Gardner v. Commissioner, 704 F. App'x 720

Background

Fredric A. Gardner and Elizabeth A. Gardner (the Gardners) promoted an abusive tax-shelter scheme centering on "corporation sole" entities and sold related manuals.
The District Court in United States v. Gardner found the Gardners violated 26 U.S.C. § 6700 and entered an injunction; the Gardners litigated those issues in that proceeding.
The IRS assessed § 6700 penalties of $47,000 against each Gardner based on sales to 47 individuals.
The Tax Court concluded the District Court findings collaterally estopped the Gardners from relitigating whether they promoted an abusive tax shelter and affirmed the $47,000 penalties each.
The Gardners argued the penalty calculation was erroneous and invoked the Chenery doctrine, claiming they lacked an opportunity to challenge the revenue agent’s mistake in computing the penalty.
The appellate court reviewed collateral estoppel application, the factual basis for the penalty, and the Chenery argument and affirmed the Tax Court.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether collateral estoppel prevents relitigation that the Gardners promoted an abusive tax shelter under § 6700	Gardners: District Court findings not binding; may contest § 6700 liability in Tax Court	IRS/Tax Court: Same parties and identical issue were actually litigated and decided in District Court	Collateral estoppel applies; Gardners precluded from disputing promotion liability
Whether the record supports assessment of $47,000 penalty per Gardner based on 47 sales	Gardners: Penalty calculation (47 sales → $47,000) is mistaken or contestable	IRS: Agent’s testimony tied payments for 47 corporations sole to Gardners; records support the count	Tax Court’s factual findings on penalty amount are supported and not clearly erroneous
Whether § 6700 penalty focuses on promoter’s actions or on recipients’ use	Gardners: May argue recipient use should matter to penalty imposition	IRS: Penalty focuses on promoter conduct regardless of recipient’s use	Court: Legal rule focuses on promoter’s actions; recipient use irrelevant to penalty imposition
Whether Chenery doctrine invalidates Tax Court’s Notices because Gardners lacked chance to challenge agent’s computation	Gardners: Agency failed to articulate proper grounds; they had no opportunity to contest the agent’s mistake	IRS: Tax Court affirmed on the grounds articulated by the revenue agent, who was available for examination	Chenery argument fails; Tax Court affirmed on the agent’s articulated grounds and Gardners had opportunity to test them

Key Cases Cited

McQuillion v. Schwarzenegger, 369 F.3d 1091 (9th Cir. 2004) (elements for collateral estoppel in federal court)
United States v. Estate Pres. Servs., 202 F.3d 1093 (9th Cir. 2000) (penalty focus is on promoter conduct under § 6700)
SEC v. Chenery Corp., 332 U.S. 194 (1947) (reviewing courts may only uphold agency action on the grounds invoked by the agency)
Gardner v. Commissioner, 845 F.3d 971 (9th Cir. 2016) (background on corporation sole tax-shelter issues)