City Wide Transit, Inc. v. Commissioner
2013 U.S. App. LEXIS 4252
| 2d Cir. | 2013Background
- City Wide Transit, Inc. employed a fraud scheme through its preparer Beg that reduced City Wide’s payroll tax payments.
- Beg prepared and filed fraudulent Forms 941 for 1997-2000 and amended some returns to conceal embezzlement from City Wide and the IRS.
- Fouche, City Wide’s owner, hired Beg and a payroll service to handle returns but gave Beg authority to file; Beg diverted funds and altered checks.
- The IRS assessed additional taxes for seven quarters based on Beg’s fraud; City Wide challenged as outside the three-year limit, and the Tax Court agreed.
- The Commissioner appealed, arguing tolling under § 6501(c)(1) should apply due to Beg’s intent to evade taxes, and this Court reversed, allowing assessment at any time.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 6501(c)(1) tolls the limitation period when a preparer files fraudulent returns to evade taxes. | City Wide conceded Beg filed fraudulent returns; Beg’s actions were not intended to evade City Wide’s taxes. | Commissioner argued Beg’s fraud was to evade taxes owed, triggering § 6501(c)(1). | Yes, tolling applied; Commissioner could assess no time limit. |
| Whether clear and convincing evidence established Beg’s intent to evade taxes. | Beg’s intent to evade City Wide’s taxes was not proven; evasion was incidental to embezzlement. | Clear and convincing evidence shows Beg intended to evade taxes. | Yes, the intent to evade was proven; tax evasion existed. |
| Whether Beg’s preparer fraud and amendments satisfy § 6501(c)(1) versus § 6501(c)(2). | Arguments primarily focused on § 6501(c)(1) interpretation. | Court should apply tolling under § 6501(c)(1) (and potentially § 6501(c)(2)). | Both provisions support tolling; the outcome remains the same. |
Key Cases Cited
- Bufferd v. Comm’r, 506 U.S. 523 (U.S. 1993) (strict construction in favor of the Commissioner for limitations)
- Schaffer v. Comm’r, 779 F.2d 849 (2d Cir. 1985) (burden of proving fraud by clear and convincing evidence)
- Spies v. United States, 317 U.S. 492 (Sup. Ct. 1943) (intent and motive may be inferred to establish willful evasion)
- Ingram v. United States, 360 U.S. 672 (Sup. Ct. 1959) (tax evasion motive can be evidenced by conduct)
- Klausner v. United States, 80 F.3d 55 (2d Cir. 1996) (affirmative willful evasion may be inferred from conduct)