Wednesday, December 5, 2012

Hapless Mr. Williams Loses Again (12/5/12)

I have blogged on Joseph B. Williams III before.  He is the gentleman subject to the FBAR willful penalty that drew such a problematic opinion from the Fourth Circuit imposing the penalty.  See Fourth Circuit Reverses Williams on Willfulness (Federal Tax Crimes Blog 7/20/12; revised 7/24/12), here.  There was a related civil proceeding regarding his income taxes.  I  reported the Tax Court decision in that case earlier.  The Williams Offshore Account Saga Continues - You Win Some, You Lose Some (4/28/11), here.  The Fourth Circuit has now decided the appeal in the Tax Court case, Williams v. Commissioner (4th Cir. - No. No. 11-1804 12/3/12), here, an unpublished opinion, holding against Mr. Williams on the points he raised on appeal.

The Fourth Circuit unpublished decision plows no new ground (which is probably why it is unpublished).  Hence all it does is remind practitioners of settled propositions in the particular fact situation before the court.  The key propositions (with some fleshing out by me for context matters not addressed in the opinion) are:

1.  A guilty plea to income tax evasion for one or more years will be collateral estoppel in an ensuing civil case involving the same years.  Collateral estoppel after a guilty plea for income tax evasion will govern the unlimited statute of limitations in Section 6501(c)(1), here, and the civil fraud penalty in Section 6663, here.  Depending upon the plea and the allocution, It may not determine anything other than a minimum number for the tax liability itself.

2. Tax evasion under Section 7201, here, encompasses evasion of assessment or evasion of payment, or both (it is fair to say that evasion of assessment involves evasion of payment).

3.  The quantum of the tax liability is not the issue decided in a tax case.  All that is required that that some (usually some substantial) amount of tax liability be evaded.  Hence, the follow-on civil tax case may well involve more tax liability than bantered about in the criminal case.  (I cover this issue in the Federal Tax Crimes book, noting that the criminal numbers will be the floor on the civil numbers but not the ceiling.)

4.  For collateral estoppel purposes, a guilty plea is the equivalent of a guilty verdict after trial.

5.  A sham foreign entity does not insulate the individual nominal shareholder from tax on income from  his personal services shunted  through the sham foreign entity.

6.  Hokey charitable deduction claims don't work for civil tax purposes.

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