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Kanter Case Back to Tax Court

Kanter v. CIR, Case No. 08-1036/1037/1038/1039/1040/1041/1042 (C.A. 7, Dec. 1, 2009)

This case began in 1986, when Burton W. Kanter, a well-known tax attorney and businessman, filed a petition seeking review of the Commissioner of Internal Revenue’s determination that he had not paid all his taxes. Since then, the case has taken a yo-yo path through our judicial system, from the Tax Court to the Supreme Court and back again. In this iteration, Kanter’s Estate and related parties appeal from an unfavorable Tax Court decision that rejected many of the factual findings of the Special Trial Judge (“STJ”) that presided over the trial. (We refer to the petitioners collectively as “Kanter.”) The theme of Kanter’s arguments on appeal is that the Tax Court did not defer, as it should have, to the STJ’s original findings of fact. In evaluating the issues Kanter raises, we review the STJ’s original findings of fact for clear error.

Kanter raises five issues on appeal. The first includes within it a number of challenges to the Tax Court’s finding that Kanter and his associates orchestrated a kickback scheme and then fraudulently concealed the resulting income. Kanter argues that the Commissioner is precluded from litigating this point, as the Fifth and Eleventh Circuits have already ruled against him in cases dealing with the liability of Kanter’s associates for the same underlying business arrangements. He also argues that the Commissioner is barred by the statute of limitations from seeking tax fraud penalties for 1983. Kanter’s second issue concerns entities called the Bea Ritch Trusts. The Tax Court found that he was the true owner of these Trusts and thus should have paid certain taxes on their economic gains. Kanter argues that he was not the owner of these Trusts. Third, Kanter urges that he should not be taxed for half of the earnings of Century Industries, as the Tax Court lacked jurisdiction over many of the years at issue and he owed taxes proportional only to his stated ownership interest because all of the partners were true partners. Fourth, he argues that the Tax Court should not have counted as taxable income over $1,000,000 that Kanter deposited in his bank accounts in 1982, as those monies were nontaxable loans or returns on investment. Finally, Kanter asserts that the Tax Court violated his due process rights by overturning various credibility determinations made by the STJ in his original report.

On the first issue, we reject Kanter’s preclusion argument, because nonmutual collateral estoppel does not apply against the United States. On the merits, we conclude that the STJ’s factual findings are not clearly erroneous with respect to Kanter’s tax liability and tax fraud. As a result, we do not reach Kanter’s argument based on the statute of limitations. Next, we find no reversible error in the STJ’s conclusion that Kanter was not the owner of the Bea Ritch Trusts; this means that Kanter is not liable for the tax deficiencies that the Commissioner assessed. Third, with respect to Century Industries, we hold that the Tax Court lacked jurisdiction over the 1983, 1984, and 1986 tax years; we further find that the STJ’s conclusion that only the 1% interest that Kanter held in Century Industries for the 1981 and 1982 tax years was taxable is not clearly erroneous. We note that the government has conceded the issue relating to the $1,000,000, but for the sake of completeness we confirm that the STJ did not clearly err in finding that this deposit was nontaxable income. Finally, in light of our other findings, we have no reason to reach Kanter’s due process argument.

In summary, we conclude that the Tax Court did not show the proper level of deference to the STJ’s factual findings. We therefore reverse and remand with instructions to vacate the Tax Court’s judgment, to enter an order adopting the STJ’s report as its opinion, and to enter judgment consistent with that opinion.


Jurisdiction: U.S. Court of Appeals, Seventh Circuit
Related Categories: Civil Procedure
Circuit Court Judge(s)
Richard Cudahy
Kenneth Ripple
Diane Wood

Trial Court Judge(s)
Harry Haines

Appellant Lawyer(s) Appellant Law Firm(s)
Randall G. Dick
Richard H. Pildes New York University Law School
Karen Hawkins Taggart & Hawkins PC

Appellee Lawyer(s) Appellee Law Firm(s)
Kenneth L. Greene United States Department of Justice
Joan I. Oppenheimer United States Department of Justice
Gilbert S. Rothenberg United States Department of Justice



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putes regarding partnership items to be settled at doctrine arises because the supreme court used some- subject to a power of disposition, exercisable by the 647 (1981). if a grantor is deemed an "owner" of a portion reviewing body's decision. see, e.g., moab v. gonzales, 500 the appellate review of tax decisions. 544 u.s. at 53-64. collateral estoppel against the government is prohibited 6 nos. 08-1036, 08-1037, et al. 12-1-09 see blonien v. comm'r, 118 t.c. 541, *19-*20 (2002). the whose sole beneficiary was his wife, naomi kanter). rule derives from rule 147(b) of the former court of have rejected them. see ballard iii, 522 f.3d at 1254-55; the commissioner is empowered to use several found that the listed partners of ci were in fact its true circuits, respectively. see estate of lisle v. comm'r, 341 court was obligated to release the stj's decision, and he iv that he intended to commit fraud. parties in good faith and acting with a business pur- were unknowingly engaged in a kickback scheme seems the eleventh circuit picked up that last theme when it are not clearly erroneous and that the tax court should not nounced the assignment power, precluding a finding of again, the tax court rejected the stj's findings. it that other arguments for preclusion also will fail."). thus, from internal revenue code § 704(e)); instead, he found owner of these trusts and thus should have paid certain and remand with instructions for the tax court to this information, but it refused. was not the owner of these trusts. third, kanter urges whether the tax court "committed clear error when [it] was not, and neither are we. confronted with two inter- it would have weighed the evidence differently. where nounced that power. it found particularly meaningful remains is the commissioner's speculation that the payment of taxes." given that corporate entities are original findings of fact for clear error. tax equity and fiscal responsibility act of 1982 failed to accord the original findings of fact, credibility of this standard to the stj's report (kanter's position) or technical ruling here. assessed a deficiency against kanter for the taxes attribut- derived income in the form of "kickbacks" in exchange burden of proving fraud, as no kickback schemes existed the generation of income through something like the serving and contradictory to documentary evidence argument [for preclusion in mendoza as the] injury to the 18 nos. 08-1036, 08-1037, et al. ment's theory about kanter's assignment of income, since error, not those of the tax court. must not reverse unless we are "left with the definite structuring transactions for financings for satcorp." while fraud. it relied on evidence that it believed showed the strate that the commissioner has incorrectly identified dealt with large sums of money for investment and other evaluating the issues kanter raises, we review the stj's odd at best. this is not to say that there is not plenty of tions governing the fraud penalty for 1983. is that the stj's findings of fact play a significant role in tunity to hear the witnesses and to determine the weight investors, inc., 544 f.2d 925, 933 (7th cir. 1976) (applying found that kanter--not bea ritch--was the true settlor of jury. 26 u.s.c. § 7482(a)(1). that standard is easy to of fraud with intent to evade tax, the burden of proof clude that the stj's factual findings are not clearly errone- substantial assets and net worth by 1987, primarily through harrell v. united states postal serv., 445 f.3d 913, 921 (7th deposits. see, e.g., nicholas v. comm'r, 70 t.c. 1057, 1063 the trusts. to support this finding, it noted that kanter ci that notes that kanter and weisgal will serve as "finan- their statements, the testimony of disinterested per- nos. 08-1036, 08-1037, et al. 23 found that no kickbacks were paid. the commissioner $1,000,000, but for the sake of completeness we confirm report, which is the one that is entitled to deferential fact determinations, not embracing policy choices and brought to the attention of weisgal in his capacity as whether someone qualifies as a partner, this court consults schuster v. comm'r, 800 f.2d 672, 678 (7th cir. 1986) (reject- reported all his taxable income in 1982. in doing so, it people: j.d. weaver, william schaffel, bruce frey, kenneth weisgal, and that the trust partners had sufficient re- see, e.g., cook v. niedert, 142 f.3d 1004, 1011 (7th cir. in this case, the commissioner alleges that kanter owner of the bea ritch trusts; this means that kanter is sioner of internal revenue's determination that he the critical issue for us is whether the stj's finding last saw this case, we affirmed the tax court's previous we must find the best analogy to district court practice. report, ignoring the decision of the district court, al- government that bears the burden of proof on a fraud gist of the supreme court's 2005 decision in ballard, and that presided over the trial. (we refer to the petitioners investment must have exceeded the trustee's fondest the commissioner's primary case against kanter, lisle, in summary, we conclude that the tax court did not united states court of appeals also overturned the stj's finding that there was no plication of that standard). at other times, the proper his ultimate benefit. but this does not require the stj to that he should not be taxed for half of the earnings of whether fraud has been committed is one of fact that settlor" of the brts and thus that at least some portion of uted half of ci's income during this period to kanter. it or against someone else."). similarly, the question to see if ci might provide financing to these entities. tax fraud are not clearly erroneous. 28 u.s.c. § 636(b). rule 53, governing masters, is different. whether the administrative law judge's findings--not appeals from the decisions of the united states tax court. 32 nos. 08-1036, 08-1037, et al. intended "administrative and judicial resolution of dis- a tax deficiency arises when a taxpayer fails to report record from entities that paid ci to consider their propos- trust, but only two of them are relevant for our analysis. fact are presumed to be correct because of his oppor- court's application of those findings raises a mixed the tax court violated his due process rights by over- 445 f.3d at 921 ("the supreme court has established cir. 2006). ii nos. 08-1036, 08-1037, et al. 17 court's eyes, ci fell within the small-partnership excep- the benefit of the weisgal family (later replaced with he has identified is incorrect. see welch v. helvering, 290 wells fargo bank, n.a. v. siegel, 540 f.3d 657, 663 (7th cir. mandates deference to the stj: it identifies the stj as the key actor and says that his or her findings must be the deficiency issue is somewhat different. the flow-of- kanter was not a grantor, the stj did not delve into believes that this possibility is foreclosed by mendoza funds argument could be evidence of a tax deficiency failed to provide evidence beyond the trust document deny preclusion in face of this argument may be to show and a partnership composed of irrevocable trusts for provides that the district court "shall make a de novo neither the tax court nor the commissioner has pro- not liable for the tax deficiencies that the commissioner taxes on their economic gains. kanter argues that he government has conceded the issue relating to the nos. 08-1036, 08-1037, et al. 5 the tax court of jurisdiction in this proceeding. the stj to resolve the issue now before us, we start with the the court of appeals may not reverse it even though mendoza opinion a broad uniform rule that prohibits any accounts in 1982, as those monies were nontaxable loans despite the modest initial corpus, the brts acquired ity determinations do not reflect clear error review, the brts' gross receipts, interest income, dividend recommended that a fraud penalty should be asserted tuted form, ci had several claimed partners: kanter, related or subordinate trustee subservient to the reviewed the dawson opinion of december 15, 1999, scheme and then fraudulently concealed the resulting growth. at the very least, it provides a strong enough and weisgal were screening various investment proposals this circuit examines the totality of the circumstances. [such income] grew." the stj also made a finding § 671. there are several ways, outlined at 26 u.s.c. §§ 672- that kanter and his associates orchestrated a kickback sulting relationship with kanter and weisgal. in the tax argument fails as well. finally, gallenberger's behavior kanter raises the threshold question whether the tax possibility, the court will conduct a more searching previous findings regarding the kickback scheme and to the trial court's findings; for only the trial judge can cir. 2005) ("lisle ii"); ballard v. comm'r, 2006 wl 4386510 from his kickback scheme to the brts or other entities couvillion, that stated that it "agrees with and adopts the turning various credibility determinations made by the [d]ue regard shall be given to the circumstance that of that industry can explain much if not all of the which set of findings is entitled to deference. determination" with respect to any contested matter. see able to that amount. kanter contests this, claiming that and generally the grantor is treated as the owner. the approval or consent of any adverse party. in the record to establish that kanter provided the of income and the purposes for which it is used, and (1986). partnership items include "income, gain, loss, who gratuitously transfers assets for the creation of the it "is not applicable because there was no improper relevant period as well as letters in the record from sioner's determination with respect to the deficiencies from his alleged kickback scheme with the five. after supreme court's opinion in ballard tells us anything, it the tax court then issued another decision, in which and firm conviction that a mistake has been committed." court failed to give the special trial judge's findings the the five's testimony should be discounted because they summons proceedings related to other tax years. see showing the flow of funds. it dismissed the five's testi- of a trust, that portion attributable to the grantor must did not know about the kickback scheme and thus could as ci had more than 10 partners, it fell within the of limitations from seeking tax fraud penalties for 1983. tion). sometimes the law requires the court of appeals to this court's role under clear error review is limited. we already appealed from that decision to their respective v. prewitt, 755 f.2d 588, 589 (7th cir. 1985) (reviewing ship between the stjs and the tax court. it states that reach different factual conclusions, each of which can dressed these arguments. the stj rejected the applica- stj's findings. to that end, the supreme court in ballard 20 nos. 08-1036, 08-1037, et al. schnitzer, and john eulich ("the five"). the commis- turned several of the stj's credibility determinations. it the kanter entities--in fact, the stj held that the v. and ballard. see estate of lisle v. comm'r, 431 f.3d 439 (5th we find, applying the test outlined in culbertson, that the funds necessary for the $18,000 oba investment. what personal income tax returns. instead, it appeared on the treatment under the tefra. the question is whether the norfolk s. ry. co., 469 f.3d 590, 594 (7th cir. 2006) (re- v. comm'r, 406 f.3d 933, 934 (7th cir. 2005) ("kanter ii"). and ballard iii, 522 f.3d at 1235, that deference under this trustee. the most important for our purposes is the brts' 2008). this does not prevent us from finding clear error, eleventh circuits have already ruled against him in investment from other entities. while the commissioner enth circuits do not resolve the question before us, the findings of the board--not the administrative law to the tax court's decision (the commissioner's posi- evaluating potential investment opportunities. various as we have found in kanter's favor on the other issues tax fraud, and gallenberger's initial recalcitrance in sions outlined above. in this connection, it is important earlier proceeding by a plaintiff, to establish part of its type that would trigger tax liability under § 675(3). 464 u.s. at 162 (emphasis added). we acknowledge that went on to find that the government had not met its u.s. 111, 115 (1933) (noting that the commissioner's the stj's finding that ci's other partners were bona fide. cluded from litigating this point, as the fifth and deduction, or credit of the partnership." 26 c.f.r. nevertheless, while the findings of the fifth and elev- ever, seem to us to be just as powerful when applied to no kickbacks, then the flow-of-funds argument does findings, the magistrate judges' act may require conduct of the parties in execution of its provisions, five. kanter then allegedly diverted this income to the entity. the fifth circuit rejected these theories as on his 1982 tax return. the commissioner maintains that volving the issue whether the petitioner has been guilty within it a number of challenges to the tax court's finding t.c.m. (ria) 2007-021 (2007). lisle and ballard have 891 (1982), and noting that a "flexible test, allowing con- address the possible tax liability created by 26 u.s.c. may of 1996 and december of 1999, no entries appear review will be for clear error. see fed. r. civ. p. 53(f)(3). apply to a loan which provides for adequate interest brts owned an interest. that alleged device therefore reasons for treating the government differently, how- an additional $1,303,207 constituted taxable income and efforts (and was thus attributable to him). erroneous. 24 nos. 08-1036, 08-1037, et al. united states v. united states gypsum co., 333 u.s. 364, 395 tax court at their word that the tax court decision was finder. kanter's second issue concerns entities called the bea review decisions of the tax court in the same manner as look to the original fact findings. see, e.g., old ben coal co. kanter i, 337 f.3d at 849. but this does not mean that the court relied on the relative inactivity of ci during the finding that kanter was the true settlor, it also found the lesson that we draw from these statutes and rules, could have come down the line. the stj did not base the tax court should not have counted as taxable whether, considering all the facts--the agreement, the for the seventh circuit nos. 08-1036, 08-1037, et al. 7 as the supreme court noted in ballard, this tax court 567 (7th cir. 2008). in century industries for the 1981 and 1982 tax years point: the stj's findings are the ones reviewed for clear ple for preclusion for factual issues. the government mendation for a district court, the governing statute against preclusion as to ` "unmixed questions of law"'. . . . brts. (this finding went hand-in-hand with the stj's decision that found that kanter engaged in tax fraud with able to kanter for the pre-tefra years of 1981 and 1982. tax court granted an oral motion to amend the it is appropriate to examine where that income goes. see measure of respect required by [the rule]." 544 u.s. at 56. before cudahy, ripple, and wood, circuit judges. not clear what the court meant in mendoza when it area of the law must be evaluated on its own. the loan, including any interest, before the beginning of ministrative law judge--were supported by substantial sioner assessed a deficiency against him based on that dence. moreover, the commissioner's reasoning that cannot be a basis for reversal either, as she eventually the partnership level, rather than at a partner-level pro- evidence to the contrary, the stj found that kanter had substantial capital gains of $2,033,368 that flowed back erroneous. if he is not the grantor, then he cannot be of which he had not paid back by 1987. deference required under the law." ballard iii, 522 f.3d putes involving partnership items to be separate from plausible in light of the record viewed in its entirety, items, which ordinarily would receive partnership-level week trial and compiled a sizable record. then, between of the deposits alone is not a basis for reversing the stj; thus, there are no grounds on which to attribute half of to kanter, but two unnamed tax court judges informed 14 nos. 08-1036, 08-1037, et al. the statute of limitations. next, we find no reversible stj's report was actually false. kanter asked the tax and his associates then appealed to the supreme court, ing the two-part test of johnson v. comm'r, 78 t.c. 882, preclusion (that is, the use of a finding of fact from an basis in the record, in the absence of anything but specula- 1986, the commissioner determined that kanter and need not reach the question whether kanter had indeed the fifth and eleventh circuits did the same for lisle cannot be a basis for finding that he was the true his wife, naomi r. kanter, who is a party only by virtue review. we review factual findings for clear error. see the brts' substantial assets were the result of its wise the fact that some 60 trusts were added as beneficiaries the wise choice to invest in cable television at the dawn ci, that letter also can support the stj's view that kanter the benefits review board's decision to reverse the ad- relevant income. in enacting tefra, congress applies clear error review to the tax court. as it noted, as a result, we do not reach kanter's argument based on § 675(3) for the loans the brts made to kanter. in 1994, the tax court referred kanter's case, along with argues that the stj erred because he did not further ment, because nonmutual collateral estoppel does not nessman, filed a petition seeking review of the commis- that are common to kanter's case and those of ballard kanter's case overlaps with those of his associates erroneous. the stj's findings involve credibility determinations, the report and in fact fraudulently concealed income trial. with that established, he then rejected the govern- ments. were running an unrelated consulting firm disguised as (7th cir. 1995) (noting that the summons requested docu- but the stj was correct--as were the eleventh and fifth income was solely the result of personal consulting yo-yo path through our judicial system, from the tax lished for the benefit of members of the kanter family. ment in such a way as to preclude relitigation of so internally inconsistent or implausible on its face that a of 24 of the 25 trusts (the exception being the naomi trust, alternatively, the grantor may be treated as the owner that kanter was not the grantor of the brts is clearly kanter did not fund the brts. after the brts invested weisgal as the trustee, and kanter was named a beneficiary kanter raises five issues on appeal. the first includes produced all the documents that were requested, and the be included in the true owner's taxable income. 26 u.s.c. f.3d 364 (5th cir. 2003) ("lisle i"); ballard v. comm'r, 321 does not explicitly spell out that kanter met this various entities, which were funded in turn by income nos. 08-1036, 08-1037, et al. 31 brts' capital gains income generated from its invest- convinced that had it been sitting as the trier of fact, other findings, we have no reason to reach kanter's due apply against the government wit h respect to specific emerging field of cable television. even if kanter were the nos. 08-1036, 08-1037, et al. 19 perhaps an even more damaging piece of evidence (from the opposite conclusion on this record. as a result, we 30 nos. 08-1036, 08-1037, et al. that are the subject of an objection is de novo unless the another partnership of the same type in 1984). ci's main already held that the stj's findings on these issues states v. raibley, 243 f.3d 1069, 1076 (7th cir. 2001). when ous with respect to kanter's tax liability and tax fraud. even if the payments were not kickbacks and were not entities, as opposed to going totally unreported. the stj at issue. findings of fact (and in so doing, defer to those findings text of tax court rule 183, which governs the relation- judge, when the board issues a superceding opinion could be seen as describing a consulting business hiding the tax court then assigned judge howard a. dawson ownership under § 674(a). because he had found that not in fact earn it. in order to determine whether the regime is owed to the factual findings of the stj. the tax whether the loans the brts made to kanter were of a for these reasons, we reverse the tax court's judgment bears the burden of demonstrating that the commis- trust. normally, the grantor/settlor is the person who burton w. kanter, and adopting the stj's report as its opinion, and to enter only." when there is reason to be concerned about that court decision with respect to his taxes. lisle and ballard referred to "issues such as those involved in this case." wood, circuit judge. this case began in 1986, when hold that the tax court lacked jurisdiction over the 1983, us to this point, since the earlier rulings in the case estab- vided a good reason to doubt the stj's findings. the size argued may 27, 2009--decided december 1, 2009 were the large amount of money that was at issue, its tunities that needed capital, which would be supplied by income. without being aided by transfers of funds from kanter's appeals should proceed through the lens of the question government "must demonstrate by clear and convincing tion, kanter's estate and related parties appeal from partners. but, as we have now observed repeatedly, it entities paid ci "standby commitment fees" to consider purposes. we already have rejected the commissioner's recting income from various entities he controlled to the that governed the jurisdictional issue: whether kanter the partners were true partners. fourth, he argues that sources to commit capital to any investment project that nos. 08-1036, 08-1037, et al. 27 als. for instance, it points to a letter from satcorp, inc., to public interest from [finding preclusion] is not great. to of the joint tax returns she filed with kanter for the years board of immigration appeals, not the immigration a central question the appellate court is asking is and belief in what is said." anderson, 470 u.s. at 575; identified one sense in which the court of appeals oyster bay associates ("oba"), a partnership formed to kanter entities exercised significant control over kanter's nos. 08-1036, 08-1037, et al. 15 estate of naomi r. kanter, ci had more than 10 partners), and therefore deprived as the original fact-finder, then the satcorp and city & (1978) (using the bank-deposits method). evidence of grantor, the stj already had found that kanter had re- abilities and capital contributions, the actual control stj's report. ballard v. comm'r, 544 u.s. 40, 52 (2005). we preclusion against the government. see adkins, 875 f.2d given the complexity of the arrangements before us, for using their influence within prudential life insur- stj in his original report. nos. 08-1036, 08-1037, et al. 3 a special trial judge. in the latter group of cases, however, transactions with the five under two theories: fraud and ourselves). items." maxwell v. comm'r, 87 t.c. 783, 788 sons, the relationship of the parties, their respective 55; hebah v. united states, 456 f.2d 696, 698 (ct. cl. question of law and fact, and it may be that we would owe and 1986 tax years. we review this legal question de novo. * * * else, must have funded them. it is true that the brts ex- court had subject-matter jurisdiction over the 1983, 1984, several entities, including ones unrelated to kanter and to make him the true owner of the brts under 26 u.s.c. small-partnership exception lifts this requirement. the stj context "for two judges, confronted with the identical nos. 08-1036, 08-1037, et al. 9 this question turns on the same factual determination 8 nos. 08-1036, 08-1037, et al. in the trustee other than the grantor and other than a protect the revenue from those who do not render true litigation has proceeded through his estate and that of v holland v. united states, 348 u.s. 121, 130-32 (1954) ("to 1434, 1437 (7th cir. 1996) (emphasis in original), it is kanter and weisgal were partners in ci, and that ci's what ambiguous language in mendoza: the same underlying business arrangements. he also lisle, to special trial judge irvin d. couvillion. see 26 did not in any way depend on the uncertain policies 18a wright, miller & cooper, federal practice and investigate the flow of funds from these transactions. that it is not surprising that kanter, a successful businessman, commissioner of internal revenue, united states v. administrative enters., 46 f.3d 670, 674 also found it significant that no examining agent had burton w. kanter, a well-known tax attorney and busi- vii ments relating to tax years 1983-1988). we thus cannot that nonmutual offensive collateral estoppel does not on appeal to this court, kanter argued that the tax f.3d 656, 659 (7th cir. 2007) (reviewing the opinion of the the tax court's two findings that kanter was the settlor the tax court released a decision, signed by dawson and 223 f.3d 642, 647 (7th cir. 2000). as this suggests, it is the any other facts throwing light on their true intent--the those deposits were nontaxable loans and returns of tax purposes, rather than to the brts. on further exam- factors to which it pointed as support for its decision entity reporting income is the true earner of that income, to review the stj's report, and on december 15, 1999, tion of tefra, the income was taxable at the partner the stj, finding that kanter had not produced enough participated in a kickback scheme and engaged in tax was taxable is not clearly erroneous. we note that the missioner's theory that kanter funded the trusts by di- court assigned kanter's case to judge harry a. haines. this court never lightly creates a conflict in the circuits, question, ci entertained investment proposals from the factual findings of the special trial judge ("stj") respect to the five's transactions, finding that such a tax court to review the stj's fact-findings with a free hand inquiry, examining all the circumstances, to determine because kanter did not report this income, the commis- court to affirm both," see united states v. williams, 81 f.3d deposit was nontaxable income. finally, in light of our tions to vacate the tax court's judgment, to enter an order constituted taxable income. kanter reported that income it explicitly reversed several of the stj's factual findings level (i.e. kanter's level), and thus the tax court retained not be expected to testify to its existence. the tax court money flowed from the five to kanter, lisle, and ballard. appropriate. 26 u.s.c. § 6231(a)(1)(b)(i). to determine must clear up some issues about the proper standard of cial engineers" whose involvement is "planning and alleged kickback scheme needs to be established before i comm'r, 96 t.c. 858, 874 (1991). particular factual question: whether kanter and weisgal tax court's reasons for overturning the stj's credibil- kanter's standpoint) is the city & suburban distributors the default rule under sections 671 to 679 of the internal mine what the correct rule is for the tax court. we are grantor. pose intended to join together in the present conduct conclusion could not be branded "clearly erroneous." see or returns on investment. finally, kanter asserts that and weisgal were the only true partners for ci. as we based his ruling on the fact that during the period in this case based on the fact that the question whether he however; the "[d]ocuments or objective evidence may record adequately supports the stj's finding that all of the address kanter's argument based on the statute of limita- clearly erroneous, and affirmed the judgment. kanter of a portion of the trust if holding that kanter and weisgal were the only true defensive preclusion. that said, we note as well that it is five. but, as we are stressing throughout, our review is f.3d at 1253; lisle iii, 541 f.3d at 603. largely for the (11th cir. july 10, 2006) ("ballard ii"). on remand, the tax various entities under his control so that he and his a deficiency against kanter for these years in error. f.3d 595, 605 (5th cir. 2008) ("lisle iii"); ballard v. comm'r, at 141 ("other passages in the [mendoza] opinion that he and kanter spent on their projects. this letter court had reached. just as it is possible in the new trial respondent-appellee. those of his associates claude m. ballard and robert w. 10 nos. 08-1036, 08-1037, et al. charge. see 26 u.s.c. § 7454(a) ("in any proceeding in- parties have stipulated (with the court's approval) that afterwards) was so unusual that kanter, and no one opinion of the special trial judge, which is set forth producing certain documents, which became the subject happens, however, that a person is a settlor "in name contradict the witness' story; or the story itself may be permissible method is examining a taxpayer's bank and adequate security, if such loan is made by a deficiencies. we also recognize that the stj's opinion purchase in 1973 for $18,000 of an 18% interest in services that kanter and weisgal rendered to the various district court itself was reviewing an order of the magis- in the final analysis, this approach takes us to the same and the petitioner has the burden of proving it to be should ensure that the tax court deferred to the stj's formed, and it was reconstituted in 1980. in this reconsti- and all the income at issue had been reported by other clear error standard "demands even greater deference which held that the tax court was obliged to release the and fraud issues. the fifth and eleventh circuits have payments among corporate entities does not establish a findings of fact, rather than to the district court's ap- kanter also possessed the power of appointment for the nonmutual offensive preclusion against the govern- nothing to resurrect the fraud theory. see ballard iii, 522 to the board, the black lung benefits act may call for n.5 (7th cir. 1990) (applying deference to the factual lisle iii, 541 f.3d at 602. kanter invokes the doctrine of that the stj did not clearly err in finding that this as well as from the cases we noted earlier, is that each evidence at trial to satisfy his burden of proof. the 26 u.s.c. § 674(a) states that: bank deposits constitutes prima facie evidence of income, higher standard of proof applies. for fraud charges, the taxable income on a personal income tax return. kanter the result of fraud. merely identifying non-fraudulent the tax court took a different view. it found that only interests in the cable television venture in 1987, generating before we proceed to the merits of kanter's appeal, we under the immigration and nationality act); hall v. court attaches great importance to the letters in the with respect to liability based on his transactions with the mendoza court was talking about offensive issue spelled out, we conclude that the stj's findings about business enterprise. (1948). thus, if the stj's account of the evidence is activities. in short, the stj held that "there was no under- his ruling on the fact that capital from the other partners ination, the commissioner realized that much of the § 674(a). like the stj, the tax court did not specifically be taxed against the person or entity who actually earned find the stj's factual findings on this issue to be clearly the tax court's jurisdiction depends on whether the deposits, to determine that $443,046.35 of the deposits letter, in which weisgal bills the company for the time further challenged several of the conclusions of the tax that a rational person could just as easily have come to satisfied that stj couvillion did not clearly err when he we reject kanter's argument that he is entitled to defend associates would not have to report the income on their reason to do so here with respect to the factual issues of summons proceedings. cabined by the clear error standard. and, despite the mony on the basis that it was irrelevant because they "ruling has the support of a presumption of correctness, approach . . . . the court also observed that its holding rejected kanter, lisle, and ballard's testimony as self- invites us to carve out an exception to the mendoza princi- error in the stj's conclusion that kanter was not the the case has moved on to the court of appeals. if the factual background of the five's specific business trans- `crucial need' to permit relitigation; the court rejected this portion of a trust in respect of which the beneficial remanded to the tax court for proceedings consistent $100 in 1969. the trust instrument named solomon nos. 08-1036, 08-1037, et al. 25 gains income were actually attributable to kanter for provisions of tefra. the tax court thus lacked jurisdic- pretations of the evidence, we defer to the original fact- 12 nos. 08-1036, 08-1037, et al. only a 1% partnership interest in ci, they did the work of ment. the court of appeals had looked for evidence of a rather than for clear error. see johnson v. orr, 551 f.3d 564, however, with the procedural history that has brought these alleged activities. for a lengthy discussion of the analysis in attempting to determine whether income is to court's handling of the report for abuse of discretion. procedure § 4465.4 (2d ed. 2002) ("[a]t least three income. kanter argues that the commissioner is pre- that bear so heavily on the listener's understanding of largely on the unanimous testimony of the witnesses at sought review of the commissioner's assessed deficiencies 16 nos. 08-1036, 08-1037, et al. u.s.c. § 7443a(b)(4). judge couvillion conducted a five- joshua s. kanter, estate of the trust partners. although kanter and weisgal each had related to this jurisdictional fact, like his other factual legal relationship between the entities that determines findings. we therefore reverse and remand with instruc- sumption evaporates after the tax court has acted and entities that paid ci. to arrive at this conclusion, the tax that we already have found no clear error in the stj's of ritch's initial funding of the trusts. it also found im- finding that kanter did not assign income from a sup- him that the tax court's assertion that it had adopted the remaining issue is whether half of ci's income is attribut- u.s. tax ct. r. 183(d). the plain language of this rule prior finding that kanter was not funneling income and possessed the power of disposition were enough his factual findings and recommending legal conclusions. their projects, and these fees were ci's primary source ship was dissolved. for the tax years of 1981-1984 and the same as the stj's, we did not require the tax court deficiency. rather, the key question is whether the fraud has already been determined against the commis- review and which contains the fact-finder's original wrong"). tax fraud is a more serious charge, and so a its decision to reverse the stj. judgment consistent with that opinion. trusts for which he was a beneficiary, but he testified at stj's report as the decision of the tax court. whether the tax court gave proper deference to the lish the standard of review that applies. in 1986, kanter there is no dispute that we are dealing with partnership and ballard rests on his determination that they did not legal issues"). we think it more likely, however, that the to sister circuits faced with an identical or similar case. 1972) ("under our rule, the commissioner's findings of collectively as "kanter.") the theme of kanter's argu- existence (or nonexistence) of kickbacks. if there were actions, see ballard iii, 522 f.3d at 1235-49. nos. 08-1036, 08-1037, et al. 11 28 nos. 08-1036, 08-1037, et al. satisfied, based on the language of tax court rule 183, the received for facilitating business transactions with five wanted to leave open the question whether purely commissioner determined that kanter was the "true for various tax years between 1978 and 1986; the case taxpayers "to argue to an appellate court that the tax complex array of financial mechanisms kanter created plausible that the brts had such investment success decision of the tax court. see estate of lisle v. comm'r, 541 later expanded to include the 1987-1989 tax years as some deference to its decisions at that level. we review given up his appointment power. we also need not fact that it strikes us as a close call, we have accepted the § 301.6231(a)(3)-1(a)(1)(i). the statute calls for dis- we hold, therefore, that nonmutual offensive collateral nos. 08-1036, 08-1037, et al. 29 suburban letters may have been sufficient to justify withstand clear error review. critically, at the time we corpus or income and has not completely repaid the enjoyment of the corpus or the income therefrom is tion over the ci partnership item of partner compensation. apply against the united states. on the merits, we con- various entities that could be read as establishing a con- clearly erroneous, even though we freely acknowledge grantor or a nonadverse party, or both, without the and the taxpayer bears the burden of proving that the inquire into the nature of the brts' loan to kanter. cases in this circuit support that approach. see harrell, 4 nos. 08-1036, 08-1037, et al. named as the trust's settlor. the judge rejected the com- was a material income producing factor (a test derived tax returns of these entities. the commissioner assessed relied on gallenberger's testimony, which it found credi- cabintaxi corp. v. comm'r, 63 f.3d 614, 619 (7th cir. 1995). correctness. nothing in that rule suggests that the pre- find that the brt-oba deal was predicated on kanter's concluded that the findings of fact it set forth were not issues presented on appeal. against kanter and his associates. the stj considered whether kanter should be con- given "due regard" and are entitled to a presumption of credibility determinations. factors must be counted in favor of finding in the purpose was to discover attractive investment oppor- that kanter had the power of disposition over the trusts' jurisdiction over the relevant years. perienced strong growth from their inception, but the reasons that the fifth and eleventh circuits have claims, which interpreted its own rule to require once again, we conclude that the stj's finding is not shifting of income to a different tree from that on which . . . burden with regard to income from transactions with the judge couvillion produced a 303-page report setting forth when a district court uses a special master, we typically has conceded this issue, we still must consider it to deter- judge--as required by statute at 29 u.s.c. 160(e)). it is the evidence in the record that supports the commissioner's extend to litigation against the united states"); see also with the supreme court's decision. see estate of kanter arguably leave open the possibility that estoppel may issues such as those involved in this case. findings, for clear error. to release the stj's decision. estate of kanter v. comm'r, 337 court to enter the stj's report into the record to verify it should have, to the stj's original findings of fact. in income, passive activity partnership losses, and capital in adkins v. commissioner, 875 f.2d 137 (7th cir. 1989), we viewing the decision of the district court, when the comm'r v. culbertson, 337 u.s. 733, 742 (1949). dreams. the entities in which oba had a stake sold their the special trial judge had the opportunity to evaluate ballard and lisle with respect to these tax deficiency credibility determinations, we see no reason to overturn stj's finding that there was no underpayment of taxes. in 1982, kanter deposited over $2.8 million in three bank with instructions to adopt the stj's decision as the (1979). while acknowledging that nonmutual (offensive) deference to the trial judge's findings of fact. see id., at 54- in oba, kanter may have directed investors to oba to and tax court's arguments with respect to the five and the commissioner argues that kanter is liable for u.s. at 575. with these principles in mind, we turn to the contrary to the commissioner's assertions, the stj ad- sidered the grantor of the brts, given that bea ritch was sioner. anderson v. bessemer city, 470 u.s. 564, 574 (1985); united tional only to his stated ownership interest because all of century industries, as the tax court lacked jurisdiction one interpretation of this language (shared by the tax in 1979, the century industries ("ci") partnership was sioner's theory is as follows: kanter and his associates iii f.3d 833, 843-44 (7th cir. 2003) ("kanter i"). instead, we deference to the district court, and rule 53 may take a liability against him by relitigating that factual issue in trial that he had renounced all beneficial interests and record, to come to opposite conclusions and for the appellate nos. 08-1036, 08-1037, et al. 21 were ci's only real partners. we review the stj's findings have upheld the stj's findings on that issue, and so that argues that the commissioner is barred by the statute requires an analysis of the entire record. see dileo v. of income during its early years, as it did not pursue by united states v. mendoza, 464 u.s. 154 (1984), kanter 522 f.3d 1229, 1255 (11th cir. 2008) ("ballard iii"). it is the history of the rule also supports this interpretation. point of reference for the court of appeals is the ritch trusts. the tax court found that he was the true court intended to create a uniform rule precluding the nonmutual defensive collateral estoppel to argue that investments in various entities, many of which kanter who the true settlor might be. stern v. comm'r, 77 t.c. 614, the key date is (or was) 1987 because that is when the district court decision to reject the master's recom- 22 nos. 08-1036, 08-1037, et al. factual issues could be the subject of nonmutual issue story told by the taxpayer's books accurately reflects his assessed. third, with respect to century industries, we opinions of those courts are entitled to the same and perhaps most important, there is a powerful fairness grantor of a trust (also known as the settlor) is the person 1984, and 1986 tax years; we further find that the stj's assets, disbelieving kanter's assertion that he had re- be aware of the variations in demeanor and tone of voice evidence, the commissioner believes, establishes that invest in the then-nascent cable television industry. the established the trust (here, bea ritch), and that person's income over $1,000,000 that kanter deposited in his bank accounts at american national bank in chicago. linda united states v. basye, 410 u.s. 441, 448-49 (1973). the stj that the partners had a good-faith intent to conduct a no kickback scheme; in the process of doing so, it over- in his appeal, we need not address his due process argu- register, which recorded the source and nature of these mine whether, or to what extent, the tax court erred in 99,407, *1 (1999). the tax court decision was unfavorable applied to lisle, lisle iii, 541 f.3d at 603-04, and rejecting the assertion of identity between kanter and congress provided that the court of appeals must revenue code is that owners are taxed for trust income, to the brts. the brts also made loans to kanter, $287,030 nos. 08-1036, 08-1037, et al. 13 nos. 08-1036, 08-1037, 08-1038, 08-1039, role and responsibility. ("tefra"), 26 u.s.c. §§ 6221-33, applies to ci and the ritch (kanter's mother), are a series of 25 trusts estab- and independent of disputes involving nonpartnership pleadings to this effect. kanter does not appeal that when a magistrate judge prepares a report and recom- the debate over the application of this preclusion appointment powers in the trusts in the 1970s. reasonable factfinder would not credit it." anderson, 470 tax deficiencies and penalties for tax fraud based on part of the appeal in the relevant section below. we begin, and lisle. like our colleagues, we conclude that the see seventh circuit local rule 40(e), and we see no had not paid all his taxes. since then, the case has taken a apply deferential review to the original fact-finder's disguised personal income as income of entities that did trate judge); schwartz mfg. co. v. nlrb, 895 f.2d 415, 416 the parties dispute, however, whether we apply johnson, 551 f.3d at 567. here, jurisdiction depends on a and conclusions of law. see estate of kanter v. comm'r, on the relevant dockets. at the end of that time, petitioners-appellants, only possible view of the facts was the one that the tax growth of the brts' investments (both prior to oba and weisgal were the only true partners in ci and thus attrib- ship," defined as a partnership with fewer than 10 part- the true owner of the brts under either of the provi- the grantor shall be treated as the owner of any have already explained, we do not find clearly erroneous existence of a kickback scheme; it also inferred from the apply in cases where the tax court judge does not use recommended by the special trial judge shall be circuits, which have reversed and remanded the case he knew or believed he owed." see toushin v. comm'r, evidence that the taxpayer intended to evade taxes that noting that the commissioner had failed to present any 26 nos. 08-1036, 08-1037, et al. ci's income to kanter, and the commissioner assessed decided kanter i, we did not have before us the stj's with which he was associated.) the stj concluded that after kanter allegedly renounced his appointment power. methods to reconstruct a taxpayer's taxable income. see mended method for calculating attorneys' fees). evidence available to it in determining whether the (or lucky?) investment choices, particularly in the process argument. earlier finding of fact to support a defense). the policy cases dealing with the liability of kanter's associates for on the first issue, we reject kanter's preclusion argu- trast, if the partnership in question is a "small partner- respectful consideration that we would always accord it reviews decisions of the district court sitting without a show the proper level of deference to the stj's factual we therefore conclude that the stj did not clearly err nos. 712-86, 1350-87, 31301-87, 33557-87, 3456-88, below." investment research assocs. v. comm'r, t.c.m. (ria) ance company to channel business opportunities to the factfinder's choice between them cannot be clearly this court. see parklane hosiery co. v. shore, 439 u.s. 322 middle approach for masters. our problem is to deter- welch, 290 u.s. at 115. weisgal, the bea ritch trusts, four weisgal family trusts, grantor. the commissioner does not point to any evidence f.3d 1037 (11th cir. 2003) ("ballard i"). taking the stj and vi legal decisions de novo, including the legal decision of the in respect of such issue shall be upon the secretary."). we have chosen to set forth the facts pertinent to each 1998) (applying the abuse of discretion standard to the use of the doctrine against the government, and later itself, as well as this court's more recent decision in the bea ritch trusts ("brts"), named for beatrice deference to the underlying administrative law judge evidence under the black lung benefits act); in re land see boyett v. comm'r, 204 f.2d 205, 208 (5th cir. 1953), the taxable year. the preceding sentence shall not 2 nos. 08-1036, 08-1037, et al. circuits--when he reasoned that this theory turns on the the government should be precluded from establishing posed kickback scheme to various entities in which the tion to the contrary, to support the stj's finding that of the enterprise. history therefore support the proposition that we, too, behind the façade of ci. if the tax court had been sitting though this court at times has reviewed the district ritch, the alleged grantor, funded each of the trusts with the five. this holding makes it unnecessary for us to conclusion that only the 1% interest that kanter held over many of the years at issue and he owed taxes propor- this finding. we recognize that the taxpayer must demon- estoppel simply does not apply against the govern- pursued their own appeals in the fifth and eleventh noted that the publication of the stj's findings equipped entertained the possibility that the supreme court 26 u.s.c. § 675(3). that no kickback schemes existed. he based this finding court to the supreme court and back again. in this itera- partners. this brought ci within the ambit of tefra (as tion of the assignment-of-income doctrine, holding that generally recognized for tax purposes, and that the stj presumed to be correct. national labor relations act may call for deference ments on appeal is that the tax court did not defer, as position and the tax court's decision. there is. when we now our turn to confront the case, focusing on kanter's an unfavorable tax court decision that rejected many of it provides that the district court's review of matters the credibility of witnesses, and the findings of fact combination of kanter's business advice to weisgal and deficiency. with respect to the fraud theory, we are but instead amount to a de novo look at all of the evi- ners, an individual partner-level proceeding may be was in the best position to find facts and make income should be attributed to the individual rather than witnesses and conclusions of judge couvillion the due the clearly erroneous standard to the bankruptcy referee's f.3d at 1254. we come to the same conclusion for kanter. 32103-88, 25251-90--harry a. haines, judge. the eleventh circuit rejected the argument that ballard court and the commissioner) is that kanter and weisgal at 1235 n.6. this suggests that review in the court of ble, and kanter's check register. the tax court reversed in reviewing the record produced at trial, the stj found claimed partners of ci were the actual partners. the tax case), not defensive issue preclusion (the use of an ceeding in tax court. 26 u.s.c. § 6231(a)(3). in con- any investments until 1987. in 1998 or 1999, the ci partner- sideration of all of those factors, better serves our ment in oba had accrued in the 1986 tax year, and the there are two permissible views of the evidence, the personally earned the income in question, ballard iii, 522 identity is noted in the trust document. it sometimes well. kanter passed away in 2001, and so since then, this 08-1040, 08-1041, 08-1042 our sister circuits' opinions in lisle iii, 541 f.3d at 600-01, financial history.") (internal quotation marks omitted). one to be accorded to their testimony."). both the rule and its [t]he grantor has directly or indirectly borrowed the 79, in which a grantor may be deemed an owner of a gallenberger, kanter's accountant, used kanter's check commissioner's determinations are erroneous. see accounts, the government must be free to use all legal possible for two judges to review the same record and the tax court rejected the stj's finding that there was vacate its decision and enter an order adopting the

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