                        T.C. Memo. 1997-566



                      UNITED STATES TAX COURT



                  GERALD HICKMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 27499-96.               Filed December 23, 1997.



     Joseph Falcone and Brian H. Rolfe, for petitioner.

     Meso T. Hammoud, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     LARO, Judge:   In the statutory notice dated September 27,

1996, respondent determined deficiencies and additions to

petitioner's income tax as follows:
                                                        - 2 -

                                                 Additions to Tax
                       Sec.          Sec.          Sec.         Sec.              Sec.        Sec.
Year   Deficiency    6651(a)(1)   6653(a)(1)    6653(a)(2)   6653(a)(1)(A)   6653(a)(1)(B)    6654
                                                    1
1984       $3,727       $932         $186                         ---             ---         $234
                                                    1
1985        8,362      2,091          418                         ---             ---          479
                                                                                   1
1986       10,690      2,673          ---          ---           $535                          514
                                                                                   1
1987       17,884      4,471          ---          ---            894                          967
1988       19,350      4,838          968          ---            ---             ---        1,237

       1
        50 percent of the interest due on $3,727, $8,362, $10,690, and $17,884, respectively, for 1984
       through 1987.

       The determination is based on petitioner's failure to file

       Federal income tax returns and report income earned in his

       capacity as an independent contractor.1

                Petitioner, while a resident of Clarkston, Michigan,

       petitioned the Court on December 26, 1996, to redetermine

       respondent's determination of deficiencies and additions to tax.

       Petitioner concedes that he is liable for the tax deficiencies

       and additions to tax for the 1984 through 1985 tax years.                                The

       1986 through 1988 tax years remain in issue, and we must decide

       the following:

                1.    Whether respondent is collaterally estopped from

       asserting income tax deficiencies against petitioner for the 1986

       through 1988 tax years.                 We hold that respondent is not

       collaterally estopped from litigating this issue and that

       petitioner is liable for the entire deficiency determination.




                1
             Unless otherwise indicated, section references are to the
       Internal Revenue Code applicable to the years in issue. Rule
       references are to the Tax Court Rules of Practice and Procedure.
                                - 3 -


     2.   Whether res judicata bars respondent from asserting

additions to tax for the 1986 through 1988 tax years.    We hold

that it does not.

           a.   Whether petitioner is liable under section 6651 for

failing to file his 1986 through 1988 Federal income tax returns.

We hold that he is.

           b.   Whether petitioner is liable under section 6653 for

the negligence addition to tax.    We hold that he is.

           c.   Whether petitioner is liable under section 6654 for

failing to pay estimated income tax for 1986 through 1988.     We

hold that he is.2

                          FINDINGS OF FACT

     The case was submitted to the Court fully stipulated on

October 9, 1997.    The stipulations of fact, with accompanying

exhibits, are incorporated herein by reference.3   During 1984

     2
      In his petition, petitioner argues that expiration of the
statutory period of limitations bars assessment and collection of
deficiencies in income tax for the years in issue. Respondent
contends that petitioner failed to file returns for the 1986
through 1988 tax years, and therefore the income tax deficiencies
for those years may be assessed at any time under sec.
6501(c)(3). Generally, assessment must be made within 3 years
after the filing of a return. Sec. 6501(a). However, in the
case of failure to file a return, the tax may be assessed at any
time. Sec. 6501(c)(3). The parties have stipulated that
petitioner did not file Federal income tax returns for 1986
through 1988; consequently, the period of limitations is not a
consideration in this case.
     3
      Respondent objects to petitioner's Exhibit 7 on the grounds
of relevancy. Petitioner's Exhibit 7 is a copy of a "Release of
                                                   (continued...)
                               - 4 -


through 1988, petitioner worked as a design engineer/draftsman on

an independent contractor basis.   During 1986, petitioner worked

for Utica Machine, Stellar Engineering, and Bernal Rotary, and

from them, respectively, received compensation in the amounts of

$18,400, $5,475, and $6,377.   During 1987, petitioner worked for

Bernal Rotary and received compensation in the amount of $49,324.

And during 1988, petitioner worked for Bernal Rotary and received

compensation in the amount of $56,638.   Petitioner did not file

Federal income tax returns for 1986 through 1988.

     On April 14, 1993, petitioner, pursuant to section 7203, was

indicted on three counts of willfully failing to file Federal

income tax returns for the tax years 1986 through 1988.   Count

one of the Indictment charged that petitioner received gross

income in the amount of $30,252 during the 1986 tax year, and by

reason of such income petitioner was required to file a Federal

income tax return for that year on or before April 15, 1987.


     3
      (...continued)
Abstract of Judgment" which petitioner submits as proof that he
fulfilled all conditions of the U.S. District Court for the
Eastern District of Michigan's order of judgment, including a
restitution payment to the Internal Revenue Service. Fed. R.
Evid. 401, a rule that applies to this Court under Rule 143(a),
Tax Court Rules of Practice and Procedure, provides broadly that
evidence is "relevant" if it has "any tendency to make the
existence of any fact that is of consequence to the determination
of the action more probable or less probable than it would be
without the evidence." We find that Exhibit 7 is relevant and is
therefore admissible. See Estate of Scanlan v. Commissioner,
T.C. Memo. 1996-331, affd. without published opinion 116 F.3d
1476 (5th Cir 1997).
                                - 5 -


Count two of the Indictment charged that petitioner received

gross income in the amount of $49,324 during 1987, and by reason

of such income petitioner was required to file a Federal income

tax return for that year on or before April 15, 1988.    Count

three of the Indictment charged that petitioner received gross

income in the amount of $56,504 during 1988, and by reason of

such income was required to file a Federal income tax return for

that year on or before April 15, 1989.   Each count further

charged that petitioner "wilfully and knowingly" failed to file

these requisite returns.

     On or around July 9, 1993, petitioner was tried on all three

counts before a jury in the U.S. District Court for the Eastern

District of Michigan (District Court).   During the trial, a

Government witness testified that petitioner's gross income for

1986 through 1988, respectively, was $30,252, $49,324, and

$56,504.   The witness further identified petitioner's

corresponding tax liabilities as $7,249, $13,246, and $15,781,

respectively.   The Government also submitted into evidence

Exhibit 40B, entitled "Computation of Taxable Income and Tax Due

for Gerald R. Hickman", which identified, among other things,

petitioner's gross income, taxable income, and total tax due for

1986 through 1988.

     On July 23, 1993, petitioner was found guilty on all three

counts.    On October 20, 1993, the District Court entered an order
                               - 6 -


of judgment against petitioner, sentencing petitioner to

community confinement and probation.   In addition, the District

Court's Order of Judgment required petitioner to make immediate

restitution to the Internal Revenue Service in the total amount

of $36,276.   The restitution amount is based on the Government

witness's testimony of petitioner's tax liability for 1986

through 1988.   On or around December 27, 1993, petitioner paid

the ordered restitution in full.   The judgment of the District

Court is final.

     Subsequently, respondent determined in the notice of

deficiency that petitioner received income in the amounts of

$30,252, $49,324, and $56,638, respectively, for 1986 through

1988.   Based on those amounts, respondent's deficiency

determinations for 1986 through 1988 are $10,690, $17,884, and

$19,350, respectively.   The total deficiency for all 3 years is

$47,924, an $11,648 difference from the tax liability presented

to the District Court and the District Court's ordered

restitution payment.

     The difference in the tax liability calculation submitted to

the District Court and respondent's deficiency determination

stems from respondent's disallowance of certain capital losses

and itemized deductions.   These disallowances result in positive

adjustments to the taxable income figures presented to the

District Court.
                                 - 7 -


                                OPINION

     Petitioner concedes that he had gross income in the amounts

determined by respondent for the years in issue.    Petitioner

alleges, however, that the doctrines of collateral estoppel and

res judicata preclude respondent from seeking deficiencies in

excess of those found by the District Court and additions in tax.

I.   Collateral Estoppel and Respondent's Deficiency Determination

     The primary issue in this case is whether the doctrine of

collateral estoppel precludes respondent from asserting tax

deficiencies for the 1986 through 1988 tax years.    Petitioner

argues that the District Court's order of restitution is

tantamount to a final determination of petitioner's tax

liabilities.    Thereby, respondent is precluded from determining

tax liabilities in excess of those "determined" by the District

Court.    What is at stake for petitioner is the payment of an

additional $11,648 in income taxes.

     A.   Collateral Estoppel

     Respondent argues that the doctrine of collateral estoppel

does not apply for the tax years 1986 through 1988 because the

District Court did not decide the issue of petitioner's exact

income tax liabilities.    Thereby, respondent is not precluded

from determining and assessing petitioner's income tax

liabilities.    Respondent sets forth two arguments in support of

this position.    First, the indictment did not charge petitioner
                               - 8 -


with any specific tax liability amount.    Instead, it only charged

petitioner with receiving specific amounts of income, amounts

which petitioner does not dispute.     Second, the District Court's

order for restitution was based upon the testimony of a

Government witness, whose testimony was incidental to the issue

of the specific amounts of income received by petitioner.

Respondent contends that petitioner's tax liability was not

actually litigated and decided, and that the evidence of

petitioner's tax liability was only introduced for the purpose of

proving that petitioner was required to file Federal income tax

returns.

     Petitioner argues that the District Court determined his

income tax liabilities for 1986 through 1988, and that respondent

is collaterally estopped from relitigating petitioner's tax

liability for those years.   In support, petitioner contends that

his tax liability was actually determined, actually litigated,

and essential to the judgment of the criminal conviction and

restitution order.   As a result of the District Court's judgment,

petitioner contends that his tax liability for 1986 through 1988

is limited to the $36,276 amount ordered by the District Court.

     "Collateral estoppel and the related doctrine of res

judicata have the dual purpose of protecting litigants from the

burden of relitigating an identical issue and of promoting

judicial economy by preventing unnecessary or redundant
                               - 9 -


litigation."   Meier v. Commissioner, 91 T.C. 273, 282 (1988).

Issue preclusion, or collateral estoppel, is defined in 1

Restatement, Judgments 2d, section 27 (1982), as follows: "When

an issue of fact or law is actually litigated and determined by a

valid and final judgment, and the determination is essential to

the judgment, the determination is conclusive in a subsequent

action between the parties, whether on the same or a different

claim."   Collateral estoppel may be applied in civil trials to

issues previously determined in a criminal conviction.    Appley v.

West, 832 F.2d 1021, 1026 (7th Cir. 1987); Otherson v. Department

of Justice, 711 F.2d 267, 271 (D.C. Cir. 1983); Amos v.

Commissioner, 43 T.C. 50 (1964), affd. 360 F.2d 358 (4th Cir.

1965).

     In Montana v. United States, 440 U.S. 147, 155 (1979), the

Supreme Court established a three-prong test for applying

collateral estoppel:   First, whether the issues presented in the

subsequent litigation are in substance the same as those issues

presented in the first case; second, whether controlling facts or

legal principles have changed significantly since the first

judgment; and third, whether other special circumstances warrant

an exception to the normal rules of preclusion.   In Peck v.

Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525 (9th

Cir. 1990), the Court stated that the "three-pronged rubric

provided by the Supreme Court in the Montana case embodies a
                               - 10 -


number of detailed tests developed by the courts to test the

appropriateness of collateral estoppel in essentially factual

contexts."   Building on the Supreme Court's analysis in

Montana, the Court in Peck identified five conditions that must

be satisfied for collateral estoppel to apply: First, the issue

in the second suit must be identical in all respects with the one

decided in the first suit; second, there must be a final judgment

rendered by a court of competent jurisdiction; third, collateral

estoppel may only be invoked against parties and their privities

to the prior judgment; fourth, the parties must have actually

litigated the issue and the resolution of these issues must have

been essential to the prior decision; and fifth, the controlling

facts and applicable legal rules must remain unchanged from those

in the prior litigation.   Id. at 166-167; see also Commissioner

v. Sunnen, 333 U.S. 591, 599-600 (1948); Gammill v. Commissioner,

62 T.C. 607, 613-615 (1974).   The parties do not dispute that the

judgment of the District Court is a final judgment by a court of

competent jurisdiction, that the same parties are involved in the

two proceedings, or that controlling facts and applicable legal

rules have remained unchanged.   The arguments in this case

concern whether or not the issue in the two cases is identical,

whether the parties actually litigated and decided the issue

before the District Court, and whether the District Court's

resolution of the issue was essential to its decision.
                               - 11 -


     We believe that resolution of the issue of whether the

District Court's finding of petitioner's tax liability was

essential to its decision is dispositive.   Thus, we focus on this

precondition to the application of collateral estoppel.

Respondent argues that the District Court was not required to

find the amount of petitioner's specific tax liability in finding

him guilty in the criminal case, and that a finding of his

specific income tax liability was not essential to the District

Court's judgment.    Petitioner argues that in order for the

District Court to enter a judgment and impose a sentence against

him, it was necessary for the District Court to determine the

amount of his income tax lability for the years in issue.

     We conclude that resolution of petitioner's tax liability

was not essential to the District Court's judgment.   Petitioner's

specific tax liability is not an element that the Government must

prove in order to secure a conviction under section 7203.

Section 7203 states that "Any person required under this title to

* * * make a return * * * who willfully fails to * * * make such

return * * * at the time or times required by law or regulations,

shall, in addition to other penalties provided by law, be guilty

of a misdemeanor".   To sustain its burden of proof under section

7203, the Government must establish three elements: (1) that the

defendant was required by law to file a tax return for the year

in issue; (2) that he or she failed to timely file such tax
                                - 12 -


return; and (3) that the failure was willful.   Sec. 7203;

see also United States v. Ostendorff, 371 F.2d 729, 730 (4th Cir.

1967).   In order to establish that petitioner was required by law

to file a return, it must be shown that he received at least the

amount of gross income specified by section 6012(a).

Establishing petitioner's tax liability is not an element of

section 7203, and consequently no specific income tax liability

need be determined.   See Cipparone v. Commissioner, T.C. Memo.

1985-234; cf. Johnson v. Commissioner, T.C. Memo. 1993-227

(taxpayer precluded from disputing the amounts he received as

embezzlement income where he was convicted in state court of

"Theft in Office" and the specific amounts embezzled were, under

state law, essential elements of each count in the indictment).

     Second, the fact that the District Court's order of

restitution is discretionary also supports our conclusion that a

finding of petitioner's tax liability was not essential to the

District Court's judgment.   Pursuant to 18 U.S.C. section 3663

(1994), "The court * * * may order, in addition to or, in the

case of a misdemeanor, in lieu of any other penalty authorized by

law, that the defendant make restitution to any victim of such

offense".   (Emphasis added.)

     For the aforementioned reasons, we find that an adjudication

of petitioner's tax liability was not essential to the District

Court's judgment and that this precondition to the application of
                               - 13 -


collateral estoppel is not satisfied.    We therefore find that

respondent is not collaterally estopped from asserting tax

deficiencies for the 1986 through 1988 tax years.

      B.   Respondent's Deficiency Determination

      Respondent determined that petitioner underpaid his 1986

through 1988 income tax by $10,690, $17,884, and $19,350,

respectively.    The underpayment is attributable to petitioner's

failure to file his income tax returns for 1986 through 1988, and

report income earned in his capacity as a self-employed

independent contractor.    Petitioner does not argue that

respondent's determination of the deficiency is incorrect.      We

therefore sustain respondent's determination.

II.   Res Judicata and The Additions To Tax

      As an initial matter, petitioner argues that the doctrine of

res judicata bars respondent from litigating petitioner's

liability for any additions to tax.     Petitioner contends that the

Government's failure to raise the issue of any additions to tax

in the criminal proceeding precludes respondent from raising the

issue before this Court.

      Res judicata (claim preclusion) precludes relitigation of

issues that were or could have been raised regarding a cause of

action.    Commissioner v. Sunnen, 333 U.S. 591 (1948).     Under the

doctrine of res judicata, when a court of competent jurisdiction

has entered a final judgment on the merits of a cause of action,
                               - 14 -


the parties to the suit and their privies are thereafter bound

not only as to every matter which was offered and received to

sustain or defeat the claim or demand, but as to any other

admissible matter which might have been offered for that purpose.

Id. at 597.    But where the second action between the same parties

is upon a different cause or demand, the judgment in the prior

action has preclusive effect only as to those matters in issue or

points controverted, upon the determination of which the finding

or verdict was rendered.    Id. at 597-598.

     In Neaderland v. Commissioner, 424 F.2d 639, 641 (2d Cir.

1970), affg. 52 T.C. 532 (1969), the court stated: "When a civil

trial follows criminal proceedings which were based on the same

facts, a different cause of action is involved and the doctrine

of collateral estoppel rather than that of res judicata must be

considered."    See also Helvering v. Mitchell, 303 U.S. 391

(1938); United States v. Barnette, 10 F.3d 1553, 1561 (11th Cir.

1994); Towe v. Commissioner, T.C. Memo. 1992-689.    The doctrine

of res judicata is therefore not applicable.    For reasons already

explained, it is obvious that ascertaining petitioner's liability

for these additions to tax was not essential to the District

Court's judgment and the doctrine of collateral estoppel also has

no preclusive effect.



     A.   Section 6651(a)(1)--Failure To File
                              - 15 -


     Respondent determined that petitioner is liable under

section 6651(a)(1) for his failure to file returns for 1986

through 1988.   In addition to the facts presented in this case,

respondent pleaded and relies upon the doctrine of collateral

estoppel to establish petitioner's liability under section

6651(a)(1).   This argument is based upon the fact that petitioner

was convicted under section 7203 of willful failure to file

income tax returns for 1986 through 1988.

     Section 6651(a)(1) imposes a 5-percent addition to tax each

month for failure to file a tax return.    The addition is not to

exceed 25 percent in the aggregate.    A section 6651(a)(1)

addition to tax is warranted where a taxpayer fails to file a

timely return unless the taxpayer shows that his failure to do so

was due to reasonable cause and not due to willful neglect.

Where the taxpayer exercised ordinary business care and prudence

and was nevertheless unable to file the return within the

prescribed time, the delay is deemed due to reasonable cause.

Sec. 301.6651-1(c), Proc. & Admin. Regs.

     As previously noted, the doctrine of collateral estoppel is

intended to avoid repetitious litigation by precluding the

relitigation of any issue of fact or law that was actually

litigated and that culminated in a valid and final judgment.

Montana v. United States, 440 U.S. at 153; Kotmair v.

Commissioner, 86 T.C. 1253, 1262 (1986).    The fact that was
                                - 16 -


conclusively established by petitioner's conviction under

section 7203 was that he had willfully failed to file a return

for each of the years 1986 through 1988.     "Willful" means the

voluntary, intentional violation of a known legal duty.

United States v. Pomponio, 429 U.S. 10, 12 (1976).     Petitioner's

conviction under section 7203 thus conclusively establishes that

his failure to file was not due to reasonable cause and was due

to willful neglect, and he is accordingly estopped from

contending otherwise.     Kotmair v. Commissioner, supra at 1263.

Petitioner is therefore liable for the section 6651 addition to

tax.

       B.   Section 6653--Negligence Addition To Tax

       Respondent determined that petitioner is liable under

section 6653 for the negligence addition to tax as follows: For

the 1986 and 1987 tax years, pursuant to section 6653(a)(1)(A)

and (B); for the 1988 tax year, pursuant to section 6653(a)(1).

Respondent argues that the doctrine of collateral estoppel also

precludes petitioner from arguing against imposition of the

negligence addition to tax.     Respondent contends that

petitioner's conviction under section 7203 conclusively

establishes that petitioner willfully failed to file his 1986

through 1988 returns, and thereby petitioner is collaterally

estopped from denying his liability for the negligence addition

to tax.
                              - 17 -


     A section 6653(a) addition to tax is imposed if any part of

the underpayment of tax is due to negligence.    For the 1986 and

1987 tax years, if any part of an underpayment is due to

negligence, there shall be added to the tax an amount equal to

the sum of 5 percent of the underpayment and an amount equal to

50 percent of the interest payable under section 6601 with

respect to the portion of such underpayment which is attributable

to negligence.   Sec. 6653(a)(1)(A) and (a)(1)(B).   For the 1988

tax year, if any part of an underpayment is due to negligence,

there shall be added to the tax an amount equal to 5 percent of

the underpayment.4   Sec. 6653(a)(1).   "Negligence" includes any

failure to make a reasonable attempt to comply with the

provisions of the Code.   Sec. 6653(a)(3).   Furthermore,

negligence is the failure to do what a reasonable and ordinarily

prudent person would do under the circumstances.

     Petitioner's conviction under section 7203 for willful

failure to file returns for 1986 through 1988 conclusively

establishes the following: (1) that petitioner had the duty to

file such returns; (2) that he he failed to do so; and (3) that

his failure to do so was willful; i.e., that he intentionally

disregarded applicable rules or regulations requiring the filing

of returns.   We therefore find that petitioner is collaterally


     4
       For 1988, the time-sensitive interest component of the
negligence penalty was eliminated.
                               - 18 -


estopped from contesting his liability for the negligence

addition to tax, and uphold respondent's determination on this

issue.    Kotmair v. Commissioner, supra at 1263-1264.




     C.    Section 6654--Failure To Pay Estimated Tax

     Respondent determined an addition to tax under section 6654

for 1986 through 1988 based on petitioner's failure to pay

estimated income tax.    Section 6654(a) provides for an addition

to tax "in the case of any underpayment of estimated tax by an

individual".    Estimated income tax payments are used to provide

for current payment of income taxes not collected through

withholding.    This addition to tax is in addition "to any

applicable criminal penalties and is imposed whether or not there

was reasonable cause for the underpayment".    Sec. 1.6654-1(a)(1),

Income Tax Regs.    Moreover, an addition to tax under section 6654

is mandatory absent the application of one of the exceptions

contained in that section.    In re Sanford, 979 F.2d 1511, 1514

(11th Cir. 1992); Niedringhaus v. Commissioner, 99 T.C. 202, 222

(1992); Recklitis v. Commissioner, 91 T.C. 874, 913 (1988);

Bagur v. Commissioner, 66 T.C. 817, 824 (1976), remanded on other

grounds 603 F.2d 491 (5th Cir. 1979).

     Petitioner does not argue that any of the exceptions

contained in section 6654 apply, nor does he argue that
                              - 19 -


respondent erred in determining an addition to tax under section

6654.   Accordingly, we sustain respondent's determination and

find petitioner liable under section 6654 for his failure to make

estimated tax payments for 1986 through 1988.




     We have considered all other arguments made by the parties

and found them to be either irrelevant or without merit.

     To reflect the foregoing,



                                         Decision will be entered

                                    under Rule 155.
