                        T.C. Memo. 2006-200



                     UNITED STATES TAX COURT



               HENRY JOHN USCINSKI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7831-05.               Filed September 19, 2006.



     Henry John Uscinski, pro se.

     Scott A. Hovey, for respondent.



                        MEMORANDUM OPINION


     THORNTON, Judge:   This proceeding is before us on

respondent’s motion for summary judgment.     The issues for

decision are whether petitioner underreported his 1996 gross

income by $1,551,863 and whether petitioner is liable for the

section 6663 fraud penalty.
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     When he petitioned the Court, petitioner resided in Thousand

Oaks, California.

                           Background

     Petitioner is an attorney.   During 2002, the U.S. Attorney

filed in the U.S. District Court for the Northern District of

Florida, Gainesville Division (the District Court), a one-count

information charging petitioner with violating section 7201 by

willfully attempting to evade his 1996 income taxes and by filing

a fraudulent 1996 Federal income tax return.1   The information

charged that petitioner knowingly understated his 1996 taxable

income by $1,551,863.

     In October 2002, petitioner entered into a plea agreement,

pleading guilty to the one-count information.   In the plea

agreement, the parties agreed that by September 17, 2001,

defendant had paid restitution to the United States in the amount

of $1,590,000, and that this amount exceeded the “unreported fee”

set forth in the information and agreed statement of facts.2      In

connection with the plea agreement, on November 8, 2002, the

parties in the criminal case filed with the District Court an

agreed statement of facts, in which petitioner admitted that he



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
     2
       Between August 1999 and September 2001, petitioner made
payments to the United States totaling $1,590,000.
                               - 3 -

had failed to report certain funds received from a former client

(the unreported funds).   The agreed statement of facts states in

part:

          USCINSKI is an American citizen who is currently
     residing in the Hong Kong Special Administrative
     Region, People’s Republic of China. USCINSKI is an
     attorney who began consulting with Claude Louis DuBoc
     shortly before DuBoc was arrested in March of 1994 in
     Hong Kong. In January, 1996, Uscinski and another
     member of his firm officially began representing DuBoc.
     On May 22, 1996, Claude Louis DuBoc signed a Power of
     Attorney enabling his attorney, HENRY JOHN USCINSKI, to
     act on behalf of DuBoc in all respects, including
     withdrawal and deposit of funds from DuBoc’s accounts
     at Bank Gutmann in Austria.

          On August 1, 1996, USCINSKI caused the withdrawal
     of $750,000 U.S. dollars in one transaction and
     $100,000 U.S. dollars in a second transaction from Bank
     Gutmann. USCINSKI directed that these funds be sent to
     accounts controlled by USCINSKI at Banque Pictet Et
     Cie, Switzerland. These funds arrived on August 9,
     1996. On November 13, 1996, 890,032 Swiss Francs
     ($701,862.63 in U.S. Dollars) were withdrawn from Bank
     Gutmann at the request of USCINSKI and forwarded to the
     same account in Switzerland. That sum arrived on
     November 19, 1996 in Switzerland. All of these funds
     were withdrawn from Bank Gutmann at the behest of
     USCINSKI and converted to personal use by USCINSKI.
     Once USCINSKI deposited these funds into his bank
     account at Banque Pictet Et Cie, Switzerland, he then
     transferred portions of these funds to other bank
     accounts he controlled in Hong Kong and Thailand during
     1996 through 1998 for his own personal use.

          Uscinski filed his 1996 tax return in August 1997.
     In this return, USCINSKI failed to report any of the
     funds he received from DuBoc in 1996. The income
     USCINSKI failed to report on his 1996 Federal income
     tax return totaled $1,551,863.00. The unreported
     income in 1996 resulted in tax due and owing of
     $638,698.00 for the tax year 1996.
                                - 4 -

     On March 10, 2003, the District Court entered a judgment

finding petitioner guilty of income tax evasion under section

7201, sentencing him to 42 months in prison and imposing a

$250,000 fine.    This judgment has become final.

     On February 8, 2005, respondent issued a notice of

deficiency with respect to petitioner’s 1996 tax year,

determining that petitioner owed additional income taxes of

$608,395 based on additional income of $1,551,863 and asserting a

section 6663 civil fraud penalty of $454,221.

     In a letter to the IRS dated March 24, 2005, petitioner

stated in part:

     the income upon which the Notice of Deficiency is based
     was income that I restored to the U.S. Government over
     the succeeding few years after receipt. This income
     was restored to the U.S. Government many years before
     the Internal Revenue Service even considered this
     matter. * * *

     In 1996, I received approximately USD1,550,000 [sic]
     that was not reported as income. Between 1999 and
     2001, I restored this income in full to the U.S.
     Government.

     In his petition, filed April 29, 2005, petitioner assigns

error to respondent’s determinations in the notice of deficiency

and seeks relief on these grounds:

     Relief requested is to eliminate and cancel all claimed
     tax due and penalties imposed. The funds upon which
     said tax and penalties are imposed were received under
     a claim of right and were subsequently restored to the
     U.S. Government in full. Accordingly, no tax should be
     imposed as the funds were restored.
                                - 5 -

                             Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.      Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).      Summary judgment is not,

however, a substitute for trial; it should not be used to resolve

disputes over factual issues.    Espinoza v. Commissioner, 78 T.C.

412, 416 (1982).   Summary judgment may be granted where there is

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

rendered as a matter of law.    Rule 121(a) and (b); see 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).

Respondent, as the moving party, has the burden of showing that

there is no genuine issue of material fact; all doubts as to the

existence of an issue of material fact must be resolved against

the movant.   Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985);

Jacklin v. Commissioner, 79 T.C. 340, 344 (1982).      When a motion

for summary judgment is made and properly supported, the adverse

party may not rest upon mere allegations or denials of the

pleadings but must set forth specific facts showing that there is

a genuine issue for trial.   Rule 121(d).

     Generally, “A prior conviction will estop a party from

contesting in a later civil suit any element necessarily

established in the criminal trial.”     Considine v. United States,

683 F.2d 1285, 1286 (9th Cir. 1982).      The Court of Appeals for
                               - 6 -

the Ninth Circuit, to which this case is appealable, has

identified a three-step approach for determining the application

of collateral estoppel:

     (1) An identification of the issues in the two actions
     for the purposes of determining whether the issues are
     sufficiently similar and sufficiently material in both
     actions to justify invoking the doctrine; (2) an
     examination of the record of the prior case to decide
     whether the issue was “litigated” in the first case;
     and (3) an examination of the record of the prior
     proceeding to ascertain whether the issue was
     necessarily decided in the first case. [United States
     v. McLaurin, 57 F.3d 823, 826 (9th Cir. 1995); emphasis
     omitted.]

It is well established that a subsequent guilty plea may be used

to establish issue preclusion in a subsequent civil suit where an

element of the crime to which the defendant pled guilty is at

issue in the second suit.   See, e.g., United States v. $31,697.59

Cash, 665 F.2d 903 (9th Cir. 1982).

     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.   See Marretta v. Commissioner, T.C.

Memo. 2004-128, affd. 168 Fed. Appx. 528 (3d Cir. 2006); Frey v.

Commissioner, T.C. Memo. 1998-226; see also Brooks v.

Commissioner, 82 T.C. 413, 431 (1984) (holding that a section

7201 conviction collaterally estops a taxpayer from denying fraud

for purposes of section 6653(b), the predecessor of section

6663), affd. without published opinion 772 F.2d 910 (9th Cir.
                                - 7 -

1985).   Accordingly, petitioner’s prior conviction under section

7201 collaterally estops him from denying in the present civil

tax proceeding:   (1) That petitioner’s failure to report the

unreported funds resulted in an underpayment in his 1996 income

tax; and (2) that at least part of the underpayment is due to

fraud within the meaning of section 6663.   With respect to these

issues, respondent is entitled to summary judgment.

     In his motion for summary judgment, respondent concedes that

petitioner is not collaterally estopped from challenging the

precise amount of the deficiency, inasmuch as the precise amount

of the “diverted funds” was not a necessary element of

petitioner’s section 7201 conviction.   Respondent nevertheless

contends that he is entitled to summary judgment on this issue.

Respondent points to petitioner’s admission in the criminal case

that he received $1,551,863 that he failed to report on his 1996

tax return.   Respondent also points to petitioner’s March 24,

2005, letter to the IRS, wherein he acknowledged that the amount

of his unreported income was “approximately USD1,550,000”, as

well as to the undisputed fact that between August 1999 and

September 2001 petitioner repaid the government $1,590,000.

      Petitioner contends that the evidence as to the amount of

his unreported income is “inconsistent and, on that basis,

inconclusive”.    Petitioner contends that respondent has failed to
                                - 8 -

carry his burden to prove the precise amount of taxable,

unreported income that petitioner received in 1996.

     Although petitioner’s admission in the prior criminal

proceeding as to the amount of his unreported 1996 income

constitutes “strong evidence”, see Livingston v. Commissioner,

T.C. Memo. 2000-121, it does not, either alone or in conjunction

with the other evidence respondent relies upon, establish that

there is no genuine issue of fact as to the precise amount of

petitioner’s unreported 1996 income.    Construing petitioner’s

contentions broadly, we infer that he seeks to collaterally

attack his prior admissions as to the precise amount of the

unreported funds.   Respondent has not contended that petitioner

should be judicially estopped in this proceeding from asserting

positions contrary to those he asserted in the prior criminal

proceeding.    Cf. Larson v. Commissioner, T.C. Memo. 1993-188

(declining to employ judicial estoppel with respect to an

admission in the taxpayer’s plea agreement in a prior criminal

proceeding).

     Resolving, as we must, all doubts against respondent as the

party moving for summary judgment, we conclude that respondent

has failed to carry his initial burden to show that there is no

triable issue of fact with respect to the precise amount of

petitioner’s 1996 unreported income.    Cf. Shiosaki v.
                              - 9 -

Commissioner, 61 T.C. 861, 864 (1974); Waxler v. Commissioner,

T.C. Memo. 1979-425.

     Consequently, although the current record might leave us in

doubt as to petitioner’s prospects for ultimately succeeding in

showing error in the notice of deficiency, we shall not deny

petitioner an opportunity to present relevant evidence.   As this

Court observed in Parker v. Commissioner, T.C. Memo. 1985-263:

          It is true that petitioner is not entitled to a
     trial on the possibility that an issue of material fact
     might turn up at the trial. First Nat. Bank v. Cities
     Service, 391 U.S. 253, 289-290 (1968). But it is
     equally true that the fact it may be surmised that
     petitioner is unlikely to prevail at trial is not a
     sufficient basis for refusing him his day in court with
     respect to an issue which is not shown to be sham,
     frivolous, or so unsubstantial that it would obviously
     be futile to try it. * * *

     We reject, however, petitioner’s misguided view, reflected

in his objection to respondent’s motion for summary judgment,

that he is entitled to relief under section 1341.   In certain

circumstances, section 1341 may provide tax relief to a taxpayer

who repays money in one year that had been included in gross

income for a prior year under a claim of right.   The relief

provided under section 1341, however, applies to the year in

which the repayment is made and does not affect the taxpayer’s

obligation to report as income, in the year of receipt, items

received under a claim of right.   See generally MidAmerican

Energy Co. v. Commissioner, 114 T.C. 570, 581 (2000) (explaining

purposes and operation of section 1341), affd. 271 F.3d 740 (8th
                              - 10 -

Cir. 2001).   Because petitioner’s repayments occurred from 1999

through 2001, section 1341 is inapplicable in determining

petitioner’s deficiency for 1996, which is the only year at issue

in this proceeding.3

     In conclusion, respondent is entitled to partial summary

judgment that petitioner is estopped to deny that he had an

underpayment in his 1996 income tax that is due to civil tax

fraud.   In all other respects, respondent’s motion for summary

judgment will be denied.


                                         An appropriate Order

                                    will be issued.




     3
       In his response to respondent’s motion for summary
judgment, petitioner contends, without elaboration, that if he is
subject to tax on unreported income for 1996, then he should “be
entitled to prove at trial the amount of any deductions that he
may claim to offset his tax liability for this tax year”.
Petitioner has not included any such claim for deductions in his
petition pursuant to Rule 34(b), nor has he sought to amend his
petition to include any such claim pursuant to Rule 41(a). By
separate order, the Court will provide petitioner a reasonable
period in which to file any motion for leave to amend his
petition with respect to any such claim and provide respondent an
opportunity to respond.
