UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 11-1804

JOSEPH B. WILLIAMS, III,

Petitioner - Appellant,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent - Appellee.

Appeal from the United States Tax Court. (Tax Ct. No. 2202-08)

Argued: September 19, 2012 Decided: December 4, 2012

Before WILKINSON and THACKER, Circuit Judges, and Michael F. 

URBANSKI, United States District Judge for the Western District 

of Virginia, sitting by designation.

Affirmed by unpublished opinion. Judge Urbanski wrote the 

opinion, in which Judge Wilkinson and Judge Thacker joined.

ARGUED: David Harold Dickieson, SCHERTLER & ONORATO, LLP, 

Washington, D.C., for Appellant. Damon William Taaffe, UNITED 

STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. 

ON BRIEF: Pamela Satterfield, SCHERTLER & ONORATO, LLP, 

Washington, D.C., for Appellant. ON BRIEF: Tamara W. Ashford, 

Deputy Assistant Attorney General, Robert W. Metzler, UNITED 

STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit.
2

URBANSKI, District Judge:

Joseph B. Williams, III, challenges the notice of tax 

deficiency issued to him by the Commissioner of Internal Revenue 

for tax years 1993 through 2000. The Tax Court upheld the 

Commissioner’s notice of deficiency. Williams now appeals. 

Williams argues that the Tax Court erred in three ways: 

(1) by holding Williams’ guilty plea to criminal tax evasion 

collaterally estops him from denying liability for civil fraud 

penalties for tax years 1993 through 2000; (2) by attributing 

income generated by Williams’ consulting services to Williams 

individually instead of to the foreign corporation he formed; 

and (3) by disallowing certain charitable deductions taken by 

Williams for art donations made to two universities over the 

course of three years. Finding each of Williams’ arguments to 

be without merit, we affirm.

I.

A.

Williams worked for Mobil Oil Corporation from 1973 until 

his retirement in 1998. In the 1990s, he was tasked with

developing strategic business relationships in Russia and former 

Soviet republics. In 1993, separate and apart from his work 

with Mobil, Williams began providing consulting and other 

services concerning pipeline-related contracts to foreign 
3

governments. Alika Smekhova, a Russian actress and celebrity, 

arranged introductions and provided interpretation services for 

Williams in connection with his consulting work. That same 

year, Williams formed ALQI Holdings, Inc. (“ALQI”), a British 

Virgin Islands corporation. Williams was the sole owner, 

operational director, and officer of ALQI. Neither Williams nor 

Smekhova had a written employment contract with ALQI. 

Two accounts were opened in ALQI’s name at a Swiss bank, 

Banque Indosuez (“the ALQI accounts”). Williams had complete 

authority over the ALQI accounts. The bank provided Williams 

with use of its office space, as well as a Swiss mobile 

telephone and credit card that were issued and billed in 

Williams’ name. All monies deposited into the ALQI accounts 

between 1993 and 2000 were received for Williams’ oil and 

pipeline-related consulting services. There are no consulting 

agreements documenting the services rendered. Williams did not 

use the ALQI name in his dealings with third parties and did not 

maintain corporate accounting records. 

Smekhova was paid a stipend of $5,000 to $10,000 per month 

from the ALQI accounts, but Williams did not pay himself a 

salary or commission. Funds were transferred from the ALQI

accounts at Williams’ direction, however, and were used to pay 

credit cards and other bills reflecting Williams’ personal 

expenses, such as a $30,000 shopping spree in Paris and a family
4

ski vacation. Williams also made gifts to family and friends 

from these accounts, including over $41,000 in payments to his 

former secretary and a $15,000 gift to the wife of Williams’ 

deceased father. 

More than $7 million in consulting fees were deposited into 

the Swiss accounts during the relevant period and over $1.1

million in interest, dividends and capital gains was earned on 

these deposits. Williams did not report any of the consulting 

fee or investment income on his individual tax returns for tax 

years 1993 through 2000, nor did he disclose the existence of 

ALQI or its Swiss accounts. 

In 2000, at the request of the United States government, 

the Swiss government froze the ALQI accounts. Subsequently, 

Williams disclosed his ownership interest in ALQI and the 

existence of the ALQI accounts on his 2001 tax return.1

 In 2003, 

Williams amended his 1999 and 2000 tax returns2 to report the

investment income earned on the funds in the ALQI accounts, and 

he paid the additional tax due. Williams did not include as 

 1 Earlier this year we determined that Williams willfully 

violated 31 U.S.C. § 5314(a) by failing to file for tax year 

2000 the form TD F 90-22.1 (“FBAR”), on which he was required to 

disclose his interest in the ALQI accounts. United States v. 

Williams, No. 10-2230, 2012 WL 2948569 (4th Cir. July 20, 2012).

2 Amended returns for 1993 through 1998 were prepared but 

were never filed.
5

income on either his original or amended returns the corpus of 

the accounts. 

In 2003, Williams was charged in a two-count superseding

criminal information with conspiracy to defraud the government,

in violation of 18 U.S.C. § 371, and tax evasion, in violation 

of 18 U.S.C. § 7201. On June 12, 2003, Williams entered a 

guilty plea to both counts. The court accepted the guilty plea,

sentenced Williams to 46 months’ incarceration, and ordered him 

to pay $3,512,000 in restitution. Williams was released from 

federal custody on May 21, 2006. 

B.

In 1996, Williams signed an Art Purchase Agreement in which 

he purportedly committed to purchasing at a discount from Abbey 

Art Consultants, Inc. (“Abbey Art”) certain works of art that, 

at Williams’ direction, were to be donated at fair market value 

to charitable institutions. The Agreement recited that Williams 

“desire[d] to purchase” $72,000 worth of art, but did not 

identify specific pieces of art, and provided that the purchase 

price would not exceed 24% of the appraised fair market value of 

the art. The Agreement required Williams to pay only $3,600 

upon signing; the balance of the purchase price was to be paid

on or before such time as the art was donated to charity.

Abbey Art was to facilitate all aspects of the art donation 

and incur all expense, including paperwork, appraisal, 
6

packaging, shipping, and storage costs. The Agreement provided

that Abbey Art would arrange for the donation “after the 

required holding period of one (1) year.” While Williams could 

request a donation be made to a certain charitable institution, 

Abbey Art ultimately had the discretion to choose the donee. If 

Abbey Art was unable to facilitate the art donation for any 

reason, the Agreement required Abbey Art to refund Williams’ 

payments. Additionally, Abbey Art’s sole remedy under the 

Agreement for Williams’ non-payment was to retain payments 

already received and retake possession of the art.3

 In the event 

of a reduction in the fair market value of the art, Abbey Art 

agreed to pay Williams an amount equal to “the percentage of the 

dollars paid for each dollar the fair market value of the Art 

has been reduced.” Finally, the Agreement provided that it was

the entire agreement between the parties and that it was to be 

interpreted under New York law. 

In December 1997, Abbey Art, at Williams’ direction, donated

certain pieces of art with an appraised fair market value of 

$425,625 to Drexel University. Williams received an invoice 

from Abbey Art in the amount of $98,400, representing a purchase 

 3 A term of the Agreement requiring specific performance of 

the unpaid portion of the purchase price was crossed out and 

initialed by Williams and his wife who, while a signatory to 

this Agreement, is not a party to this case.
7

price of $102,000 (approximately 24% of the appraised fair 

market value of the art) less Williams’ $3,600 deposit. 

Williams paid Abbey Art $98,400 before the end of 1997 and on 

his federal income tax return for that year, Williams claimed a 

charitable contribution deduction of $425,625.

In December 1999, Williams wrote Abbey Art requesting that a 

gift of art be made on his behalf to Florida International 

University for the current tax year. Williams enclosed with 

this letter a check in the amount of $57,500. Certain pieces of 

art with an appraised value of $250,525 were donated at 

Williams’ request prior to the end of the year. On his 1999 

federal tax return, Williams claimed the full fair market value 

of the art as a charitable contribution deduction.

In 1999, Williams paid Abbey Art $4,600, and in October 

2000, Abbey Art arranged a gift of additional artwork with an 

appraised value of $98,900 to Drexel University. Williams paid 

Abbey Art the balance due on this donation, $17,158, on December 

8, 2000. Williams again claimed the fair market value of the 

donated art as a charitable contribution deduction on his 2000 

federal income tax return. 

C.

On October 29, 2007, the Commissioner of Internal Revenue 

issued a notice of tax deficiency to Williams. The Commissioner 

found the consulting fees deposited into the ALQI accounts
8

between 1993 and 2000, as well as the investment income earned 

on those funds, to be taxable income to Williams and assessed

civil fraud penalties for each of the eight years he failed to 

report this income on his tax returns. The Commissioner also 

determined that Williams was only entitled to charitable 

contribution deductions in the amount of his basis in the art

donated through Abbey Art, because Williams had not owned the 

art for at least one year prior to the donations. The 

Commissioner assessed accuracy-related penalties on the 

underpayments resulting from the disallowed charitable 

deductions. 

Williams challenged the notice of deficiency by filing a 

petition in the Tax Court. The Tax Court granted partial 

summary judgment in favor of the Commissioner, holding Williams 

was collaterally estopped from denying that he had committed 

civil tax fraud during each of the years 1993 through 2000. 

Williams v. Comm’r, No. 2202-08, 2009 WL 1033354 (U.S. Tax Ct.

Apr. 16, 2009). Following a bench trial, the Tax Court found

that the consulting fee and investment income deposited into the 

ALQI accounts between 1993 and 2000 was attributable to Williams

individually. The Tax Court further held that Williams was not 

entitled to a charitable contribution deduction in the amount of 

the fair market value of the donated art because Williams did 

not hold the art for more than one year before donating it. 
9

Accordingly, the Tax Court upheld the Commissioner’s notice of 

deficiency and assessment of civil tax fraud and accuracyrelated penalties. Williams v. Comm’r, No. 2202-08, 2011 WL 

1518581 (U.S. Tax Ct. Apr. 21, 2011). This appeal followed. 

We review the Tax Court’s decision applying the same 

standard of review as we would to a civil bench trial in the 

United States district court. Waterman v. Comm’r, 176 F.3d 123, 

126 (4th Cir. 1999). Questions of law and statutory 

interpretation are reviewed de novo and findings of fact for 

clear error. Id. The grant of the Commissioner’s motion for 

partial summary judgment on the collateral estoppel issue is 

reviewed de novo. Henson v. Liggett Grp., Inc., 61 F.3d 270, 

274 (4th Cir. 1995). The Commissioner’s notice of deficiency is 

presumed to be correct, and the taxpayer bears the burden of 

proving it wrong. McHan v. Comm’r, 558 F.3d 326, 332 (4th Cir. 

2009); see also Welch v. Helvering, 290 U.S. 111, 115 (1933). 

 

II.

Williams first argues on appeal that the Tax Court erred in 

holding that his guilty plea to criminal tax evasion in 

violation of 18 U.S.C. § 7201 collaterally estops him from 
10

denying his liability for civil tax fraud penalties under 26 

U.S.C. § 6663 for the years 1993 through 2000.4 

The doctrine of collateral estoppel applies “where (1) the 

‘identical issue’ (2) was actually litigated (3) and was 

‘critical and necessary’ to a (4) ‘final and valid’ judgment (5) 

resulting from a prior proceeding in which the party against 

whom the doctrine is asserted had a full and fair opportunity to 

litigate the issue.” McHan, 558 F.3d at 331 (quoting Collins v. 

Pond Creek Mining Co., 468 F.3d 213, 217 (4th Cir. 2006) 

(citation and quotation marks omitted)). “[O]nce 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 (1979). 

A taxpayer is collaterally estopped from denying civil tax 

fraud when convicted for criminal tax evasion under 18 U.S.C. §

7201 for the same taxable year. Moore v. United States, 360 

 4 Generally, the Commissioner must assess a deficiency 

within three years of the filing of the tax return from which 

the deficiency stems. 26 U.S.C. § 6501(a). If a deficiency is 

determined in the case of a false or fraudulent return with the 

intent to evade tax, however, the Commissioner can assess such a 

deficiency at any time. Id. at § 6501(c)(1). The Commissioner 

bears the burden of proving civil tax fraud. 26 U.S.C. § 

7454(a). 
11

F.2d 353, 355 (4th Cir. 1966); DiLeo v. Comm’r, 96 T.C. 858, 

885-86 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992); see generally

United States v. Wight, 839 F.2d 193, 196 (4th Cir. 1988) (“The 

doctrine of collateral estoppel may apply to issues litigated in 

a criminal case which a party seeks to relitigate in a 

subsequent civil proceeding.”). “[W]hile the criminal evasion 

statute does not explicitly require a finding of fraud, the 

case-by-case process of construction of the civil and criminal 

tax provisions has demonstrated that their constituent elements 

are identical.” Moore, 360 F.2d at 356.

A.

Williams argues that the Tax Court misinterpreted the terms 

of his guilty plea in barring him from denying civil tax fraud 

liability for the years 1993 through 2000. Williams contends 

that he did not plead guilty to tax evasion, but rather to 

evasion of payment of taxes, the elements of which are not 

dependent upon any specific tax year.5

 As such, Williams argues

 5 Section § 7201 “includes the offense of willfully 

attempting to evade or defeat the assessment of a tax as well as 

the offense of willfully attempting to evade or defeat the 

payment of a tax.” Sansone v. United States, 380 U.S. 343, 354 

(1965). As the Third Circuit in United States v. McGill, 964 

F.2d 222, 230 (1992), explained, the willful filing of a false 

return satisfies the elements of evasion of assessment. Such

cases are far more common than evasion of payment cases, which 

are rare and generally require an affirmative act that occurs 

after any filing, such as placing assets in the name of others 

(Continued)
12

that he is not collaterally estopped from denying civil tax 

fraud for the entire eight year period set forth in the notice 

of deficiency, or for any particular year therein.

We reject this argument because, in addition to lacking

merit, it has been waived. Williams failed to raise this 

argument before the Tax Court. Ordinarily, we will not consider 

an issue raised for the first time on appeal except in limited 

circumstances, Nat’l Wildlife Fed’n v. Hanson, 859 F.2d 313, 318

(4th Cir. 1988), and this rule is applied equally by courts of 

appeals reviewing Tax Court decisions, Karpa v. Comm’r, 909 F.2d 

784, 788 (4th Cir. 1990) (citing Grauvogel v. Comm’r, 768 F.2d 

1087, 1090 (9th Cir. 1985)). Williams has not suggested any 

reason why we should depart from our ordinary rule in this case, 

and we see no reason to do so. 

B.

Williams also takes issue with the Tax Court’s finding that 

his conviction for tax evasion collaterally estops him from 

denying civil fraud for each year from 1993 through 2000. 

Williams disputes that he pled guilty to tax evasion for each 

and every one of these years. The record, however, proves fatal 

 

or causing debts to be paid through and in the name of others. 

Id. 
13

to this claim. The plain language of the superseding criminal

information charges Williams with tax evasion for each year from 

1993 through 2000: 

From in or about 1993, through in or about April 2001, 

. . . J. BRYAN WILLIAMS, the defendant, unlawfully, 

willfully and knowingly did attempt to evade and 

defeat a substantial part of the income tax due and 

owing by J. BRYAN WILLIAMS . . . for the calendar 

years 1993 through 2000, by various means, including, 

among others by (a) arranging for approximately $7.98 

million in payments which were income to Williams to 

be made into the secret Alqi accounts in Switzerland 

he controlled; and (b) preparing and causing to be 

prepared, signing and causing to be signed, and filing 

and causing to be filed, false and fraudulent U.S. 

Individual Income Tax Returns, Forms 1040, for the 

calendar years 1993 through 2000, on which he failed 

to disclose his interest in the secret Alqi bank 

accounts in Switzerland, and on which, in the years 

set forth below, he failed to report the approximate 

amounts of income set forth below, and upon which 

income there was a substantial additional tax due and 

owing to the United States of America:

Calendar 

Year

Approximate 

Amount of Income

1993 $1,029,518.72

1994 $752,479.52

1995 $998,723.14

1996 $3,917,762.57

1997 $1,670,891.49

1998 $133,371.90

1999 $109,167.59

2000 $256,234.64

(Title 26, United States Code, Section 7201).

Williams pled guilty to this tax evasion count, as well as to 

conspiracy to defraud the government in violation of 18 U.S.C. § 

371. Pursuant to a written plea agreement, Williams agreed to 
14

“file accurate amended personal tax returns for the calendar 

years 1993 through 2000” and “pay past taxes due and owing to 

the [IRS] by him for calendar years 1993 through 2000, including 

any applicable penalties.” 

Additionally, Williams admitted during his allocution at 

his guilty plea hearing that he knew the funds deposited into 

the ALQI accounts were taxable to him. Williams acknowledged

that for “the calendar year tax returns for ‘93 through 2000,

[he] chose not to report the income to [the IRS] in order to 

evade the substantial taxes owed thereon, until [he] filed [his] 

2001 tax return.” Williams continued: “I therefore believe 

that I am guilty of evading the payment of taxes for the tax 

years 1993 through 2000.” As the Tax Court observed, there is 

no question that Williams pled guilty to and was convicted of 

tax evasion for each of the eight calendar years 1993 through 

2000. 

Williams insists he made clear to the district court that 

he was pleading to a narrower statement of facts concerning tax 

evasion than those contained in the superseding information. 

The record proves otherwise. At the plea hearing, Williams’ 

counsel told the district judge:

[W]e’re not adopting or accepting the facts as stated 

in the conspiracy count, which I think is the 

recitation of what was in the original indictment in 

this case. What we have agreed is that Mr. Williams 

would plead guilty to conspiracy counts, but based 
15

upon the factual allocution, which he has given to the 

Court.

This statement plainly refers to the conspiracy count, not to 

the tax evasion count. Williams pled guilty to both conspiracy 

and tax evasion. While he raised a concern at the plea hearing 

about the factual allegations surrounding the conspiracy count, 

Williams did not deny any fact or allegation concerning tax 

evasion, nor raise any issue whatsoever with respect to that 

count. On the contrary, Williams expressly admitted to facts 

that demonstrate his tax evasion scheme continued from 1993 

until the time he filed his 2001 tax return, as charged in the 

information. 

C.

Williams’ final contention with respect to collateral 

estoppel is that he did not have a full and fair opportunity to 

litigate the issue previously, because at the time he entered 

his guilty plea, neither the Commissioner nor Williams had 

analyzed the actual tax implications arising from the ALQI

accounts and the amount of deficiencies for each tax year.6

 

 6 Any suggestion that Williams’ conviction following a 

guilty plea, rather than a trial, renders collateral estoppel 

inapplicable misses the mark. “[T]here is no difference between 

a judgment of conviction based upon a guilty plea and a judgment 

rendered after a trial on the merits,” for purposes of applying 

the doctrine of collateral estoppel, as the conclusive effect is 

the same. Blohm v. Comm’r, 994 F.2d 1542, 1554 (11th Cir. 

1993). 

(Continued)
16

Thus, argues Williams, the fraud penalties were not actually and 

necessarily decided by the court in his criminal case.

Williams confuses the issues. It matters not whether civil 

fraud penalties and interest had been calculated as of the date 

of his guilty plea or sentencing.7 These determinations are not 

 

Moreover, Williams’ reliance on United States v. 

International Building Co., 345 U.S. 502, 505-06 (1953), is 

misplaced. Williams claims International Building stands for 

the proposition that collateral estoppel is not appropriate when 

the decision of a prior court is the result of compromise or 

negotiation rather than a full review of the facts. But 

International Building involved “a pro forma acceptance by the 

Tax Court of an agreement between the parties to settle their 

controversy for reasons undisclosed.” Id. at 505. Indeed, in 

International Building, the Commissioner agreed to withdraw his

proofs of claim for tax deficiencies filed in International 

Building’s bankruptcy proceeding, upon a stipulation that the 

withdrawal was “‘without prejudice’ and did not constitute a 

determination of or prejudice the rights of the United States to 

any taxes with respect to any year other than those involved in 

the claim.” Id. at 503. The parties filed stipulations in the 

pending Tax Court proceedings that there was no tax liability 

for the years 1933, 1938, and 1939, and the Tax Court entered 

formal decisions to that effect. No factual findings were made, 

no briefs were filed, and no hearings were held. The Supreme 

Court held that while the Tax Court’s decisions were res 

judicata with respect to tax claims for 1933, 1938, and 1939, 

they did not collaterally estop the Commissioner from assessing 

deficiencies for the years 1943, 1944, and 1945. Id. at 505. 

International Building is plainly distinguishable from the 

instant case. 

 

7 Moreover, the record makes clear it was Williams’ counsel 

who advocated for proceeding with the guilty plea and sentencing 

hearings before a sum certain in penalties and interest had been 

calculated. Williams cannot now argue that he was rushed into 

pleading guilty before a final figure had been determined. 
17

required to secure a criminal conviction for tax evasion. What 

matters for purposes of collateral estoppel is that Williams was 

indeed convicted of evasion for the years in question. As we 

held in Moore, that conviction “supplies the basis for a finding 

of fraud in [a] civil proceeding to determine tax liability.” 

360 F.2d at 355 (citing Tomlinson v. Lefkowitz, 334 F.2d 262 

(5th Cir. 1964)). 

Williams pled guilty to a tax evasion scheme that continued 

from 1993 until 2000. In so doing, Williams admitted that he 

committed tax fraud in each of those eight years. In light of 

his guilty plea and allocution, Williams cannot now deny 

liability for civil tax fraud penalties for the years in 

question. We find the Tax Court correctly applied the doctrine 

of collateral estoppel in this case. 

 

III.

Williams next argues that the Tax Court erred in finding 

him individually liable for tax on the consulting fee income

deposited into the ALQI accounts between 1993 and 2000. 

Williams asserts that ALQI was a legitimate business for which 

he performed consulting work and contends that he acted on the 

company’s behalf when he earned the consulting fees at issue. 

We are not persuaded.
18

“The principle that income is taxed to the one who earns it 

is basic to our system of income taxation.” Haag v. Comm’r, 88 

T.C. 604, 610 (1987), aff’d, 855 F.2d 855 (8th Cir. 1988) 

(unpublished table decision); see also Lucas v. Earl, 281 U.S. 

111 (1930). For income to be taxable to a corporation: (1) the 

service-performer must be an employee of the corporation whom 

the corporation has the right to direct or control in some 

meaningful sense; and (2) there must exist between the 

corporation and the person a contract or similar indicium 

recognizing the corporation’s controlling position. Haag, 88 

T.C. at 611 (citing Johnson v. Comm’r, 78 T.C. 882, 891 (1982)). 

No such employer-employee relationship exists here. 

Williams testified that he had no written employment 

agreement and received no regular salary or commission payments

from ALQI. He stipulated that he was the sole operational 

director and officer of ALQI and the only person with authority 

to act on the company’s behalf in its business activities. 

Williams had exclusive signature authority over the ALQI 

accounts from 1993 through 2000 and was the sole person from 

whom Banque Indosuez would accept instructions with respect to 

those accounts. There is simply no indication that ALQI wielded 

any form of control over Williams as an employee.

Beyond that, the evidence strongly suggests that Williams 

did not act on behalf of ALQI when he earned the income in 
19

question and merely used ALQI as a bank account. Apart from 

Williams’ testimony, there is no evidence that Williams’

consulting clients even knew ALQI existed. There are no 

consulting agreements, notes or other records that reflect 

ALQI’s business dealings. In fact, there are no ALQI business 

records at all for the period at issue, except for bank records 

maintained by Banque Indosuez and a single balance sheet and 

profit and loss statement dated June 30, 2000. Williams’ 

accountant, Donald Williamson, testified that while he reviewed 

voluminous bank records and incorporation documents in the 

course of his work, he did not see any general ledgers, profit 

and loss statements or balance sheets for ALQI, nor did he see 

any consulting contracts. Williamson testified that he relied 

on the representations of Williams and Williams’ counsel that 

ALQI earned the consulting fees in question, and he took those 

representations at face value.

In an effort to legitimize ALQI’s operations, Williams 

points to ALQI’s use of Banque Indosuez’s office space, its

Swiss cell phone and credit card, as well as the fact that 

clients deposited consulting fees directly into the ALQI 

accounts. Williams insists that ALQI employed Smekhova to 

arrange, attend and translate at meetings conducted for ALQI 

business, and that ALQI, not Williams, paid her for her 

services. But Smekhova, like Williams, had no written 
20

employment agreement with ALQI. As the Tax Court noted, “[t]he 

fact that Mr. Williams’ business and personal expenses were paid 

out of these same Swiss bank accounts does not prove that his 

clients contracted with ALQI or that ALQI was anything other 

than the receptacle into which Mr. Williams diverted his 

consulting income.” Williams, 2011 WL 1518581, at *14. 

Williams argues that because ALQI is not a “sham” 

corporation - and the Tax Court assumed that it is not - it must 

follow that the consulting fee income is taxable to ALQI. But 

Williams’ reasoning is flawed. As the Tax Court persuasively 

explained, whether ALQI is a legitimate business entity is 

irrelevant; ALQI simply did not earn the income at issue.8

 Id.; 

see Haag, 88 T.C. at 611 (“A finding that the [corporation] is 

 8 Williams argues Moline Properties, Inc. v. Comm’r, 319 

U.S. 436 (1943), supports his position, but his argument falls 

short. In that case, petitioner Moline Properties claimed that 

gain on sales of its real property should be treated, and 

therefore taxed, as the gain of its sole stockholder, and that 

its corporate existence should be ignored as fictitious. 

Notwithstanding the fact that Moline “kept no books and 

maintained no bank account during its existence,” the Supreme 

Court held that it was a separate entity with a tax identity 

distinct from its stockholder. In reaching this conclusion, the 

Court noted the fact that the stockholder exercised negligible 

control over the entity, that Moline mortgaged and sold portions 

of its property, and that Moline entered into its own business 

venture by leasing part of its property and collecting rental 

income. Id. at 440. On the contrary, in the instant case,

Williams exercised exclusive and complete control over ALQI, and 

there is no evidence that ALQI carried on any business activity

apart from serving as Williams’ bank account. 
21

not a sham does not preclude application of the assignment of 

income doctrine because a taxpayer can assign income to a 

corporation with real and substantial businesses to avoid tax 

liability.”). 

Moreover, Williams cannot rise above his own admissions at 

his guilty plea hearing that the “purpose of the [ALQI] accounts 

was to hold funds and income [he] received from foreign sources 

during the years 1993 to 2000.” Williams further acknowledged

that he “knew that most of the funds deposited into the A[LQI]

accounts, and all of the interest income were taxable income to 

[him],” but admitted he “chose not to report the income to the 

Internal Revenue Service in order to evade the substantial taxes 

owed thereon.”

The Commissioner’s determinations of income are entitled to 

a presumption of correctness, and the taxpayer bears the burden 

of proving them wrong. McHan v. Comm’r, 558 F.3d 326, 332 (4th 

Cir. 2009). “The IRS is not given free rein, however: the 

taxpayer can rebut the presumption of correctness by proving, by 

a preponderance of the evidence, that the IRS’s income 

determination is arbitrary or erroneous.” Id. Williams has not 

rebutted the presumption in this case. For these reasons, we 

find that Williams is liable for tax on the corpus of the ALQI 
22

accounts, in addition to the passive income earned on those 

funds.9

IV.

Williams’ final argument on appeal is that the Tax Court 

erred in limiting his charitable contribution deductions to his 

basis in the art donated through Abbey Art, rather than allowing 

deduction of the art’s fair market value. Williams contends 

that the Tax Court erroneously found the Art Purchase Agreement 

to be an option contract, ignoring both the mutual understanding 

of the parties and the plain language of the Agreement. For the 

reasons that follow, we find Williams’ arguments unavailing. 

A.

Generally, a deduction is allowed for any charitable 

contribution for which payment is made within the taxable year. 

26 U.S.C. § 170(a)(1). The deduction is allowable, however,

only if the contribution is “verified under the regulations 

prescribed by the Secretary.” Id. When a contribution involves

property other than money, the amount of the charitable

contribution is the fair market value of the property at the 

 9 Given this holding, we see no reason to address Williams’ 

challenge to the validity of the Controlled Foreign Corporation 

regulations, as this argument only becomes relevant if the 

consulting fee income were attributable to ALQI. 
23

time the donation is made. 26 C.F.R. § 1.170A-1(c)(1). This 

rule is modified in situations involving donations of 

appreciated property. In those circumstances, the amount of any 

charitable contribution is reduced by the amount of gain that 

would not have qualified as long-term capital gain if the 

property had been sold by the taxpayer at its fair market value, 

determined as of the time of the contribution. 26 U.S.C. § 

170(e)(1)(A). In other words, section 170(e)(1)(A) permits the 

deduction of long-term capital gain appreciation but if the 

property is not long-term capital gain property, the charitable 

contribution deduction is limited to the taxpayer’s basis at the 

time of the contribution. Long-term capital gain is defined as 

gain from the sale or exchange of a capital asset10 held for more 

than one year. 26 U.S.C. § 1222(3). The taxpayer bears the 

burden of proving he is entitled to a charitable deduction in 

the amount of the fair market value of the donated property. 

See INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 84 (1992). 

B.

The issue to be resolved is whether Williams held the art 

in question for more than one year before donating it. “In 

common understanding to hold property is to own it. In order to 

 10 The art in question qualifies as a capital asset pursuant 

to 26 U.S.C. § 1221(a).
24

own or hold one must acquire. The date of acquisition is, then, 

that from which to compute the duration of ownership or the 

length of holding.” McFeely v. Comm’r, 296 U.S. 102, 107 

(1935). Williams argues that he acquired the art when he 

executed the Art Purchase Agreement in December 1996. The 

Commissioner asserts that Williams did not acquire the art until 

he paid for it, which in each case was within a year of the 

donation.

In determining the date of acquisition of property:

[N]o hard-and-fast rules of thumb can be used, and no 

single factor is controlling. “Ownership of property 

is not a single indivisible concept but a collection 

or bundle of rights with respect to the property;”

consequently, we must examine the transaction in its 

entirety. The date of the passage of legal title is 

not the sole criteria; the date on which “the benefits 

and burdens or the incidents of ownership of the 

property” were passed must also be considered, and the 

legal consequence of particular contract provisions 

must be examined in the light of the applicable State 

law.

Hoven v. Comm’r, 56 T.C. 50, 55 (1971) (internal citations 

omitted). 

The Tax Court did not look to state law in resolving this 

issue, however, and the Commissioner insists that state law has 

no applicability here. Both the Commissioner and the Tax Court

cite United States v. Heller, 866 F.2d 1336, 1341 (11th Cir. 

1989), for the proposition that “federal tax law disregards 

transactions lacking an economic purpose which are undertaken 
25

only to generate a tax savings. Federal tax law is concerned 

with the economic substance of the transaction under scrutiny 

and not the form by which it is masked.” Indeed, the Fifth 

Circuit has recognized that “[t]he application and 

interpretation of the Internal Revenue Code is a matter of 

federal law. The form of a document and its effect under state 

law are therefore not controlling in these federal 

determinations.” Deshotels v. United States, 450 F.2d 961, 964 

(5th Cir. 1972). The Fifth Circuit found it appropriate to look

to Louisiana law in Deshotels, however, in order to understand

the agreement at the heart of the parties’ dispute. Id. 

Williams argues we should do the same here and look to New York 

law11 in interpreting the Art Purchase Agreement, and he cites to

our decision in Volvo Cars of North America, LLC v. United 

States, 571 F.3d 373 (4th Cir. 2009), in support of that 

contention. 

In that case, Volvo had written-off excess inventory that 

it purportedly sold to a warehouser pursuant to the terms of a 

1983 contract, thereby reducing its taxable income for the 1983 

tax year. The IRS found these were not bona fide sales because 

Volvo retained control over the inventory even after it was 

 11 The parties do not dispute that if state law is to be 

invoked in the context of this analysis, New York law applies

per the terms of the Agreement. 
26

transferred. Volvo brought suit seeking a refund of the tax 

paid due to the disallowed write-offs, and the jury returned a 

verdict in Volvo’s favor. The district court entered judgment 

notwithstanding the verdict as to transfers of inventory made 

prior to execution of the 1983 contract, finding as a matter of 

law that the contract did not address inventory previously 

transferred to the warehouser. Volvo appealed. In determining 

whether the 1983 contract covered inventory previously 

transferred, we looked to state law “because ‘in the application 

of a federal revenue act, state law controls in determining the 

nature of the legal interest which the taxpayer had in the 

property.’” Id. at 378 (citing United States v. Nat’l Bank of 

Commerce, 472 U.S. 713, 722 (1985)). As the Supreme Court 

stated in National Bank, “[t]his follows from the fact that the 

federal statute ‘creates no property rights but merely attaches 

consequences, federally defined, to rights created under state 

law.’” 472 U.S. at 722 (quoting United States v. Bess, 357 U.S. 

51, 55 (1958)). 

To be sure, the economic substance of the transaction is 

the primary concern in the instant case. We need not accept

that the parties contracted for the sale of art simply because 

their signatures appear on a document entitled “Art Purchase 

Agreement.” Even if we look to state law to help determine the 

nature of the legal interest conveyed by the Agreement, as 
27

Williams urges us to do, we remain convinced that the Tax Court 

correctly determined that Williams’ charitable contribution 

deduction is limited to his basis in the donated art.

C.

The Tax Court examined the rights, duties and obligations 

the parties assumed when they executed the Art Purchase 

Agreement and concluded that by signing the Agreement and paying 

$3,600 up front, Williams purchased an option to buy art. Under 

New York law, “whether an agreement is a binding contract or an 

option is to be determined like any other issue of contract 

interpretation from all four corners of the agreement.” 

Interactive Prop. Corp. v. Blue Cross & Blue Shield, 450 

N.Y.S.2d 1001, 1002 (1982). Although a “contract for sale” can 

encompass both a present sale of goods and a contract to sell 

goods at a future time, a “sale” requires the passing of title 

from the seller to the buyer for a price, N.Y. U.C.C. Law § 2-

106, and “[t]itle to goods cannot pass under a contract for sale 

prior to their identification to the contract,” id. at § 2-

401(1). Indeed, “title passes to the buyer at the time and 

place at which the seller completes his performance with 

reference to the physical delivery of the goods . . . even 

though a document of title is to be delivered at a different 

time or place. . . .” Id. at § 2-401(2). 
28

An option contract, on the other hand, “is an agreement to 

hold an offer open; it confers upon the optionee, for 

consideration paid, the right to purchase at a later date.” 

Kaplan v. Lippman, 75 N.Y.2d 320, 324 (1990). “[U]ntil the 

optionee gives notice of his intent to exercise the option, the 

optionee is free to accept or reject the terms of the option.” 

Id. at 325. The contract ripens into a fully enforceable 

bilateral contract once the optionee gives notice of his intent 

to exercise the option in accordance with the agreement. Id.

The following leads us to believe the Tax Court correctly 

concluded that the Art Purchase Agreement is not a contract for 

sale that triggered the holding period required for long-term 

capital gain.12

1.

Title to the art did not pass upon execution of the 

Agreement in 1996, and delivery was not made. In fact, the art 

in question was not even identified in the Agreement. Rather,

“[t]he specific items purchased by the Client [were to] be 

described in written appraisals” and given to Williams once he

received physical possession of the art or donated it to a 

 12 We note that paragraph 12 of the Agreement provides that 

it is “the entire agreement between the respective parties 

hereto and there are no other provisions, obligations, 

representations, oral or otherwise, of any nature whatsoever.”
29

charitable institution. This could not occur, pursuant to the 

Agreement’s terms, until Williams paid the balance of the 

purchase price. While he asserts art was segregated for him in 

Abbey Art’s warehouse, Williams does not have an inventory of 

this segregated art, nor did he ever visit the warehouse to view 

it. 

2.

The Agreement provides that $3,600, five percent of the

total agreed purchase price of the art ($72,000), was to be paid 

up front and would be held in escrow pending satisfaction of the

Agreement’s provisions. The balance of the purchase price was

due at the time Williams received physical possession of the art 

or when it was donated, an act which was to occur in the future 

but at no specified time. 

Aside from the initial $3,600 payment, Williams had no 

obligation to perform under the contract. Williams was not

required to follow through with the purchase, and Abbey Art had 

no right to require specific performance of the full balance of 

the purchase price. Its sole remedy for Williams’ non-payment

was to retain as liquidated damages any monies that Williams had

paid towards the purchase of the art and to reclaim ownership 

over it. 

Indeed, Abbey Art bore all of the expense and all of the 

risk in this transaction. It was responsible for selecting and 
30

paying the appraiser, packaging and shipping the art, and 

completing all the necessary paperwork. Even in storing the 

art, Abbey Art bore the risk of loss. See N.Y. U.C.C. Law § 2-

509. Moreover, if the fair market value of the art fell below 

what was reflected in the appraisal, reducing the tax benefit to 

Williams, Abbey Art was required to refund Williams the 

percentage of his dollars paid for each dollar in reduction of 

the fair market value. 

3.

The Agreement provides that the total purchase price of the 

art would not exceed 24% of the cumulative appraised fair market 

value of the art purchased.13 The purchase price set forth in 

the agreement is $72,000, which is 24% of $300,000. Thus, the 

Agreement contemplates $300,000 worth of art would be purchased. 

Yet the fair market value of the first art donation Williams 

made ($425,625) far exceeded that amount. Arguably, even if 

title did pass for $300,000 worth of art upon execution of the 

Agreement in 1996, it still would not account for the extra 

$125,000 worth of art donated to Drexel University in 1997, the 

$250,525 worth of art donated to Florida International 

 13 It goes without saying that the appreciation guaranteed 

to Williams by virtue of this Agreement is suspect, to say the 

least. The Commissioner has not challenged the valuation of the 

art, however, and that issue is not before us.
31

University in 1999, and the $98,900 worth of art donated to 

Drexel in 2000.

D.

In sum, the 1996 Art Purchase Agreement was not a contract 

for sale. Therefore, Williams’ holding period for purposes of 

the long-term gain calculation did not begin until he paid for 

and acquired a present interest in the art. In each instance, 

this occurred less than one year from the date of his donation. 

Williams paid for the December 1997 donation to Drexel 

University in December 1997. He paid for the December 1999 

donation to Florida International University in December 1999. 

And he paid for the October 2000 donation to Drexel in full in 

December of that same year. For these reasons, we find the Tax 

Court did not err in concluding that Williams’ charitable 

contribution deduction is limited to his basis in the art. 

V.

Because Williams has not met his burden of proving the 

Commissioner’s notice of deficiency is erroneous, we affirm.

AFFIRMED