# Appendix — Cassidy v. Commissioner of Internal Revenue, 111 S. Ct. 48 (1990) (No. 89-1734) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1484%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1990 ## Text LED MAY 7 tegp JOSEPH F. SPANIOL, JR, CLERK Petition For Writ of Certiorari The United TABLE OF CONTENTS APPELLANT-—PETITIONER APPENDIX PETITION FOR WRIT OF CERTIORARI Opinion: In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) Filed: January 4, 1990 ceecescceeveeeel Judgment and Opinion: U.S. District Court Central District of Illinois T.V. Cassidy v. CIR, Number 88- 1108 Entered and Filed: December 20, 1988 PTEETEUCEETLELTLTLTY SS 27 Order and Decision: United States Tax Court, T.V. Cassidy v. CIR, Number 18125-80 Entered: April 4, |, errr errr » Opinion: T.V. Cassidy v. CIR, 814 F.2d 477 (7th Cir. 1987) Filed: March 18, 1987 .......84 Order U.S. 7th Court of Appeals Dated: February 5, 1990 Denying Appellant-Petitioner's FRAP 40 and 7th Circuit Rule 40 Petition for Rehearing cwawenedeeeseee es beeebeveseo ter Appellant's Brief, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121].........109 Appendix Table of Contents Page 1 10. 11. 12. Appendix to Appellant's Brief, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121] Dee eeeebeeeeeseecocescoesveosonee tt Supplemental Appendix to Appellant's Brief, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) Ho. B9=1121 J oc oe c00 00198 Order of March 30, 1989, 7th Cir. allowing Supplemental Appendix to Appellant's Brief, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121] ee cccccccccccccccccccccccesealO Appellant's supplemental citations of 9/20/89, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121] [eee eee ho eee eeecesecoececootta Appellant's supplemental citations of 12/08/89, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121] err ee ce Trea TTe Tere Sk Appellee's Brief, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121] Pages 1, 5, 6, 7, 9, 10, 13, oo Se Se? anaes 7” Appendix Table of Contents Page 2 13. 14. 15. Appellee's supplemental citation of 11/27/89, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. 89-1121] citing: In Re Burns, 887 F.2d 1514 (11th Cir. 1989) Opinion filed: November 13, 1989 YTTITITTITIC CV TTT TTT. Appellant's Reply Brief, In Re Cassidy, 892 F.2d 637 (7th Cir.) [No. ent 124 tosecteadeceasuouee Appellant's FRAP 40 and 7th Circuit Rule 40 Petition for Rehearing, In Re Cassidy, 892 F.2d 637 (7th Cir. 1990) [No. OP 11 Fi deo ccccsccccestineseseanll! Appendix Table of Contents Page 3 In the United States Court of Appeals For the Seventh Circuit No. 89-1121 IN THE MATTER OF: THOMAS V. CASSIDY, Debtor- Appellant. Appeal from the United States District Court for the Central District of Illinois, Peoria Division. No. 88 C 1108-Michael M. Mihm, Judge ARGUED OCTOBER 3, 1989 - DECIDED JANUARY 4, 1990 Before Flaum, Manion and Kanne, Circuit Judges. FLAUM, Circuit Judge. The Commissioner of Internal Revenue charged that attorney Thomas V. Cassidy had filed fraudulent tax returns for the years 1974 and 1975. A notice of deficiency was sent in June 1980. Cassidy challenged the deficiencies in the United States Tax Court, but before the case came to trial a bankruptcy petition was filed against Cassidy in the Central District of Illinois. The Tax Court proceedings were automatically stayed. 11 U.S.C. Section 362(a). Cassidy was discharged from all dischargeable debts on March 13, 1984. 11 U.S.C. Section 727. The bankruptcy court issued an order on April 13 lifting the stay to allow the Tax Court proceeding to go forward. 11 U.S.C. Section 362(d). Cassidy was uncooperative in the Tax Court proceeding. He refused to respond to discovery requests, failed to meet deadlines, and generally delayed the proceedings. When the Commissioner sent a Request to Admit under Tax Court Rule 90 (equivalent of Fed. R. Civ P. 36), Cassidy did not respond within thirty days as required by the Rule. The matters asserted in the Request were therefore deemed admitted. Among the facts admitted by Cassidy's silence was the following: "Petitioner [Cassidy] fraudulently and with intent to evade taxes omitted from his income tax returns for the taxable years ended August 31, 1974 and August 31, 1975, a substantial portion of his gross income." Cassidy v. Commissioner, 51 T.C.M. (CCH) 784 791 (1986). Although Cassidy did not respond to the Request to Admit, he did file a motion for dismissal or summary sehr judgment based on his bankruptcy discharge. The Tax Court denied Cassidy's motion, stating: We summarily denied petitioner's motion because petitioner's contention is on its face inconsistent with the explanatory memorandum attached to petitioner's Discharge of Debtor order and the April 13, 1984 order issued by the same bankruptcy judge lifting the automatic stay to permit this case to go forward in the Tax Court. Moreover, the redetermination of an income tax deficiency has "nothing to do with collection of the tax nor any similarity to an action for collection of a debt * * *." Swanson v. Commissioner, 65 T.C. 1180, 1184 (1976). Accordingly, if there is any question as to the collectability of any income tax deficiencies, which we doubt, that question is beyond the jurisdiction of this Court. Graham v. Commissioner, 75 T.C. 389, 399 (1980). Cassidy v. Commissioner, 51 T.C.M. (CCH) at 786 n.3. At trial in the Tax Court, Cassidy tried to avoid the consequences of his failure to respond to the Request to Admit by claiming that he had not received the Request until less than 30 days before the case was called for trial and that the facts should therefore not be deemed admitted. The Tax Court held an evidentiary hearing on that claim, and found that Cassidy "fabricated [his] testimony in an effort to avoid the consequences of [his] continued deliberate disregard for his responsibilities in connection with the case." 51 T.C.M. at 789. The facts involved were deemed admitted under Rule 90(c). On the strength of those facts considered admitted, the Tax Court held that there was a deficiency as stated by the Commissioner, and that the tax returns were fraudulent, occasioning "additions to tax" under 26 U.S.C. Section 6653(b) as a penalty. Cassidy appealed to this Court. He challenged the Tax Court's ruling concerning the Request to Admit and also argued that the entire debt was discharged in bankruptcy. In Cassidy v. Commissioner, 814 F.2d 477 (7th Cir. 1987) (Cassidy I), we affirmed the judgment of the Tax Court and ruled as follows (1) the tax debt was not dischargeable in bankruptcy; (2) the fraud penalties connected with the taxes were not dischargeable; (3) the finding that Cassidy had over 30 days to answer the Request to Admit was not clearly erroneous; and (4) the facts deemed admitted supported the penalty for fraud. Cassidy then returned to the bankruptcy court with a Complaint to Determine Dischargeability under Bankruptcy Rule 4007. In response to the Commissioner's argument that the Seventh Circuit had already dealt with the question, Cassidy contended that the Tax Court had no jurisdiction to consider dischargeability, and therefore the Seventh Circuit's comments were pure dicta with no preclusive effect. The bankruptcy judge granted the Commissioner's motion to dismiss on the res judicata effect of Cassidy I, stating that he would not second-guess the Court of Appeals. On appeal to the district court, Cassidy advanced the same arguments. He was partially successful; instead of holding that Cassidy was barred by this court's view of dischargeability under res judicata, the district court held that Cassidy was barred under collateral estoppel by the Tax Court's factual finding of fraud, which dictated a finding of nondischargeability under 11 U.S.C. Section 523(a)(1)(C). In this Court, Cassidy raises the same contentions. He also argues that aie Licey! an 11 “| Ys rs pie: > ave ie SUT ea arene wees is Tay ’ Devt Rte ee, Jap © ope Mee el aghed eo — er ° th ‘ame s ‘ a ape aon this Court erred in holding that the penalty portion of the debt was nondischargeable in Cassidy I. DISCUSSION The district court took what appears to be the most reasonable approach to the resolution of this case: the court can rely on the factual finding of the Tax Court that Cassidy acted fraudulently when he filed his returns, which collaterally estops any contrary contentions. That finding supports the conclusion that the debt was not dischargeable under 11 U.S.C. Section 523(a)(1)(C). This makes sense except for one matter not addressed by the parties or the district court: Tax Court Rule 90(f) states that [a]ny admission made by a party under this Rule is for the purpose of the pending action only and is not an admission by him for any other purpose, nor may it be used against him in any other proceeding. According to the rule, the admissions from the Tax Court proceeding cannot be used in the bankruptcy proceeding. It follows that the judgment of the Tax Court on that factual issue, which is based solely on the admissions, cannot be a bar in this later proceeding.| If this action is barred by the earlier litigation, it must be on the strength of this Court's opinion in Cassidy I. But for a ruling to have a preclusive effect, it must be necessary to the decision. See Rheinberger v. Security Life Ins. Co. of America, 146 F.2d 680 (7th Cir. 1944); Koshatka v. Philadelphia Newspapers, Inc., 762 F.2d 10 329, 337 (3d Cir. 1985); Anthan v. Professional Air Traffic Controllers Org., 672 F.2d 706, 710 (8th Cir. 1982). United States v. Crawley, 837 F.2d 291 (7th Cir. 1988), defines dicta as that portion of an opinion not entitled to the full weight usually given judicial decisions, including any portion not necessary to the outcome of the case. The portion of Cassidy I which concerned the dischargeability of the debt was, unfortunately, dicta. The Court of Appeals exists to review judgments, and consideration of issues outside the scope of the judgment below must necessarily be dicta, as they cannot possibly be grounds either for approval or disapproval of the lower court's judgment. The Tax Court had no jurisdiction to consider whether 11 Cassidy's tax debt was dischargeable in bankruptcy. Graham v. CIR, 75 T.C. 389. (1980). Bankruptcy cannot therefore have been grounds for either affirmance or reversal of the Tax Court's order and the Cassidy I court's discussion of it cannot have been necessary to its decision. It follows, then, that collateral estoppel and res judicata are technically inapplicable to this case. Nevertheless, we hold that Cassidy is barred from relitigating the dischargeability of his tax debts. When he appeared before this Court in Cassidy I, he successfully argued that this court should address the dischargeability question. Now that he is unhappy with the final result, he has shifted his ground and argues that 12 the Cassidy I court should have ignored his plea to consider dischargeability. Judicial estoppel is a doctrine intended to prevent the perversion of the judicial process. Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 599 (6th Cir. 1982). It is to be applied where "intentional self-contradiction is being used as a means of obtaining unfair advantage in a forum designed for suitors seeking justice," Scarano v. Central R. Co., 203 F.2d 510, 513 (3d Cir. 1953), to prevent litigants from "playing fast and loose with the courts." Id. "Where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position." Davis v. 13 Wakelee, 156 U.S. 680, 689, (1895). The doctrine of estoppel is intended to protect the courts rather than the litigants,2 so it follows that a court, even an appellate court, may raise the estoppel on its own motion in an appropriate case. Allen v. Zurich Ins. Co., 667 F.2d 1162, 1168 n.5 (4th Cir. 1982). "The circumstances under which judicial estoppel may appropriately be invoked are probably not reducible o any formulation of principle," Allen 667 F.2d at 1166, but may be used where collateral estoppel and equitable estoppel fail to protect the interests the rule is intended to serve. Id. Although this court has never applied the doctrine, we have identified certain limitations on its application. 14 In Himel v. Continental Ill. Nat'l Bank, 596 F.2d 205, 210-11 (7th Cir. 1979), we held that the estoppel may be applied only where a clearly inconsistent position is taken. In that case we held that the plaintiff's position in a 1961 lawsuit asking that a trust instrument be modified to allow the trustee more flexibility in investing the trust corpus was not clearly inconsistent with its position in a 1972 lawsuit charging the trustee with mismanagement of the trust. Another limitation was identified in Eagle Foundation v. Dole, 813 F.2d 798, 810 (7th Cir. 1987), where we required that the party to be estopped have convinced the court to accept its position in the earlier litigation. A 15 party is not bound to a position it unsuccessfully maintained. In the present case, both of these conditions are satisfied. Cassidy unequivocally urged the Cassidy I court to consider the defense of discharge. His present position is that it was error for the court to give him what he then wanted. Even though Cassidy did not prevail on the anneal as a whole, he did prevail on the subsidiary question of what issues were to be decided by the court. See Edwards v. Aetna Life Ins; Co., 690 F.2d 595, 599 n.5 (5th Cir. 1982) (party need not finally prevail to be estopped from changing a successful position on a preliminary matter). Cassidy's maneuverings were clearly intended to delay the inevitable day of reckoning, 16 a and in maneuvering he is trying to whipsaw this court. That is exactly the evil that the doctrine of judicial estoppel was meant to avoid. It has been said that judicial estoppel applies only to positions on questions of fact. See e.g. United States . Siegel, 472 F. Supp. 440, 442 n.-4 (N.D. Ill. 1979); Comment, Precluding Inconsistent Statements: The Doctrine of Judicial Estoppel, 80 NW. U.L. Rev. 1244, 1262 (1986). We disagree. We note first that it may be advisable not to prescribe too many rules for the application of a doctrine designed to protect the integrity of the courts. See Allen, 667 F.2d at 1166 (doctrine probably not reducible to a formula). This is true for the same reasons that the courts are 17 cautious in attempting to exactly define fraud--the fear that unscrupulous persons may use strictures on use of the doctrine to subvert the purposes of the rule. We also observe a trend away from strict limitation of the doctrine to positions on matters of fact. In Pariot Cinemas, Inc. v. General Cinema Corp., 834 F.2d 208, 214 (1st Cir. 1987), the court noticed and continued a practice of holding parties to their representations that they would not pursue a legal claim. The court said, "On reflection, representations such as were made here, that a party will abandon a clain, present a stronger argument than do the classic cases for application of the doctrine." (emphasis on original). Similarly, in this case we think that 18 the change of position on the legal question is every bit as harmful to the administration of justice as a change on an issue of fact. See also United States v. Starrett City Associates, 605 F. Supp. 262, 264 (E.D.N.Y. 1985) (doctrine applies to assertions of law or fact). We emphasize that it is not the court that is bound by Cassidy's actions, but only Cassidy himself. Estoppel does not eliminate a claim or defense, but only prohibits a particular party from asserting it. Estoppel is an equitable concept, and its application is therefore within the court's sound discretion. See Motorola, Inc. v. CBS, Inc., 672 F. Supp. 1033 (N.D. Ill. 1986). It should not be used where it would work an injustice, such as where 19 the former position was the product of inadvertence or mistake, Hamilton v. Zimmerman, 37 Tenn. (5 Sneed) 39, 48 (1857); Johnson Serv. Co. v. TransAmerica Ins. Co., 485 F.2d 164, 175 (5th Cir. 1973) ("the rule looks toward cold manipulation and not an unthinking or confused blunder"); or where there is only an appearance of inconsistency between the two positions but both may be reconciled. Illinois Dept. of Trans. v. Coe, 112 Ill. App. 3d 506, 445 N.E.2d 506 (1983). In this case, we would work an injustice were we to fail to estop Cassidy. Cassidy has been delaying matters in the courts over his 1974 and 1975 tax liability since 1980. He has consistently acted to delay the proceedings and to obstruct the final resolution of his 20 liability. He has found it expedient to change a position which he successfully maintained in this court, but this court is under no obligation, either legal or moral, to allow itself to be used in this manner. The parties in Cassidy I fully briefed and argued the issue of dischargeability, and the court gave it full consideration. It would be unjust to require the Commissioner to relitigate a question that was originally raised by Cassidy himself, or to allow Cassidy a second full-scale adjudication of an issue that the court has already resolved against hin. AFFIRMED. A true Copy: Teste: Clerk of the United States Court of Appeals for the Seventh Circuit 21 Footnotes to Previous Document IThe case law on the question of whether a judgment based on an admission, as opposed to the admission itself, can be used in a later proceeding is relatively sparse. On consideration of the question, we hold that a judgment based solely on admissions made under Tax Court Rule 90 (or Fed. R. Civ. P. 36) cannot be used to estop relitigation of a factual question in a later proceeding. None of the cases under Tax Court Rule 90(f) or Fed. R. Civ. P. 36(b) consider this issue directly. One could analogize deemed admissions to a default judgment on an issue of fact, but default judgments do not have collateral estoppel effect. Matter of Gottheiner, 703 F.2d 1136, 1140 (9th Cir. 1983); 1B Moore's Federal Practice, Paragraph 0.444[2]; but see Matter of Wilson, 72 B.R. 956 (Bkr. M.D. Fla. 1987) (Default judgment in creditor's securities fraud suit collaterally estopped debtor from denying fraud in action to exempt debt from bankruptcy discharge). One could consider a Rule 90 admission a special type of stipulation, but judgments based on stipulated facts have no collateral estoppel effect as to the matters stipulated, especially stipulations in tax cases. United States v. International Building Co., 345 U.S. 502, 506 (1953), Moore's Federal Practice Paragraph 0.444[4]. 22 1 eontinued One might also analogize to a consent judgment on the factual issue. In Klingman v. Levinson, 831 F.2d 1292 (7th Cir. 1987), a consent judgment in a state court suit admitting fraud estopped the debtor from contesting the factual underpinnings of a later bankruptcy action to exempt the debt from discharge. The consent decree from the state case specifically recited that "in any subsequent proceeding all of the allegations of the Complaint and findings of this Court may be taken as true and correct without further proof." This court held that the “actually litigated" requirement for collateral estoppel would not bar use of the consent decree where the parties obvicusly contemplated such use. In the present case, it is arguable that Cassidy had to know that a decision on dischargeability would be made sooner or later. He also knew that the matters deemed admitted in the Tax Court were exactly what the bankruptcy court would have to find to hold the debt nondischargeable. But Tax Court Rule 90(f) by its terms precludes a determination that Cassidy should have expected the admission to be usable in any other forum. Absent such an expectation, the "actually litigated" requirement for application of the doctrine of collateral estoppel cannot be satisfied. In view of the policy behind the rule authorizing admissions, which is to encourage admissions so as to narrow the scope of the issues for trial and simplify proof on the remaining issues, Advisory Committee Notes to 1970 Amendment of Fed. R. Civ. P. 36, we believe that it would be harmful to give preclusive effect to a judgment based solely on an admission. 2 For this reason prejudice to the opponent from the change of position is not a necessary element of judicial estoppel, thus contrasting judicial estoppel from the more familiar equitable estoppel. Konstantinidis v. Chen, F.2d 933 (D.C. Cir. 1980). 24 United States District Court Center District of Illinois THOMAS V. CASSIDY, Debtor, Plaintiff-Appellant, V. COMMISSIONER OF INTERNAL REVENUE, Defendant-Appellee. JUDGMENT IN A CIVIL CASE CASE NUMBER: 88-1108 ___ dury Verdict. This action came before the Court for a trial by jury. The issues have been tried and the jury has rendered its verdict. _X Decision by Court. This action came to trial or hearing before the Court. The issues have been tried or heard and a decision has been rendered. IT IS ORDERED AND ADJUDGED that the ruling of the Bankruptcy Court appéaled 25 from is hereby Affirmed, pursuant to Order entered this date. December 20, 1988 John M. Waters DATE Clerk (By) Deputy Clerk Leonard D. Brown 26 a a———e UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF ILLINOIS In re ) THOMAS V. CASSIDY, ) Plaintiff-Appellant, Case No. 88-1108 v. ) COMMISSIONER OF ) INTERNAL REVENUE, ) Defendant-Appellee. ) ORDER The issue for resolution on this bankruptcy appeal is whether or not a judgment in prior tax court assessment proceedings requires the application of the doctrine of res judicata in bankruptcy discharge proceedings. The bankruptcy court found that the answer to that question is "yes," and applied the ruling of the tax court is finding . that Appellant's tax liabilities and 27 penalties were non-dischargeable. Appellant now appeals that ruling pursuant to Rule 8001(a) of the Bankruptcy Rules. While this Court does not believe that res judicata is the relevant preclusion doctrine in this case, this Court finds that collateral estoppel is relevant. In applying the latter doctrine to the facts of this case, this Court believes that the decision of the bankruptcy court must be AFFIRMED. FACTS On June 24, 1980, Defendant-Appellee, Commissioner of Internal Revenue (hereinafter referred to as "Appellee"), sent Plaintiff-Appellant, Thomas V. Cassidy (hereinafter referred to as "Appellant"), a notice of deficiency in federal income taxes for 28 ee ~ the fiscal years ending August 31, 1974 and August 31, 1975. The tax deficiencies were in the amounts of $12,865 and $22,028, respectively. The Commissioner also claimed that all or part of the underpayment was due to fraud and, pursuant to Section 6653(b) of the Internal Revenue Code, assessed civil fraud penalties of $11,774 for 1974 and $11,014 for 1975. Appellant then filed a petition with the United States Tax Court for a redetermination of his income tax liability. Before the tax court proceedings came to trial, a petition for bankruptcy under Chapter 7, 11 U.S.C. Section 701 et seq., was filed against Appellant on February 14, 1983. A Discharge of Debtor order was entered by the United States Bankruptcy Court for the Central 29 District of Illinois on March 13, 1984. One month after discharge, the bankruptey court entered an order lifting the automatic stay previously in effect so that the tax court proceedings could continue. In the tax court proceedings, Appellant mailed Appellee a Request for Admissions of Fact on June 12, 1984. Appellant did not respond within the requisite time period, so Appellee moved for summary judgment based upon the matters deemed to be admitted. The tax court found that the deemed admissions of fact in Appellee's request to admit supported the deficiencies determined by the Appellee, and granted the Motion for Summary Judgment. 30 Appellant appealed the tax court's ruling to the United States Court of Appeals for the Seventh Circuit. Appellant contested the tax court's finding of an income tax deficiency and its imposition of fraud penalties. The Court of Appeals affirmed the tax court decision. Cassidy v. Commissioner of Internal Revenue, 814 F.2d 477 (7th Cir. 1987). Appellant filed a Complaint to Determine Dischargeability of Debt in the United States Bankruptcy Court for the Central District of Illinois on November 17, 1987. Appellee, invoking the doctrine of res judicata, filed a Motion to Dismiss the Complaint on the basis that the issue of dischargeability had already been determined in the tax court proceedings 31 and subsequent review by the Seventh Circuit Court of Appeals. On February 2, 1988, the bankruptcy court entered an order allowing the Motion to — Dismiss. This appeal followed. Res Judicata In his appeal, Appellant argues that the order of the tax court has no preclusive effect in the bankruptcy court discharge proceeding. Appellant notes that, in order for the doctrine of res judicata to apply, there must be: 1. Identity of the thing being sued upon; 2. Identity of the cause of action; 3. Identity of persons and parties; and 4. Identity of the ability of a party to sue or be sued. 32 In re Goodman, 25 Bankr. 932, 938 (Bankr. N.D. Ill. 1982). According to Appellant, tere is no identity of the cause of action in the bankruptcy proceedings and the tax court proceedings. Appellant claims that the tax court merely assessed the deficiencies, or established the liability, against Appellant, while the bankruptcy proceeding was an action to determine whether the deficiencies or liability assessed was dischargeable. Appellant also claims that, because it was Congress' intent to have the bankruptcy court adjudicate the dischargeability of a debt, res judicata has no application to a proceeding such as this, notwithstanding the nature of the tax court proceeding. In support of this 33 argument, Appellant cites the case of In re Goodman, 25 Bankr. 932 (Bankr. N.D. Ill. 1982). Goodman, in turn relied upon the United States Supreme Court case of Brown v. Felson, 442 U.S. 127 (1979). The Goodman court noted that, in Brown, the Supreme Court held that res judicata did not apply {in discharge proceedings] and that "the bankruptcy court is not confined to a review of the judgment and record in the prior state court proceeding when considering the dischargeability of respondent's debt." Id. at 139-39, 99 S.Ct. at 2212-13. The court reasoned that Congress intended for the bankruptcy court to resolve dischargeability issues and that by limiting the application of res judicata , the 34 “ 4 3 4a i ieee bankruptcy court would be able to weigh all the evidence and accurately determine whether the debtor did in fact commit deceit, fraud, or malicious conversion. Id. at 138, 99 S.Ct. at 2212. Goodman, 25 Bankr. at 938-39. As noted by the Goodman court, while Brown involved Section 17 of the prior Bankruptcy Act, Brown's rationale has been applied to dischargeability proceedings under Section 523 of the Bankruptcy Code. Id., citing, In re Dohm, 19 Bankr. 132 (Bankr. N.D. Ill. 1981); In re Spector, 22 Bankr. 226 (Bankr. N.D. N.Y. 1982); In re Supple, 14 Bankr. 898 (Bankr. D. Conn. 1981). On the authority of Goodman and Brown, Appellant charges that the bankruptcy court's dismissal of his complaint to 35 Vin ae = Le mat % a ee , it a determine dischargeability of a debt by application of the res judicata principle was error. The Court believes that Appellant's arguments miss the mark, and finds that the decision of the bankruptcy court must be affirmed. Even though the bankruptcy court did not base its ruling on the principle of collateral estoppel, affirmance is in order based upon application of collateral estoppel principles to the facts of this case. While Appellant summarily dismisses the application of res judicata principies to bankruptcy dischargeability proceedings on the authority of Brown and Goodman, a closer reading of those cases shows that Brown and Goodman are distinguishable from this case. The 36 ae i ae — , — a ee Brown Court found that questions of deceit, fraud, and malicious conduct are the types of questions that Congress intended that a bankruptcy court would resolve, Brown, 442 U.S. at 138, thus indicating that res judicata suould not be applied here. But the Brown Court's explanation of its ruling indicates that its refusal to apply res judicata in that case does not preclude the application of the doctrine in the case at bar. In Brown, unlike the case at hand, questions of deceit, fraud, and malicious conversion were squarely in issue for the first time in the bankruptcy court. Id. That fact was important in the Brown Court. In addition, the Brown Court emphasized that the party who sought to prevent 37 as Pee ron . Sin el - yerre ie the application of the res judicata doctrine was attempting to meet the new defense of bankruptcy which the debtor had interposed between the Brown petitioner and the sum that was determined to be due to him. Id. at 133. Here, the question of fraud is not being raised for the first time in the bankruptcy court. Rather, the issue of fraud has been conclusively determined by the tax court. Therefore, the need that the Brown Court saw for the bankruptcy court to weigh all of the evidence on the question of fraud is absent. Also, unlike Brown, the issue of bankruptcy was extant at the time that the tax court rendered its Gecision finding Appellant's conduct to be fraudulent. 38 Although Appellant's bankruptcy was "interposed" between the initiation of the tax court proceedings and the final judgment by the tax court, it was not "interposed" in the sense that that word was used by the Brown Court. Here, Appellant claimed in the tax court that his liability had been discharged in bankruptcy, but the tax court rejected that argument. 59 T.C.M. 784, 787 (CCH) (T.C. 1985). The tax court noted, in footnote 3 of its opinion: On November 13, 1984, petitioner filed petitioner's motion to dismiss with prejudice and motion for summary judgment. Petitioner's motion was based on his contention that his tax liability was discharged in bankruptcy. We summarily deny 39 petitioner's motion because | petitioner's contention is on its face inconsistent with the explanatory memorandum attached to petitioner's Discharge of Debtor order in the April 13, 1984, order issued by the same bankruptcy judge lifting the automatic stay to permit this case to go forward in the Tax Court. Moreover, the redetermination of an income tax deficiency has "nothing to do with collection of the tax nor any similarity to an action for collection of a debt. * * *," Swanson v. Commissioner, [Dec. 33,742]. 65 T.C. 1180, 1184 (1976). Accordingly, if there is an question as to the sollectebility of any income tax deficiencies, which we doubt, that question is beyond the 40 jurisdiction of this Court. Graham v. Commissioner, [Dec. 37,460], 75 T.C. 389, 399 (1980). Id. at 786 n.3. It is clear from this passage that the question of dischargeability was, in fact, "raised" in the tax court by Appellant himself. The tax court, however, properly recognized that the question of dischargeability was beyond its jurisdiction, and focused its inquiry on the question of fraud. Evidently, Appellant wasn't satisfied with the tax court's ruling on the dischargeability issue, so he raised it again before the Court of Appeals. The Court of Appeals also rejected Appellant's argument. In doing so, the Court of Appeals stated: 41 The taxpayer correctly recognizes that a discharge granted under Section 727 of the Bankruptcy Code generally "discharges the debtor from all debts that arose before the date of the order for relief." 11 U.S.C. Section 727(b). However Section 523 of the same Code contains numerous exceptions to this general rule. Subsection 523(a)(1)(C) excepts tax payments "with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax." Because the taxpayer's deficiencies here resulted from fraud, subsection 523(a)(1)(C) renders then non- dischargeable. As the legislative history of this section makes clear, the "date of the taxable year with 42 ze 5 ~~ - a 7 a - 7 - —t. 2-37" A ne ee eo ree is | : regard to which the fraud occurred is immaterial." S.Rep. No. 989, 95th Cong., 2d Sess. 78, reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5864. Moreover, subsection 523(a)(7)(A) mandates that fraud penalties are non-dischargeable if the underlying tax with respect to which the penalty was imposed is also non-dischargeable. S.Rep. No. 989, at 79, U.S. Code Cong. & Admin. News 1976, p. 5864. Because the taxpayer's deficiencies are non- dischargeable, his tax penalties are Similarly non-dischargeable. Thus we find the taxpayer's contention that his deficiencies and penalties were discharged to be without merit. 43 Cassidy v. Commissioner of Internal Revenue, 814 F.2d 477, 481 (7th Cir. 1987). Goodman is likewise distinguishable. There, the bankruptcy court found that a California default judgment should not be given preclusive effect in a bankruptcy dischargeability proceeding. Goodman, 25 Bankr. at 939. Because the Goodman judgment was obtained by default, there was never an actual determination by a court of proper jurisdiction that the debtor was guilty of fraud. Here, in contrast, it was Appellant's own failure to respond to Appellee's request for admission of fact which led to the tax court's finding of fraud pursuant to Rule 90(c) of the Tax Court Rules of Practice and Procedure. 44 This Court finds, however, that the bankruptcy court confused the doctrines of res judicata and collateral estoppel. The first two requirements for applicability of res judicata, that is, identity of the thing being sued upon and identity of the cause of action, are absent. Yet, as described below, all of the elements of collateral estoppel are present. Collateral Estoppel The elements of collateral estoppel are: 1. The issue sought to be precluded must be the same issue as that involved in the prior action; 2. There is a final judgment on the nerits; 45 3. The party against whom the doctrine is asserted was a party or in privity with a party to the prior suit; 4. The party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in question in the prior action; and 5. The determination must have been essential to the final judgment. Drum v. Nasuti, 648 F.Supp. 888, 898 (E.D. Pa. 1986). Appellant also contends that none of the elements of collateral estoppel existed in this case, so that that doctrine does not bar its proceeding in the bankruptcy court, either. Specifically, Appellant claims that the issue sought to be precluded in the bankruptcy court dischargeability proceeding were not the same issues as 46 were involved in the tax court proceedings. Appellant argues that, although the tax court already adjudicated the issue of fraud, it did not adjudicate the amount of the deficiencies related to the fraud. It is Appellant's position that, if only a portion of the tax deficiencies, he claims, would be discharged. Appellant also claims that the issue of fraud was never actually litigated in the tax court proceeding. He makes this claim because the issue of fraud was, in essence, determined by default in the tax court, because he did not respond to Appellee's Motion for Summary Judgment in that court. Therefore, the second element of the collateral estoppel test is not satisfied. 47 Appellant next argues that, assuming that the first and second elements of collateral estoppel are satisfied, any issues relating to fraud decided by the tax court is not the type of valid judgment to be recognized by the bankruptcy court in a discharge proceeding. Appellant so claims because, in order to be a valid judgment for purposes of applying res judicata or collateral estoppel, the prior adjudication must be from a court of competent jurisdiction. See, Local 1006 v. Wurf, 558 F.Supp. 230 (N.D. Ill. 1982), aff'd, 746 F.2d 1483 (7th Cir. 1984). Because the tax court did not have subject matter jurisdiction to determine issues of dischargeability, Appellant claims that any such 48 determination by the tax court is invalid. Finally, Appellant claims that the Court of Appeals' discussion relating to discharge was not essential to its decision. Appellant argues that the tax court's determination simply establishes a liability notwithstanding any issues relating to discharge in bankruptcy. Therefore, to the extent that the court of appeals referred to the issue of dischargeability in its opinion, that discussion is merely dictum. Consequently, although the discussion of the Court of Appeals concerning dischargeability commands respect, it is not, Appellant argues, an issue that was essential to the Court of Appeals' decision. Absent that element, Appellant claims that it 49 is not a "prior adjudication" sufficient to invoke the doctrine of collateral estoppel in the bankruptcy court's discharge proceeding. It is interesting that Appellant now claims that the tax court and the Court of Appeals had no jurisdiction to consider the dischargeability question when it was Appellant himself who raised those questions before the respective courts. As stated earlier, the tax court refused to be so baited by Appellant, and did not pass upon the actual dischargeability question. The Court of Appeals, however, specifically found that Appellant's debts were non- dischargeable. In doing so, the Court of Appeals relied upon the tax court's finding that Appellant made a fraudulent return with respect to those 50 taxes. The Appellant Court did not rely upon any "determination" by the tax court that the debt was non- dischargeable, for, as stated above, the tax court made no such finding. Rather, the tax court merely made a ruling which was clearly within its jurisdiction: that Appellant made fraudulent returns and willfully attempted to evade or defeat income taxes. Moreover, in contrast to Appellant's contentions, the tax court entered judgment against Appellant for a specific amount. The final sentence of the tax court order states as follows; Accordingly, respcadent's motion for Summary judgment is granted as to the deficiencies and additions to tax for fraud in the amounts stated. 51 aise al i ee eel es Se ee : >. 51 T.C.M. at 792 (CCH) (emphasis added). Thus, Appellant's argument that the bankruptcy court still must determine which amounts of his tax liability are based upon fraud is without merit. Although Appellant claims that the decision in the prior tax court proceeding was obtained by default and, given the nature of a judgment by default, the issue relating to fraud and dischargeability were "actually litigated,' this Court disagrees. The issue of fraud was raised and Appellee presented arguments on it. Appellant had a full and fair opportunity to respond, but did not do so. The only sense in which the fraud question was not "litigated" in the tax court is in the sense that Appellant failed to 52 present his position on the summary judgment issue to the tax court. Were the Court to permit Appellant to attack the question of fraud in the bankruptcy court, the Court would be allowing a party who has failed to respond as required by the Tax Court rules to ignore the judgment entered against him. This Court does not believe that such was the intent of the courts in Brown or Goodman. Appellant's main problem seems to be his focus upon the question of dischargeability, rather than the question of fraud. There is no question that the tax court determined that Appellant was guilty of fraud, and found that his tax liability and penaltics were in the amounts specified. Given that determination, 53 non-dischargeability automatically follows pursuant to Section 523(a)(2)(A) of the Bankruptcy Code. Here, the real issue sought to be precluded is the question of whether or not Appellant's tax return was fraudulent, and not whether or not his tax debt is dischargeable. Using that focus, it is clear that the question of fraud was the same as that involved in the tax court proceeding, there was a final judgment on the merits, Appellant is the same party as was involved in the tax court suit, Appellant had a full and fair opportunity to litigate the fraud issue (although he did not take advantage of that opportunity), and the determination of fraud was essential to that judgment. Consequently, all of the elements of 54 collateral estoppel are satisfied. Because Appellant is collaterally estopped from relitigating the fraud issue, Section 523(a)(2)(A) of the Bankruptcy Code precludes a redetermination by the bankruptcy court as to whether or not Appellant's return was fraudulent. It follows, then, that because the bankruptcy court is bound by the determination of fraud, the bankruptcy court must, pursuant to Section 523(a)(2)(A), find that those debts are non-dischargeable. For this reason, although this Court believes that the bankruptcy court applied the wrong title to the preclusion doctrine that it was applying, the result reached by the bankruptcy court is AFFIRMED. 55 It is so ordered this 20th day of December, 1988. Michael M. Mihm United States District Judge 56 UNITED STATES TAX COURT WASHINGTON, D.C. 2021 THOMAS V. CASSIDY) Petitioner, ) Vv. ) Docket No. 18125-80 COMMISSIONER OF ) INTERNAL REVENUE, ) Respondent. ) ORDER AND DECISION On August 22, 1984, respondent filed a motion for summary judgment. On November 13, 1984, petitioner filed a motion to enlarge time for response to request for admissions and reply to interrogatories and alternative motion to withdraw or modify deemed admissions. Pursuant to the determination of this Court, as set 57 ys Crete —_* rll wy forth in its Opinion filed and served April 3, 1986, it is ORDERED that respondent's motion for Summary judgment is granted. It is further ORDERED that petitioner's above- referenced motion to enlarge time for response to request for admissions and reply to interrogatories and alternative motion to withdraw or modify deemed admissions is denied. It is further ORDERED and DECIDED that there are deficiencies in income taxes due from petitioner for the taxable years ended August 31, 1974, and August 31, 1975, in the amounts of $12,865 and $22,028 respectively; and That there are additions to tax due from petitioner for the taxable years 58 ended August 31, 1974, and August 31, 1975, under the provisions of I.R.C. Sec. 6653(b) in the amounts of $11,774 and $11,014, respectively. Arthur L. Nims, III Judge Entered: Apr 4, 1986 59 In the United States Court of Appeals For the Seventh Court No. 86-2302 THOMAS V. CASSIDY, Petitioner-Appellant, Vv. COMMISSIONER OF INTERNAL REVENUE, Respondent—Appellee. Appeal from the United States Tax Court. No. 18125-80-Arthur L. Nims, III, Judge. Before Cudahy, and Ripple, Circuit Judges, and Will, Senior District Judge. Ripple, Circuit Judge. In this case, appellant-taxpayer Thomas V. Cassidy appeals from the order and decision of the United States Tax Court granting . 60 summary judgment for the Commissioner with respect to income tax deficiencies and fraud penalties. For the reasons set forth in this opinion, we affirn the judgment of the tax court. I Facts On June 24, 1980, the Commissioner of Internal Revenue sent the appellant a notice of deficiency in federal income taxes for the fiscal years ending August 31, 1974 and August 31, 1975. These deficiencies were in the amounts of $12,865 and $22,028 respectively. They resulted from an adjustment by the Commissioner of the taxpayer's income tax returns by including within his taxable income previously unreported legal fees and by disallowing various deductions. The Commissioner also 61 ' { ' found that all or part of the underpayment of tax was due to fraud. Therefore, pursuant to section 6653(b) of the Internal Revenue Code, the Commissioner assessed against the taxpayer civil fraud penalties of $11,774 for 1974 and $11,014 for 1975. R.2 at 5-6. On September 25, 1980, the taxpayer filed a petition with the United States Tax Court for redetermination of his income tax liability. A trial date was set for March 22, 1982. Upon call of the case for trial, his counsel moved for permission to withdraw and for a continuance. While granting these motions, the court admonished that there would be no additional continuances. In preparation for trial, the Commissioner, on April 27, 62 a a 1982, sent the taxpayer an informal discovery request asking that he stipulate to all undisputed material facts in accordance with Tax Court Rule of Practice and Procedure 91(a) and submit documents in support of his position. The taxpayer failed to provide any of the requested information. Consequently, the Commissioner initiated formal discovery proceedings against the taxpayer and, on December 7, 1982, served the taxpayer with a request for the production of documents together with interrogatories. The Commissioner's subpoena duces tecum was similarly ignored. On November 14, 1983, the court issued a notice setting the case for trial on January 30, 1984. On January 63 - SITS bm GAIT met , - : : yy —— ’ Firs: 7 a : nel 7 omni ae wee oe ee — 3, 1984, the taxpayer notified the tax court that he was the subject of an involuntary petition for bankruptcy under chapter 7. 11 U.S.C. Sections 71 et seq. This involuntary petition had been filed on February 14, 1983-- almost, a year before the taxpayer notified the tax court of its pendency. Because of the pendency of the bankruptcy action, the tax court automatically stayed its proceedings. On March 13, 1984, the taxpayer received a discharge from the bankruptcy court releasing him from all dischargeable debts. One month later, on the petition of the government, the bankruptcy court lifted its automatic stay "in order to permit the Tax Court proceeding between the parties now pending to proceed forward." R.17, Ex. 64 A. The tax court then set the case for trial at the first regularly scheduled Chicago, Illinois trail session during the 1984 fall term. In preparation for that litigation, the Commissioner, on June 12, 1984, mailed to the taxpayer a request for admissions together with other discovery documents. On June 15, 1984, a copy of this request was filed with the court. The taxpayer did not respond; therefore, on August 22, 1984, the Commissioner moved for summary judgment based upon the matters deemed to be admitted. On September 27, 1984, five days before the commencement of trial, the taxpayer's attorney filed an entry of appearance and a motion for a general continuance of the trial. After a hearing, the tax court denied the 65 continuance and held that the matters set forth in the request for admissions were deemed to be admitted. On September 27, 1984, five days before the commencement of trial, the taxpayer's attorney filed an entry of appearance and a motion for a general continuance of the trial. After a hearing, the tax court denied the continuance and held that the matters set forth in the request for admissions were deemed admitted. The tax court afforded the taxpayer thirty days to provide a written response to the Commissioner's motion for summary judgment. On November 13, 1984, forty- five days later, the taxpayer filed a reply. He claimed that he had not received the request for admissions until September 4, 1984 and further 66 argued that collection for the deficiencies was barred by the statute of limitations. The taxpayer also filed a motion to dismiss and a motion for summary judgment in which he asserted that the deficiencies at issue had been discharged in the bankruptcy proceeding. The taxpayer appended to his motions an affidavit of Susan J. Fasse, a paralegal administrator, averring that the taxpayer had not received the request for admissions until September 4, 1984. The tax court set the matter for a hearing on February 26, 1985. At the hearing, the taxpayer testified on his own behalf and also presented the testimony of Ms. Fasse. Several exhibits also were admitted. One of the exhibits was a small envelope 67 postmarked "Springfield, Illinois, August 31, 1984." Petitioner's Ex. 4. The taxpayer alleged that he received the request for admissions in this envelope. The Commissioner attempted to show that the request for admissions could not have been sent in this small envelope. The Commissioner presented the testimony of an employee of the Internal Revenue Service who testified that the request for admissions was mailed in a large envelope that had also contained two other documents, a second request for production of documents and interrogatories. It was standard practice, the employee testified for these multi-paged documents to be sent to taxpayers in large envelopes. The IRS employee also testified that the only mail the 68 taxpayer had been sent on August 31, 1984 was a one-page letter in a small envelope. II The Tax Court's Decision The tax court found that the Commissioner had properly mailed and served the request of admissions to the taxpayer on June 12, 1984. The court explained that its decision was based on its observation of the witnesses’ demeanor and the consistency of their testimony as well as on the physical evidence that had been submitted. The court noted that the request for admissions could not have fit within the small envelope as maintained by the taxpayer. The court concluded that "(t]he more plausible explanation is that petitioner and Fasse fabricated 69 their testimony in an effort to avoid the consequences of petitioner's continued deliberate disregard for his responsibilities in connection with this case." Cassidy v. Commissioner, No. 18125-80, slip op. at 18 (T.C. Apr. 3, 1986); R.49 at 18. Accordingly, the tax court denied the taxpayer's motion for extension of time to answer the request for admissions and granted the Commissioner's motion for summary judgment. As noted by the court, Rule 90 of the Tax Court Rules of Practice and Procedure requires a party to respond to requests for admissions within thirty days after service. Ifa party fails to reply within thirty days, the matters contained in the request are deemed conclusively established.’ 70 The court found that the deemed admissions fully supported the deficiencies that had been determined by the Commissioner. Additionally, the tax court found that the admitted facts were sufficient to meet the Commissioner's burden of proof with respect to the fraud penalties. In the tax court's view, the admissions were replete with the requisite indicia of fraud. The matters deemed admitted were: 1) that the taxpayer had purposely circumvented procedures devised by his accountants so that he might omit, reporting income, 2) that he claimed non-existent deductions, and 3) that he claimed business deductions for expenses that were expenditures for his personal benefit. 71 III Analysis A. Dischargeability of the Deficiencies and Penalties The taxpayer first argues that his tax liabilities and fraud penalties were discharged in the chapter 7 bankruptcy proceeding. He submits that the deficiencies and fraud penalties were incurred more than three years prior to his filing for bankruptcy and therefore were discharged pursuant to 11 U.S.C. Section 523(a)(7)(B). This subsection allows tax penalties "imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition" to be discharged. 11 U.S.C. Section 523(a)(7)(B). 72 The taxpayer correctly recognizes that a discharge granted under section 727 of the Bankruptcy Code generally "discharges the debtor from all debts that arose before the date of the order for relief." 11 U.S.C. Section 727(b). However, section 523 of the same code contains numerous exceptions to this general rule. Subsection 523(a)(1)(C) — tax payments "with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax." Because the taxpayer's deficiencies here resulted from fraud, subsection 523(a)(1)(C) renders them nondischargeable. As the legislative histeiy of this section makes clear, the "date of the taxable year with regard to which the fraud occurred is - 73 immaterial." S. Rep. No. 989, 95th Cong., 2d Sess. 78, reprinted in 1978 U.S. Code Cong. & Admin. News 5787,5864. Moreover, subsection 523(a)(7)(A)2 mandates that fraud penalties are nondischargeable if the underlying tax with respect to which the penalty was imposed is also nondischargeable. S.Rep. No. 989 at 79. Because the taxpayer's deficiencies are nondischargeable, his tax penalties are similarly nondischargeable. Thus, we find the taxpayer's contention that his deficiencies and penalties were discharged to be without merit. B. Review of the Tax Court's Factual Findings The taxpayer,also asserts that the tax court erred in finding that he had 74 i va received the Commissioner's request for admissions on June 12, 1984. We may, however, only overturn the tax court's finding if it is clearly erroneous. As stated by the Supreme Court, "[a] finding is "clearly erroneous" when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948) see also Wainwright Bank & Trust Co. v.Railroadmen's Fed. Sav. & Loan Ass'n, 806 F.2d 146, 150 n.6 (7th Cir. 1986); Fed. R. Civ. P. 52(a). The record in this case amply supports the tax court's finding. As 75 the court noted, the Commissioner's office records showed that fifty pages of documents were sent to the taxpayer - in a 9 1/2 by 12 1/4 inch envelope on June 12, 1984. At the hearing, the taxpayer introduced a 4 1/4 by 9 1/2 inch envelope that was far too small to have contained the documents that the taxpayer claimed to have received on September 4. Moreover, the envelope submitted by ths taxpayer did not appear to have been stuffed with documents. Further, the set of documents presented by the taxpayer contained only eighteen pages. It was missing two exhibits that were thirty- two pages in length. The court noted that there were several sets of holes in the documents. Ms. Fasse explained the presence of the holes by saying 76 that she had removed staples from the documents in order to photocopy then. The court, however, concluded that one of the holes was made by a large staple of the type that weuld have been used to secure fifty pages. Under these circumstances, we do not find the tax court's conclusion that the taxpayer received the Commissioner's request for admissions on June 12 to be clearly erroneous. In fact, we can hardly fault the court for concluding that "the more plausible explanation" for the discrepancies in the taxpayer's testimony "is that the [taxpayer] and Fasse fabricated their testimony in an effort to avoid the consequences of [the taxpayer's] continued deliberate disregard for his responsibilities in connection with his case..." 77 Cassidy v. Commissioner, No. 18125-80, slip op. at 18 (T.C. Apr. 3, 1986); R.49 at 18. Furthermore, because the taxpayer's conduct demonstrated a deliberate attempt to delay the presentation of his case, the tax court hardly acted beyond the bounds of its discretion in refusing to permit the taxpayer to withdraw his admissions. C. Using the Deemed Admissions to Establish Fraudulent Intent The taxpayer argues that the admitted facts were insufficient to establish that the deficiencies for the years involved resulted from fraud. However, as the tax court indicated, the admissions of the taxpayer contained numerous indicia of fraud. He admitted, for example, that the amounts claimed as deductions were not expended 78 for the purposes designated on his returns. He also admitted that he used funds claimed as business deductions for his personal benefit and that he withdrew funds from his professional accounts, although he knew that, under his bookkeeping system, the amounts would not be included in his income, He was also aware that he was receiving funds for his legal services but not reporting the full amount on his returns. R.22, app. at 1-2. These facts deemed admitted clearly establish that a substantial part of the underpayment of the tax was in fact due to fraud.3 The judgment of the United — Tax Court was in conformity with the applicable sections of the Internal Revenue Code and the Bankruptcy Code. 79 The facts were determined by a fair procedure and amply support the judgment of the court. Accordingly, the judgment of the United States Tax Court is affirmed. AFFIRMED A true Copy: Teste: Clerk of the United States Court of Appeals for the Seventh Circuit 80 UNITED STATES TAX COURT WASHINGTON, D.C. 2021 THOMAS V. CASSIDY) Petitioner, ) Vv. ) Docket No. 18125-80 COMMISSIONER OF ) INTERNAL REVENUE, ) Respondent. ) ORDER AND DECISION On August 22, 1984, respondent filed a motion for summary judgment. On November 13, 1984, petitioner filed a motion to enlarge time for response to request for admissions and reply to interrogatories and alternative motion to withdraw or modify deemed admissions. Pursuant to the determination of this Court, as set 81 forth in its Opinion filed and served April 3, 1986, it is ORDERED that respondent's motion for Summary judgment is granted. It is further ORDERED that petitioner's above- referenced motion to enlarge time for response to request for admissions and reply to interrogatories and alternative motion to withdraw or modify deemed admissions is denied. It is further ORDERED and DECIDED that there are deficiencies in income taxes due from petitioner for the taxable years ended August 31, 1974, and August 31, 1975, in the amounts of $12,865 and $22,028 respectively; and That there are additions to tax due from petitioner for the taxable years 82 aa nr . pe seg a aya ee ial bo ae? * 7 a ie = > . ee ee eS ee tne Ee, WHICH ANY DIVIDEND CAN BE PAID TO CREDITORS. IT IS UNNECESSARY FOR ANY CREDITOR TO FILE HIS CLAIM AT THIS TIME IN ORDER TO SHARE IN ANY DISTRIBUTION FROM THE ESTATE. IF IT SUBSEQUENTLY APPEARS THAT THERE ARE ASSETS FROM WHICH A DIVIDEND MAY BE PAID, CREDITORS WILL BE SO NOTIFIED AND GIVEN AN OPPORTUNITY TO FILE THEIR CLAIMS. UNLESS THE COURT EXTENDS THE TIME, ANY OBJECTION TO DEBTOR'S CLAIM OF EXEMPT PROPERTY (SCHEDULE B4) MUST BE FILED WITHIN 30 DAYS AFTER THE CONCLUSION OF THE MEETING OF CREDITORS. ALL PERSONS ARE ENJOINED FROM CONTACTING DEBTOR(S) WITHOUT FIRST OBTAINING LEAVE OF COURT OR THE CONSENT OF HIS ATTORNEY. DATED: DECEMBER 22, 1983 BY THE COURT 192 MAX J. LIPKIN BANKRUPTCY JUDGE INQUIRIES to the Court or to the Trustee as to status or administration of a case and REQUESTS for copies or information from schedules MUST BE BY MAIL AND ACCOMPANIED BY A STAMPED SELF- ADDRESSED ENVELOPE. ADVANCED PAYMENT by check or money order (NO PERSONAL CHECKS) made payable to CLERK, U.S. BANKRUPTCY COURT must be received. Copies are $.50 each page, certification of a document is $2.00 each document, a search of the file is $2.00 each name or each item searched. PLEASE DIRECT YOUR MAIL TO: CLERK, U.S. BANKRUPTCY COURT ROOM 333 FEDERAL BUILDING 100 N.E. MONROE ST. PEORIA IL 61602 193 (309) 671-7035 A TRUE COPY ATTEST: LILLIAN KENNEDY, Clerk U.S. Bankruptcy Court Central District of IL Date: September 28, 1984 By: Patricia A. Keith, Deputy Clerk 194 UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF ILLINOIS In re ) THOMAS V. CASSIDY, ) Bankruptcy No. ) 183-00222 Debtor. ) DISTRIBUTION ORDER TO WILLIAM H. CHRISTISON, TRUSTEE: This matter coming on for hearing upon the Trustee's final report filed herein on December 12, 1985, pursuant to notice of final meeting of creditors, fixing said hearing on the 24th day of January, 1986; and This Court having heard the application of the Attorney for the Trustee and having heard evidence and arguments of re and It appearing unto the Court that you have previously disbursed the sum of 195 $215.00 and that you now have on hand the sum of $4,535.00; IT IS HEREBY ORDERED that all costs of administration shall be paid in full; and IT IS FURTHER ORDERED that priority tax claimant, Internal Revenue Service, shall receive a .033108 dividend with the balance of said funds. PAYMENT AS FOLLOWS COSTS OF ADMINISTRATION CLERK, U.S. BANKRUPTCY COURT Trustee's copies..... .«..+$3.00 Trustee's certification...$2.00 TUCesu 2 Guise ccweek een ry a ee $5.00 WILLIAM H. CHRISTISON Attorney at Law 700 First Nat'l Bank Bldg. Peoria, Il 61602 Trustee's £00 cccccsossesss $ 322.50 Attorney for Trustee fee...$1,425.00 CLAIM NO. PRIORITY TAX CLAIMANT 7 INTERNAL REVENUE SERVICE P.O. Box 1856 Springfield, IL 62705 $84,043.12 filed and 196 allowed ......$2,782.50 After making the above payments you will have disbursed the full sum of $4,750.00 realized by you from the assets of said bankrupt estate. Upon receipt of all cancelled checks and statements from the above account, this estate will be closed and you will be discharged as Trustee. ENTERED at Peoria, Illinois, this 29th day of January, 1986. WILLIAM V. ALTENBERGER U.S. Bankruptcy Judge 197 IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT COMMISSIONER OF INTERNAL REVENUE, No. 89-1121 IN RE ; THOMAS V. CASSIDY, ) Appeal ) from the Debtor. ) United ) States ) District THOMAS V., CASSIDY, ) Court, ) Central Plaintiff-Appeliant, ) District y of vs. Illinois ) ) ) ) Defendant-Appellee. SUPPLEMENT TO APPELLANT'S BRIEF: SUPPLEMENT TO APPELLANT'S APPENDIX TO ERIEF: CORRECTIONS and ADDITIONS 198 Attorney for Plaintiff-Appellant: Timothy J. Cassidy, Esq. CASSIDY & MUELLER 1510 Savings Center Tower Peoria, Illinois 61602 309/676-0591 199 IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT COMMISSIONER OF INTERNAL REVENUE, No. 89-1121 IN RE THOMAS V, CASSIDY, ) Appeal ) from the Debtor. ) United ) States ) District THOMAS V. CASSIDY, ) Court, ) Central Plaintiff-Appellant, ) District ) of VS. ) Illinois ) ) ) ) ) Defendant-Appellee. SUPPLEMENT TO APPELLANT'S BRIEF: SUPPLEMENT TO APPELLANT'S APPENDIX TO BRIEF; CORRECTIONS and ADDITIONS THOMAS V. CASSIDY, Plaintirf- Appellant, pro se per CERTIFICATE OF INTEREST, and with his attorney TIMOTHY 200 J. CASSIDY, does hereby supplement Appellant's Brief and Appellant's Appendix To Brief heretofore timely and duly filed with the clerk of this Court by the following designated corrections and additions thereto, which at the time made and omitted were inadvertent: CORRECTIONS: 1. Paragraph II. under "Argument" appearing on "TABLE OF CONTENTS" page of Appellant's Brief: now reads: Il. THE PENALTIES RELATED TO THE ASSESSED TAX DEFICIENCY ARE NONDISCHARGEABLE AS A MATTER OF LAW. should read: Il. THE PENALTIES RELATED TO THE ASSESSED TAX DEFICIENCIES ARE DISCHARGEABLE AS A MATTER OF LAW. So supplemented by correction. 201 ADDITIONS: 1. At the conclusion of the list of TABLE OF CASES appearing on the INDEX IO CITATIONS page of Appellant's Brief and at the end of the case authorities cited at the conclusion top of page y 2. T ea le 3 mak Vs Lipkin United States Bankruptcy Judge FURTHER AFFIANT SAYETH NOT. THOMAS V. CASSIDY Affiant. 209 Subscribed and sword to before me this 27th day of February, 1989. SEAL NOTARY PUBLIC 210 MEMORANDUM Along with this Memorandum you have been mailed your discharge. It is my responsibility to advise you as to the effect of your discharge. 1. A "DISCHARGE" means you are released from most, but not all, of the debts which you owed at the time of filing your Petition in this Court. However, as I have indicated, there are certain debts from which you are not released. 2. You are ONLY released from income taxes for those taxable years ending more than 3 years before the date you filed your Petition in this Court. 3. You are NOT released from property taxes on real estate which you still own. You ARE released from such taxes on real estate you no ionger own, 211 7 paar oon Oi ———— —e= +d a A ces Fh ee a if the taxes were assessed before you filed your Petition and said taxes were payable, without penalty, one year or more before the date of filing your Petition. 4. You are NOT released from any debt to any governmental or nonprofit institution of higher learning, for an educational loan, if the repayment became due within 5 years of the filing of your Petition. 5+ You are NOT released from liability of (1) debts not listed, or (2) amounts due for alimony or child support, or (3) from fines and penalties. 6. You ARE released from debts with respect to claims based on alleged false financial statements and willful and malicious injury caused to another ra as person, or his property, unless a complaint with respect to such claim was filed in this Court, within the time allowed. If the case is decided against you, you are NOT discharged for that debt. 7. You ARE also relieved from liability for debts with respect to claims base don fraud, embezzlement, or larceny, unless a complaint with respect to such claim was filed in this Court, within the time allowed. If the case is decided against you, you are NOT aischarged from that debt. This does NOT relieve you of any criminal liability in connection with these matters. 8. If you have entered into a security agreement with respect to, or given a mortgage on any property, 213 either personal or real, you are released from the debt, but your property is not released from the lien, and the creditor is entitled to the return of the property. 9. Your discharge does not release a co-debtor or co-signer of liability for the debt. 10. If property has been retained by you because it is exempt, it may not be exempt with respect to debts incurred after your discharge. Ae to such debts, the Exemption Laws of Illinois, at the time, or any other state where you may reside, at the time, will apply. 11. If you are sued on any debt discharged in your case you must appear and defend yourself, otherwise a Judgment will be entered against you. 214 See your lawyer, or see a lawyer, make sure that the judge in that case is advised that the debt has been discharged. If you neglect taking this action and a judgment is entered against you, it will be very expensive to have the judgment set aside. 12. If a creditor or collection agency attempts to collect a debt which has been discharged be sure to remind them of the Bankruptcy. DO NOT make any payments to them. It is advisable to notify them in writing, keeping a copy of the letter. 13. Keep this Memorandum where you can refer to it from time to time as the need arises. U.S. BANKRUPTCY JUDGE United States Court of Appeals For the Seventh Circuit Chicago, Illinois 60604 March 30, 1989. Before Hon. WILLIAM. J. BAUER, Chief Judge IN THE MATTER OF: THOMAS V. CASSIDY, Appeal from Debtor-Appellant the United States District NO. 89-1121 vs. Court for the Central COMMISSIONER OF I.R.S. District of Appellee-Plaintiff Illinois, Peoria Division No. 88 C 1108 Judge Michael M. Mihm This matter comes before the court for its consideration of the "MOTION TO FILE SUPPLEMENT TO APPELLANT'S BRIEF AND SUPPLEMENT TO APPELLANT'S APPENDIX TO BRIEF" filed herein on March 13, 1989. On consideration thereof, IT IS ORDERED that the unopposed motion is GRANTED. The clerk of this court is directed to return appellant's brief in order for the corrections noted in this motion to be made. The corrected briefs must be returned to the clerk of this court by April 10, 1989. Thomas V. Cassidy 2648 Sharondale Circle N.E. Atlanta, GA 30305 89-1121 217 EE Thomas V. Cassidy Attorney At Law Illinois licensed United States Federal Courts 2648 Sharondale Circle, N.E. Atlanta, Georgia 30305 (404) 237-0494 September 20, 1989 Clerk Thomas F. Strubbe United States Court of Appeals Clerk of the Court Room 2722, Dirksen Federal Bldg. 219 South Dearborn Street Chicago, Illinois 60604 RE: Appellant's Supplemental Citations. THOMAS V. CASSIDY Debtor - Appellant No. 89-1121 Dear Mr. Strubbe: 218 Pursuant to Federal Rule of Appellate Procedure 28(j) and Seventh Circuit Court of Appeals Rule 28(i) I herewith enclose for filing and the attention of the Court original and ten [10] copies of Appellant's Citation of Supplemental Authorities with attached exhibits, together with Certificate of Service of same upon all attorneys of record herein. Thank you. SUPPLEMENTAL CITATIONS OF APPELLANT AUTHORITY CITED "an Roberts v. Internal Revenue Service, 94 B.R.707. Bky. No. 88-01681-C, Adv. No. 88-0188-C, U.S. Dist. Ct., Northern District of Oklahoma [Opinion filed: June 26, 1989], 887 F.2d-1541 (1989). PRESCRIPT OF CASE HOLDING AND REASON AND PROPOSITION THE AUTHORITY SUPPORTS 219 Pursuant to 11 U.S.C. 523(a)(7)(B), as read with 11 U.S.C., sec. 507(a)(7)(A) (i), penalties on taxes in the Roberts case and this instant case all of which were over three (3) years old at the time the petition for relief was filed are dischargeable and discharged. REFERENCE TO THE PAGE OF APPELLANT'S BRIEF AND/OR APPELLANTS REPLY BRIEF TO WHICH THE CITATION PERTAINS 1. Appellant's Brief pages(s): 19 and 20. 2. Appellant's Reply Brief page(s): 5, 6, 7 and 8. 3. Appellant's Appendix to Brief page(s): 16. FOOTNOTE: As of the date of Appellant's Supplemental citations this case has not been reported in the official federal reports nor assigned a citation. The opinion is therefore attached in its entirety as EXHIBIT A". AUTHORITY CITED "pn Blanchard v. Bergeron, 109 S.Ct. 939 (Decided Feb. 21, 1989); (Justice Scalia's concurring opinion pages 946 and 947.) PRESCRIPT OF CASE HOLDING AND REASON AND PROPOSITION THE AUTHORITY SUPPORTS Adversary arguments of "legislative intent" and "legislative history" to Support a proposition of law advanced by a proponent will no longer be countenanced -or "participate in (the judicial) process" by the United States Supreme Court or the various Federal Circuit Court of Appeals Courts. nN | NO —__> j 4 (Concurring opinion of Justice Scalia. Blanchard v. Bergeron, supra.) REFERENCE TO THE PAGE OF APPELLANT'S BRIEF AND/OR APPELLANT'S REPLY BRIEF TO WHICH THE CITATION PERTAINS 1. Appellant's Brief page(s): 19 and 20. 3 Appellant's Reply Brief page(s): 7 and 8. rwermeset The opinion in its entirety is here attached as Exhibit "B", AUTHORITY CITED "cn" I.R.M. (Commissioner of Internal Revenue Manual) 57(13) 3.7; The Treatment of Federal Tax Claims in Bankruptcy, James I. Shepard, J.D., LL.M.: "Seminar Materials For Northwestern Workshop For United States Bankruptcy Judges", San Francisco, California - - February 22, 1989. 222 PRESCRIPT OF CITATION HOLDING AND REASON AND PROPOSITION THE AUTHORITY SUPPORTS "The bankruptcy court has jurisdiction to adjudicate the merits of any claim made in a proceeding conducted under the jurisdiction of the court, and the court has concurrent jurisdiction with the Tax Court, covering any liabilities which were pending before the Tax Court at the commencement of the proceeding in which the federal taxes are Claimed, and an adjudication by the bankruptcy court relative to federal taxes is binding on the United States, and the bankruptcy court's determination on the merits of the tax liability as to the amount of the taxes disallowed by the bankruptcy court must be abated." 223 REFERENCE TO THE PAGE OF APPELLANT'S BRIEF AND/OR APPELLANT'S REPLY BRIEF TO WHICH THE CITATION PERTAINS 1. Appellant's Brief paze(s): 20; 21, 23, 24 and 25. 2. Appellant's Reply Brief pages(s): 1 and 2. 3. Supplement to Appellant's Appendix To Brief: 5(a), 5(b), 5(ec) and 5(d). 4. Appellant's Appendix To Brief: 5, 45 and 46. FOOTNOTE: The "Internal Revenue Manual" (I.R.M.) igs prepared by the Commissioner of Internal Revenue with the aid and assistance of legal counsel and is distributed to the Service as an official guide and source. AUTHORITY CITED "pn Empire Fire and Marine Insurance Co. v. J. Transport, Inc., Case No. 88- 224 8434, U.S. Eleventh Circuit Court of Appeals. (Opinion filed: August 21, 1989.) mw PRESCRIPT OF CASE HOLDING AND REASON AND PROPOSITION THE AUTHORITY SUPPORTS Res judicata, collateral estoppel or "issue preclusion" only bars claims actually litigated and the issue of fraud in the instant case was not actually litigated. REFERENCE TO THE PAGE OF APPELLANT'S BRIEF AND/OR APPELLANTS REPLY BRIEF TO WHICH THE CITATION PERTAINS 1. Appellant's Brief page(s): 7, 9, 11, 13, 14, end 76, é. Appellant's Reply Brief page(s): 2, 3, 4 and 5. FOOTNOTE: As of the date of Appellant's supplemental citations this case has not been reported int he official federal reports nor assigned a citation. The opinion is therefore attached in its entirety as EXHIBIT gal all AUTHORITY CITED "gz" RESTATEMENT (SECOND) OF JUDGMENTS, sec. 27 (1982). PRESCRIPT OF CITATION AND REASON AND PROPOSITION THE AUTHORITY SUPPORTS When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a Subsequent action between the parties, whether on the same or a different claim. REFERENCE TO THE PAGE OF APPELLANT'S BRIEF AND/OR APPELLANT'S REPLY BRIEF TO WHICH THE CITATION PERTAINS 1. Appellant's Brief page(s): 7, 9, 1145436" Sh eee Ts; FOOTNOTE: The Restatement (Second) of Judgment was adopted by the American Law Institute (ALI) in 1980. It is the product of ten years effort by Reporters Benjamine Kaplan (till 1973), David L. Shapiro (till 1974), and Geoffrey C. Hazard, Jr. (since 1973), and their advisors. It supercedes the original Restatement of Judgements promulgated by the ALI in 1942 with Austin W. Scott and Warren A. Seavey as Reporters, assisted by Erwin N. Griswold. Wechsler, FORWARD TO RESTATEMENT (SECOND) OF JUDGMENTS at vii (1982). A collection of articles analyzing the new Restatement can be found in Symposium on the Restatement (Second) of Judgments, 66 CORNELL L. REV. 401 (1981). The factual issue of fraud was not litigated in the instate case and it was essential to the final judgment of the Tax Court. Respectfully submitted: | THOMAS V. CASSIDY, Appellant-Debtor, pro se and co-counsel. ae) NO QO CERTIFICATE OF SERVICE THOMAS V. CASSIDY, an attorney at law, hereby certifies that he has caused true and correct requisite copies of the foregoing together with attached exhibits to be served upon all attorneys of record herein at their published business addressed vis United States Postal Mail Service, postage prepaid in a properly addressed envelope from Atlanta, Georgia this 20th day of September, 1989. THOMAS V. CASSIDY, so certifies. Service Copies to: Mr. Timothy J. Cassidy Attorney at Law Cassidy & Mueller, Attys. 1510 Savings Center Tower %~O fae) ie) Peoria, Illinois 61602 vary D. Gray, Howard M. Soloman Post Office Box 502 Washington, D.C. 20044 N ios Thomas V. Cassidy Attorney At Law Illineis licensed United States Federal Courts 2648 Sharondale Circle, N.E. Atlanta, Georgia 30305 (404) 237-0494 December, 08 1989 Clerk Thomas F. Strubbe United States Court of Appeals Clerk of the Court Room 2722, Dirksen Federal Bldg. £19 South Dearborn Street Chicago, Illinois 60604 RE: Appellant's Supplemental Citations. THOMAS V. CASSIDY Debtor - Appellant’ No. 89-1121 Dear Mr. Strubbe: Pursuant to Federal Rule of Appellate Procedure 28(j) and Seventh Circuit Court of Appeals Rule 28(i) Appellant herewith makes by this letter to you -- original and ten (10) copies -- his second Supplemental Citation for filing and the attention of the Court together 231 with Certificate of Service of same upon all attorneys of record herein, the following cited authority for Appellant, with reference to R Appellant's Brief, Reply Brief and Appendix to Brief pages, as well as Appellant's Supplemental Citations Title dated September 20, 1989 where the case authority is relevant and Supportive, to wit: Burns v. United States [for the IRS], 887 F.2d 1541 (11th Circuit Court of Appeals, November 13, 1989).* REFERENCE TO THE PAGES OF APPELLANT'S BRIEF, APPELLANTS REPLY BRIEF, APPELLANT'S APPENDIX TO BRIEF AND APPELLANT'S SUPPLEMENTAL CITATIONS! TITLE TO WHICH THE CITATION PERTAINS 1. Appellant's Brief page(s): 19 and NO LW re) 2. Appellant's Reply Brief page(s): 5, 6, 7 and 8. 3. Appellant's Appendix to Brief 4. Appellant's Supplemental Citations, Title "A", 5. Appellant's Supplemental Citations, Title "B", Respectfully submitted: and co-counsel. NO \a) LW CERTIFICATE OF SERVICE THOMAS V. CASSIDY, an attorney at law, hereby certifies that he has caused true and correct requisite copies of the foregoing to be served upon all attorneys of record herein at their published business addressed via United States Postal Mail Service, postage prepaid in a properly addressed envelope from Atlanta, Georgia this 8th day of December, 1989. THOMAS V., CASSIDY, So certifies. Service Copies to: Mr. Timothy J. Cassidy Attorney at law Cassidy & Mueller, Attys. 1510 Savings Center Tower Peoria, Illinois 61602 Mssrs. Gary R. Allen, Gary D. Gray, Howard M. Soloman Attorneys -- Tax Division Department of Justice Post Office Box 502 Washington, BiG. 2O0LE No. 89-1121 IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT No. 89-1121 IN RE: THOMAS V. CASSIDY Debtor THOMAS V. CASSIDY, - Plaintiff-Appellant Vv. COMMISSIONER OF INTERNAL REVENUE, Defendant-Appelices ON APPEAL FROM THE JUDGMENT OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF ILLINOIS BRIEF FOR THE APPELLEE JAMES I. K. KNAPP Acting Assistant Attorney General 236 Gary R. Allen (202) 633-3361 Gary D. Gray (202) 633-3557 Howard M. Solomon (202) 633-4484 Attorneys Tax Division Department of Justice Post Office Box 502 Washington, D.C. 20044 Of Counsel: J. William Roberts United States Attorney 237 IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT No. 89-1121 IN RE: THOMAS V. CASSIDY, Debtor THOMAS V. CASSIDY, Plaintiff-Appellant Vv. COMMISSIONER OF INTERNAL REVENUE, Defendant-Appellee ON APPEAL FROM THE JUDGMENT OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF ILLINOIS BRIEF FOR THE APPELLEE STATEMENT OF THE ISSUE Whether the District Court correctly affirmed the Bankruptcy Court's finding that the debtor was precluded from bringing this action in bankruptcy court to determine whether his tax 238 liabilities and additions to tax for fraud were dischargeable since this Court had previously ruled that the liabilities were nondischargeable in Cassidy v. Commissioner, 814 F.2d 477 (7th Cir. 1987). 239 - « «tax liabilities had been discharged in bankruptcy. (Ibid) 4/ Following a hearing, the Tax Court granted the Commissioner's motion for summary judgment. (Cassidy I at 480.) The court found that the deemed admissions fully supported the deficiencies determined by the Commissioner, and that the admitted facts were sufficient to meet the Commissioner's burden in proving that the additions to tax for fraud should be imposed. (Ibid.) The court summarily denied the debtor's motion for summary judgment based on the contention that his tex liabilities were discharged in bankruptcy. (A. 12 at n.3.) According to the court, the debtor's contention was "on its face inconsistent with the explanatory 240 jm _ A sae = . eo es os on a Bort | meas j ‘yt ards lane Af sea on ey ae Ln aa a a x a, memorandum attached to [the debtor's ] Discharge of Debtor order and the April 13, 1984 order issued by the same bankruptcy judge lifting the automatic stay to permit this case to go forward in the Tax Court." (Ibid.) The court went on to note that, in any event, "the redetermination of an income tax deficiency has 'nothing to do with collection of the tax nor any similarity to an action for collection of a debt * * *'," (Ibid. (citations omitted).) The debtor appealed the Tax Court's decision, and this Court affirmed. In so doing, this Court first rejected the debtor's argument on appeal that the tax liabilities and additions to tax for fraud had been discharged in the bankruptcy proceeding. (Cassidy I at 241 480-481.) Specifically, this Court noted that "[b]because the taxpayer's deficiencies here resulted from fraud, subsection 523(a)(1)(C) [of the Bankruptcy Code (11 U.S.C.)] renders them nondischargeable." (A. 22; Cassidy I at 480.) 5/ This Court went on to find that, since the underlying taxes were nondischargeable, the additions to tax for fraud were also nondischargeable. (A. 23; Cassidy I at 481, citing Bankruptcy Code Section 523(a)(7)(A). 6/) This Court therefore concluded that the debtor's argument that the deficiencies and additions to tax were discharged was "without merit." (Ibid.) Nonetheless, about eight months after this Court decided that the debtor's tax liability and additions to tax were 242 nondischargeable, the debtor filed with the bankruptcy court a complaint to determine the dischargeability of his liability for the taxes and additions to tax. (A. 2.) The Government filed a motion to dismiss the debtor's complaint on the ground that it was barred by the doctrine of res judicata since this Court had found that the taxes were nondischargeable. (A. 7-8.) The Bankruptcy Court granted the Government's motion on February 2, 1988 (A. 25), and on February 16, 1988, the debtor appealed to the District Court. (See A. 42: Docket entries.) After the parties filed briefs in the District Court, the court entered its order affirming the Bankruptcy Court's dismissal order. 7/ (A. 28-41.) This appeal followed. 243 SUMMARY OF ARGUMENT The debtor filed this proceeding in the United States Bankruptcy Court to have that court determine whether taxes and additions to tax owed by him for 1974 and 1975 were dischargeable - « ecollateral estoppel have not been met, it should be pointed out that there is no merit to his argument. Indeed, there should be no question that the issue of fraud (upon which the legal conclusion of nondischargeability is premised) was actually litigated in the Tax Court proceeding and essential to the Tax Covrt's holding. The debtor cannot now complain that it was not more fully litigated because certain findings of fact were entered against him as a result of his failure to comply with discovery rules. 244 There is, moreover, no merit to his unsupported contention that it remains to be determined what part of the deficiency is attributable to fraud. As the discharge provision of the Bankruptcy Code makes clear, if a debtor has made a fraudulent return, any tax (or additions to tax) arising 2 out of that return is nondischargeable. Finally, this court's consideration of fraud issues was ultimately determined by a valid and final judgment. The determination of the issue of fraud in this proceeding would have been identical to that in the earlier proceeding. Since the ultimate conclusion that the liabilities are nondischargeable (a conclusion already reached by this Court) follows as a matter of law from the finding of 245 fraud, the debtor's attempt to obtain a different result in this proceeding was properly dismissed. On appeal, the debtor also seeks to raise issues concerning the merits of his dischargeability claim. Since this cause of action was dismissed on preclusion grounds, those issues are not properly before this Court. In any event, there is no merit to his contentions. In the first place, this Court ruled in the earlier cause of action that the tax liabilities and additions to tax for fraud were nondischargeable in bankruptcy. That ruling is fully supported by the legislative history of Section 523. Next, the debtor's contention that the Government should be estopped from arguing that a determination concerning 246 dischargeability is precluded because it did not file a complaint to determine dischargeability prior to discharge is absurd. Section 523(c) is clear that "taxing authorities" are not required to file such proceedings in order to preserve that claim against the debtor. Moreover, if the debtor wanted the issue addressed specifically, he was free to file such a proceeding himself. The judgment of the District Court is correct and should be affirmed. 247 B. This proceeding was barred by res judicata The debtor sought to bring this adversary proceeding in the United States Bankruptcy Court to have the court determine that taxes and additions to tax owed by him for the taxable years 1974 and 1975 were . dischargeable in bankruptcy. This Court, however, had ruled in a previous suit that those liabilities were nondischargeable. See Cassidy v. Commissioner, 814 F.2d 477 (1987) (Cassidy I). The Bankruptcy Court therefore granted the Government's motion to dismiss the debtor's claim on res judicata grounds, and that dismissal was affirmed by the District Court. On appeal, the debtor primarily contends that the elements necessary 248 for the application of the preclusion doctrines have no been met. As we shall demonstrate, the debtor's contention has no merit. First, in asserting that the claim preclusion doctrine (which the debtor refers to as res judicata) does not apply, the debtor claims that there was no identity of the causes of action in the Tax Court and this action. The debtor correctly points out that in order for claim preclusion to apply, there must be "(1) identity of the thing being sued upon; (2) identity of the cause of action; (3) identity of persons and parties; and (4) identity of capacity of a party to sue or be sued." (Br. 8 citing In re Goodman, 25 B.R. 932, 938 (Bankr. N.D. Ill. 1982).) See also Alexander v. Chicago Park 249 District, 773 F.2d 850, 853-855 (7th Cir. 1985). The debtor claims, however, that the earlier tax court action was not identical to this act since the action in the tax court wa brought to redetermine the Commissioner's determinations of a deficiency in tax and additions to t while this action was... ion SS) ax 250 - e« e at the debtor's insistence that this Court considered and resolved the dischargeability issue. Once it was resolved by this Court (based on a determination of fraud by a court with the authority to determine that whether the debtor made fraudulent returns), that issue cannot be relitigated. D. The debtor's remaining arguments are not properly before this Court, but in any event, are meritless On this appeal, the debtor also seeks to raise issues involving the merits of his dischargeability claim (Br. 18-25). Those issues, of course, are not properly before this Court since the debtor's complaint was dismissed on preclusion grounds. In any event, there is no merit to his contentions. 251 In the first place, this Court has expressly rejected the debtor's claims (Br. 18-20) that the additions to tax for fraud were dischargeable "as a matter of law." 9/ To the extent that the debtor relies on Roberts v. IRS, 94 B.R. 707 (Bankr. N.D. Okla. 1989), pending on appeal (D. Okla. No. 89-C- 00O46-B), that case directly conflicts with this Court's decision. In Roberts, the court found, at the outset, that the taxes themselves were nondischargeable under Section 523(a)(1) of the Bankruptcy Code (11 U.S.C.) since the debtors had failed to file tax returns for the years at issue. The court went on to find, however, that the penalties for fraud were not rendered dischargeable simply because they were computed with 252 = reference to the nondischargeable taxes. According to the court, tax penalties are dischargeable if they. .. 253 - « « penalty is not computed by reference to a tax liability, the transaction or event giving rise to the penalty occurred during the three-year period ending on the date of the petition. Thus, the additions to tax for fraud in this case are nondischargeable since the fraud penalty is imposed by Section 6653(b) of the Internal Revenue Code, which is computed by reference to the underpayment of tax for the taxable year involved. And as this Court has previously decided, the taxes to which the penalties involved here relate are nondischargeable since the debtor's returns were fraudulent. This Court correctly held that it therefore follows that the penalties for fraud 254 are also nondischargeable. The decision in Roberts, relied upon by the debtor here, finds no support in the relevant legislative history, and is plainly wrong. Nor is there any merit to the debtor's "estoppel" claim. He suggests (Br. 20-25) that the Government should be estopped from arguing either that the tax liabilities in issue are nondischargeable or that the Bankruptcy Court is precluded, by prior judicial determination, from considering the dischargeability of those liabilities. He acknowledges (Br. 21) that no statutory provisions "directly mandate" that a taxing authority file a complaint to determine dischargeability of a tax rendered nondischargeable under Section 523(a)(1)(C). But he 255 argues (ibid.) that "the overall purpose of the Bankruptcy Code and public policy related thereto require the Commissioner to raise the fraud issue before the bankruptcy court prior to discharge * * *," This argument is absurd. First, no significance can be attributed to the fact that the Government did not file a complaint to determine dischargeability. Only creditors with claims listed in Section 523(a)(2), (4) and (6) are required to file such proceedings. 11 U.S.C. Sec. 523(c). If they fail to do so, their claims will be discharged. See H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 365 [1978] 5 U.S. Code Cong. & Ad. News 5963, 6321; S. Rep. No. 95-989, supra at 80. The Government's claim for 256 taxes and penalties falls under Section 523(a)(1) and thus outside the provision requiring creditors to raise questions of dischargeability. Where Congress has specifically provided that creditors with certain classes of claims must initiate proceedings in bankruptcy for an exception to discharge, there is no room to infer, as the debtor does, that creditors with other classes of claims must also initiate such proceedings. Indeed, the logical inference is to the contrary. In re Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 658 F.2d 1149, 1158 (7th Cir. 1981) (where Congress classified certain employee benefits aa an administrative wayne wakes railroad restructuring act, absence of Similar statements concerning other 257 benefits meant they were not entitled to same classification). See also Cash Currency Exchange, Inc. v. Shire, 762 F.2d 542, 552 (7th Cir. 1985). Moreover, while the debtor attempts to paint the Government as dilatory in this case, the debtor has only himself to blame if he truly wanted a specific determination regarding the dischargeability of the taxes and penalties in issue here prior to the order of discharge. Bankruptcy Rule 4007(a) provides (emphasis added): "A debtor or any creditor may file a complaint with the [bankruptcy] court to obtain a determination of the dischargeability of any debt." Rather than filing such a proceeding at that time, the debtor raised the question of dischargeability before the Tax Court 258 and, in turn, this Court in Cassidy I. By reopening the bankruptcy case after failing to convince this Court that the liabilities are dischargeable, the debtor seeks to prolong the inevitable. Finally, the debtor apperentily implies (Br. 23-24) that the rulings below frustrate the Bankruptcy Code's purpose of allowing a debtor to "start over and to enhance his chances of financially rehabilitating himself by eliminating old tax debts." The debtor's notion concerning the policies underlying the Bankruptcy Code is far too narrow. As with past bankruptcy laws, the legislative history of the Bankruptcy Code reflects that Congress sought to strike a balance among the competing interests of debtors, private creditors and the Government. See S. 259 Rep. No. 95-989, at 13-14 ([1978] 5 U.S. Code Cong. & Ad. News at 5799- 5800); H.R. Rep. No. 95-595, supra at 274 ([1978] 5 U.S. Code Cong. & Ad. News at 6231). Insofar as the dischargeability issue presented here is concerned, Congress struck the balance in favor of assuring that tax liabilities incurred by reason of fraud survive bankruptcy and remain collectible. The choice among policies was for Congress to make. As the Supreme Court aptly observed in discussing a dischargeability issue under prior law (United States v. Sotelo, 436 U.S. 268, 279-280 (1978)-- 260 Sd Foctnotes to Previous Document 4/ The debtor also filed a response to the Commissioner's motion for summary judgment, asserting that he did not timely receive the Commissioner's request for admissions, and that the assessment and collection of the deficiencies were barred by the statute of limitations. (A. 21 Cassidy I at 479.) This Court reviewed the Tax Court's finding that the debtor had received the request for admissions in a timely manner and held that the finding was not clearly erroneous. (A. 23 Cassidy I at 481.) 5/ Section 523(a)(1)(C) of the Bankruptcy Code (11 U.S.C.) provides as follows: SEC. 523. Exceptions to discharge (a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt~- (1) for a tax or a customs duty-- * * * *% (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax. 6/ Section 523(a)(7) of the Bankruptcy Code (11 U.S.C.) provides as follows: SEC. 523. Exceptions to discharge 261 (a) or - Le ~~ *, 7 q a a ee jm A : : _ tas ard a ae = =) tt ve a) : - a ee! les t a ah . ace . n ; as 7 rr ve f 2 i brief: Next, the DEBTOR'S contention that the Government (COMMISSIONER) should be estopped from arguing that a determination concerning dischargeability is precluded because it did not file a complaint to determine dischargeability prior to discharge is absurd. Section 523(c) is clear that "taxing authorities" are not required to file such proceedings in order to preserve that claim against the DEBTOR. (Aple. Br. 10). » « e and again COMMISSIONER contends: . » » he (DEBTOR) argues that "the overall purpose of the Bankruptcy Code and public policy related thereto require the COMMISSIONER to raise the fraud issue before the 298 7 ' , ry ei Ld 7% , ; a a. . > i - aon Si ee ; i Sa es = ———— — oe = a anon the DEBTOR now has, and, further, after the DEBTOR materially relied upon the COMMISSIONER not objecting to the rightful discharge of his claim and the bankruptcy court's Order discharging the DEBTOR (App. 5a, 5b); the bankruptcy court's permanent injunction (App. 5), and the bankruptcy court's Memorandum Order to Order of Discharge. (App. 5c, 5d). This is violative of DEBTOR'S rights and the COMMISSIONER is and should be judicially estopped and equitably estopped from continuing to assert his position, and continuing his actions which are in violation of the United States Bankruptcy Court's final Order and permanent injunction entered March 13, 1984. 308 CONCLUSION The plaintiff-appellant-DEBTOR prays that this Court find and enter judgment that the subject tax liabilities and assessments are dischargeable and discharged and/or that the COMMISSIONER remain subject to the March 13, 1984, bankruptcy court's permanent injunction Order enjoining any acts to collect the debt. In the alternative, DEBTOR prays that the order and judgment of the bankruptcy court of February 2, 1988 be reversed and the judgment of the United States District Court, Central District of Illinois entered December 20, 1988 be reversed and the case be remanded for an appropriate trial on the merits. Respectfully Submitted, PRO SE and CO-COUNSEL: 309 a - ~Fie THOMAS V. CASSIDY, ESQ. 2648 Sharondale Circle, N.E. Atlanta, Georgia 30305 (404) 237-0494 ATTORNEY FOR APPELLANT- PLAINTIFF-DEBTOR TIMOTHY J. CASSIDY 1510 Savings Center Tower Peoria, IL 61602 309/676-0591 310 . een: aa Cn? j i ie > = a ae ee In the United States Court of Appeals For the Seventh Circuit No. 89-1121 IN THE MATTER OF: THOMAS V. CASSIDY, Debtor- Appellant. Appeal from the United States Distri Court for the Central District of Illinois, Peoria Division. No. 88 C 1108-Michael M. Mihm, Judge F.R.A.P. 40 Circuit Rule 40 Petition for Rehearing and Suggestions for Rehearing in Banc Timothy J. Cassidy Cassidy & Mueller 1510 Savings Center Tower Peoria, Illinois 61602 - Telephone: 309/676-0591 Attorney for Debtor-Appellant, Thomas V. Cassidy ct 311 TABLE OF CONTENTS Table of AR eee a ee Summary Statements for Suggestion that Appeal be Reheard in Banc..eeeeseeees Points Warranting Reconsideration and Rehearing by This Court......... Factual Background...ccccccsccesccces Argument. cccccccccccccccescscsccccces er Il. Iil. IV. A PARTY THAT HAS INVOKED THE JURISDICTION OF A COURT, AND IS UNHAPPY WITH ITS DECISION, MAY CHALLENGE ITS JURISDICTION EVEN AFTER JUDGMENT. ACCEPTING THE COURT'S DECISION THAT CASSIDY HAS TAKEN AN INCONSISTENT POSITION ON AN ISSUE, AND ESTOPPEL APPLIES, HE MUST STILL PREVAIL BASED ON OTHER HOLDINGS IN THE COURT'S OPINION. JUDICIAL ESTOPPEL CANNOT APPLY BECAUSE CASSIDY HAS NOT TAKEN A POSITION INCONSISTENT WITH THE PRIOR CASE. ASSUMING THAT CASSIDY IS PROPERLY JUDICIALLY ESTOPPED FROM RELITIGATING THE FRAUD ISSUE, THIS COURT SHOULD STILL DECIDE THE LEGAL ISSUE OF WHETHER THE CIVIL FRAUD 312 PENALTIES RELATED TO THE ASSESSED TAX DEFICIENCIES ARE DISCHARGEABLE AS A MATTER OF LAW. COG IMOGEE cc bt kc cid wee Se ehek see 313 TABLE OF AUTHORITIES ARGUMENT I. A PARTY THAT HAS INVOKED THE JURISDICTION OF A COURT, AND IS UNHAPPY WITH ITS DECISION, MAY CHALLENGE ITS JURISDICTION EVEN AFTER JUDGMENT. CASES Glasstech, Inc. v. Ab Kyro Oy, 769 F.2d 157, at 1577 (Fed. Cir. 1985) Capron v. Van Noorden, 6 U.S. (2 Cranch) 125, 2 L.Ed. 229 (1804) American Fire & Casualty Co. v. Finn (1951) 3417 U.S. 6 at 18, 71 S.Ct. 534, 95 L.Ed. 702 at 710 zi. ACCEPTING THE COURT'S DECISION THAT CASSIDY HAS TAKEN AN INCONSISTENT POSITION ON AN ISSUE, AND ESTOPPEL APPLIES, HE MUST STILL PREVAIL BASED ON OTHER HOLDINGS IN THE COURT'S OPINION CASES Eagle Foundation, Inc. v. Dole, 813 F.2d 798 at 810 (7th Cir. 1987) In the Matter of Cassidy, Docket No. 89-1121, p.4 (decided January 4, 1990) Til. JUDICIAL ESTOPPEL CANNOT APPLY BECAUSE CASSIDY HAS NOT TAKEN A 314 IV. CASES POSITION INCONSISTENT WITH THE PRIOR CASE. ASSUMING THAT CASSIDY IS PROPERLY JUDICIALLY ESTOPPED FROM RELITIGATING THE FRAUD ISSUE, THIS COURT SHOULD STILL DECIDE THE LEGAL ISSUE OF WHETHER THE CIVIL FRAUD PENALTIES RELATED TO THE ASSESSED TAX DEFICIENCIES ARE DISCHARGEABLE -AS A MATTER OF LAW Roberts v. IRS, 94 B.R. 707 (Bankr. N.D. Okla. 1989) affirmed on appeal (B. Okla. No. 89-C-46-B) In re Burns, 887 F.2d 1541 (1989) 315 SUMMARY STATEMENT FOR SUGGESTION THAT APPEAL BE REHEARD IN BANC The Court's opinion invoking on its own motion the doctrine of judicial estoppel is in conflict with a long line of decisions of the United States Supreme Court (See Capron v. Van Norden, 6 U.S. (2 Cranch) 125, 2 L.Ed. 229 (1804); American Fire & Cas. Co. v. Finn, (1951) 341 U.S. 6, 71 S.Ct. 534, 94 L. Ed. 702), and the Court's opinion conflicts with prior decisions of this Court (Eagle Foundation, Inc. v. Dole, 813 F.2d 798 (7 Cir. 1987)), and it, without comparison to other decisions, conflicts with itself. POINTS WARRANTING RECONSIDERING AND REHEARING BY THIS COURT he 316 A PARTY THAT HAS INVOKED THE JURISDICTION OF A COURT, AND IS UNHAPPY WITH ITS DECISION MAY CHALLENGE ITS JURISDICTION EVEN AFTER JUDGMENT. Il. ACCEPTING THE COURT'S DECISION THAT CASSIDY HAS TAKEN AN INCONSISTENT POSITION ON AN ISSUE, AND ESTOPPEL APPLIES, HE MUST STILL PREVAIL BASED ON OTHER HOLDINGS IN THE COURT'S OPINION. Iil. JUDICIAL ESTOPPEL CANNOT APPLY BECAUSE CASSIDY HAS NOT TAKEN A POSITION INCONSISTENT WITH THE PRIOR CASE. IV. ASSUMING THAT CASSIDY IS PROPERLY JUDICIALLY ESTOPPED FROM RELITIGATING THE FRAUD ISSUE, THIS COURT SHOULD STILL DECIDE THE LEGAL ISSUE OF WHETHER 317 x or THE CIVIL FRAUD PENALTIES RELATED TO THE ASSESSED TAX DEFICIENCIES ARE DISCHARGEABLE AS A MATTER OF LAW FACTUAL BACKGROUND The Commissioner of Internal Revenue ("Commissioner") sent the Plaintiff- Appellant, Thomas V. Cassidy ("Cassidy"), a notice of deficiency for the fiscal years ending August 31, 1974 and August 31, 1975. (App. p. 20). The Commissioner also determined that some portion of the underpayment was due to fraud and civil fraud penalties were assessed. (App. p. 20). Cassidy filed a petition with the United States Tax Court for redgtermination of his income tax liability. (App. p. 11). A petition for bankruptcy under Chapter 7, 11 U.S.C. Section 701 et seq., was filed against Cassidy on 318 February 14, 1983. On March 13, 1984, a discharge of all the dischargeable debts was entered by the bankruptcy court. (App. p. 5). After discharge, on April 13, 1984, the bankruptcy court issued an oder lifting the automatic stay to allow the Tax Court proceeding to go forward. In the Tax Court proceeding the Commissioner sent a Request to Admit under Tax Court Rule 90 (equivalent of Fed. R. Civ. P. 36) and Cassidy did not respond within the 30 days required by the Rule. The matters asserted in the Request were therefore deemed admitted. Among the facts deemed admitted was that "Petitioner [Cassidy] fraudulently and with intent to vade taxes omitted from his income tax returns... a substantial portion of his gross 319 income." The Tax Court found that the deemed admissions of fact in the Request to Admit supported the deficiencies determined by the Commissioner and entered judgment accordingly. (App. p. 18). Prior to the Tax Court entering judgment, Cassidy filed a motion for dismissal or summary judgment based on his bankruptcy discharge. The Tax Court denied the motion, stating: "We summarily denied petitioner's motion because petitioner's contention is on its face inconsistent with the explanatory memorandum attached to petitioner's Discharge of Debtor order and the April 13, 1984 order issued by the same bankruptcy judge lifting the automatic stay to permit this case to 320 lilies eine go forward in the Tax Court. Moreover, the redetermination of an income tax deficiency has 'nothing to do with collection of the tax nor any Similarity to an action for | collection of a debt * * *,' Swanson v. Commissioner, 65 T.C. 1180, 1184 (1976). Accordingly, if there is any question as to the collectibility of any income tax deficiencies, which we doubt, that question is beyond the jurisdiction of this Court. Graham v. Commissioner, 75 T.C. 389, 399 (1980."1 (App. p. 12). Cassidy appealed from the Tax Court to this Court challenging the Tax Court's redetermination of the : deficiencies based on the failure to respond to the Request to Admit, and 321 a ee arguing that the entire debt was discharged in bankruptcy. In Cassidy v. Commissioner, 814 F.2d 477 (7th Cir. 1987) (referred to herein and in this Court's opinion decided January 4, 1990 as Cassidy I), this Court affirmed the judgment of the Tax Court ruling as follows: "(1) The tax debt was not dischargeable in bankruptcy; (2) the fraud penalties connected with the taxes were not dischargeable; (3) the finding that Cassidy had over 30 days to answer the Request to Admit was not clearly erroneous; and (4) the facts deemed admitted supported the penalty for fraud." In the Matter of Cassidy, Docket No. 89-1121, page 3 (decided January 4, 1990). ° 322 After this Court's decision in Cassidy 1, Cassidy filed his Complaint to Determine Dischargeability in the bankruptcy court under Bankruptcy Rule 4007. The Commissioner filed a motion to dismiss based on the res judicata affect of Cassidy 1. The bankruptcy court allowed the motion to dismiss. Cassidy appealed to the district court, which affirmed the bankruptcy court's decision based on the doctrine of collateral estoppel instead of res judicata. This appeal followed. The principle point raised in here on appeal is that the doctrine of collateral estoppel does not apply because the Tax Court had no jurisdiction to consider the dischargeability issue, and thus this Court in Cassidy 1 also had no 323 ——————— jurisdiction to decide the dischargeability issue making any rulings based thereon as dicta. This Court ruled in this appeal favorably on most of the points raised. It ruled that the Tax Court had no jurisdiction to consider the dischargeability issue and that this Court in Cassidy 1 accordingly had no basis to review any such issue thus making its discussion thereof dicta. Specifically, this Court in the present appeal held as follows: "The Court of Appeals exists to review judgments, and consideration of issues outside the scope of any judgment below must necessarily be dicta, as they cannot possibly be grounds either for approval of disapproval of the lower court's 324 judgment. The Tax Court had no jurisdiction to consider whether Cassidy's tax debt was dischargeable in bankruptcy. Graham v. CIR, 75 T.C. 389 (1980). Bankruptcy cannot therefore have been grounds for either affirmance or reversal of the Tax Court's order, and the Cassidy 1 court's discussion of it cannot have been necessary to its decision. It follows, then, that collateral estoppel and res judicata are technically inapplicable to this case." In the Matter of Cassidy, Docket No. 89-1121, p. 6 (decided January 4, 1990). Additionally, this Court noted and recognized that the findings by the Tax Court of fraud were based on Cassidy's 325 failure to timely respond to a Request to Admit served under Tax Court Rule 90. However, this Court holds in this appeal that the finding of fraud in he prior Tax Court proceeding cannot be used as a basis to collaterally estop the litigation of the discharge issue in the bankruptcy court because Tax Court Rule 90(f) provides that admissions made by a party under that Rule is for the purpose of the pending action only. This Court held as follows: "The district court took what appears to be the most reasonable approach to the resolution of this case: the court can rely on the factual findings of the Tax Court that Cassidy acted fraudulently when he filed his returns, which collaterally 326 4 Sr sk e) h} oy ' . st = ee H ee 3 co : 7 a ih oa oP ay: estops any contrary contentions. That finding supports the conclusion that the debt was not dischargeable under 11 U.S.C. Section 523(a)(1)(C). This makes sense except for one matter not addressed by the parties or the district court: Tax Court Rule 90(f) states that: {a]Jny admission made by a party under this Rule is for the purpose of the pending action only and is not an admission by him for any other purpose, nor may it be used against him in any other proceeding. According to the Rule, the admissions from the Tax Court proceeding cannot be used in the bankruptcy proceeding. It follows that the judgment of the Tax Court on that factual issue, 327 which is based solely on the admissions, cannot be a bar in this proceeding. (Footnote omitted)." Notwithstanding in the foregoing, this Court affirmed the decision of the district court and the bankruptcy court dismissing Cassidy's Complaint to determine dischargeability relying on the doctrine of judicial estoppel. The issue of judicial estoppel was not raised by either party, was not argued during oral arguments, nor was it even suggested by this Court during oral arguments that it was an issue. The basis of this Court's use of the doctrine of judicial estoppel can be summarized as follows: "Nevertheless, we hold that Cassidy is barred from relitigating the 328 = - we 1 * , be ed oie eee 4 ver re e We a a = > = Cassidy has taken an inconsistent position by "arguing" and making a "plea" that the Cassidy 1 Court decide the dischargeability issue. Cassidy concedes that the question of dischargeability was briefed by him in asking the Court to review the Tax Court's denial of Cassidy's motion to dismiss or for summary judgment based on the bankruptcy discharge. However, it was never an issue whether this Court should consider the discharge question, nor was any "argument" or "Dlea" made in that regard. In fact, it was the Commissioner in Cassidy 1 that vigorously opposed Cassidy's contention that jurisdiction with respects to the discharge issue did not exist in the Tax Court. The Commissioner argued in its brief in Cassidy 1 that the Tax Court and this Court did have jurisdiction to consider the issue. The Commissioner "argued" and made a "plea" that this Court find the Tax Court to have jurisdiction and that this Court consider the issue of dischargeability. In this regard we attach pages 26 through 28 of the Commissioner's brief in Cassidy 1 (No. 86-2302) wherein it is clear that the Commissioner is urging this Court to recognize the Tax Court as having jurisdiction to determine the dischargeability issue and to have this Court also consider it. This point is raised at this time because the doctrine of judicial estoppel was never an issue in this case, at least to the knowledge of he parties, until this Court's opinion was 344 eee aa ——_ received and read. Cassidy never had the opportunity to brief or argue the factual basis or law concerning judicial estoppel as applied here. This Court in its opinion clearly takes personal issue with Cassidy in accusing him of "whipsawing" and "playing fast and loose" with the Court to accomplish delay. This is simply not the case. After the Tax Court's decision a timely appeal was made to this Court. After the decision in Cassidy 1, Cassidy immediately filed his Complaint to Determine Dischargeability in the bankruptcy court. This was done because it was the first opportunity to make such a filing after it was made clear in the Tax Court decision that it had no subject matter jurisdiction to consider the dischargeability issue. 345 It was conclusively determined at that time that the proper jurisdictional forum was the bankruptcy court, to which there is now no dispute. After the bankruptcy court dismissed the Complaint to Determine Dischargeability based upon principles of res judicata or collateral estoppel this appeal was timely made and all due respect was given to this Court at all times. Any improper activity in the Tax Court that occurred by way of procedure or otherwise resulted in an adverse decision to Cassidy. Now, it is improper and without legal basis to look back to the Tax Court proceedings and to penalize a party and deny him a hearing concerning substantial tax debts and penalties in the court with proper jurisdiction. The doctrine of 346 \ + hie Ged Eanes 2 = ——— = judicial estoppel is based on the proposition of preventing inconsistencies within the courts. It is not a penal doctrine. IV. ASSUMING THAT CASSIDY IS JUDICIALLY ESTOPPED FROM RELITIGATING THE FRAUD ISSUE, THIS COURT SHOULD DECIDE THE LEGAL ISSUE Oi WHETHER THE CIVIL FRAUD PENALTIES RELATED TO THE ASSESSED TAX DEFICIENCIES ARE DISCHARGEABLE AS A MATTER OF LAW Assuming this Court's use of judicial estoppel in this case is proper, it can only extend to barring Cassidy from relitigating the factual issue of fraud in the bankruptcy court. However, before this Court is also the issue of whether the civil fraud penalties assessed are dischargeable as a matter 347 of law. A factual adjudication or litigation is not necessary to resolve that issue. This Court in Cassidy 1 held that the civil fraud penalties were not dischargeable under Bankruptcy Code Section 523(a)(7)(A). Although raised as an issue in the Complaint to Determine Dischargeability before the bankruptcy court below, it has never been determined in this appeal or in the prior proceedings whether the fraud penalties, as a matter of law, are dischargeable under Bankruptcy Code Section 523(a)(7)(B). The bankruptcy court in Roberts v. IRS, 94 B.R. 707 (Bankr. N.D. Okla. 1989) affirmed an appeal (B. Okla. No. 89-C-46-B) and the United States Court of Appeal for the Eleventh Circuit in In re Burns, 887 348 “~ a ne re - etme os eee ad —— F.2d 1541 (1989) have held that the plain language of Bankruptcy Code Section 523(a)(7)(B) provides that tax fraud penalties associated with taxing years which preceded the filing of bankruptcy by more than three years were dischargeable as a matter of law. There is no factual dispute that the tax fraud penalties assessed against Cassidy were assessed more than three years prior to the filing of his bankruptcy petition. Accordingly, and given the lack of any factual dispute, the fraud penalties are dischargeable as a matter of law. However, and notwithstanding the clear mandate from Congress, this Court's holding, based on judicial estoppel, that Cassidy is barred from relitigating the fraud issue, has resulted in him not being 349 Ses ong. a - ; 7 : i as ie i a oe Cae, iene - — i c= a 7 ie - le eed a a ’ . - ; Se Se i ' = i eel a ee nee a ed ——— : v ieee —.. @ i = 7 [ae ‘ —— : _ : = 2 : ay : - - 4 4 eS oe oe oa * i a a ee Sarena oe Ce ee _ discharged from the tax fraud penalties when no litigation is necessary. Cassidy has never had the opportunity for a hearing on this issue. By this Court refusing to decide, it has in effect held that the tax fraud penalties assessed against Cassidy more than three years prior to the filing of his bankruptcy petition are nondischargeable. This creates a conflict between this circuit and the Eleventh and Tenth Circuit. If this Court should determine that Cassidy is not entitled to a rehearing or a rehearing in banc on the foregoing matters relating to judicial estoppel, it should consider rehearing the issue concerning the dischargeability of the civil tax fraud penalties. 350 CONCLUSION Based on the foregoing, and other matters implicit therein, the Debtor- Appellant, respectfully requests this Court to grant a rehearing and a rehearing in banc of its decision of January 4, 1990, and that it reverse the decision of the district court and bankruptcy court. Respectfully submitted, TIMOTHY J. CASSIDY CASSIDY & MUELLER 1510 Savings Center Tower Peoria, Illinois 61602 309/676-0591 Attorneys for Plaintiff-Appellant. 351 ¥) ONT SL eae PRE yy : erent. ft i : av if. oe Wey 7 cae — om OV Ere TeOaNG: 1; : ATT oudits - ha har : a Na - i oar oye Oo _— ee een es APPENDIX IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT No. 86-2302 THOMAS V. CASSIDY, Appellant Vv. COMMISSIONER OF INTERNAL REVENUE, Appellee ON APPEAL FROM THE DECISION OF THE UNITED STATES TAX COURT BRIEF FOR THE APPELLEE STATEMENT OF THE ISSUES PRESENTED 1. Whether the Tax Court correctly granted summary judgment in favor of the Commissioner with respect to income tax deficiencies and fraud penalties that were established through facts deemed admitted pursuant to Rule 90 of the Rules of Practice and Procedure of 352 ! a [— the United States Tax Court (Jan. 1, 1974). | 2. Whether taxpayer's income tax deficiencies and fraud penalties were discharged in taxpayer's bankruptcy proceedings. JURISDICTIONAL SUMMARY Taxpayer Thomas V. Cassidy appeals from the order and decision of the United States Tax Court (Judge Arthur L. Nims, III) granting summary judgment for the Commissioner. 353 are governed by Section 727. Section 727(b) incorporates by reference the exceptions to discharge that are set forth in Section 523. "Except as provided in Section 523," a discharge in Chapter 7 generally discharges a debtor from all debts that rose before the commencement of the case. 11 U.S.C. Sec. 727(b). Second, to the extent taxpayer is attempting a challenge to the Tax Court's exercise of jurisdiction in this case on the theory that the Bankruptcy Court had exclusive jurisdiction over the tax controversy, his argument is plainly wrong. 10/ It is true that the bankruptcy courts are granted jurisdiction in tax matters under Section 505 of the Bankruptcy Code, even if a petition for a 354 redetermination of a deficiency was pending in the Tax Court et the time the petition in bankruptcy was filed. But it does not follow that the Bankruptcy Court has exclusive jurisdiction over the tax matter. Rather, the legislative history indicates that where a Tax Court proceeding is pending at the time the petition in bankruptcy is filed, "[i]n essence * * * the bankruptcy judge will have authority to determine which court will determine the merits of the tax claim, both as to claims against the estate and claims against the debtor concerning his personal liability for nondischargeable taxes." 124 Cong. Rec. 32,350, 32,414; 124 Cong. Rec. 33,989, 34,014. 11/ The Bankruptcy Court and tax Court had concurrent 355 jurisdiction. Compare In Re Photo Chrome, Inc., 346 F. Supp. 958, 961 (E.D. N.Y. 1972); Cunningham v. Commissioner, 20 B.T.A. 428, 430 (1930) (Once Tax Court acquired jurisdiction, it did not lose it because of bankruptcy or receiver proceedings) (decided under pre-Code law). Accord Hoffman v. Commissioner, 7 B.T.A. 303, 305 (1927); Plains Buying & Selling Assn. v. Commissioner, 5 B.T.A. 1147, 1153 (1927). Insofar as the record in this case reflects, however, taxpayer never sought to have the Bankruptcy Court decide whether the tax controversy should be brought before it or continued in the Tax Court. Instead, the record reflects that the Government sought relief from the automatic stay, which was granted 356 by the Bankruptcy Court, so that the Tax Court proceeding could be conducted. (Doc. 17, Ex. A.) In these circumstances, there is no basis for taxpayer's position that the Tax Court lacked jurisdiction to decide the tax controversy. 12/ Insofar as the merits of the dischargeability issue is concerned, there is no substance to taxpayer's insistence that his tax liabilities were discharged because they were incurred more than three years prior to the date he filed his petition in bankruptcy. As taxpayer seems to acknowledge elsewhere in his brief (p. 18), there are a number of exceptions to discharge where taxes and tax penalties are concerned, including an exception where the taxpayer makes a 357 fraudulent return. Thus, it is of no significance that his tax liabilities do not fall within. .. 358 Footnotes to Previous Document 1 This Court agreed and holds that the Tax Court had no jurisdiction to consider whether Cassidy's tax debt was dischargeable in bankruptcy. In the Matter of Cassidy, Docket No. 89-1121 (decided January 4, 1990) 2 The factual premise of this Court's use of the doctrine of judicial estoppel to deny him a hearing on the issue of dischargeability is wrong. As will be discussed more fully later, Cassidy never "argued" or made a "plea" to have the Cassidy 1 court consider the issue of dischargeability. Whether the Cassidy 1 court should have considered that issue in the first instance was never in dispute. In fact, the Commissioner urged the Cassidy 1 court that the Tax Court had subject matter jurisdiction to determine the dischargeability issue and that this Court also had such jurisdiction and should decide the issue. RESPECTFU [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1484%3A2. Public record. Not legal advice.