112 T.C. No. 20
UNITED STATES TAX COURT
ALDRICH H. AMES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14031-96. Filed May 28, 1999.
In 1985, P, an employee of the Central Intelligence Agency, began selling classified information to the Soviet Union. During 1985, P received a communication from a Soviet agent that $2 million had been set aside for P to draw upon. On Apr. 28, 1994, P pled guilty to conspiracy to commit espionage and tax conspiracy to defraud the U.S. Government. P was sentenced to life imprisonment on the espionage charge and to 27 months’ imprisonment on the tax charge. R determined that P failed to report as income amounts received and deposited in his bank accounts during 1989 through 1992. P contends that he constructively received the majority of the illicit espionage income in 1985, the year he was informed that $2 million had been set aside for him. P also contends that he is protected by the Double Jeopardy Clause of the Fifth Amendment to the U.S. Constitution from the assessment of any tax or civil penalties based upon his illegal espionage income. - 2 -
P sought to discover R’s criminal reference letter. Generally, criminal reference letters contain detailed recommendations by R’s attorneys that a taxpayer be prosecuted for criminal tax violations. R refused to turn over the letter, claiming the work product privilege applied. P contends that the privilege does not apply to this civil proceeding. If we decide it does apply, P argues that we should apply a balancing test and decide that his substantial need overcomes the need for assertion of the privilege. Held: The work product privilege applies to the criminal reference letter, and P has not shown substantial need that would vitiate R’s claim of work product privilege. Held, further, P did not constructively receive income before specific amounts were made available to him. Held, further, the imposition of a tax liability on P’s espionage income and/or the imposition of an accuracy-related penalty does not constitute punishment within the meaning of the Double Jeopardy Clause.
Aldrich H. Ames, pro se.
Richard F. Stein and John C. McDougal, for respondent.
GERBER, Judge: Respondent determined deficiencies in
petitioner’s Federal income tax and section 6662(a)1 penalties as
follows:
Penalty Year Deficiency Sec. 6662(a) 1989 $214,303.51 $42,860.70 1990 19,970.77 3,994.15 1991 27,367.39 5,473.48 1992 58,684.57 11,736.91
1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years under consideration, and all Rule references are to this Court’s Rules of Practice and Procedure. - 3 -
The issues for our consideration are: (1) Whether
petitioner constructively received income from illegal espionage
activities during 1985, when it was allegedly promised and/or set
aside for him, or when it was received and/or deposited in his
bank accounts during the taxable years 1989, 1990, 1991, and 1992
in the amounts of $745,000, $65,000, $91,000,2 and $187,000,
respectively; (2) whether petitioner is liable for the accuracy-
related penalty for taxable years 1989 through 1992; (3) whether
petitioner is constitutionally protected by the Double Jeopardy
Clause of the Fifth Amendment to the U.S. Constitution from the
assessment and/or collection of any tax or civil penalties
arising from espionage activity for which he was convicted and
incarcerated; (4) whether the work product doctrine may be
interposed by respondent in this case to prevent the turnover of
respondent’s counsel’s criminal reference letter; and (5) if the
work product privilege applies, whether petitioner has shown
substantial need so as to vitiate respondent’s assertion of the
privilege.
2 Although there was a discrepancy in the notice of deficiency over the amount of income that petitioner allegedly failed to report in 1991, respondent used $91,000 for purposes of calculating the amount of the deficiency. Therefore, we will use that number for purposes of this opinion. - 4 -
FINDINGS OF FACT3
Petitioner is incarcerated in a Federal penitentiary for
turning over state secrets to a foreign government at a time when
he held a position with the Central Intelligence Agency (CIA) of
the United States. He had his legal residence in Allenwood,
Pennsylvania, at the time the petition in this case was filed.
Petitioner’s employment with the CIA spanned the years 1962 to
1994, during which he was assigned to progressively more
responsible positions involving the Union of Soviet Socialist
Republics (Soviet Union) and Soviet Bloc Eastern European
countries. Throughout that time, petitioner held a Top Secret
security clearance, and he had access to information and
documents classified Secret and Top Secret.
Petitioner timely filed joint Federal income tax returns
with his wife, Rosario C. Ames, for the taxable years 1989, 1990,
1991, and 1992. Petitioner’s returns were filed on the cash
basis for reporting income and deductions. The returns primarily
reflected income from petitioner’s CIA employment in the amounts
of $70,337, $60,340, $62,514, and $67,578 for 1989, 1990, 1991,
and 1992, respectively.
In 1984, as part of his duties as a CIA Operations officer,
petitioner began meeting with officials of the Soviet Union’s
3 The stipulation of facts and the attached exhibits are incorporated by this reference. - 5 -
Embassy in Washington, D.C. These meetings were authorized by
the CIA and the Federal Bureau of Investigation (FBI) and were
designed to allow petitioner access to Soviet officials as
possible sources for intelligence information and recruitment.
Sometime during April 1985, petitioner entered into a
relationship with Soviet officials under which he betrayed his
country and sold classified CIA information and information
sourced in other branches of the U.S. Government to the KGB (the
Soviet intelligence directorate) in return for large amounts of
remuneration. Petitioner provided the KGB with classified Top
Secret information relating to the penetration of the Soviet
military and intelligence services by the CIA, including the
identities of Soviet military and intelligence officers who were
cooperating with the CIA and foreign intelligence services of
governments friendly to the United States. Because of
petitioner’s disclosures, a number of these individuals were
arrested and executed by the KGB.
In the fall of 1985, petitioner received a communication
from a Soviet agent that $2 million had been set aside for him in
an account that he would be able to draw upon. Petitioner was
told that the money was being held by the Soviet Union, rather
than in an independent or third-party bank or institution, on
petitioner’s behalf. Petitioner received $50,000 in cash for his
initial disclosure to the KGB and additional cash payments, the - 6 -
specific dates of which have not been detailed in the record of
this case.
Petitioner met with Soviet officials in Washington, D.C.,
and in 1989 he met with them in Rome. In the spring of 1989, as
petitioner was preparing to return to CIA headquarters in
Langley, Virginia, the KGB provided him with two written
documents. The first was a financial accounting that indicated
that as of May 1, 1989, approximately $1.8 million had been set
aside for petitioner and that some $900,000 more had been
designated for him. The second document was a nine-page letter
containing a list of the types of classified U.S. Government
information sought by the KGB. The second document also
contained a discussion of arrangements for cash dropoff payments
to petitioner upon his return to the United States, a warning to
petitioner to avoid traps set by the CIA, and a detailed plan
governing future communications between petitioner and the KGB.
After his return to Washington, D.C., in 1989, petitioner
communicated with the Soviets primarily through a complex
arrangement of signal sites (a prearranged location where an
individual leaves an impersonal mark or item to convey a
prearranged message) and dead drops (locations for secretly
leaving packages for anonymous pickup). Petitioner personally
met with the Soviets only about once a year. Throughout this
period, it was typical for petitioner to make a delivery of - 7 -
information and receive cash by means of signal sites and dead
drops. Petitioner continued his unlawful espionage activities
until his arrest in 1994.
During the years 1989, 1990, 1991, and 1992, petitioner and
his wife made deposits of cash received in connection with
petitioner’s unlawful espionage activities in the amounts of
$745,000, $65,000, $91,000, and $187,000, respectively. These
deposits did not represent transfers of funds from other accounts
or redeposits of currency previously withdrawn from other
accounts. Petitioner did not report on his income tax returns
for taxable years 1989, 1990, 1991, and 1992 any of the amounts
received from the KGB in connection with his illegal espionage
activities. Petitioner did not report on a Federal income tax
return (including his 1985 return) any amount of unlawful income
he received or that had been set aside for him.
On April 26, 1994, petitioner was indicted in the U.S.
District Court for the Eastern District of Virginia on charges of
conspiracy to commit espionage, under 18 U.S.C. sec. 794(c), and
conspiracy to defraud the U.S. Internal Revenue Service, under 18
U.S.C. sec. 371. On April 28, 1994, petitioner pled guilty to
both counts of the indictment. The indictment contained a
criminal forfeiture count pursuant to 18 U.S.C. sec. 794(d).
Petitioner was sentenced to life imprisonment on the espionage
charge and to 27 months’ imprisonment on the tax charge, the two - 8 -
sentences to run concurrently. In addition, the plea agreement
provided for the criminal forfeiture of whatever interest
petitioner had in espionage-related assets. At the time of
trial, petitioner was serving a life sentence in a Federal
penitentiary.
OPINION
I. Work Product Doctrine--Criminal Reference Letter
We first consider petitioner’s motion to compel production
of respondent’s criminal reference letter (CRL). CRL’s typically
contain a detailed recommendation and supporting legal analysis,
from the Commissioner to the U.S. Department of Justice, that a
taxpayer be prosecuted for various criminal tax violations. See
Brown v. Commissioner, T.C. Memo. 1994-282.
Tax Court Rules provide for discovery of information that is
not privileged but is relevant to the subject matter involved in
the pending case. See Rule 70(b). A party opposing discovery
bears the burden of establishing that the information sought is
privileged. See Zaentz v. Commissioner, 73 T.C. 469, 475 (1979).
Respondent contends that the CRL was prepared in
anticipation of litigation and, thus, is protected under the work
product doctrine. We agree. The CRL contains respondent’s
counsel’s legal analysis that petitioner be criminally prosecuted
for various tax violations. This type of correspondence is a
classic example of attorney work product. See, e.g., Brown v. - 9 -
Commissioner, supra. Petitioner does not question the
categorization of the CRL as attorney work product in the context
of the criminal case. He argues that the CRL was prepared for
the criminal case, and therefore respondent should not be allowed
to assert the work product privilege in this subsequent civil
proceeding. Petitioner also argues that he has shown substantial
need for the CRL that would be sufficient to overcome
respondent’s assertion of the work product privilege. We address
each of petitioner’s arguments separately.
A. Does the Privilege Extend to Subsequent Litigation?
Generally, the protective cloak of the work product doctrine
covers material prepared by an attorney in anticipation of
litigation. See Hartz Mountain Indus., Inc. v. Commissioner, 93
T.C. 521 (1989). Petitioner argues that the privilege should
extend only to the anticipated litigation for which the document
was prepared and not to subsequent litigation. In determining
whether the privilege extends to concurrent or successive
proceedings, some courts consider the degree and type of
relationship between the first and second proceeding.4 See In re
4 Some Courts of Appeals have extended the privilege to unrelated litigation. See, e.g., Duplan Corp. v. Moulinage et Retorderie de Chavanoz, 487 F.2d 480 (4th Cir. 1973); see also FTC v. Grolier, 462 U.S. 19, 25-27 (1983) (and cases cited therein). - 10 -
Grand Jury Proceedings, 604 F.2d 798, 803 (3d Cir. 1979); Puerto
Rico v. SS Zoe Colocotroni, 61 F.R.D. 653, 658 (D.P.R. 1974).
The work product doctrine is intended to enable a lawyer to
“work with a certain degree of privacy, free from unnecessary
intrusion by opposing parties and their counsel.” Hickman v.
Taylor, 329 U.S. 495, 510 (1947). A civil tax case could be
anticipated to follow a criminal tax case. The rationale behind
the work product doctrine would be frustrated if documents
prepared for the first action were open to an opposing party in
the second action that was anticipated and concerned a related
matter. Documents prepared for a civil proceeding before the
Environmental Protection Agency qualified for the work product
privilege in a subsequent criminal matter. See In re Grand Jury
Proceedings, supra.
Respondent’s CRL was prepared in connection with
petitioner’s criminal tax investigation. There is subject matter
identity between petitioner’s criminal tax violations and
petitioner’s civil tax liability and the present civil tax
action. There is a foreseeable and reasonable expectation that
the Government will pursue a civil tax liability that may be
derivative of criminal tax violations. We do not hesitate in
finding a nexus between respondent’s CRL and this civil
proceeding. Accordingly, the work product privilege should
extend to this civil proceeding even though the letter was - 11 -
prepared specifically to address petitioner’s criminal tax
investigation and prosecution.
B. Has Petitioner Shown Substantial Need Sufficient To Vitiate the Asserted Privilege?
Petitioner contends that even if we find a nexus for the
application of the work product doctrine to this civil
proceeding, he has made a sufficient showing of substantial need
outweighing the need for the protection provided by the work
product doctrine. The work product privilege is a qualified one
that, in some circumstances, may be overcome by a showing of good
cause and substantial need. See In re Grand Jury Investigation,
599 F.2d 1224, 1231 (3d Cir. 1979); Puerto Rico v. SS Zoe
Colocotroni, supra at 658. We note, however, that the CRL falls
squarely within the work product category because it contains an
attorney’s mental impressions and conclusions. See In re Grand
Jury Investigation, supra at 1231.
Petitioner contends that the CRL would enable him to show
that respondent’s motive in pursuing the civil tax liabilities is
punitive and that, therefore, this proceeding would be barred by
the Double Jeopardy Clause of the Fifth Amendment. Petitioner’s
argument is flawed. The Double Jeopardy Clause protects against
the imposition of multiple criminal punishments for the same
offense. See Hudson v. United States, 522 U.S. 93 (1997).
Respondent’s motive behind pursuing this civil tax case is not - 12 -
relevant in determining whether this Court’s imposition of civil
tax penalties against petitioner violates the Double Jeopardy
Clause.5 Under these circumstances, petitioner has not
demonstrated substantial need for the protected document, and we
hold that petitioner is not entitled to compel production of the
CRL from respondent.
II. When Should Petitioner Have Reported the Income From His Illegal Espionage Activities?
Petitioner contends that he constructively received most6 of
the unlawful espionage income in 1985, and, accordingly, he was
not required to report the income received and deposited during
the taxable years 1989, 1990, 1991, and 1992. Respondent
contends that the income was reportable in 1989 through 1992, the
years petitioner actually received and deposited cash in his bank
accounts. Petitioner concedes that the funds deposited during
5 A detailed discussion of the Double Jeopardy Clause and whether it applies in the setting of this case may be found infra. 6 Petitioner contends that he constructively received almost $2 million in 1985 and, in addition, that he received $10,000 per month or $120,000 per year during each of the years at issue. Other than his constructive receipt contention, petitioner does not contend that we should modify respondent’s determination. Respondent determined, on the basis of petitioner’s bank deposits, that he underreported his income by $745,000, $65,000, $91,000, and $187,000 for the taxable years 1989, 1990, 1991, and 1992, respectively. Petitioner, however, does not argue that we should increase respondent’s determinations for the 1990 and 1991 years, which are less than the amounts petitioner has contended that he received. Likewise, respondent did not assert an increased deficiency for the 1990 or 1991 tax years. - 13 -
the years in issue represent cash received from the Soviet Union
during the years of the deposits. Petitioner argues, however,
that most of the amounts he received during the taxable years
under consideration were constructively received in 1985.7
A taxpayer reporting income on the cash method of
accounting, such as petitioner, must include an item in income
for the taxable year in which the item is actually or
constructively received. See sec. 451(a). The concept of
constructive receipt is well established in tax law. The courts
have regularly looked to section 1.451-2(a), Income Tax Regs.,
for the following definition of the term “constructive receipt”:
(a) General rule. Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions. * * *
7 At trial, petitioner testified that he constructively received but fraudulently failed to report the illicit income for 1985. He explained that if he had reported the income on his Federal income tax return, his illicit and secret relationship with the Soviet Union would have been revealed. We note that petitioner’s concession may have placed him at a disadvantage irrespective of our holding here. For example, if petitioner fraudulently failed to report income for 1985, the period for assessment would not have expired for 1985. See sec. 6501(c)(1). - 14 -
Following the regulatory definition, courts have held that
income is recognized when a taxpayer has an unqualified, vested
right to receive immediate payment. See Martin v. Commissioner,
96 T.C. 814, 823 (1991); Ross v. Commissioner, 169 F.2d 483, 490
(1st Cir. 1948), revg. and remanding on another issue a
Memorandum Opinion of this Court. Normally, the constructive
receipt doctrine precludes the taxpayer from deliberately turning
his back on income otherwise available. See Martin v.
Commissioner, supra; Young Door Co. v. Commissioner, 40 T.C. 890,
894 (1963). Here, however, petitioner relies on constructive
receipt as a foil to respondent’s determination that the unlawful
income was reportable during the years before the Court. In any
event, the essence of constructive receipt is the unfettered
control over the date of actual receipt. See Hornung v.
Commissioner, 47 T.C. 428, 434 (1967).
The determination of whether a taxpayer has constructively
received income is to be made largely on a factual basis. See
Hughes v. Commissioner, 42 T.C. 1005, 1012 (1964). Resolution of
the controversy in petitioner’s favor depends on whether he can
show that he constructively received about $2 million in 1985,
the year he was informed that an amount had been set aside for
him. Under the circumstances here, petitioner did not possess
“unfettered control” over the $2 million in 1985. - 15 -
Assuming arguendo that some type of account was created and
funds were segregated for petitioner, he did not have ready
access to it, and certain conditions had to be met or had to
occur before he could gain physical access to any funds.
Petitioner had to contact the Soviets, using a complex
arrangement of signal sites, to determine whether a “withdrawal”
could be made. Next, the Soviets had to arrange to have the cash
transferred into the United States and have it secretly left in a
prearranged location for petitioner. There was no certainty that
these conditions and steps could be accomplished under the
existing circumstances, and the conditions represented
substantial risks, limitations, and restrictions on petitioner’s
control of the funds, assuming they were even in existence and
segregated for his exclusive benefit. See Paul v. Commissioner,
T.C. Memo. 1992-582 (no constructive receipt where taxpayer would
have had to travel 68 miles in order to turn in winning lottery
ticket). There is no constructive receipt of income where
delivery of the cash is not dependent solely upon the volition of
the taxpayer. See Hornung v. Commissioner, supra at 435.
So long as the Soviets retained control over any funds or
promised set-asides, there was no practical or legal way in which
petitioner could compel payment. Constructive receipt of income
has been found where a corporation offers payment or pays by
check in one year, but the recipient refuses delivery or fails to - 16 -
cash the check until the following year. See, e.g., Frank v.
Commissioner, 22 T.C. 945 (1954), affd. per curiam 226 F.2d 600
(6th Cir. 1955); Southeastern Mail Transp., Inc. v. Commissioner,
T.C. Memo. 1987-104. Here, no such proffer was made, and
petitioner did not have a legally enforceable claim. If the KGB
had questioned petitioner’s loyalty at any time before payment,
there is no assurance that petitioner would have continued to
receive cash deliveries or payments. So long as the Soviet Union
retained the ability to withhold or control the funds, there was
no constructive receipt. Petitioner did not constructively
receive the income before it was made physically and/or
practically available to him. Accordingly, we hold that
petitioner received and failed to report income in the amounts of
$745,000, $65,000, $91,000, and $187,000 for the years 1989,
1990, 1991, and 1992, respectively.
III. Is Petitioner Liable for the Negligence Penalty?
Respondent determined that each of petitioner’s
underpayments was due to negligence or disregard of rules or
regulations. Section 6662(a) and (b)(1) provides for an
accuracy-related penalty equal to 20 percent of the portion of
the underpayment that is attributable to negligence or disregard
of rules or regulations. Petitioner must show that respondent’s
determination is erroneous. See Rule 142(a). - 17 -
“Negligence” is statutorily defined as “any failure to make
a reasonable attempt to comply with the provisions of [the
internal revenue laws]”. Sec. 6662(c). “[D]isregard” is defined
as “any careless, reckless or intentional disregard” of rules or
regulations. Id.
Petitioner contends that he was not required to report the
income for the 1989 through 1992 tax years because it was
constructively received during 1985. We note that, although
petitioner contends that the income in question should have been
reported for 1985, he has admitted that he fraudulently concealed
his espionage income and intentionally did not report it on his
1985 return.8 Petitioner’s conduct was not driven by his attempt
at compliance with the internal revenue laws; rather his entire
pattern of activity reflects his goal of concealment of income.
Petitioner, in that same vein, made the novel argument that
his failure to report his unlawful income was due to fraud, not
negligence, and that the fraud and negligence penalties are
mutually exclusive.9 To the extent that petitioner may not be
found liable for both the fraud and the negligence penalties,
8 Petitioner characterized as fraudulent his failure to report the receipts that he contends were constructively received during 1985. 9 Respondent determined the negligence penalty for each of petitioner’s taxable years in the notice of deficiency. Respondent’s motion to amend the answer shortly before trial to allege civil fraud was denied. - 18 -
they are mutually exclusive. See sec. 6662(b). The accuracy-
related penalties and the fraud penalty may, however, be asserted
in the alternative. Where the fraud penalty is not in issue or
where a court decides fraud is not applicable, the negligence
penalty may be considered and/or found. It is rather obvious
that fraudulent concealment goes far beyond and is inclusive of
“negligence or disregard of rules or regulations.” Here,
petitioner was convicted of conspiracy to defraud the Government
under 18 U.S.C. sec. 371, and he admits that he intentionally
concealed his unlawful espionage income. Additionally, his
constructive receipt argument falls far short of the legal
standard. We hold that petitioner is liable for the section
6662(a) negligence penalty in each of the taxable years 1989,
1990, 1991, and 1992.
IV. Is Petitioner Constitutionally Protected by the Double Jeopardy Clause of the Fifth Amendment From the Assessment of Any Tax or Civil Penalties Based Upon His Unlawful Espionage Income?
Petitioner contends that imposing an income tax liability on
the income he received from his espionage activities and/or
imposing a negligence penalty under section 6662 violates the
Double Jeopardy Clause of the Fifth Amendment to the U.S.
Constitution that no person shall “be subject for the same
offence to be twice put in jeopardy of life or limb”.10 In
10 Petitioner argues that the requirement that he pay the (continued...) - 19 -
petitioner’s criminal case, he was incarcerated for life, and his
assets/income from espionage were forfeited.
This Court recently reaffirmed that additions to tax for
fraud are a civil remedy, not a criminal punishment, and
therefore beyond the scope of the Double Jeopardy Clause. See
Louis v. Commissioner, T.C. Memo. 1996-257, affd. per curiam 170
F.3d 1232 (9th Cir. 1999). The Supreme Court, after our holding
and before the Court of Appeals’ affirmance in Louis, considered
the nature of monetary penalties imposed on bank officers already
convicted of misapplying bank funds. See Hudson v. United
States, 522 U.S. 93 (1997). A two-step analysis was used in
Hudson to determine whether a penalty is civil or criminal. See
id. at 99. The two-step Hudson approach was not employed by our
Court in Louis in concluding that the addition to tax for fraud
does not constitute a criminal punishment. The two-step process
requires analysis of the statutory language to determine whether
Congress indicated an express or implied preference for one label
or the other, and if a civil penalty is intended, then an
evaluation of “‘whether the statutory scheme [is] so punitive
either in purpose or effect’” that it transforms the intended
10 (...continued) tax and penalties are being employed as punishment. He does not argue that his forfeiture of the income and assets associated with his illegal espionage activity should obviate any tax burden. - 20 -
civil sanction into a criminal penalty. Id. at 99 (quoting
United States v. Ward, 448 U.S. 242, 248-249 (1980)).
Congress intended the penalty for negligence to be a civil,
not a criminal, sanction. See Helvering v. Mitchell, 303 U.S.
391, 402 (1938); Louis v. Commissioner, 170 F.3d at 1235. The
statutory language reflects that the section 6662 accuracy-
related penalty for negligence is a penalty in connection with
civil tax liability (addition to the tax). See also Louis v.
Commissioner, 170 F.3d at 1235, where the same conclusion was
reached by the Court of Appeals concerning the civil fraud
penalty.
Having decided that a civil penalty was intended, we now
consider the following “useful guideposts” provided in Hudson to
determine whether the statutory scheme is punitive in either
purpose or effect:
(1) “[w]hether the sanction involves an affirmative disability or restraint”; (2) “whether it has historically been regarded as a punishment”; (3) “whether it comes into play only on a finding of scienter”; (4) “whether its operation will promote the traditional aims of punishment--retribution and deterrence”; (5) “whether the behavior to which it applies is already a crime”; (6) “whether an alternative purpose to which it may rationally be connected is assignable for it”; and (7) “whether it appears excessive in relation to the alternative purpose assigned.”
Hudson v. United States, supra at 99-100 (quoting Kennedy v.
Mendoza-Martinez, 372 U.S. 144, 168-169 (1963)). These factors - 21 -
are to be considered in relation to the “statute on its face”,
and “only the clearest proof” will suffice to override
legislative intent that a remedy be civil in nature. Id. at 100.
After considering the “guidepost” factors, we hold that the
accuracy-related penalty for negligence and/or the civil tax
liability on the forfeited espionage income are not so punitive
as to overcome clear congressional intent that they be civil
rather than criminal in nature. The imposition of a tax
liability, or a civil tax penalty, does not amount to an
affirmative disability or restraint, nor has it historically been
regarded as punishment. See Louis v. Commissioner, 170 F.3d at
1235 (for penalties); Murillo v. Commissioner, T.C. Memo. 1998-13
(for tax liability). The Court of Appeals for the Ninth Circuit
has applied the Hudson test in Louis and held that the addition
to tax for fraud and its purpose were remedial.11 Louis v.
Commissioner, supra. The fraud penalties “are provided primarily
as a safeguard for the protection of the revenue and to reimburse
11 The Court of Appeals for the Ninth Circuit, in holding that the civil fraud penalty was not punitive within the meaning of Hudson v. United States, 522 U.S. 93 (1997), noted that the civil fraud penalty contained some of the guideposts, such as intent. See Louis v. Commissioner, 170 F.3d 1232, 1235-1237 (9th Cir. 1999), affg. per curiam T.C. Memo. 1996-257. In that regard, the negligence penalty does not require specific intent and thus has less coincidence with the guideposts. In addition, the negligence penalty is 20 percent of the affected portion of the underpayment, whereas the fraud penalty is 75 percent of the same portion. - 22 -
the Government for the heavy expense of investigation and the
loss resulting from the taxpayer’s fraud.” Helvering v.
Mitchell, supra at 401 (fn. ref. omitted). A fortiori, if the
fraud penalties are not a criminal punishment, the civil
negligence addition to tax and the tax liability are not a
criminal punishment. The imposition of a Federal income tax
liability is remedial and not a punishment. See Ianniello v.
Commissioner, 98 T.C. 165, 180 (1992).
We hold that the imposition of a tax liability on
petitioner’s espionage income and/or the imposition of an
accuracy-related penalty under section 6662(a) does not
constitute punishment within the meaning of the Double Jeopardy
Clause.12
Decision will be entered
for respondent.
12 The opinions of this Court are replete with factual situations where taxpayers who were not the subject of criminal tax proceedings were found liable for tax and additions to tax on unreported income from legal and illegal sources. Here, petitioner is not being subjected to a greater tax rate or exposure than any other taxpayer, irrespective of whether said taxpayer had been subjected to criminal prosecution prior to a determination of a civil liability.