Source: http://openjurist.org/969/f2d/260
Timestamp: 2014-09-02 03:02:41
Document Index: 367804258

Matched Legal Cases: ['§ 6653', '§ 6651', '§ 6653', '§ 523', '§ 523', '§ 523']

969 F2d 260 Levinson v. United States | OpenJurist
969 F. 2d 260 - Levinson v. United States	Home969 f2d 260 levinson v. united states
969 F2d 260 Levinson v. United States 969 F.2d 260
70 A.F.T.R.2d 92-5303, 92-2 USTC P 50,463,Bankr. L. Rep. P 74,771
Melvin E. LEVINSON, Plaintiff-Appellant,v.UNITED STATES of America, Defendant-Appellee.
No. 91-1899.
Submitted Jan. 23, 1992.Decided July 15, 1992.
Melvin E. Levinson, Wilmette, for plaintiff-appellant.
Sharon J. Coleman, Asst. U.S. Atty., Office of the U.S. Atty., Criminal Div., Chicago, Gary R. Allen, William S. Estabrook, Bridget Rowan, John A. Lindquist, III, Dept. of Justice, Tax Div., Appellate Section, Washington, D.C., for defendant-appellee.
Once again, we attempt to untangle the web of Melvin Levinson's past deceit.1 This time, the issue is whether unpaid income taxes from 1966 to 1969 should be included in Levinson's discharge in bankruptcy. The bankruptcy court and the district court held that they were not, and we affirm.
Levinson, a former attorney, embezzled money from his clients but did not declare it as income on his tax returns between 1966 and 1969. In 1978 the Internal Revenue Service sought to recover the tax on this income by asserting deficiencies against the plaintiff for each of these years. Plaintiff responded by challenging these deficiencies, except for 1969, in tax court. Pursuant to an agreed-upon stipulation, the parties settled the case, with Levinson agreeing to pay $74,815.27, comprising back taxes and penalties for negligence, 26 U.S.C. § 6653(a), and failure to file a return in 1968, 26 U.S.C. § 6651(a). The government, in turn, agreed that Levinson did not have to pay any penalties for fraud under 26 U.S.C. § 6653(b).
As to the 1969 taxes, plaintiff allowed judgment to be entered against him in the district court for $44,840.23, including a negligence penalty. In order to reach this accord, the government again agreed not to seek a fraud penalty.
In 1982 Levinson filed a Chapter 7 bankruptcy petition, and in 1985 he received his discharge in bankruptcy, releasing him from all dischargeable debts. Soon thereafter he filed suit in the bankruptcy court to determine whether his 1966-69 tax debts to the government were dischargeable. The government argued that the debts were not dischargeable because Levinson's returns for those years were fraudulent, and therefore his debt could not be expunged by bankruptcy. 11 U.S.C. § 523(a)(1)(C).2 The bankruptcy court agreed with the government, finding the debts nondischargeable, and the district court affirmed.
Levinson raises two main issues on appeal. First, should res judicata, collateral estoppel, or judicial estoppel have barred the government from arguing that his tax debts were nondischargeable because of fraud? Second, if these doctrines were inapplicable, did the government either fail to give adequate notice of its intent to argue fraud or fail to prove that the returns were fraudulent?
Normally, tax debts over three years old are dischargeable in bankruptcy. 11 U.S.C. § 523(a)(7)(B). Such debts are not dischargeable, however, if the debtor made a "fraudulent return or willfully attempted to evade or defeat such tax." 11 U.S.C. § 523(a)(1)(C). The government relied on this exception before the bankruptcy court, arguing that plaintiff's debts were not dischargeable because he knew that the money he embezzled had to be declared as income, but intentionally and fraudulently neglected to report it.
Levinson, however, contends that res judicata should apply to prevent the government from claiming fraud. Res judicata "prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding." Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979). Because the government could have asserted that his returns were fraudulent when determining his tax liability, Levinson argues, res judicata prevents it from now claiming fraud as a defense to his discharge in bankruptcy. In short, the argument is that the government had its chance to allege fraud and did not do so, and therefore the issue must be treated as having been resolved in Levinson's favor.
The Supreme Court's decision in Brown v. Felsen rejected this very argument, and controls here. In Brown the parties settled a suit by consenting to a judgment based on a stipulation, but neither the stipulation nor the judgment revealed the basis for the debtor's liability. When the debtor later filed for bankruptcy the creditor claimed the debt was nondischargeable, having been the result of the debtor's fraud. The debtor responded by claiming that the consent judgment, which made no mention of fraud, was res judicata on the issue because the creditor could have increased his recovery by arguing fraud in the collection proceeding, but declined to do so. The Supreme Court disagreed, finding that applying res judicata in such circumstances would neither protect the interests served by res judicata (e.g., encouraging reliance on judicial decisions, barring vexatious litigation, and freeing courts to resolve other disputes, id. at 131, 99 S.Ct. at 2209), nor serve the policies of bankruptcy law, one of which is to give a "fresh start" to the honest debtor. Id. at 128, 99 S.Ct. at 2208. Central to the Court's decision was the fact that the creditor was not presenting some new ground for recovery, or seeking to increase his recovery, or challenging the validity of a prior judgment. Rather, he was simply trying to defend his pre-existing rights against the debtor's attempt to evade the