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Parties Involved:
Commissioner of Internal Revenue
Appellee
Gary Kaplan
Appellant

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 14-2342

___________________________

Gary Kaplan

lllllllllllllllllllllAppellant

v.

Commissioner of Internal Revenue

lllllllllllllllllllllAppellee

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Appeal from the United States Tax Court

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 Submitted: April 14, 2015

 Filed: July 29, 2015

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Before BYE, BEAM, and SMITH, Circuit Judges.

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BYE, Circuit Judge.

Gary Kaplan challenges a decision of the tax court dismissing his petition and

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sustaining the Commissioner of Internal Revenue's (the "Commissioner") tax

determinations. On appeal, Kaplan argues the court erred in holding 1) the statute of

The Honorable David Laro, United States Tax Court Judge.

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limitations had not run, 2) Kaplan's 2009 plea agreement did not bar a civil action for

unpaid taxes, and 3) the doctrine of judicial estoppel did not apply. We affirm.

I

Kaplan operated an illegal sportsbooking business called BetOnSports. The

business originated in New York City, but Kaplan eventually moved it to several

Caribbean islands, followed by Costa Rica in the late 1990s. In July 2004, the

company went public on the London Stock Exchange. Prior to going public, Kaplan

engaged in several transactions and stock transfers, resulting in $98 million being

placed in two trusts (the "Bird Trusts") off the coast of France. Kaplan and his family

were the beneficiaries of the Bird Trusts and Kaplan was the sole grantor. As the

grantor, Kaplan wasresponsible for the taxable income ofthe trusts; however, Kaplan

neglected to pay federal income or capital gains tax for the Bird Trustsfor either 2004

or 2005.

In 2006, a federal grand jury indicted Kaplan for operating an illegal online

gambling business within the United States. Subsequently, Kaplan accepted a plea

agreement for a reduction of charges and pleaded guilty to five of the remaining

charges associated with his illegal gambling enterprise. One relevant part of the plea

agreement, Section 2.E, which dealt with the ability of the government to bring civil

actions against Kaplan, stated:

[N]othing contained in this document is meant to limit the rights and

authority of the United States of America to take any civil, civil tax or

administrative action against the defendant . . . except that the United

States shall not seek civil forfeiture in connection with this case or any

asset constituting or derived from the receipt of income from the

BetOnSports Organization, the sale ofstock inBetOnSports, PLC and/or

the investment of the proceeds of any such income or sale.

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In 2009, the district court held a change of plea hearing. The court specifically

questioned Kaplan about the above provision in the plea agreement (Section 2.E). 

First, the government noted "there is nothing in the agreement . . . that this office

lacks . . . the power of the government to pursue any civil, civil tax, or administration

action." Then, the court asked Kaplan, "Do you understand, Mr. Kaplan, that there

is a difference between a criminal tax proceeding and a civil tax proceeding?" Kaplan

stated, "Yes, I do, Your Honor." The court continued, "And in this document, the

U.S. Attorney's Office has agreed it will not bring any criminal tax proceeding against

you; however, that doesn't preclude the initiation of any civil tax proceeding or

administrative action against you." Kaplan replied, "I understand that. And

we've—we've agreed to that." The court subsequently accepted the plea agreement

and sentenced Kaplan to fifty-one months ofimprisonment, and ordered himto forfeit

$43,650,000 to the United States.

In 2012, the Commissioner issued Kaplan a notice of deficiency for failure to

file and pay taxes for 2004 and 2005. In addition to being liable for self-employment

tax and income tax on capital gains, Kaplan was also liable for the following

penalties: failure to file timely returns, failure to pay tax in a timely manner, and

failure to pay estimated tax. The taxes and penalties totaled $25,479,233 for 2004

and $11,248,856 for 2005. Kaplan challenged the Commissioner's determinations by

filing a petition in the tax court. Instead of challenging the income determination,

Kaplan argued 1) the statute of limitations had run on the Commissioner's ability to

assess the unpaid taxes, 2) Kaplan's 2009 plea agreement barred the claim, and 3)

judicial estoppel barred the Commissioner's determination. The tax court rejected all

three arguments.

On the statute of limitations issue, the court noted since Kaplan failed to file

a return, the period for the Commissioner to assess taxes never began to run. 

Furthermore, while the enforcement period is generally six years, income fromillegal

sources can allow for a longer enforcement period. On the 2009 plea agreement

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issue, the tax court determined the agreement was unambiguous as to the ability of

the government to bring a civil tax proceeding. Additionally, the court referenced the

questions and answers given at the change of plea hearing, demonstrating Kaplan's

knowledge and admitted understanding ofthe government's ability to bring a civil tax

proceeding. On the issue ofjudicial estoppel, Kaplan argued the government'sfailure

to object to the Presentence Report (PSR) prevented the government from bringing

a civil tax proceeding against Kaplan. The tax court rejected Kaplan's argument for

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several reasons. First, the representations in Kaplan'sfinancial disclosure letter were

his, not the government's. Second, representations of assets and liabilities are used

to determine a defendant's ability to pay a fine or restitution, which was not at issue;

therefore, the government had no immediate reason to object to the report. Third,

even assuming the government did take an initial position, the government did not

persuade the court of this position nor derive any benefit from taking the position. 

Finally, Kaplan did not suffer any detriment or prejudice from the government's

"position" because the plea agreement explicitly preserved the government's right to

bring a civil tax proceeding against Kaplan.

Having rejected Kaplan's arguments,the tax court entered a decision sustaining

the Commissioner's tax and penalty determinations against Kaplan. On appeal,

Kaplan raises the same three challenges that were before the tax court.

II

The statute of limitations and plea agreement issues are both issues of law

reviewed de novo. See United States v. Mosley, 505 F.3d 804, 808 (8th Cir. 2007)

(plea agreement); Smithrud v. City of St. Paul, 746 F.3d 391, 395 (8th Cir. 2014)

ThePSR contained Kaplan'sfinancial disclosures, which did not reference any

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tax liabilities for 2004 or 2005. Therefore, Kaplan argues the government took the

initial position that Kaplan had no tax liability, which is contrary to its current

position.

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(statute of limitations). A lower court's application and interpretation of the doctrine

of judicial estoppel isreviewed for an abuse of discretion. Schaffart v. ONEOK, Inc.,

686 F.3d 461, 469 (8th Cir. 2012).

Kaplan first argues the statute oflimitations barsthe government frompursuing

a civil tax proceeding against Kaplan. We disagree. Generally, the Commissioner

has three years after a return is filed within which to assess income tax liability

against a taxpayer. See 26 U.S.C. § 6501(a). However, Kaplan's failure to file a

return for tax years 2004 and 2005 allows the Commissioner to assesstaxes or initiate

a civil tax proceeding against him at any time. See id. § 6501(c)(3). Furthermore,

even if Kaplan filed his returns, the Internal Revenue Manual (IRM) part 4.12.1.3(1)

acknowledges the time period for which the Commissioner can assess taxes may be

extended when the income at issue comes from an illegal source. As the tax court

noted, it is apparent from the record Kaplan's income was obtained from his illegal

gambling business.

Additionally, Kaplan attempts to bolster his statute of limitations challenge by

claiming "management approval" (under IRM part 4.12.1.3.1) is required for any tax

proceeding initiated over six years after the tax year in question. However, since

Kaplan failed to raise this argument before the tax court, we are not in a position to

determine this factual matter. See Hartman v. Workman, 476 F.3d 633, 635 (8th Cir.

2007) (rejecting an argument because it was not first raised before the district court). 

We cannot determine from the record on appeal whether the Commissioner sought

and obtained management approval before initiating this tax proceeding against

Kaplan. This was a matter for the tax court to consider, not us.

Kaplan's second challenge—his 2009 plea agreement barsthe government from

bringing a civil tax claim against him—is also without merit. The plea agreement

explicitly states "nothing contained in this document is meant to limit the rights and

authority of the United States of America to take any civil, civil tax or administrative

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action against the defendant" (emphasis added). Furthermore, at the change of plea

hearing Kaplan acknowledged he understood the agreement did not "preclude the

initiation of any civil tax proceeding . . . against [him]." Kaplan attempts to combat

these statements by claiming the plea agreement is ambiguous. This, he claims, is due

to the agreement also stating the government "shall not seek civil forfeiture in

connection with this case." However, the law clearly distinguishes between a "civil

forfeiture" and a "civil tax proceeding." For example, a civil forfeiture action is an

in rem proceeding brought against property, not an individual. United States v. One

1982Chevrolet Crew-CabTruckVIN1GCHK33M9C143129, 810 F.2d 178, 183 (8th

Cir. 1987). A civil forfeiture action is not an action to collect unpaid taxes.

Finally, Kaplan argues the doctrine of judicial estoppel prevents the

government from initiating this civil tax proceeding against him. We disagree. 

Judicial estoppel applies where a party takes contrary positions during the course of

a lawsuit. Occidental Fire & Cas. Co. v. Soczynski, 765 F.3d 931, 935 (8th Cir.

2014). The factors generally considered include:

(1) whether a party's later position is clearly inconsistent with its earlier

position; (2) whether the party has succeeded in persuading a court to

accept that party's earlier position, so that judicial acceptance of an

inconsistent position in a later proceeding would create the perception

that either the first or the second court was misled; and (3) whether the

party seeking to assert an inconsistent position would derive an unfair

advantage or impose an unfair detriment on the opposing party if not

estopped.

Gray v. City of Valley Park, Mo., 567 F.3d 976, 981 (8th Cir. 2009) (citing New

Hampshire v. Maine, 532 U.S. 742, 750-51 (2001)).

The government did not take a "position" by failing to object to the PSR, which

showed the absence of any relevant tax liability. The financial disclosures contained

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within the PSR were prepared by Kaplan. Therefore, it was Kaplan, if anyone, who

took the position of no tax liability being present. Furthermore, the government did

not have to persuade the court to adopt Kaplan's representation—whether or not

Kaplan had a tax liability was simply not an issue in dispute in his criminal

proceeding. Additionally, as the tax court noted, even if we were to assume the

government did take an initial position, the government did not "derive an unfair

advantage" over Kaplan. Within the plea agreement, the government preserved its

right to initiate a civil tax proceeding against Kaplan. Therefore, any possible unfair

advantage gained was due to Kaplan's own failures, not any action (or inaction) on

behalf of the government. In any event, Kaplan's representation of no tax liability

was accurate at the time since no actual tax liability had yet to be determined; rather,

it was a contingent liability. For all these reasons, the tax court did not abuse its

discretion by refusing to apply judicial estoppel.

III

We affirm the tax court's decision.

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