T.C. Memo. 1998-375

UNITED STATES TAX COURT

M.J. WOOD ASSOCIATES, INC., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

LONNIE C. CHRISTENSEN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent 

Docket Nos. 10978-94, 11982-94. Filed October 15, 1998.

Ps timely filed petitions with the Tax Court.

Subsequently, Ps became defendants in a criminal tax

case before the U.S. District Court for the District of

Nevada. In the criminal tax case, Ps were ordered to

pay fines and make restitution of a total amount of

civil tax liability to the Internal Revenue Service for

tax years 1972 through 1993 (which include the tax

years in issue in this civil tax case). Ps moved for

summary judgment here, arguing that the doctrines of

res judicata and collateral estoppel obviate the need

for this Court to consider R's deficiency

determinations. Ps further argue that the District

Court's criminal case restitution orders constitute

adjudications of the amounts of tax, interest, and

penalties owed by Ps. R contends that Ps are not

entitled to summary judgment because jurisdiction to
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determine the amounts of Ps' petitioned civil income

tax deficiencies lies solely with the Tax Court.

Held: Ps' choice of the Tax Court to litigate their

civil tax liabilities caused the Tax Court to acquire

exclusive jurisdiction to decide the amounts of civil tax

liabilities for the taxable years petitioned. Held,

further, The District Court's restitution order does not

have preclusive effect under the doctrine of either res

judicata or collateral estoppel with respect to any portion

of the civil tax liabilities before the Tax Court.

William A. Cohan, for petitioners.

Paul K. Voelker, for respondent.

MEMORANDUM OPINION

GERBER, Judge: We consider in these consolidated cases

petitioners' motion for summary judgment. Petitioners contend

that the instant action is barred by the doctrines of res

judicata and collateral estoppel because restitution orders,

which were part of the judgment in a criminal proceeding,

constitute an adjudication of the amounts of tax, interest, and

penalties owed by petitioners. Respondent contends that

petitioners are not entitled to summary judgment because

jurisdiction to determine the petitioned civil income tax

deficiencies lies solely with the Tax Court.

Background

A statutory notice of deficiency was mailed to petitioner

Lonnie C. Christensen (Mr. Christensen) and his then wife, Shauna

S. Christensen, on April 14, 1994. Respondent determined an
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1 Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years under

consideration, and all Rule references are to this Court's Rules

of Practice and Procedure.

income tax deficiency of $486,399 and a section 6662(b)(2)1

penalty of $97,280 for the Christensens' 1990 taxable year. A

separate statutory notice of deficiency was mailed to petitioner

M.J. Wood Associates, Inc. (M.J. Wood), on April 14, 1994,

determining an income tax deficiency of $94,640 and a section

6662(b)(2) penalty of $18,928 for the fiscal year ending

September 30, 1990. Petitions were timely filed in both cases. 

Thereafter, petitioners became defendants in the criminal

case captioned United States v. Lonnie C. Christensen Et Al.,

docket No. COMMISSIONER-S-95-74-LDG (LRL) (D. Nev. 1997), which

was commenced on April 7, 1997. By the parties' choice, the

civil income tax cases pending before this Court were generally

inactive during pendency of the criminal proceedings.

Petitioners' criminal indictments were issued on or about

January 17, 1996. Petitioners were charged with conspiracy,

beginning in 1972 and continuing through February 1994, to

defraud the United States for the purpose of obstructing the

assessment and collection of individual and corporate income

taxes. In addition, Mr. Christensen was charged with willfully

filing false individual income tax returns for 1988, 1989, and

1990 under section 7206(1), of which he was found guilty. Mr.
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Christensen was also found guilty of conspiracy, obstruction of

justice, and mail fraud. The corporation was found guilty of

conspiracy and aiding and assisting in the preparation of a false

corporate tax return for the fiscal year ending September 30,

1989.

On October 29, 1997, the U.S. District Court for the

District of Nevada (District Court) pronounced sentence on

petitioners. Petitioners were ordered to pay fines and make

restitution of civil tax liabilities to the Internal Revenue

Service for the tax years 1972 through 1993 (which years included

the years in issue before this Court). Specifically, the

District Court ordered the following criminal monetary penalties

and restitution of civil tax liability:

Lonnie C. Christensen M.J. Wood 

Fine: $150,000 Fine: $1,000,000

Restitution: $3,794,773 (IRS)1 Restitution: $3,794,773 (IRS)

1This figure represents $1,707,573 in income tax

deficiencies and $2,087,200 in interest. The restitution figures

were expressed as a total amount jointly and severally due by the

individual and corporate defendants. The District Court did not

specify whether the amounts are attributable to a particular

defendant/taxpayer or taxable year.

The District Court further held that the defendants were jointly

and severally liable for restitution, but each defendant was

individually liable for the fine.
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Discussion

Rule 121(b) provides that summary judgment may be rendered

if no genuine issue exists as to any material fact and a decision

may be rendered as a matter of law. Naftel v. Commissioner, 85

T.C. 527, 529 (1985). The moving party bears the burden of

proving that no genuine issue of material fact exists. Marshall

v. Commissioner, 85 T.C. 267, 271 (1985). The facts are viewed

in a light most favorable to the nonmoving party. Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).

Petitioners raise the contention that the instant action

before the Tax Court is barred by the doctrines of res judicata

and collateral estoppel because the District Court adjudicated

the amounts of tax, interest, and penalties owed by petitioners

in the restitution orders incorporated in the judgment of the

criminal proceeding. Respondent argues that petitioners are not

entitled to summary judgment because petitioners chose the Tax

Court for a redetermination of respondent's determination.

We do not question the jurisdiction or authority of the

District Courts to order defendants to make restitution of their

civil income tax liabilities. Federal District Courts have

jurisdiction over criminal violations of the Federal income tax

laws. United States v. Spurgeon, 671 F.2d 1198, 1199 (8th Cir.

1982). Petitioners were ordered to pay restitution to the
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Internal Revenue Service under the Victim and Witness Protection

Act (VWPA), 18 U.S.C. sec. 3663 (1994). Although the VWPA does

not address restitution for a crime under title 26, see United

States v. Gottesman, 122 F.3d 150, 151 (2d Cir. 1997), it

generally provides for restitution for any violation of title 18

criminal offenses, see United States v. Stout, 32 F.3d 901, 905

(5th Cir. 1994). In addition to title 26 violations, petitioners

were convicted of conspiracy under 18 U.S.C. section 371.

The jurisdiction of the Tax Court derives from section 7442

and is statutory. Stamm Intl. Corp. v. Commissioner, 84 T.C.

248, 253 n.12 (1985). A taxpayer has two basic options after

receiving a notice of deficiency. One is to petition the Tax

Court before payment of the tax, and the other is to pay the tax

and sue for a refund in a District Court or in the U.S. Court of

Federal Claims. Sec. 7422(a); Naftel v. Commissioner, supra at

533. Once taxpayers choose to litigate their claims in a

particular forum, with limited exception, see sec. 7422(e),

exclusive jurisdiction is acquired over the civil tax liability

by the chosen forum, Naftel v. Commissioner, supra; Dorl v.

Commissioner, 57 T.C. 720, 721 (1972). The Tax Court acquires

jurisdiction if a taxpayer timely files a petition. Naftel v.

Commissioner, supra.
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Petitioners timely filed their petitions with this Court

almost 3 years before the commencement of the criminal proceeding

in District Court. The filing of the petition in the Tax Court

deprives other possible Federal forums of civil tax jurisdiction

for years petitioned to the Tax Court. United States v. Wolf,

238 F.2d 447, 449 (9th Cir. 1956); Dorl v. Commissioner, supra. 

The fact that the cases before the Tax Court were inactive during

pendency of the criminal proceedings does not alter this result. 

It is the taxpayer's action in filing a valid petition in the Tax

Court, and not any action taken by the Court, that is

determinative. United States v. Wolf, supra. There is nothing

in the VWPA that would change that result. Moreover, the VWPA

provides that a restitution order will be reduced by a later

recovery in any Federal civil proceeding. See 18 U.S.C. sec.

3664(j)(2). More importantly, the District Court did not

adjudicate the amounts of petitioners' civil tax liabilities for

the years pending before this Court.

Petitioners contend, however, that the doctrine of either

res judicata or collateral estoppel would operate to bar retrial

of or estop respondent with respect to the liabilities before

this Court. These contentions are not supported in the record. 

The District Court did not adjudicate the amount of petitioners'
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civil tax liabilities or make ultimate findings of fact upon

which estoppel could be grounded. 

The doctrine of res judicata is founded in the public policy

that litigation must end and that the result should bind those

who have contested the issue. Shaheen v. Commissioner, 62 T.C.

359, 363 (1974). Generally, res judicata applies to repetitious

suits involving the same cause of action. Commissioner v.

Sunnen, 333 U.S. 591, 597 (1948). The rule of res judicata

provides:

that when a court of competent jurisdiction has entered

a final judgment on the merits of a cause of action,

the parties to the suit and their privies are

thereafter bound “not only as to every matter which was

offered and received to sustain or defeat the claim or

demand, but as to any other admissible matter which

might have been offered for that purpose.” * * * [Id.

(quoting Cromwell v. County of Sac, 94 U.S. 351, 352

(1876)).]

The doctrine of res judicata applies only to issues determined by

a court of competent jurisdiction. Montana v. United States, 440

U.S. 147, 153 (1979). Therefore, if the District Court lacked

jurisdiction to or did not adjudicate petitioners' civil tax

liabilities for the years at issue, the principles of res

judicata do not apply.

The doctrine of collateral estoppel, or issue preclusion,

provides that once an issue of fact or law is “actually and

necessarily determined by a court of competent jurisdiction, that
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determination is conclusive in subsequent suits based on a

different cause of action involving a party to the prior

litigation.” Id. The preclusive effect of a prior court’s

factual determination depends on whether the prior court had

jurisdiction to and did determine the fact at issue. See Brotman

v. Commissioner, 105 T.C. 141, 153 (1995). 

For collateral estoppel to apply, resolution of the disputed

issue must have been essential to the prior decision. Meier v.

Commissioner, 91 T.C. 273, 282 (1988). Mr. Christensen was found

guilty of willfully filing false income tax returns for 1988,

1989, and 1990 in violation of section 7206(1). To sustain its

burden of proof under section 7206(1), the Government must

establish that the defendant willfully made a false statement on

his return.

The indictment did not charge Mr. Christensen or M.J. Wood

with any specific tax liability or amount. Instead, Mr.

Christensen was charged with receiving a specific item of income

that he knowingly failed to report on his 1990 return. 

Furthermore, M.J. Wood’s conviction for aiding and assisting in

the preparation of a false corporate tax return was for the tax

year ending September 30, 1989, not September 30, 1990, the year

at issue before this Court. Establishing petitioners’ specific

tax liabilities is not an element of section 7206(1) or the other
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criminal charges, and consequently no specific income tax

liabilities needed to be determined. See Hickman v.

Commissioner, T.C. Memo. 1997-566 (adjudication of a taxpayer’s

liability was not essential to a conviction under section 7203;

therefore, a prerequisite to the application of collateral

estoppel was not satisfied). 

As discussed above, under section 7442, this Court acquired

exclusive jurisdiction to adjudicate petitioners’ civil tax

liabilities for the years that were petitioned. More

importantly, the resolution of petitioners’ civil tax liabilities

was not essential to the District Court’s judgment, and the

amounts of petitioners' civil tax liabilities were not

specifically litigated or adjudicated in the criminal proceeding. 

Because the District Court did not decide the specific amounts of

petitioners' civil tax liabilities, neither res judicata nor

collateral estoppel applies. 

Petitioners also argue that the Government cannot be

permitted to recover twice on the same tax liability. This Court

has jurisdiction to determine whether or not a deficiency or

overpayment exists. Should it ultimately be determined that

petitioners have made payments in excess of any redetermined tax

liability, this Court has jurisdiction to decide the correct

amount of any overpayment in the taxable years before the Court. 
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Sec. 6512(b). That is so whether payments were made under the

District Court's restitution order or for any other reason.

An order will be issued

denying petitioners' motion for

summary judgment.