Tax Evasion Conviction Does Not Compel a Finding of Deficiency Where There is No Deficiency (4/2/16)

In Senyszyn v. Commissioner, 146 T.C. ___, No. 9 (2016), here, the Tax Court determined that the taxpayers owed no tax for the year involved (2003), despite the husband's earlier tax evasion plea agreement in which he admitted that significant taxable income and tax existed.  Tax evaded (sometimes referred to as tax deficiency and tax due and owing) is an element of the crime of tax evasion, § 7201, here, although the precise amount of the tax evaded is not.  Despite the taxpayers in fact owing no income tax for the year, the IRS sought to bind the husband to the plea agreement.  The Tax Court's summary of the case sets up my discussion below very well (with certain additions that I make in brackets):

Between 2002 and 2004, PH misappropriated funds from a business associate, DH. As part of a criminal investigation of PH, a revenue agent examined records of accounts belonging to Ps, DH, or related entities and determined that, during 2003, PH received from DH's accounts $252,726 more than he paid back to DH during that year. PH later pleaded guilty to and was convicted of criminal charges, including tax evasion in violation of I.R.C. sec. 7201. Under a plea agreement, PH agreed to a stipulation that he knowingly and willfully failed to report $252,726 of taxable income for 2003. [JAT Note: the admission was seems to be gross income which was taxable.]

Held: The evidence presented shows that, contrary to the revenue agent's analysis, PH repaid to DH during 2003 more than the amount the revenue agent determined PH to have misappropriated from DH in that year.  [Legally this had the effect of eliminating the taxable income.

Held, further, the purposes of the doctrine of collateral estoppel do not support its application to uphold whatever minimum deficiency would be consistent with PH's conviction for tax evasion.  

Held, further, because Ps are not liable for any deficiency in their Federal income tax for 2003, the fraud penalty R asserts against PH and the accuracy-related penalty R asserts against PW are not sustained.

I focus here, as did the Tax Court, on the plea agreement to the count of tax evasion for the 2003 year.  As I note toward the end of this blog entry, the criminal information to which the plea was entered had a "a separate count under section 7214(a)(7) (making or signing of fraudulent return by officer or employee of United States), that Mr. Senyszyn prepared and filed a fraudulent return on behalf of Mr. Hook's corporation, Modern Method Development, Inc. (MMDI)."  The Tax Court's opinion does not mention that count further and, instead, focuses on only the tax evasion count.  So, for the main discussion in the case and in this blog, § 7214(a)(7) appears irrelevant.

Senyszyn's Claims of Innocence of Tax Evasion Fail Again (12/10/16)

I have written before about the plight of Bodhan Senyszyn.  Senyszyn pled to a count of tax evasion.  Tax evasion, as followers of this blog know, requires a tax evaded element -- often referred to as tax due and owing or tax deficiency.  In subsequent proceedings, involving both direct and collateral and indirect attacks, Senyszyn often and loudly proclaimed his innocence of the charge to which he pled, particularly focusing in part on the absence of the tax evaded element.  One leg of his claims for relief reached the Tax Court where the Court held held that the evidence did not indicate that there was tax evaded on the embezzlement income in the tax evasion charge and that, under principles of res judicata, the Tax Court was not compelled to find some amount of tax evaded where it found as a fact that there was none.  Senyszyn v. Commissioner, 146 T.C. ___, No. 9 (2016), here.  I provide links to my prior discussions of Senyszyn's saga on this aspect of his claims for innocence.

Set back, but not willing to admit defeat on his claims of innocence, Senyszyn is back in court on his claim of innocence.  In Senyszyn v. United States, 2016 U.S. Dist. LEXIS 156155 (D. NJ 2016), here, Senyszyn sought collateral relief from his conviction for tax evasion.  The Court found that his pleading was inartful -- as often the case for parties representing themselves -- and recast the pleading in more lawyerly terms as a petition for writ of coram nobis which the court described as:

A writ of error coram nobis "is used to attack allegedly invalid convictions which have continuing consequences, when the petitioner has served his sentence and is no longer 'in custody' for purposes of 28 U.S.C.A. § 2255." See United States v. Stoneman, 870 F.2d 102, 105-06 (3d Cir. 1989). "A district court has the power, under appropriate circumstances, to grant a writ of error coram nobis and vacate a conviction, but the writ is an extraordinary remedy, and a court's jurisdiction to grant relief is of limited scope." United States v. Dwumaah, 570 F. App'x 193, 195 (3d Cir. 2014) (quotations omitted). A petitioner must meet five requirements in seeking relief from a federal conviction: (1) petitioner is no longer in custody; (2) petitioner continues to suffer consequences of the conviction; (3) the relief sought must correct errors of the most fundamental character; (4) there was no remedy for the defect available at trial; and (5) there are sound reasons for failing to seek the relief earlier. See id. at 196. "Earlier proceedings are presumptively correct and the petitioner bears the burden to show otherwise." Stoneman, 870 F.2d at 106.

Although there were some predicate procedural issues, the court addressed his claim as a claim of actual innocence.  The Court then held against Senyszyn on the following basis:

"Petitioner's claim may still be reviewed in this collateral proceeding if he can establish that the constitutional error in his plea colloquy 'has probably resulted in the conviction of one who is actually innocent.'" Bousley, 523 U.S. at 623 (quoting Murray v. Carrier, 477 U.S. 478, 496 (1986)); see also Lynch, 807 F. Supp. 2d at 230-31 (applying the Bousley holding to a petition for a writ of error coram nobis). "To establish actual innocence, petitioner must demonstrate that, in light of all the evidence, it is more likely than not that no reasonable juror would have convicted him." Bousley, 523 U.S. at 623 (quotations and citations omitted). "It is important to note in this regard that 'actual innocence' means factual innocence, not mere legal insufficiency." Id. 

Petitioner claims that he has demonstrated his actual innocence of tax evasion because of the finding by the Tax Court that he was not liable for a deficiency on his 2003 income tax return. Pet'r's Br. at 15-17. To be clear, the Tax Court did find that Petitioner had repaid misappropriated funds to his business associate during that year and that "the evidence presented does not support the asserted deficiency." See Pet'r's Cert., Ex. B at 20-22. 

The Tax Court's finding certainly contradicts a portion of the second count of the Information, which alleged tax evasion as a product of "embezzled taxable income from the sale of real estate." See S.I. at 6. To that extent, the Court acknowledges that the Tax Court's decision conclusively establishes that Petitioner is not guilty of evading taxes through the embezzlement of taxable income in 2003; however, that is not all that the Information alleges. Notably, the first paragraph under the second count reads: "The allegations contained in paragraphs 1 through 10 of Count One of this Superseding Information are repeated, realleged and incorporated by reference as though fully set forth herein." Id. In other words, Petitioner's conduct under the first count was also sufficient to establish his guilt under the second count. The Tax Court confirmed: "[Petitioner's] preparation of a fraudulent return on behalf of [the corporation] were themselves sufficient grounds to justify his conviction for tax evasion." See Pet'r's Cert., Ex. B at 28 n.7. 

Consequently, Petitioner has not established his actual innocence of tax evasion. To the contrary, the Tax Court's decision confirms the propriety of his guilty plea and conviction. See id. As such, Petitioner has not demonstrated an error of the most fundamental character that warrants correction and his petition for a writ of error coram nobis is, therefore, denied. See Dwumaah, 570 F. App'x at 195; cf. United States v. Osser, 864 F.2d 1056, 1059 (3d Cir. 1988) ("Nevertheless, it appears to us that an assertion that a conviction was based on conduct not covered by a criminal statute class is of a 'fundamental character.'") (citations omitted).

Tax Court Again Rejects Collateral Estoppel For Some Deficiency and Civil Fraud Penalty Where No Tax is Due (7/24/16)

I recently blogged on the case of Senyszyn v. Commissioner, 146 T.C. ___, No. 9 (2016), here, referred to as Senyszyn II to distinguish from the first opinion in the case in 2013, where the Tax Court declined the IRS's invitation to apply the doctrine of equitable estoppel arising from the taxpayer's conviction for tax evasion.  See Tax Evasion Conviction Does Not Compel a Finding of Deficiency Where There is No Deficiency (Federal Tax Crimes Blog 4/2/16), here.  An element fo the crime of tax evasion to which the taxpayer pled is tax evaded (some courts say it must only be some tax evaded; others say substantial tax evaded, although the substantial modifier is not a textual element of the crime).  Accordingly, the taxpayer's plea to tax evasion included a stipulation that he willfully failed to report income of $252,726 which, in most cases would mean a tax evaded, indeed a substantial tax evaded.  In the ensuing tax case involving the year, however, the evidence demonstrated that there was no evaded tax.  The IRS nevertheless urged that the Tax Court should find some minimal amount of tax evaded pursuant to the plea agreement as to that element of the crime.  The Tax Court declined to imposed collateral estoppel against the evidence it had before it.

The IRS was not pleased.  Conjuring the horrors that might result, the IRS asked for reconsideration, urging that collateral estoppel was mandatory rather than equitable subject to the court's discretion. The Tax Court (Judge Halpern) again rejected the position.  Senyszyn v. Commissioner, T.C. Memo. 2016-137, here.  The Court has a good history of the proceedings before the Tax Court, with the first opinion in 2013 and not, apparently, the last just last week.

Judge Halpern then explained the IRS' motion for reconsideration:

In that motion, respondent alleges that, in Senyszyn II, we "did not properly apply the standard for collateral estoppel." In particular, respondent argues that our claim of "broad discretion in the application of collateral  estoppel" was a substantial error of law because it "contradicts previous holdings of the Court of Appeals for the Third Circuit, the court to which any appeal in this case would lie." Finally, respondent alleges that proper application of the standard for collateral estoppel would result in "a substantial tax deficiency for petitioners." According to respondent, that Court of Appeals allows trial courts discretion in the application of collateral estoppel only when the doctrine is asserted by a claimant who was not a party to the prior litigation (i.e., cases of "non-mutual" collateral estoppel). By contrast, in cases involving "mutual" collateral estoppel, in which the doctrine is asserted by a party to the prior litigation, courts must apply the doctrine whenever the legal conditions to its application are met.

The Tax Court noted that the IRS' argument that collateral estoppel does not permit judicial discretion in its application was based on thin authority (Jean Alexander Cosmetics, Inc. v. L'Oreal USA Inc., 458 F.3d 244 (3d Cir. 2006), and in the discussion section of the opinion demonstrates that that case is not sufficient authority on the facts in the case.  Moreover,

Respondent also suggests we "consider the breadth of * * * [our] opinion." He worries that the discretion we have claimed in the application of collateral estoppel might encourage "many more challenges to clear-cut cases" that will "waste judicial resources and the resources of the parties, thereby frustrating the entire purpose of collateral estoppel." He also professes concern that our Opinion "might be used to challenge prior criminal convictions." Finally, respondent suggests that applying collateral estoppel would "save[] the Court from having to confront the question of a requirement to arbitrarily determine some 'substantial tax deficiency' in order to afford the District Court the comity to which it is due, in a case where this Court's factual analysis shows there really is no deficiency at all." "The better course", respondent recommends, "is to accept via collateral estoppel the liability to which Mr. Senyszyn stipulated in his guilty plea as a minimum deficiency."

Civil Collateral Estoppel Following Tax Evasion Conviction (12/3/13)

In Senyszyn v. Commissioner, T.C. Memo. 2013-274, here, the taxpayer, a former IRS agent, had earlier been convicted by plea of tax evasion.  The evasion count to which he pled was:

COUNT TWO

TAX EVASION

1. The allegations contained in paragraphs 1 through 10 of Count One of this Superseding Information are repeated, realleged, and incorporated by reference as though fully set forth herein.
2. During the calendar year 2003, defendant BOHDAN SENYSZYN embezzled taxable income from the sale of real estate owned by DH that was in addition to the income paid to him as salary and wages by the IRS. Specifically, defendant BOHDAN SENYSZYN embezzled approximately $252,726.00 from the November 19, 2003 sale of DH-owned property in Andover Township identified as Lot 72, which was sold for $351,000.00.
3. On or about January 29, 2004, defendant BOHDAN SENYSZYN prepared, co-signed, and filed a United States Individual Income Tax Return, Form 1040, for himself and his wife, who also signed the return. That joint return declared $78,115.80 in wages and salaries as their only income, and stated that the amount of tax due and owing was $0.
4. The return did not include about $252,726.00 in additional taxable income that defendant BOHDAN SENYSZYN embezzled in 2003 from the sale of Lot 72. Upon this additional income, an additional tax of about $85,016.27 was due and owing to the United States.
5. On or about January 29, 2004, in the District of New Jersey, and elsewhere, defendant BOHDAN SENYSZYN 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 that he signed, filed and caused to be filed a false and [*6] fraudulent United States Individual Income Tax Return, Form 1040, as described in paragraph 3, knowing it to be false and fraudulent as described in paragraph 4. In violation of Title 26, United States Code, Section 7201.

In the ensuing civil proceeding, the IRS urged that the conviction was collateral estoppel as to the issue of fraud for purposes of the civil fraud penalty and for purposes of the statute of limitations.

As a result of the case, I have slightly revised the working draft of my Federal Tax crimes book discussion of collateral estoppel as it relates to the civil fraud penalty.  Here is the discussion (footnotes omitted):