Opinion
23069-16
10-07-2021
Kevin John, Sr. & Whitney S. Witasick, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Courtney D. Jones Judge
This case is scheduled for trial at the remote trial session of the Court scheduled to commence at Baltimore, Maryland, on November 1, 2021. On August 30, 2021, respondent filed a motion for partial summary judgment, therein requesting summary adjudication on the issue of fraud for the purposes of the section 6663 penalty. On September 23, 2021, petitioners, Mr. Kevin Witasick, Sr. and Mrs. Whitney S. Witasick (the Witasicks), filed an objection to respondent's motion.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Background
The following facts are drawn from the pleadings, a stipulation of facts, respondent's motion papers, and the attached declarations and exhibits. See Rule 121(b).
On May 20, 2010, following a jury trial, the United States District Court for the Western District of Virginia, entered a judgment of guilty against Mr. Witasick for, among other charges, income tax evasion pursuant to section 7201 for the years 1999 and 2000, and overstating business expense deductions relating to Stoneleigh. Mr. Witasick appealed his convictions to the United States Court of Appeals for the Fourth Circuit, which affirmed the district court's finding that Mr. Witasick was guilty of income tax evasion pursuant to section 7201 for the tax years 1999 and 2000. See United States v. Witasick, 443 Fed. App'x. 838, 2011 WL 3625709 (4th Cir. 2011), cert. denied, 565 U.S. 1250 (2012). Mr. Witasick filed a writ of certiorari with the United States Supreme Court, which was denied on March 5, 2012. Witasick v. United States, 565 U.S. at 1250. Thus, Mr. Witasick's guilty conviction of income tax evasion for the 1999 and 2000 tax years pursuant to section 7201 is final.
Discussion
I. Respondent's Motion for Partial Summary Judgment
Summary judgment may be granted with respect to all or any part of the legal issues in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits or declarations, if any, show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law." Rule 121(a) and (b). Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The opposing party cannot rest upon mere allegations or denials in her pleadings and must "set forth specific facts showing that there is a genuine dispute for trial." Rule 121(d). The moving party bears the burden of proving there is no genuine issue of material fact, and factual inferences will be read in a manner most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).
Under the doctrine of collateral estoppel, "once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation." Montana v. United States, 440 U.S. 147, 153-154 (1979). In the motion for partial summary judgment, respondent argues that Mr. Witasick is collaterally estopped from contesting respondent's determination that he is liable for a fraud penalty pursuant to section 6663 because he was convicted of criminal tax evasion under section 7201 for tax years 1999 and 2000.
In general, the Government may collect criminal penalties pursuant to a criminal case and the respondent may collect additional civil penalties in a later civil proceeding. Helvering v. Mitchell, 303 U.S. 391, 399 (1938). Section 6663(a) imposes a 75% civil penalty on any portion of an underpayment of tax required to be shown on a return that is attributable to fraud. The respondent bears the burden of proving fraud by clear and convincing evidence. Sec. 7454(a); Rule 142(b). However, the law is well established that a conviction under section 7201 collaterally estops a taxpayer from challenging section 6663 civil fraud penalties that respondent asserts for the years for which the taxpayer is so convicted. See Klein v. Commissioner, 880, F.2d 260, 262 (10th Cir. 1989), aff'g T.C. Memo. 1984-392; Anderson v. Commissioner, T.C. Memo. 2009-44, slip op. at 38 ("We have repeatedly held that '[a] taxpayer is collaterally estopped from denying civil tax fraud under section [6663] when convicted for criminal tax evasion under section 7201 for the same tax year.'" (quoting DiLeo v. Commissioner, 96 T.C. 858, 885 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992)), aff'd, 698 F.3d 160 (3d Cir. 2012)). Specifically, a conviction under section 7201 indicates that either a court has found or a taxpayer has admitted to intentionally underreporting his income for the specific purpose of evading tax, which is the exact definition of fraud for purposes of section 6663. See Petzoldt v. Commissioner, 92 T.C. 661, 698 (1989); Anderson v. Commissioner, slip op. at 38.
The United States Court of Appeals for the Third Circuit, where appeal in this case presumably lies, specifically found that a taxpayer's conviction for tax evasion precludes him from denying fraudulent underpayments of tax. See Anderson v. Commissioner, 698 F.3d at 164.
II. Petitioners' Arguments
The Witasicks put forward three arguments in response to respondent's motion. First, the Witasicks argue that respondent stipulated that they can contest the fraud penalties. Second, the Witasicks contend that there have been significant changes in controlling facts and legal principles, and the existence of special circumstances preclude the application of collateral estoppel. Finally, the Witasicks contend that the existence of deficiencies is a genuine issue of material fact. We will address each argument in turn.
For the years at issue, the parties stipulated that, "Respondent contends that if the Court decides that there is a deficiency for the [1999 and 2000 taxable years], petitioner, Kevin Witasick is collaterally estopped from challenging the fraud penalties for the [1999 and 2000 taxable years] because a jury convicted him of federal income tax evasion pursuant to 26 U.S.C. section 7201. Petitioners dispute this contention." The Witasicks argue that the stipulation should be read in the conjunctive. Therefore, they may challenge the fraud penalties. With respect to the stipulations at issue, we conclude that the parties were merely stipulating to the existence of a dispute, not a refusal to pursue summary judgment on legal issues in this case.
Stipulations, like contracts, bind the parties to their terms. See McGivney v. Commissioner, T.C. Memo. 2000-224, slip op. at 3 (citing Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986)). To determine the proper meaning of the terms we look to the text of the stipulation and the circumstances surrounding its execution. See id. (citing Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420, 435-436 (1969)).
The Witasicks properly cite Montana v. United States, 440 U.S. at 155, for the proposition that the appropriate application of collateral estoppel necessitates three further inquiries: (1) whether the issues presented by this litigation are in substance the same as those resolved in the prior case; (2) whether controlling facts or legal principles have changed significantly since the state court judgment; or (3) whether other special circumstances warrant an exception to the normal rules of preclusion.
The Witasicks contend that the factual record underlying Mr. Witasick's conviction is significantly different than the basis for the determination of the tax deficiency in the audit and significantly different from the facts stipulated to by the parties in the First Stipulation of Facts (docket entry no. 63). The Witasicks also argue that the legal context has changed between the criminal trial and the present case.
As the parties stipulated, the United States District Court for the Western District of Virginia, following a trial by jury, entered a judgment of guilty against Kevin Witasick for unlawfully, willfully, and knowingly attempting to evade and defeat federal income taxes due and owing for the 1999 and 2000 taxable years pursuant to 26 U.S.C. section 7201. The guilty conviction was based in part upon Mr. Witasick's overstatement of business expense deductions relating to Stoneleigh. The deficiencies in this case also relate to overstated business expense deductions relating to Stoneleigh. Consequently, we conclude that the controlling facts have not changed significantly since Mr. Witasick's criminal conviction.
Similarly, the Witasicks' argument that there has been a change in controlling legal principles lacks merit. Modifications of controlling legal principles occur in situations that
could render a previous determination inconsistent with prevailing doctrine, and that '[i]f such a determination is then perpetuated each succeeding year
as to the taxpayer involved in the original litigation, he is accorded a tax treatment different from that given to other taxpayers of the same class. As a result, there are inequalities in the administration of the revenue laws, discriminatory distinction in tax liability, and a fertile basis for litigious confusion.'Montana v. United States, 440 U.S. at 161. No such considerations exist here as there has not been a change in controlling legal principles between the criminal trial and the instant case. Furthermore, we find no special circumstances warranting an exception to the normal rules of preclusion in this case. See id. at 162-163.
Finally, the Witasicks' argument that a genuine issue of material fact exists because their exact liabilities have yet to be determined is equally unpersuasive. While Mr. Witasick may dispute the amount of the deficiencies for tax years 1999 and 2000, we have repeatedly held that taxpayers convicted under section 7201 are precluded from denying the existence of underpayments for the years at issue. See Klein v. Commissioner, 880 F.2d at 262; Wilson v. Commissioner, T.C. Memo. 2002-234; Lahodny v. Commissioner, T.C. Memo. 1997-12.
III. Conclusion
"The doctrine of collateral estoppel bars * * * [the taxpayer convicted under section 7201] from relitigating in the instant case the matters litigated in * * * [the taxpayer's] criminal tax proceeding, i.e., whether * * * [the taxpayer] underpaid his tax for each of the taxable years * * * and whether his underpayment of such tax for each such year was due to fraud." Anderson, slip op. at 45 (internal citation omitted). Mr. Witasick was convicted of income tax evasion for the 1999 and 2000 tax years pursuant to section 7201. Accordingly, the Court finds as a matter of law that Mr. Witasick is liable for the section 6663 civil fraud penalty asserted against him for the 1999 and 2000 tax years.
We have considered all of the arguments made by the parties and, to the extent they are not addressed herein, we deem them to be moot, irrelevant, or without merit.
Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Partial Summary Judgment filed August 30, 2021, is hereby granted.