TAX COURT OPINION

Case: Joseph B. Campbell
Docket Number: 8677-97
Judge: Marvel
Opinion Type: memo
Filed: 02/28/2001
Pages: 16

ca. T.C. Memo. 2001-51 UNITED STATES TAX COURT JOSEPH B. CAMPBELL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 8677-97. Filed February 28, 2001. Lawrence H. Crosby, for petitioner. Jonathan P. Decatorsmith and Tracy Anagnost Martinez, for respondent . MEMORANDUM FINDINGS OF FACT AND OPINION MARVEL, Judge: Respondent determined the following deficiencies and additions to tax with respect to petitioner's Federal income taxes:¹ ¹All section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the (continued...) BERVED FEB 2 8 2001 farm equipment during 1990 under section 108(a)(1)(C) as qualified farm indebtedness;³ (3) whether petitioner is entitled to deduct expenses incurred in connection with services rendered on behalf of the tribe or the tribal council during 1993 and 1994;4 (4) whether petitioner is liable for additions to tax pursuant to section 6651(a)(1) for failure to file returns for 1990, 1991, 1993, and 1994; and (5). whether petitioner is liable for additions to tax pursuant to section 6654(a) for failure to make estimated tax payments for 1990, 1991, 1993, and 1994. FINDINGS OF FACT Some of the facts have been stipulated and are so found. We incorporate the stipulation of facts into our findings by this reference. 3Petitioner did not contest this issue in his petition. Petitioner contested this issue for the first time in his trial memorandum, presented evidence on the issue at trial, and argued in his opening brief that he was entitled to exclude the discharge of the Court's review of this issue. by consent and consider it before the Court. Shea v. Commissioner, 112 T.C. 183, 190-191 n.11 (1999). indebtedness income. Respondent did not object Thus, we deem this issue tried See Rule 41(b); to 4Petitioner did not contest the issue in his petition. However, petitioner presented evidence on the issue at trial and argued in his opening brief that he was entitled to the deductions. Respondent.did not object this issue. consider it before the Court. Commissioner, supra. Thus, we deem this issue tried by consent and to the Court's review of See Rule 41(b); Shea v. • or about November 15, 1989, the tribe signed a compacts with the State of Minnesota for control of class III gaming.6 As an enrolled member of the tribe, petitioner.is entitled to receive per capita distributions attributable to income derived from the tribe's casino. During the years 1991, 1993, and 1994, petitioner received per capita distributions of .$19,070, $40,933, and $50,222, respectively. No Federal income taxes were withheld from petitioner's per capita distributions. Prior Litigation Petitioner in this case was also the petitioner in Campbell v. Commissioner, docket No. 9244-95 (Campbell I). At issue in Campbell I was the proper Federal income tax treatment of a 1992 per capita distribution from the tribe to petitioner arising out SUnder the Indian Gaming Regulatory Act (IGRA), Pub. L. 100- 497, secs. 1-22, 102 Stat. 2467 (1988), current version at 25 • U.S.C. secs. 2701-2721 (Supp. 2000), a tribal-State compact the tribe take effect only when notice of governing gaming activities on the Indian lands of shall by the Secretary of Register. compact between the tribe and the State of Minnesota was approved by the Secretary, and notice of the approval was published in the Federal Register as required. 1990). the Interior is published in. the Federal See 25 U.S.C. sec. 2710(d)(3) (B). See 55 Fed. Reg. 12292 (Apr. 2, the approval of The tribal-State the compact 6At trial, respondent objected to the admission of Exhibits 36-J through 39-J on grounds of relevance, and we reserved final ruling on the admission of the constitution and bylaws of charter, Allocation Ordinance discussed infra. objection and admit exhibits are relevant estoppel infra. the tribal-State compact, and the Gaming Revenue The exhibits included the tribe's corporate the exhibits because we conclude that the We overrule respondent's to our discussion of the collateral the exhibits. the tribe, issue, - 7 - automatically deducted from per capita payments. Tribal Administration shall the application of existence of include in the notice of the the withholding procedure. federal tax laws, a notice of The In approximately November 1994, the Department of the Interior notified the tribe that it had determined the ordinance . was in compliance with the IGRA and had approved the ordinance. Discharge of Indebtedness Petitioner borrowed money from the U.S. Department of Agriculture, Farmers Home Administration (FmHA), on at least three different occasions for operating expenses and other uses with respect to his farming activity. On July 25, 1983, petitioner borrowed $32,326 from the FmHA. On May 30, 1984, petitioner borrowed $35,500 from the FmHA for annual operating expenses and to purchase an irrigation system. On January 8, 1987, petitioner borrowed an unknown amount from the FmHA. In order to receive loans from the FmHA, petitioner was required to prepare and submit a projection or "prospective plan" for each operating year the loan was effective.' At some point, petitioner entered into a security agreement for each of his FnMA loans granting the FmHA a security interest in some of his chattel, including a tractor, a combine, a planter, a wagon, a plow, and other farming equipment (chattel). The only projection included in the record concerned the period Jan. 1 through Dec. 31, 1990. Commissioner of the tribe, game warden, environmental specialist, and various volunteer positions on behalf of the tribal council. From about September 1988 until June 1990, and again in 1994, petitioner earned $150 per week as Tobacco Commissioner. Any expenses petitioner incurred in connection with services performed on behalf of the tribal council were covered by a reimbursement policy. Under the reimbursement policy, petitioner was entitled to receive from the tribal council $75 for every meeting he attended, even when there were multiple meetings in a single day (meeting payments). The meeting payments were an incentive to persuade people to attend meetings. Under the reimbursement policy, petitioner was also entitled to claim reimbursement for meals, travel mileage, lodging, airfare, and other miscellaneous expenses. According to the reimbursement policy, petitioner was required to submit a form detailing the expenses he incurred, with attached receipts, and requesting the meeting payments he was entitled to receive. Pet.itioner kept track of his expenses by keeping calendars and receipts. Sometime around February 1992, the tribal council stopped making reimbursements to petitioner. Petitioner stopped submitting reimbursement requests around August 1993. - 11 - U.S. 147, 153 (1979) (citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5 (1979)); see also Commissioner v. Sunnen, supra at 599-600; Popp Telcom v. American Sharecom, Inc., 210 F.3d 928, 939 (8th Cir. 2000); Monahan v. Commissioner, 109 T.C. 235, 240 (1997), affd. without published opinion 86 F.3d 1162 (9th Cir. 1996); Kroh v. Commissioner, 98 T.C. 383, 401 (1992); Gammill v. Commissioner, 62 T.C. 607, 613 (1974). In Montana v. United States, supra at 155, the Supreme Court established a three-prong test for applying collateral estoppel that requires a court to find: (1) The issues presented in the subsequent litigation are in substance the.same as those issues presented in the first case; (2) the controlling facts or legal principles have not changed significantly since the first judgment; and (3) other special circumstances do not warrant an exception to the normal rules of preclusion. In Peck v. Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525 (9th Cir. 1990), we stated that the "three-pronged rubric provided by the Supreme Court in the Montana case embodies a number of detailed tests developed by the courts to test the *(...continued) . involving the same parties or their privies based on the same cause of action." Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5 (1979). years than in Campbell I. liability and of a separate cause of action." Commissioner v. Sunnen, 333 U.S. 591, 598 (1948); see also Peck v. Commissioner, 904 F.2d 525, 527 n.3 (9th Cir. 1990), affg. 90 T.C. 162 (1988). Res judicata, In this case, petitioner disputes different tax "Each year is the origin of a new therefore, does not apply. - 13 - In both Campbell I and this case, the ultimate issue presented is whether per capita distributions to petitioner from the tribe arising out of the ownership and operation of a gambling casino constitute gross income. In this case, the parties stipulated that the primary issue in Campbell I was the tax treatment of a per capita distribution to petltioner in 1992 from the tribe arising out of the ownership and operation of the casino. In Campbell I, we specifically stated that the primary issue for decision was: * * * * [tribe] arising out of the ownership and Whether per capita distributions to petitioner from the * operation of a gambling casino constitute gross income, or whether such income is "derived directly" from land owned by the * taxation pursuant between Indian tribes and the United States Government * * *. 502.] [tribe] and is excludable from treaties, or agreements [Campbell v. Commissioner, T.C. Memo. 1997- to laws, The only differences between the issue in this case and the issue in Campbell I are the dollar amounts and years in controversy. The fact that the dollar amounts in controversy and the tax years involved in this case are different from those in Campbell I, however, does not preclude the application of collateral estoppel. See Union Carbide Corp. v. Commissioner, 75 T.C. 220, ¹°(...continued) the Court. - 15 - Sunnen, 333 U.S. at 602. "If the legal matters determined in the earlier case differ from those raised in the second case, collateral estoppel has no bearing on the situation." Id at 599-600; see also Sydnes v. Commissioner, 647 F.2d 813, 814-815 (8th Cir. 1981), affg. 74 T.C. 864 (1980). Petitioner's principal argument against the application of collateral estoppel is that the controlling facts and applicable legal rules either have changed or differ significantly from those considered in Campbell I. We reject petitioner's principal argument." . Except for the taxable years and the amounts at issue, the relevant facts in Campbell I and in this case are identical. The per capita distributions made to petitioner during 1991, 1993, "In Commissioner v. Sunnen, 333 U.S. at 601 (fn. ref. issues It is not clear whether the Supreme Court suggested that "if the relevant facts The separable facts doctrine has been questioned and omitted), in the two cases are separable, even though they be similar or identical, collateral estoppel does not govern the legal which recur in the second case." petitioner is relying on the separable facts doctrine articulated in Sunnen; however, even if he is, we still must reject his argument. limited by the Supreme Court See also Peck v. Commissioner, 904 F.2d at 527- U.S. 147 (1979). 528 ("The Supreme Court has rejected the separable facts doctrine in general validity in the tax context."). Appeals have concluded that good law after Montana. Secretary of HEW, 677 F.2d 118, 120 (D.C. Cir. 1981) curiam); Hicks v. Quaker Oats Co., 662 F.2d 1158, 1167 (5th Cir. 1981). Whether or not the separable facts doctrine has any continued viability, we conclude that there is no basis for applying the doctrine in this case. terms, but has implied that it might have continuing in Montana v. United States, 440 In addition, two Courts of the separable facts doctrine is not See American Med. Intl., Inc. v. (per . - 17 - The only question, therefore, is whether there has been.a "change . in the legal climate" since the decision in Campbell I. Commissioner v. Sunnen, supra at 606. Petitioner has not referenced, and we cannot find, any relevant change in the applicable law that warrants a second analysis of petitioner's case. Although the IGRA was amended after the decision in Campbell I, none of the amendments are relevant to the issue presented.13 Notably, petitioner does not argue that any specific amendment to the IGRA would have had any ¹³Thefirst amendment to the IGRA was the addition of 25 the Department of in fiscal year 1990 and thereafter, the duties of the National (E) and (F) to 25 U.S.C. sec. 2703 The Technical Amendments to Various the Interior and U.S.C. sec. 2717a as part of Related Agencies Appropriations Act, 1990, Pub. L. 101-121, 103 Stat. 701, 718, current version at 25 U.S.C. sec. 2717a (Supp. 2000), which provides that, fees to be collected pursuant. to 25 U.S.C. sec. 2717 (Supp. 2000) shall be available to carry out Indian Gaming Commission (NIGC). Indian Laws Act of 1991, Pub. L. 102-238, sec. 2(a) and (b), 105 Stat. 1908, current version at 25 U.S.C. sec. 2703(E) and (F) (Supp. 2000), added subpars. and added provisions to 25 U.S.C. sec. 2718 authorizing appropriation of necessary funds for operation of the NIGC for fiscal years beginning Oct. 1, 1991 and 1992. Federal sec. 16, 106 Stat. 3255, 3261 (1992), current version at 25 U.S.C. sec. 2703 (Supp. 2000), struck out following the word "Wisconsin" in 25 U.S.C. sec. 2703(7)(E). 1997, Appropriations Act, 1998, Pub. L. 105-83, sec. 123(a) and (b), 111 Stat. 1543, 1566, current version at 25 U.S.C. secs. 2717 and 2718 (Supp. 2000), made minor changes to the wording of 25 U.S.C. sec. 2717(a)(1) and (2), made minor wording amendments to 25 In U.S.C. sec. 2718(a), and rewrote 25 U.S.C. sec. 2718(b). addition, the Judiciary, and Related Agencies Appropriations Act, 1998, Pub. L. 105-119, sec. 627, 111 Stat. 2440, 2522, current version at 25 U.S.C. sec. 2718 (Supp. 2000), rewrote 25 U.S.C. sec. 2718(a). Indian Statutes: Technical Amendments, Pub. L. 102-497, the Department of Commerce, Justice, and State, the Department of the Interior and Related Agencies the words "or Montana" In . In 1992, the 4 - 19 - the tribe had the right to earn revenue or income and then to distribute these funds directly to the members of the tribe as per capita payments." As petitioner stresses in his brief, the tribal constitution and the corporate charter predate the IGRA by approximately 50 years. Evidence.regarding the meaning and application of the tribal constitution and the corporate charter could have been admitted during the trial of Campbell I. It was not. See Jones v. United States, 466 F.2d 131, 136 (10th Cir. 1972); Monahan v. Commissioner, 109 T.C. at 246. Petitioner's argument is nothing more than an alternative argument.in support of his position on the identical issue presented in Campbell I. Petitioner did not make this argument in the earlier proceeding. As a general rule, taxpayers are not permitted to avoid the application.of collateral estoppel simply by advancing new theories on issues decided against them in an earlier proceeding. See Leininger v. Commissioner, 86 F.2d 791, 792 (6th Cir. 1936), affg. 29 B.T.A. 874 (1934); Estate of Goldenberg v. Commissioner, T.C. Memo. 1964-134; Pelham Hall Co. v. Carney, 27 F. Supp. 388 (D. Mass. 1939), affd. 111 F.2d 944 (1st Cir. 1940). Indeed, had the present case been consolidated for trial with Campbell I, "one uniform result would necessarily have obtained"." Peck v. It is noteworthy that, in making his argument that the applicable legal climate has changed since the year at issue in (continued...) - 21 - affd. 255 F.2d 841 (2d Cir. 1958); Travers v. Commissioner, T.C. Memo. 1982-498. In this case, however, petitioner's "constitutional" challenge is merely a bare assertion unsupported by any references to the U.S. Constitution or by any evidence at trial and in no way raises a valid constitutional claim. See Morrow v. Commissioner, T.C. Memo. 1983-186. In addition, the argument could have been raised in Campbell I. See Leininger v. Commissioner, supra; Estate of Goldenberg v. Commissioner, supra; Pelham Hall Co. v. Carney, supra. Both California v. Cabazon Band of Mission Indians, supra, and Seminole Tribe v. Butterworth, supra, were decided before the enactment of the IGRA. Indeed, the IGRA was a congressional response to the Supreme Court's decision in California v. Cabazon.Band of. Mission Indians, supra, which followed a long line of cases that began with Seminole Tribe v. Butterworth, supra. See S. Rept. 100-446, at 3071 (1988). We hold that each of the requirements for applying the doctrine of collateral estoppel in this case has been satisfied and that collateral estoppel applies to preclude relitigation of . the proper tax treatment of the per capita distributions paid to petitioner during the years at issue. We sustain respondent's determination that petitioner's 1991, 1993, and 1994 per capita distributions of $19,070, $40,933, and $50,222, respectively, are subject to Federal·income tax. . - 23 - Graves v. Commissioner, 89 T.C. 49, 51 (1987), supplementing 88 T.C. 28 (1987)). Respondent contends that petitioner realized $31,238 in gross income as a result of the FmHA's discharge of petitioner's indebtedness during 1990. Respondent does not dispute, for purposes of the section 108 (a) (1) (C) exclusion, (1) that the FmHA is a qualified person, see sec. 108(g)(1); (2) that petitioner's indebtedness was incurred directly in connection with petitioner's operation of the trade or business of farming, see sec. 108(g) (2) (A); or (3) that petitioner was solvent, see sec. 108(a)(2) (B). Respondent argues, however, that petitioner fails to satisfy the test in section 108(g)(2) (JB). See Lawinger v. Commissioner, 103 T.C. 428 (1994). Petitioner testified that for 1987, 1988, and 1989 he earned . gross income of approximately $250 per acre multiplied by 270 acres of farmed land, totaling approximately $65,000 per. year. According to petitioner, he earned "somewhere in the neighborhood of around $250 an acre for corn" and "just a little less than that" for soybeans. On cross-examination, however, petitioner testified that only 110 acres of that land were "under the irrigator" and the rema1ning acres were not producing. Petitioner testified further that he kept annual production records as required by the FmHA in order to borrow money but that he could not produce these records at trial because the FmHA had . - 25 - 74, 77 (1986); Peterman v. Commissioner, T.C. Memo. 1993-129 (citing Geiger v. Commissioner, 440 F.2d 688, 689 (9th Cir. 1971), affg. per curiam T.C. Memo. 1969-159, and Urban Redev. Corp. v. Commissioner, 294 F.2d 328, 332 (4th Cir. 1961), affg. 34 T.C. 845 (1960)). Petitioner has not presented any documentary evidence to prove his gross receipts from farming for 1987, 1988, and 1989. Petitioner's testimony regarding the income he estimated he earned from farming during the years at issue was contradictory and inconsistent. On this record, we cannot estimate, nor are we required to estimate, petitioner's income from farming. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). In addition, we are not able to ascertain what income he earned from other sources during the years at issue. Petitioner has not met his burden of proving he . received gross receipts of 50 percent or more from farming as required under section 108(g)(2)(JB). Thus, we hold that petitioner is not entitled to the exclusion under section 108(a)(1) (C), and he must include $31,238 in gross income by reason of the discharge of his indebtedness. Tribal Council Expenses Petitioner claims he is entitled to deduct unreimbursed business expenses, travel costs, and mileage incurred while performing activities on behalf of the tribal council, or, in the alternative, that he is entitled to deduct such expenses as a it is normal-, Lusuâl, or7ät.ístomary 1thiiinâ pârticularStradë busiñess, o aindustrýnor arisésrfrörù a"t'ráñsadtíòñ>"öf cosmÉn B 2 frequent occhrrencesin:-the typë öf businesstiñvölvedl~ Öëj5ÕtyM du Pont,.i304 UfSr. 488,.(495 (1940)±FAn.expéñseqiš3nêcëssarp if 31 is apprôpridte-and helpfulTfør 'the "developmënt? òf -thé büsidess. See Commissioner v.'Linâàln'Saf. & Löan ·Asšöci'át'iön,7stiprdfat 353; Commissioñef V7 Héininger, 32'O U S 467¼*4714(1943) .7' Section 262 (a)Rdinallows deductions fór persóñâl; ·liói'nc o family' expenses. See also sec. 1.162-17(ä) Income4TáiReg's. Section 162 álso allows a taxpaydr to'¶dè'duyt ©ór'diiia-rFa'nd necessâry búsinesscexpenses in excéss of reimburserfie-nts from the taxpayeris ' employer . Sëe séd. 1 162 -T7 (b) (-3 )3 Indoiñe hán Šte á .- ordinary and necessary busihess the amounts charged If the ettípl'oyee' expenses exceed the total of directly or indirectly to the erñplo~yer ánd'freceiWéd from the employer as advances, otherwisé:/nand- the' employee is required to ànd"doegt yr account the taxpayer may * *: * claïm cm deductión for: sùch excess to his employer for such expenses, reimbursements, or f[Id'.]U "AT If the takpayer twishes !to secur~e' a dëductibù7 for "súdh excess, he must submit a statéitieht with his re"turn showin~cf:^ (1) "The total of anyrcharges påfd dr- borné by1th-e mployer and' of any other amounts recéîv'ed -from the'èrnpldyèr för paytríenttof expenses wÑether by means . of . advances' reimbürsemenEs or7. otherwi'seef séc.. 1.162-17-(b)1(3) (i) ,bIndöme Ta'x Re'gs.90 añ~d L(2) "The nature of-his occupat'irohi the nûmbertof#dàys'àwat frétií home on bùsines , and the. total7 amótiht'óf oífd1Nary. atfd ñdcessaYV . - 31 - Section 170 Deduction Section 170 allows a deduction for any charitable contribution payment made within the taxable year. For purposes of section 170, the definition of charitable contribution includes a contribution or gift to or for the use of a State, among other things, if the contribution is made for exclusively public purposes. See sec. 170(c) (1). Section 7871(a) (1) (A) treats Indian tribal governments as States for purposes of determining whether and in what amount any contribution or transfer to or for the use of such States is deductible under section 170. Petitioner bears the burden of demonstrating he is entitled to the claimed deduction. See Rule 142(a); INDOPCO, Inc. v. Commissioner, supra; New Colonial Ice Co. v. Helvering, supra. The only evidence presented on this issue at trial was petitioner's own affirmative response to his attorney's question of whether it is possible for individuals to give gifts or make donations to the tribe. Further, petitioner's overall testimony regarding his expenses reflects that his intent was to be paid $75 per meeting and to be reimbursed for his expenses, not to donate his time and money to the tribal council." See Commissioner v. Duberstein, 363 U.S..278 (1960). Petitioner's "For example, on direct examination, petitioner characterized the unreimbursed expenses as "lost income" or a "loss". . . - 33 - Petitioner conceded that, as of the date that respondent mailed the statutory notice of deficiency to petitioner, petitioner had not filed Federal income tax returns for 1990, 1991, 1993, or 1994. Petitioner failed to produce any evidence that his failure to file returns was due to reasonable cause. We also note that petitioner did not make an argument on this issue, except for a subject heading in his reply brief, which states:. "Campbell should not be obligated to pay additions to tax based . on his per.capita income." We, therefore, sustain respondent's determination. Section 6654(a) Additions to Tax Section 6654(a) provides for an addition to tax in the case of any underpayment of estimatèd tax by an individual. The addition to tax under section 6654(a) is mandatory in the absence of statutory exceptions. See sec. 6654(a)., (e); Recklitis v. Commissioner, 91 T.C. 874, 913 (1988); Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980). With one limited exception,¹ª "this section has no provision relating to reasonable cause and lack of willful neglect. It is mandatory ¹ªSec. 6654(e)(3) (B) provides for an exception for newly (1) either is retired or disabled individuals where the taxpayer retired after having attained the age of 62 or became disabled in the taxable year or the preceding taxable year in which the estimated payments were required to be made, and (2) can demonstrate that such underpayment was due to reasonable cause and not this case. Sec. 6654(e)(3)(JB) does not apply in to willful neglect.