                            T.C. Memo. 2008-220



                          UNITED STATES TAX COURT



              JACK E. AND RUTH I. CHRISTIANS, Petitioners v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 21555-07.                 Filed September 29, 2008.



       Robert Alan Jones, for petitioners.

       A. Gary Begun, for respondent.



                            MEMORANDUM OPINION


       JACOBS, Judge:1    This matter is before the Court on

respondent’s motion for summary judgment filed pursuant to Rule

121.       Petitioners filed a response opposing respondent’s motion.




       1
      This case was assigned to Judge Julian I. Jacobs for
disposition of respondent’s motion for summary judgment by order
of the Chief Judge on Aug. 12, 2008.
                               - 2 -

The issues presented are:   (1) Whether petitioners, each of whom

was indicted and subsequently convicted under section 7201 for

     willfully attempting to evade and defeat a large part of the
     income tax due * * * for the calendar year 1995, by filing
     and causing to be filed * * * a false and fraudulent joint
     U.S. Individual Income Tax Return, Form 1040, wherein
     approximately TWO MILLION NINE HUNDRED FORTY SIX THOUSAND
     FIFTY dollars ($2,946,050) of income was excluded from the
     return causing an underpayment of approximately EIGHT
     HUNDRED TWENTY FOUR THOUSAND EIGHT HUNDRED NINETY FOUR
     Dollars ($824,894)in taxes,

are collaterally estopped from contesting their liability for the

civil fraud penalty under section 6663 for the same taxable year;

and (2) whether petitioners are entitled to a $25,600 charitable

contribution deduction for taxable year 1995.

     All section references are to the Internal Revenue Code

(Code) as amended, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   The parties stipulated

that any appeal in this case will lie to the Court of Appeals for

the Sixth Circuit.

     The Court of Appeals for the Sixth Circuit, in United States

v. Christians, 105 Fed. Appx. 748 (6th Cir. 2004), affirmed

petitioners’ convictions under section 7201.    The Court of

Appeals identified the relevant facts to be as follows.
                         - 3 -

     In 1995, Meijer, Inc., a large retailer, entered into
negotiations with the Christians [petitioners herein] for
the purchase of their Michigan home and an accompanying 20-
acre tract of land. On the day before Meijer made its final
offer of approximately $3.1 million, the Christians created
Cornerstone Management Trust, naming themselves as trustees,
and deeded their property to the trust for $10. The
Christians accepted Meijer’s $3.1 million offer.

     A few days before the closing on the land sale, the
Christians created Ottawa Trust, again naming themselves as
trustees. After receiving a check written to the
Cornerstone Management Trust for $3,072,699.94, the
Christians deposited the funds in Ottawa Trust’s account.
In the months following the sale, the Christians moved most
of the money to Barclays Bank in the Cayman Islands,
ultimately sending over $3 million there.

     On April 15, 1996, the Christians filed their
individual IRS Form 1040, which omitted any reference to the
real-property sale or to the gain realized from it.[2] The
Christians also filed an IRS Form 1041 for Cornerstone
Management Trust. This return disclosed the property sale,
calculated the tax due at over $1.1 million, and was signed
by Jack Christians. Instead of paying the tax, however,
Jack Christians attached a disclaimer, which read in part:
“The assessment and payment of income taxes is voluntary
with no distraint. . . . The above named taxpayer(s)
respectfully disclaim any liability and decline to volunteer
concerning assessment and payment of any [tax].” The
disclaimer closed by suggesting that if the taxpayer “shows
the tax to be zero,” then the IRS has the obligation of
assessing any tax deficiency.

     The IRS audited the Christians, who refused to
cooperate, even after Agent Rogowski of the IRS’s Criminal
Investigation Division became involved. After a court
enforced an administrative summons for their records, the
Christians produced documentation regarding the real
property sale and the trusts. The documents revealed that
the Christians maintained control of the two trusts and, as
a result, retained control over the transfer of their real
property and the proceeds from the sale.

     After meeting with Agent Rogowski and after receiving
an accountant’s advice that the proceeds of the sale


2
 The return showed a total tax of $9,469.
                               - 4 -

     belonged on their individual tax return, the Christians
     filed an amended 1995 return using an IRS Form 1040X on July
     17, 1997. The return listed the tax due at approximately
     $1.1 million,[3] stated that the “admitted tax liability is
     zero,” then added a tax disclaimer nearly identical to the
     one attached to Cornerstone Management Trust’s earlier
     return.

          On February 27, 2002, a grand jury indicted the
     Christians on a single count of willfully attempting to
     evade the payment of income tax due from the sale of their
     property “by filing ... a false and fraudulent joint U.S.
     Individual Income Tax Return, Form 1040” in violation of 26
     U.S.C. §7201. The jury returned a guilty verdict against
     both defendants. The court sentenced them each to 27-month
     prison sentences. [Id. at 749-750; joint appendix refs.
     omitted.]

     On their 1995 return petitioners claimed a $25,600

charitable contribution deduction consisting of $600 in cash and

$25,000 of other property.   Attached to the return was a Form

8283, Noncash Charitable Contributions, which described the

donated property as a house in good condition with a fair market

value of $25,000 and identified the donee as the Evangelistic

Center of Grand Rapids, Michigan.   A letter of thanks and a

receipt for $25,000, both signed by Pastor Harry Dunn of the

Evangelistic Center, were attached to the return.   In their

amended 1995 return, filed July 17, 1997, in addition to

increasing the amount of their adjusted gross income to include

the gain from the sale of property to Meijer, Inc., petitioners

claimed an additional $120,025 charitable contribution deduction.


     3
      The amended return increased petitioners’ adjusted gross
income by $2,948,000, with the explanation “Ottawa Revocable
Living Trust Not Included in Original Filing of Form 1040”, and
showed $1,118,112 as the correct amount of total tax.
                                - 5 -

     Respondent issued a notice of deficiency on June 29, 2007.

Respondent determined that petitioners’ income should be

increased by $2,948,000 to reflect the sale of property to

Meijer, Inc., and disallowed the $25,600 charitable contribution

deduction claimed in the original return.   The resulting tax,

according to respondent, is $845,049, leaving a deficiency of

$835,580 after taking into account the amount of tax ($9,469)

shown on the original return.   Respondent acknowledges that

petitioners made a payment of $824,894 on January 24, 2003, which

will be applied to the deficiency amount.   Respondent also

determined that petitioners are liable for the section 6663 civil

fraud penalty in the amount of $626,685.

     Petitioners admit that the gain from the sale of property to

Meijer, Inc., is includable in their income for 1995 and

generated tax.   They assert, however, that their tax liability

was not understated but rather was reported by means of two

returns--a Form 1040, U.S. Individual Income Tax Return, and a

Form 1041, U.S. Income Tax Return for Estates and Trusts, filed

by Cornerstone Management Trust.

     Petitioners concede in their response opposing respondent’s

motion that “the law is not generally in their favor”, but they

maintain “they should be allowed to contest the fraud penalty on

the basis of the facts which establish that no fraudulent tax

returns were filed but rather the Petitioners refused to pay the
                                - 6 -

original amounts due, and moved their assets out of the

jurisdiction of the United States to frustrate collection efforts

by the IRS.”

     In summarizing their position, petitioners state:

     This is clearly a willful refusal to pay, tax protest type
     case not a fraudulent attempt to evade liability. Although
     convicted of violating IRC §7201, it is clear that
     Petitioners were engaged in conduct to attempt to validate
     their incorrect positions that no taxes were due and owing
     at that time.

          This should not result in collateral preclusion by
     fraud. It was not necessary under §7201 for the jury to
     find a fraudulent filing to sustain or support the
     conviction. Therefore, the facts should be viewed as
     admitted by Respondent, thus precluding summary judgment on
     the issue.

     Petitioners also assert that they are entitled to contest

respondent’s disallowance of their $25,600 claimed charitable

contribution.   Finally, petitioners claim that their $824,894

payment of January 24, 2003, extinguished their tax liability.

                             Discussion

     As a preliminary matter, we note that summary judgment is

intended to expedite litigation and avoid unnecessary and

expensive trials.    Fla. Peach Corp. v. Commissioner, 90 T.C. 678,

681 (1988).    The Court may grant summary judgment where there is

no genuine issue of any material fact and a decision may be

rendered as a matter of law.   Rule 121(b); Sundstrand Corp. v.

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

Cir. 1994).    The moving party bears the burden of proving that no
                                 - 7 -

genuine issue of material fact exists, and the Court will view

any factual material and inferences in the light most favorable

to the nonmoving party.     Dahlstrom v. Commissioner, 85 T.C. 812,

821 (1985).     A partial summary adjudication may be made even if

it does not dispose of all the issues in the case.    Rule 121(b);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985).     Rule 121(d)

provides that where the moving party properly makes and supports

a motion for summary judgment, “an adverse party may not rest

upon the mere allegations or denials of such party’s pleading,”

but must set forth specific facts, by affidavits or otherwise,

“showing that there is a genuine issue for trial.”

     We now turn to the first of the two issues; namely, whether

petitioners’ convictions for income tax evasion under section

7201 collaterally estop them from litigating the issue of their

liability for the civil fraud penalty under section 6663.

     In Montana v. United States, 440 U.S. 147, 153-154 (1979),

the Supreme Court provided guidance on the application of the

doctrine of collateral estoppel as follows:    “Under collateral

estoppel, once an issue is actually and necessarily determined by

a court of competent jurisdiction, that determination is

conclusive in subsequent suits based on a different cause of

action involving a party to the prior litigation.”

     The two Code sections involved herein are section 6663 and

section 7201.     Section 6663 provides:
                               - 8 -

     SEC. 6663.   IMPOSITION OF FRAUD PENALTY.

          (a) Imposition of Penalty.--If any part of any
     underpayment of tax required to be shown on a return is due
     to fraud, there shall be added to the tax an amount equal to
     75 percent of the portion of the underpayment which is
     attributable to fraud.

          (b) Determination of Portion Attributable to Fraud.--
     If the Secretary establishes that any portion of an
     underpayment is attributable to fraud, the entire
     underpayment shall be treated as attributable to fraud,
     except with respect to any portion of the underpayment which
     the taxpayer establishes (by a preponderance of the
     evidence) is not attributable to fraud.

          (c) Special Rule for Joint Returns.--In the case of a
     joint return, this section shall not apply with respect to a
     spouse unless some part of the underpayment is due to the
     fraud of such spouse.

     An “underpayment” for purposes of section 6663 is defined in

section 6664(a), in relevant part, as the amount by which the tax

imposed exceeds the amount shown as the tax by the taxpayer on

his return.

     The record shows, and petitioners admit, that they filed a

1995 individual tax return on which they did not report the gain

from the sale of their property to Meijer, Inc., or the tax

imposed on the gain.   However, petitioners assert that their tax

liability was not understated but rather was reported by means of

two returns--a Form 1040 and a Form 1041 filed by Cornerstone

Management Trust.   Petitioners made this same assertion in

appealing their convictions under section 7201.   The Court of

Appeals for the Sixth Circuit rejected this argument, stating:
                              - 9 -

          Nor may the Christians sidestep this conclusion [that
     they willfully evaded their taxes] by pointing out that
     their 1995 individual tax return did not contain a false
     statement when read in conjunction with Cornerstone
     Management Trust’s IRS Form 1041, which did disclose the tax
     owed and proceeded to disclaim any liability for it. The
     Government prosecuted the Christians for income tax evasion
     with respect to their individual tax return, not the return
     of Cornerstone Management Trust. And their individual
     return neither acknowledged nor paid the tax due. No doubt,
     a jury could have concluded that the acknowledgment of the
     sale and the tax due on the Cornerstone Management Trust
     form undermined a finding that the Christians acted
     willfully and committed an affirmative act of evasion. But
     in view of the Christians’ prior tax-filing experiences,
     their sudden decision no longer to use an accountant, their
     creation of the sham trusts and offshore accounts and their
     non-cooperative conduct once the Government inquired about
     the sale, the Christians cannot tenably argue that the jury
     was compelled to reach such a conclusion on the basis of the
     Cornerstone tax filing. [United States v. Christians, 105
     Fed. Appx. at 752].

     We are mindful that petitioners, in their amended return,

admitted an underpayment of tax for 1995.    See Badaracco v.

Commissioner, 464 U.S. 386, 399 (1984).4    Therefore, there is no

doubt that there was an “underpayment of tax required to be shown

on a return” with respect to petitioners’ 1995 return as required

by section 6663.


     4
      Petitioners do not appear to argue that their amended
return, filed after they were notified that the IRS’s Criminal
Investigation Division had become involved, remedied the
fraudulent underpayment with respect to their original return.
Indeed, as the Supreme Court noted in Badaracco v. Commissioner,
464 U.S. 386, 394 (1984), “once a fraudulent return has been
filed, the case remains one ‘of a false or fraudulent return,’
regardless of the taxpayer’s later revised conduct, for purposes
of criminal prosecution and civil fraud liability” and “a
taxpayer who submits a fraudulent return does not purge the fraud
by subsequent voluntary disclosure”.
                              - 10 -

     Section 7201 provides:

     SEC. 7201.   ATTEMPT TO EVADE OR DEFEAT TAX.

          Any person who willfully attempts in any manner to
     evade or defeat any tax imposed by this title or the payment
     thereof shall, in addition to other penalties provided by
     law, be guilty of a felony and, upon conviction thereof,
     shall be fined not more than $100,000 ($500,000 in the case
     of a corporation), or imprisoned not more than 5 years, or
     both, together with the costs of prosecution.

      Petitioners were convicted of violating section 7201.    We

have repeatedly held that “A conviction for an attempt to evade

or defeat tax pursuant to section 7201, either upon a guilty plea

or upon a jury verdict, conclusively establishes fraud in a

subsequent civil tax fraud proceeding through the application of

the doctrine of collateral estoppel.”   Marretta v. Commissioner,

T.C. Memo. 2004-128 (citing DiLeo v. Commissioner, 96 T.C. 858,

885 (1991), affd. 959 F.2d 16 (2d Cir. 1992) and Frey v.

Commissioner, T.C. Memo. 1998-226), affd. 168 Fed. Appx. 528 (3d

Cir. 2006); see also Montalbano v. Commissioner, T.C. Memo. 2007-

349 (“It is well established that a final criminal judgment for

tax evasion under section 7201 collaterally estops relitigation

of the issue of fraudulent intent in a subsequent proceeding over

the civil fraud penalty.”); Uscinski v. Commissioner, T.C. Memo.

2006-200 (“Because the elements of criminal tax evasion and civil

tax fraud are identical, petitioner’s prior conviction under

section 7201 conclusively establishes the elements necessary for

finding fraud under section 6663.”); Wilson v. Commissioner, T.C.
                              - 11 -

Memo. 2002-234 (“We hold that the doctrine of collateral estoppel

bars * * * [the taxpayer convicted under section 7201] from

relitigating in the instant case the matters litigated in * * *

[the taxpayer’s] criminal tax proceeding, i.e., whether * * *

[the taxpayer] underpaid his tax for each of the taxable years *

* * and whether his underpayment of such tax for each such year

was due to fraud.”).   Our holding in this regard has been

affirmed by the Court of Appeals for the Sixth Circuit.      Shah v.

Commissioner, 208 F.3d 215 (6th Cir. 2000), affg. without

published opinion T.C. Memo. 1999-71; Gray v. Commissioner, 708

F.2d 243, 246 (6th Cir. 1983), and cases cited thereat, affg.

T.C. Memo. 1981-1.5

     As recounted supra, petitioners were indicted and convicted

for willfully attempting to evade the payment of income tax due



     5
      Petitioners, in their opposition to respondent’s motion for
summary judgment, rely on the dissenting opinion in Gray v.
Commissioner, 708 F.2d 243, 247 (6th Cir. 1983) Merritt, J.,
dissenting, affg. T.C. Memo. 1981-1. The taxpayer in Gray, who
entered a guilty plea to income tax evasion under sec. 7201,
claimed that he did not understand that his guilty plea would
have collateral consequences in subsequent civil proceedings.
The dissent objected to application of collateral estoppel under
those circumstances. Even were we to recognize a difference
between a guilty plea and a jury verdict for purposes of
application of collateral estoppel in these circumstances, which
we do not, see Marretta v. Commissioner, T.C. Memo. 2004-128,
affd. 168 Fed. Appx. 528 (3d Cir. 2006), petitioners’ convictions
were the result of a jury verdict of income tax evasion under
sec. 7201 rather than the result of guilty pleas to those
charges. In any event, apart from our own precedent, we would be
constrained by the majority position in Gray v. Commissioner,
supra, to apply the doctrine of collateral estoppel to the case
at bar. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970),
affd. 445 F.2d 985 (10th Cir. 1971).
                               - 12 -

from the sale of their property by filing a false and fraudulent

joint tax return for 1995 in violation of section 7201.      As the

Court of Appeals noted, the petitioners’ filing of a false Form

1040 constituted the affirmative act of evasion under section

7201 charged in the indictment.    United States v. Christians, 105

Fed. Appx. at 753.    Therefore, contrary to petitioners’ claim,

the issue of whether they filed a false and fraudulent return for

1995 was in fact “actually and necessarily determined by a court

of competent jurisdiction”, Montana v. United States, 440 U.S. at

153.    Thus, petitioners are estopped from relitigating that issue

in this proceeding.

       On the record presented, we find that there is no genuine

issue of material fact with respect to the section 6663 penalty

insofar as it relates to petitioners’ 1995 underpayment

attributable to petitioners’ failure to report the gain from the

sale of their property to Meijer, Inc., in their 1995 return.      We

thus hold that a decision may, and should, be entered against

petitioners on that issue as a matter of law.    Accordingly, we

sustain respondent’s determination to impose a penalty under

section 6663 with respect to the portion of petitioners’ 1995

underpayment attributable to the omitted gain from the sale.

       We now turn to that portion of petitioners’ 1995

underpayment which is attributable to petitioners’ $25,600

claimed charitable contribution deduction.    Petitioners’
                              - 13 -

entitlement to the charitable contribution deduction was not

addressed in the criminal proceeding which resulted in their

convictions under section 7201, and petitioners dispute

respondent’s disallowance of the charitable contribution

deduction.   Summary judgment with respect to this matter is not

appropriate.   A trial with respect to this issue should proceed.

     A determination of the extent to which petitioners have paid

their outstanding tax liability must await the resolution of the

issue relating to the claimed charitable contribution deduction.

     To reflect the foregoing,


                                         An order granting in part

                                    and denying in part

                                    respondent’s motion for

                                    summary judgment will be

                                    issued.
