Bohdan (“Bo”) Senyszin, a RA who went to the Dark Side, ripped off his partner Hook extensively. Bo copped to a Section 7201 fraud count in consequence thereof, possibly to shield spouse Kelly L. from going down with him.
Bo even filed a 1040X, which IRS didn’t process, supposedly correcting the phony return that sent him down, and, IRS claims, thereby admitting that he had unreported income. Bo claims the judge on the criminal case made him do it.
But Bo now claims he paid back Hook more than he stole in the same year that gave rise to the deficiency IRS claimed, and there should be neither deficiency nor penalty. Bo claims the IRS agent who computed the deficiency goofed on the numbers.
Judge Halpern agrees.
But isn’t Bo collaterally estopped (claim preclusion) from fighting over the deficiency from tax fraud conviction?
Judge Halpern says no.
I blogged Bo’s misadventures as a would-be whistleblower before now, but in the meantime Tax Court decided that, while Bo’s conviction provided “strong evidence” of a deficiency, the exact amount didn’t need to be determined and this was up for grabs. To the same effect, see my blogpost “Orders in the Court,” 3/9/12, where former RA Al Bront, likewise a Dark Sider, gets to fight over a penalty even though he copped to a fraud count or two.
IRS claims there has to be a deficiency, because you can’t be guilty of Section 7201 skullduggery unless there’s a deficiency. Of course, Bo prepared a phony tax return for the corporation he was using to rob Hook. One can commit tax fraud by concealing or creating someone else’s deficiency; cf the rogue preparers.
So Bo gets a full-dress T.C., Bohdan Senyszyn and Kelly L. Senyszyn, 146 T. C. 9, filed 3/31/16.
Bo did rip off Hook, but the RA who took down Bo after Bo’s whistleblowing blew up left out some repayments and journal entry transfers that show that, for the one year at issue, Bo gave back more than he took from Hook.
Hook claims Bo stole more, but only one year is at issue. And if embezzled funds are income, then paying them back in the same year is a deduction.
Bo does earn a Taishoff “good try, third class” by asking for a refund since he paid back more than he stole, but the SOL has run on that one.
Judge Halpern: “We previously determined that, because the exact amount of petitioners’ underpayment of tax was not a necessary element of tax evasion under section 7201, ‘Mr. Senyszyn’s stipulation in his criminal tax proceeding does not collaterally estop him from challenging respondent’s adjustment for unreported income in this civil proceeding.’ Nonetheless, the existence of some underpayment was a necessary element of the offense for which Mr. Senyszyn was convicted.” 146 T. C. 9, at p. 23.
So Bo had to have had some underpayment. There’s a split between circuits as to whether the amount need be “substantial,” but that’s not the point here.
“…we conclude that the purposes of the doctrine [collateral estoppel] would not be served by upholding a deficiency unsupported by the evidence presented. Upholding a minimum deficiency would not promote judicial economy: Even after Mr. Senyszyn’s conviction under section 7201, we were required to hear this case to determine the amount of petitioners’ deficiency. And any inconsistency between Mr. Senyszyn’s prior criminal conviction and a decision that petitioners are not liable for any deficiency would not undermine ‘reliance on judicial action’, because the inconsistency would result not from conflicting findings by different courts but instead from Mr. Senyszyn’s entry of a guilty plea to a charge that the evidence–at least as presented to us–would not support. Therefore, we decline to apply the doctrine of collateral estoppel to uphold whatever minimum deficiency would be consistent with Mr. Senyszyn’s conviction under section 7201.” 146 T. C. 9, at pp. 27-28. (Citations and footnotes omitted).
Bo is off the hook for the year at issue, and Kelly L. doesn’t need innocent spousery, as there’s no deficiency.
Will IRS appeal? Stay tuned.