     09-1029-ag
     Carione v. Commissioner of Internal Revenue



                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                    SUMMARY ORDER
     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.     CITATION TO SUMMARY ORDERS
     FILED AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY THIS COURT’S LOCAL RULE 32.1
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     LITIGANT CITES A SUMMARY ORDER, IN EACH PARAGRAPH IN WHICH A CITATION APPEARS, AT LEAST
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     TOGETHER WITH THE PAPER IN WHICH THE SUMMARY ORDER IS CITED ON ANY PARTY NOT REPRESENTED
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 1            At a stated term of the United            States Court of Appeals
 2       for the Second Circuit, held at the            Daniel Patrick Moynihan
 3       United States Courthouse, 500 Pearl            Street, in the City of
 4       New York, on the seventeenth day of            December, two thousand
 5       nine.
 6
 7       PRESENT: DENNIS JACOBS,
 8                              Chief Judge,
 9                DEBRA ANN LIVINGSTON,
10                              Circuit Judge,
11                JED S. RAKOFF, *
12                              District Judge.
13       _______________________________________
14       - - - - - - - - - - - - - - - - - - -X
15
16       Joseph Carione,
17
18                    Petitioner-Appellant,
19
20                    v.                                        09-1029-ag
21
22       Commissioner of Internal Revenue,
23



                  *
                  Jed S. Rakoff, District Judge, United States
            District Court for the Southern District of New York,
            sitting by designation.
 1            Respondent-Appellee.
 2
 3   - - - - - - - - - - - - - - - - - - -X
 4
 5   FOR APPELLANT:           James O. Druker, Kase & Druker,
 6                            Garden City, NY.
 7                            Paula Schwartz Fromme, of counsel.
 8
 9   FOR APPELLEE:            Andrew M. Weiner, Andrea R. Tebbets,
10                            Tax Division, Department of Justice,
11                            Washington, DC.
12
13       Appeal from a judgment of the United States Tax Court

14   (Swift, J.).

15       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

16   AND DECREED that the judgment of the Tax Court is AFFIRMED.

17       Petitioner, Joseph Carione, appeals from an order of

18   deficiency entered February 27, 2009 in the United States

19   Tax Court (Swift, J.).   Following Carione’s indictment for

20   various violations of the Racketeer Influenced and Corrupt

21   Organizations Act, 18 U.S.C. § 1961 et seq., Carione’s

22   business, Grand Carting Inc. (“Grand Carting”) (also

23   indicted), was restrained in anticipation of forfeiture.

24   While under indictment, Carione sold Grand Carting (with

25   approval of the court and the government), and the proceeds

26   were placed in escrow.   The defendants ultimately pleaded

27   guilty, and the escrowed proceeds were applied toward a



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1    forfeiture judgment entered with their convictions.

2    Thereafter, Carione received a notice of deficiency from the

3    IRS stating that he owed taxes for tax-year 2000 on the

4    capital-gain proceeds from Grand Carting’s sale.    Upon

5    Carione’s redetermination petition, the Tax Court confirmed

6    the deficiency, in the amount of $88,914.    We otherwise

7    assume the parties’ familiarity with the underlying facts,

8    the procedural history, and the issues presented for review.

9    “‘We review the legal conclusions of the tax court de

10   novo[,] and its factual findings [and law applications]

11   under the clearly erroneous standard.’” Wright v. Comm’r,

12   571 F.3d 215, 219 (2d Cir. 2009) (quoting Merrill Lynch &

13   Co. v. Comm’r, 386 F.3d 464, 469 (2d Cir. 2004)).

14       Carione contends principally that capital-gain proceeds

15   from Grand Carting’s sale were not includible in his gross

16   income.   We disagree.   For the following reason, application

17   of the escrowed sale proceeds toward satisfaction of the

18   forfeiture judgment constituted income to Grand Carting, and

19   to Carione as sole shareholder.

20       The proceeds of Grand Carting’s sale were applied (by

21   way of an escrow account) toward satisfaction of the



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1    corporation’s forfeiture liability.     This constituted income

2    to Grand Carting, see Old Colony Trust Co. v. Comm’r, 279

3    U.S. 716, 729 (1929), and “gross income,” 26 U.S.C. § 63(a),

4    to the extent it was “gain,” 26 U.S.C. § 1001(a).     During

5    all relevant times, Carione was the sole shareholder of

6    Grand Carting, an S corporation.     Gross income to Grand

7    Carting therefore also constituted gross income to Carione.

8    See 26 U.S.C. § 1366(c).

9        Carione argues that any gains from the Grand Carting

10   sale did not constitute income to him because he never

11   exercised dominion or control over the sale proceeds.        But

12   his argument confuses whether the gains constituted income

13   to him with when that income was taxable--i.e., when the

14   income was realized.     It is true that income is generally

15   not taxable if the taxpayer has no dominion or control over

16   the proceeds--for example, where (as here) the proceeds are

17   held in escrow.     Comm’r v. Indianapolis Power & Light Co.,

18   493 U.S. 203, 209 (1990); Ware v. Comm’r, 906 F.2d 62, 65

19   (2d Cir. 1990).     But the principle is one of deferment, not

20   of exemption.     In any event, “[w]here the taxpayer does not

21   receive payment of income in money or property”--for



                                    -4-
1    example, where (as here) income comprises satisfaction of a

2    personal debt--that income is taxable “when the last step is

3    taken by which he obtains the fruition of the economic gain

4    which has already accrued to him.”    Helvering v. Horst, 311

5    U.S. 112, 115 (1940).    Grand Carting “obtained the fruition

6    of the economic gain . . . already accrued,” and thus

7    realized income, when the sale proceeds were applied toward

8    satisfaction of its forfeiture liability. 1

9        Carione further argues that satisfaction of the

10   forfeiture judgment did not constitute income to him because

11   he was not personally liable on the judgment.     Even assuming

12   that Carione’s characterization of his forfeiture liability

13   is accurate, it is beside the point: Satisfaction of Grand

14   Carting’s forfeiture liability was taxable to Carione, as

15   Grand Carting’s sole shareholder, by operation of the pass-

16   through provision of 26 U.S.C. § 1366(c).     In any event, it

17   cannot be said that Carione enjoyed no benefit personally

18   from the forfeiture.    The assets were sold prior to

19   negotiation of a plea agreement by which Carione was




            1
            Carione does not dispute that, if he realized income
       from Grand Carting’s sale, he realized that income in
       tax-year 2000.

                                   -5-
1    subjected to no further forfeiture.   Thus (again, assuming

2    Carione’s characterization of his forfeiture liability is

3    accurate) the government agreed to exempt Carione from

4    personal liability knowing the amount of escrowed proceeds

5    available to satisfy the forfeiture judgment.

6        Additionally, Carione contends that the government is

7    precluded from asserting now its claim for tax-year 2000 by

8    operation of Rule 13(a) of the Federal Rules of Civil

9    Procedure (the compulsory counterclaim rule), because the

10   claim should have been asserted in an earlier refund suit.

11   Carione previously sued in the United States District Court

12   for the Eastern District of New York for a refund of taxes

13   he paid for tax-year 1998 on the capital-gain proceeds from

14   Grand Carting’s sale.   We note that whether Rule 13(a)

15   applies in taxpayer refund suits is an open question in this

16   circuit.   Nevertheless, we decline to address it because the

17   government’s tax-year-2000 claim--not asserted in the tax-

18   year-1998 refund suit--would not be barred even if we held

19   that Rule 13(a) does apply.   See Comm’r v. Sunnen, 333 U.S.

20   591, 598 (1948) (“[I]f the later proceeding is concerned

21   with a similar or unlike claim relating to a different tax



                                   -6-
1    year, the prior judgment acts as a collateral estoppel only

2    as to those matters in the second proceeding which were

3    actually presented and determined in the first suit.”).

4        We have considered Carione’s remaining arguments, and

5    find them to be without merit.    For the foregoing reasons,

6    the judgment of the Tax Court is hereby AFFIRMED.

 7                              FOR THE COURT:
 8                              Catherine O’Hagan Wolfe, Clerk
 9
10
11                              By: __________________________




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