                        T.C. Memo. 1996-355



                      UNITED STATES TAX COURT




                      EDWARD A. WAGNER AND
                 BARBARA WAGNER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7602-88.              Filed August 5, 1996.



     Jared J. Scharf, for petitioners.

     Michael D. Wilder, for respondent.



                        MEMORANDUM OPINION


     BEGHE, Judge:   This case is before us on respondent’s motion

for summary judgment under Rule 121(b)1 that petitioner Edward A.


     1
      Except where otherwise noted, rules referred to are the
Rules of this Court, and sections referred to are sections of the
Internal Revenue Code in effect in the year in question.
                               - 2 -


Wagner (petitioner) is liable for the fraud addition to tax for

the year in issue.   After concessions, the sole issue for

decision is whether we should conclude, as a matter of law, that

petitioner is liable for the section 6653(b) addition to tax for

fraud for the taxable year 1975.

     The facts set forth in the Background portion of this

Opinion are stated solely for the purpose of deciding the motion

and are not findings of fact for this case.   Fed. R. Civ. P.

52(a); Boyd Gaming Corp. v. Commissioner, 106 T.C. 343, 345 n.5

(1996); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994).

                            Background

     On May 26, 1982, a grand jury convened in the U.S. District

Court for the Southern District of New York indicted petitioner

and three alleged coconspirators for various crimes.   The

indictment described a scheme, as summarized below, to establish

fraudulent tax shelters through the creation of limited

partnerships, including Caldwell Properties (Caldwell), whose

funds, contributed by individual investors solicited by the

defendants, were used to finance the purchase of movie rights.

The tax deductions and credits to which the investor-partners

thereby ostensibly became entitled were grossly inflated by the

reporting of purchase prices for the movies that greatly exceeded

the prices actually paid by the purchasers.   To perpetrate the
                               - 3 -


deception, two sets of books were maintained, one to be shown to

the Government and the other accounting for what had really

happened.   The set of books employed to prepare partnership

returns of income and reports of the partners' distributive

shares of deductions and credits was knowingly inflated.    For

some of the partnerships, not including Caldwell, checks drawn in

amounts representing the inflated prices were provided to sellers

of the films, who endorsed these checks and returned them to the

conspirators.   Thereafter, cash in lesser amounts than the face

amounts of the checks was paid to the sellers in place of the

checks, resulting in “skim money” to the conspirators.    For other

partnerships, including Caldwell, the conspirators interposed a

third party, which they controlled, between the seller and the

purchaser of the film and used this controlled third party to

achieve a similar inflation of these partnerships’ purchase

prices for movies and concurrent diversion of skim money to the

conspirators.   For Caldwell, the interposed controlled third

party was Cinepix Establishment, and the movie that was the

subject of the transaction in issue was "Adios Amigos".    In

addition, contracts were backdated so as to allow some of the

purchases to avoid the operation of a change in law providing,

with effect on contracts not finalized prior to September 11,

1975, that nonrecourse notes could no longer be included in the
                               - 4 -


cost of a movie for the purpose of computing losses for 1976 and

later years.

     Petitioner was the business and transactional lawyer for

some of the partnerships, but respondent now concedes that he did

not receive any of the skim money resulting from the inflated

prices.   In this respect, his position differs from that of his

three coconspirators, who conceded the receipt of unreported

income from skim money, and fraud additions, for some of their

taxable years.

     On November 8, 1982, following a 12-week jury trial in the

U.S. District Court for the Southern District of New York, in

which the defendants were petitioner and his three

coconspirators, petitioner was convicted of (1) one count of

conspiracy to defraud the United States in violation of 18 U.S.C.

sec. 371 (1994); (2) thirteen counts of mail fraud in violation

of 18 U.S.C. sec. 1341 (1994); (3) twenty-nine counts of aiding

and assisting in the preparation of false tax returns in

violation of section 7206(2); and (4) one count of knowingly

making and subscribing a false and fraudulent personal income tax

return in violation of section 7206(1).2   The indictment alleged,

     2
      The charges were summarized by the court that confirmed
petitioner's disbarment as a New York attorney. In re Wagner,
485 N.Y.S.2d 278 (N.Y. App. Div. 1985). That court also made
reference to the criminal proceeding, United States v. Glantz, 82
Cr. 162 (S.D.N.Y.), in the subsequent securities case, Zola v.
Gordon, No. 86 Civ. 4790, 1993 WL 247821 (S.D.N.Y., June 30,
                                                   (continued...)
                              - 5 -


with respect to the last count under which petitioner was

convicted, that, for purposes of section 7206(1), petitioner

"unlawfully, wilfully and knowingly" made and subscribed his 1975

joint income tax return (Form 1040), which contained and was

verified by a written declaration that it was made under penalty

of perjury, and which he did not believe to be true and correct

as to material matters, to wit, loss and investment tax credit on

account of an investment in the Caldwell film development

partnership, and income received from Cinepix Establishment.

     Petitioner claims that the testimony at the criminal trial

(only some of which is available to us) indicates that he was an

investor in Caldwell who sublet an office to Murray Glantz, one

of the coconspirators, who was the lawyer for Caldwell and who

controlled the dummy general partner.   Petitioner goes on to

claim that Glantz did virtually everything connected with

Caldwell and Cinepix, that there was no evidence that petitioner

had anything at all to do with the transaction between the

sellers and Cinepix, that petitioner had trouble obtaining

Caldwell partnership documents from Glantz, that petitioner

assisted in the sale of Caldwell interests but was not aware of

the inflated purchase price, that petitioner was interested in

Caldwell for its profit potential and sold it on that basis to

     2
      (...continued)
1993) (earlier decisions in Zola v. Gordon, 701 F. Supp. 67
(S.D.N.Y. 1988), and 685 F. Supp. 354 (S.D.N.Y. 1988)).
                               - 6 -


one of the witnesses at the trial, that petitioner initiated an

audit of the distributor and a lawsuit against the general

partner when the profit was not paid to the partners, and that at

trial the prosecutor's argument about Caldwell only referred to

witnesses who did not incriminate petitioner on this point, made

no effort to prove that petitioner intended to evade tax, and did

not prove that petitioner knew that the Caldwell deal was based

on an inflated purchase price or otherwise would lead to an

evasion of tax.   There was evidence at trial that can reasonably

be interpreted to support many of these assertions.

     On January 21, 1988, respondent sent petitioners two

statutory notices, one for 1974 and 1975 and the other for 1973,

1976, 1977, and 1978.3   On April 18, 1988, petitioners timely

filed their petition with this Court.4   When petitioners filed

their petition, they resided in Harrison, New York.

                            Discussion




     3
      These notices contained determinations, now conceded by
respondent, that petitioner was liable for the fraud addition to
tax for all 6 years from 1973 through 1978 (not just for 1975),
and also that petitioner had received “profit from movie deals”
(i.e., skim income) in 1975 and 1976.
     4
      Petitioners' case in this Court was consolidated with those
of petitioner's coconspirators and their spouses, but those other
cases have since been severed by reason of the comprehensive
settlements that have been reached in them, in which, as
indicated in the text, supra, the other conspirators have
conceded receipts of varying amounts of skim income and fraud
additions.
                                - 7 -


     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.   American Manufacturers

Mut. Ins. Co. v. American Broadcasting-Paramount Theatres, Inc.,

388 F.2d 272, 278 (2d Cir. 1967); Boyd Gaming Corp. v.

Commissioner, supra at 346; Florida Peach Corp. v. Commissioner,

90 T.C. 678, 681 (1988).   Rule 121(a) provides that “Either party

may move, with or without supporting affidavits, for a summary

adjudication in the moving party's favor upon all or any part of

the legal issues in controversy.”   Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.”   Rule 121(b); Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 247 (1986); Williams v. Crichton, 84

F.3d 581, 587 (2d Cir. 1996); Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994);

Zaentz v. Commissioner, 90 T.C. 753, 754 (1988); Naftel v.

Commissioner, 85 T.C. 527, 529 (1985).

     The moving party must prove that there is no genuine issue

of material fact, and all factual inferences are viewed in the

light most favorable to, and all ambiguities resolved in favor

of, the nonmoving party.   Eastman Kodak Co. v. Image Technical
                                 - 8 -


Servs., Inc., 504 U.S. 451, 456 (1992); United States v. Diebold,

Inc., 369 U.S. 654, 655 (1962); Sierra Club, Inc. v.

Commissioner, 86 F.3d 1526, 1530, 1536 (9th Cir. 1996), affg. in

part and revg. and remanding in part on this issue 103 T.C. 307

(1994) and affg. T.C. Memo. 1993-199; Gottlieb v. County of

Orange, 84 F.3d 511, 518 (2d Cir. 1996); Rosen v. Thornburgh, 928

F.2d 528, 532-533 (2d Cir. 1991); Boyd Gaming Corp. v.

Commissioner, supra at 347.     Whether an issue of material fact is

genuine depends upon whether a reasonable trier of fact could

find in favor of the nonmoving party.     Eastman Kodak Co. v. Image

Technical Servs., Inc., supra at 462, 469 & n.14, 477; Anderson

v. Liberty Lobby, Inc., supra at 248-252; Atkinson v. Denton

Publishing Co., 84 F.3d 144, 148 (5th Cir. 1996); Sutera v.

Schering Corp., 73 F.3d 13, 16 (2d Cir. 1995); Richman v.

Commissioner, T.C. Memo. 1993-32.    Assessments of credibility,

choices between conflicting versions of events, and weighing of

evidence are the prerogative of the finder of fact at trial, not

matters for summary judgment.     Anderson v. Liberty Lobby, Inc.,

supra at 255; Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir.

1996); Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358,

1363 (3d Cir. 1992); Toushin v. Commissioner, T.C. Memo. 1995-

573.   Because summary judgment decides against a party before

trial, we grant the remedy cautiously, only after carefully

ascertaining that the moving party has met all the requirements.
                               - 9 -


Associated Press v. United States, 326 U.S. 1, 6 (1945); P & X

Markets, Inc. v. Commissioner, 106 T.C. 441, 443 (1996).

     A motion for summary judgment necessarily implicates the

burden of proof that would apply at a trial on the merits.

Anderson v. Liberty Lobby, Inc., supra at 252; United States v.

One Parcel of Property Located at 15 Black Ledge Dr.,

Marlborough, Conn., 897 F.2d 97, 101 (2d Cir. 1990).    Thus, where

the moving party has the burden of proof by clear and convincing

evidence, his showing must be sufficient for the court to hold

that no reasonable trier of fact could find for the nonmoving

party.   Irby v. Bittick, 44 F.3d 949, 953 (11th Cir. 1995);

Calderone v. United States, 799 F.2d 254, 259 (6th Cir. 1986).

It follows from these considerations that here, where respondent

has the burden of proving all the elements of fraud by clear and

convincing evidence and has moved for summary judgment, we grant

respondent’s motion only if she has met the burden of convincing

us that no reasonable trier of fact could find that respondent

has failed to prove any of the elements of fraud by clear and

convincing evidence.   Cf. National Presto Indus. v. West Bend

Co., 76 F.3d 1185, 1189 (Fed. Cir. 1996); United States Gypsum

Co. v. National Gypsum Co., 74 F.3d 1209, 1212 (Fed. Cir. 1996);

Paragon Podiatry Lab., Inc. v. KLM Lab., Inc., 984 F.2d 1182,

1189-1190 (Fed. Cir. 1993); Baker Oil Tools, Inc. v. Geo Vann,

Inc., 828 F.2d 1558, 1566 (Fed. Cir. 1987); Target Therapeutics,
                              - 10 -


Inc. v. SciMed Life Systems, Inc., No. C-94-20775RPA, 1996 WL

241692 (N.D. Cal., May 2, 1996); Fidelity Bank, Natl. Association

v. Avrutick, 740 F. Supp. 222, 232 (S.D.N.Y. 1990); Schneider

(USA), Inc. v. C. R. Bard, Inc., No. Civ. A. 89-819-MA, 1990 WL

292143 (D. Mass., Oct. 11, 1990); Symbol Technologies, Inc. v.

Opticon, Inc., No. 86 CB 8736 (KMW), 1989 WL 38134 (S.D.N.Y.,

Feb. 27, 1989).

     Respondent bases her motion on the allegedly preclusive

effect of petitioner's convictions under 18 U.S.C. section 371

(1994) and I.R.C. section 7206(1) and (2) upon the issue of fraud

under section 6653(b).   Respondent contends that the opinion of

the Court of Appeals for the Ninth Circuit in Considine v. United

States, 683 F.2d 1285 (9th Cir. 1982), in combination with

petitioner’s convictions under section 7206(2) and 18 U.S.C.

section 371 (1994) and petitioner’s status as a sophisticated

taxpayer, compels the conclusion that petitioner's conviction

establishes as a matter of law that his underpayment for 1975 was

"due to fraud," for purposes of section 6653(b), and thus that

respondent's motion should be granted.    Petitioners contend that

the convictions on all these counts might have had nothing to do

with receipt of income from an artificially inflated purchase

price paid by Caldwell to Cinepix:     The conviction for conspiracy

could be based on any one of eleven transactions; the convictions

under section 7206(2) could be based on aiding and abetting
                               - 11 -


others to commit the crime of aiding and assisting in the

preparation of false returns of others; the conviction under

section 7206(1) might have been with respect to unreported income

from movie deals, which respondent has conceded petitioner did

not have; further, the convictions under section 7206(1) and (2)

could be based on nothing more than petitioner's participation in

the conspiracy, under Pinkerton v. United States, 328 U.S. 640,

645-647 (1946).

     Respondent determined that petitioner was liable for an

addition to tax for fraud for 1975 under section 6653(b).     This

section imposes an addition to tax equal to 50 percent of any

underpayment in tax if any part of the underpayment is due to

fraud.    To establish this, respondent must show both:   (1) That

the taxpayer has underpaid his taxes for the year in question

(existence of underpayment), and (2) that some part of the

underpayment is due to fraud (fraudulent intent, intent to evade

tax).    DiLeo v. Commissioner, 96 T.C. 858, 873 (1991), affd. on

other issues 959 F.2d 16 (2d Cir. 1992); Parks v. Commissioner,

94 T.C. 654, 660-661 (1990); Truesdell v. Commissioner, 89 T.C.

1280, 1301 (1987); Hebrank v. Commissioner, 81 T.C. 640, 642

(1983).    Respondent bears the burden of proving fraud and must

carry this burden for each element of fraud by clear and

convincing evidence.    Sec. 7454(a); Rule 142(b); DiLeo v.
                               - 12 -


Commissioner, supra; Parks v. Commissioner, supra; Hebrank v.

Commissioner, supra.

     A conviction for willful falsification under section 7206(1)

does not estop a taxpayer from denying fraud.     Wright v.

Commissioner, 84 T.C. 636, 643 (1985). In this case, the parties

have stipulated that there was an underpayment of tax by

petitioners for the taxable year 1975.    It follows that the only

remaining issue that respondent must prove is that of fraudulent

intent.

     Petitioners have presented evidence indicating that

petitioner received no skim income from the sale of "Adios

Amigos" to Caldwell Properties and that he may not have known

about the inflated nature of the reported purchase price of the

movie.    He was not an attorney for Caldwell.   Petitioners suggest

that the jury may have convicted on the section 7206(1) count

because the prosecution convinced it that petitioner had received

other film income--which respondent now concedes petitioner did

not receive.

     None of the counts on which petitioner was convicted, singly

or in combination, establishes that petitioner had fraudulent

intent.    Indeed, the judge at the criminal trial explicitly

instructed the jury that it could convict on the section 7206(2)

counts whether or not petitioner intended to evade tax, whereas

he issued a contrasting instruction on a section 7201 charge
                             - 13 -


against petitioner's co-defendant Murray Glantz, who was

convicted under section 7201, and who has conceded receipt of

skim income and liability for the fraud addition.   See In re

Glantz, 468 N.Y.S.2d 634 (App. Div. 1983).   Summary judgment on

the tax fraud issue against the taxpayer was affirmed in

Considine v. United States, 683 F.2d 1285, but there the

taxpayer, offering no evidence or argument that the false

statements on his tax return were made with any other intent than

to defraud the Government, had not controverted the Government's

assertion that he had filed his materially false return with

fraudulent intent, id. at 1288.   Here, petitioner has adduced

evidence and argument that he lacked fraudulent intent.    We

conclude that this issue presents a factual dispute for trial.5

     Respondent argues that petitioner’s intent to evade tax is

evidenced by the fact that he was a sophisticated lawyer and

investor, that he was convicted under section 7206(2) of

assisting in the preparation of returns that were false and

fraudulent, and that he was convicted under 18 U.S.C. sec. 371

(1994) of conspiring with others to defraud the United States.


     5
      Compare Cimino v. Commissioner, T.C. Memo. 1994-80; Munson
v. Commissioner, T.C. Memo. 1991-377; Twist v. Commissioner, T.C.
Memo. 1986-497; Siravo v. Commissioner, T.C. Memo. 1986-482;
Keeton v. Commissioner, T.C. Memo. 1985-599, in all of which
summary judgment as to fraud was granted to respondent based
primarily on deemed admissions. In Chermack v. Commissioner,
T.C. Memo. 1989-57, also, there were indicia of fraud not present
in the case at hand.
                             - 14 -


The two convictions, however, do not collaterally estop him from

denying intent to evade his own tax liability.   Petitioner’s

sophistication as a lawyer and investor may tend to show that he

had such intent, but here, unlike the taxpayer in Considine,

petitioner has made a showing in opposition to respondent's

motion, and the issue of intent is a triable issue of fact.

     We therefore deny respondent’s motion for summary judgment.

     For the preceding reasons,

                                        An order will be issued

                                   denying respondent’s motion

                                   for summary judgment.
