                         T.C. Memo. 2003-87



                      UNITED STATES TAX COURT



         TIMOTHY DEAN STRONG, Petitioner v. COMMISSIONER OF
                    INTERNAL REVENUE, Respondent

   STRONG CONSTRUCTION COMPANY, INC., A MINNESOTA CORPORATION,
    Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 821-01, 2048-01.             Filed March 25, 2003.


     Thomas E. Brever, for petitioners.

     John C. Schmittdiel and Helen H. Keuning, for respondent.



                         MEMORANDUM OPINION


     PANUTHOS, Chief Special Trial Judge:      These cases are before

the Court on petitioners’ motion in each docket for partial

summary judgment, filed pursuant to Rule 121.1     Respondent filed


     1
         At the hearing on this matter respondent requested that
                                                    (continued...)
                                - 2 -

an objection to the motion in each docket.    Petitioners contend

that there is no material issue of fact and that they are

entitled to partial summary judgment as a matter of law.      In

particular, petitioners seek to preclude respondent from

asserting judicial estoppel.    Respondent has invoked that

doctrine in an attempt to bar petitioners from introducing

evidence of cash on hand as the source of deposits alleged by

respondent to be income to petitioners.

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.”    Rule 121(a) and (b); see

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.

17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753,



     1
      (...continued)
his objection in each docket be considered as a cross-motion for
partial summary judgment. Given our conclusion herein, we need
not act on this request. Unless otherwise indicated, all section
references are to the Internal Revenue Code, as amended, and all
rule references are to the Tax Court Rules of Practice and
Procedure. By order dated Nov. 13, 2002, these dockets were
consolidated.
                                 - 3 -

754 (1988); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).      The

moving party bears the burden of proving that there is no genuine

issue of material fact, and factual inferences will be read in a

manner most favorable to the party opposing summary judgment.

Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).

     In these cases, we believe that there are genuine issues as

to material facts that preclude decisions as a matter of law with

regard to the imposition of judicial estoppel.    As explained in

detail below, we shall deny petitioners’ motions for partial

summary judgment.

Background

     Petitioner Timothy Dean Strong (Strong), docket No. 821-01,

is the sole owner of petitioner Strong Construction Company,

Inc.(SCC), docket No. 2048-01.    Operating through SCC, Strong

constructed houses for resale.    In 1990, Strong had become

involved in an unprofitable business venture which resulted in

numerous creditors’ attempting to collect debts from him.      Strong

filed for relief from these creditors under chapter 7 of the

Bankruptcy Code on May 9, 1990.    On Schedule B-2 of his

bankruptcy petition, Strong listed “zero” as the amount of cash

on hand.   SCC was not a party to the bankruptcy proceeding, and

Strong did not list his ownership interest in SCC in his schedule

of assets.   Strong received a discharge in bankruptcy on August
                                - 4 -

15, 1990.

     In March 1995, Strong filed his individual Federal income

tax returns for the years 1990, 1991, 1992, and 1993 with the

Internal Revenue Service.   He filed his individual Federal income

tax return for 1994 on April 15, 1995.   For each of those years,

Strong’s income tax returns reported taxable income of zero, or a

loss.   SCC did not file income tax returns for any of the years

at issue.

     Respondent determined that Strong understated his income

from the construction business during the years in issue, and,

further, that he had overstated deductible expenses.

Additionally, during the examination of Strong’s income tax

returns, respondent examined a bank account, No. 893315300, at

First Bank of Coon Rapids, later named Marquette Bank Coon

Rapids.    Both Strong and SCC are identified as account holders on

that account.   Respondent identified numerous deposits to that

account made in cash from unidentified sources.   Respondent

determined that home sales reported on Strong’s returns were the

source of certain of these cash deposits.   Respondent determined

that the remaining deposits to the account came from an

unidentified source and constituted unreported income of Strong

and SCC.

     Respondent issued a notice of deficiency to Strong dated

October 18, 2000.   On November 14, 2000, respondent issued a
                                 - 5 -

notice of deficiency to SCC.     Respondent determined that both

Strong and SCC were liable for Federal income taxes on unreported

income for the taxable years ended December 31, 1990 through

December 31, 1994.2

         Strong and SCC filed timely petitions with this Court.    At

the time the petitions were filed, Strong resided at Clear Lake,

Minnesota, and SCC’s place of business was New Hope, Minnesota.

Strong asserts that, before 1990, he had accumulated

approximately $165,000 in cash from the conduct of his

construction business, as well as from the sale of personal

assets and from savings made while he served with the United

States Navy.     In his pleadings, he maintains that transactions

with this accumulated cash explain the unidentified deposits, as

well as other purchases and expenditures made during the years in

issue.

     In an Amendment to Answer, respondent alleges that the

doctrine of judicial estoppel prevents Strong from arguing that

he had cash accumulations of $165,000 in 1990, in view of the

fact that Strong had asserted in a 1990 bankruptcy petition that

he had no such cash.



     2
        Petitioner maintains that the notice of deficiency to
Strong is consistent with Strong’s practice of reporting that he
operated the construction business directly. Respondent’s answer
offers the alternative position that, if SCC is a taxable entity,
then Strong should be charged with constructive dividends in the
amount of SCC’s net income.
                                - 6 -

     In the motions for partial summary judgment, petitioners

argue that the doctrine of judicial estoppel does not bar Strong

or SCC from arguing that Strong possessed the claimed

accumulation of cash.   Petitioners maintain that they should not

be bound by Strong’s failure to report this cash in the 1990

bankruptcy proceeding, alleging that Strong’s bankruptcy attorney

specifically advised him not to list the accumulated cash as an

asset in the bankruptcy petition.   Petitioners indicate that

Strong, and, possibly, the bankruptcy attorney were confused

about whether the $165,000 was Strong’s or SCC’s.    Strong states

that his resulting failure to list the cash in the bankruptcy

proceeding was thus unintentional, or a mistake.    Petitioners

also point out that the bankruptcy attorney was subsequently

suspended from practice and has since retired.

     Respondent filed an objection to petitioners’ motions.

Respondent maintains that, as a matter of law, the doctrine of

judicial estoppel precludes petitioners’ “cash hoard” argument

here, whether or not Strong’s failure to report the cash in the

bankruptcy proceeding was the result of bad advice from his

bankruptcy attorney.    Respondent alternatively argues that, even

if petitioners are correct that erroneous legal advice is a

defense to judicial estoppel, there remain unresolved material

issues of fact about that legal advice.   Respondent offers the

affidavit of Strong’s bankruptcy attorney in which the attorney
                              - 7 -

states that he did not advise Strong to omit any cash on hand

during the bankruptcy proceeding.   If that is so, respondent

argues that Strong cannot support his assertion of erroneous

legal advice as a defense to judicial estoppel.     Respondent

maintains that, because Strong and the bankruptcy attorney differ

as to whether Strong was advised to omit the cash hoard, there

remains an unresolved material issue of fact which renders

summary judgment inappropriate.

Discussion

     Judicial estoppel is an equitable doctrine that prevents

parties in subsequent judicial proceedings from asserting

positions contradictory to those they previously have

affirmatively persuaded a court to accept.      Huddleston v.

Commissioner, 100 T.C. 17, 26 (1993).    The doctrine of judicial

estoppel focuses on the relationship between a party and the

courts; it seeks to preserve the integrity of the judicial

process by preventing a party from successfully asserting one

position before a court and thereafter asserting a contradictory

position before the same or another court merely because it is

now in that party’s interest to do so.    Id.    Such manipulation of

the judicial process by a party has been characterized by the

courts as “cynical gamesmanship   * * * to suit an exigency of the

moment”, Teledyne Indus., Inc. v. NLRB, 911 F.2d 1214, 1218 (6th

Cir. 1990); “blowing hot and cold”, Allen v. Zurich Ins. Co., 667
                               - 8 -

F.2d 1162, 1167 n.3 (4th Cir. 1982); and “playing fast and loose

with the courts”, Scarano v. Central R.R., 203 F.2d 510, 513 (3d

Cir. 1953); see Huddleston v. Commissioner, supra.

     Judicial estoppel must, however, be applied with caution.

Daugharty v. Commissioner, T.C. Memo. 1997-349, affd. without

published opinion 158 F.3d 588 (11th Cir. 1998).   Such caution is

necessary in order “to avoid impinging on the truth-seeking

function of the court because the doctrine precludes a

contradictory position without examining the truth of either

statement.”   Teledyne Indus., Inc. v. NLRB, supra at 1218; see

also Allen v. Zurich Ins. Co., supra at 1166; Fazi v.

Commissioner, 105 T.C. 436, 445-446 (1995).   The courts have

adopted the doctrine of judicial estoppel to protect the

integrity of proceedings before them, and the courts possess

discretion in invoking the doctrine.   Fazi v. Commissioner, supra

at 446; see also In re Cassidy, 892 F.2d 637, 642 (7th Cir.

1990).

     With this background we now consider whether we should

decide the issue, the applicability of judicial estoppel, in the

context of petitioners’ motions for partial summary judgment.     In

this connection, we note that the parties do not agree as to the

facts surrounding the failure to include any cash accumulation in

the bankruptcy proceeding.   Principally, the parties do not agree

on whether the failure to include a cash accumulation was a
                               - 9 -

“mistake or inadvertent omission”.     Petitioners, in their motion

in each docket, assert that there was a mistake or inadvertence.

While respondent does not agree with petitioners’ assertion,

respondent assumes in the alternative that the failure to list a

cash accumulation in the bankruptcy proceeding was due to mistake

or inadvertence and suggests that the defense is legally

insufficient.

     We decline petitioners’ invitation to decide whether mistake

or inadvertence is a defense to respondent’s claim of judicial

estoppel.   There appear to be genuine issues of material fact

relating to omission of a cash accumulation in the bankruptcy

matter, and concerning whether there was acceptance by the

bankruptcy court of a position of Strong inconsistent with his

position here.   The application of judicial estoppel is not ripe

for decision while the factual premises are uncertain.



                                       An appropriate order will be

                               issued denying petitioners’ motions

                               for partial summary judgment.
