statement is not hearsay
if--
*
* *
(2)
Admissions by party-opponent.--The statement is offered against a
party and is (A) his own statement, in either his individual or a
representative capacity, or (B) a statement of which he has manifested
his adoption or belief in its truth, or (C) a statement by a person
authorized by him to make a statement concerning the subject, or (D) a
statement by his agent or servant concerning a matter within the scope
of his agency or employment, made during the existence of the
relationship, or (E) a statement by a co-conspirator of a party during
the course and in furtherance of the conspiracy.
Ex.
16-P, the Complaint by Davis, is not admissible as an admission by Clem
and Janice Moore for the obvious reason that it does not represent a
statement by the Moores. Neither the Davis petitioners nor respondent
provide an alternative reason for admission. Accordingly, it will not be
admitted as evidence.
Exs.
20-T and 31-AE are Clem and Janice Moore's complaint in the legal action
that they instituted and a brief prepared on their behalf in the same
matter. Ex. 20-T, the Complaint by Moore, was verified by Clem Moore,
stating "on oath that the matters and things set forth in the
foregoing complaint are true and correct to the best of his knowledge
and belief." The Complaint by Moore is clearly admissible under the
adoptive admission exception from the definition of hearsay of Rule
801(d)(2)(B). United States v. Morgan, 581 F.2d 933 (D. C. Cir.
1978); United States v. Johnson, 529 F.2d 581 (8th Cir. 1976).
Ex. 31-AE, the Moore Brief, is admissible as not hearsay under Rule
801(d)(2)(D) because a brief submitted by an attorney on behalf of a
party in a lawsuit commenced by that party is clearly a statement made
within the scope of the attorney's agency. The arguments on which the
Moore petitioners rely more appropriately bear on the weight to which
this controverted evidence should be given, and we will be considerate
of these arguments in that context.
We
will now turn to the substantive issues. Whether a partnership exists
for Federal tax purposes is a question of Federal rather than state law.
Estate of Kahn v. Commissioner [74-2
USTC ¶9524 ], 499 F.2d 1186, 1189 (2d Cir. 1974). The
essential question is whether the parties intended to, and did in fact,
join together for the present conduct of an undertaking or enterprise.
See Commissioner v. Culbertson [49-1
USTC ¶9323 ], 337 U. S. 733 (1949). This determination is
factual by its very nature. In making the determination we will consider
numerous factors, none of which is conclusive. Luna v. Commissioner
[Dec. 26,967 ], 42 T. C.
1067 (1964).
We
have found as a fact that George Davis, Andy Moore and Clem Moore were
partners in a partnership. While Clem Moore denies this, he was not
forthright with the Court as to his son's involvement in the events. We
did not find him to be a credible witness, based upon our general
impression of his demeanor and his testimony at trial. In contrast, we
found George and Hester Davis to be forthright and credible. We need not
base our decision solely on the testimony, however, as there is
substantial objective evidence that the parties held themselves out to
be and in fact operated as a partnership. Supplies were purchased in the
name of Davis and Moore. Clem Moore did not object to this and more
often than not personally paid the bills. Cattle were sold under the
name Davis and Moore. A bank account was established under the name
Davis and Moore Farms. Clem Moore on occasion introduced himself to
third parties as a partner. After the parties resolved the Davis suit by
a Settlement Agreement, Clem and Janice Moore sued the Davises on the
basis of that Settlement Agreement, maintaining in the documents that
were prepared by their attorney, one of which Clem Moore verified as
true, that the property in question was partnership property.
The
Moore petitioners argue that the nature of the agreement between the
Moores and Davis could not constitute a partnership because Davis
contributed no property to the relationship and was only promised a
future interest of the cattle operation assets when Clem Moore was
repaid with interest. This argument ignores the interest of the Davises
in the land used by the cattle operation. We have found, on the basis of
the contract which he entered into with Mr. Barnett and pursuant to
which he transferred his equity interest in his home and 30 acres to Mr.
Barnett, that he had an interest in this land. Clem Moore purchased this
property subject to George Davis' rights under that contract.
Having
decided that a partnership existed, we agree with petitioners Davis and
the respondent that what the Davises received pursuant to the Settlement
Agreement was a distribution in liquidation of a partnership interest
and not the payment of wages for services rendered.
Decisions
will be entered for the respondent in docket Nos. 8538-79 through
8544-79.
Decision
will be entered for petitioners in docket No. 21865-80.
1
Cases of the following petitioners are consolidated herewith: Alan F.
Moore and Linda B. Moore, docket No. 8539-79; Donna J. Moore, docket No.
8540-79; Andrew N. Moore and Reba Nell Moore, docket No. 8541-79; Andrew
N. Moore, III, docket No. 8542-79; Christie E. Moore, docket No.
8543-79; Tera J. Moore, docket No. 8544-79; and George L. Davis and
Hester L. Davis, docket No. 21865-80.
[92-2
USTC ¶50,317] In re Joseph Donald Ermenc, Debtor. Joseph Donald Ermenc,
Plaintiff v. U.S.A., Internal Revenue Service, Defendant
U.S.
Bankruptcy Court, No. Dist. Ind., Hammond Div., Gary/Lafayette,
89-60477, 4/27/92
[Code Secs.
6871 and 7201 ]
Criminal tax evasion: Guilty plea: Collateral estoppel: Bankruptcy
proceedings.--
The tax obligations of a bankrupt who pleaded guilty to criminal tax
evasion under Code Sec.
7201 were not dischargeable in bankruptcy. The fact that the
criminal conviction resulted from a guilty plea, rather than from a
trial on the merits, did not preclude the bankruptcy court from giving
collateral estoppel effect to the conviction. A copy of the debtor's
indictment had not been filed with the bankruptcy court and it was not
clear for what tax year the debtor had been convicted. However, the
debtor's Statement of Material Fact and the United States' reply brief
established that the debtor had been convicted for one tax year. With
regard to the remaining years in question, the debtor's Statement of
Material Fact was in essence an admission that he had engaged in a
course of conduct that included filing W-4 forms--on which he falsely
claimed to be exempt from federal withholding or claimed allowances in
excess of those he was legally entitled to--and intentionally failing to
file his federal income tax returns.
Memorandum Opinion and Order
LINDQUIST,
Bankruptcy Judge:
This
Adversary Proceeding comes before the Court on a Motion for Summary
Judgment pursuant to Fed. R. Civ. P. 56 filed by the United States of
America (hereinafter: "USA") by its agent the Internal Revenue
Service (hereinafter: "IRS") on January 7, 1992.
The
Plaintiff and Chapter 7 Debtor, Joseph Donald Ermenc (hereinafter:
"Debtor") filed his complaint versus the USA on October 26,
1990 in two counts.
Count
I of the complaint prays that the Court, pursuant to 11 U.S.C. §505(a) , determine the
federal income tax, interest and penalties due by the Debtor to the USA
for the following tax years: 1978, 1979, 1980, 1983, 1984, 1985, 1987
and 1988. (The Debtor commenced his Chapter 7 case by filing a petition
on March 30, 1988).
Count
II of the Debtor's complaint prays that his income tax debts to the USA
for the tax years 1978, 1979, 1980, 1981, and 1982 should be held to be
dischargeable pursuant to §523(a)(1). Although, the Debtor does not set
out the precise provision of the Bankruptcy Code that is applicable, he
asserts that although the tax returns for the foregoing years were not
timely filed, the returns were filed over two years prior to the filing
of the Debtor's petition and thus apparently the Debtor is asserting
that these taxes are dischargeable pursuant to §523(a)(1)(B)(ii) .
The
USA's answer filed on August 16, 1991, to the Debtor's complaint alleges
that the Debtor committed fraud by willfully and knowingly filing false
and fraudulent W-4 forms with an intent to evade or defeat taxes and/or
willfully and knowingly failed to file his income tax returns for the
tax years 1978 through 1982 with the intent to evade or defeat federal
income taxes. See, 11 U.S.C. §523(a)(1)(C).
The
USA filed its proposed Findings on January 7, 1992 in support of its
Motion for Summary Judgment. These proposed findings state as follows:
1.
Plaintiff brought this action seeking a determination of his 1978-1980,
1983-1985, and 1987-1988, federal income tax liabilities pursuant to 11
U.S.C. §505 , and a determination
of the dischargeability of his 1978-1982 federal income tax liabilities
pursuant to 11 U.S.C. §523.
2.
Plaintiff has orally withdrawn his request for tax determination under
11 U.S.C. §505 , thus, the issue to
be determined by the Court is dischargeability of his 1978-1983 (sic,
1982) federal income tax liabilities.
3.
During 1978-1982, plaintiff engaged in a course of conduct which
included filing Forms W-4, Employee's Withholding Allowance
Certificates, falsely claiming to be exempt from federal withholding or
claiming allowances in excess of those he was legally entitled to, and
intentionally failing to file his federal income tax returns.
4.
The outcome of this course of conduct was to substantially reduce the
federal income tax withheld from plaintiff's wages during 1978-1982 and
to hinder the ability of the Internal Revenue Service to assess and
collect plaintiff's federal tax liabilities during those years.
5.
In Case No. HCR 86-32, plaintiff was convicted of three counts of
willfully attempting in any manner to evade or defeat tax, pursuant to
26 U.S.C. §7201 , for the years
1978-1980.
The
Debtor on February 4, 1992 filed his Statement of Material Fact which
stated as follows:
1.
That Plaintiff has no disagreement with Defendants finding of fact 1
thur (sic) 4.
2.
That on July 10, 1986, in Case No. 86-32, plaintiff was convicted of one
count of Failure to File Income Tax, pursuant to 26 U.S.C. section 7201 , for the year
1978, and Count Two and Three of the Indictment for the years 1979 and
1980 was dismissed. (A copy of The Judgment and Probation Order is
attached hereto).
Because
the Debtor has no disagreement with the USA as to the USA's proposed
finding of Number 2, supra, Count I of the Debtor's complaint to
determine the amount of the Debtor's tax liability to the USA pursuant
to §505(a)
is no longer an issue before the Court.
Thus,
the only issues before the Court are those raised by the Debtor in Count
II in which he prays that the Court determine the Debtor's tax
liabilities for the years 1978 through 1982 be adjudged dischargeable
pursuant to §523(a)(1). 1
The
USA in its brief filed on January 7, 1992, correctly points out that a
criminal conviction under 26 U.S.C. §7201
2 operates as
a collateral estoppel on the issue of civil fraud under 26 U.S.C. §6653(b),
3 citing,
Plunkett v. Commissioner [72-2
USTC ¶9541 ], 465 F.2d 299 (7th Cir. 1971).
It
should also be noted that the precedents addressing the imposition of
civil fraud additions under 26 U.S.C. §6653(b) provide persuasive
guidance for construing 11 U.S.C. §523(a)(1)(C). In re Carlen, Case
No. 90-60855 (Carlen v. Dept. of Treasury, Adv. Pro. No. 90-6187)
(Bankr. N.D. Ind., November 4, 1991) (J. Lindquist, unpub. opin.); In
re Gilder, 122 B.R. 593, 595 (Bankr. M.D. Fla. 1990); In re
Graham [90-1
USTC ¶50,072 ], 108 B.R. 498, 502, N. 6, (Bankr. E.D. Pa.
1989); In re Kirk, 98 B.R. 52, 54-55 (Bankr. M.D. Fla. 1989), citing,
In re Harris, 49 B.R. 223, 226 (Bankr. W.D. Va. 1985); Modified
on either grounds, 59 B.R. 545; In re Carapella [89-2 USTC ¶9525 ],
105 B.R. 86, 87 (Bankr. M.D. Fla. 1989); In re Hopkins, 1991
Bankr. Lexis 548, Bankr. L. Rep. (CCH), P. 73,988 (Bankr. N.D. Ohio
1991); In re Ball, 1990 Bankr. Lexis 2045 (Bankr. E.D. Ark.
1990). In addition, 26 U.S.C. §7201(a) should be
construed in the same way as 11 U.S.C. §523(a)(1). See, In re
Gathwright, 102 B.R. 211, 213 (Bankr. D. Ore. 1989) (phrase
"willfully attempted in any manner to evade or defeat such
tax" in §523(a)(1)(C) should be interpreted in the same manner at §7201(a) of the IRC, i.e.
it is a felony to willfully attempt in any manner to evade or defeat a
tax imposed by title 26 or the payment thereof); In re Peterson [92-1
USTC ¶50,216 ], 132 B.R. 68-71 (Bankr. D. Wyo. 1991)
(Construing "willfully", "attempted", and "in
any manner" consistently with §§6653
and 7201 of the IRC).
The
fact that the Debtor plead guilty to tax evasion under 26 U.S.C. §7201 which resulted in a
federal criminal conviction, rather than the criminal conviction arising
out of a trial on the merits, does not preclude this Court from giving
collateral estoppel effect to that criminal conviction in a subsequent
§523(a)(1)(C) nondischargeability proceeding in this Court, such as the
one sub judice. The Seventh Circuit in Appley v. West, 835
F.2d 1021 (7th Cir. 1987) stated as follows:
Collateral
estoppel, or issue preclusion, may be applied in civil trials to issues
previously determined in a criminal conviction. Otherson v.
Department of Justice, 711 F.2d 267, 271 (D.C. Cir. 1983).
Similarly, a guilty plea may be used to establish issue preclusion in a
subsequent civil suit. "In this Circuit, a criminal conviction
based upon a guilty plea conclusively establishes for purposes of a
subsequent civil proceeding that the defendant engaged in the criminal
act for which he was convicted." Nathan v. Tenna Corp., 560
F.2d 761, 763 (7th Cir. 1977) (applying the law of the Seventh Circuit
to decide the effect, in a diversity case under Illinois law, of a
guilty plea in a federal district court).
When
Mr. West pleaded guilty to the two counts of mail fraud, he effectively
pleaded guilty to all of the material facts alleged in the indictment on
those two counts. See, LaMagna v. United States, 646 F.2d 775,
778 (2d Cir.) (citing McCarthy v. United States [69-1 USTC ¶9312 ],
394 U.S. 459 (1969), cert. denied, 454 U.S. 898 (1981); Tom v.
Twomey, 430 F. Supp. 160, 162 (N.D. Ill. 1977). See generally, 1 C.
Wright, Federal Practice and Procedure ¶175 at 623-24 (1982).
Accordingly, the material facts of the indictment in Counts I and XII
may be established in the present action through the use of collateral
estoppel. Ms. Appley, however, has the burden of establishing which
issues were actually determined in her favor by the guilty plea. See, Davis
& Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir. 1985).
See
also, Instituto Nacional De Comercializacion Agricola (Indeca) v.
Continental Illinois National Bank, 858 F.2d 1263 (7th Cir. 1988).