T.C. Memo. 2010-107

UNITED STATES TAX COURT

DAVID H. KINDRED, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13200-07. Filed May 13, 2010.

Robert Alan Jones, for petitioner.

Wesley J. Wong, for respondent.

MEMORANDUM OPINION

COHEN, Judge: Respondent determined deficiencies of

$912,529 and $1,184,115 in petitioner’s Federal income taxes for

2001 and 2002, respectively, and additions to tax under sections

6651(a)(1) and (2) and 6654. After concessions, the issues for

decision are whether petitioner is liable for the additions to

tax, reduced to reflect the agreement of the parties as to the
- 2 -

correct deficiencies, and whether the Court should conduct a

trial to determine whether funds seized in a criminal proceeding

should be credited as payments further reducing the additions to

tax.

All section references are to the Internal Revenue Code for

the years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure. 

Background

A stipulation of settled issues filed November 17, 2008,

resolved all issues relating to the deficiencies for 2001 and

2002. The remaining issues were submitted fully stipulated under

Rule 122 on May 18, 2009. The stipulated facts are incorporated

in our findings by this reference. Petitioner resided in

Illinois at the time the petition was filed. He failed to file

timely returns for 2001 or 2002, failed to make required

estimated tax payments, and failed to pay the taxes due for

either year. Substitutes for return were prepared under section

6020(b) showing taxes due. 

Both stipulations identified the remaining dispute as

whether petitioner is liable for the additions to tax. The Court

ordered simultaneous briefs to be filed on or before July 17,

2009, and August 31, 2009. Several extensions of the time for

filing those briefs were granted because of the pendency of

proceedings in a criminal case in the District Court for the
- 3 -

Northern District of Illinois, United States v. Vallone, No. 04-

CR-372 (the District Court case). The defendants in the District

Court case were convicted of, among other things, mail and wire

fraud in connection with their promotion of the Aegis Business

Trust System (Aegis). Petitioner was a client of Aegis who

transferred money in 2001 to offshore bank accounts controlled by

the defendants. The Government froze the offshore accounts in

March 2003, and, after the convictions in 2008, the District

Court ordered a forfeiture of the accounts.

Petitioner thereafter sought to intervene in that case to

claim an interest in the funds seized by the United States in

2003. The District Court held that petitioner had no standing to

challenge the forfeiture and was merely an unsecured creditor of

the defendants. In seeking extensions of the time to file briefs

in this Court, petitioner repeatedly represented that he would

likely concede the remaining issues in this case if a motion

filed on July 24, 2009, in the District Court case under rule

59(e) of the Federal Rules of Civil Procedure, to alter or amend

the judgment against him, is denied. In his motion, petitioner

alleges that he did not become aware that his funds were “gone”

until late 2005. As of the time that answering briefs were

finally filed in March 2010, the District Court had not acted on

the motion.
- 4 -

Discussion

The stipulation of facts establishes that petitioner’s

returns were not filed timely and that no estimated tax payments

were made. Certificates of substitute for return prepared under

section 6020(b) for 2001 and 2002 and a certified transcript of

petitioner’s account for 2000 showing taxes due are in evidence. 

See Higbee v. Commissioner, 116 T.C. 438, 446 (2001); see also

Patmon v. Commissioner, T.C. Memo. 2009-299. There is no

evidence in the record that petitioner had reasonable cause for

late filing or that an exception to the section 6654 addition to

tax for failure to pay estimated taxes applies, and petitioner

thus cannot prevail on those issues. See Higbee v. Commissioner,

supra at 446. Moreover, petitioner’s briefs proposed findings of

fact unsupported by and contrary to the record and did not

address the merits of the additions to tax. Thus he has conceded

the absence of reasonable cause for the late filing of his

returns for the years in issue and the absence of an exception to

the section 6654 addition to tax.

Relying on two cases decided in collection contexts, Wright

v. Commissioner, 571 F.3d 215 (2d Cir. 2009), vacating and

remanding T.C. Memo. 2006-273, and Heichel v. Commissioner, T.C.

Memo. 2008-291, petitioner seeks to have this Court decide that

the seized funds should be applied to reduce his liabilities for

the deficiencies as of the date of the seizure and to reduce the
- 5 -

additions to tax to reflect the deemed payments. He asserts

“that this case can no longer be decided on the previous

stipulations entered (which still remain in effect) but the

interests of justice require a hearing with respect to credits

due to the Petitioner Dr. David Kindred for the seizure of his

funds.”

Respondent argues that this Court has no jurisdiction to

adjudicate petitioner’s rights in the property forfeited in the

unrelated criminal case and, regardless of the outcome of the

District Court case, the funds would not be treated as a tax

payment by petitioner as of the date the funds were seized. We

agree with respondent. In any event, we decline to reopen this

case to try an issue previously resolved against petitioner in

the District Court and apparently still under consideration by

that Court.

As has been said frequently and without qualification, the

Tax Court is a court of limited jurisdiction, which may be

exercised only to the extent expressly authorized by Congress. 

See, e.g., Greene-Thapedi v. Commissioner, 126 T.C. 1, 6 (2006). 

In a deficiency case, such as this one, the issues are defined by

the statutory notice and the pleadings, here limited to

deficiencies and additions to tax for 2001 and 2002. In

collection cases, such as Greene-Thapedi, Wright v. Commissioner,

supra, and Heichel v. Commissioner, supra, the scope of our
- 6 -

jurisdiction is defined by section 6330 and the notice of

determination.

In a deficiency case, we may determine an overpayment under

certain limited circumstances. See sec. 6512(b). In collection

cases, whether a liability has been paid is a proper subject for

review. See Landry v. Commissioner, 116 T.C. 60, 62 (2001). 

Petitioner here seeks to invoke the jurisdiction that might be

available under section 6330 once collection efforts are

undertaken. None of the prerequisites for that jurisdiction are

satisfied, however. Thus, the collection cases petitioner relies

on do not justify a conclusion that we have jurisdiction in this

case to determine that seizure of funds held by third parties in

2003 and forfeited to the United States at a later time should be

credited to petitioner’s admitted liabilities for 2001 and 2002. 

The District Court, which conducted a criminal trial and

considered petitioner’s claims to the forfeited funds, rejected

petitioner’s claims. Petitioner is asking this Court to reach a

different result, which would require a full trial of his

relationship to the defendants in the District Court case. We

clearly have no jurisdiction over those defendants and could not

reasonably determine petitioner’s rights in accounts that the

defendants controlled and apparently claimed to own. Petitioner

is, in essence, challenging the District Court’s order regarding
- 7 -

the funds, the proper venue for which is the District Court. See

McCorkle v. Commissioner, 124 T.C. 56, 65-66 (2005).

Moreover, there is no merit to petitioner’s claims for

credit against his tax liabilities in this factual context. Even

if petitioner’s pending motion in the District Court is granted

and that court finds that petitioner’s funds were seized by the

United States, petitioner would not be entitled to credit against

his outstanding tax liabilities for 2001 and 2002 as of the date

of the seizure. Criminal forfeiture serves a different purpose

from satisfaction of income tax liabilities, and a taxpayer is

not entitled to deduct the seized funds or to offset them against

his tax liabilities. See, e.g., Ianniello v. Commissioner, 98

T.C. 165, 179-180 (1992); cf. Raulerson v. United States, 786

F.2d 1090, 1092 n.4 (11th Cir. 1986) (Government immune from suit

to force shift of funds from one of its pockets to another).

As of the time in late 2005 that he allegedly became aware

of the seizure, petitioner’s liability for the section 6651(a)(1)

and 6654 additions to tax had already accrued, and he had not

made any payments toward his liabilities. The maximum penalty of

25 percent under section 6651(a)(2) accrued on the passage of 50

months of nonpayment. The undisputed facts are that petitioner

did not file timely returns or pay the now-conceded deficiencies

at the time that payments were due, and any future payments of

those deficiencies, from recovery of seized funds or otherwise,
- 8 -

will not serve to reduce the additions to tax that have already

accrued.

In conclusion, petitioner has presented neither persuasive

reason nor authority for this Court to reopen the record and to

conduct an evidentiary hearing. He has abandoned any cognizable

challenge to the additions to tax in issue, and they will be

sustained. To reflect the foregoing and the stipulation of

settled issues,

Decision will be entered

under Rule 155.