T.C. Mem o. 2 01 4- 61

UNITED STAT ES TAX COURT
MATT L. SEIFFERT, Pet it io ne r v. COM MIS SIONER OF INTERNAL REVENUE , Res po nd en t *

Doc ke t No . 93 79 -1 0. Fil edApri l 7 , 20 14
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Geo rg e W. Co nn el ly, Jr ., for p et it io ne r. SaraW . Dalt on , forres po nd en t.

SUPPLEMENTAL MEMORANDUM OPINI ON KROUPA, Ju dg e: Thi s m at te r is be fo re the Co urt o n p et it io ne r’s m ot io n fo r reco ns id erat io n o f ou r fi nd in gs an d o pi ni on an d m ot io n t o v acat e o r rev is e o ur

Thi s o pi ni onsupp le m en ts ou r pr io r op in io n, Se iff ertv. Co m

m is si on er, T.C. * Mem o. 2 01 4- 4.-2
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[* 2] de ci si on inSei ffert v . Comm is si on er, T.C. Mem o. 2 01 4- 4 (S ei ffert I) . See Ru le s 1 61 an d 1 62
. W e co nc lu de d i n S ei ffert I tha t re sp on de ntco rrec tl y 1 di sa ll owe d b adde btde du ct io ns pe ti ti on er cl ai m edfor19 96 th ro ug h 2 00 1 (years at is su e). The m ot io ns foc us on th e le ga l an d fa ctua l s ig ni fic an ce o f anav ai labl e n et op erat in g l os s (NOL) fo r 20 00 (20 00 NOL) refere nc edina pl ea ag reem en t. Pet it io ne r arg ue d i n S ei ffert I tha t the pl ea ag reem en t p recl ud edres po nd en t fr om ch al le ng in g the 20 00 NOL. W e h el d tha t co ll at eral est op pe l d idno t es tabl is h the 20 00 NOL as a fac t b ecau se itwas n otaness en ti al ele m en t o f th e cri min al
co nv ic ti on to whi chth e p le a ag reem en t re la te d. Pe ti ti on er re gu rg it at es th is arg um en t i n the m ot io ns . He als o, fo r th e fi rs t t im e, arg ue s tha t the pl ea ag reem en t de m on st rat es th athe was e nt it le d t o b adde btde du ct io ns an d c on st itut es a factua l adm is si on . Thes e n ew arg um en ts are u nt im el y an d u ns up po rte d b y

factor l aw. W e wil l d en y

th e m ot io ns . Bac kg ro un d W e ad op t the fin di ng s o f fac t we m ad e in Sei ffert I. We su m m ari ze the factua l an d p ro cedur al ba ck gr ou ndbri efl y he re t o d eci de th e m ot io ns . Ru le refe ren ces are t o the Tax C ou rt Rul es of P ract ic e an d P ro cedur e, an d 1 se ct io n re fere nc es are t o the Int ern al Rev enue Co de ineffe ctforth e y ears at i ss ue , un le ss othe rwis e in di cat ed
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[* 3] Pet it io ne r worke d a s a s al ari edem pl oyee fo r two sm al l b us in es se s dur in g th e 1 99 0s . Peti ti on er cl ai m edth atth os e b us in es se s o wedhi m hund red s o f th ou sa nd s o f do ll ars rel at edto two unpr of it ab le ve ntur es . Tho se co m pa ni es ne ve r owe d p et it io ne r an yth in g. No r di d p et it io ne r ev er try to co ll ectth os e p ur

po rte d de bt s. Pet it io ne r pr ep aredan d fi le d F orm s 1 04 0, U.S. In di vi du al Inc om e Tax Return, fo r th e y ears at i ss ue . Peti ti on er cl ai m edhe was e xe m ptfro m withh ol di ng an d u se d the accrua l b as is of a cco un ti ng forth e y ears at i ss ue . Peti ti on er re po rte d wag e in co m e an d i nc om e fro m a co ns ul ti ng bu si ne ss forth e y ears at i ss ue . Pet it io ne r cl ai m edba d d eb t d educ ti on s fr om th e co ns ul ti ng bu si ne ss to off se t
m uc h o f hi s wag e in co m e fo r th e y ears at i ss ue . Tho se pu rp orte d b adde bt s st em m edfro m th e unp ro fit ab le ve ntur es . Res po nd en t ex am in edth e returns forth e y ears at i ss ue . Peti ti on er m ad e de cei tfu l s ta te m en ts an d p ro vi de d fabr ic at eddo cu m en ts du rin g the ex am in at io n. Res po nd en t re co m

m en de d p et it io ne r be cri m in al ly pro se cu te d. Th e Gov ern m en t in di ct edpe ti ti on er fo r fi li ng frau du le ntreturns an d p ro vi di ng m at eri al ly fals e do cu m en ta ti on . Pet it io ne r en te redin to a pl ea ag reem en t ac kn owl ed gi ng th athe was n ot en ti tl edto a ba d d eb t d educ ti on . Peti ti on er p le ad edgu il ty to fi li ng a fal se Fed eral-4
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[* 4] in co m e ta x re tu rnfor20 00 (on e o f th e y ears at i ss ue ). The p le a ag reem en t’s factua l b as is st at edfor

pu rp os es of c riminal pro se cu ti on th atpe ti ti on er h adan

“un us ed , ava il ab le , andpa rti al ly offs et ti ng [$1 02 ,10 8] ne t o pe rat in g l os s de du ct io n” for20 00 (th e 2 00 0 NOL). The pl ea ag reem en t d idno t re so lv e pe ti ti on er’s ci vi l t ax li ab il it ie s an d “ ex pr es sl y ex cl ud e[d ] an d re se rv e[d ] fo r subs eque ntciv il pro ceed in gs th e d et erm in at io n o f any tax , in te res t o r pe na lt ie s du e.” Res po nd en t i ss ue d t o p et it io ne r a d efi ci en cy no ti ce d is al lo win g the ba d d eb t de du ct io ns an d d et erm in in g tha t the civ il frau d p en al ty app li edag ai ns t p et it io ne r fo r th e y ears at i ss ue . Peti ti on er t im el y fil eda pe ti ti on . Peti ti on er al le ge d i n the pe ti ti on th athe ha d a dv an cedm on ey to th e b us in es se s an d the de bt s l at er p ro ve d
un co ll ect ib le . Peti ti on er d idno t al le ge inth e p et it io n tha t co ll at eral est op pe l
es tabl is he d the 20 00 NOL. Pet it io ne r reque st edth e tr ia l b e co nt in ue d fo urti m es . Peti ti on er’s co un se l th enm ov edto withd raw b ecau se pe ti ti on er s to pp edpa y in g h is leg al fees . W e de ni edth atm ot io n. Th e m at te r pr oc eed edto tri al
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[* 5] At tria l, re sp on de ntun de rs to odth atpe ti ti on er wo ul d n otreco ns tru ctth e 20 00 NOL. Pet it io ne r’s co un se l i nd ic at edth atpe ti ti on er was rel y in g o nl y on 2
co ll at eral est op pe l t o e st ab li sh th e 2 00 0 NOL whe n h e st at ed : [Pet it io ne r is ] no t g oi ng ba ckto reco ns tru ctth e en ti re NOL inth is cas e * * * All we are s ay in g i s tha t [f or ] 20 00 th e Gov ern m en t h as ag reeditwas [$ ]102 ,80 0, an d t o h av e itto be th atm uc h, s tarti ng in 20 00 , itha d t o b e th ere i n ‘99 an d s o fo rth ba ck . It’s a l eg al is su e we’ll o bv io us ly argu e o n b rie f, bu t tha t’s wh ere we’re co m in g fr om . The Co urt an d re sp on de ntpro ceed edwith tha t u nd ers tand in g. Pe ti ti on er ar gu ed
on bri ef tha t o nl y

co ll at eral est op pe l es tabl is he d the 20 00 NOL. Pet it io ne r di d n ot ot he rwis e o fferev id en ce o r arg um en ts do cum en ti ng th e 2 00 0 NOL. W e fo un d fo r res po nd en t i n S ei ffert I. We hel d tha t co ll at eral est op pe l d id
no t ap pl y . W e al so fou ndth atpe ti ti on er fa il edto est ab li sh th ere was an y de btfor
se ct io n 1 66 pu rp os es . Peti ti on er fi le d the in st an t m ot io ns . Dis cu ss io n W e n ow turn t o p et it io ne r’s sh ift in g arg um en ts rel at edto th e 2 00 0 NOL. Fi rs t, p et it io ne r co nt en ds th atco ll at eral est op pe l p recl ud es res po nd en t fr om Res po nd en t’s co un se l s ta te d: “ Res po nd en t d oe sn ’t wantto be rem is s an d 2 no t co m e fo rwardwith h is ownpro of , if Yo ur Hon orso de si res . If Pet it io ne r is rel y in g o n c ol late ral est op pe l o f a p le a ag reem en t, the n tha t’s fi ne , bu t i f we’re go in g t o p ro ve up th e NOL, th enwe ha ve to go ba ckan d d o tha t al l ri gh t h ere a nd no w, andI th in k i t wo ul d b e h el pf ul forth e p art ie s t o s itdo wn an d g o thr ou gh it be fo re the Co urt g et s i nv ol ve d.”-6
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[* 6] di sp ut in g the 20 00 NOL. Seco nd , pet it io ne r co nt en ds th atth e 2 00 0 NOL in th e p le a ag reem en t i s “ st ro ng ev id en ce” o f th e b adde bt s tha t re sp on de ntfai le d t o reb ut . W e b eg in with thi s C ou rt’s s tand ard s fo r m ot io ns un de r Ru le s 1 61 an d 1 62
. W e th enad dr es s p et it io ne r’s m ot io ns . I. Sta nd ard s Un de r Ru le s 1 61 an d 1 62 W e b eg in with the st an da rdth e Co urt u se s t o d eci de whet he r to granta Ru le 16 1 m ot io n fo r rec on si de rat io n. Th e d eci si on whet he r to granta Ru le 16 1 m ot io n res ts withi n the Co urt’s d is cret io n. CWT Farm s, In c. v. Co m m is si on er, 7 9 T.C. 10 54 , 10 57 (19 82 ), aff’d, 7 55 F.2d79 0 (1 1t h C ir. 1 98 5) . It i s the Co urt’s p ol ic y to try all is su es rai se d i n acas e inon e p ro ceed in g t o a vo idpi ecemeal an d p ro tra ct ed li ti ga ti on . Id. Acco rd in gl y , we gen eral ly do n otex erci se ou r di sc ret io n t o thi s en d ab se nta sh owi ng of s ub st an ti al erro r orun us ua l ci rcu m st an ces . Haft Tru stv. Co m m is si on er, 6 2 T.C. 1 45 (19 74 ), aff’d o n thi s g ro un d, 5 10 F.2d43 , 45 n.1 (1s t Ci r. 19 75 ). W e n ow fo cu s o n the st an da rdth is Co urt u se s i n d eci di ng whet he r to gra nta Ru le 16 2 m ot io n t o v acat e o r rev is e a d eci si on . Rul e 1 62 do es no t p ro vi de us with a st an da rdby whi chto ev al ua te a m ot io n t o v acat e o r rev is e a d eci si on . See Brewe r v. C omm is si on er, T.C. Mem o. 2 00 5- 10 . Accor di ng ly, we wil l re fer t o the Fed eral Ru le s o f Ci vi l Pr oc edur e fo r gu id an ce. Ru le 1(b ). W e h av e o fte n re ferr ed-7
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[* 7] to rul e 6 0 o f th e Fed eral Ru le s o f Ci vi l Pr oc edur e an d c as es ap pl y in g i t t o as si stus inres ol vi ng is su es rai se d i n am ot io n t o v acat e o r rev is e o ur de ci si on . See, e.g ., Cin em a ‘84 v. Co m m is si on er, 1 22 T.C. 26 4, 2 67 -2 68 (20 04 ), aff’d, 4 12 F.3 d 3 66 (2dCir . 20 05 ). Mo ti on s t o v acat e o r rev is e o urde ci si on are g en eral ly
no t g ran te d abs en t a s ho win g o f un us ua l ci rcu m st an ce o r subs tant ia l erro r, su chas m is ta ke , in adve rte nc e, surp ris e, ex cu sabl e n eg le ct , newl y di sc ov eredev id en ce, frau d o r ot he r rea so ns jus ti fy in g re li ef. See Fed . R. Civ . P. 60 (b ); M it ch el l v
. Co m m is si on er, T.C. Mem o. 2 01 3- 20 4. II. Pet it io ne r’s Mo ti on s A. Mot io n fo r Rec on si de rat io n W e fo cu s n ow o n the reco ns id erat io n m ot io n. Pe ti ti on er co nt en ds th atth ere is a “ se rio us de fectinth e rea so ni ng an d a na lysis ” o f ou r op in io n i n S ei ffert I. Pet it io ne r co nt en ds th atwe im pr op erl y co nc lu de d tha t co ll at eral est op pe l d idno t ap pl y . The 2 00 0 NOL is cru ci al to pe ti ti on er’s the ory be cau se itwou ldsupp ort hi s p os it io n tha t re sp on de ntin co rrec tl y di sa ll owe d p et it io ne r’s ba d d eb t de du ct io ns for20 00 an d b efo re. Pet it io ne r is m erel y

reh as hi ng th is arg um en t. We hear d a ndco ns id eredth is arg um en t o nc e an d fi nditin ap pr op ria te to reco ns id er Se iff ertI si m pl y be cau se pe ti ti on er h as rai se d i t fo r a s eco ndti m e. See Es ta te of Qu ic k v . Comm is si on er,-8
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[* 8] 11 0 T.C. 4 40 , 44 1- 44 2 (1 99 8) ; Dyna de ckRo tary Sy s., Ltd . v. Co m

m is si on er, T.C. Mem o. 2 00 1- 11 3, af f’d, 40 Fed . App x. 5 94 (9t h C ir. 2 00 2)
. Pet it io ne r al so off

ers two ne w arg um en ts . Peti ti on er h as no t i de nt ifi edan y reas onwhy he di d n otm ak e th es e arg um en ts at tria l o r on bri ef. W e n on ethe le ss bri efl y

ad dr es s al l thr ee ar gu m en ts so th atpe ti ti on er un de rs tand s tha t the y

are u ns up po rte d b y

factor l aw. 1. Co ll at eral Est op pe l Do es NotApp ly. Pet it io ne r ag ai n arg ue s tha t co ll at eral est op pe l p recl ud es res po nd en t fr om ch al le ng in g the 20 00 NOL. Pet it io ne r is arg ui ng , iness en ce, tha t ev ery ag reed
up on factina pl ea ag reem en t i s co nc lu si ve ly establ is he d a ndbi nd in g o n the pa rti es . W e reject edth atarg um en t b ecau se a factst at edina pl ea ag reem en t i s n ot es tabl is he d u nl es s tha t fa ctwas ane ces sa ry ele m en t fo r co nv ic ti on . See Us ci ns ki v. Co m m is si on er, T.C. Mem o. 2 00 6- 20 0. Pe ti ti on er d idno t d em on st rat e th atth e 20 00 NOL was a n eces sa ry ele m en t o f th e co nv ic ti on . 3 Pet it io ne r no ne th el es s co nt en ds th atwe ha ve ap pl ie d c ol la te ral est op pe l i n si mil ar s itua ti on s. A cu rs ory read in g o f th os e o pi ni on s d em on st rat es pe ti ti on er i s Pet it io ne r un witti ng ly ackn owl ed ge s i n the reco ns id erat io n m ot io n tha t 3 co ll at eral est op pe l d oe s n otap pl y when he st at es : “ Whi le [r]esp on de ntis no t au to m at ic al ly forec lo se d fr om ass ert in g fa ct s i nc on si st en t wi th th os e in th e un de rlyin g g ui lty

pl ea, h e sh ou ldno t b e rel ie ve d o f pr es en ti ng fact s.” Th is st at em en t i nd ic at es th atpe ti ti on er m is in te rp ret s co ll at eral est op pe l p rin ci pl es .-9
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[* 9] in co rrec t. See Eph rem v. Co m m is si on er, T.C. Mem o. 2 01 4- 12 (ho ld in g tha t a ta xp ay er's st at em en t i n apri orcri m in al pro ceed in g d idno t es tabl is h the pre ci se am ountof a n und ers ta te m en t i n the pre se ntciv il pro ceed in g u nd er co ll at eral
es to pp el or ath eo ry

clo se ly resem

bl in g c ol late ral est op pe l); Atk in so n v . Co m m is si on er, T.C. Mem o. 2 01 2- 22 6 (t axpa y er co ll at eral ly esto pp edfro m ch al le ng in g p aym en t h e rec ei ve d re su lt edfro m frau d b ecau se frau d fi nd in g was es se nt ia l t o c riminal co nv ic ti on ). Pet it io ne r ha s n otarg ue d, n or do we co nc lu de , th atth e 2 00 0 NOL was aness en ti al ele m en t o f th e co nv ic ti onor a ctua ll y li ti ga te d. W e ag ai n re

ject p et it io ne r’s arg um en t tha t co ll at eral est op pe l es tabl is he s the 20 00 NOL. 2. Pe ti ti on er Fa il edTo Dem on st rat e Any NOLor B adDebt
. Pet it io ne r co nt en ds forth e fi rs t t im e th at , eve n i f co ll at eral est op pe l d oe s no t ap pl y , th e 2 00 0 NOL in th e p le a ag reem en t i s co m pe ll in g e vi de nc e th at pe ti ti on er was en ti tl edto ba d d eb t d educ ti on s fo r 20 00 an d b efo re. Aga in , we di sa gr ee. Fac ts ina pl ea ag reem en t ca n b e st ro ng ev id en ce as to th e am ou ntof t ax owe d. Se e, e.g ., Usci 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.C omm is si on er, T.C. Mem o. 2 00 0- 12 1. Pe ti ti on er’s co un se l ex pl ic it ly con ced ed , ho wev er, tha t p et it io ne r was rel y in g e nt ire ly on c ol la te ral est op pe l t o e st ab li sh th e 20 00 NOL. Res po nd en t re li edon th atrep res en ta ti on . Notwiths tand in g, the reco rd-1 0-

[* 10 ] do es no t s up po rt afin di ng th atpe ti ti on er h adan y NOL or ex pe rie nc edan y lo ss es . W e fo un d i n S ei ffert I tha t p et it io ne r fab ric at edpu rp orte d b adde bt s.

4 Furth er, p et it io ne r ag reedth atth e p le a ag reem en t d idno t d et erm in e ta x o wedor res ol ve civ il tax li ab il it ie s. Pu t s im pl y , th e rec or d c on tra di ct s p et it io ne r’s cl ai m to th e 2 00 0 NOL an d d em on st rat es th atpe ti ti on er was no t en ti tl edto an y ba d d eb t de du ct io n. 3. Th e Pl ea Ag reem en t Is Nota Factua l Admis si on . Pet it io ne r al so co nt en ds forth e fi rs t t im e th atth e p le a ag reem en t i s a p arty op po ne ntadm is si onth atest ab li sh es th e 2 00 0 NOL as a m at te r of fact . See Fed . R. Evi d. 8 01 (d )(2 ). Thi s h ears ay ex cl us io n i s i rrel ev an t b ecau se th e p le a ag reem en t was adm it te d i nt o e vi de nc e. Pet it io ne r ap paren tl y co nf la te s ad m is si bi li ty w ith a factua l ad m is si on . This is a fl atm is un de rs tand in g o f th e la w. Peti ti on er h as no t id en ti fie d a n e rro r orcir cu m st an ce jus ti fy in g re co ns id erat io n o f Sei ffert I.

Pet it io ne r al so arg ue s tha t the Co urt erredby ign or in g the tes ti m on y of 4 Alan W es th ei m er. Pet it io ne r co nt en ds th atMr. Westhe im er’s “ ex pe rt” tes ti m on y es tabl is he d the 20 00 NOL. W e d is ag ree. Pe ti ti on er d idno t qua li fy Mr. W es th ei m er as anex pe rt. Se e Ru le 14 3( g) . Reg ard le ss , hi s t es ti m on y was o f li tt le va lu e b ecau se hi s co nc lu si on s wer e fo un de d o n p et it io ne r’s un rel iabl e an d fab ric at edin fo rm at io n.-1 1-

[* 11 ] B. Ru le 16 2 M ot io n To Vacat e o r Rev is e W e n ow fo cu s o n the m ot io n t o v acat e o r rev is e o urde ci si on inSei ffert I. Pet it io ne r rep eat s the arg um en ts he m ad e wit h re sp ectto th e m ot io n fo r reco ns id erat io n o f ou r op in io n. An d we r each th e sa m e co nc lu si on . There is no ba si s t o re vi se or v acat e o urde ci si on inSei ffert I. See Fed . R. Civ . P. 60 (b ). III. Co nc lu si on Pet it io ne r ha s p ro vi de d n o v al idba si s fo r us to reco ns id er o urop in io n o r va cat e o r rev is e o urde ci si on inSei ffert I. Acco rd in gl y , we wil l d en y th e m ot io ns . W e h av e co ns id eredall rem ai ni ng arg um en ts th e p art ie s m ad e an d, t o the
ex te ntno t ad dr es se d, we fi ndth em to be irr el ev an t, m oo t o r m eri tl es s. To re fle ctth e fo reg oi ng , An ap pr op ria te ord er wi ll be is su ed
.