Paul F. Gray, Jr. v. Commissioner of Internal Revenue

“jail type” to be served in a institution. At MERRITT, Before ENGEL Gray time were entered was the BROWN, District Judges, Senior disposition aware of the fact no Judge.* being made of his civil tax liabilities. April, In after the criminal matter BROWN, E. District WESLEY Senior of, disposed the Commissioner issued Judge. required statutory deficiency notices of appeal This is an from a decision of the 1968-1970, years for the taxable includ- States Tax Court which sustained penalties additional civil provided by determination of cer- Commissioner’s 6653(b),2 following U.S.C. in the § tain deficiencies in federal tax returns ** amounts: Gray, Jr., years F. for the appellant, Paul * Brown, Wesley Judge, E. The Honorable Senior any part any underpayment (b) United States District Court for District Kan- Fraud. —If sas, sitting by designation. required to be shown on a return is ... of tax fraud, due to there shall be added to the tax Attempt tax: 1. 7201. evade or defeat equal percent under- an amount Any person willfully attempts any who payment .... any imposed tax manner to evade or defeat shall, payment or the thereof title years 3. to the taxable addition by law, penalties provided addition to other indictment, years covered and, felony conviction be thereof, statutory separate issued Commissioner $10,000, shall fined not than be more deficiencies, additions, finding with notice both, years, imprisoned or not more than 5 year tax claim has tax 1972. The 1972 prosecution. together costs of with the appeal. in this and is not an issue been settled pay Failure to tax. 2. § consequences of his plea. It was Year further Deficiency Additions $22,466.07 held that $11,223.03 there was no evidence that 40,767.94 20,383.97 United States Attorney Gray had misled 39,134.47 19,567.233 respect regarding separate issue of his civil tax liabilities.4 petitioned the Tax a rede- Court for deficiencies, termination of the asserted and After further hearing Court, in the Tax additions to the tax. The United States parties agreed to the Commissioner’s partial summary filed a motion for computations, and stipulated facts, under it ment, collaterally alleging Gray that was found that Gray had additional taxable his in the crimi- estopped, by plea of $53,543.83, income of $69,736.76, $106,- and nal tax prosecution, denying 141.66, respectively for the years 1968,1969, 6652(b). for civil In penalties under Section and 1970. From figures, these the Tax motion, opposing Gray contended that Court determined that tax deficiencies for pleas regard his were not conclusive years those were in $19,534.11, the sums of sought partial he sum- penalties, and $27,594.80, $38,054.96. and Additions to that mary judgment any to the effect defi- these taxes the provisions of ciency should be limited to the amounts 6653(b) were found to be in the amounts indictment, alleged in the criminal with civ- $9,767.06, $13,979.40, of $19,027.48. and il fraud penalties to be limited to 50% of In appeal, this Gray contends that it was figures. those apply error the doctrine of collateral On November the Tax Court estoppel estoppel because operates only granted the government’s motion for par- upon matters questions and actually litigat- summary judgment, tial and Gray’s denied ed. Appellant claims that motion, ruling that Gray “collaterally case, in the criminal were like a consent estopped from denying parts that of the case, decree in a civil adjudica- and not an underpayments of income tax for the taxa- tion on the merits of the fraud issue. ble years .. . are due to fraud.” Gray While concedes that there are feder- Gray next filed in the criminal case in al cases which permit the application petition Tennessee a for a Writ of Error estoppel instance, of collateral in this he Coram Nobis for the of purpose vacating argues that such cases are distinguishable, convictions, setting and aside his and applicable and not to his situation. He permit him to withdraw his further contends that such cases are not in that proceeding. petition was de- court, binding upon this they that are in nied and this decision was affirmed conflict with “the weight of state authori- Circuit, published opinion, Gray without v. issue,” ties on the and that an America, United 663 F.2d States collateral estoppel here would conflict with (6th Cir.1981). appeal, panel In that the holding Supreme of the Court in United this court determined that the collateral Co., Building States v. International guilty plea effect of a in a later 502, 807, U.S. 97 L.Ed. S.Ct. consequence civil tax case is In International guilty plea, Building, and that it was therefore deficiencies unnecessary against corporate for the district court to have were assessed taxpay- specifically 1939, advised of the collateral er for the years and be- “ appeal, In this stated: Since the collateral effect of a guilty plea subsequent in a civil tax case consti- guilty plea “A to the constitu- must conform consequence guilty plea tutes a collateral tional standards of voluntariness because it has unnecessary ... it was for the district court to the effect of a conviction and waiver of the jury have advised the defendant of the civil ramifi- constitutional trial... In order to a guilty plea. guilty plea voluntarily for the cations of his Nor is there made to be defendant must evidence in the record to indicate that the U.S. be made aware of all direct consequences plea Attorney’s of his . the courts have statement misled the . . defendant with respect separate liability.” held that the defendant need not be advised of issue of civil consequences plea.... the collateral of his modified), Cir.1965, cert. den. 385 had taxpayer that cause of a determination 704, 1001, 17 L.Ed.2d 541 for depreciation improper basis an used stipulation, joint aBy property.

certain federal courts have held that a Numerous the Tax were abated deficiencies evasion, income tax for federal conviction were no defi- there entered decisions upon jury guilty, either 1948, the Com- years. those ciencies for conclusively establishes guilt, verdict for in taxes deficiencies missioner assessed pro- civil tax fraud subsequent in a chal- again years of the doctrine ceeding through application depreciation used for the basis lenging Fontneau v. estoppel. See of collateral the deficiencies paying After taxpayer. Cir.1981) (110 654 F.2d refund, claimed taxpayer suing C.I.R., 465 F.2d plea); Plunkett (guilty taxable regarding decisions Cir.1972) (guilty plea); (7 305-307 judicata 1933, 1938 and 1939 were res years C.I.R., Neaderland proper of the basis question as to the 53, 827, 91 Cir.1970) cert. den. 400 U.S. S.Ct. prior determining depreciation. (1970); Moore v. United 56 27 L.Ed.2d found binding, the court decision was (con States, 360 F.2d 353 at 355-356 supra, of the not clear that the merits that it was C.I.R., trial); 360 following Amos v. viction had been determined depreciation dispute 50; (4 Cir.1965) affirming 43 T.C. F.2d 358 the first case. 274, States, F.2d 354 Armstrong v. United trial); (conviction following clearly (Ct.Cl.1965) 291 Building case is The International 262, Lefkowitz, 264- v. 334 F.2d The Tomlinson situation. distinguishable Gray’s from 962, (5 Cir.1964) cert. den. 379 U.S. 85 265 District Court establishes that record (conviction 650, (1965) 556 respect to his appellant with S.Ct. fully examined also, trial.) Arctic Ice Cream following contained in See of the understanding 68, Commissioner, (1964) 75 43 T.C. indictment, affirmatively Co. in Acker v. United recent decisions filed false tax and the he had indeed stated that 178, 1981) F.Supp. States, (N.D.Ohio 519 so, with the returns, he had done and that States, 683 The and Considine v. United of taxes.5 payment intent to evade the Cir.1982). (9 chose F.2d 1285 Gray voluntarily clear that record is charges, and a forth- plead guilty to foregoing authori In the face of the that was made determination judicial ties, of state cases is not appellant’s citation in each instance. charged he was Indeed, he that recognizes persuasive. opposite cases take the “most of the federal plea is as much convic A urges in this to that which he following jury position” trial. a conviction tion as appellant’s con We conclude that appeal.6 of criminal tax evasion and The elements day his Co., that he has been denied tention are identical. See Hicks civil tax fraud is Cir.1972); respect to the issue of fraud C.I.R., (190 court with Inc. v. (4 merit. States, F.2d without Moore v. United Well, you Now, Gray, go did file a false tax Mr. let me THE COURT: 5. “THE COURT: charged of the you in the first count make certain it would return as over this with you proper permit enter indictment? be to Yes, sir. MR. GRAY: indictment in this counts in the the three you at the time did so did THE COURT: And case. payment you with the intent to evade the do so you count it is Do that in the first understand charged in the first count? the tax as year charged 1968 that that for the calendar Yes, MR. Sir.” GRAY: return, you you that did filed a false income tax payment of taxes so with intent evade brief, appellant supplementing refers us his 6. In twenty-eight reported thousand income of Cir.1965), (2 Kreps v. C.I.R. 351 F.2d your taxable income some odd dollars whereas dictum, which, convic refers to a criminal sixty-two and some was in the sum of thousand being We find this “evidence” of fraud. tion as dollars, you you what odd do that is understand persuasive distinguishable and of no to be case charged with in first count? force. Yes, MR. sir. GRAY: estopped of the Tax Court is Af- he should now be litigating of the of his origin the issue tax deficiencies firmed. 6653(b). U.S.C. In Allen v. MERRITT, Judge, dissenting. 94-95, 101 McCurry, supra, 449 atU.S. S.Ct. 414-415, judicata of res and collat- principles Supreme reiterated subsidiary eral and the doctrines governing standards use of collater- preclusion, preclusion claim and issue see estoppel, recognizing al that doctrine Judgments generally Restatement court may apply “once a has decided an (Second) (1982) judicial reflect a purpose fact necessary issue of or law “relieve and vexation cost ment . .. apply par- cannot when the [but] lawsuits, multiple judicial re- conserve ty against whom the earlier is as- decision sources, and, by inconsistent de- preventing opportu- serted did not have a ‘full and fair cisions, encourage adjudication.” reliance on litigate nity’ to issue in the earlier 90, 94, 101 McCurry, Allen v. 449 U.S. S.Ct. (citing case.” Montana L.Ed.2d 308 These are 440 U.S. objectives, deciding sound but before policy (1979); Blonder-Tongue L.Ed.2d Labor preclusive whether to effect to a give atories, University Inc. v. Foun Illinois judgment, we should consider dation, 313, 328-29, might outweigh factors countervailing 28 L.Ed.2d 788 The issue preclusion effects of broad salutary Gray’s case is thus whether rule. adjudication plea constitutes an on the holds for the first time in this Court so, and, question, plea if whether the of taxpayer’s plea guilty that a procedure a fair afforded him “full and charges him in precludes tax fraud subse- that opportunity” litigate question. quent proceedings contesting civil from lia- Although the 85 of Second Restate- § penalties assessed on tax bility for fraud Judgments specifically provides ment of period deficiencies for the associated with the a preclusive judgment effect of criminal charges. Two federal circuit courts those subsequent in civil proceedings, a comment of upheld have the collateral following that section notes that this rule estoppel against taxpayers who—like the “presupposes question that the issue in was pleaded in the instant case—had petitioner litigated in the criminal actually prosecu- charges to tax evasion Judgments (Second) tion.” Restatement of U.S.C. 7201. See Fontneau v. United § Thus, Comment b the com- § (1st Cir.1981); Plunkett apply ment concludes that 85 does not Commissioner, (7th F.2d Cir. plea the “because issue has not however, 1972). contends, that both litigated.” espous- been Id. actually Also distinguishable of these defendants view, ing this Professor Moore states: because, the from his case unlike defend- Plunkett, ants Fontneau and he did not upon parties’ A based the con- that his understand and not told for in- provides sent no reasonable basis consequences plea have collateral litigated, ference that the or the subsequent proceedings. majority civil adjudicated, any court issue —it indicates by implicitly rejects this distinction observ- contrary. the the rationale of col- Since ing already Court that this has held that litigation lateral and ad- requires Gray’s judge plea the district who took did judication to make issues conclusive these not have to advise him of collateral subsequent there is no more litigation, order consequences plea’s to ensure doctrine to a con- applying basis for (Ante 4.) voluntariness. n. p. at to a by viction consent than consent, by generally this civil

Yet, ment voluntary Gray’s plea whether estop- judgment does not have collateral process a matter fifth due as of amendment effect. very question pel is different whether Justice, Justice, Dep’t Practice Inst. of Moore, Nat’l Federal Moore’s 1B J. 1982). Negotiation (1980). Accord at 2707-08 ed. Plea ¶ 0.418[1] Miller, Cooper, Federal A. & E. Wright, C. recognized Widely as an effective device 4474, at 760 Practice and Procedure § goal to further societal important plea (1981) (“Conviction reducing number criminal trials on or adjudication de not rest on actual does dockets, see, e.g., crowded court Borden- Just as issue issue. termination Hayes, supra, kircher v. at S.Ct. at judg on civil should not rest preclusion necessarily “has (Supreme accept- default, consent, so stipulation ments constitutionally legitimate simple ed as guilty.”) rest plea it should not on a reality prosecutor’s interest at the view Despite the of these commentators bargaining persuade table is to defend- American Institute that a and the Law forego plead guilty”); not ant to guilty plea represent conviction does an 63, 71, Allison, Blackledge 431 U.S. case, adj.udication issues in the (1977) distinguish refuses

majority between (characterizing guilty plea concomitant jury trial convictions for components as plea bargain “important reaching purposes. justice country’s system”); this decision, that majority observes “[a] York, v. New 404 U.S. Santobello is as guilty plea much a conviction (1971) L.Ed.2d 427 Ante, following jury conviction trial.” (disposition plea after discussions a statement clearly correct as While highly considered essential and desirable law, begs of substantive this observation plea bargain- part process), of the criminal question the essential we confront in fundamentally strategy ing alters judicial policy, case: as a this matter of pursue in a defendant would otherwise re- give the courts preclusive should effect to sponding charges. Acknowledg- to criminal guilty pleas? effect, Traynor Roger Justice found assuming Even arguendo contrary that — presented that the additional considerations consensus of legal commentators render collateral bargaining estop- above —a guilty plea discussed conviction pel inappropriate guilty plea settings: in adjudication, does constitute a formal I do plea a of has been entered in When agree procedure the plea its action, have Gray prior attendant afforded the no issues been circumstances a litigate pre- “full and fair to a “full opportunity” controversy” by the “drawn into issue. Like criminal most defend- may of case. It reflect sentation” the ants, a powerful faced incentive to only compromise paying a or a belief plea bargain exchanged strike a in which he advantageous litiga- more than a fine is litigate government’s his to the to tion. Considerations of fairness civil relatively in return charges for a lenient expeditious for the litigants regard v. Hayes, sentence. See Bordenkircher 434 justice criminal ... administration of 604 (1978) 98 S.Ct. 54 L.Ed.2d U.S. of prohibit to the col- combine prosecutors to reduce (permitting who, estoppel against party hav- lateral with pleas by threatening defendants more ing charge, to a criminal pleaded Bond, Bargaining J. Plea charges); serious litigate to seeks for the first time 1982) Pleas Guilty (describing ed. cause in a civil action. Klein, plead guilty); incentives to Induce- Furs, Teitelbaum Inc. v. Dominion Insur- to Plead Frontier Justice Re- Guilty: ments Co., 601, 605-06, Cal.Rptr. ance 25 58 Cal.2d visited, Whitter, P. in P. Wickman and 559, 561, P.2d 441 Readings Criminology (1978) (describing in majority’s collateral rule prosecutors persuade de- by tactics used government whipsaw the tax permits plead fendants to In the United guilty). inducing them to States, fraud defendants first approxi- account pleas through attractive 90% of all criminal convictions. enter mately in suing them civil convinces me that lack bargain offers and then the of mutuality critical importance assumes in taxpayers cannot tax fraud where the proceedings cases. deci- liability. A defendant’s contest their diffi- is often plead guilty whether

sion course, rule, Of under the majority’s tax- law to criminal considera- cult when limited facing payers ap- criminal of appending civil I believe tions. the pear to have benefit estop- collateral complicates crim- unfairly the consequences they prevailed if first pel against the position, pur- and that for inal defendant’s in civil government proceedings. Yates See proc- the poses plea bargaining, criminal 298, 335-36, v. United 354 U.S. should stand settings ess alone. As other (1957) (ad- S.Ct. L.Ed.2d government coopera- where the invites the verse findings proceeding may pre- defendants, government furthering relitigating tion of criminal vent issue in However, prosecution). criminal judi- society’s expediting interest government follows a policy which obviates govern- process cial should not entitle the such a turn events. simply prosecutes It reap ment collateral dividends. Cf. first, the criminal case policy that ensures Note, Standoff Situations and the Fifth government’s advantageous position re- Amendment, (desira- (1981) Yale L.J. 344 garding estoppel. This observa- bility having police negotiate surrenders highlights yet tion negative another ramifi- supersede in hostage situations should not cation of the rule. majority’s In establish- suspects’ rights). fifth amendment procedures governing conventional The unfairness that Justice dis- Traynor litigation, Congress tax has decided that the compounded asymme- cusses is rule’s taxpayer challenge who wishes to the Com- govern- trical orientation. Because of the missioner’s may assessment choose to sue in ment’s proof enhanced burden of in crimi- Court, Claims, Tax eases, acquittal nal at the stage Bittker, federal district court. B. Fed See will not create any against Income, eral Taxation Estates and Gifts government the civil level. Under (1981) ¶ at 115-2-115-4 (discussing parties doctrine of mutuality of that for- various factors that taxpayer’s influence merly governed the application of collateral cases). deficiency choice of forum in estoppel, “neither could party use majority’s effectively rule eliminates this an estoppel against the other choice from the of the taxpayer arsenal parties unless both bound by were Gray’s position, for it transfers the initia- Shore, ment.” Parklane Hosiery U.S. government litiga- tive to the and restricts 322, 326-27, tion tax district courts (1979) (citing Bigelow v. Old Dominion conducting Note, the criminal proceedings. Copper Co., Estoppel in Civil Tax Collateral Fraud 642, 56 L.Ed. 1009 Both thus Conviction, Subsequent Cases to Criminal enjoyed equal access Mich.L.Rev. estoppel purposes. Although The benefits likely to accrue from the recent display federal and state cases a majority’s position meager. noted As repudiating mutuality distinct trend above, policy precluding litigation doctrine, Shore, Hosiery Parklane Co. v. following judgment goals embodies the 649; supra, at resources, conserving judicial preventing in- Moore, 1B J. Federal Practice Moore’s decisions, consistent and insulating 1982) (Supp.), at 1804 these ed. 1412[1] multiple from the harassment of lawsuits. do problem asym- cases not discuss the objectives, these only Of three the first is metry resulting burdens of from different arguably even this Court’s furthered proof. they purely On the involve contrary, holding today. But of collateral settings, engender civil not which do in civil cases to the fraud issue tax char- same “settlement” inducements markedly judi- not the yield will increase plea negotiations. qualitative acterize This Extending only ques- to the efficiency. cial fraud, difference between and criminal cases tion of for tax amount of a precise will not establish

taxpayer’s deficiency attributable

fraud, taxpayer issue that will re- an in the civil forum.

main free to contest See

Note, in Civil Tax Estoppel Collateral Subsequent to Criminal Con-

Fraud Cases viction, 64 Mich.L.Rev. adopt so

Finally, this Court need protect a measure in order to

drastic guilty pleas to use

government’s admission, Like any judicial

civil cases. would be admissible court.

guilty plea 803(22) specifical- Rule of Evidence

Federal

ly unqualified admissibility establishes the rely in civil I would cases.1 provided by

on the solution the Federal making

Rules of Evidence admissi- liability, on the issue of civil rather than

ble advantage of

a solution that takes unfair plead guilty, taxpayer’s decision only

decision made to avoid the perhaps of a criminal trial and uncertainty

risks and a decision made years imprisonment, knowledge taxpayer,

without after fine, automatically lose his

paying his

property proceeding as well in a later civil litigating

where he would be barred from liability.

the issue of civil STEEBE, Petitioner, E.

James

UNITED STATES RAILROAD RETIRE- BOARD, Respondent.

MENT

No. 82-1689. Appeals,

United States Court

Seventh Circuit.

Argued Feb. 1983.

Decided May explicitly pleas pleading guilty pleading 1. The same rule also excludes tinction between Judg- scope of nolo contendere from the of this ex- nolo contendere. See Restatement hearsay (Second) ception b rule. Such ments Comment admissions, also not considered hence the dis-

Case Details

Case Name: Paul F. Gray, Jr. v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Sixth Circuit

Date Published: Jun 6, 1983

Citation: 708 F.2d 243

Docket Number: 81-1389

Court Abbreviation: 6th Cir.