Court Opinion

ID: 4480132
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:04.657485+00
Date Added: 2024-06-11T07:57:29.624442
License: Public Domain

Withey, J., dissenting: In my view the majority has here adopted as a rule of law a principle which has the effect of depriving any taxpayer who has been convicted under section 7201 of the 1954 Code, either by a jury or by a judge sitting without a jury, of his constitutional right to due process before being deprived of his property. This has been done through the use of the principle of collateral estoppel. Long ago the Supreme Court in Sunnen v. Commissioner, 333 U.S. 591 (1948), cautioned against the use of this aid to the lessening of litigation particularly in tax cases. It was there said that “It must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged.” (Emphasis supplied.) It has been an accepted principle for many years that collateral estoppel is not applicable as between a criminal conviction and a civil issue. United States v. Glidden Co., 119 F. 2d 235 (C.A. 6, 1941), certiorari denied 314 U.S. 678 (1941); Ferroni v. United States, 53 F. 2d 1013 (C.A. 7, 1931), certiorari denied 285 U.S. 543 (1932); New York Life Insurance Co. v. Murdaugh, 94 F. 2d 104 (C.A. 4, 1938); Scientific Machine Co. v. Simmons, 43 N.Y.S. 2d 376 (1943); Stagecrafters’ Club v. District of Columbia Division, 111 F. Supp. 127 (D.C. 1953). In United States v. Glidden Co., supra, it was stated: the rule prevails that a former adjudication in a criminal action is not generally a bar to a subsequent civil action, because of the different object of the proceedings and their dissimilarity in parties, rules of decision and procedure * * * To now overturn this settled law in so sweeping a manner as has been done here seems to me the grossest kind of judicial legislation. The very wording of the two statutes involved is clearly different and it has been held on good authority that conviction under the criminal does not necessarily constitute a conclusory finding of fraud as encompassed by the civil. United States v. Scharton, 285 U.S. 518 (1932); Moore v. United States, 235 F. Supp. 387 (W.D. Va. 1964); United States v. Beard, 118 F. Supp. 297 (D. Md. 1954). Indeed it seems clear that a taxpayer might very well “willfully” avoid payment of bis income tax without being guilty of the fraudulent intent envisaged by section 6653(b), I.R.C. 1954. I think the precautionary language of the Supreme Court in Sunnen v. Commissioner, supra, is pertinent here because of the following fundamental factors. In civil tax fraud cases a deficiency must be found before a fraud penalty may attach inasmuch as to support the penalty there must be a prior determination that a part of a deficiency was due to fraud, while under the Criminal Code, sec. 7201, a deficiency need not be first determined in order that the defendant be convicted. In the civil action before this Court it well might be found that the deficiency determined by the Commissioner is not correct, that there is no deficiency, yet, under Amos, it would nevertheless be incumbent upon this Court to uphold the asserted fraud penalty because the taxpayer would be collaterally estopped to deny the same due to a prior conviction under the criminal section. More important from a constitutional standpoint is the difference between the rules of evidence governing the two trials. The criminal trial involves the use of the stricter common law rules of evidence1 under which evidence offered by the taxpayer might be rejected which evidence might well be admissible before the Tax Court2 in the civil case. Moreover it takes no great stretch of the imagination to understand the frustration of the principles of justice which might occur where one is convicted under the criminal section because, for instance, he could not there produce his books and records of account for reasons not chargeable to him when before the trial of the civil action, they became available and producible in evidence. Such books would then become admissible in this Court on the deficiency issue but would, under Amos, be inadmissible on the fraud issue. Because to prevail ordinarily on the fraud issue in this Court the Commissioner must first prove that his computation of the taxpayer’s income required the use of a method extraneous of the taxpayer’s books and records, to prevent him (the taxpayer) from introducing those books under the principle of collateral estoppel is to me clearly a deprivation of his property rights without his day in court. The civil fraud penalty is assessable only as a result of the Commissioner’s administrative determination. A fraud determination, like all additions to tax, has been made reviewable at the taxpayer’s election by the Tax Court, the District Court, or the Court of Claims. Flora v. United States, 362 U.S. 145 (1960). The Amos result makes the Commissioner’s severe administrative fraud determination nonreviewable in this Court simply because the same general events which gave rise to the penalty were found by another trier of fact to constitute a crime under a different section of the Code. The result reached by the majority in effect nullifies a specific right to judicial review which Congress has extended to taxpayers both under the Internal Eevenue Code and section 10 of the Administrative Procedure Act, 60 Stat. 237, 243 (1946). By the enactment of sections 6653 (b) and 7201 of the Code, Congress has created two separate causes of action, rather than one, and it is my opinion that the taxpayer is entitled to have his day in court as to each cause of action separately. See Helvering v. Mitchell, 303 U.S. 391 (1938); United States v. U.S. Gypsum Co., 51 F. Supp. 613 (D.C. 1943). I think respondent’s motion for judgment and decision on the pleadings should clearly have been denied. PiERCE, /., dissenting: I The decisions in the present case and in the concurrently considered case of Arctic Ice Cream Co., 43 T.C. 68, involve a question of major importance regarding the jurisdiction and procedures of this Court in fraud cases. In the above cases the Court has adopted a new principle, contrary to that which we have applied in prior decisions, which in substance is: That where this Court has taken jurisdiction of a taxpayer’s petition in a fraud case, pursuant to the statutory procedures prescribed by sections 6211-6216 of the Code (entitled “Deficiency Procedures in the Case of Income, Estate, and Gift Taxes”) under which this Court has been given exclusive jurisdiction to approve or disapprove the Commissioner’s administrative actions in determining deficiencies and civil penalties, this Court will by application of the doctrine of collateral estoppel, treat a prior conviction of the taxpayer in a criminal proceeding under section 7201 involving the same year, as being in itself conclusive that imposition of a claimed civil fraud penalty should be approved; and that thereupon this Court will be relieved of its function and duty of deciding, on the basis of all evidence that might otherwise be submitted to it, whether or not the Commissioner’s administrative action in claiming such civil penalty is correct or erroneous. This change of position by the Court is not supported by any change in the above-cited provisions of the statute which control the jurisdiction and procedures of this Court, or by any change in the Treasury regulations pertaining to said statutory provisions. One of the effects of this change of position is: That if, in a particular criminal proceeding under section 7201 for the year involved, the taxpayer is acquitted, then this Court will continue to hold (as it frequently has held under the doctrine of Helvering v. Mitchell, 303 U.S. 391 (1938)) that such acquittal does not effect a collateral estoppel against the Government; and that the Commissioner will therefore be left free to enforce through a second proceeding in this Court, a new claim for a civil fraud penalty. But, if on the other hand the taxpayer is convicted in such criminal proceeding, then under this Court’s newly adopted principle, such conviction will effect a collateral estoppel against him; and he will be deprived of a trial on the merits of his petition to have this Court review and redetermine on the basis of all competent evidence submitted, whether or not the Commissioner’s administrative action should be approved or disapproved. Thus it is clear that this Court’s revised position will give the Government the benefit of a “one-way street.” Still another effect of this Court’s new position will be: That where a taxpayer has pleaded guilty in a prior criminal proceeding, not with any intent to confess wrongdoing but as a procedural method for terminating the criminal case with a minimum expenditure of time and expense, he will thereafter, by reason of such conviction alone, be deprived of all opportunity to defend himself in our Court against a claim of the Commissioner for a civil penalty equal to 50 percent of the entire deficiency involved, notwithstanding that most of such deficiency (which may be of very substantial amount) may be attributable to a legal issue that is in no way claimed to have resulted from fraudulent action on his part. Furthermore, he also will be deprived of any defense based on the statute of limitations; for the conclusive presumption of fraud which this Court will attribute to his prior conviction will, under the provisions of section 6501(c), eliminate any period of limitation on assessment and collection of the entire deficiency. II The contrary prior position of this Court has been succinctly described in the opinion by Judge Murdock in the case of Henry H. Epstein, 34 B.T.A. 925 (1936). There the taxpayer, who had previously been convicted in a criminal proceeding, was charged by the Commissioner, in a notice of deficiency, with liability for a civil fraud penalty; and he then filed a petition with this Court for review and redetermination of such administrative action. The Court (then known as the Board of Tax Appeals) said: The [criminal] court was not concerned with the [civil] penalties here involved. The present proceeding before the Board is quite different from the criminal proceeding * * *. The Board has been established [by statute] to review the action of the Commissioner in determining deficiencies [and civil penalties]. It reviews and approves or disapproves this administrative act. If the Commissioner acted properly in determining the deficiency and claiming the penalty in a ease before tbe Board, tbe Board must affirm tbe administrative action of tbe Commissioner. * * * Payment [of tbe tax] is a matter between the Commissioner and tbe taxpayer which * * * does not change tbe duty of tbe Board to decide whether or not * * * [tbe] determination was correct. * * * Tbe criminal proceeding does not relieve the Board of its function and duty to review tbe determination of the Commissioner. * * * Decisions to tbe same effect were entered by this Court in Meyer J. Safra, 30 T.C. 1026 (1958), and in Eugene Vassallo, 23 T.C. 656 (1955). In each of these cases it was held that a prior conviction in a criminal proceeding did not, because of the differences in the character and purposes of a criminal proceeding, estop the taxpayer from obtaining a review by this Court of the Commissioner’s administrative action in asserting the liability for a civil fraud penalty. In my opnion, such prior position of this Court reflects more correctly and accurately than does the new position adopted in this case, the intent and purpose of Congress in its enactment of the above-mentioned provisions of the Code under which this Court has been given ex elusive jurisdiction to review and to approve or disapprove administrative actions of the Commissioner in determining deficiencies and civil penalties. If Congress had intended either that liabilities for both the criminal sanction and a civil sanction should be conclusively determined in a single criminal proceeding, or that this Court’s approval of the imposition of a civil sanction following a conviction in a criminal court should be automatic, it could easily have said so. Ill In Commissioner v. Sunnen, 333 U.S. 591 (1948), the Supreme Court has made it clear that both res judicata and collateral estoppel are judicial doctrines, designed to prevent repetition in the trial of issues; but that in the case of collateral estoppel, its application is subject to definite limitations. The Supreme Court said: if the very same facts and no others are involved in the second case * * * tbe prior judgment will be conclusive as to tbe same legal issues which appear, assuming no intervening doctrinal change. But if tbe relevant facts in two cases are separable, even though they be similar or identical, collateral estoppel does not govern tbe legal issues which recur in tbe second ease. Thus tbe second proceeding may involve an instrument or transaction identical with, but in a form separable from, the one dealt with in tbe first proceeding. In that situation, a court is free in tbe second proceeding to make an independent examination of tbe legal matters at issue. It may then reach a different result or, if consistency in decision is considered just and desirable, reliance may be placed upon tbe ordinary rulé of stare decisis. Before a party can invoke the collateral estoppel doctrine in these circumstances, tbe legal matter raised in tbe second proceeding must involve the same set Of events or documents and the same bundle of legal principles that contributed to tbe rendering of tbe first judgment. * * * [Emphasis supplied.] It would thus appear from the foregoing that, in order for a second court to be able to determine whether “the same set of events or documents” is involved in both cases so as to make available the doctrine of collateral estoppel, either the proceedings in both cases must be before the same court; or the second court must have before it, either by stipulation or otherwise, the evidence presented in the first case, for its examination as to whether “the very same facts and no others,” and also “the same set of events or documents,” are also the basis of the second proceeding. In the instant case, this Court did not have before it the evidence presented in the criminal proceeding — notwithstanding the record herein discloses that the petitioner offered to make such evidence available by stipulation. Moreover, a copy of the indictment in the criminal proceeding involved in the instant case shows that, as to all taxable years involved, the amounts of the understatements of income which formed the basis for the criminal proceeding were greatly different from the amounts of the understatements of income reflected in a so-called net worth statement upon which the Commissioner relied to support his claim of fraud in the present case. These differences in amounts make it abundantly clear that “the very same facts and no others” and “the same set of events or documents,” were not the basis for the fraud claims in both the cases. IV In Stagecrafters' Club v. District of Columbia Division of American Legion, 111 F. Supp. 127 (1953), the District Court for the District of Columbia there dealt, in a well-considered opinion, with the problem of how a prior criminal conviction should be handled; and it then treated the problem as being one of evidence, rather than one for application of the doctrine of collateral estoppel. There, after considering and citing cases from several jurisdictions, the court found that “for many years the majority of courts have followed the general rule that a judgment in a criminal proceeding is not admissible in a civil action to establish any fact determined in the criminal trial”; but that in more recent years this “rigid rule” had been relaxed by some courts in particular situations. It then decided that, in the case before it, the prior conviction in a criminal proceeding should be admitted as 'prima facie evidence of the alleged unlawful act — thereby giving the convicted party an opportunity to present as rebuttal evidence, testimony or documents which had not been presented or might not have been available at the time of the criminal proceeding. This Court, in previously decided cases, has similarly treated the problem as being one of evidence; and it has admitted proof of a prior conviction as being only one of the elements of all the competent evidence submitted to it, which is to be considered and weighed in deciding whether or not the Commissioner’s administrative action should be approved. It is significant that in at least two of such cases, the taxpayer was successful in overcoming the weight of the evidence as to the conviction. See William Hendrick, T.C. Memo. 1961-308; and William J. Powers, Jr., T.C. Memo. 1962-5. Based on all the foregoing, it is my belief that the decisions of this Court in the instant case and in the above-mentioned concurrently considered case of Arctic Ice Cream Co. are erroneous; and that in each of these cases, the Court should have held that the prior convictions of the petitioners in criminal proceedings did not relieve this Court of its function and duty to decide, on the basis of all the evidence which might be submitted to it, whether or not the administrative action of the Commissioner in claiming the civil penalty should or should not be approved.   Rule 26, Fed. Rules Crim. Proc., 18 U.S.C. 444.    Sec. 7453, I.R.C. 1954.