Wilson v. Commissioner , 309 F. App'x 829 ( 2009 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 5, 2009
No. 08-60189 Charles R. Fulbruge III
Clerk
FLOYD P WILSON; SELWYN WILSON
Petitioners-Appellants
v.
COMMISSIONER OF INTERNAL REVENUE
Respondent-Appellee
Appeal from the United States Tax Court
(9891-06L)
Before KING, BENAVIDES, and CLEMENT, Circuit Judges.
PER CURIAM:*
Floyd and Selwyn Wilson (“Petitioners”) appeal the tax court’s grant of
summary judgment in favor of the Commissioner of Internal Revenue. For the
reasons set forth below, we affirm.
I. FACTS AND PROCEEDINGS
Petitioners claimed flow-through loss deductions on their federal income
tax returns for the 1981 and 1982 fiscal years based on their investment in
Vulcan Oil Technology Partners (“Vulcan”). Vulcan was one of several Denver
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 08-60189
limited partnerships that invested in enhanced oil recovery (“EOR”) technology.
The limited partnerships were comprised of several individual partners with
Louis Coppage serving as general partner. In 1988, the Internal Revenue
Service (“IRS”) issued notices of deficiency to taxpayers whose flow-through
losses it disallowed from the Vulcan investment for 1981 and 1982. On April 7,
1988, Petitioners, along with five other taxpayers who had claimed similar
losses, filed a petition in tax court challenging the disallowance of these losses.
During the pendency of that action, the tax court decided two cases
relating to EOR technology that affect Petitioners’ suit. In Kraus v.
Commissioner, 99 T.C. 132 (1992), aff’d, Hilderbrand v. Comm’r, 28 F.3d 1024
(10th Cir. 1994), the tax court heard consolidated matters which were test cases
for over 2,000 related suits challenging the IRS’s decision with respect to the
EOR losses. The tax court disallowed the tax deductions, finding that the
“transactions did not, and do not, constitute legitimate for-profit business
transactions.” Id. at 176. In Acierno v. Commissioner, 74 T.C.M. 738, *9 (1997),
aff’d, 185 F.3d 861 (3rd. Cir. 1999), the tax court held that the Kraus decision
was controlling on another Denver limited partnership whose general partner
was Coppage, finding that the EOR investments there were also tax-motivated
transactions.
After the tax court’s decisions in Kraus and Acierno, Petitioners stipulated
to the tax deficiency claimed by the IRS. The tax court entered an order
reflecting these stipulations. Petitioners made no payments on the debts and,
in 2005, the IRS sent Petitioners notice that it intended to levy to collect the
unpaid liability. Petitioners sought a collection-due-process (“CDP”) hearing
before the IRS Appeals Office, arguing that there was doubt as to liability,
collectibility, and effective tax administration. Petitioners also made an offer-in-
compromise to settle the debt and sought to enter into an installment
agreement. The IRS officer refused Petitioners’ settlement offer as it did not
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include the interest due on the tax debt. For the first time, Petitioners then
asserted that their tax liability should be permanently abated, alleging that the
IRS had committed fraud on the court by entering into a secret settlement with
Coppage in return for his testimony in Kraus. Specifically, Petitioners asserted
that the IRS agreed to categorize Coppage’s tax liabilities as non-collectible in
exchange for his testimony that the EOR transactions lacked economic viability.
Based on these assertions, Petitioners claimed entitlement to the same
abatement purportedly received by Coppage. The IRS Appeals Office rejected
Petitioners’ arguments and upheld the proposed levy action. Petitioners
thereafter filed a petition in the tax court challenging this determination.
The tax court, determining that the offer-in-compromise had been rejected
without adequate analysis, remanded the case for a supplemental CDP hearing.
The tax court retained jurisdiction over the case. In this second hearing, the
CDP officer determined that Petitioners’ offer-in-compromise should be rejected,
partly because Petitioners failed to file the required revised installment
agreement offer. The findings from the CDP hearing were filed with the tax
court.
The IRS then moved for summary judgment arguing that: (1) Petitioners’
fraud on the court argument was an impermissible collateral attack on Kraus
which could not be raised in a CDP hearing, and (2) Petitioners were precluded
from challenging the underlying liability because they had received a statutory
notice of deficiency. The tax court held that the supplemental CDP hearing
properly considered all statutory elements of Petitioners’ claim and granted
summary judgment on both grounds and determined that the appropriate
mechanism for raising the fraud on the court allegation was a motion to vacate
Kraus. Petitioners timely appealed only the fraud claim.
II. STANDARD OF REVIEW
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We review a tax court’s grant of summary judgment de novo. Staff IT, Inc.
v. United States, 482 F.3d 792, 797 (5th Cir. 2007). “Summary judgment is
appropriate when there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. In collection due process cases
in which underlying tax liabilities are at issue, we review the underlying tax
liability de novo and other administrative decisions for an abuse of discretion.”
Id. at 797–98 (footnotes omitted). Where the underlying tax liability is not at
issue, we review for abuse of discretion. Christopher Cross, Inc. v. United States,
461 F.3d 610, 612 (5th Cir. 2006).
III. DISCUSSION
Petitioners challenge the tax court’s grant of summary judgment in favor
of the IRS based on its determination that a CDP hearing is not the appropriate
vehicle through which to bring a claim of fraud on the court. Petitioners argue
that they do not challenge the underlying debt the IRS seeks to collect and do
not wish to set aside the Kraus decision. Rather, relying on Dixon v.
Commissioner, 316 F.3d 1041 (9th Cir. 2003), they argue that, because Kraus
was tainted by fraud on the court, they are entitled to the same treatment
Coppage may have received1 in perpetrating the alleged fraud by entering into
a secret abatement agreement with the IRS. Petitioners ask this court to
remand the case to the tax court for an investigation into whether the Kraus
decision was tainted by fraud while retaining jurisdiction to ensure a proper
remedy.
1
Petitioners speculate that, based on certain valuable pictures discovered by counsel
in 2006 which “triggered memory of facts relevant hereto,” Coppage “made a deal to get ‘non-
collectible’ status at the IRS in return for his testimony” in Kraus. Petitioners state that they
are unsure whether a secret agreement was reached with the IRS or whether Coppage has in
fact paid any debt due to the IRS. Petitioners have filed a FOIA request in an attempt to
obtain such evidence. Petitioners note that “[i]f Mr. Coppage has paid his IRS assessment plus
interest and penalties, or any substantial part thereof, Petitioners may stand corrected and
agree to reconsider.”
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No. 08-60189
While Petitioners claim no attempt to set aside the underlying obligation,
their fraud on the court challenge goes to the very validity of the Kraus decision
and, as discussed below, must be brought in the court on which the fraud was
perpetrated. The proper forum is either Petitioners’ own case in which they
stipulated to liability based on Kraus or the Kraus decision itself. The attempt
to challenge the IRS’s collection action in a CDP hearing by alleging fraud on the
court in the underlying liability suit is impermissible.
Parties seeking to overturn a judgment must bring such a motion “no more
than a year after the entry of the judgment or order or the date of the
proceeding.” FED. R. CIV. P. 60(c)(1). Nevertheless, when litigants seek “to
protect the fairness and integrity of litigation in the federal courts,” courts may
exercise discretion in entertaining such challenges even after the one year
period. Rozier v. Ford Motor Co., 573 F.2d 1332, 1338–39 (5th Cir. 1978). Thus,
while “[f]ederal courts . . . long ago established the general rule that they would
not alter or set aside their judgments after the expiration of the term at which
the judgments were finally entered[,] . . . under certain circumstances, one of
which is after-discovered fraud, relief will be granted against judgments
regardless of the term of their entry.” Hazel-Atlas Glass Co. v. Hartford-Empire
Co., 322 U.S. 238, 244 (1944).
Parties seeking relief, “have done so by bills of review or bills in the nature
of bills of review, or by original proceedings to enjoin enforcement of a
judgment.” Hazel-Atlas, 322 U.S. at 245. Federal Rule of Civil Procedure 60(b)
“provides that a party to an action may by motion seek to vacate a judgment on
the grounds of . . . fraud . . . . Relief from a final judgment may also be obtained
at any time by way of an independent action to set aside a judgment for ‘fraud
upon the court.’” Gleason v. Jandrucko, 860 F.2d 556, 558 (2nd Cir. 1988); see
also FED. R. CIV. P. 60(b). “[T]he proper forum in which to assert that a party
has perpetrated a ‘fraud on the court’ is the court which allegedly was a victim
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No. 08-60189
of that fraud.” Chewning v. Ford Motor Co., 35 F. Supp. 2d 487, 491 (D.S.C.
1998); Universal Oil Prods. Co. v. Root Refining Co., 328 U.S. 575, 580–81
(1946); Weisman v. Charles E. Smith Mgmt., Inc., 829 F.2d 511, 514 (4th Cir.
1987). Thus, a motion to vacate or an equity action seeking to set aside a verdict
may only be heard in the court whose judgment is being challenged. Chewning,
35 F. Supp. 2d at 491; see also Sennett v. Comm’r, 69 T.C. 694, 696–697 (1978)
(granting summary judgment based on taxpayer’s stipulation to be bound by the
test case despite taxpayer’s claim of fraud on the court because taxpayer made
no motion to overturn that decision); Tashjian v. Comm’r, 93 T.C.M. 998, *5
(2007) (noting that raising the substance of a motion to vacate in a collateral
review proceeding constitutes an impermissible collateral attack on the prior
judgment).
Petitioners’ reliance on Dixon is misplaced. In Dixon, the Ninth Circuit,
sanctioned the IRS for entering into a secret agreement with certain taxpayers
by instructing the tax court to enter judgment in favor of all taxpayers in the
suit on terms equivalent to those of the secret agreement. Dixon, 316 F.3d at
1047–48. The tax court, on reconsideration, extended these terms to all other
taxpayers challenging the tax-shelter, including those who had not participated
in the underlying case. Hartman v. Comm’r, 95 T.C.M. 1448, *52 (2008).
Significantly, the taxpayers in Dixon brought their fraud on the court challenge
through motions in the underlying case or in one of the deficiency cases entered
into by the taxpayers; none of the litigants sought relief through a fraud claim
in an administrative hearing. Dixon did not create the right of collateral attack
sought by Petitioners.
Petitioners further fail to show any inability to challenge either Kraus
itself or their own deficiency stipulation. Thus, there is no concern that
Petitioners will be left without a forum in which to bring their claim.
IV. CONCLUSION
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The judgment of the tax court is therefore AFFIRMED.
7