1 PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 11

- 1704

____________

WALTER C. ANDERSON,

Appellant

v.

COMMISSIONER OF INTERNAL REVENUE

On Petition for Review of an Order of the

United States Tax Court ( Agency No. 07

- 20364 )

Administrative Judge: Hon orable David Gustafson

Argued on May 7, 20122 Before: SLOVITER and ROTH, Circuit Judges

and POLLAK*, District Judge

(Opinion filed : Septem ber 7, 2012 )

Steven J. Jozwiak, Esquire (Argued) 601 Longwood Avenue

Suite 300 Cherry Hill, NJ 08002

Counsel for Appellant

Gilbert S. Rothenberg, Esquire Acting Deputy Assistant Attorney Genera l Bethany B. Hauser, Esquire (Argued) Robert W. Metzler, Esquire Francesca U. Tamami, Esquire United States Department of Justice

Tax Division 950 Pennsylvania Avenue, N. W.

P. O. Box 502 Washington, DC 20044

Counsel for Appellee

*Honorable Louis H. Pollak, Senior Judge of the

United States District Court for the Eastern District of Pennsylvania, sat by designation. Judge Pollak died on May 8, 2012; this opinion is filed by a quorum of the court pursuant to 28 U.S.C. § 46 and the Third Circu it I.O.P. 12.1(b).2 O P I N I O N

ROTH

, Circuit Judge :

This appeal arises out of a civil tax fraud proceeding in

United States Tax Court. T he taxpayer challenges the Tax

Court ’s determination that , under the doctrine of collateral estoppel, his previous guilty plea for criminal tax evasion conclusively established the taxability to him of specific income that his criminal indictment charged him with failing

to report. He additionally argues on the basis of a number of preclusion doctrines that the Internal Revenue ’s (IRS) concession of all tax deficiency and penalty issues for cer tain years should have prevented it from obtain ing recovery of such payments in other years because the issues for all years

were identical. As explained below, we fin d that these arguments are without merit, and we will therefore affirm th e Tax Court’s judgment

.

I. BACKGROUND

On September 30, 2005, Petitioner Walter Anderson was charged in a superseding indi ctment with federal tax evasion for tax years 1995 through 199 9, in violation of 26 U.S.C. § 7201. During those years, Anderson was a telecommunications entrepreneur and venture capitalist who was actively involved in the operation of several international companies. Among these companies was Gold & Appel

Transfer S.A. (G & A), a British Virgin Islands corporation3 which generated hundreds of millions of dollars of income during the tax years at issue. The g overnment alleged that because G & A was a “controlled foreign corporation,” under

Anderson ’s control, he was required to recognize a share of its income on his tax return and that he fraudulently failed to

do so. The g overnment alleged that for th e five

- year period at issue, Anderson had fraudulently underpaid his taxes by $184
million, 99% of which stemmed from the income of G & A. Pursuant to an agreement with the g overnment, on September 8, 2006, Anderson pleaded guilty to the federal tax evasio n charges for 1998 and 1999, while those same charges for 1995, 1996 and 1997 were dismissed. 1 He was sentenced t o 108 months imprisonment

. O n July 17, 2007, the IRS issued a notice to Anderson determining civil tax deficiencies and fraud penalties for tax years 1995 through 1999. See 26 U.S.C. § § 6212 , 6663

. (The deficiency amounted to the $184 million of under paid

1 Anderson had also been charged with obstruction of the internal revenue laws of the United States, in violation of 26 U.S.C. § 7212(a), fraud in the first degree under the laws

of the Dist rict of Columbia, specifically 22 D.C. Code § 3221(a), in relation to D.C. income tax filings and payments for years 1995 through 1999, and evasion of D.C. use taxes on a number of purchases made between 1997 and 2001, also in violation of 22 D.C. Code § 3 221(a). All of these charges were dismissed with the exception of the charge of first degree fraud under D.C. law for 1999, to which Anderson pleaded guilty.4 taxes, resulting in a fraud penalty of $138 million. 2 ) On September 7, 2007, while he was incarcerated in New Jersey, Anderson filed a petition in the United States Tax Court to

redetermine these deficiencies. See 26 U.S.C. § 6213(a). In
response t o motions by both parties, the Tax Court granted partial summary judgment to the IRS, finding that under the doctrine of collateral estoppel, Anderson’s criminal

conviction for tax evasion in 1998 and 1999 precluded him from contesting that he fraudulently underpaid his incomes

taxes in those two years

. The Tax Court denied summary judgment on the fraud issue for tax years 1995

- 1997, without prejudice to renew the motion “with a better record and more

focused contentions.”

Th e holding on the 1998 and 1 999 tax years had three principal effects. First, it established that Anderson had underpaid his income taxes in 1998 and 1999. Second, because a fraud penalty can only be assessed where a tax underpayment is due to fraud, it relieved the IRS of its burd en of proving this penalty was applicable to Anderson for those

two years. See 26 U.S.C. § 6663(a). Finally, because the

three

- year statute of limitations on the assessment of a tax does not apply where a tax return has been filed falsely or fraudulently with the intent of evading tax, 26 U.S.C. § 6501(c)(1), it prevented Anderson from arguing that the IRS’s attempts to collect taxes f or 1998 and 1999 were untimely. 3

2 The penalty is equal to 75% of the amount of the underpayment of tax that is due to fraud. See 26 U.S.C. § 6663(a).

3 Anderson filed his tax return for 1998 on September 30, 1999, and his tax return for 1999 o n October 19, 2000.

Without this exception to the three

- year statute of limitations

,5 Though this decision established that Anderson had fraudulently underpaid his income tax es in 1998 and 1999, it left open for further proceedings the determination of the amounts of the tax deficiencies and penalties for those years

.

Based on this ruling , the IRS filed a motion to sever tax years 1995, 1996, and 1997 from the case, stating that it “ha[d] decided to concede all tax and penalty issues for [those years] and wishe[d] to file a motion for entry of decision as to those years.” In its motion, the IRS explained that nearly 80% of the total deficiency and penalties for the five

- year period stemmed from just 1998 and 1999, and that because proving fraud for 1995 through 1997 via trial would needlessly complicate and lengthen the case for a comparatively limited additional monetary recovery, it prefer r ed to abandon its efforts for thos e years. The Tax Court found that, given its particular procedural rules, severing the case in this way would needlessly create clerical and administrative complexities, and it therefore denied the motion. It stated in its order, however , that it would “ take notice of the [IRS’s] concession of all tax and penalty issues for 1995, 1996, and 1997 and [would] reflect that concession in its eventual entry of decision in [the] case.”

This order led to the filing of a second set of summary judgment motions. Anderson argued in his motion that, notwithstanding the Tax Court’s earlier holding that his criminal convictions for tax evasion collaterally estopped him from denying fraudulent underpayment of tax in 1998 and 1999, the IRS’s subsequent concession of a ll tax and penalty

the IRS’s notice of tax deficiency issued on July 17, 2007, would have been untimely.6 issues for 1995, 1996, and 1997 established that the income

of G & A and interest in come from an account at Barclay s Bank were not taxable to him even in 1998 and 1999. The IRS, meanwhile, argued in its motion that Anderson was preclude d from contesting that the income of G & A in 1998

and 1999 constituted taxable income to him under Subpart F

of the Tax Code . The Tax Court denied Anderson’s motion and granted part ial summary judgment to the IRS. It held, in favor of the IRS, that the concessions related to tax years 1995 through 1997 did not resolve the deficiency and penalty

issue s for 1998 and 1999 . It further agreed with the IRS’s position that the proceedings in Anderson’s criminal case

established that G & A’s income in 1998 and 1999 was

taxable to him. The Tax Court rejected the IRS’s argument,

however , that Anderson’s guilty plea estopped him from contesting that the income of G & A was taxable to him specifically under Subpart F of the Tax Code. Anderson now challenges the a dverse holdings

. II. DISCUSSION

This Court has jurisdiction to review final orders of the Tax Court based on 26 U.S.C. § 7482(a)(1). 4 On March 7, 2001, pursuant to an agreement between the parties, the Tax Court entered an order determining the tax de ficiency and fraud penalty for each year from 1995 through 1999, leaving no issues for it to decide and thus providing this Court with jurisdiction under that statute. We review the Tax Court’s legal conclusions de novo and its factual findings for clear

4 Venue in this Court is appropriate because Anderson was a resident of New Jersey at the time he filed his petition

for redetermination. See 26 U.S.C. § 7482(b)(1)(A).7 error. Capital Blue Cross v. Comm’r , 431 F.3d 117, 123

- 24 (3d Cir. 2005).

A. The Preclusive Effect of Anderson’s Criminal

Conviction

Under the doctrine of collateral estoppel, “once an issue is actually and necessarily determined by a court of competent j urisdiction, 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

- 54 (1979). It applies, however, only if: “(1) the issue sought to be precluded [is] the same as that involved in the prior action; (2) that issue [was] actually litigated; (3) it [ was ] determined by a final and valid judgment; and (4) the determination [ was ] essential to the prior judgment.” In re Graham , 973 F.2d 1 089, 1097 (3d Cir. 1992) (citations omitted)

. In light of these principles, we agree with the numerous courts that have held that , under the doctrine of collateral estoppel, a conviction fo r criminal tax

evasion conclusively establishes the defendant’s ci vil liability for tax fraud for the same year. See Blohm v. Comm’r , 994 F.2d 1542, 1554 (11th Cir. 1993); Klein v. Comm’r , 880 F.2d 260, 262 (10th Cir. 1989); Gray v. Comm’r , 708 F.2d 243, 246 (6th Cir. 1983); United States v. Moore , 360 F.2d 353, 356 (4t h Cir. 1966) . This is because the elements of evasion under 26 U.S.C. § 7201 and fraud under 26 U.S.C. § 6663 are

identical. See, e.g., Gray , 708 F.2d at 2 4 6

.

Anderson nevertheless argue s that the Tax Court erred in holding that his tax evasion convi ction collaterally estopped him from litigating the taxability to him in 1998 and

1999 of the income of G & A in the civil tax fraud8 proceedings. Where , as here, a conviction is the result of a guilty plea, its preclusive effect extends to all issues that are necessarily admitted in the plea. See De Cavalcante v.

Comm’r , 620 F.2d 23, 27 n.9 (3d Cir. 1980) ; United States v. $448,342.85 , 969 F.2d 474, 476 (7th Cir. 1992); United States v. Wight , 839 F.2d 193, 196 (4th Cir. 1987); United States v.

Podell , 57 2 F.2d 31, 35 (2d Cir. 1978)

. We find that Anderson admitted in his plea that the income of G & A was taxable to him in 1998 and 1999, and that this admission was necessary to his conviction.

Anderson pleaded guilty to a charge that in 1998 “a

substanti al additional tax was due and owing to the United
States” from him and that “[s]pecifically, he failed to report . . . $126,303,951 Subpart F investment

- type income from G &

A.” He also pleaded guilty to another charge that alleged the same with respect t o 1999

, except that the amount of unreported G & A income was $238,561,316. These charges essentially allege that Anderson underpaid his taxes in 1998 and 1999 because he did not report the income of G & A, which is comprehensible only to the extent that such income was taxable to him in those years. By pleading guilty to these charges, And erson thus admitted that required premise.

This admission could be considered necessary , though, only if Anderson’s conviction “hinge[d] on it.” Bobby v.

Bies

, 556 U .S. 825, 835 (2009). T o convict Anderson of tax evasion, the Government was required to prove the existence of a tax deficiency. See 26 U.S.C. § 7201. Were the income

of G & A not taxable to him in 1998 and 1999

, however,
Anderson’s failure to report it on his tax return would not have given rise to a deficiency . The Government thus could

not have secured his conviction without establishin g the9 taxability of this income. W e therefore find that Ande rson’s conviction did hinge on t hat issue. Our conclus ion is not

affected by the fact that Anderson was also charged with failing to repo rt income from other sources in 1998 and 1999

– including an account he held at Barclays Bank, a company called Esprit Telecom, and various capital gains

– the taxability of which could also have substantiated his conviction. As we have previously held, all “independently sufficient alternative findings should be given preclusive effect,” Jean Alexander Cosmetics, Inc. v. L’Oreal USA, Inc.

, 45 8 F.3d 244, 255 (3d Cir. 2006). The taxability to Anderson of the income of G & A in 1998 and 1999 was independently sufficient to establish the existence of a tax deficiency in those years and was thus a fact that was necessary to his

conviction. H is admission to it in his guilty plea accordingly precludes him from contesting that issue in his civil tax fraud

case. 5

Finally, that the income of G & A is taxable to Anderson specifically under Subpart F of the Tax C ode is also settled for purposes of this case. The Tax Court rejected

t he IRS’s argument that Anderson’s guilty plea estopped him from contesting this tax treatment of G & A’s income. It reasoned that, al though G & A’s income was described as

5 Pursuant to this reasoning, we also find that Anderson was collaterally estopped from disputing that the income from his Barclays account was taxable to him in 1998 and 1999. Based on this additional finding and on our analysis relating to the income of G & A, we reject Anderson’s argument that

the T ax Court erred in denying him summary judgment on the issues of the taxability of income from the Barclays account

and from G & A in 1998 and 1999.10 “Subpart F income” in the charges of the indictment to which Anderson pleaded guilt y, this detail was not essential to his judgment of conviction and thus could not be given preclusive effect in subsequent proceedings. Regardless of this holding, however, the parties’ subsequent stipulation of the nature and composition of G & A’s incom e , designating amounts for Deficiency and Penalty for 1998 and 1999,

necessitate the determination that it is taxable to Anderson under Subpart F because the figures would not support Anderson’s alternate theory that the income was capital gains

. This con clusion, along with the preclusive effect of Anderson’s conviction for tax evasion described above, effectively resolve his civil tax deficiency stemming from the

income of G & A.

A. The Preclusive Effect of the IRS’s Concession of All Deficiency and Penalt y Issues for 1995

- 1997

Anderson argues that because the IRS conceded all tax deficiency and penalty issues for 1995, 1996, and 1997, the Tax Court was required to find in his favor on those issues for the 1998 and 1999 tax years as well. He specifically advances this argume nt in relation to the income of G & A and the interest income of his account at Barclays Bank. He relies on three separate legal doctrines to support this
argument

- collateral estoppel, law of the case, and judicial

admission

– but ea ch is inapplicable.

1. Collateral Estoppel

Anderson claims that when the Tax Court issued its order denying the IRS’s motion to sever, in which it stated

that it “takes notice of [the IRS’s] concession of all tax and11 penalty issues for 1995, 1996, and 199 7 and will reflect that

concession in its eventual entry of decision in [the] case, ” it

decided those issues in his favor. He further claims that all deficiency and penalty issues for 1995 through 1997, including those related to G & A and his Barclays ac count, are “identical in all respects” to those for 1998 and 1999. On this basis, Anderson argues that, by virtue of collateral estoppel, it is conclusively established in his civil tax fr aud proceeding that the income from G & A and from his Barclays acc ount gave rise to no tax deficiency or fraud penalty in 1998 and 1999.

As we have already noted

, an issue is conclusively established in future litigation through the doctrine of

collateral esto ppel only when it is determined by a final judgment. Graham

, 973 F.2d at 1097. This pr inciple is firmly established and beyond question. See, e.g., G

. & C. Merriaman Co. v. Saalfield , 241 U.S. 22, 28 (1916) (“[I]t is familiar law that only a final judgment is res judicata . . .”); Wilson v. City of Chicago , 120 F .3d 681, 687 (7th Cir. 1997) (“[I]f there is no judgment, there is no preclusion.”); Clausen Co. v. Dynatron/Bondo Corp. , 889 F.2d 459, 465

- 66 (3d Cir. 1989) (finding collateral estoppel did not apply to an interlocutory disposition). The Tax Court ’s deni al of the IRS’s motion to sever can therefore have no preclusive effect under that doctrine. It does not constitute a final judgment on

a ny issue, including on that of whether Anderson was liable for tax deficiencies or fraud penalties for any year in rel ation

to income from G & A or from his account at Barclays

. Instead, all the Tax Court did in that order was advise the parties that it was taking notice of the IRS’s desire not to litigate tax years 1995 through 1997 and state that it would factor that p osition into its eventual final judgment. When12 that final judgment was issued, it showed deficiencies and penalties for 1998 and 1999 that implicitly included amounts

related to G & A and the Barclay s account . Anderson

identifies no previous final judgme nt making a determination

in conflict with this result

, and his argument that the Tax Court should have held that it had been conclusively established via the doctrine of collateral estoppel that he was not liable for deficiencies or penalties in relation to these two

items in 1998 and 1999 thus cannot be accepted.

2. Law of the Case

Anderson makes a similar argu ment that the Tax
Court’s denial of the IRS’s motion to sever forecloses litigation of the taxability to him of the income G & A in

1998 and 1 999 under the law of the case doctrine. Under that doctrine, “when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages of the same case.” Arizona v. California

, 460 U.S. 60 5, 618 (1983). Ande rson asserts that the Tax Court’s statement that it was “taking notice” of the IRS’s desire not to litigate tax years 1995 through 1997 was actually a holding that he was not liable for tax deficiencies or penalties for those years , and that because the IR S had alleged that he should have recognized income from G & A on his tax return for those years, it is additionally a legal determination that such income was not taxable to him in any year

– including 1998 and 1999

. We disagree. The Tax Court’s

stateme nt that it took notice of the IRS’s desire to concede tax and penalty issues for 1995 through 1997 simply does not represent any sort of decision. Even if it did constitute a

decision as to those three years, there is no merit to Anderson’s argument that it necessarily implies that the Tax13 Court determined as a matter of law that income from G & A is not taxable to him, as the “decision” could be supported by

a ny number of rationales . For example, a finding that

Anderson was not liable for deficiencies or penalties for 1995 through 1997 could just as easily rest on a lack of evidence of fraud in those years, which as discussed earlier, would bar the IRS’s claims on statute of limitations grounds. Anderson’s argument asks the Court to read more into the Ta x Court’s “tak[ing] notice” than is warranted or possible, and it must be rejected.

3. Judicial Admission

Finally, Anderson argues that the statement in the IRS’s motion to sever conceding deficiency and penalty issues for 1995 through 1997 constitut es a judici al admission that prevents the IRS fro m arguing “that there is United States tax liability for [G & A]” or that i nterest income from his Barclay s account was intentionally omitted from his tax

return in 1998 or 1999. Judicial admissions are “ad missions in pleadings, stipulations [or the like] which do not have to be proven in the same litigation.” Giannone v. U.S. Steel Corp.

, 238 F.2d 544, 547 (3d Cir. 1956). To be binding, judicial admissions “must be statements of fact that require

evidenti ary proof, not statements of legal theories.” In re Teleglobe Commc’n s Corp. , 493 F.3d 345, 377 (3d Cir. 2007). For this reason, even if this Court were to accept the

dubious claim that the IRS conceded in its motion to sever

that income from G & A was n ot taxable to Anderson, that concession would not be binding on it because it would be a statement of a legal proposition. Additionally, to be binding, judicial admissions must be unequivocal. Id. The IRS’s motion to sever very clearly relates only to t ax years 1995,14 1996 and 1997, and thus cannot be deemed to unequivocal ly

state that the income of G & A was not taxable to Anderson

or that he did not intentionally omit the interest on his Barclay s account from his tax return in subsequent years.

The doc trine of judicial admissions therefore has no application here

.

III. C ONCLUSION

W e hold that Anderson’s conviction for tax evasion in 1998 and 1999 precludes him, by virtue of the doctrine of collateral estoppel, from contesting in subsequent civil fr aud proceedings that the inc ome of G & A was taxable to him in those years. We additionally conclude that the IRS’s concession of all deficiency and penalty issues for the years 1995, 1996, and 1997 has no preclusive effect on those issues

for 1998 and 19 99. For these reasons, we will affirm the Tax Court’s judgment.