On Petition for Review of an Order of the United States Tax Court (Agency No. 07-20364) Administrative Judge: Honorable David Gustafson
The opinion of the court was delivered by: Roth, Circuit Judge:
Before: SLOVITER and ROTH, Circuit Judges and POLLAK*fn1 , District Judge
This appeal arises out of a civil tax fraud proceeding in United States Tax Court. The taxpayer challenges the Tax Court's determination that, under the doctrine of collateral estoppel, his previous guilty plea for criminal tax evasion conclusively established the taxability to him of specific income that his criminal indictment charged him with failing to report. He additionally argues on the basis of a number of preclusion doctrines that the Internal Revenue's (IRS) concession of all tax deficiency and penalty issues for certain years should have prevented it from obtaining recovery of such payments in other years because the issues for all years were identical. As explained below, we find that these arguments are without merit, and we will therefore affirm the Tax Court's judgment.
On September 30, 2005, Petitioner Walter Anderson was charged in a superseding indictment with federal tax evasion for tax years 1995 through 1999, in violation of 26 U.S.C. § 7201. During those years, Anderson was a telecommunications entrepreneur and venture capitalist who was actively involved in the operation of several international companies. Among these companies was Gold & Appel Transfer S.A. (G & A), a British Virgin Islands corporation which generated hundreds of millions of dollars of income during the tax years at issue. The government alleged that because G & A was a "controlled foreign corporation," under Anderson's control, he was required to recognize a share of its income on his tax return and that he fraudulently failed to do so. The government alleged that for the five-year period at issue, Anderson had fraudulently underpaid his taxes by $184 million, 99% of which stemmed from the income of G & A. Pursuant to an agreement with the government, on September 8, 2006, Anderson pleaded guilty to the federal tax evasion charges for 1998 and 1999, while those same charges for 1995, 1996 and 1997 were dismissed.*fn2 He was sentenced to 108 months imprisonment.
On July 17, 2007, the IRS issued a notice to Anderson determining civil tax deficiencies and fraud penalties for tax years 1995 through 1999. See 26 U.S.C. §§ 6212, 6663. (The deficiency amounted to the $184 million of underpaid taxes, resulting in a fraud penalty of $138 million.*fn3 ) On September 7, 2007, while he was incarcerated in New Jersey, Anderson filed a petition in the United States Tax Court to redetermine these deficiencies. See 26 U.S.C. § 6213(a). 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 for tax evasion in 1998 and 1999 precluded him from contesting that he fraudulently underpaid his incomes taxes in those two years. The Tax Court denied summary judgment on the fraud issue for tax years 1995-1997, without prejudice to renew the motion "with a better record and more focused contentions."
The holding on the 1998 and 1999 tax years had three principal effects. First, it established that Anderson had underpaid his income taxes in 1998 and 1999. Second, because a fraud penalty can only be assessed where a tax underpayment is due to fraud, it relieved the IRS of its burden of proving this penalty was applicable to Anderson for those two years. See 26 U.S.C. § 6663(a). Finally, because the three-year statute of limitations on the assessment of a tax does not apply where a tax return has been filed falsely or fraudulently with the intent of evading tax, 26 U.S.C. § 6501(c)(1), it prevented Anderson from arguing that the IRS's attempts to collect taxes for 1998 and 1999 were untimely.*fn4
Though this decision established that Anderson had fraudulently underpaid his income taxes in 1998 and 1999, it left open for further proceedings the determination of the amounts of the tax deficiencies and penalties for those years.
Based on this ruling, the IRS filed a motion to sever tax years 1995, 1996, and 1997 from the case, stating that it "ha[d] decided to concede all tax and penalty issues for [those years] and wishe[d] to file a motion for entry of decision as to those years." In its motion, the IRS explained that nearly 80% of the total deficiency and penalties for the five-year period stemmed from just 1998 and 1999, and that because proving fraud for 1995 through 1997 via trial would needlessly complicate and lengthen the case for a comparatively limited additional monetary recovery, it preferred to abandon its efforts for those years. The Tax Court found that, given its particular procedural rules, severing the case in this way would needlessly create clerical and administrative complexities, and it therefore denied the motion. It stated in its order, however, 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 eventual entry of decision in [the] case."
This order led to the filing of a second set of summary judgment motions. Anderson argued in his motion that, notwithstanding the Tax Court's earlier holding that his criminal convictions for tax evasion collaterally estopped him from denying fraudulent underpayment of tax in 1998 and 1999, the IRS's subsequent concession of all tax and penalty issues for 1995, 1996, and 1997 established that the income of G & A and interest income from an account at Barclays Bank were not taxable to him even in 1998 and 1999. The IRS, meanwhile, argued in its motion that Anderson was precluded from contesting that the income of G & A in 1998 and 1999 constituted taxable income to him under Subpart F of the Tax Code. The Tax Court denied Anderson's motion and granted partial summary judgment to the IRS. It held, in favor of the IRS, that the concessions related to tax years 1995 through 1997 did not resolve the deficiency and penalty issues for 1998 and 1999. It further agreed with the IRS's position that the proceedings in Anderson's criminal case established that G & A's income in 1998 ...