Court Opinion

ID: 6316891
Source: CourtListenerOpinion
Date Created: 2022-02-23 21:00:38.86007+00
Date Added: 2024-06-11T09:18:47.621676
License: Public Domain

NOT FOR PUBLICATION                         FILED
                      UNITED STATES COURT OF APPEALS                      FEB 23 2022
                                                                     MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                             FOR THE NINTH CIRCUIT

LON B. ISAACSON,                                No.   20-71121

                  Petitioner-Appellant,         Tax Ct. No. 29484-14

     v.
                                                MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

                  Respondent-Appellee.

                            Appeal from a Decision of the
                              United States Tax Court

                        Argued and Submitted February 8, 2022
                              San Francisco, California

Before: HURWITZ and VANDYKE, Circuit Judges, and ERICKSEN,** District
Judge.

          Lon Isaacson appeals from an opinion of the Tax Court concluding that he

failed to report legal fees as income on his 2007 federal tax return, and that he did

so with fraudulent intent. We have jurisdiction under 28 U.S.C. § 7482 and affirm.

*
 This disposition is not appropriate for publication and is not precedent except as
provided by Ninth Circuit Rule 36-3.
**
 The Honorable Joan N. Ericksen, United States District Judge for the District of
Minnesota, sitting by designation.
      “[W]e review the tax court’s conclusions of law de novo and its factual

findings for clear error.” MK Hillside Partners v. Comm’r, 826 F.3d 1200, 1203

(9th Cir. 2016).    “Our clear-error review of the … court’s findings of fact is

deferential; we will accept the … court’s findings of fact unless we are left with the

definite and firm conviction that a mistake has been committed.” O’Bannon v. Nat’l

Collegiate Athletic Ass’n, 802 F.3d 1049, 1061 (9th Cir. 2015) (internal quotation

marks and citation omitted). We “review the tax court’s application of judicial

estoppel … for abuse of discretion.” MK Hillside Partners, 826 F.3d at 1203.

      Determinations made by the Commissioner of Internal Revenue in a notice of

deficiency “are presumed to be correct, and the taxpayer bears the burden of proving

that those determinations are erroneous.” Merkel v. Comm’r, 192 F.3d 844, 852 (9th

Cir. 1999); see T.C. Rule 142(a). “The presumption of correctness will be rebutted

if the taxpayer proves by a preponderance of the evidence that the deficiency is

incorrect or was arbitrarily derived.” Merkel, 192 F.3d at 852. The Commissioner

bears the burden of proving, by clear and convincing evidence, that the taxpayer is

liable for a fraud penalty. See T.C. Rule 142(b).

      1. The Commissioner’s notice of deficiency concluded that Isaacson had

failed to report legal fees received in 2007 on that year’s federal tax return. The

Commissioner sought an income tax deficiency of $2,824,102.00, and a seventy-five

percent fraud penalty of $2,118,076.50. The Tax Court concluded that the tax

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deficiency and penalty were appropriate. Isaacson contends that the Tax Court erred

because he purportedly held the funds resulting from the settlement of an action for

the benefit of his clients and was not required to report his legal fees in 2007 because

of an “ongoing” fee dispute with at least two of them.

       a. From the time the settlement funds were wired into Isaacson’s investment

account at the Union Bank of Switzerland (UBS), he treated the funds as his own.

Isaacson immediately commingled the settlement funds with money he had

previously deposited in the account, and directed UBS to invest the funds consistent

with his personal risk preferences. Just days after the funds were invested, in order

to obtain “liquidity,” Isaacson directed UBS to sell $1,850,000 of securities

purchased with the settlement funds for that purpose. The following week, Isaacson

instructed UBS to transfer $50,000 from his investment account to his personal

trainer.   The Tax Court did not err in concluding that Isaacson’s conduct

demonstrated his dominion and control over the funds.

       b. Nor did the Tax Court abuse its discretion by judicially estopping Isaacson

from arguing that a fee dispute existed between him and his clients. This argument

was plainly inconsistent with Isaacson’s representations to the Superior Court of

California that no such dispute existed during the relevant time period. See New

Hampshire v. Maine, 532 U.S. 742, 749–51 (2001).               Relying on Isaacson’s

representations, the Superior Court disbursed $6,883,047.05 of the settlement funds

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to him. To permit Isaacson to now make a contrary argument would allow him to

“derive an unfair advantage” from his inconsistent positions. Id. at 751.

      c. Even absent judicial estoppel, we would still affirm the Tax Court. While

Isaacson’s argument that a fee dispute existed finds some support in the record, the

record as a whole supports the conclusion that no fee dispute existed.

      2. Likewise, we find no error in the Tax Court’s imposition of the penalty.

The court carefully considered the relevant badges of fraud, see Bradford v. Comm’r,

796 F.2d 303, 307–08 (9th Cir. 1986), and its conclusion that each supports an

inference of fraudulent intent is supported by the record.

      AFFIRMED.

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