[2002-1 USTC
¶50,438] Somerset Limited Partnership, an
Illinois limited partnership, and Hohmann OP
Holdings, LLC, an Illinois limited liability
company, Plaintiffs v. Julian Wineberg and The
United States of America, Defendants United
States of America, Plaintiff v. Julian Wineberg
and Hohmann OP Holding, LLC, Defendants
U.S.
District Court, No.
Dist.
Ill.
, East. Div., 01-C 0190, 01 C 4095, 4/29/2002,
198 F. Supp. 2d 969
[Code
Sec. 6323 ]
Tax liens: Interpleader action.--The
government had a valid tax lien on a delinquent
individual's right to funds held by a limited
liability company (LLC) that exercised its
option to buy his interest in a limited
partnership. When the LLC exercised the option,
it withheld payment because it was uncertain of
the status of multiple tax liens on the
property. Thus, an interpleader action was filed
to determine the appropriate payee of the sale
proceeds while the government brought a separate
action to foreclose its lien against the
taxpayer's rights in the option contract. The
LLC failed to respond to the government's motion
and, thus, judgment was entered in the
government's favor; the court determined that
the tax lien against the taxpayer's right to the
funds under the contract with the LLC was valid.
[Code
Secs. 6323 and 7122
]
Offers in compromise: Delegations of
authority: Government counsel: Attorney's fees:
Interpleader action.--A limited liability
company (LLC) was not entitled to recover
attorney's fees that it incurred in connection
with a compromise allegedly made by a government
attorney in order to settle a tax case that was
the subject of an interpleader action. The
government's attorney allegedly promised the LLC
that in exchange for its assistance in the tax
case against the taxpayer, it would be entitled
to take its attorney's fees out of proceeds owed
to the taxpayer. However, even if such a promise
were made, it would be unenforceable under Code
Sec. 7122 because the government's
attorney lacked actual authority to compromise
or settle a tax case. Furthermore, equitable
estoppel did not apply because any reliance on
the government's agent that was contrary to the
law was unreasonable.
MEMORANDUM OPINION
AND
ORDER
BUCKLO,
District Judge:
Julian
Wineberg had a limited partnership interest in
Somerset Limited Partnership. In 1998, Mr.
Wineberg entered into a "Cash Option
Agreement" with Hohmann OP Holdings, L.L.C.,
giving Hohmann the option to buy Mr. Wineberg's
interest in
Somerset
for $426,822. Hohmann exercised the option on
July 1, 1999, but has not paid Mr. Wineberg
because it was uncertain about the status of
certain tax liens and levies on Mr. Wineberg's
property. The federal government has millions of
dollars of tax liens and levies on Mr.
Wineberg's property covering tax years from 1978
to 1986.
Somerset
and Hohmann (collectively "Hohmann")
filed an interpleader action against the
United States
and Mr. Wineberg to determine the appropriate
payee of the money held by Hohmann. The
government brought a separate action to
foreclose a lien against Mr. Wineberg's rights
to the proceeds of the options contract with
Hohmann. I consolidated the cases, see
Minute Order of August 15, 2001, and the
government moves for summary judgment. Hohmann
responds and moves for partial summary judgment.
I.
Summary
judgment is proper when the record "show[s]
that there is no genuine issue as to any
material fact and that the moving party is
entitled to a judgment as a matter of law."
Fed. R. Civ. P. 56(c). In determining whether a
genuine issue of material fact exists, I must
construe all facts in the light most favorable
to the non-moving party and draw all reasonable
and justifiable inferences in its favor. Anderson
v. Liberty Lobby, Inc., 477
U.S.
242, 255 (1986). Mr. Wineberg did not respond to
the government's motion, so I enter judgment in
favor of the government and against Mr. Wineberg
in the amount of $1,318,480.21, plus interest
and other statutory penalties, and I find that
the government has a valid and subsisting lien
on Mr. Wineberg's right to money under the
contract with Hohmann. Hohmann has no objection
to this disposition, but the parties dispute
whether Hohmann is entitled to attorneys' fees
out of the money it owes to Mr. Wineberg and
whether the government is entitled to interest
under 815 ILCS 205/2.
A.
The
government argues that Hohmann's attorneys' fees
may not be taken out of the $426,822 that it
will receive as a result of the lien
foreclosure. Hohmann does not contend that its
claim for attorneys' fees is superior to the
government's lien, which attached in 1990, more
than eight years before Hohmann entered into the
options agreement with Mr. Wineberg. Instead it
says that the government's attorney, Mr.
Snoeyenbos, promised Hohmann that, in return for
its assistance in providing information for the
government's suit against Mr. Wineberg, Hohmann
would be entitled to take its attorneys' fees
from the money owed to Mr. Wineberg. The
government submits an affidavit stating that
there was no such agreement, so there is a
factual question that I cannot decide here. But
even if there were such an agreement, it would
be unenforceable against the government as a
matter of law.
The
authority to compromise or settle "any
civil or criminal case arising under the
internal revenue laws" is vested in the
Secretary of the Treasury, 26 U.S.C. §7122(a),
and may be redelegated to Section Chiefs and
Assistant Section Chiefs, but may not be
redelegated to attorneys-of-record, 28 C.F.R.
Pt. 0, Subpt. Y, App. (Tax Div. Directive No.
105 §3) ("Directive 105"). There is
no dispute that Mr. Snoeyenbos is the attorney
of record, so he lacks the authority to
compromise cases arising under the tax code.
Hohmann argues that §7122 applies only to cases
against taxpayers, but it cites no
authority for that proposition, and the statute
says "any civil or criminal case."
"Any" case means any case, see
United States
v. Ballistrea, 101 F.3d 827, 836 (2d Cir.
1996); see also Lexington Ins. Co. v. Rugg
& Knopp, Inc., 165 F.3d 1087, 1089 (7th
Cir. 1999) (" '[E]very' means 'every.'
"), not just taxpayer actions. Hohmann also
argues that Mr. Snoeyenbos' signature on a
stipulation for entry of judgment against Mr.
Wineberg in the foreclosure action is evidence
that he had authority to compromise cases.
However, that stipulation did not compromise the
government's claim; it entitled to government to
all the relief it sought, unlike the claim for
attorneys' fees, which would reduce the
government's recovery. Moreover, even if it were
evidence of authority to compromise, it is
evidence only as to the foreclosure case, 1
not the interpleader case, and redelegations
under the regulations are made "on a
case-by-case basis." Directive 105 §3. In
response to the government's motion, it was
Hohmann's burden to come forward with evidence
of Mr. Snoeyenbos's authority to create a
factual issue for trial; it did not discharge or
shift that burden merely by filing a
cross-motion. On Hohmann's own motion, Mr.
Snoeyenbos' statement in his affidavit that he
never represented that he was a Section Chief or
had the power to compromise a case or claim
would be sufficient to create a question of fact
to avoid summary judgment.
Hohmann
urges that, even if Mr. Snoeyenbos lacked actual
authority to enter into an agreement about fees,
the government should be estopped from
contesting an award of attorneys' fees.
Equitable estoppel cannot apply here because
Directive 105 clearly states that mere
attorneys-of-record have no authority to
compromise cases, and "those who deal with
the [g]overnment are expected to know the law
and may not rely on the conduct of [g]overnment
agents contrary to law." Heckler v.
Community Health Servs. of Crawford County, Inc.,
467 U.S. 51, 63, 66 (1984) (holding that where
regulations clearly circumscribed the authority
of government official and party relied on oral
statement of official that exceeded authority,
any reliance was unreasonable). I grant the
government's motion and deny Hohmann's motion
with regard to attorneys' fees.
B.
Under
the Illinois Interest Act, creditors are
entitled to interest at a rate of 5% a year on
debts after they become due. 815 ILCS 205/2. An
unconditional tender of the full amount due will
stop the accrual of interest. See Yassin v.
Certified Grocers of Ill., Inc., 551 N.E.2d
1319, 1321 (Ill. 1990) (full amount); Steward
v. Yoder, 408 N.E.2d 55, 57 (Ill. App. Ct.
1980) (unconditional). Tender only tolls the
accrual of interest if it is "kept
good"; that is, it "must be kept at
all times subject to be received by the creditor
when he calls for it." Aulger v. Clay,
109 Ill. 487, 1884 WL 9815, at *4 (Ill.
Mar. 26, 18
84); see also Schmahl v. A.V.C. Enters., Inc.,
499 N.E.2d 572, 575 (Ill. App. Ct. 1986)
(defining tender as an offer to pay
"coupled with the present ability of
immediate performance").
The
facts here are not in dispute. On
July 1, 1999
, when Hohmann exercised its option to buy Mr.
Wineberg's interest in Somerset, it became
liable to pay Mr. Wineberg. Hohmann (through
Somerset) was aware of the liens and levies
against Mr. Wineberg's property, so, also on
July 1, 1999
, it sent a check to Mr. Wineberg, payable
jointly to Mr. Wineberg and the
IRS
, for $384,130, or 90% of the amount due under
the contract. The check was never negotiated,
and fifteen months later, on
October 10, 2000
, Hohmann stopped payment on the check. On
January 10, 2001
, Hohmann filed the interpleader action. The
government argues that the check was not legally
sufficient tender because it was for an amount
less than the total due under the options
agreement. Hohmann attaches to its response and
cross-motion the options agreement, which called
for a "holdback amount" of 10% at the
closing. §§1.3 and 1.4 The options agreement
called for only a 90% payment at closing, so the
July 1, 1999
, check was a tender of the full amount due on
that day.
The
government also argues that the check was not
sufficient to stop the accrual of interest
because it imposed a condition not contemplated
by the options agreement that the
IRS
endorse the check. The Illinois Supreme Court
stated, nearly sixty years ago, that "[a]
tender, to be effectual, must be without
conditions other than those specified in the
contract between the parties." Ortman v.
Kane, 60 N.E.2d 93, 97 (Ill. 1945). There
the extra-contractual condition imposed was
payment of interest above and beyond the amount
agreed to by the parties. Id. More recent
formulations of the definition of
"tender" suggest that it "must be
without conditions to which the creditor can
have a valid objection or which will be
prejudicial to his rights." Arrio v.
Time Ins. Co., 751 N.E.2d 221, 227 (Ill.
App. Ct. 2001) (emphasis added); MXL Indus.,
Inc. v. Mulder, 623 N.E.2d 369, 377 (Ill.
App. Ct. 1993) (same; citing 74 Am. Jur.2d
Tender §24, at 561-62 (1974)); Telemark
Devel. Group, Inc. v. Mengelt, No. 00 C
3626, 2001 WL 477219, at *2 (N.D. Ill. May 7,
2001) (Shadur, J.). In Telemark, the
court held that a creditor could have no valid
objection to a condition that the creditor admit
no greater amount was due because the amount
tendered was in fact everything the creditor was
entitled to. Id. at *4. The
"condition" imposed here, signature by
the
IRS
, did not change the amount due under the
contract. On matters of state law, I must
predict what the Illinois Supreme Court would
decide, see Mutual Service Cas. Ins. Co. v.
Elizabeth State Bank, 265 F.3d 601, 612 (7th
Cir. 2001) (diversity context), and I conclude
that the more recent appellate court cases,
relying on an authoritative standard reference,
provide a better basis for prediction than an
older Illinois Supreme Court decision that is
not directly on point. Here Mr. Wineberg could
not reasonably have objected to the fact that
the check was jointly payable to the
IRS
in light of the substantial liens and levies
against him. Nor was he prejudiced by joint
payment, because, as I have already determined,
the lien was valid. Thus the check, jointly
payable to Mr. Wineberg and the
IRS
, tolled the accrual of interest.
Nevertheless,
Hohmann failed to "keep the tender
good" when it stopped payment on the check
on October 10, 2000, because Wineberg could not
act immediately to accept the money. See
Schmahl, 499 N.E.2d at 575. Hohmann argues
that the interpleader lawsuit, filed three
months later, was valid tender. Although Hohmann
and Somerset did not contest the amount due when
they filed the interpleader action, they
effectively asked the court to decide how to
make the payment but did not deposit any funds
with the court, so action was not a valid tender
because it did not make the money immediately
available. See Aulger, 1884 WL 9815, at
*3 ("We have only to turn to any book of
precedents to find that a plea of tender must
aver a readiness, at all times after it is made,
to pay the money, and he must bring it into
court."). The government's motion and
Hohmann's motion are granted in part and denied
in part with regard to interest: Hohmann is
liable for interest from October 10, 2000.
II.
The
government's motion for summary judgment is
GRANTED as to attorneys' fees, and GRANTED IN
PART and DENIED IN PART as to interest. Somerset
and Hohmann's cross-motion for partial summary
judgment is, accordingly, DENIED as to
attorney's fees and GRANTED IN PART and DENIED
IN PART as to interest. The government shall
calculate the total interest due to it, using
the 5% interest rate provided for by the
Interest Act, beginning on October 10, 2000, and
serve it on Hohmann, who shall stipulate to the
accuracy of the calculations. The parties are
ORDERED to submit the stipulation to me no later
than noon, May 15, 2002. Judgment will be
entered on that date.
1
The stipulation was signed before the cases were
consolidated. See attachment to the
government's Response to Motion to Consolidate,
filed 8/6/01; see also Minute Order of
8/15/01 (granting consolidation).
Palladin
Precision Products, Inc. v. Commissioner
Docket No. 980-92., TC Memo. 1993-3, 65
TCM
1698, Filed January 4, 1993
[Appealable, barring stipulation to the
contrary, to CA-2.
[Code Secs.
6653 (Prior to amendment by P.L.
101-239), 7122 and 7206 ]
Additions to tax: Civil penalties: Fraud:
Collateral estoppel.--A written plea agreement
executed by a corporation's president in
connection with his alleged criminal
falsification of his corporation's income tax
returns did not collaterally estop the
IRS
from asserting a civil fraud penalty against the
corporation. The government stipulated in the
plea agreement with the president that the
corporation's false corporate tax returns were
not filed in order to facilitate evasion of tax.
However, a later disclaimer in the plea
agreement indicated that the agreement was
reached without regard to civil tax matters.
Collateral estoppel was inapplicable because the
plea agreement plainly established that the
civil fraud issue was neither presented in
substance nor actually resolved in the criminal
proceeding. Moreover, the Assistant U.S.
Attorney was without authority to bind the
IRS
in any civil tax matter involving the
IRS
since the case was not referred to the
Department of Justice.--
Richard
G. Convicer, One Corporate Center, Hartford,
Conn., for the petitioner. Carmino J.
Santaniello, for the respondent.
Memorandum
Opinion
PETERSON,
Special Trial Judge:
This
case is before the Court on petitioner's Motion
for Partial Summary Judgment under Rule 121(b),
regarding additions to tax determined by
respondent under section 6653(b) for
petitioner's taxable years ending August 31,
1986, August 31, 1987, and August 31, 1988.
Unless otherwise indicated, all section
references are to the Internal Revenue Code in
effect for the years in issue, and all Rule
references are to the Tax Court Rules of
Practice and Procedure.
Respondent
determined deficiencies in petitioner's Federal
income taxes for its taxable years ending August
31, 1986, August 31, 1987, and August 31, 1988,
in the respective amounts of $943.50, $3,126.34,
and $6,199.53. Respondent also determined
additions to tax attributable to the
deficiencies for each of the taxable years in
issue under section 6653(b)(1)(A) in the
respective amounts of $471.75, $2,344.76, and
$4,649.65, and under section 6653(b)(1)(B) in
the respective amounts of 50 percent of the
interest due on $943.50, 50 percent of the
interest due on $3,126.34, and 50 percent of the
interest due on $6,199.53.
The
sole issue for decision is whether a written
plea agreement executed in connection with the
criminal prosecution of petitioner's president
(Anthony Palladino) for violation of section
7206(1) collaterally estops
respondent from determining that petitioner is
liable for additions to tax for fraud under
section 6653(b) for each of the years in issue.
Summary
judgment is a device intended to serve judicial
economy through the avoidance of
"unnecessary and expensive trials of
phantom factual questions". Shiosaki v.
Commissioner [Dec.
32,519 ], 61 T.C. 861, 862 (1974).
Under Rule 121(b), a motion for summary judgment
is granted when it is shown that "there is
no genuine issue as to any material fact and
that a decision may be rendered as a matter of
law." The party moving for summary judgment
bears the burden of proving that there is no
genuine issue of material fact. Naftel v.
Commissioner [Dec.
42,414 ], 85 T.C. 527, 529 (1985).
In
considering a motion for summary judgment, we
view the facts in the light most favorable to
the party opposing the motion. Id.
Accordingly, the facts set forth herein are
derived from respondent's pleadings and
attorneys' affidavits in opposition to
petitioner's motion, and are viewed in a manner
most favorable to respondent. Id.; Estate of
Gardner v. Commissioner [Dec.
41,293 ], 82 T.C. 989, 990 (1984).
Background
During
each of the years in issue petitioner
manufactured screw machine products, and Anthony
Palladino was petitioner's president and
business affairs manager. During petitioner's
taxable years ended August 31, 1986, and August
31, 1987, Mr. Palladino owned 25.75 percent of
petitioner's stock. During petitioner's taxable
year ended August 31, 1988, Mr. Palladino owned
60 percent of petitioner's stock.
During
each of the years in issue, petitioner sold
scrap metal by-products to Michael Schiavone
& Sons, Inc. (Schiavone), a scrap metal
dealer. An audit of Schiavone's books by
respondent indicated that Schiavone regularly
purchased scrap metal from suppliers, including
petitioner, with cash payments. In May, 1989,
Leanne G. Charette, a Special Agent with the
Internal Revenue Service (
IRS
), Criminal Investigation Division, was assigned
to investigate possible criminal violations
committed by Mr. Palladino in his capacity as
petitioner's president. Special Agent Charette's
investigation determined that under an agreement
between Schiavone and Mr. Palladino, each
purchase of petitioner's scrap metal by
Schiavone was paid for one-half by check and
one-half with cash. The investigation further
concluded that the cash payments were hand
delivered by a Schiavone employee to Mr.
Palladino in an envelope, and that petitioner
only reported the amount of the checks on its
returns filed for the years in issue.
In
July, 1990, Special Agent Charette recommended
that criminal proceedings be instituted against
Mr. Palladino for willfully making and
subscribing to false U.S. corporate income tax
returns filed by petitioner for each of the
years in issue, in violation of section
7206(1) . By letter dated
November 21, 1990
, respondent referred the case against Mr.
Palladino for violation of section
7206(1) to the U.S. Department of
Justice (DOJ) for prosecution. Special Agent
Charette did not recommend that any criminal
proceedings be instituted against petitioner,
and no such referral was made to the DOJ.
In
March, 1991, the U.S. Attorney, Judicial
District of Connecticut, received a referral
from DOJ requesting the U.S. Attorney to
initiate the criminal prosecution of Mr.
Palladino under section
7206(1) regarding petitioner's
corporate income tax returns filed for the years
in issue. The case against Mr. Palladino was
assigned to Joseph C. Hutchinson, Assistant U.S.
Attorney, Judicial District of Connecticut.
On
May 21, 1991
, after discussions between Mr. Hutchinson and
Mr. Palladino's attorney, the U.S. Attorney's
Office for the District of Connecticut
(Government) signed a plea agreement with Mr.
Palladino concerning Mr. Palladino's alleged
violations of section
7206(1) . Under the plea agreement,
Mr. Palladino agreed to plead guilty to a one
count information charging him with subscribing
to a false corporate income tax return filed by
petitioner for its taxable year ending
August 31, 1988
. On
July 15, 1991
, Mr. Palladino was sentenced and received no
months to serve and no probation, but was fined
$5,000.
The
plea agreement is organized by sections. The
following stipulation appears near the top of
page 3, in a section of the plea agreement
entitled "Sentencing Guidelines":
The
Government also stipulates that the false
corporate tax returns were not filed in order to
facilitate evasion of a tax.
The
following disclaimer appears near the middle of
page four, in a section of the plea agreement
entitled "Scope of Agreement":
[Mr.
Palladino] acknowledges and understands that
this agreement is limited to the undersigned
parties and cannot bind any other federal
authority, or any state or local authority. [Mr.
Palladino] acknowledges that no representations
have been made to him with respect to any civil
or administrative consequences that may result
from this plea of guilty because such matters
are solely within the province and discretion of
the specific administrative or governmental
entity involved. Finally, [Mr. Palladino]
understands and acknowledges that this agreement
has been reached without regard to any civil tax
matters that may be pending or which may arise
involving him.
Discussion
Petitioner's
motion is based on the government's stipulation
that petitioner's false corporate tax returns
were not filed in order to facilitate evasion of
tax. Petitioner argues that the stipulation
collaterally estops respondent from determining
that petitioner is liable for additions to tax
for fraud for the years in issue.
Essentially,
petitioner argues that since respondent's case
under section 6653(b) against petitioner is
based solely on the conduct of its president,
Mr. Palladino, it is fundamentally inconsistent
for the Government first to agree that Mr.
Palladino did not file false corporate tax
returns in an attempt to evade tax for the years
in issue, and for respondent later to contend
that petitioner filed false corporate tax
returns with an intent to evade tax for these
years.
In
opposition to petitioner's motion, respondent
contends that the plea agreement does not
preclude respondent from raising the issue of
petitioner's liability for additions to tax
under section 6653(b) because the stipulation
was not intended to have any effect on
petitioner's civil tax liability. Alternatively,
respondent argues that collateral estoppel does
not apply in this case, and that in any event,
Mr. Hutchinson was not authorized to compromise
petitioner's civil tax liability.
Supported
by an affidavit by Mr. Hutchinson, respondent
argues that the stipulation was incorporated
into the plea agreement for the sole purpose of
establishing Mr. Palladino's eligibility for a
non-incarcerating sentence under the Federal
Sentencing Guidelines. According to Mr.
Hutchinson's affidavit, at no time during plea
negotiations with Mr. Palladino's counsel did
the Government represent or suggest in any way
that the stipulation was intended to have civil
tax consequences. This fact, respondent argues,
is amply demonstrated by the above-quoted
disclaimer from page four of the plea agreement,
from the section entitled "Scope of
Agreement".
We
agree with respondent. Mr. Hutchinson's
affidavit and the disclaimer on page four of the
plea agreement make it clear that the plea
agreement was not intended to have any
application extending beyond the criminal matter
involving Mr. Palladino, and that the
stipulation petitioner relies upon in support of
its motion was included in the plea agreement
for the sole purpose of establishing Mr.
Palladino's eligibility for a nonincarcerating
sentence. We note that petitioner has not set
forth any facts indicating any contrary or
additional intention for the stipulation's
inclusion into the plea agreement.
In
reaching our conclusion, we reject petitioner's
argument that the parol evidence rule precludes
our consideration of Mr. Hutchinson's intent in
writing the stipulation into the plea agreement.
The parol evidence rule is inapplicable here,
particularly for the reason that petitioner was
not a party to the written plea agreement. Estate
of Craft v. Commissioner [Dec.
34,422 ], 68 T.C. 249, 260-263
(1977), affd. per curiam [80-1
USTC ¶13,327 ] 608 F.2d 240 (5th
Cir. 1979); Coven v. Commissioner [Dec.
33,824 ], 66 T.C. 295, 306 (1976).
Moreover,
we conclude that petitioner's collateral
estoppel argument in this case is misplaced.
Collateral estoppel precludes a party or his
privy to a prior suit from relitigating in a
later suit issues of fact and law which were
actually and necessarily decided by the prior
court in reaching judgment in the prior suit. United
States v. Mendoza, 464 U.S. 154, 158 (1984).
Collateral estoppel is available even though the
prior suit was resolved by plea agreement and
was not litigated through to resolution by a
trier-of-fact. Castillo v. Commissioner [Dec.
41,940 ], 84 T.C. 405, 409-410
(1985). However, collateral estoppel is
inapplicable in this case because the plea
agreement plainly establishes that the section
6653(b) issue in this case was neither presented
in substance nor actually resolved in the
criminal proceeding, and, further, because
petitioner was neither a party nor a privy to
the plea agreement. Montana v. United States,
440 U.S. 147 (1979); see American Lithofold
Corp. v. Commissioner [Dec.
30,681 ], 55 T.C. 904, 923-924
(1971); C.B.C. Super Markets, Inc. v.
Commissioner [Dec.
30,081 ], 54 T.C. 882 (1970).
Further,
besides the inapplicability of collateral
estoppel, we conclude that even if the
stipulation petitioner relies upon in support of
its motion was included in the plea agreement
with the express intent to preclude respondent
from determining additions to tax for fraud
against petitioner, and even if we were to
presume the stipulation sufficient to achieve
that end, petitioner's motion still must be
denied, because, as a matter of law, Mr.
Hutchinson is without authority in this case to
bind respondent in any civil tax matter
involving petitioner.
If
we were to accept petitioner's interpretation of
the stipulation, then the stipulation
effectively would serve as a compromise of
petitioner's civil tax liability. However, section
7122(a) , which governs the granting
of authority to compromise a case against a
taxpayer, provides that unless the taxpayer's
case has previously been referred to the DOJ, no
person in that department, including an
Assistant U.S. Attorney, is authorized to
compromise any of the taxpayer's taxes. Botany
Worsted Mills v. United States [1
USTC ¶348 ], 278 U.S. 282 (1929); Wagner
v. Commissioner [Dec.
46,813(M) ], T.C. Memo. 1990-443.
Petitioner bears the burden of ascertaining
whether a government representative is
authorized to compromise taxes. Federal Crop
Ins. Corp. v. Merrill, 332 U.S. 380, 384
(1947); Wagner v. Commissioner, supra.
In
this case, Mr. Hutchinson was not authorized to
compromise the taxes in issue since it is clear
that petitioner's case was never referred to the
DOJ. Accordingly, even if we were to accept
petitioner's interpretation of the stipulation
it relies upon in support of its motion, we must
conclude that it nonetheless did not effect a
valid compromise of petitioner's liability for
additions to tax under section 6653(b).
Accordingly,
we conclude that the plea agreement entered into
between the Government and Mr. Palladino does
not preclude respondent from raising the issue
of petitioner's liability for additions to tax
under section 6653(b) for the years in issue,
and petitioner's Motion for Partial Summary
Judgment will be denied.
To
reflect the foregoing,
An
appropriate order will be issued.
Richard
L. Wagner v. Commissioner
Docket No. 16849-88., TC Memo. 1990-443, 60
TCM
551, Filed August 16, 1990
[Appealable, barring stipulation to the
contrary, to CA-9.--
CCH
.]
[Code
Sec.
7122 ]
[Commissioner of Internal Revenue: Compromises:
Criminal case: Jurisdiction: United States
attorney: Authority to accept offers: Equitable
estoppel: Fact finding.]Petitioner was indicted
on 15 counts of aiding and assisting in the
preparation of false income tax returns of
others in violation of section
7206(2) . In a plea agreement letter
prepared by his attorney, he pleaded guilty to
two counts of the indictment. The plea agreement
letter also contained the statement: "The
Government acknowledges that Mr. Wagner has no
personal income tax Civil liability for purposes
of this indictment and Plea." Held:
The plea agreement letter does not relieve
petitioner of income tax liabilities on matters
not covered by the indictment and plea. Held
further: The plea agreement letter is not a
valid compromise of petitioner's civil income
tax liabilities because the government's
attorneys were not authorized to enter into a
compromise agreement. Held further:
Respondent is not estopped from denying the
binding effect of the plea agreement letter.
Richard
L. Wagner, pro se. William W. Lowrance,
for the respondent.
Memorandum
Findings of Fact and Opinion
SCOTT,
Judge:
This
case was assigned to Special Trial Judge Norman
H. Wolfe pursuant to the provisions of section
7443A(b) and Rule 180 et seq. 1
The Court agrees with and adopts the opinion of
the Special Trial Judge, which is set forth
below.
Opinion
of the Special Trial Judge
WOLFE,
Special Trial Judge: In a notice of deficiency
dated
April 5, 1988
, respondent determined the following
deficiencies in petitioner's 1979, 1980, and
1981 Federal income tax.
Additions to tax under
Year Deficiency Section 6653(b) Section 6654
1979 ............................. $ 73,447 $ 36,738.50 n/a
1980 ............................. 266,319 133,159.50 n/a
1981 ............................. 122,593 56,295.50 10,157.49
Respondent also determined that in the event the
additions to tax under section 6653(b) were not
sustained, petitioner was liable for additions
to tax for negligence under section 6653(a) in
the amount of $3,673.85 for 1979 and $13,315.95
for 1980, and under section 6653(a)(1) in the
amount of $5,629.65 for 1981. He further
determined that petitioner was liable
alternatively for additions to tax for late
filing under section
6651(a)(1) in the amount of
$18,369.25 for 1979, $66,597.75 for 1980, and
$28,148.25 for 1981. After concessions by the
parties, the only issue for decision is whether
petitioner is relieved of civil income tax
liability for the taxable years 1979, 1980, and
1981 by a plea agreement entered into between
the United States Attorney and petitioner with
respect to a criminal proceeding in which
petitioner pleaded guilty to two counts of
aiding and assisting in the preparation of false
income tax returns of others in violation of section
7206(2) .
The
parties have filed a Stipulation of Settlement
that resolves petitioner's liabilities in the
event we hold that petitioner's individual civil
tax liabilities were not compromised by the
government by the
November 12, 1986
plea agreement.
Findings
of Fact
Some
of the facts have been stipulated and are so
found. The stipulated facts and attached
exhibits are incorporated by this reference. At
the time petitioner filed his petition, he was a
resident of La Jolla, California.
Petitioner
filed his Federal income tax returns for the
years 1979 and 1980 on
August 18, 1980
and
April 5, 1982
, respectively. Petitioner did not file a return
for 1981. On both the 1979 and 1980 returns,
petitioner gave his occupation as
"investment counselor." During these
years, petitioner promoted and sold gold mining
tax shelters through his controlled corporate
entity, Monetary Economics Corporation.
On
or about
April 4, 1986
, petitioner was indicted in the Southern
District of California on fifteen counts of
violating section
7206(2) , Aiding or Assisting in the
Preparation of False Income Tax Returns of
Others. He pleaded not guilty to all counts.
Petitioner was not then or at any later date
indicted in regard to his individual income tax
liabilities for the years 1979, 1980, and 1981.
Petitioner
was represented on the criminal charges by
attorneys Clyde Munsell and Harry Steward. The
United States was represented by Martin F.
Klotz, special Assistant United States Attorney,
and by Edward Allard, Assistant United States
Attorney. The Assistant United States Attorneys
were not authorized by the Attorney General or
his delegate to settle petitioner's civil tax
liabilities. They informed Clyde Munsell that
petitioner's civil tax liabilities had not been
forwarded to the Department of Justice and that
the Department had no jurisdiction over these
liabilities.
Early
in November, when Clyde Munsell met with Martin
Klotz and Edward Allard, Edward Allard showed
him a flow-of-funds diagram that the government
planned to use in petitioner's case. Clyde
Munsell believed that the government's evidence
would be harmful to petitioner. He and the
government attorneys discussed the terms of a
plea bargain. On
November 11, 1986
, Clyde Munsell drafted a letter which purported
to summarize the agreements reached during the
plea negotiations.
A
hearing on petitioner's change of plea was held
on
November 12, 1986
. The Assistant United States Attorneys were
prepared to make a statement on the record as to
the government's understanding of the plea
bargain, since Clyde Munsell had called them
that very morning to accept the plea bargain
arrangement. However, at the hearing Clyde
Munsell produced the letter dated
November 11, 1986
, which he had completed drafting that morning.
The Government's attorneys did not see this
letter prior to the hearing. The letter states,
inter alia, that petitioner agreed to plead
guilty to two counts of the indictment. In
addition, Paragraph 6 of the plea agreement
letter (hereinafter, "Paragraph 6")
states: "The Government acknowledges that
Mr. Wagner has no personal income tax Civil
liability for purposes of this indictment and
Plea." The parties did not discuss
Paragraph 6 at the change of plea hearing. They
did discuss other provisions of the letter, and
certain modifications were made. The letter, as
modified on the record, was filed as the plea
agreement between the parties.
Immediately
after the hearing, Martin Klotz and Edward
Allard sought to obtain confirmation from
petitioner that the parties were in agreement as
to the meaning of Paragraph 6. They approached
petitioner's counsel, Clyde Munsell, and stated
that they understood Paragraph 6 to mean that
petitioner had no income tax liability with
respect to any taxes owed by the investors to
whom petitioner had supplied false information
and false documents. Clyde Munsell agreed that
the government attorneys' interpretation of the
meaning of Paragraph 6 was his interpretation as
well. Attorneys Klotz and Allard then asked
Clyde Munsell to obtain a letter from petitioner
stating that petitioner understood that the
government did not acknowledge that he had no
individual income tax liability. Petitioner
refused to sign such a statement.
On
February 17, 1987
, petitioner was sentenced to two years
imprisonment and fined $5,000 on one of the
counts to which he pleaded guilty. He was given
a suspended sentence and fined $5,000 on the
other count to which he pleaded guilty.
Petitioner was paroled after serving eleven
months of his two-year sentence.
Opinion
Petitioner
contends that Paragraph 6 of the plea agreement
letter relieves him of civil liability for his
individual income taxes. He does not state the
years that Paragraph 6 purports to cover or
explain whether he believes that Paragraph 6
relieves him of tax liability for matters
unrelated to the gold mining tax shelters. He
further claims that he relied to his detriment
on the plea agreement, so that respondent is
estopped from denying the binding effect of
Paragraph 6 and from determining the
deficiencies at issue in this case.
Respondent
asserts that Paragraph 6 of the plea agreement
does not relieve petitioner of civil liability
for his individual income tax. Respondent
further claims that even if the government's
attorneys intended to relieve petitioner of
civil liability for individual income tax by
agreeing to Paragraph 6, they lacked authority
to compromise petitioner's civil tax liabilities
and therefore Paragraph 6 has no effect. We
agree with respondent.
Paragraph
6 states in its entirety: "The Government
acknowledges that Mr. Wagner has no personal
income tax Civil liability for purpose of this
indictment and Plea." Petitioner was
indicted on fifteen counts of aiding or
assisting in the preparation of false income tax
returns of others. He pleaded guilty to two
counts. He was not indicted for filing
fraudulent individual income tax returns. His
individual civil tax liabilities were never made
a part of the indictment. He entered no plea
regarding his civil tax liabilities. The phrase
"for purposes of this indictment and
Plea" expressly limits petitioner's
liability to matters covered in the indictment
and plea. It does not relieve him of civil
liability on matters for which he was not
indicted and did not plead.
The
precise theory under which petitioner might have
been held liable for "personal income tax
civil liability" for assisting in the
filing of false returns of others is not clear.
Nevertheless, there is evidence that the
government's prosecutors and petitioner's
attorneys discussed this possibility on several
occasions. We need not consider whether any such
concerns of petitioner or his criminal defense
attorney were well founded. The language of
Paragraph 6 limits petitioner's relief from
"personal income tax civil liability"
to liability "for purposes of the
indictment and plea" on violations of section
7206(2) . We find that this language
did not constitute an agreement to waive
petitioner's civil income tax liabilities as to
his individual income tax returns for 1979,
1980, and 1981.
Even
if we were to accept petitioner's interpretation
of Paragraph 6, we would not find that it was
part of a valid compromise of petitioner's civil
tax liabilities. The procedure for compromising
tax claims is given in section
7122 , which states:
The
Secretary may compromise any civil or criminal
case arising under the internal revenue laws
prior to reference to the Department of Justice
for prosecution or defense; and the Attorney
General or his delegate may compromise any such
case after reference to the Department of
Justice for prosecution or defense.
Petitioner's
civil income tax liabilities for the years 1979,
1980, and 1981 were not referred to the
Department of Justice by respondent. The only
matter referred to the Department of Justice was
petitioner's violation of section
7206(2) .
For
tax cases which have not been referred to the
Department of Justice, sections
7121 and 7122
provide the exclusive means of
compromising the dispute. See Botany Worsted
Mills v. United States [1
USTC ¶348 ], 278 U.S. 282, 288
(1929); Shumaker v. Commissioner [81-2
USTC ¶9508 ], 648 F.2d 1198, 1200
(9th Cir. 1981); see also Estate of Meyer v.
Commissioner [Dec.
31,336 ], 58 T.C. 69, 70 (1972). Both
closing agreements under section
7121 and compromise agreements under section
7122 are required to be in writing
and to be accepted by the Secretary. Secs.
301.7121-1 and 301.7122-1, Proced.
& Admin. Regs.; secs.
601.203(a) and 601.203(b)
, Statement of Procedural Rules.
Petitioner has not shown that an agreement that
