Martin and Barbara Schachter v. Commissioner , 113 T.C. No. 14 ( 1999 )

113 T.C. No. 14UNITED STATES TAX COURT
MARTIN AND BARBARA SCHACHTER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 2939-96. Filed September 14, 1999.
Held: No credit is allowed against civil
fraud additions to tax for a criminal fine
imposed under sec. 7201, I.R.C., and 18
U.S.C. secs. 371, 3622, and 3623 (Supp. II,
1984).
Martin A. Schainbaum and David B. Porter, for petitioners.
Paul J. Krug, for respondent.
*
This Opinion supplements our Memorandum Opinion in Schachter
v. Commissioner, T.C. Memo. 1998-260.
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SUPPLEMENTAL OPINION
SWIFT, Judge: This matter is before us under Rule 155 on
the parties' disputed computations of the decision to be entered
herein.
The issue for decision is whether petitioners should be
allowed a credit against civil fraud additions to tax for a
$250,000 criminal fine imposed on petitioner Martin Schachter
(petitioner).
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
On September 23, 1993, petitioner pleaded guilty under
section 7201 to one count of income tax evasion and to one count
of conspiracy under 18 U.S.C. section 371 (1988) to defraud the
United States with respect to his individual Federal income tax
liability for 1986. In connection with the above plea, under the
authority of 18 U.S.C. sections 3622 and 3623 (Supp. II, 1984),
now repealed and replaced by 18 U.S.C. sections 3572 and 3571
(1994), respectively, a Federal District Court judge sentenced
petitioner to serve 2 years in prison, to pay a fine of $250,000
(criminal fine), and to pay restitution to the Internal Revenue
Service of $161,845.
After petitioner's criminal conviction and sentencing,
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respondent determined and we sustained income tax deficiencies
and civil fraud additions to tax relating to petitioners' tax
years 1985, 1986, 1987, and 1988. See Schachter v. Commissioner,
T.C. Memo. 1998-260.
In their respective Rule 155 computations, without
application of the claimed credit for the $250,000 criminal fine,
the parties agree that petitioners are liable for the following
deficiencies and additions to tax:
Additions to Tax
Sec. Sec. Sec. Sec. Sec. Sec. Sec.
6653 6653 6653 6653 6653 6653 6653 Sec.
Year Deficiency (a)(1) (a)(1)(A) (a)(1)(B) (b)(1) (b)(1)(A) (b)(1)(B) (b)(2) 6661
1985 $163,048 -- -- -- $81,524 -- -- ** $40,762
1986 163,948 -- $179 * -- $120,280 ** -- 40,987
1987 109,791 -- 662 * -- 72,408 ** -- 27,448
1988 21,488 $39 -- -- 12,262 -- -- -- 5,372
* 50 percent of interest due on portion of
underpayment attributable to negligence.
** 50 percent of interest due on portion of
underpayment attributable to fraud.
Throughout litigation of this case, petitioners have
maintained that imposition of the civil fraud additions to tax on
top of petitioner’s 2-year prison sentence and the $250,000
criminal fine would constitute double jeopardy and would violate
the U.S. Constitution. The Supreme Court, however, has held that
Congress may impose both criminal and civil sanctions with regard
to the same acts without violating the double jeopardy clause of
the U.S. Constitution. See Helvering v. Mitchell, 303 U.S. 391,
399 (1938); see also Hudson v. United States, 522 U.S. 93 (1996);
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Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963); Spies v. United
States, 317 U.S. 492 (1943); Grimes v. Commissioner, 82 F.3d 286(9th Cir. 1996), affg. Ward v. Commissioner, T.C. Memo. 1995-286.
In Spies v. United States, supra at 495 (citing Helvering v.
Mitchell, supra), in explaining that Congress may impose both
criminal and civil sanctions in enforcing the tax laws, the
Supreme Court stated that “invocation of one does not exclude
resort to the other.” See also United States v. Sabourin, 157
F.2d 820, 821 (2d Cir. 1946); and Schwener v. Commissioner, T.C.
Memo. 1987-594, for the same proposition.
In light of Helvering v. Mitchell, supra, and the subsequent
cases, in Schachter v. Commissioner, supra, we rejected
petitioners' double jeopardy argument, and we sustained
respondent’s determination of the civil fraud additions to tax.
In the current computational dispute, petitioners do not
again dispute -- under the double jeopardy clause of the U.S.
Constitution -- imposition of both criminal and civil sanctions
with regard to the same acts. Rather, petitioners argue that the
$250,000 criminal fine that was imposed on petitioner should be
allowed as a credit against the civil fraud additions to tax for
1985, 1986, 1987, and 1988 that were determined by respondent
against petitioner and that were sustained in our prior opinion.
Helvering v. Mitchell, supra, and its progeny do not
directly address whether taxpayers have a right to credit against
civil fraud additions to tax the amount of related criminal
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fines.
Petitioners' argument is premised on the notion that the
$250,000 criminal fine did not constitute punishment, that it
served only remedial purposes, and that it should be treated as
restitution. Petitioners then appear to argue that, because
respondent routinely would reduce outstanding civil income tax
deficiencies by the amount of restitution, petitioners should be
allowed to reduce the civil fraud additions to tax by the
$250,000 criminal fine.
Petitioners also argue that the sentencing factors listed in
18 U.S.C. section 3622, which Federal District Court judges take
into account in imposing fines under 18 U.S.C. section 3623,
support petitioners' contention that the $250,000 criminal fine
imposed on petitioner should be regarded as remedial in nature
and as restitution for petitioners' civil fraud additions to tax.
Respondent disagrees with petitioners' characterization of
the $250,000 criminal fine as remedial in nature. Respondent
argues that Congress enacted 18 U.S.C. section 3623 to provide
Federal District Court judges with alternative means to punish
criminals and to deter future criminal behavior. Because
criminal fines and civil fraud additions to tax serve different
congressional purposes, respondent argues that petitioners should
not be allowed a credit against the civil fraud additions to tax
for petitioner's $250,000 criminal fine. We agree with
respondent.
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The Supreme Court has described civil fraud additions to tax
as established “for the protection of the revenue and to
reimburse the Government for the heavy expense of investigation
and the loss resulting from the taxpayer's fraud.” Helvering v.
Mitchell, 303 U.S. at 401; see also Louis v. Commissioner, 170
F.3d 1232, 1235 (9th Cir. 1999), affg. T.C. Memo. 1996-257;
Thomas v. Commissioner, 62 F.3d 97, 100 (4th Cir. 1995), affg.
T.C. Memo. 1994-128; Ames v. Commissioner, 112 T.C. 304 (1999).
In Ianniello v. Commissioner, 98 T.C. 165, 182 (1992), we
rejected arguments under the Double Jeopardy Clause of the U.S.
Constitution that civil fraud additions to tax should not be
imposed on top of criminal forfeitures under the Racketeer
Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.
sections 1961-1968 (1988). We concluded in that case that
criminal forfeitures under RICO constitute punishment for
commission of crimes while civil fraud additions to tax
constitute remedial penalties. We explained that a --
fine and term of imprisonment imposed on the taxpayer
after conviction for personal income tax evasion is
punishment for the commission of a crime, and not
reimbursement for costs incurred by the United States
in investigating the taxpayer's fraud.
Ianniello v. Commissioner, supra at 183.
Petitioners argue that the decision in Ianniello v.
Commissioner, supra, is distinguishable from the instant case
because Federal District Court judges have more discretion in
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imposing criminal fines than in imposing criminal forfeitures.
The point, however, is not the degree of discretion a judge has
in imposing a criminal fine but whether the purpose of the
criminal fine is punishment.
The legislative history of 18 U.S.C. sections 3622 and 3623
indicates that fines imposed under these provisions were intended
by Congress to constitute punishment for criminal acts. In 1984,
Congress passed the Criminal Fine Enforcement Act of 1984,
Pub. L. 98-596, 98 Stat. 3134, in order to encourage the more
frequent use of fines as an alternative to, or as an addition to,
imprisonment. See H. Rept. 98-906, 1 (1984). Pursuant to
section 6(a) of the Criminal Fine Enforcement Act of 1984, 98
Stat. 3136, sections 3622 and 3623 were added to 18 U.S.C.
chapter 229 (Fines, Penalties and Forfeitures). Under 18 U.S.C.
section 3623, the amount of criminal fines that a judge could
impose on individuals or corporations was increased. See H.
Rept. 98-906, supra at 15-16. The House report accompanying the
Criminal Fine Enforcement Act of 1984 explains that under prior
law fines were regarded as too low to deter criminal conduct, and
hence Congress established higher maximum fine levels. H. Rept.
98-906, supra at 16.
The increased maximum fine levels under 18 U.S.C. section
3623 were tempered somewhat by 18 U.S.C. section 3622, which
required judges, in determining appropriate fines to impose, to
consider factors such as a convicted offender's ability to pay
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and whether restitution was ordered.1 H. Rept. 98-906, supra
at 4, 13-15.
1
18 U.S.C. sec. 3622 provides as follows:
SEC. 3622. Factors relating to imposition of fines
(a) In determining whether to impose a fine and the
amount of a fine, the court shall consider, in addition to
other relevant factors--
(1) the nature and circumstances of the offense;
(2) the history and characteristics of the
defendant;
(3) the defendant's income, earning capacity, and
financial resources;
(4) the burden that the fine will impose upon the
defendant, any person who is financially dependent on
the defendant, or any other person (including a
government) that would be responsible for the
welfare of any person financially dependent on the
defendant, relative to the burden that alternative
punishments would impose;
(5) any pecuniary loss inflicted upon others as a
result of the offense;
(6) whether restitution is ordered and the amount
of such restitution;
(7) the need to deprive the defendant of illegally
obtained gains from the offense;
(8) whether the defendant can pass on to consumers
or other persons the expense of the fine; and
* * * * * * *
(b) If, as a result of a conviction, the defendant has
the obligation to make restitution to a victim of the
offense, the court shall impose a fine or penalty only to
the extent that such fine or penalty will not impair the
ability of the defendant to make restitution.
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Clearly, however, 18 U.S.C. section 3623 was enacted to
encourage judges to impose more fines as punishment, and
18 U.S.C. section 3622 simply provides guidance to judges in
deciding whether to impose a fine as punishment, and if a fine is
to be imposed, the amount of the fine. The factors listed in 18
U.S.C. section 3622 do not convert the purpose of criminal fines
imposed under 18 U.S.C. section 3623 into something other than
punishment.
We note that if we were to allow a credit against civil
fraud additions to tax for criminal fines, Congress' intent in
making taxpayers responsible for a portion of the Government's
cost in detecting, investigating, and prosecuting a taxpayer's
fraud would be substantially frustrated.
Other arguments made by petitioners have been considered and
are without merit. We reject petitioners' claim to a credit
against civil fraud additions to tax for the $250,000 criminal
fine.
To reflect the foregoing,
Decision will be entered in
accordance with respondent's
computations.