Judicial Estoppel of Tax Liability Based on Plea Agreement (9/20/14)

Guilty pleas and the resulting admissions in guilty plea allocutions do have collateral consequences.  Most immediately, guilty pleas and allocutions can be preclusive or or evidence in later civil proceedings.  In the current draft of my Federal Tax Crimes book, I caution as follows (footnotes omitted):

K. Collateral Consequences of Plea Agreements and Allocutions. 

Defense attorneys should always keep in mind that the criminal trial and particularly convictions can have collateral consequences to defendants.  Most immediately in a tax setting, a conviction can be proof or, at least, evidence of fraud so as to open up tax years otherwise closed by the statute of limitations and support the 75% civil fraud penalty.  I discuss elsewhere the collateral estoppel consequences of convictions for tax evasion.  Other tax crimes – most prominently tax perjury, § 7206(1) – do not per se have such preclusive collateral estoppel effects.  However, particularly in the plea agreement and in allocutions, there is some context for the bare, general count(s) of conviction.  That context may offer specific admissions of fraud or conduct from which a fair inference of fraud can be made.  If defense counsel wants to hold open the defendant’s opportunity to avoid civil fraud, the defense attorney must be careful to shape the admissions and other evidence to mitigate the risk of it being conclusive or persuasive as to fraud.

In this blog, I discussed the damaging effect of allocutions in an earlier case, the now infamous Williams case holding the hapless J. Bryan Williams liable for the willful FBAR penalty.  United States v. Williams, 489 Fed. Appx. 655 (4th Cir. 2012), here.  As I said in my blog on Williams (Fourth Circuit Reverses Williams on Willfulness (Federal Tax Crimes Blog 7/20/12; revised 7/24/12), here).

13.  The second aspect, which I think is inseparable from the first, is the particular plea allocution Williams made at his sentencing for the crime.  Essentially, the majority reads the plea allocution as an admission of willfulness in failing to file the 2000 FBAR in question.  The dissent reads the allocution differently, so we have a Clintonian situation as to the conclusion depending upon what the definition of is is.  Then, of course, as noted by the dissent, questions of collateral and judicial estoppel may apply.  I won't go into this further because, if indeed (as the majority read the tea leaves), the defendant admitted willfulness, then, of course, the district court was wrong in finding that the Government had not proved willfulness.

The majority opinion in Williams said this about the allocution (two footnotes omitted):

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.