Opinion ID: 542295
Heading Depth: 2
Heading Rank: 2

Heading: tax fraud penalties

Text: 18 Mr. Manzoli pled guilty to attempted tax evasion for the year 1978 under 26 U.S.C. Sec. 7201, and the Commissioner asserted a civil fraud penalty for that year under 26 U.S.C. Sec. 6653(b). The Tax Court, although finding that the evidence only supported a conclusion of suspicion of fraudulent intent and not fraudulent intent itself, applied the established principle that conviction under section 7201 collaterally estops a taxpayer from denying fraud for purposes of a section 6653(b) civil tax penalty. Allen v. McCurry, 449 U.S. 90, 95 n. 6, 101 S.Ct. 411, 415 n. 6, 66 L.Ed.2d 308 (1980); Fontneau v. United States, 654 F.2d 8, 10 (1st Cir.1981). 19 The Manzolis challenge this application for the first time on appeal, and ask that this court modify the rule set forth in Fontneau because of an alleged change in the legal atmosphere. 5 Appellants allege that the increase of the percentage of the portion of the underpayment attributable to fraud, from 50% to 75%, 6 was designed to target the fraud penalty to fraudulent behavior. 26 U.S.C. Sec. 6653(b)(1) & (2). They submit that the change in the percentages to be paid demonstrates a legislative intent to allow taxpayers an opportunity to rebut the presumption that the entire underpayment was due to fraud. Appellants allege that their argument is reinforced by the fact that the Tax Court did not find fraudulent intent. We disagree. 20 First, this argument is not properly before us on appeal. It is well settled law that an argument not presented to the trial court cannot be raised for the first time on appeal. Johnston v. Holiday Inns, Inc., 595 F.2d 890, 894 (1st Cir.1979). 21 Second, although this court may disregard this waiver rule in the interest of justice, we fail to find any compelling reason to do so. On appeal, taxpayers failed to provide any relevant legislative history supporting their claim, and we find that the Tax Court properly stated that Mr. Manzoli was collaterally estopped. It is well established that [t]he constituent elements of criminal tax evasion and of civil tax fraud are identical, Hicks v. Commissioner, 470 F.2d 87 (1st Cir.1972), and that a guilty plea is as much a conviction as a jury trial. Gray v. Commissioner, 708 F.2d 243, 246 (6th Cir.1983), cert. denied, 466 U.S. 927, 104 S.Ct. 1709, 80 L.Ed.2d 182 (1984). 22 Furthermore, in relation to the fraud issue, the Tax Court concluded that although it had not found intent to defraud, 23 [it did] not intend by this opinion to vindicate petitioners. Their testimony at trial was unpersuasive, although not demonstrably false. Their destruction of records, certain inconsistent statements, and the various items of underreporting are troublesome and suspicious. Most of their arguments are totally unsupported by the evidence. 24 Thus we find the Tax Court examined the fraud claim and demonstrated no intent to affect the Commissioner's determination or the guilty plea. Moreover, section 6653(b)(1) and (2) clearly state that if any portion of the underpayment is attributable to fraud, the entire amount is considered fraudulent, unless clearly rebutted by the taxpayer. The Tax Court found not only that the taxpayer was estopped from rebutting, but that even in the absence of estoppel, it would have been unable to do so. We see no reason to disturb the Tax Court's conclusion.III. MOTION FOR CONTINUANCE 25 The Manzolis, in view of the alleged importance of Mrs. Manzoli's testimony, moved for continuance based on her illness. 7 Appellants argue on appeal that the Tax Court's failure to grant their motion constituted an abuse of discretion. See Lathan v. Crofters, Inc., 492 F.2d 913 (4th Cir.1974); Davis v. Operation Amigo, Inc., 378 F.2d 101, 103 (10th Cir.1967). 26 Upon review of the record, we find that the Tax Court properly determined that the motion filed below appeared to request an indefinite continuance, because it presented no objective evidence of Mrs. Manzoli's illness, gave no indication as to when she might have ultimately been able to assist in preparing for trial or when her health problems would be resolved. The record further demonstrates that during the proceedings the Tax Court allowed taxpayers' counsel to use leading questions, and when reaching its conclusions, gave due regard to her condition and the fact that she was not involved in the day-to-day business efforts. 27 Accordingly, given the Tax Court's general policy against postponing trials once a case has been set on calendar, the fact that the case was at least ten years old, and that this court has established that trial courts have broad discretion on matters of continuance, Tuitt v. Fair, 822 F.2d 166, 172 (1st Cir.1987), cert. denied, 484 U.S. 945, 108 S.Ct. 333, 98 L.Ed.2d 360 (1988), we find that the Tax Court did not act unreasonably in refusing to postpone the trial indefinitely. 28 IV. MOTION FOR LEAVE TO AMEND COMPLAINT TO RAISE THE ISSUE OF THE STATUTE OF LIMITATIONS 29 On November 23, 1988, more than a year after the trial, the Manzolis filed a motion for leave to amend their petition, and proposed an amendment attempting to raise, for the first time, the defense of the statute of limitation for the years 1977 and 1978. The Tax Court initially denied this motion as untimely, but granted reconsideration after a hearing was requested by the Manzolis. Thereafter, the Tax Court held that the statute of limitations was a new issue in the case, that it had not been properly pleaded and thus should be excluded as an issue. 30 On appeal, appellants' primary argument is based again upon the Tax Court's finding that there was insufficient evidence for a determination of fraud. Therefore, they aver that even if Mr. Manzoli was estopped from denying fraud and thus from raising the limitations defense 8 , Mrs. Manzoli, who was not estopped from denying fraud, could in fact raise the defense. They further submit that the Commissioner's case would not have been prejudiced since the fraud issue was litigated and the evidence presented by it was found not sufficient to determine fraud. We find both these arguments meritless. 31 In denying said motion the Tax Court properly took into consideration various factors. First, it found the issue had not been raised by either one of the Manzolis, that the motion was untimely, and that no proper excuse was provided for its tardiness. Second, it stated that the amendment would have in fact prejudiced the Commissioner. It found that if the statute of limitations had been an issue, it would have increased the desirability of settlement on the Commissioner's part. Moreover, it held that because the Commissioner relied on the collateral estoppel doctrine it was not on notice of the continued necessity of establishing fraud against at least one of the Manzolis. See Hicks v. Commissioner, 470 F.2d 87. 32 The Tax Court also took into consideration the fact that if the amendment had been allowed, the court would have been required to conduct a further trial and reconsider a new record. And, finally, pursuant to the Tax Court Rules, it also assessed the requirements of justice. Rule 41(a) T.C.R.; see also Given v. Commissioner, 238 F.2d 579, 583 (8th Cir.1956). To this effect, it reiterated that although fraud was not determined, it was not persuaded that in the final analysis justice would be served by allowing the proposed amendment. 33 Clearly, leave to amend a pleading is a matter within the discretion of the trial court. Zenith Radio Corp. v. Hazeltine, 401 U.S. 321, 330, 91 S.Ct. 795, 802, 28 L.Ed.2d 77 (1971); Isaac v. Harvard University, 769 F.2d 817, 829 (1st Cir.1985). A denial of a leave to amend will be overturned only for an abuse of that discretion. Isaac v. Harvard University, 769 F.2d at 829; Johnston v. Holiday Inns, Inc., 595 F.2d at 896. Furthermore, an untimely amendment request should be denied where, as in the instant case, the Tax Court demonstrated that no excuse for delay existed and that the adverse party would suffer prejudice or substantial inconvenience. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); Quaker State Oil v. Garrity Oil, 884 F.2d 1510, 1517 (1st Cir.1989); Barrett v. Foster Grant Co., 450 F.2d 1146, 1149 (1st Cir.1971). Accordingly, we find that the Tax Court did not abuse its discretion. Barrett v. Foster Grant Co., 450 F.2d at 1149. 34