Taxpayer Judicially Estopped from Refund For Taxes Admitted in Plea Agreement (9/25/13)

In Mirando v. United States, 2013 U.S. Dist. LEXIS 135659 (ND OH 2013), the taxpayer pled guilty to conspiracy and tax evasion.  The plea agreement stated that the parties:

agree and stipulate that the following facts would have been established beyond a reasonable doubt at a trial in this matter: . . . after Mirando's release from the custody of the Bureau of Prisons, the IRS assessed tax, interest and penalties for Mirando's taxes due for the 1995 and 1996 tax years as well as for unpaid liabilities for the 2000 and 2004 tax years. As of June 29, 2007, the total tax liability, including interest and penalties, amounted to $448,776.13.

The taxpayer paid and sued for refund.

As I note in the comments below, there was no basis in the normal judicial doctrines of res judicata and collateral estoppel to prevent the taxpayer from asserting that the tax was less than stipulated in the plea agreement.  And, apparently this plea agreement was not specific that it was intended to contractually bind the taxpayer to the amounts -- even as minimum amounts -- in any subsequent civil tax case.  So something else would have to apply if the taxpayer were going to be bound.

The Court applied judicial estoppel.  Here is the reasoning (footnotes omitted):

The Court finds judicial estoppel prevents Plaintiff Mirando from bringing his refund claim. First, Mirando's position that he is entitled to a refund for overpaid taxes for the years 1995, 1996, and 2000 is directly contrary to his plea agreement in his 2007 criminal case. Recall Mirando's 2007 plea agreement states that the parties: 

agree and stipulate that the following facts would have been established beyond a reasonable doubt at a trial in this matter: . . . after Mirando's release from the custody of the Bureau of Prisons, the IRS assessed tax, interest and penalties for Mirando's taxes due for the 1995 and 1996 tax years as well as for unpaid liabilities for the 2000 and 2004 tax years. As of June 29, 2007, the total tax liability, including interest and penalties, amounted to $448,776.13. 

Because Mirando initialed the page on which the total tax liability was determined and signed the entire document, Mirando specifically agreed he owed $448,776.13. Mirando cannot now dispute these figures and demand a refund from the IRS after the court accepted his plea agreement. 

Moreover if Mirando was allowed to proceed in this action, he would gain an unfair advantage. By pleading guilty to tax evasion and specifically agreeing to a total tax liability of $448,776.13, Mirando avoided the possibility of a longer sentence and the United States agreed not to prosecute Mirando's ex-wife or two children. After obtaining this benefit from the United States, Mirando cannot turn around and sue the United States for a refund. 

Plaintiff Mirando relies on United States v. Hammon [277 F. App'x 560 (6th Cir. 2008)] for its position that his refund claim is not barred by estoppel. In Hammon, the Sixth Circuit held that the defendant was not collaterally or judicially estopped from denying the accuracy of the government's assessments despite pleading guilty to tax evasion and agreeing to pay $2.39 million in restitution. However, the present case can be distinguished from Hammon. In Hammon, the plea agreement only stipulated that the defendant willfully attempted to evade taxes assessed by the government in "the amount of approximately $2.39 million." Since the plea agreement was ambiguous as to whether the defendant admitted that the $2.39 million assessment was correct, the defendant was not estopped from challenging the accuracy of the tax assessment. In contrast, Plaintiff Mirando specifically agreed in his 2007 plea agreement that "beyond a reasonable doubt ... [a]s of June 29, 2007, the total tax liability, including interest and penalties, amounted to $448,776.13." Consequently, Hammon is not controlling, and judicial estoppel prevents Mirando from bringing his refund claim.

V. Conclusion 

For the reasons above, the Court GRANTS Defendant United States' motion to amend and GRANTS Defendant United States' motion for summary judgment. The Court DISMISSES this action. Therefore, the Court DENIES Plaintiff Mirando's motion for summary judgment. 

IT IS SO ORDERED

JAT Comments:

1. This seems to backdoor a form of estoppel that goes beyond concepts of collateral estoppel and res judicata that are the usual forms of preclusion with respect to prior litigation.  Although it is not clear that the amount stipulated in the plea agreement was intended to be the tax loss as defined for sentencing, let's consider for this discussion that it was the tax loss (which is usually stipulated in tax pleas).  The question  is what effect that stipulation has under principles of res judicata and collateral estoppel in a subsequent civil case. The holdings in the cases seem to apply no preclusive effect to the tax loss findings.  E.g., Kosinski v. Commissioner, 541 F.3d 671 (6th Cir. 2008), a well reasoned and nuanced opinion citing, inter alia, the Booker shift in binding effect of the Sentencing Guidelines and Maciel v. Commissioner, 489 F.3d 1013 (9th Cir. 2007).  However, I think that the issues are more subtle than the courts have addressed.  At sentencing, the Court determines the amount of the tax loss – “the total amount of loss that was the object of the offense.”  That is basically the same standard as the civil fraud standard in § 6663.  At sentencing, the court determines the tax loss based on a preponderance of the evidence.  In the civil case, the court determines civil fraud under a burden-shifting concept as follows: (i) the IRS must prove some portion of the deficiency is due to civil fraud by clear and convincing evidence and (ii) upon meeting that burden, the balance of the underpayment is deemed to be subject to fraud except to the extent that the taxpayer shows otherwise.  Now, the finding of tax loss at sentencing should not be preclusive under collateral estoppel as to the first burden the IRS must meet in the civil case because the sentencing court did not make a determination that any portion of the tax loss was attributable to fraud by a preponderance of the evidence. In the civil case, the IRS should be required to prove by clear and convincing evidence that some portion of the tax deficiency is attributable to fraud.  But, once it has done so, we focus on the burden-shift in clause (ii).  The key difference is the theoretical one of who has the burden of persuasion as to the portion of the deficiency attributable to fraud.  In the sentencing proceeding, the Government had the burden of persuasion; in the civil proceeding, the taxpayer has the burden of persuasion.  Both burdens are based on a preponderance of the evidence – meaning that the allocation of the burden only affects outcomes where the trier of fact is in equipoise.  According to astute observers of trial outcomes, it is not common that triers are in equipoise.  Cigaran v. Heston, 159 F.3d 355, 357 (8th Cir. 1998) (“The shifting of an evidentiary burden of preponderance is of practical consequence only in the rare event of an evidentiary tie . . . .”); see also Polack v. Commissioner, 366 F.3d 608, 613 (8th Cir. 2003) (citing the Cigaran case) Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2004); and Knudsen v. Commissioner, 131 T.C. 185, 188 (2008).  Hence, I would argue that the tax loss should be preclusive as to the amount attributable to fraud in step (ii) and the possibility that equipoise could affect the outcome is too inconsequential to justify relitigating the issue.  In short, in the civil case, after the IRS has established some portion of the deficiency to be attributable to fraud, the portion that is then subject to the civil fraud penalty should be the amount of the sentencing tax loss determined for that year.  Readers should be wary, though, that I cannot cite any authority for the reasoning and conclusion that I have just expounded.  [Note I had the foregoing discussion wrong in an earlier version, but I think I have corrected it now.]

2.  So, the question is whether, if collateral estoppel does not apply, estoppel can nevertheless apply via the concept of judicial estoppel.  The Court cites no specific authority for that application of the doctrine of judicial estoppel, but rather reasons from the general concept of the doctrine of judicial estoppel to its application to the stipulated tax liability.  In the absence of any authority, it is hard to address whether the court is correct in its application of judicial estoppel.

3.  The case does alert practitioners to be careful what they negotiate plea agreements because, even without specific language in the plea that the taxpayer defendant is making binding stipulations that apply even in a subsequent civil context, the taxpayer defendant could be estopped by judicial estoppel.  For example, it is usually the case that a plea agreement will deal with sentencing factors.  The relevant sentencing factor here is the tax loss -- the amount of tax that was the object of the offense.  The plea agreement in tax crimes cases -- whether involving a conviction for evasion or the panoply of other potential tax crimes -- will usually stipulate the tax loss and the Court will ultimately make its required Guidelines calculations on the basis of the stipulated amount.  It is clear that, if the Court simply made the tax loss determination independent of the parties' stipulations, that determination would not be collateral estoppel in a subsequent civil proceeding.  But, the suggestion of this Court is that, even if not collateral estoppel, it can be judicial estoppel where the parties stipulated as to the amount.  And, the holding, if correct, would not be limited to conviction for tax evasion.  Any tax crimes case where the parties stipulated the tax loss could be subject to judicial estoppel.

4.  As I have noted before these types of stipulations in plea agreements are usually as to the criminal figures or the tax loss numbers which may be less than the actual civil tax liability the taxpayer owes.  Thus, they would usually not be preclusive under any estoppel doctrine as to anything except the minimum tax due.

5.  If the taxpayer stipulates that the amount in the plea agreement is the amount that was the object of the crime, it would seem that the estoppel would apply to establish the minimal amount subject to the civil fraud penalty.  Under Section 6663's burden shifting rules some additional amount of the tax would then be in play for the civil fraud penalty if the IRS asserts it and the taxpayer is unable to show that it is not attributable to fraud.  See Section 6663, here.

6.  Also, such plea agreement stipulations often are as to the restitution amount.  Under the revisions to the Code to permit immediate assessment of restitution amounts, the defendant will be precluded from contesting liability for those amounts.  Note, consistent with the foregoing discussion, that the restitution will often be as to the principal amount of the tax liability rather than as to any penalty that may apply.  The IRS will usually want the civil fraud penalty and could invoke the burden shifting rules notes above.

7.  The key plea stipulation is:  "As of June 29, 2007, the total tax liability, including interest and penalties, amounted to $448,776.13."  I wonder whether the Government / IRS is judicially estopped by the stipulation as well.  I know that the tax loss determinations at sentencing which are frequently based on stipulations like this are not considered binding on the IRS.  See Further on Use of Sentencing Tax Loss Findings in Later Proceedings (Federal Tax Crimes Blog 1/10/10), here.  Are these now judicial estoppel - a two way street - based on the reasoning of Mirando?  See John A. Townsend, Collateral Estoppel in Civil Cases Following Criminal Convictions, 2005 TNT 4-28 (arguing the sense of Mirando that these types of determinations should only be made once, but alas I was not swimming with the mainstream on this.)

For related blogs, see

• New Statute for Civil Effect of Restitution in Tax Cases (Federal Tax Crimes Blog 2/11/11), here.
• What Can Be Done If Tax Restitution Exceeds the Tax Due (Federal Tax Crimes Blog 9/2/13), here.
• Tax Restitution and Doubt As to Amount (Federal Tax Crimes Blog 7/10/13), here.
• Eight Circuit Denies Claim for Restitution Reduction for Unconvicted Wife's Alleged Share of Tax Liability (Federal Tax Crimes Blog 5/8/13), here.