Tax advisers who look over tax cases and read opinions need to be careful about the level of reliance they place on statements made by the court in the case that do not directly impact the ultimate decision. Merriam Webster’s online dictionary defines dicta as “a judge's expression of opinion on a point other than the precise issue involved in determining a case.”
In the case of Senyszyn v. Commissioner, 146 TC No 9, the Tax Court ended up ultimately ruling in the opposite manner to a rather clear statement the Court had made in the case of Anderson v. Commissioner, T.C. Memo. 2009-44.
The question before the Court was whether a taxpayer who had plead guilty to tax evasion and, specifically, having omitted income when engaging in the same, could nevertheless be found to have no deficiency for the year in question when IRS took civil action to collect the tax.
In the case before the Court the taxpayer had plead guilty to a criminal charge of tax evasion. As the Court notes:
Contemporaneous with the U.S. attorney’s filing of charges against him, Mr. Senyszyn signed an agreement to plead guilty to all four of the counts with which he was charged. Mr. Senyszyn agreed to stipulate at sentencing: “BOHDAN SENYSZYN knowingly and willfully did not include about $252,726.00 in additional taxable income that he acquired in 2003.” In exchange for Mr. Senyszyn’s agreement to plead guilty, the U.S. attorney dropped charges against Mrs. Senyszyn.
However the Tax Court found that the evidence presented to it showed that while he may have omitted the gross income, he had made offsetting repayments of the funds that would have served to eliminate any tax liability for that year.
Nevertheless he had plead guilty to tax evasion and, as the Court notes, an understatement of tax is one of the conditions required for a person to be guilty of that crime.
In the Anderson case noted above, the Tax Court had mused about whether it was theoretically possible for an individual who had pled guilty to tax evasion to be found to have no tax liability. As the Court in this case notes:
In Anderson v. Commissioner, 2009 WL 454182, at *19, we rejected the taxpayer's argument that determining the existence of a fraud penalty before determining its amount was premature. We denied the possibility that the taxpayer's underpayment, and thus fraud penalty, might ultimately be determined to be zero. In other words, we surmised that, if presented with the issue we face today, we would find some underpayment, “however small”, by reason of collateral estoppel. Id. Obviously, our prior speculation on the question was dictum.
The Court specifically notes before making that admission that it had not actually ever previously ruled on the issue—rather, as noted above, its musings in that case were pure dicta.
Now that the Court was faced with a situation where the evidence before it did not support the finding of any deficiency, it rejected the idea that it was mandated to find some sort of underpayment, noting:
Now confronted with a record that puts squarely before us the question that was merely hypothetical in Anderson, we conclude that the purposes of the doctrine would not be served by upholding a deficiency unsupported by the evidence presented. Upholding a minimum deficiency would not promote judicial economy: Even after Mr. Senyszyn’s conviction under section 7201, we were required to hear this case to determine the amount of petitioners’ deficiency. And any inconsistency between Mr. Senyszyn’s prior criminal conviction and a decision that petitioners are not liable for any deficiency would not undermine “reliance on judicial action”, cf. Montana, 440 U.S. at 154, because the inconsistency would result not from conflicting findings by different courts but instead from Mr. Senyszyn’s entry of a guilty plea to a charge that the evidence -- at least as presented to us -- would not support. Therefore, we decline to apply the doctrine of collateral estoppel to uphold whatever minimum deficiency would be consistent with Mr. Senyszyn’s conviction under section 7201.
Unfortunately, as this case makes clear, advisers reading cases must carefully consider which portions of the opinion are actually involved in coming to the decision in question and which represent, as the court in this this case, musings on a hypothetical situation that was never actually found to exist.