Yesterday the Tax Court issued an opinion in Senyszyn v. Commissioner, T.C. Memo. 2013-274, finding in favor of the IRS on summary judgment that a former revenue agent was liable for a fraud penalty and that the statute of limitations on assessment remained open. However, the Court denied the IRS’s motion for summary judgment as to the amount of the taxpayer’s deficiency because that amount was not a necessary element of the judgment in the prior criminal proceeding.
In Senyszyn, the taxpayer-husband was a former revenue agent in the Large Business and International Division of the IRS. In 2006, the United States, on behalf of the IRS, brought a criminal suit against the taxpayer in the District Court of New Jersey. In its information, the United States alleged that the taxpayer “knowingly and willfully did attempt to evade and defeat a substantial part of the income tax due and owing by him to the United States for the calendar year 2003 . . .” in violation of I.R.C. § 7201. The taxpayer signed a plea agreement, and agreed to stipulate at sentencing that he knowingly and willfully did not include about $252,726 in additional taxable income that he acquired in 2003. The taxpayer then entered a plea of guilty to all charges, including the tax evasion charge. While the taxpayer later attempted to withdraw this plea, the District Court denied his motion, and the Third Circuit affirmed the District Court’s judgment. United States v. Senyszyn, 338 Fed. Appx. 201 (3d Cir. 2009).
The Tax Court first considered to what extent the taxpayer’s guilty plea to tax evasion precluded him from disputing certain issues in the deficiency proceeding under the doctrine of collateral estoppel (issue preclusion). In order to preclude the taxpayer from litigating issues under this doctrine, the IRS was required to satisfy the following:
- the issue in the second suit must be identical in all respects with the one decided in the first suit;
- there must be a final judgment rendered by a court of competent jurisdiction;
- collateral estoppel may be invoked against parties and their privies to the prior judgment;
- the parties must have actually litigated the issues and the resolution of these issues must have been essential to the prior decision; and
- the controlling facts and applicable legal rules must remain unchanged from those in the prior litigation.
With respect to the amount of the deficiency, despite the fact that the taxpayer had previously stipulated in his criminal case to the amount of unreported income that he had received, that stipulation did not preclude him from disputing the amount of liability in his civil proceeding in Tax Court. While the existence of an underpayment is a necessary element of tax evasion under I.R.C. § 7201, the precise amount of that underpayment is not a necessary element. However, the Tax Court did note that the prior admission would be considered “strong evidence of the deficiency amount.”
With respect to the fraud penalty, the Court found that the guilty plea conclusively established fraud in the Tax Court proceeding, and that the taxpayer was precluded from challenging the penalty at trial (though the precise amount of the penalty would not be decided until the Court determined the deficiency amount). Finally, the Court found that the statute of limitations remained open for tax year 2003 due to the determination that fraud was present.
While the Tax Court did not rule in favor of the IRS on summary judgment with regard to the deficiency issue, at trial the taxpayers may have a difficult time overcoming the taxpayer-husband’s prior admission that he received a specific amount of unreported income.