T.C. Mem o. 2 01 4- 12

UNITED STAT ES TAX COURT

BOBBI E EPHREM a.k .a. BOBBY EPHREM AND DON NA SMITH-EPHREM , Pet it io ne rs v. COM MIS SIONER OF INTERNAL REVENUE , Res po nd en t

Doc ke t No . 13 76 -0 7. Fi le d J anuary 14 , 20 14
.

Mar c Dav idBla ckm an , forpe ti ti on ers . Kell ey Andrew Bl ai ne , for

res po nd en t.

MEMORANDUM OPINION KROUPA, Ju dg e: Thi s m at te r is be fo re the Co urt o n re sp on de nt ’s m ot io n fo r pa rti al su m

m ary jud gm en t fi le d p ur su an t t o R ul e 1 21
. Res po nd en t d et erm in ed

1
All Ru le refe ren ces are t o the Tax C ourt Rul es of P ract ic e an d P ro cedur e, 1 an d a ll sec ti on refe ren ces are t o the Int ern al Rev enue Co de , as a m en de d andin (co nt in ue d...)- 2 -

[* 2] de fic ie nc ie s i n p et it io ne rs ’ Fed eral in co m e ta x, ad di ti on s t o t ax un de r se ct io n 66 51 (a)( 1) an d fr au d p en al ti es un de r se ct io n 6 66 3 fo r 20 04 an d 2 00 5 (years at is su e). The s ol e is su e we are ask edto de ci de no w is whet he r anadmis si on by

2 pe ti ti on er h us ba ndina pr io r cri m in al pro ceed in g e st ab li sh es as afactinth is civ il pr oc eed in g the pre ci se am ou nt s b y whi chpe ti ti on ers un de rs ta te d the ir n etin co m e fo r th e y ears at i ss ue . W e h ol d tha t i t d oe s n ot . Bac kg ro un d The fact s h av e b eenass um edfor pu rp os es of r es ol vi ng th e p en di ng m ot io n. Pet it io ne rs res id edinPo rtl an d, Ore go n, atth e ti m e th ey fil edth e p et it io n. I. Pri or Cri m in al Pro ceed in gs Pet it io ne r hu sb an d h adbe eninth e b us in es s o f se ll in g u se d c ars (bu si ne ss ) du rin g the y ears lea di ng up to an d i nc lu di ng 20 06 . In l at e 2 00 6 In te rn al Rev enue Serv ic e Cri m in al Inv es ti ga ti on Div is io n s pe ci al ag en ts (ag en ts ) ex ecu te d s earc h
warrant s o n p et it io ne rs ’ ho m e an d b us in es s l oc at io ns . The ag en ts sei zedm or e
(...co nt inue d) 1 effe ctforth e y ears at i ss ue , un le ss othe rwis e in di cat ed
. Fo r 20 04 res po nd en t d et erm in eda $5 23 ,98 6 d efi ci en cy inpe ti ti on ers ’ 2 in co m e ta x, a $ 13 1,2 77 sec . 66 51 (a)( 1) ad di ti on to tax an d a$3 92 ,99 0 s ec. 6 66 3 frau d p en al ty. Fo r 20 05 res po nd en t d et erm in eda $6 13 ,63 1 d efi ci en cy in pe ti ti on ers ’ in co m e ta x, a $ 15 3,4 46 sec . 66 51 (a)( 1) ad di ti on to tax an d a$4 60 ,22 3 se c. 66 63 frau d p en al ty. All am ou nt s ar e ro un de d t o the ne ares t d ol lar.- 3 -

[* 3] th an$2 .7 m il li on incas h fr om pe ti ti on ers . The ag en ts als o s ei zeda tr ov e o f bu si ne ss reco rd s. Sh ortl y th erea fte r, res po nd en t m ad e a jeo pa rdy ass es sm en t o n th e se iz edcas h. Th e Dis tri ctCo urt fo r th e Dis tri ctof Ore go n fo un d the jeop ardy
as se ss m en t t o b e unr eas on ab le , ho wev er, an d re qu ire d re sp on de ntto return the
se iz edcas h. Pet it io ne rs subm it te d F ed eral in co m e ta x re tu rn s fo r th e y ears at i ss ue inlat e 20 06 . As pr ev io us ly not ed , res po nd en t d et erm in edde fic ie nc ie s i n p et it io ne rs ’ Fed eral in co m e ta x, ad di ti on s t o t ax an d fr au d p en al ti es forth e y ears at i ss ue . Res po nd en t the n i ss ue d the de fic ie nc y no ti ce t o p et it io ne rs for

th e y ears at i ss ue . Pet it io ne rs ti m el y

fil eda pe ti ti onforred et erm in at io n o f res po nd en t’s de te rm in at io ns inth e d efi ci en cy no ti ce. The de fic ie nc y

pro ceed in gs were s tay ed fo r a num be r of y ears , ho wev er, b ecau se of the on go in g c riminal in ve st ig at io n rel at in g t o p et it io ne r hu sb an d’s b us in es s. II. Pl ea Ag reem en t In20 10 th e U.S. Att orne y ’s Offic e (US Atto rn ey ) fi le d an i nf orm at io n ch arg in g p et it io ne r hu sb an d wi th on e co un t o f fi li ng a fal se tax return i n v io la ti on of sec ti on 72 06 (1 ). In r es po ns e, pe ti ti on er h us ba ndhi redCathryn M atth ews , a fo ren si c acc ou nt an t, t o c al cu la te hi s i nc om e an d t ax li ab il it ie s fo r th e y ears at is su e. Ms . Mat th ews cal cu late d tha t the bu si ne ss su ffer eda ne t l os s fo r 20 04 an d- 4 -

[* 4] ha d n o t ax li ab il ity . Ms. M at th ews furth er ca lc ul at edth atth e b us in es s h ad $3 28 ,52 7 o f ta xabl e in co m e fo r 20 05 an d a$1 09 ,55 5 t ax li ab il ity . In20 11 th e US Att orne y

an d p et it io ne r hu sb an d e nt eredin to th e p le a ag reem en t, wh ic h c lo se d the cri m in al in ve st ig at io n re la ti ng to pe ti ti on er h us ba nd ’s bu si ne ss . Parag rap h 5 of the pl ea ag reem en t co nc ern s cr im in al sen te nc in g fa ct or s
an d c on ta in s the op erat iv e la ng ua ge forpu rp os es of the pe nd in g m ot io n. The parti es ag reedun de r pa rag rap h 5 .a. of th e p le a ag reem en t tha t the US Att orne y co ul d e st ab li shth atpe ti ti on er h us ba ndun de rs ta te d h is ne t i nc om e b y $5 10 ,08 5 fo r 20 04 an d $ 50 5,9 40 for 20 05 . The p art ie s fu rth er ag reedun de r pa rag rap h 5 .b. tha t the tax lo ss for purp os es of s en te nc in g was $1 09 ,00 0. 3 Pet it io ne r hu sb an d p ai d re sp on de nt$1 09 ,00 0 c on si st en t wi th th e p le a ag reem en t at th e ti m e h e was sen te nc edto pri so n. III. Pet it io n andAns wer As p rev io us ly not ed , res po nd en t i ss ue d the de fic ie nc y no ti ce fo r th e y ears at is su e an d p et it io ne rs ti m el y fil eda pe ti ti on forred et erm in at io n. Re sp on de ntno w
m ov es forparti al su m

m ary jud gm en t.

The tax lo ss of $ 10 9,0 00 res ul te d i n acri m in al off en se lev el 16 with a 3 reduc ti on of thr ee l ev el s fo r acc ep tanc e o f res po ns ib il ity .- 5 -

[* 5] Dis cu ss io n I. Int ro du ct io n W e are ask edto de ci de whet he r pe ti ti on er h us ba nd ’s adm is si on ina pr io r cri m in al pro ceed in g tha t the US Att orne y co ul d e st ab li sh th athe un de rs ta te d h is
ne t i nc om e b y

$5 10 ,08 5 fo r 20 04 an d $ 50 5,9 40 for20 05 est ab li sh es as afactin th e p res en t ci vi l p ro ceed in g the pre ci se am ou nt s b y whi chpe ti ti on ers un de rs ta te d th ei r ne t i nc om e fo r th e y ears at i ss ue . Res po nd en t u rg es th is Co urt t o c on cl ud e th atpe ti ti on er h us ba nd ’s adm is si on do es jus t tha t. Pet it io ne rs co un te r th atth ere 4 are i ss ue s o f fac t re ga rd in g the am ou nt s b y whi chpe ti ti on ers un de rs ta te d the ir in co m e fo r th e y ears at i ss ue an d, the refo re, the pe nd in g m ot io n m us t b e d en ie d. 5 W e ag ree wi th pe ti ti on ers . II. St an da rdof R ev ie w W e n ow co ns id er the st an da rdof r ev ie w forgra nt in g am ot io n fo r parti al
su m m ary jud gm en t. Su m

m ary jud gm en t i s i nt en de d t o e xp ed it e li ti ga ti on an d
av oi d u nn eces sary

an d e xp en si ve tri al s. See , e.g., FPL Grp ., Inc . & Subs . v.

Res po nd en t av oi ds us in g the us ua l co ll at eral est op pe l ar gu m en t i n fa vo r of 4 anarg um en t tha t ap pe ars to be on e o f it s cl os e rel at iv es . Pet it io ne rs als o arg ue th atis su e p recl us io n i s i napp li cab le to th is is su e. 5 Res po nd en t h as no t ar gu edth atis su e p recl us io n app li es . W e th eref or e n eedno t an d d o n otad dr es s p et it io ne rs ’ is su e p recl us io n arg um en t.- 6 -

[* 6] Co m m is si on er, 1 16 T.C. 73 , 74 (20 01 ). A m ot io n fo r su m m ary jud gm en t o r pa rti al su m

m ary jud gm en t wi ll be gra nt edif the pl ead in gs an d o th er ac cep tabl e
m at eri al s, t og ethe r with the affi da vi ts or d ecl arat io ns , if an y , sh ow tha t the re i s n o ge nu in e d is pu te as t o any m at eri al factan d tha t a d eci si on m ay be ren de redas a
m at te r of law. See Ru le 12 1( b) ; El ec. Art s, In c. v. Co m m is si on er, 1 18 T.C. 22 6, 23 8 (2 00 2) . The m ov in g p arty be ars th e b ur de n o f pr ov in g tha t n o g enui ne di sp ut e of m at eri al factex is ts an d tha t i t i s en ti tl edto jud gm en t as a m at te r of law. See , e.g ., Rau en ho rs t v . Comm is si on er, 1 19 T.C. 15 7, 1 62 (20 02 ). Summ ary jud gm en t is no t a s ub st itut e fo r tr ia l an d s ho ul d n otbe us edto res ol ve di sp ut es ov er fa ctua l is su es . See Waxl er v . Commis si on er, T.C. Mem o. 1 97 9- 42 5 (c it in g C ox v. Am
. Fi d. & Cas . Co., 2 49 F.2d61 6 (9 th Cir . 19 57 )). III. Adm is si on Reg ard in g Un de rs ta te m en t o f NetInc om e W e n ow co ns id er wh ethe r pe ti ti on er h us ba nd ’s pl ea ag reem en t ad m is si on
es tabl is he s the pre ci se am ou nt s b y whi chpe ti ti on ers un de rs ta te d the ir n etin co m e fo r th e y ears at i ss ue . A taxpa y er’s adm is si on ina pl ea ag reem en t fr om a pr io r cri m in al pro ceed in g a s t o the pre ci se am ou ntby whi chhe or s he un de rs ta te d n et in co m e co ns ti tu te s s tro ng ev id en ce o f th e und ers ta te m en t am ou nt . It d oe s n ot , ho wev er, es tabl is h tha t the re i s n o i ss ue of f actas t o the pre ci se un de rs ta te m en t- 7 -

[* 7] am ount . See Us ci ns ki v. Co m m is si on er, T.C. Mem o. 2 00 6- 20 0; Liv in gs to n v . Co m m is si on er, T.C. Mem o. 2 00 0- 12 1. Res po nd en t co nc ed es th atpe ti ti on ers are n otco ll at eral ly esto pp edfro m ch al le ng in g the pre ci se am ou nt s b y whi chth ey

un de rs ta te d the ir n etin co m e fo r th e y ears at i ss ue . Res po nd en t n ev erthe le ss co nt en ds th atwe sh ou ldgra ntparti al
su m m ary jud gm en t t o e st ab li sh th e p reci se am ou nt s b y whi chpe ti ti on ers
un de rs ta te d the ir n etin co m e fo r th e y ears at i ss ue . Res po nd en t re li es onpe ti ti on er hu sb an d’s p le a ag reem en t ad mis si on th atth e Gov ern m en t co ul d e st ab li sh th athe
un de rs ta te d h is ne t i nc om e b y $5 10 ,08 5 fo r 20 04 an d $ 50 5,9 40 for20 05
. Pet it io ne rs co nt en d tha t the st at em en ts inth e p le a ag reem en t ar e m erel y a reci tati on of wh atth e Gov ern m en t co ul d e st ab li sh bu t ar e n otanim pl ic itor
ex pl ic itag reem en t as to th e co rrec tn es s o f th e p reci se am ou nt s. Pet it io ne rs furth er arg ue th atth e und ers tate m en t am ou nt s i n p arag rap h 5 .a. can no t b e co rrec t b ecau se th ey wou ldno t re su ltinth e ta x l os s amoun t i n p arag rap h 5 .b. Pet it io ne rs co nt in ue th atth e ta x l os s o f $1 09 ,00 0 i n p arag rap h 5 .b. was th e rea l am ou ntat i ss ue inth e cri m in al cas e b ecau se itha d the po te nt ia l t o a ffec t the len gt h o f pe ti ti on er hu sb an d’s cr im in al sen te nc e. Pet it io ne r hu sb an d’s adm is si on inth e p rio r cri m in al pro ceed in g a s t o the
am ount s b y

whi chhe un de rs ta te d n etin co m e co ns ti tu te s s tro ng ev id en ce o f th e- 8 -

[* 8] un de rs ta te m en t am ou nt s. Itdo es no t, h owe ve r, es tabl is h tha t the re i s n o i ss ue of factas t o the pre ci se un de rs ta te m en t am ou nt s. See Usci ns ki v. Co m m is si on er, T.C. Mem o. 2 00 6- 20 0. Res ol vi ng , as we m

us t, al l d oubt s ag ai ns t re sp on de ntas the party m ov in g fo r pa rti al su m

m ary jud gm en t, we co nc lu de th atres po nd en t fa il edto carry hi s in it ia l b ur de n t o s ho w th atth ere i s n o triabl e is su e o f fac t wi thres pe ctto th e pr eci se am ount s b y

whi chpe ti ti on ers un de rs ta te d the ir n etin co m e fo r th e y ears at is su e. See i d. Re sp on de nt ’s m ot io n wi ll be de ni ed
. Inreac hi ng th es e h ol di ng s, we h av e co ns id eredall of the parti es ’ arg um en ts , an d, t o the ex te ntno t ad dr es se d, we co nc lu de th atth ey are m oo t, i rrel ev an t o r witho utm eri t. To re fle ctth e fo reg oi ng , An ap pr op ria te ord er wi ll be is su ed
.