Anderson v. Commissioner of Internal Revenue, No. 11-1704; Third Circuit; opinion by Roth, U.S.C.J.; filed September 7, 2012. Before Judges Sloviter, Roth and Pollak, District Judge, sitting by designation. On petition for review of an order of the U.S. Tax Court. DDS No. 35-8-xxxx [14 pp.]
Petitioner Walter Anderson was charged with federal tax evasion for tax years 1995 through 1999. The government alleged that he had fraudulently underpaid his taxes by $184 million, 99 percent of which stemmed from income generated by Gold & Appel Transfer S.A. (G&A), a British Virgin Islands corporation allegedly under his control. Pursuant to a plea agreement, Anderson pleaded guilty to tax evasion charges for 1998 and 1999; the charges for 1995, 1996 and 1997 were dismissed.
The IRS then issued a notice to Anderson determining civil tax deficiencies and fraud penalties for 1995 through 1999. Anderson filed a petition in the U.S. Tax Court to redetermine these deficiencies.
In response to motions by both parties, the Tax Court granted partial summary judgment to the IRS, finding that under the doctrine of collateral estoppel, Anderson’s criminal conviction precluded him from contesting that he fraudulently underpaid his income taxes in 1998 and 1999. It denied summary judgment on the fraud issue for 1995-97.
The IRS then filed a motion to sever 1995, 1996 and 1997 from the case. The Tax Court denied the motion but stated that it would take notice of the IRS’s concession of all tax and penalty issues for 1995, 1996 and 1997 and would reflect that concession in its final decision.
In response to a second set of summary judgment motions, the Tax Court held that the concessions for 1995 through 1997 did not resolve the deficiency and penalty issues for 1998 and 1999 and that the proceedings in the criminal case established that G&A’s income in 1998 and 1999 was taxable to him. It rejected the IRS’s argument that Anderson’s guilty plea estopped him from contesting that G&A income was taxable to him under Subpart F of the Tax Code. Anderson challenges the adverse holdings.
Held: Because Anderson admitted in his plea that the income of G&A was taxable to him in 1998 and 1999 and this admission was necessary to his conviction, his conviction for tax evasion in 1998 and 1999 precludes him, by virtue of the doctrine of collateral estoppel, from contesting in subsequent civil fraud proceedings that the income of G&A was taxable to him in those years. The IRS’s concession of deficiency and penalty issues for 1995, 1996 and 1997 has no preclusive effect on those issues for 1998 and 1999 under collateral estoppel, law of the case or judicial admission.
The court first considers the preclusive effect of Anderson’s criminal conviction. It agrees with the courts that have held that, under collateral estoppel, a conviction for criminal tax evasion conclusively establishes the defendant’s civil liability for tax fraud for the same year because the elements of evasion under 26 U.S.C. § 7201 and fraud under 26 U.S.C. § 6663 are identical.
However, Anderson argues that the Tax Court erred in holding that his conviction collaterally estopped him from litigating the taxability to him in 1998 and 1999 of the income of G&A in the civil tax fraud proceedings. The court says where, as here, a conviction is the result of a guilty plea, its preclusive effect extends to all issues that are necessarily admitted in the plea.
The court says the charges to which Anderson pleaded guilty essentially allege that he underpaid his taxes in 1998 and 1999 because he did not report the income of G&A, which is comprehensible only to the extent that such income was taxable to him in those years. By pleading guilty, he thus admitted that required premise.
The admission could be considered necessary only if his conviction hinged on it. The government had to prove the existence of a tax deficiency. It thus could not have secured his conviction without establishing the taxability of this income. Therefore, Anderson’s conviction did hinge on that issue. His admission to the tax deficiency in his guilty plea accordingly precludes him from contesting that issue in his civil tax fraud case.
Also, that the income of G&A is taxable to Anderson under Subpart F of the Tax Code is settled for purposes of this case. The parties’ stipulation of the nature and composition of G&A’s income, designating amounts for deficiency and penalty for 1998 and 1999, necessitate the determination that it is taxable to Anderson under Subpart F because the figures would not support his alternate theory that the income was capital gains.
The court then addresses, and rejects, the three bases on which Anderson relies in arguing that because the IRS conceded all tax deficiency and penalty issues for 1995, 1996 and 1997, the Tax Court was required to find in his favor on those issues for the 1998 and 1999 tax years because the issues are identical.
The court says an issue is conclusively established in future litigation through collateral estoppel only when it is determined by a final judgment. The Tax Court’s denial of the IRS’s motion to sever can have no preclusive effect under that doctrine because it was not a final judgment on any issue.
Under the law of the case doctrine, when a court decides on a rule of law, the decision continues to govern the same issues in subsequent stages of the same case. The Tax Court’s statement that it took notice of the IRS’s desire to concede tax and penalty issues for 1995 through 1997 does not represent any sort of decision. Even if it did, there is no merit to Anderson’s claim that it necessarily implies that the Tax Court determined that income from G&A is not taxable to him, as the “decision” could be supported by any number of rationales.
Finally, Anderson argues that the IRS’s motion to sever constitutes a judicial admission that prevents it from arguing that there is tax liability for G&A. Judicial admissions are admissions in pleadings, stipulations or the like that do not have to be proved in the same litigation. To be binding, they must be statements of fact that require evidentiary proof, not statements of legal theories. Thus, even if the court accepted the dubious claim that the IRS conceded in its motion that income from G&A was not taxable to Anderson, that concession would not be binding because it would be a statement of a legal proposition.
For appellant — Steven J. Jozwiak. For appellee — Gilbert S. Rothenberg, Acting Deputy Assistant Attorney General, and Bethany B. Hauser, Robert W. Metzler and Francesca U. Tamami (U.S. Department of Justice, Tax Division).