                       112 T.C. No. 20



                UNITED STATES TAX COURT



            ALDRICH H. AMES, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 14031-96.                      Filed May 28, 1999.



     In 1985, P, an employee of the Central
Intelligence Agency, began selling classified
information to the Soviet Union. During 1985, P
received a communication from a Soviet agent that $2
million had been set aside for P to draw upon. On
Apr. 28, 1994, P pled guilty to conspiracy to commit
espionage and tax conspiracy to defraud the U.S.
Government. P was sentenced to life imprisonment on
the espionage charge and to 27 months’ imprisonment on
the tax charge.
     R determined that P failed to report as income
amounts received and deposited in his bank accounts
during 1989 through 1992. P contends that he
constructively received the majority of the illicit
espionage income in 1985, the year he was informed that
$2 million had been set aside for him. P also contends
that he is protected by the Double Jeopardy Clause of
the Fifth Amendment to the U.S. Constitution from the
assessment of any tax or civil penalties based upon his
illegal espionage income.
                                - 2 -


          P sought to discover R’s criminal reference
     letter. Generally, criminal reference letters contain
     detailed recommendations by R’s attorneys that a
     taxpayer be prosecuted for criminal tax violations. R
     refused to turn over the letter, claiming the work
     product privilege applied. P contends that the
     privilege does not apply to this civil proceeding. If
     we decide it does apply, P argues that we should apply
     a balancing test and decide that his substantial need
     overcomes the need for assertion of the privilege.
          Held: The work product privilege applies to the
     criminal reference letter, and P has not shown
     substantial need that would vitiate R’s claim of work
     product privilege. Held, further, P did not
     constructively receive income before specific amounts
     were made available to him. Held, further, the
     imposition of a tax liability on P’s espionage income
     and/or the imposition of an accuracy-related penalty
     does not constitute punishment within the meaning of
     the Double Jeopardy Clause.


     Aldrich H. Ames, pro se.

     Richard F. Stein and John C. McDougal, for respondent.



     GERBER, Judge:   Respondent determined deficiencies in

petitioner’s Federal income tax and section 6662(a)1 penalties as

follows:

                                               Penalty
     Year              Deficiency            Sec. 6662(a)
     1989             $214,303.51             $42,860.70
     1990               19,970.77               3,994.15
     1991               27,367.39               5,473.48
     1992               58,684.57              11,736.91



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years under
consideration, and all Rule references are to this Court’s Rules
of Practice and Procedure.
                              - 3 -


     The issues for our consideration are:   (1) Whether

petitioner constructively received income from illegal espionage

activities during 1985, when it was allegedly promised and/or set

aside for him, or when it was received and/or deposited in his

bank accounts during the taxable years 1989, 1990, 1991, and 1992

in the amounts of $745,000, $65,000, $91,000,2 and $187,000,

respectively; (2) whether petitioner is liable for the accuracy-

related penalty for taxable years 1989 through 1992; (3) whether

petitioner is constitutionally protected by the Double Jeopardy

Clause of the Fifth Amendment to the U.S. Constitution from the

assessment and/or collection of any tax or civil penalties

arising from espionage activity for which he was convicted and

incarcerated; (4) whether the work product doctrine may be

interposed by respondent in this case to prevent the turnover of

respondent’s counsel’s criminal reference letter; and (5) if the

work product privilege applies, whether petitioner has shown

substantial need so as to vitiate respondent’s assertion of the

privilege.




     2
       Although there was a discrepancy in the notice of
deficiency over the amount of income that petitioner allegedly
failed to report in 1991, respondent used $91,000 for purposes of
calculating the amount of the deficiency. Therefore, we will use
that number for purposes of this opinion.
                               - 4 -


                          FINDINGS OF FACT3

     Petitioner is incarcerated in a Federal penitentiary for

turning over state secrets to a foreign government at a time when

he held a position with the Central Intelligence Agency (CIA) of

the United States.   He had his legal residence in Allenwood,

Pennsylvania, at the time the petition in this case was filed.

Petitioner’s employment with the CIA spanned the years 1962 to

1994, during which he was assigned to progressively more

responsible positions involving the Union of Soviet Socialist

Republics (Soviet Union) and Soviet Bloc Eastern European

countries.   Throughout that time, petitioner held a Top Secret

security clearance, and he had access to information and

documents classified Secret and Top Secret.

     Petitioner timely filed joint Federal income tax returns

with his wife, Rosario C. Ames, for the taxable years 1989, 1990,

1991, and 1992.   Petitioner’s returns were filed on the cash

basis for reporting income and deductions.    The returns primarily

reflected income from petitioner’s CIA employment in the amounts

of $70,337, $60,340, $62,514, and $67,578 for 1989, 1990, 1991,

and 1992, respectively.

     In 1984, as part of his duties as a CIA Operations officer,

petitioner began meeting with officials of the Soviet Union’s


     3
       The stipulation of facts and the attached exhibits are
incorporated by this reference.
                               - 5 -


Embassy in Washington, D.C.   These meetings were authorized by

the CIA and the Federal Bureau of Investigation (FBI) and were

designed to allow petitioner access to Soviet officials as

possible sources for intelligence information and recruitment.

     Sometime during April 1985, petitioner entered into a

relationship with Soviet officials under which he betrayed his

country and sold classified CIA information and information

sourced in other branches of the U.S. Government to the KGB (the

Soviet intelligence directorate) in return for large amounts of

remuneration.   Petitioner provided the KGB with classified Top

Secret information relating to the penetration of the Soviet

military and intelligence services by the CIA, including the

identities of Soviet military and intelligence officers who were

cooperating with the CIA and foreign intelligence services of

governments friendly to the United States.   Because of

petitioner’s disclosures, a number of these individuals were

arrested and executed by the KGB.

     In the fall of 1985, petitioner received a communication

from a Soviet agent that $2 million had been set aside for him in

an account that he would be able to draw upon.   Petitioner was

told that the money was being held by the Soviet Union, rather

than in an independent or third-party bank or institution, on

petitioner’s behalf.   Petitioner received $50,000 in cash for his

initial disclosure to the KGB and additional cash payments, the
                                 - 6 -


specific dates of which have not been detailed in the record of

this case.

     Petitioner met with Soviet officials in Washington, D.C.,

and in 1989 he met with them in Rome.    In the spring of 1989, as

petitioner was preparing to return to CIA headquarters in

Langley, Virginia, the KGB provided him with two written

documents.   The first was a financial accounting that indicated

that as of May 1, 1989, approximately $1.8 million had been set

aside for petitioner and that some $900,000 more had been

designated for him.   The second document was a nine-page letter

containing a list of the types of classified U.S. Government

information sought by the KGB.    The second document also

contained a discussion of arrangements for cash dropoff payments

to petitioner upon his return to the United States, a warning to

petitioner to avoid traps set by the CIA, and a detailed plan

governing future communications between petitioner and the KGB.

     After his return to Washington, D.C., in 1989, petitioner

communicated with the Soviets primarily through a complex

arrangement of signal sites (a prearranged location where an

individual leaves an impersonal mark or item to convey a

prearranged message) and dead drops (locations for secretly

leaving packages for anonymous pickup).    Petitioner personally

met with the Soviets only about once a year.    Throughout this

period, it was typical for petitioner to make a delivery of
                                 - 7 -


information and receive cash by means of signal sites and dead

drops.   Petitioner continued his unlawful espionage activities

until his arrest in 1994.

     During the years 1989, 1990, 1991, and 1992, petitioner and

his wife made deposits of cash received in connection with

petitioner’s unlawful espionage activities in the amounts of

$745,000, $65,000, $91,000, and $187,000, respectively.    These

deposits did not represent transfers of funds from other accounts

or redeposits of currency previously withdrawn from other

accounts.   Petitioner did not report on his income tax returns

for taxable years 1989, 1990, 1991, and 1992 any of the amounts

received from the KGB in connection with his illegal espionage

activities.   Petitioner did not report on a Federal income tax

return (including his 1985 return) any amount of unlawful income

he received or that had been set aside for him.

     On April 26, 1994, petitioner was indicted in the U.S.

District Court for the Eastern District of Virginia on charges of

conspiracy to commit espionage, under 18 U.S.C. sec. 794(c), and

conspiracy to defraud the U.S. Internal Revenue Service, under 18

U.S.C. sec. 371.   On April 28, 1994, petitioner pled guilty to

both counts of the indictment.    The indictment contained a

criminal forfeiture count pursuant to 18 U.S.C. sec. 794(d).

Petitioner was sentenced to life imprisonment on the espionage

charge and to 27 months’ imprisonment on the tax charge, the two
                                 - 8 -


sentences to run concurrently.     In addition, the plea agreement

provided for the criminal forfeiture of whatever interest

petitioner had in espionage-related assets.       At the time of

trial, petitioner was serving a life sentence in a Federal

penitentiary.

                                OPINION

I.   Work Product Doctrine--Criminal Reference Letter

      We first consider petitioner’s motion to compel production

of respondent’s criminal reference letter (CRL).       CRL’s typically

contain a detailed recommendation and supporting legal analysis,

from the Commissioner to the U.S. Department of Justice, that a

taxpayer be prosecuted for various criminal tax violations.        See

Brown v. Commissioner, T.C. Memo. 1994-282.

     Tax Court Rules provide for discovery of information that is

not privileged but is relevant to the subject matter involved in

the pending case.   See Rule 70(b).      A party opposing discovery

bears the burden of establishing that the information sought is

privileged.   See Zaentz v. Commissioner, 73 T.C. 469, 475 (1979).

      Respondent contends that the CRL was prepared in

anticipation of litigation and, thus, is protected under the work

product doctrine.   We agree.    The CRL contains respondent’s

counsel’s legal analysis that petitioner be criminally prosecuted

for various tax violations.     This type of correspondence is a

classic example of attorney work product.       See, e.g., Brown v.
                                - 9 -


Commissioner, supra.    Petitioner does not question the

categorization of the CRL as attorney work product in the context

of the criminal case.   He argues that the CRL was prepared for

the criminal case, and therefore respondent should not be allowed

to assert the work product privilege in this subsequent civil

proceeding.   Petitioner also argues that he has shown substantial

need for the CRL that would be sufficient to overcome

respondent’s assertion of the work product privilege.      We address

each of petitioner’s arguments separately.

     A.   Does the Privilege Extend to Subsequent Litigation?

     Generally, the protective cloak of the work product doctrine

covers material prepared by an attorney in anticipation of

litigation.   See Hartz Mountain Indus., Inc. v. Commissioner, 93

T.C. 521 (1989).   Petitioner argues that the privilege should

extend only to the anticipated litigation for which the document

was prepared and not to subsequent litigation.   In determining

whether the privilege extends to concurrent or successive

proceedings, some courts consider the degree and type of

relationship between the first and second proceeding.4     See In re




     4
       Some Courts of Appeals have extended the privilege to
unrelated litigation. See, e.g., Duplan Corp. v. Moulinage et
Retorderie de Chavanoz, 487 F.2d 480 (4th Cir. 1973); see also
FTC v. Grolier, 462 U.S. 19, 25-27 (1983) (and cases cited
therein).
                              - 10 -


Grand Jury Proceedings, 604 F.2d 798, 803 (3d Cir. 1979); Puerto

Rico v. SS Zoe Colocotroni, 61 F.R.D. 653, 658 (D.P.R. 1974).

     The work product doctrine is intended to enable a lawyer to

“work with a certain degree of privacy, free from unnecessary

intrusion by opposing parties and their counsel.”   Hickman v.

Taylor, 329 U.S. 495, 510 (1947).   A civil tax case could be

anticipated to follow a criminal tax case.   The rationale behind

the work product doctrine would be frustrated if documents

prepared for the first action were open to an opposing party in

the second action that was anticipated and concerned a related

matter.   Documents prepared for a civil proceeding before the

Environmental Protection Agency qualified for the work product

privilege in a subsequent criminal matter.   See In re Grand Jury

Proceedings, supra.

     Respondent’s CRL was prepared in connection with

petitioner’s criminal tax investigation.   There is subject matter

identity between petitioner’s criminal tax violations and

petitioner’s civil tax liability and the present civil tax

action.   There is a foreseeable and reasonable expectation that

the Government will pursue a civil tax liability that may be

derivative of criminal tax violations.   We do not hesitate in

finding a nexus between respondent’s CRL and this civil

proceeding.   Accordingly, the work product privilege should

extend to this civil proceeding even though the letter was
                               - 11 -


prepared specifically to address petitioner’s criminal tax

investigation and prosecution.

     B. Has Petitioner Shown Substantial Need Sufficient To
Vitiate the Asserted Privilege?

     Petitioner contends that even if we find a nexus for the

application of the work product doctrine to this civil

proceeding, he has made a sufficient showing of substantial need

outweighing the need for the protection provided by the work

product doctrine.   The work product privilege is a qualified one

that, in some circumstances, may be overcome by a showing of good

cause and substantial need.   See In re Grand Jury Investigation,

599 F.2d 1224, 1231 (3d Cir. 1979); Puerto Rico v. SS Zoe

Colocotroni, supra at 658.    We note, however, that the CRL falls

squarely within the work product category because it contains an

attorney’s mental impressions and conclusions.   See In re Grand

Jury Investigation, supra at 1231.

      Petitioner contends that the CRL would enable him to show

that respondent’s motive in pursuing the civil tax liabilities is

punitive and that, therefore, this proceeding would be barred by

the Double Jeopardy Clause of the Fifth Amendment.   Petitioner’s

argument is flawed.   The Double Jeopardy Clause protects against

the imposition of multiple criminal punishments for the same

offense.   See Hudson v. United States, 522 U.S. 93 (1997).

Respondent’s motive behind pursuing this civil tax case is not
                               - 12 -


relevant in determining whether this Court’s imposition of civil

tax penalties against petitioner violates the Double Jeopardy

Clause.5    Under these circumstances, petitioner has not

demonstrated substantial need for the protected document, and we

hold that petitioner is not entitled to compel production of the

CRL from respondent.

II. When Should Petitioner Have Reported the Income From His
Illegal Espionage Activities?

     Petitioner contends that he constructively received most6 of

the unlawful espionage income in 1985, and, accordingly, he was

not required to report the income received and deposited during

the taxable years 1989, 1990, 1991, and 1992.    Respondent

contends that the income was reportable in 1989 through 1992, the

years petitioner actually received and deposited cash in his bank

accounts.    Petitioner concedes that the funds deposited during


     5
       A detailed discussion of the Double Jeopardy Clause and
whether it applies in the setting of this case may be found
infra.
     6
       Petitioner contends that he constructively received almost
$2 million in 1985 and, in addition, that he received $10,000 per
month or $120,000 per year during each of the years at issue.
Other than his constructive receipt contention, petitioner does
not contend that we should modify respondent’s determination.
Respondent determined, on the basis of petitioner’s bank
deposits, that he underreported his income by $745,000, $65,000,
$91,000, and $187,000 for the taxable years 1989, 1990, 1991, and
1992, respectively. Petitioner, however, does not argue that we
should increase respondent’s determinations for the 1990 and 1991
years, which are less than the amounts petitioner has contended
that he received. Likewise, respondent did not assert an
increased deficiency for the 1990 or 1991 tax years.
                              - 13 -


the years in issue represent cash received from the Soviet Union

during the years of the deposits.   Petitioner argues, however,

that most of the amounts he received during the taxable years

under consideration were constructively received in 1985.7

     A taxpayer reporting income on the cash method of

accounting, such as petitioner, must include an item in income

for the taxable year in which the item is actually or

constructively received.   See sec. 451(a).   The concept of

constructive receipt is well established in tax law.    The courts

have regularly looked to section 1.451-2(a), Income Tax Regs.,

for the following definition of the term “constructive receipt”:

           (a) General rule. Income although not actually
     reduced to a taxpayer's possession is constructively
     received by him in the taxable year during which it is
     credited to his account, set apart for him, or
     otherwise made available so that he may draw upon it at
     any time, or so that he could have drawn upon it during
     the taxable year if notice of intention to withdraw had
     been given. However, income is not constructively
     received if the taxpayer's control of its receipt is
     subject to substantial limitations or restrictions.
     * * *




     7
       At trial, petitioner testified that he constructively
received but fraudulently failed to report the illicit income for
1985. He explained that if he had reported the income on his
Federal income tax return, his illicit and secret relationship
with the Soviet Union would have been revealed. We note that
petitioner’s concession may have placed him at a disadvantage
irrespective of our holding here. For example, if petitioner
fraudulently failed to report income for 1985, the period for
assessment would not have expired for 1985. See sec. 6501(c)(1).
                               - 14 -


       Following the regulatory definition, courts have held that

income is recognized when a taxpayer has an unqualified, vested

right to receive immediate payment.     See Martin v. Commissioner,

96 T.C. 814, 823 (1991); Ross v. Commissioner, 169 F.2d 483, 490

(1st Cir. 1948), revg. and remanding on another issue a

Memorandum Opinion of this Court.    Normally, the constructive

receipt doctrine precludes the taxpayer from deliberately turning

his back on income otherwise available.    See Martin v.

Commissioner, supra; Young Door Co. v. Commissioner, 40 T.C. 890,

894 (1963).    Here, however, petitioner relies on constructive

receipt as a foil to respondent’s determination that the unlawful

income was reportable during the years before the Court.     In any

event, the essence of constructive receipt is the unfettered

control over the date of actual receipt.    See Hornung v.

Commissioner, 47 T.C. 428, 434 (1967).

       The determination of whether a taxpayer has constructively

received income is to be made largely on a factual basis.    See

Hughes v. Commissioner, 42 T.C. 1005, 1012 (1964).    Resolution of

the controversy in petitioner’s favor depends on whether he can

show that he constructively received about $2 million in 1985,

the year he was informed that an amount had been set aside for

him.    Under the circumstances here, petitioner did not possess

“unfettered control” over the $2 million in 1985.
                               - 15 -


     Assuming arguendo that some type of account was created and

funds were segregated for petitioner, he did not have ready

access to it, and certain conditions had to be met or had to

occur before he could gain physical access to any funds.

Petitioner had to contact the Soviets, using a complex

arrangement of signal sites, to determine whether a “withdrawal”

could be made.   Next, the Soviets had to arrange to have the cash

transferred into the United States and have it secretly left in a

prearranged location for petitioner.    There was no certainty that

these conditions and steps could be accomplished under the

existing circumstances, and the conditions represented

substantial risks, limitations, and restrictions on petitioner’s

control of the funds, assuming they were even in existence and

segregated for his exclusive benefit.   See Paul v. Commissioner,

T.C. Memo. 1992-582 (no constructive receipt where taxpayer would

have had to travel 68 miles in order to turn in winning lottery

ticket).   There is no constructive receipt of income where

delivery of the cash is not dependent solely upon the volition of

the taxpayer.    See Hornung v. Commissioner, supra at 435.

     So long as the Soviets retained control over any funds or

promised set-asides, there was no practical or legal way in which

petitioner could compel payment.   Constructive receipt of income

has been found where a corporation offers payment or pays by

check in one year, but the recipient refuses delivery or fails to
                                - 16 -


cash the check until the following year.     See, e.g., Frank v.

Commissioner, 22 T.C. 945 (1954), affd. per curiam 226 F.2d 600

(6th Cir. 1955); Southeastern Mail Transp., Inc. v. Commissioner,

T.C. Memo. 1987-104.    Here, no such proffer was made, and

petitioner did not have a legally enforceable claim.     If the KGB

had questioned petitioner’s loyalty at any time before payment,

there is no assurance that petitioner would have continued to

receive cash deliveries or payments.     So long as the Soviet Union

retained the ability to withhold or control the funds, there was

no constructive receipt.    Petitioner did not constructively

receive the income before it was made physically and/or

practically available to him.    Accordingly, we hold that

petitioner received and failed to report income in the amounts of

$745,000, $65,000, $91,000, and $187,000 for the years 1989,

1990, 1991, and 1992, respectively.

III.   Is Petitioner Liable for the Negligence Penalty?

       Respondent determined that each of petitioner’s

underpayments was due to negligence or disregard of rules or

regulations.    Section 6662(a) and (b)(1) provides for an

accuracy-related penalty equal to 20 percent of the portion of

the underpayment that is attributable to negligence or disregard

of rules or regulations.    Petitioner must show that respondent’s

determination is erroneous.     See Rule 142(a).
                              - 17 -


     “Negligence” is statutorily defined as “any failure to make

a reasonable attempt to comply with the provisions of [the

internal revenue laws]”.   Sec. 6662(c).   “[D]isregard” is defined

as “any careless, reckless or intentional disregard” of rules or

regulations.    Id.

     Petitioner contends that he was not required to report the

income for the 1989 through 1992 tax years because it was

constructively received during 1985.   We note that, although

petitioner contends that the income in question should have been

reported for 1985, he has admitted that he fraudulently concealed

his espionage income and intentionally did not report it on his

1985 return.8   Petitioner’s conduct was not driven by his attempt

at compliance with the internal revenue laws; rather his entire

pattern of activity reflects his goal of concealment of income.

     Petitioner, in that same vein, made the novel argument that

his failure to report his unlawful income was due to fraud, not

negligence, and that the fraud and negligence penalties are

mutually exclusive.9   To the extent that petitioner may not be

found liable for both the fraud and the negligence penalties,


     8
       Petitioner characterized as fraudulent his failure to
report the receipts that he contends were constructively received
during 1985.
     9
       Respondent determined the negligence penalty for each of
petitioner’s taxable years in the notice of deficiency.
Respondent’s motion to amend the answer shortly before trial to
allege civil fraud was denied.
                                - 18 -


they are mutually exclusive.    See sec. 6662(b).   The accuracy-

related penalties and the fraud penalty may, however, be asserted

in the alternative.    Where the fraud penalty is not in issue or

where a court decides fraud is not applicable, the negligence

penalty may be considered and/or found.    It is rather obvious

that fraudulent concealment goes far beyond and is inclusive of

“negligence or disregard of rules or regulations.”     Here,

petitioner was convicted of conspiracy to defraud the Government

under 18 U.S.C. sec. 371, and he admits that he intentionally

concealed his unlawful espionage income.    Additionally, his

constructive receipt argument falls far short of the legal

standard.    We hold that petitioner is liable for the section

6662(a) negligence penalty in each of the taxable years 1989,

1990, 1991, and 1992.

IV. Is Petitioner Constitutionally Protected by the Double
Jeopardy Clause of the Fifth Amendment From the Assessment of Any
Tax or Civil Penalties Based Upon His Unlawful Espionage Income?

     Petitioner contends that imposing an income tax liability on

the income he received from his espionage activities and/or

imposing a negligence penalty under section 6662 violates the

Double Jeopardy Clause of the Fifth Amendment to the U.S.

Constitution that no person shall “be subject for the same

offence to be twice put in jeopardy of life or limb”.10    In


     10
          Petitioner argues that the requirement that he pay the
                                                      (continued...)
                               - 19 -


petitioner’s criminal case, he was incarcerated for life, and his

assets/income from espionage were forfeited.

     This Court recently reaffirmed that additions to tax for

fraud are a civil remedy, not a criminal punishment, and

therefore beyond the scope of the Double Jeopardy Clause.      See

Louis v. Commissioner, T.C. Memo. 1996-257, affd. per curiam 170

F.3d 1232 (9th Cir. 1999).    The Supreme Court, after our holding

and before the Court of Appeals’ affirmance in Louis, considered

the nature of monetary penalties imposed on bank officers already

convicted of misapplying bank funds.    See Hudson v. United

States, 522 U.S. 93 (1997).   A two-step analysis was used in

Hudson to determine whether a penalty is civil or criminal.      See

id. at 99.   The two-step Hudson approach was not employed by our

Court in Louis in concluding that the addition to tax for fraud

does not constitute a criminal punishment.   The two-step process

requires analysis of the statutory language to determine whether

Congress indicated an express or implied preference for one label

or the other, and if a civil penalty is intended, then an

evaluation of “‘whether the statutory scheme [is] so punitive

either in purpose or effect’” that it transforms the intended



     10
      (...continued)
tax and penalties are being employed as punishment. He does not
argue that his forfeiture of the income and assets associated
with his illegal espionage activity should obviate any tax
burden.
                              - 20 -


civil sanction into a criminal penalty.   Id. at 99 (quoting

United States v. Ward, 448 U.S. 242, 248-249 (1980)).

     Congress intended the penalty for negligence to be a civil,

not a criminal, sanction.   See Helvering v. Mitchell, 303 U.S.

391, 402 (1938); Louis v. Commissioner, 170 F.3d at 1235.     The

statutory language reflects that the section 6662 accuracy-

related penalty for negligence is a penalty in connection with

civil tax liability (addition to the tax).   See also Louis v.

Commissioner, 170 F.3d at 1235, where the same conclusion was

reached by the Court of Appeals concerning the civil fraud

penalty.

     Having decided that a civil penalty was intended, we now

consider the following “useful guideposts” provided in Hudson to

determine whether the statutory scheme is punitive in either

purpose or effect:

     (1) “[w]hether the sanction involves an affirmative
     disability or restraint”; (2) “whether it has
     historically been regarded as a punishment”; (3)
     “whether it comes into play only on a finding of
     scienter”; (4) “whether its operation will promote the
     traditional aims of punishment--retribution and
     deterrence”; (5) “whether the behavior to which it
     applies is already a crime”; (6) “whether an
     alternative purpose to which it may rationally be
     connected is assignable for it”; and (7) “whether it
     appears excessive in relation to the alternative
     purpose assigned.”

Hudson v. United States, supra at 99-100 (quoting Kennedy v.

Mendoza-Martinez, 372 U.S. 144, 168-169 (1963)).   These factors
                              - 21 -


are to be considered in relation to the “statute on its face”,

and “only the clearest proof” will suffice to override

legislative intent that a remedy be civil in nature.     Id. at 100.

     After considering the “guidepost” factors, we hold that the

accuracy-related penalty for negligence and/or the civil tax

liability on the forfeited espionage income are not so punitive

as to overcome clear congressional intent that they be civil

rather than criminal in nature.   The imposition of a tax

liability, or a civil tax penalty, does not amount to an

affirmative disability or restraint, nor has it historically been

regarded as punishment.   See Louis v. Commissioner, 170 F.3d at

1235 (for penalties); Murillo v. Commissioner, T.C. Memo. 1998-13

(for tax liability).   The Court of Appeals for the Ninth Circuit

has applied the Hudson test in Louis and held that the addition

to tax for fraud and its purpose were remedial.11   Louis v.

Commissioner, supra.   The fraud penalties “are provided primarily

as a safeguard for the protection of the revenue and to reimburse



     11
       The Court of Appeals for the Ninth Circuit, in holding
that the civil fraud penalty was not punitive within the meaning
of Hudson v. United States, 522 U.S. 93 (1997), noted that the
civil fraud penalty contained some of the guideposts, such as
intent. See Louis v. Commissioner, 170 F.3d 1232, 1235-1237 (9th
Cir. 1999), affg. per curiam T.C. Memo. 1996-257. In that
regard, the negligence penalty does not require specific intent
and thus has less coincidence with the guideposts. In addition,
the negligence penalty is 20 percent of the affected portion of
the underpayment, whereas the fraud penalty is 75 percent of the
same portion.
                              - 22 -


the Government for the heavy expense of investigation and the

loss resulting from the taxpayer’s fraud.”    Helvering v.

Mitchell, supra at 401 (fn. ref. omitted).    A fortiori, if the

fraud penalties are not a criminal punishment, the civil

negligence addition to tax and the tax liability are not a

criminal punishment.   The imposition of a Federal income tax

liability is remedial and not a punishment.   See Ianniello v.

Commissioner, 98 T.C. 165, 180 (1992).

     We hold that the imposition of a tax liability on

petitioner’s espionage income and/or the imposition of an

accuracy-related penalty under section 6662(a) does not

constitute punishment within the meaning of the Double Jeopardy

Clause.12

                                       Decision will be entered

                                    for respondent.




     12
       The opinions of this Court are replete with factual
situations where taxpayers who were not the subject of criminal
tax proceedings were found liable for tax and additions to tax on
unreported income from legal and illegal sources. Here,
petitioner is not being subjected to a greater tax rate or
exposure than any other taxpayer, irrespective of whether said
taxpayer had been subjected to criminal prosecution prior to a
determination of a civil liability.
