## Facts

- Fredric and Elizabeth Gardner marketed a plan using “corporations sole” and related entities that purported to convert taxable personal income into nontaxable income.
- They promoted the plan through seminars and online materials, representing that it lawfully reduced or eliminated federal income tax.
- Customers paid using “donation” forms that listed suggested amounts functioning as a de facto price list.
- In prior federal injunction litigation, a court entered a permanent injunction against the Gardners for promoting the plan, finding they made material false statements about tax benefits and knew or had reason to know the statements were false; the injunction was affirmed on appeal.
- After the injunction, the IRS investigated and identified 47 customer-related instances tied to the Gardners’ promotion and sale of the plan.
- The IRS assessed § 6700 penalties of $47,000 against each Gardner (47 violations × $1,000) and sustained collection in collection due process (CDP) determinations.
- The Gardners petitioned the Tax Court in consolidated CDP cases, disputing liability and raising procedural objections, including that the notices referenced a tax year even though § 6700 penalties are not annual.

## Issues

1. Whether collateral estoppel barred the Gardners from contesting that they promoted an abusive tax shelter and made materially false tax-benefit statements, given the prior injunction judgment.
2. Whether the Commissioner had to prove, and did prove, at least 47 separate § 6700 violations tied to specific customer-related promotions or sales.
3. Whether the § 6700 assessments or CDP notices of determination were procedurally defective because they referenced a particular tax year.

## Decision

- The Tax Court held the Gardners were collaterally estopped from denying that they promoted the corporation-sole arrangement using materially false statements about tax benefits with the requisite knowledge.
- The court held collateral estoppel did not eliminate the need to prove the number of violations and the Gardners’ connection to the 47 instances, but found the Commissioner met that burden.
- The court sustained the § 6700 penalties of $47,000 against each petitioner.
- The court rejected procedural challenges, holding that including a tax year reference did not invalidate the determination for a time-independent § 6700 penalty where the liability was otherwise clearly identified.

## Legal Principles

- Collateral estoppel applies when an issue was actually litigated and determined, essential to a final judgment on the merits, and the party to be bound had a full and fair opportunity to litigate.
- A § 7408 injunction finding that a promoter made material false tax-benefit statements with knowledge can preclude relitigation of those same § 6700 elements in a later Tax Court proceeding.
- IRC § 6700 penalizes persons who organize or sell an abusive arrangement and make or furnish, in connection with that activity, a materially false or fraudulent statement about tax benefits that they know or have reason to know is false.
- § 6700 liability turns on the promoter’s conduct and statements in marketing or selling the arrangement, not on whether particular customers ultimately obtained tax savings or whether audits produced adjustments.
- A CDP notice for § 6700 penalties need not correspond to an annual tax year; an administratively assigned year does not invalidate an otherwise clear notice and determination.

## Conclusion

The Tax Court upheld § 6700 promoter penalties against the Gardners, ruling that prior injunction findings precluded them from disputing core elements of the scheme’s abusive nature and their false tax-benefit statements, and that the Commissioner adequately proved 47 distinct violations and complied with CDP procedural requirements.


Gardner v. Commissioner, 145 T.C. 161 (2015)