BYE, Circuit Judge.
Kevin J. Morse appeals the tax court's
In April 1998, Morse, a farmer, was indicted in the United States District Court for the District of Minnesota on four counts of filing false income tax returns in violation of 26 U.S.C. § 7206(1). The indictment charged that for four years (1991-1994), he willfully made and subscribed to federal income tax returns that he did not believe to be true and correct as to every material matter. He was tried and convicted on all four counts, and this court affirmed his conviction. See United States v. Morse, 210 F.3d 380 (8th Cir. 2000). Morse was sentenced to 18 months imprisonment, and he was ordered to pay $61,700 in restitution to the Internal Revenue
On August 17, 2000, the Commissioner sent Morse a statutory notice of deficiency, which noted deficiencies in federal income tax plus civil fraud penalties for the same years (1991-1994). Morse contested the deficiency and penalties in the tax court. He challenged the Commissioner's evidence of fraud, and he asserted the doctrines of res judicata, collateral estoppel, and double jeopardy precluded the Commissioner from relitigating the amount of tax liability because he already paid criminal restitution to the government.
At trial, the parties stipulated to the amount of Morse's unreported income: $75,799 in 1991, $39,900 in 1992, $24,481 in 1993, and $68,713 in 1994. After both parties presented their cases, the tax court found Morse liable for tax deficiencies plus additional fraud penalties for each year. The tax deficiencies were $14,437 for 1991, $7,300 for 1992, $2,698 for 1993, and $27,198 for 1994. The fraud penalties (75 percent of the tax deficiencies) were $10,827.75 for 1991, $5,497.50 for 1992, $2,023.50 for 1993, and $20,398.50 for 1994.
Morse first challenges the district court's finding of fraud. We review this factual finding for clear error. Scallen v. Commissioner, 877 F.2d 1364, 1369 (8th Cir.1989). 26 U.S.C. § 6663(a) provides if any part of a tax underpayment is due to fraud, 75 percent of the fraudulent underpayment is added to the tax. Thus, the Commissioner must show (1) there was an underpayment of tax,
To support a finding of fraud, the Commissioner must show the taxpayer intended to evade taxes he knew or believed to be owing by conduct intended to conceal, mislead, or otherwise prevent their collection. Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418 (1943). Fraud may be inferred from "any conduct, the likely effect of which would be to mislead or conceal." Id. After evaluating the evidence at trial, the tax court found Morse had the requisite fraudulent intent. The court based its finding on three "badges of fraud": (1) substantially understating income for four years without a satisfactory explanation (his explanation was that the omitted income "must not have got in to the tax preparer"); (2) providing incomplete information to his tax preparer; and (3) being convicted of filing false tax returns under 26 U.S.C. § 7206(1). See Spies, 317 U.S. at 499, 63 S.Ct. 364
Morse argues because the Commissioner did not plead collateral estoppel, the Commissioner cannot offensively use his criminal conviction to establish fraud. The Commissioner, however, did not seek to estop Morse from contesting fraud liability by entering his criminal conviction as evidence.
Next, Morse argues the doctrines of res judicata and collateral estoppel preclude relitigation of his tax liability because he was already ordered to pay $61,700 in restitution to the IRS. Whether either doctrine applies is a question of law, which we review de novo. United States v. Brekke, 97 F.3d 1043, 1046-47 (8th Cir. 1996). We conclude neither doctrine precludes the imposition of civil liability for tax deficiency or fraud penalties.
Under the doctrine of res judicata, when a court enters a final judgment on the merits of a cause of action, "the parties and their privies are thereafter bound `not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.'" Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 92 L.Ed. 898 (1948) (quoting Cromwell v. County of Sac., 94 U.S. 351, 352, 4 Otto 351, 24 L.Ed. 195 (1876)); see also Brekke, 97 F.3d at 1047. Morse believes res judicata prevents the Commissioner from seeking a civil fraud penalty because in the criminal prosecution, the prosecutor "could have, as a matter of judicial economy, asserted an additional amount [of restitution] equal to the fraud penalty, but did not." Appellant's Br. at 18.
Res judicata is available only where "(1) the prior judgment was entered by a court of competent jurisdiction; (2) the decision was a final decision on the merits; and (3) the same cause of action and the same parties or their privies were
Morse also argues the doctrine of collateral estoppel bars the Commissioner from relitigating the amount of tax liability, as that amount was already determined to be $61,700 in his criminal restitution order. Collateral estoppel bars relitigation of an issue where (1) the party sought to be precluded in the second suit was a party, or privy to a party, in the prior suit; (2) the issue sought to be precluded is the same as the issue involved in the prior action; (3) the issue was "actually litigated" in the prior action; (4) the issue was determined by a valid and final judgment; and (5) the determination in the prior action was "essential to the judgment." Anderson v. Genuine Parts Co., 128 F.3d 1267, 1273 (8th Cir.1997).
We conclude collateral estoppel is also inapplicable here. An order for criminal restitution is not essential to the judgment of conviction against a criminal defendant "because it [is] not an element of the crime of conviction." Hickman v. Commissioner, 183 F.3d 535, 538 (6th Cir. 1999). In a criminal conviction, the "jury [is] not asked to determine [a] specific tax liability [and] the district judge enjoy[s] considerable discretion as to whether he should order restitution, and if so, as to the amount." Id.; see also United States v. Helmsley, 941 F.2d 71, 102 (2d Cir.1991) (stating where tax evader is required to pay restitution for tax loss, the government may also seek to collect "unpaid taxes, penalties and interest in a civil proceeding"). Because the amount of restitution was not essential to the judgment in the criminal prosecution, the Commissioner is not precluded from litigating Morse's civil tax liability.
Finally, Morse argues the civil fraud penalties violate the Double Jeopardy Clause of the Fifth Amendment, as he has already been punished for the same conduct. Morse's double jeopardy claim is a legal question, which we review de novo. Brekke, 97 F.3d at 1046.
The Double Jeopardy Clause protects against "multiple criminal punishments
In Helvering v. Mitchell, 303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917 (1938), the Supreme Court directly addressed whether the constitutional protection against double jeopardy barred a civil fraud penalty where a taxpayer had previously been subjected to criminal prosecution for willfully attempting to evade and defeat the tax.
For the reasons provided above, we affirm the tax court's decision.