1This case was assigned to Judge Julian I. Jacobs for

disposition of respondent’s motion for summary judgment by order

of the Chief Judge on Aug. 12, 2008.

T.C. Memo. 2008-220

UNITED STATES TAX COURT

JACK E. AND RUTH I. CHRISTIANS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21555-07. Filed September 29, 2008.

Robert Alan Jones, for petitioners.

A. Gary Begun, for respondent.

MEMORANDUM OPINION

JACOBS, Judge:

1 This matter is before the Court on

respondent’s motion for summary judgment filed pursuant to Rule

121. Petitioners filed a response opposing respondent’s motion. 
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The issues presented are: (1) Whether petitioners, each of whom

was indicted and subsequently convicted under section 7201 for 

willfully attempting to evade and defeat a large part of the

income tax due * * * for the calendar year 1995, by filing

and causing to be filed * * * a false and fraudulent joint

U.S. Individual Income Tax Return, Form 1040, wherein

approximately TWO MILLION NINE HUNDRED FORTY SIX THOUSAND

FIFTY dollars ($2,946,050) of income was excluded from the

return causing an underpayment of approximately EIGHT

HUNDRED TWENTY FOUR THOUSAND EIGHT HUNDRED NINETY FOUR

Dollars ($824,894)in taxes,

are collaterally estopped from contesting their liability for the

civil fraud penalty under section 6663 for the same taxable year;

and (2) whether petitioners are entitled to a $25,600 charitable

contribution deduction for taxable year 1995. 

All section references are to the Internal Revenue Code

(Code) as amended, and all Rule references are to the Tax Court

Rules of Practice and Procedure. 

Background

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. The parties stipulated

that any appeal in this case will lie to the Court of Appeals for

the Sixth Circuit.

The Court of Appeals for the Sixth Circuit, in United States

v. Christians, 105 Fed. Appx. 748 (6th Cir. 2004), affirmed

petitioners’ convictions under section 7201. The Court of

Appeals identified the relevant facts to be as follows.
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2The return showed a total tax of $9,469.

In 1995, Meijer, Inc., a large retailer, entered into

negotiations with the Christians [petitioners herein] for

the purchase of their Michigan home and an accompanying 20-

acre tract of land. On the day before Meijer made its final

offer of approximately $3.1 million, the Christians created

Cornerstone Management Trust, naming themselves as trustees,

and deeded their property to the trust for $10. The

Christians accepted Meijer’s $3.1 million offer.

A few days before the closing on the land sale, the

Christians created Ottawa Trust, again naming themselves as

trustees. After receiving a check written to the

Cornerstone Management Trust for $3,072,699.94, the

Christians deposited the funds in Ottawa Trust’s account. 

In the months following the sale, the Christians moved most

of the money to Barclays Bank in the Cayman Islands,

ultimately sending over $3 million there.

On April 15, 1996, the Christians filed their

individual IRS Form 1040, which omitted any reference to the

real-property sale or to the gain realized from it.[2] The

Christians also filed an IRS Form 1041 for Cornerstone

Management Trust. This return disclosed the property sale,

calculated the tax due at over $1.1 million, and was signed

by Jack Christians. Instead of paying the tax, however,

Jack Christians attached a disclaimer, which read in part: 

“The assessment and payment of income taxes is voluntary

with no distraint. . . . The above named taxpayer(s)

respectfully disclaim any liability and decline to volunteer

concerning assessment and payment of any [tax].” The

disclaimer closed by suggesting that if the taxpayer “shows

the tax to be zero,” then the IRS has the obligation of

assessing any tax deficiency.

 

The IRS audited the Christians, who refused to

cooperate, even after Agent Rogowski of the IRS’s Criminal

Investigation Division became involved. After a court

enforced an administrative summons for their records, the

Christians produced documentation regarding the real

property sale and the trusts. The documents revealed that

the Christians maintained control of the two trusts and, as

a result, retained control over the transfer of their real

property and the proceeds from the sale. 

After meeting with Agent Rogowski and after receiving

an accountant’s advice that the proceeds of the sale
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3The amended return increased petitioners’ adjusted gross

income by $2,948,000, with the explanation “Ottawa Revocable

Living Trust Not Included in Original Filing of Form 1040”, and

showed $1,118,112 as the correct amount of total tax.

belonged on their individual tax return, the Christians

filed an amended 1995 return using an IRS Form 1040X on July

17, 1997. The return listed the tax due at approximately

$1.1 million,[3] stated that the “admitted tax liability is

zero,” then added a tax disclaimer nearly identical to the

one attached to Cornerstone Management Trust’s earlier

return. 

On February 27, 2002, a grand jury indicted the

Christians on a single count of willfully attempting to

evade the payment of income tax due from the sale of their

property “by filing ... a false and fraudulent joint U.S.

Individual Income Tax Return, Form 1040” in violation of 26

U.S.C. §7201. The jury returned a guilty verdict against

both defendants. The court sentenced them each to 27-month

prison sentences. [Id. at 749-750; joint appendix refs.

omitted.] 

On their 1995 return petitioners claimed a $25,600

charitable contribution deduction consisting of $600 in cash and

$25,000 of other property. Attached to the return was a Form

8283, Noncash Charitable Contributions, which described the

donated property as a house in good condition with a fair market

value of $25,000 and identified the donee as the Evangelistic

Center of Grand Rapids, Michigan. A letter of thanks and a

receipt for $25,000, both signed by Pastor Harry Dunn of the

Evangelistic Center, were attached to the return. In their

amended 1995 return, filed July 17, 1997, in addition to

increasing the amount of their adjusted gross income to include 

the gain from the sale of property to Meijer, Inc., petitioners

claimed an additional $120,025 charitable contribution deduction.
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Respondent issued a notice of deficiency on June 29, 2007. 

Respondent determined that petitioners’ income should be

increased by $2,948,000 to reflect the sale of property to

Meijer, Inc., and disallowed the $25,600 charitable contribution

deduction claimed in the original return. The resulting tax,

according to respondent, is $845,049, leaving a deficiency of

$835,580 after taking into account the amount of tax ($9,469)

shown on the original return. Respondent acknowledges that

petitioners made a payment of $824,894 on January 24, 2003, which

will be applied to the deficiency amount. Respondent also

determined that petitioners are liable for the section 6663 civil

fraud penalty in the amount of $626,685.

Petitioners admit that the gain from the sale of property to

Meijer, Inc., is includable in their income for 1995 and

generated tax. They assert, however, that their tax liability

was not understated but rather was reported by means of two

returns--a Form 1040, U.S. Individual Income Tax Return, and a

Form 1041, U.S. Income Tax Return for Estates and Trusts, filed

by Cornerstone Management Trust. 

Petitioners concede in their response opposing respondent’s

motion that “the law is not generally in their favor”, but they

maintain “they should be allowed to contest the fraud penalty on

the basis of the facts which establish that no fraudulent tax

returns were filed but rather the Petitioners refused to pay the
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original amounts due, and moved their assets out of the

jurisdiction of the United States to frustrate collection efforts

by the IRS.” 

In summarizing their position, petitioners state:

This is clearly a willful refusal to pay, tax protest type

case not a fraudulent attempt to evade liability. Although

convicted of violating IRC §7201, it is clear that

Petitioners were engaged in conduct to attempt to validate

their incorrect positions that no taxes were due and owing

at that time.

This should not result in collateral preclusion by

fraud. It was not necessary under §7201 for the jury to

find a fraudulent filing to sustain or support the

conviction. Therefore, the facts should be viewed as

admitted by Respondent, thus precluding summary judgment on

the issue.

Petitioners also assert that they are entitled to contest

respondent’s disallowance of their $25,600 claimed charitable

contribution. Finally, petitioners claim that their $824,894

payment of January 24, 2003, extinguished their tax liability.

Discussion

As a preliminary matter, we note that summary judgment is

intended to expedite litigation and avoid unnecessary and

expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678,

681 (1988). The Court may grant summary judgment where there is

no genuine issue of any material fact and a decision may be

rendered as a matter of law. Rule 121(b); Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994). The moving party bears the burden of proving that no
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genuine issue of material fact exists, and the Court will view

any factual material and inferences in the light most favorable

to the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812,

821 (1985). A partial summary adjudication may be made even if

it does not dispose of all the issues in the case. Rule 121(b);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985). Rule 121(d)

provides that where the moving party properly makes and supports

a motion for summary judgment, “an adverse party may not rest

upon the mere allegations or denials of such party’s pleading,”

but must set forth specific facts, by affidavits or otherwise,

“showing that there is a genuine issue for trial.”

We now turn to the first of the two issues; namely, whether

petitioners’ convictions for income tax evasion under section

7201 collaterally estop them from litigating the issue of their

liability for the civil fraud penalty under section 6663. 

In Montana v. United States, 440 U.S. 147, 153-154 (1979),

the Supreme Court provided guidance on the application of the

doctrine of collateral estoppel as follows: “Under collateral

estoppel, once an issue is actually and necessarily determined by

a court of competent jurisdiction, that determination is

conclusive in subsequent suits based on a different cause of

action involving a party to the prior litigation.”

The two Code sections involved herein are section 6663 and

section 7201. Section 6663 provides:
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SEC. 6663. IMPOSITION OF FRAUD PENALTY.

(a) Imposition of Penalty.--If any part of any

underpayment of tax required to be shown on a return is due

to fraud, there shall be added to the tax an amount equal to

75 percent of the portion of the underpayment which is

attributable to fraud.

(b) Determination of Portion Attributable to Fraud.--

If the Secretary establishes that any portion of an

underpayment is attributable to fraud, the entire

underpayment shall be treated as attributable to fraud,

except with respect to any portion of the underpayment which

the taxpayer establishes (by a preponderance of the

evidence) is not attributable to fraud.

(c) Special Rule for Joint Returns.--In the case of a

joint return, this section shall not apply with respect to a

spouse unless some part of the underpayment is due to the

fraud of such spouse.

An “underpayment” for purposes of section 6663 is defined in

section 6664(a), in relevant part, as the amount by which the tax

imposed exceeds the amount shown as the tax by the taxpayer on

his return. 

The record shows, and petitioners admit, that they filed a

1995 individual tax return on which they did not report the gain

from the sale of their property to Meijer, Inc., or the tax

imposed on the gain. However, petitioners assert that their tax

liability was not understated but rather was reported by means of

two returns--a Form 1040 and a Form 1041 filed by Cornerstone

Management Trust. Petitioners made this same assertion in

appealing their convictions under section 7201. The Court of

Appeals for the Sixth Circuit rejected this argument, stating: 
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4Petitioners do not appear to argue that their amended

return, filed after they were notified that the IRS’s Criminal

Investigation Division had become involved, remedied the

fraudulent underpayment with respect to their original return. 

Indeed, as the Supreme Court noted in Badaracco v. Commissioner,

464 U.S. 386, 394 (1984), “once a fraudulent return has been

filed, the case remains one ‘of a false or fraudulent return,’

regardless of the taxpayer’s later revised conduct, for purposes

of criminal prosecution and civil fraud liability” and “a

taxpayer who submits a fraudulent return does not purge the fraud

by subsequent voluntary disclosure”. 

Nor may the Christians sidestep this conclusion [that

they willfully evaded their taxes] by pointing out that

their 1995 individual tax return did not contain a false

statement when read in conjunction with Cornerstone

Management Trust’s IRS Form 1041, which did disclose the tax

owed and proceeded to disclaim any liability for it. The

Government prosecuted the Christians for income tax evasion

with respect to their individual tax return, not the return

of Cornerstone Management Trust. And their individual

return neither acknowledged nor paid the tax due. No doubt,

a jury could have concluded that the acknowledgment of the

sale and the tax due on the Cornerstone Management Trust

form undermined a finding that the Christians acted

willfully and committed an affirmative act of evasion. But

in view of the Christians’ prior tax-filing experiences,

their sudden decision no longer to use an accountant, their

creation of the sham trusts and offshore accounts and their

non-cooperative conduct once the Government inquired about

the sale, the Christians cannot tenably argue that the jury

was compelled to reach such a conclusion on the basis of the

Cornerstone tax filing. [United States v. Christians, 105

Fed. Appx. at 752]. 

We are mindful that petitioners, in their amended return,

admitted an underpayment of tax for 1995. See Badaracco v.

Commissioner, 464 U.S. 386, 399 (1984).4 Therefore, there is no

doubt that there was an “underpayment of tax required to be shown

on a return” with respect to petitioners’ 1995 return as required

by section 6663. 
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Section 7201 provides:

SEC. 7201. ATTEMPT TO EVADE OR DEFEAT TAX. 

Any person who willfully attempts in any manner to

evade or defeat any tax imposed by this title or the payment

thereof shall, in addition to other penalties provided by

law, be guilty of a felony and, upon conviction thereof,

shall be fined not more than $100,000 ($500,000 in the case

of a corporation), or imprisoned not more than 5 years, or

both, together with the costs of prosecution.

 Petitioners were convicted of violating section 7201. We

have repeatedly held that “A conviction for an attempt to evade

or defeat tax pursuant to section 7201, either upon a guilty plea

or upon a jury verdict, conclusively establishes fraud in a

subsequent civil tax fraud proceeding through the application of 

the doctrine of collateral estoppel.” Marretta v. Commissioner,

T.C. Memo. 2004-128 (citing DiLeo v. Commissioner, 96 T.C. 858,

885 (1991), affd. 959 F.2d 16 (2d Cir. 1992) and Frey v.

Commissioner, T.C. Memo. 1998-226), affd. 168 Fed. Appx. 528 (3d

Cir. 2006); see also Montalbano v. Commissioner, T.C. Memo. 2007-

349 (“It is well established that a final criminal judgment for

tax evasion under section 7201 collaterally estops relitigation

of the issue of fraudulent intent in a subsequent proceeding over

the civil fraud penalty.”); Uscinski v. Commissioner, T.C. Memo.

2006-200 (“Because the elements of criminal tax evasion and civil

tax fraud are identical, petitioner’s prior conviction under

section 7201 conclusively establishes the elements necessary for

finding fraud under section 6663.”); Wilson v. Commissioner, T.C.
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5Petitioners, in their opposition to respondent’s motion for

summary judgment, rely on the dissenting opinion in Gray v.

Commissioner, 708 F.2d 243, 247 (6th Cir. 1983) Merritt, J.,

dissenting, affg. T.C. Memo. 1981-1. The taxpayer in Gray, who

entered a guilty plea to income tax evasion under sec. 7201,

claimed that he did not understand that his guilty plea would

have collateral consequences in subsequent civil proceedings. 

The dissent objected to application of collateral estoppel under

those circumstances. Even were we to recognize a difference

between a guilty plea and a jury verdict for purposes of

application of collateral estoppel in these circumstances, which

we do not, see Marretta v. Commissioner, T.C. Memo. 2004-128,

affd. 168 Fed. Appx. 528 (3d Cir. 2006), petitioners’ convictions

were the result of a jury verdict of income tax evasion under

sec. 7201 rather than the result of guilty pleas to those

charges. In any event, apart from our own precedent, we would be

constrained by the majority position in Gray v. Commissioner,

supra, to apply the doctrine of collateral estoppel to the case

at bar. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970),

affd. 445 F.2d 985 (10th Cir. 1971).

Memo. 2002-234 (“We hold that the doctrine of collateral estoppel

bars * * * [the taxpayer convicted under section 7201] from

relitigating in the instant case the matters litigated in * * *

[the taxpayer’s] criminal tax proceeding, i.e., whether * * *

[the taxpayer] underpaid his tax for each of the taxable years *

* * and whether his underpayment of such tax for each such year

was due to fraud.”). Our holding in this regard has been

affirmed by the Court of Appeals for the Sixth Circuit. Shah v.

Commissioner, 208 F.3d 215 (6th Cir. 2000), affg. without

published opinion T.C. Memo. 1999-71; Gray v. Commissioner, 708

F.2d 243, 246 (6th Cir. 1983), and cases cited thereat, affg.

T.C. Memo. 1981-1.5

As recounted supra, petitioners were indicted and convicted

for willfully attempting to evade the payment of income tax due
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from the sale of their property by filing a false and fraudulent

joint tax return for 1995 in violation of section 7201. As the

Court of Appeals noted, the petitioners’ filing of a false Form

1040 constituted the affirmative act of evasion under section

7201 charged in the indictment. United States v. Christians, 105

Fed. Appx. at 753. Therefore, contrary to petitioners’ claim,

the issue of whether they filed a false and fraudulent return for

1995 was in fact “actually and necessarily determined by a court

of competent jurisdiction”, Montana v. United States, 440 U.S. at

153. Thus, petitioners are estopped from relitigating that issue

in this proceeding.

On the record presented, we find that there is no genuine

issue of material fact with respect to the section 6663 penalty

insofar as it relates to petitioners’ 1995 underpayment

attributable to petitioners’ failure to report the gain from the

sale of their property to Meijer, Inc., in their 1995 return. We

thus hold that a decision may, and should, be entered against

petitioners on that issue as a matter of law. Accordingly, we

sustain respondent’s determination to impose a penalty under

section 6663 with respect to the portion of petitioners’ 1995

underpayment attributable to the omitted gain from the sale.

We now turn to that portion of petitioners’ 1995

underpayment which is attributable to petitioners’ $25,600

claimed charitable contribution deduction. Petitioners’
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entitlement to the charitable contribution deduction was not

addressed in the criminal proceeding which resulted in their

convictions under section 7201, and petitioners dispute

respondent’s disallowance of the charitable contribution

deduction. Summary judgment with respect to this matter is not

appropriate. A trial with respect to this issue should proceed. 

A determination of the extent to which petitioners have paid

their outstanding tax liability must await the resolution of the

issue relating to the claimed charitable contribution deduction.

To reflect the foregoing,

An order granting in part

and denying in part

respondent’s motion for

summary judgment will be

issued.