A little over a month ago we wrote about a Tax Court case where the petitioners had admitted fraud, but wanted to get out of paying the §6663 penalty for fraud. At that time we said, “For once you say you committed fraud, you have to live with the result.”
Today the Tax Court took up another case that Yogi Berra might say was deja vu all over again. Petitioner Henry Uscinski is an attorney who pleaded guilty to evading his 1996 income taxes by filing a fraudulent 1996 tax return. Mr. Uscinski repaid $1,590,000 in restitution. He further admitted that he had failed to report some funds from a client. So in March 2003 the District Court accepted the plea bargain, sentenced Mr. Uscinski to 42 months at Club Fed for tax evasion, and also imposed a $250,000 fine.
And now it’s the IRS’ turn. In 2005 the IRS sent a deficiency notice to Mr. Uscinski for his 1996 taxes. Mr. Uscinski, in his petition to the Tax Court, stated,
“Relief requested is to eliminate and cancel all claimed tax due and penalties imposed. The funds upon which said tax and penalties are imposed were received under a claim of right and were subsequently restored to the U.S. Government in full. Accordingly, no tax should be imposed as the funds were restored.”
Basically, Mr. Uscinski is asking for “collateral estoppel;” that is, because he was prosecuted criminally, he can’t be gone after by the IRS.
The Court stated,
“It is well established that a subsequent guilty plea may be used to establish issue preclusion in a subsequent civil suit where an element of the crime to which the defendant pled guilty is at issue in the second suit….Because the elements of criminal tax evasion and civil tax fraud are identical, petitioner’s prior conviction under section 7201 conclusively establishes the elements necessary for finding fraud under section 6663.” [citations omitted]
Mr. Uscinski also contended that by repaying the government, he stopped the underpayment, and is entitled to relief under §1341. The Tax Court noted, “The relief provided under section 1341, however, applies to the year in which the repayment is made and does not affect the taxpayer’s obligation to report as income, in the year of receipt, items received under a claim of right…Because petitioner’s repayments occurred from 1999 through 2001, section 1341 is inapplicable in determining petitioner’s deficiency for 1996, which is the only year at issue in this proceeding.”
So the Court holds that the petitioner, Mr. Uscinski, is estopped from denying the unreported income on his 1996 tax return and that some of the underpayment is due to fraud (as defined in §6663. But the Court wouldn’t allow full summary judgment to the IRS, stating that Mr. Uscinski can challenge the precise amount of the deficiency. “Consequently, although the current record might leave us in doubt as to petitioner’s prospects for ultimately succeeding in showing error in the notice of deficiency, we shall not deny petitioner an opportunity to present relevant evidence.”
So Mr. Uscinski can get another day in court. But it’s clear he’s facing an uphill battle.