                        T.C. Memo. 2011-180



                      UNITED STATES TAX COURT



                   HAL D. HICKS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15909-08.             Filed July 28, 2011.



     Edward P. Guttenmacher, for petitioner.

     Vivian N. Rodriguez, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   After concessions, the issues for decision

are whether petitioner is liable for a section 6663(a)1 fraud

penalty with respect to his 1998 underpayment of tax and whether


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 2 -

respondent may assess penalties and interest relating to

petitioner’s 1998 liability.

                        FINDINGS OF FACT

     During 1998 (year in issue), petitioner owned and operated

multiple businesses, including Midwest Transit, which was in the

business of transporting mail.    Fuel suppliers issued Midwest

Transit fuel rebate checks, which were cashed by Midwest Transit

employees who delivered the proceeds to petitioner.2   During the

year in issue, petitioner used, for personal purposes, $199,800

of proceeds from the fuel rebate checks.

     On December 21, 1998, petitioner incorporated Mail Trans,

Inc. (Mail Trans), as an S corporation.    At all times during

1998, petitioner was the sole shareholder of Mail Trans.    In

December 1998, Mail Trans purchased an airplane from Raytheon

Corp. for approximately $4.2 million.    In December 1998, the

airplane, with petitioner’s accountant on board, was flown from

Wichita, Kansas, to Oklahoma City, Oklahoma, where it was

refueled before returning to Wichita.    At the time of the flight,

the airplane was not painted and the interior was unfinished.

After the flight, Raytheon Corp. completed the airplane, and in



     2
      A fuel rebate is typically a refund provided by a fuel
supplier to the purchaser of its fuel. If, for example, 100
gallons of fuel is purchased from a supplier at $1.03 a gallon
and the purchaser receives a 3-cent-per-gallon rebate from the
supplier, the supplier would mail a fuel rebate check to the
purchaser for $3.
                                 - 3 -

March 1999, petitioner took delivery of it.   Mail Trans was not

in the business of transporting mail and the airplane was not

used for any business purpose.

     On March 22, 1999, Mail Trans filed its 1998 Form 1120S,

U.S. Income Tax Return for an S Corporation (Mail Trans’ 1998

return), on which it reported a $110,000 net loss from “trade or

business activities”.   The return contained only two entries

(i.e., $100,000 in gross receipts and a $210,000 depreciation

deduction).   The $210,000 depreciation deduction was attributable

to 1 month of depreciation relating to the airplane.

     On October 15, 1999, petitioner filed his 1998 Form 1040,

U.S. Individual Income Tax Return (1998 return).   Petitioner did

not report as income the $199,800 of proceeds from the fuel

rebate checks.   On Schedule E, Supplemental Income and Loss, of

his 1998 return, petitioner reported a $110,000 passthrough loss

attributable to Mail Trans (Schedule E loss).

     On April 6, 2005, after a criminal investigation led by

Assistant U.S. Attorney George A. Norwood, criminal proceedings

in the U.S. District Court for the Southern District of Illinois

(District Court) were initiated against petitioner.    On January

12, 2006, petitioner signed an agreement in which he pleaded

guilty to willfully making and submitting a false 1998 tax return

in violation of section 7206(1) and to falsifying a fuel use

certification form in violation of 18 U.S.C. sections 1001 and
                                - 4 -

1002 (plea agreement).    The plea agreement provided that it “does

not prohibit the United States, any agency thereof, or any third

party from initiating or prosecuting any civil proceedings

directly or indirectly involving Defendant.”

     On February 3, 2006, the District Court filed an amended

stipulation of facts signed by Mr. Norwood, petitioner, and David

Helfrey, petitioner’s attorney.     The amended stipulation of facts

provided that petitioner willfully made, signed, and filed his

1998 Federal income tax return and that petitioner “did not

believe * * * [the] return was true, correct, and complete as to

every material matter.”   The amended stipulation of facts also

provided:

     The income tax return was false as to a material
     matter, as follows. The defendant failed to report on
     the income tax return approximately $199,800 in income
     tax received through rebate checks issued to his
     company which the defendant used for his own personal
     use. In addition, the defendant took an unauthorized
     depreciation deduction of $210,000 in the tax year 1998
     for an airplane purchased by one of his companies. The
     unauthorized deduction passed through from the
     defendant’s S Corporation (Mail Trans) tax returns to
     the defendant’s Individual Income Tax return for 1998.
     The amount that passed through was $110,000.

               *    *      *    *       *   *   *

     The parties agree that the Tax Loss for relevant
     conduct purposes for * * * 1998 in this case is
     $228,258.

     On September 11, 2006, the District Court held a sentencing

hearing relating to petitioner’s criminal case.     The District

Court readily acknowledged that it did not know the correct
                                 - 5 -

amount of the tax loss incurred as a result of petitioner’s

misconduct and was willing to accept petitioner’s requested

downward adjustment to the proposed amount because that

adjustment (i.e., from $256,258 to $228,258) did “not affect the

[sentencing] guideline range”.

     On September 21, 2006, the District Court entered a judgment

of conviction (judgment) pursuant to which petitioner was

sentenced to 18 months in prison and ordered to pay the U.S.

Postal Service $36.20 in restitution, the Internal Revenue

Service (IRS) $228,258 in restitution, and the District Court a

$200 assessment and a $3,000 criminal fine.   The District Court

determined that petitioner “[did] not have the ability to pay

interest” and waived the interest requirement with respect to the

$228,258 restitution award and the $3,000 fine.

     On March 31, 2008, respondent issued petitioner a notice of

deficiency relating to 1998.   In the notice, respondent

determined that petitioner underreported his income by $199,800

(i.e., the amount of fuel rebates used for personal purposes) and

disallowed the Schedule E loss (i.e., the flowthrough expense

relating to Mail Trans’ $210,000 depreciation deduction).    As a

result, respondent determined that petitioner was liable for a

$167,657 deficiency.   In addition, respondent determined that all

or part of the underpayment of tax required to be shown on
                               - 6 -

petitioner’s 1998 return was due to fraud and that petitioner was

therefore liable for a $127,243 section 6663(a) fraud penalty.

     On June 20, 2008, Assistant U.S. Attorney for the Southern

District of Illinois Gerald M. Burke filed two certificates of

release of lien relating to the judgment against petitioner

(collectively, certificates of release).   The certificates of

release provided that “the requirements of section 3613(c) of

title 18 of the United States Code have been satisfied with

respect to the judgment * * *, together with all statutory

additions; and that the lien for this judgment and statutory

additions has thereby been released.”3   On June 30, 2008,

petitioner, while residing in Florida, filed his petition with

the Court.   On July 14, 2008, petitioner made a restitution

payment to the IRS of approximately $228,000.   The IRS did not

deem this payment received until September 11, 2008.

                              OPINION

     Petitioner concedes that he underreported his 1998 taxes and

that he is liable for a section 6663 civil fraud penalty with

respect to the portion of the underpayment of tax relating to


     3
      Tit. 18 U.S.C. sec. 3613(c) (2006) provides:

     an order of restitution made pursuant to sections * * *
     3663 * * * [or] 3663A * * * is a lien in favor of the
     United States on all property and rights to property of
     the person fined * * *. The lien arises on the entry
     of judgment and continues for 20 years or until the
     liability is satisfied, remitted, set aside, or is
     terminated under subsection (b).
                                 - 7 -

$199,800 of unreported income.    Consequently, petitioner’s entire

underpayment of tax is treated as attributable to fraud and

subject to a 75-percent penalty, unless petitioner establishes by

a preponderance of the evidence that a particular portion of the

underpayment is not attributable to fraud.   See secs. 6663(b),

7454(a); Rule 142(b); Parks v. Commissioner, 94 T.C. 654, 660-

661, 664-665 (1990); Stephenson v. Commissioner, 79 T.C. 995,

1007 (1982), affd. 748 F.2d 331 (6th Cir. 1984).   Petitioner

contends that he is not liable for a section 6663 civil fraud

penalty with respect to the portion of underpayment of tax

relating to the disallowed Schedule E loss (i.e., Mail Trans’

$210,000 airplane depreciation deduction).   We disagree.

     Petitioner formed Mail Trans and purchased the airplane in

December 1998.   The airplane was flown once in 1998.   Mail Trans,

however, did not place the airplane in service in that year.     In

fact, the airplane was not completed and petitioner did not take

delivery of it until 1999.   Furthermore, the airplane was not

used for any business purpose, and despite its moniker, “Mail

Trans” was not in the mail transportation business.

Nevertheless, Mail Trans reported a $210,000 airplane

depreciation deduction (i.e., a deduction equal to 1 month of

depreciation) on its 1998 return.    See sec. 167(a); Piggly Wiggly

S., Inc. v. Commissioner, 84 T.C. 739, 745-746 (1985), affd. on

another issue 803 F.2d 1572 (11th Cir. 1986); secs. 1.167(a)-
                               - 8 -

10(b), 1.167(a)-11(e)(1)(i), Income Tax Regs.    Petitioner’s

machinations, substantial understatement of income, concealment

of income, and filing of false documents convince us that he

intended to evade tax.   See Korecky v. Commissioner, 781 F.2d

1566, 1568 (11th Cir. 1986), affg. T.C. Memo. 1985-63;

Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).

Accordingly, we sustain respondent’s determination.

     All of petitioner’s contentions are unconvincing.

Petitioner’s primary contention is that the District Court’s

judgment and the two certificates of release filed with respect

to the judgment precluded respondent from assessing penalties

relating to petitioner’s 1998 deficiency.    In essence, petitioner

contends that the doctrine of collateral estoppel applies with

respect to his 1998 tax liability.     We reject this contention for

the following reasons.   First, although petitioner pleaded guilty

to willfully making and submitting a false tax return,

petitioner’s tax liability was not an essential element of the

Government’s case and was not actually litigated.    See sec.

7206(1); Montana v. United States, 440 U.S. 147, 153 (1979); Hi-Q

Pers., Inc. v. Commissioner, 132 T.C. 279, 289-290 (2009).

Furthermore, the District Court did not make ultimate findings of

fact with respect to petitioner’s tax liability.    See Hi-Q Pers.,

Inc. v. Commissioner, supra at 290; Brotman v. Commissioner, 105

T.C. 141, 153 (1995).
                               - 9 -

     Second, the District Court, in ordering that petitioner make

restitution payments to the IRS as part of the judgment, did not

make a determination of petitioner’s civil tax liability and did

not bar the Commissioner from assessing a greater amount of civil

tax liability.   See Morse v. Commissioner, 419 F.3d 829, 833-835

(8th Cir. 2005), affg. T.C. Memo. 2003-332; Creel v.

Commissioner, 419 F.3d 1135, 1140 (11th Cir. 2005) (providing

that an order to pay restitution is a criminal penalty rather

than a civil penalty); Hickman v. Commissioner, 183 F.3d 535,

537-538 (6th Cir. 1999), affg. T.C. Memo. 1997-566.4   Indeed, the

District Court estimated the restitution amount and acknowledged

that it may not have been the correct amount.

     Third, the plea agreement explicitly provided that it “does

not prohibit the United States, any agency thereof, or any third

party from initiating or prosecuting any civil proceedings

directly or indirectly involving Defendant.”    Cf. Creel v.

Commissioner, supra at 1140.   In addition, there was no reference

to petitioner’s civil tax liabilities in either the restitution

order or the certificates of release, and we cannot infer from

the language in the certificates of release that the District



     4
      The Government, when a criminal proceeding is undertaken,
does not surrender its right to collect tax deficiencies or civil
fraud additions. Spies v. United States, 317 U.S. 492, 495
(1943); Helvering v. Mitchell, 303 U.S. 391 (1938); United States
v. Sabourin, 157 F.2d 820 (2d Cir. 1946); see also Harper v.
Commissioner, 54 T.C. 1121, 1138 (1970).
                               - 10 -

Court determined that petitioner satisfied both his criminal and

civil tax liabilities.    Accordingly, respondent’s ability to

assess additional penalties on the deficiency relating to

petitioner’s 1998 return was not limited by the plea agreement,

the District Court’s judgment, the restitution order, or the

certificates of release.5

     Petitioner also contends that the stipulation of facts

limits his liability.    The stipulation of facts provides that

“The income tax return was false as to a material matter, as

follows”, and petitioner contends that this language establishes

that the return was false with respect to only one item (i.e.,

the unreported income relating to the rebate checks).    Simply

put, the language “false as to a material matter” (emphasis

added) does not preclude a finding that the return was false with

respect to more than one item.    Finally, we reject petitioner’s

contention that he is not liable for a section 6663 fraud penalty



     5
      Petitioner also contends that respondent is precluded from
assessing interest on the deficiency relating to petitioner’s
1998 return. Our jurisdiction to redetermine a deficiency in tax
generally does not extend to statutory interest imposed pursuant
to sec. 6601. See secs. 6213(a), 6214(a), 7481(c); Rule 13(a),
(c); Katz v. Commissioner, 115 T.C. 329, 340-341 (2000); Naftel
v. Commissioner, 85 T.C. 527, 529-531 (1985). Indeed, sec.
6601(e)(1) provides that interest is excluded from the definition
of a “tax” for purposes of sec. 6211(a), and thus such interest
is not a part of the “deficiency” over which we have
jurisdiction. See White v. Commissioner, 95 T.C. 209, 213-214
(1990). Accordingly, we do not have jurisdiction over, and may
not opine on, the interest assessment imposed pursuant to sec.
6601.
                              - 11 -

because he relied on professional advice (i.e., the advice of

Raytheon Corp. employees, his accountant, and those who helped

him form Mail Trans).   In support of this contention, petitioner

offered merely his testimony, which simply was not credible.    See

sec. 6664(c).

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
