Opinion
9137-16
10-31-2022
MICHAEL CROSBY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland Judge
On June 22, 2021, respondent filed with the Court respondent's Motion for Partial Summary Judgment. On October 19, 2022, respondent filed respondent's Motion for Summary Judgment, based on petitioner's deemed admissions under Rule 90(c). Respondent was unable to reach petitioner to determine whether he objects to the granting of the Motion for Summary Judgment. We will give petitioner 60 days to make a response to the latter Motion, including any motion he might like to make under Rule 90(f) concerning the withdrawal or modification of deemed admissions. The remainder of this Order will therefore address only respondent's Motion for Partial Summary Judgment. In that Motion, respondent moves this Court, under Rule 121, for summary adjudication as to whether petitioner, Michael Crosby, is liable for an addition to tax under section 6651(f) for tax year 2006.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code ("I.R.C." or "Code"), Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 ("Treas. Reg."), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent is seeking partial summary judgment on the ground of collateral estoppel based on a Plea Agreement filed with the United States District Court for the District of Minnesota. Respondent asserts that based on the administrative file and the pleadings, there remains no genuine issue of material fact for trial with respect to the issue on which summary judgment is sought.
For the reasons discussed below, we will partially grant respondent's motion for partial summary judgment, as we find petitioner estopped from contesting his fraudulent failure to file a 2006 tax return showing the amount he pled to in the Plea Agreement (although not the total amount that respondent asserted in the notice of deficiency for 2006).
Background
The following background is derived from the pleadings, respondent's Motion for Partial Summary Judgment, and the supporting exhibits attached thereto. We note that the background is stated solely for purposes of ruling on the pending motion for partial summary judgment and is not a finding of facts.
On April 12, 2011, a criminal indictment was filed in the United States District Court for the District of Minnesota, charging petitioner with twenty counts of wire and mail fraud, three counts of money laundering, and four counts of tax evasion relating to tax years 2004, 2005, 2006, and 2007 ("Indictment").
On June 28, 2011, a Plea Agreement and Sentencing Stipulation was filed in United States v. Crosby, No. 0:11-CR-00134 (D. Minn. June 28, 2011), with the United States District Court for the District of Minnesota ("Plea Agreement"). Through the Plea Agreement, Mr. Crosby pled guilty to failing to file a tax return for tax year 2006 in violation of section 7201, as well as to aiding and abetting wire fraud under 18 U.S.C. § 1343.
The Plea Agreement states in pertinent part:
During the years of 2004 through 2007, the defendant agrees that he converted investor money to his own personal use which therefore became income. Specifically, the defendant agrees that his personal income in 2006 was at least $2,263,097. The defendant was required to file income tax for 2006 by April 15, 2007 and pay $722,109 in taxes.
It appears that this is amount is a typographical error and should be $2,163,097. The indictment charges Mr. Crosby with income tax evasion under section 7201 based in part on income of at least $2,163,097 for the tax year 2006, and such amount is reflected in the Notice of Deficiency.
In the Notice of Deficiency upon which this case is based, issued to Mr. Crosby for the 2004 through 2010 tax years, respondent determined that Mr. Crosby is liable for a deficiency amount of $792,187 and an addition to tax amount under section 6651(f) of $574,335.57 for the tax year 2006.
Numerous places of the Notice of Deficiency list the 6651(f) aggregate as 72.5% when there is no statutory basis for that number. See I.R.C. § 6651(f).
On April 19, 2006, Mr. Crosby timely filed a petition in this Court seeking review of respondent's determinations. The motion for partial summary judgment currently before us followed in due course.
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant summary judgment as to any issue for which there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). A partial summary adjudication is appropriate if some but not all issues in the case may be decided as a matter of law, even though not all the issues in the case are disposed of. See Rule 121(b); Turner Broad. Sys., Inc. & Subs. v. Commissioner, 111 T.C. 315, 323-24 (1998). In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party (here, Mr. Crosby). Sundstrand Corp., 98 T.C. at 520. However, the nonmoving party "may not rest upon the mere allegations or denials" in his pleadings but instead "must set forth specific facts showing that there is a genuine dispute for trial." Rule 121(d); see Sundstrand Corp., 98 T.C. at 520. Mr. Crosby has not alleged, and we do not discern, any genuine dispute as to any material fact that would prevent summary adjudication as to the sole issue presented: whether he is liable for an addition to tax under section 6651(f) for the fraudulent failure to file his tax return for tax year 2006.
II. Fraudulent Failure to File
Section 6651(a)(1) provides for an addition to tax in the case of any failure to file a return by the prescribed filing date unless the taxpayer shows that the delinquency is due to reasonable cause and not due to willful neglect. In the case of a fraudulent failure to file, the addition to tax equals 15% of the amount required to be shown on the delinquent return (reduced for any prepayments or credits under section 6651(b)(1)) for each month or fraction thereof during which the delinquency continues, not to exceed 75% in the aggregate. I.R.C. § 6651(f). Respondent bears the burden of proving fraud by clear and convincing evidence. I.R.C. § 7454(a); Rule 142(b); Clayton v. Commissioner, 102 T.C. 632, 646 (1994); Mohamed v. Commissioner, T.C. Memo. 2013-255, at *18.
There are two elements of fraud under the Code: (1) existence of an underpayment, and (2) fraudulent intent with respect to at least some part of the underpayment. Conti v. Commissioner, 39 F.3d 658, 664 (6th Cir. 1994), aff'g and remanding on other grounds, 99 T.C. 370 (1992) and T.C. Memo. 1992-616; Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).
To establish that there was an underpayment in tax year 2006 and that at least some portion of the underpayment was due to fraud, respondent relies on Mr. Crosby's criminal conviction under section 7201. Respondent argues that, because Mr. Crosby was convicted of committing fraud under section 7201 for tax year 2006, Mr. Crosby is estopped from denying that he fraudulently failed to file his federal income tax return for tax year 2006. Consequently, Mr. Crosby must be held liable for an addition to tax under section 6651(f) as a matter of law. We agree.
III. Doctrine of Collateral Estoppel
Collateral estoppel precludes relitigating any issue of fact or law that was actually litigated and necessarily determined by a valid and final judgment.
Here, the doctrine of collateral estoppel applies: a judgment in a prior proceeding precludes litigation in a second proceeding as long as the issues and parties are the same. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5 (1979); Niedringhaus v. Commissioner, 99 T.C. 202, 213 (1992). It makes no difference that Mr. Crosby's conviction under section 7201 was the result of a guilty plea and not a trial. See Anderson v. Commissioner, 698 F.3d 160, 164 (3d Cir. 2012), aff'g T.C. Memo. 2009-44; DiLeo v. Commissioner, 96 T.C. 858, 886 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992); Montalbano v. Commissioner, T.C. Memo. 2007-349, 2007 WL 4165258, at *3, aff'd, 307 Fed.Appx. 332 (11th Cir. 2009).
A conviction for tax evasion under section 7201 requires proof of specific intent to defraud-the same element necessary for the civil fraud penalty under section 6651(f). See Clayton, 102 T.C. at 653; Wallace v. Commissioner, T.C. Memo. 2000-49, at *5. A taxpayer's conviction under section 7201 for a given year conclusively establishes the fraudulence of that taxpayer's failure to file returns, and under the doctrine of collateral estoppel, a taxpayer is estopped from denying that he fraudulently failed to file returns for tax years for which he was convicted under section 7201. Brennan v. Commissioner, T.C. Memo. 2009-77, 2009 WL 960215, at *6 (citing Amos v. Commissioner, 43 T.C. 50, 55-56, aff'd, 360 F.2d 358 (4th Cir. 1965)); Muncy v. Commissioner, T.C. Memo. 2017-83, at *21 (citing Weber v. Commissioner, T.C. Memo. 1995-125) ("A conviction for federal income tax evasion, either upon a plea of guilty, or upon a jury verdict of guilt, conclusively establishes fraud in a subsequent civil tax fraud proceeding through application of the doctrine of collateral estoppel."). Accordingly, Mr. Crosby's conviction under section 7201 for tax year 2006 conclusively establishes the fraudulence of his failure to file a return that year. Thus, under the doctrine of collateral estoppel, Mr. Crosby is estopped from denying that he fraudulently failed to file a return for tax year 2006.
Respondent generally bears the burden of proof with respect to any increases in deficiency. Rule 142(a). Although Mr. Crosby has not so contended, he is not collaterally estopped from challenging the amount of underpayment in a subsequent civil proceeding. See Senyszyn v. Commissioner, T.C. Memo. 2013-274, at *9-10:
Although the existence of an underpayment in tax is a necessary element of tax evasion under section 7201, the determination of an exact liability evaded is not. Even where the taxpayer has stipulated a specific amount of underpayment in a guilty plea, such stipulation-though
strong evidence of the deficiency amount-does not collaterally estop the taxpayer from challenging that amount in a subsequent civil proceeding.(Citations omitted.) Respondent determined that Mr. Crosby has a deficiency in income tax of $792,187 for tax year 2006. In his Plea Agreement, Mr. Crosby agreed that he owed $722,109 in income taxes for tax year 2006, a lower amount than what respondent determined in the Notice of Deficiency. Respondent has not established that there is no genuine dispute as to whether Mr. Crosby's deficiency for tax year 2006 exceeds $722,109. We therefore grant partial summary judgment as to a section 6651(f) addition to tax based only on a deficiency of $722,109, the amount Mr. Crosby pled to, and deny the motion for partial summary judgment in all other respects.
After due consideration, and for cause, it is
ORDERED that respondent's Motion for Partial Summary Judgment, filed on June 22, 2021, is granted only as to a section 6651(f) addition to tax based on a deficiency amount of $722,109, and denied in all other respects. It is further
ORDERED that petitioner file a response by December 27, 2022, to respondent's Motion for Summary Judgment, filed October 19, 2022.
Petitioner is reminded of the tax clinic in his area for assistance in responding to this order namely the University of Minnesota Tax Clinic, 22919th Avenue South, 190 Walter Mondale Hall, Minneapolis, MN 55455. The Clinic Director is Caleb Smith (612) 624-5813.