                                                                            [DO NOT PUBLISH]

                   IN THE UNITED STATES COURT OF APPEALS

                              FOR THE ELEVENTH CIRCUIT
                               ________________________
                                                                                    FILED
                                       No. 05-13751                       U.S. COURT OF APPEALS
                                                                            ELEVENTH CIRCUIT
                                 ________________________                        June 28, 2006
                                                                             THOMAS K. KAHN
                                   U.S. Tax Ct. No. 13587-01                       CLERK



PAUL MCGOWAN,

                                                                              Petitioner-Appellee,


                                                versus


COMMISSIONER OF INTERNAL REVENUE,

                                                                           Respondent-Appellant.


                                 ________________________

                             Petition for Review of a Final Order
                               of the United States Tax Court
                               _________________________

                                         (June 28, 2006)

Before BLACK and PRYOR, Circuit Judges, and CONWAY*, District Judge.



        *
         The Honorable Anne C. Conway, U.S. District Judge for the Middle District of Florida, sitting
by designation
CONWAY, District Judge:

      In December 2001, Paul McGowan filed, in tax court, a petition for a

redetermination of a deficiency, which the Commissioner of Internal Revenue

Service had assessed against him. The Commissioner, relying on McGowan’s

prior criminal tax convictions, claimed McGowan under-reported his income with

the intent to evade taxes in 1991, 1992, and 1993. The tax court determined that

the Commissioner failed to meet his burden of establishing a specific intent to

evade tax by clear and convincing evidence. The Commissioner appealed. For the

reasons stated below, we affirm.

                                I. BACKGROUND

      Paul McGowan solely owned and operated McGowan Construction

Company (“Company”), a subchapter S corporation, for which McGowan was

required to report all of the Company’s income on his personal income tax return.

McGowan under-reported his income from 1991 to 1993.

      In 1998, McGowan was indicted, tried, and convicted of six tax crimes:

three counts of willfully making and subscribing false individual income tax

returns for his Company in 1991, 1992, and 1993, in violation of 26 U.S.C.

§7206(1); and three counts of willfully aiding and assisting in the preparation of

false corporate income tax returns for the same three years, in violation of 26



                                          2
U.S.C. §7206(2). In addition to receiving a prison sentence and a fine, McGowan

was ordered to cooperate with the IRS to determine his civil tax liability.

      Contending that McGowan did not cooperate with the IRS as ordered, the

Commissioner issued McGowan a notice determining income tax deficiencies in

the amounts of $103,299, $36,968, and $67,180. Additionally, McGowan owed

civil fraud fines of $77,474, $27,726 and $50,385 for tax years 1991, 1992, 1993,

respectively. The deficiency would be time-barred unless McGowan’s

underpayments were related to a specific intent to evade tax. There is no statute of

limitations for deficiencies if the taxpayer acted with the specific intent to evade

taxes. 26 U.S.C. §6501(c)(1).

      McGowan filed a petition in the tax court for a redetermination of the

deficiency. At trial, McGowan claimed that the underpayments were the result of

confusion between him and his accountant. McGowan testified that his accountant

told him that the diverted funds were either repayments of loans that McGowan

had made to the Company or were a return of shareholder equity.

      The tax court held that the Commissioner failed to meet his burden of

establishing McGowan’s intent to evade tax by clear and convincing evidence.

The court acknowledged that McGowan’s criminal conviction was a badge of

fraud, which estopped him from contesting that he filed false returns and under-



                                          3
reported his taxes for 1991 to 1993. However, the court stated that the

Commissioner could not rely solely on the prior conviction to demonstrate an

intent to evade tax.

       The tax court found the Commissioner’s evidence of intent to evade tax

unconvincing; the court held that McGowan kept adequate and complete records

and that it was the accountant’s fault for not using those records when he compiled

the tax returns. The court also found that McGowan did fully comply with the

Commissioner’s investigation.

       The critical issue for the tax court was the Commissioner’s strategy of not

addressing McGowan’s confusion about the shareholder accounts at trial and,

instead, resting on McGowan’s conviction in the criminal case. The court

concluded, based on the evidence presented in the tax case, that McGowan did not

employ any scheme to conceal income, stating that McGowan believed that any

difference between the income he reported and the amounts in the shareholder

accounts would eventually be reconciled when he paid taxes on the income at a

later point.

       The determinative issues on appeal are 1) whether the tax court erred by not

collaterally estopping McGowan from arguing that he did not act with the specific

intent to evade tax based on his prior criminal conviction for under-reporting his



                                         4
income through false tax returns and 2) whether the tax court clearly erred by

concluding that the Commissioner failed to establish an intent to evade tax by

clear and convincing evidence.

                                  II. DISCUSSION

      The Court reviews de novo the tax court’s determination of whether

collateral estoppel applies. Quinn v. Monroe County, 330 F.3d 1320, 1328 (11th

Cir. 2003). Collateral estoppel prevents relitigation of an issue that was

previously determined if the party against whom the issued was decided had “‘a

full and fair opportunity to litigate that issue in an earlier case.’” Blohm v. C.I.R.,

994 F.2d 1542, 1553 (11th Cir. 1993) (quoting Allen v. McCurry, 449 U.S. 90, 94-

95, 101 S. Ct. 441, 414-15, 66 L. Ed. 2d 308 (1980)). Four elements must be

present for collateral estoppel to be invoked. First, the issue in the present case

must be the same as the issue in the previous case. Id. Second, the issue must

have been necessarily decided in the prior litigation. Id. Third, the party to be

estopped must have been either a party to the previous litigation or was adequately

represented by another party in the prior proceeding. Id. Fourth, the issue to be

precluded must have been litigated in the prior proceeding. Id.

      The issues litigated in McGowan’s criminal case were not the same as the

issue litigated in McGowan’s tax court case. The issues litigated in the criminal



                                           5
case against McGowan that meet the elements of collateral estoppel are 1) whether

McGowan willfully filed a false return and 2) whether McGowan willfully aided

or assisted in the preparation of his tax return. 26 U.S.C. §7206. On the other

hand, the issue in the tax court case was whether McGowan had the intent to evade

when he under-reported his taxes.

      The jury in the criminal case found that McGowan did willfully make and

assist in the preparation of a tax return, which he did not believe to be true, for all

three years in question. The tax court acknowledged McGowan’s conviction and

collaterally estopped him from contesting that he filed false 1991, 1992, and 1993

returns and that an underpayment existed for those years. However, McGowan’s

criminal conviction did not dispel the Commissioner’s burden to prove by clear

and convincing evidence that McGowan intended to evade tax.

      There was no collateral estoppel arising from the criminal conviction on the

intention to evade tax issue because there was no identity of issues between the

criminal case and the tax case regarding intention to evade tax. Wright v.

Comm’r, 84 T.C. 636, 639 (1985). In the criminal case, it was not necessary for

the government to establish, nor did the government establish, that McGowan had

the intent to evade tax when he under-reported his taxes. The tax court stressed

that the intent to evade tax is never presumed or imputed; it must be proved by



                                           6
independent evidence. T.C. Memo 2004-146 at 6 (citing Beaver v. Comm’r, 55

T.C. 85, 92 (1970)). The court found that the Commissioner’s reliance on

McGowan’s criminal conviction was insufficient to prove McGowan’s intent to

evade taxes.

      As to the second issue, the tax court found that “the typical indicia of an

intent to evade taxes [were] not present.” Id. Furthermore, the court determined

that the Commissioner failed to carry its burden of presenting clear and convincing

evidence demonstrating that McGowan had the specific intent to evade taxes. The

tax court’s finding that McGowan lacked the intent to evade taxes is a finding of

fact that will only be disturbed if clearly erroneous. See Korecky v. Comm’r, 781

F.2d 1566, 1568 (11th Cir. 1986). The Commissioner has not demonstrated to this

Court that the tax court clearly erred.

                                 III. CONCLUSION

      Although criminal convictions under 26 U.S.C. 7206(1) & (2) are badges of

fraud, they are not alone conclusive proof that McGowan intentionally evaded his

taxes. The issue of whether McGowan intended to evade income tax was not

litigated in McGowan’s criminal prosecution. In the tax case, the Commissioner

had the burden of establishing through clear and convincing proof that McGowan




                                          7
intended to evade income tax. The Commissioner failed to meet this burden.

Accordingly, the judgment of the tax court is AFFIRMED.




                                       8
