In Uncategorized on 08/04/2017 at 13:29

Means Be Specific

More than a few years ago, one of my nearest and dearest (I forget which one, but they both refer to me as their “pre-existing condition”) brought home from school a composition marked at the head thereof in red pencil “BS.”

Given the tuition we were paying and the fancy reputation of the institution, I was slightly jarred. Maintaining my parental gravitas, I asked, “What does ‘BS’ mean?”

“Be specific,” she replied.

Well, today Judge Pugh takes up the red pencil and thus advises IRS, as IRS tries to collaterally estop Marvel Ebanks, Docket No. 15605-14, filed 8/4/17.

Marv was a tax preparer and credit repairer. She also lost a big four-count Federal criminal jury trial, getting hit for Section 7206(1) “willfully making, subscribing, and filing false tax returns.” Order, at pp. 2-3.

Marv claimed a bunch of fee money really belonged to her C Corp Marvelous Enterprises, Inc., except IRS proved on the trial that Marvelous Enterprises, Inc., “was not acting as a corporation, that there really wasn’t a corporation, and that this money was gross receipts that should be declared on her Schedule C.” Order, at p. 3.

OK, pause here for as moment and imagine you are IRS counsel. Marv’s conviction is final beyond possibility of appeal or further appeal. Exam has hit Marv with six years’ worth of SNODs, apparently for the years for which Marv took the fall, and Marv has timely petitioned. What do you do?

No prize for the correct answer, but if you answered “move for summary J,” Judge Pugh says “you lose.”

Collateral estoppel, or issue preclusion if you went to a high-priced law school, means satisfying the Big Five:

  1. The issue in the second suit must be identical in all respects with the one decided in the first suit.
  2. There must be a final judgment rendered by a court of competent jurisdiction.
  3. Collateral estoppel may be invoked against parties and their privies to the prior judgment.
  4. The parties must actually have litigated the issues and the resolution of these issues must have been essential to the prior decision.
  5. The controlling facts and applicable legal rules must remain unchanged from those in the prior litigation.

This list is taken from the order at p. 4.

OK, IRS is in privity with the US of A, and Marv’s conviction is final. But the exact amount of understated income on Marv’s various Schedule Cs wasn’t litigated or decided in the criminal case, just that there were understatements sufficient to justify conviction. No preclusion.

Word to the IRS: Be specific.

Next is the element of willfulness, necessary to justify the 75% fraud chop.

Judge Pugh: “A conviction under section 7206(1) does not collaterally estop a petitioner from challenging the section 6663 civil fraud penalty for the same year but serves as persuasive evidence of fraud. As section 7206(1) does not establish all of the elements needed to impose a section 6663 fraud penalty, collateral estoppel does not apply. Specifically, section 6663 imposes a civil tax penalty for underpayments ‘due to fraud’. This ‘due to fraud’ language requires proof of specific intent to evade tax. But specific intent to evade tax is not a necessary element of the crime covered by section 7206(1). A conviction under section 7206(1) does not establish as a matter of law that the taxpayer violated the legal duty with an intent, or an attempt, to evade taxes.

“Respondent’s motion only asks us to rule that petitioner is precluded from denying the elements necessary for her section 7206(1) conviction, but this is tantamount to finding specific intent. We decline to hold that petitioner is collaterally estopped from litigating this issue.” Order, at p. 6. (Citations omitted, but get them for your memo of law; and while you’re at it, check out the story of Al Bront in my blogpost “Orders in the Court,” 3/9/12. Same old, same old.).

So let’s have a trial.


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