Carione v. Commissioner of Internal Revenue ( 2009 )

09-1029-ag
Carione v. Commissioner of Internal Revenue
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO SUMMARY ORDERS
FILED AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY THIS COURT’S LOCAL RULE 32.1
AND FEDERAL RULE OF APPELLATE PROCEDURE 32.1. IN A BRIEF OR OTHER PAPER IN WHICH A
LITIGANT CITES A SUMMARY ORDER, IN EACH PARAGRAPH IN WHICH A CITATION APPEARS, AT LEAST
ONE CITATION MUST EITHER BE TO THE FEDERAL APPENDIX OR BE ACCOMPANIED BY THE NOTATION:
“(SUMMARY ORDER).” A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF THAT SUMMARY ORDER
TOGETHER WITH THE PAPER IN WHICH THE SUMMARY ORDER IS CITED ON ANY PARTY NOT REPRESENTED
BY COUNSEL UNLESS THE SUMMARY ORDER IS AVAILABLE IN AN ELECTRONIC DATABASE WHICH IS
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DOCKET NUMBER OF THE CASE IN WHICH THE ORDER WAS ENTERED.
1 At a stated term of the United States Court of Appeals
2 for the Second Circuit, held at the Daniel Patrick Moynihan
3 United States Courthouse, 500 Pearl Street, in the City of
4 New York, on the seventeenth day of December, two thousand
5 nine.
6
7 PRESENT: DENNIS JACOBS,
8 Chief Judge,
9 DEBRA ANN LIVINGSTON,
10 Circuit Judge,
11 JED S. RAKOFF, *
12 District Judge.
13 _______________________________________
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15
16 Joseph Carione,
17
18 Petitioner-Appellant,
19
20 v. 09-1029-ag
21
22 Commissioner of Internal Revenue,
23
*
Jed S. Rakoff, District Judge, United States
District Court for the Southern District of New York,
sitting by designation.
1 Respondent-Appellee.
2
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4
5 FOR APPELLANT: James O. Druker, Kase & Druker,
6 Garden City, NY.
7 Paula Schwartz Fromme, of counsel.
8
9 FOR APPELLEE: Andrew M. Weiner, Andrea R. Tebbets,
10 Tax Division, Department of Justice,
11 Washington, DC.
12
13 Appeal from a judgment of the United States Tax Court
14 (Swift, J.).
15 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
16 AND DECREED that the judgment of the Tax Court is AFFIRMED.
17 Petitioner, Joseph Carione, appeals from an order of
18 deficiency entered February 27, 2009 in the United States
19 Tax Court (Swift, J.). Following Carione’s indictment for
20 various violations of the Racketeer Influenced and Corrupt
21 Organizations Act, 18 U.S.C. § 1961 et seq., Carione’s
22 business, Grand Carting Inc. (“Grand Carting”) (also
23 indicted), was restrained in anticipation of forfeiture.
24 While under indictment, Carione sold Grand Carting (with
25 approval of the court and the government), and the proceeds
26 were placed in escrow. The defendants ultimately pleaded
27 guilty, and the escrowed proceeds were applied toward a
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1 forfeiture judgment entered with their convictions.
2 Thereafter, Carione received a notice of deficiency from the
3 IRS stating that he owed taxes for tax-year 2000 on the
4 capital-gain proceeds from Grand Carting’s sale. Upon
5 Carione’s redetermination petition, the Tax Court confirmed
6 the deficiency, in the amount of $88,914. We otherwise
7 assume the parties’ familiarity with the underlying facts,
8 the procedural history, and the issues presented for review.
9 “‘We review the legal conclusions of the tax court de
10 novo[,] and its factual findings [and law applications]
11 under the clearly erroneous standard.’” Wright v. Comm’r,
12 571 F.3d 215, 219 (2d Cir. 2009) (quoting Merrill Lynch &
13 Co. v. Comm’r, 386 F.3d 464, 469 (2d Cir. 2004)).
14 Carione contends principally that capital-gain proceeds
15 from Grand Carting’s sale were not includible in his gross
16 income. We disagree. For the following reason, application
17 of the escrowed sale proceeds toward satisfaction of the
18 forfeiture judgment constituted income to Grand Carting, and
19 to Carione as sole shareholder.
20 The proceeds of Grand Carting’s sale were applied (by
21 way of an escrow account) toward satisfaction of the
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1 corporation’s forfeiture liability. This constituted income
2 to Grand Carting, see Old Colony Trust Co. v. Comm’r, 279
3 U.S. 716, 729 (1929), and “gross income,” 26 U.S.C. § 63(a),
4 to the extent it was “gain,” 26 U.S.C. § 1001(a). During
5 all relevant times, Carione was the sole shareholder of
6 Grand Carting, an S corporation. Gross income to Grand
7 Carting therefore also constituted gross income to Carione.
8 See 26 U.S.C. § 1366(c).
9 Carione argues that any gains from the Grand Carting
10 sale did not constitute income to him because he never
11 exercised dominion or control over the sale proceeds. But
12 his argument confuses whether the gains constituted income
13 to him with when that income was taxable--i.e., when the
14 income was realized. It is true that income is generally
15 not taxable if the taxpayer has no dominion or control over
16 the proceeds--for example, where (as here) the proceeds are
17 held in escrow. Comm’r v. Indianapolis Power & Light Co.,
18 493 U.S. 203, 209 (1990); Ware v. Comm’r, 906 F.2d 62, 65
19 (2d Cir. 1990). But the principle is one of deferment, not
20 of exemption. In any event, “[w]here the taxpayer does not
21 receive payment of income in money or property”--for
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1 example, where (as here) income comprises satisfaction of a
2 personal debt--that income is taxable “when the last step is
3 taken by which he obtains the fruition of the economic gain
4 which has already accrued to him.” Helvering v. Horst, 311
5 U.S. 112, 115 (1940). Grand Carting “obtained the fruition
6 of the economic gain . . . already accrued,” and thus
7 realized income, when the sale proceeds were applied toward
8 satisfaction of its forfeiture liability. 1
9 Carione further argues that satisfaction of the
10 forfeiture judgment did not constitute income to him because
11 he was not personally liable on the judgment. Even assuming
12 that Carione’s characterization of his forfeiture liability
13 is accurate, it is beside the point: Satisfaction of Grand
14 Carting’s forfeiture liability was taxable to Carione, as
15 Grand Carting’s sole shareholder, by operation of the pass-
16 through provision of 26 U.S.C. § 1366(c). In any event, it
17 cannot be said that Carione enjoyed no benefit personally
18 from the forfeiture. The assets were sold prior to
19 negotiation of a plea agreement by which Carione was
1
Carione does not dispute that, if he realized income
from Grand Carting’s sale, he realized that income in
tax-year 2000.
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1 subjected to no further forfeiture. Thus (again, assuming
2 Carione’s characterization of his forfeiture liability is
3 accurate) the government agreed to exempt Carione from
4 personal liability knowing the amount of escrowed proceeds
5 available to satisfy the forfeiture judgment.
6 Additionally, Carione contends that the government is
7 precluded from asserting now its claim for tax-year 2000 by
8 operation of Rule 13(a) of the Federal Rules of Civil
9 Procedure (the compulsory counterclaim rule), because the
10 claim should have been asserted in an earlier refund suit.
11 Carione previously sued in the United States District Court
12 for the Eastern District of New York for a refund of taxes
13 he paid for tax-year 1998 on the capital-gain proceeds from
14 Grand Carting’s sale. We note that whether Rule 13(a)
15 applies in taxpayer refund suits is an open question in this
16 circuit. Nevertheless, we decline to address it because the
17 government’s tax-year-2000 claim--not asserted in the tax-
18 year-1998 refund suit--would not be barred even if we held
19 that Rule 13(a) does apply. See Comm’r v. Sunnen, 333 U.S.
20 591, 598 (1948) (“[I]f the later proceeding is concerned
21 with a similar or unlike claim relating to a different tax
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1 year, the prior judgment acts as a collateral estoppel only
2 as to those matters in the second proceeding which were
3 actually presented and determined in the first suit.”).
4 We have considered Carione’s remaining arguments, and
5 find them to be without merit. For the foregoing reasons,
6 the judgment of the Tax Court is hereby AFFIRMED.
7 FOR THE COURT:
8 Catherine O’Hagan Wolfe, Clerk
9
10
11 By: __________________________
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