## Facts

- John Wright assumed operation of a family farm in 1975 after his father’s death and lacked prior business, farming, or bookkeeping experience.
- John and Susan Wright filed joint federal income tax returns for 1976–1978 with the assistance of an accountant experienced in farm bookkeeping.
- The returns substantially underreported income.
- In 1982, John pleaded guilty to willfully making and subscribing a materially false income tax return in violation of I.R.C. § 7206(1).
- In 1983, the IRS issued a notice of deficiency for 1976–1978 asserting tax deficiencies and civil fraud additions under I.R.C. § 6653(b).
- The Wrights petitioned the Tax Court, disputing (among other matters) the asserted fraud additions.

## Issues

1. Whether a criminal conviction under I.R.C. § 7206(1) collaterally estops a taxpayer from contesting the I.R.C. § 6653(b) civil fraud addition.
2. Whether the elements necessarily decided by a § 7206(1) conviction include the specific intent to evade tax required for § 6653(b) fraud.

## Decision

- The Tax Court denied the Commissioner’s motion for partial summary judgment on the § 6653(b) fraud additions.
- The court held that a § 7206(1) conviction does not establish, for collateral-estoppel purposes, the intent to evade tax required for civil fraud under § 6653(b).
- The court overruled prior Tax Court decisions that had treated § 7206(1) convictions as preclusive on the civil fraud issue.
- Because intent to evade tax remained disputed, genuine issues of material fact required trial on the fraud additions.

## Legal Principles

- Collateral estoppel applies only to issues that were actually litigated and determined, were essential to the prior judgment, and were subject to a full and fair opportunity to litigate.
- I.R.C. § 7206(1) requires proof that the taxpayer willfully signed a return the taxpayer did not believe was true and correct as to every material matter; it does not require proof of a tax underpayment or an intent to evade tax.
- I.R.C. § 6653(b) civil fraud requires an underpayment and proof (by clear and convincing evidence) that at least part of the underpayment was due to fraud, meaning specific intent to evade a tax known to be owing.
- Because § 7206(1) and § 6653(b) do not share identical intent elements, a § 7206(1) conviction does not, by itself, preclude litigation of civil fraud intent in a later Tax Court case.

## Conclusion

The Tax Court held that a taxpayer’s § 7206(1) conviction for subscribing to a materially false return does not collaterally estop the taxpayer from contesting the § 6653(b) civil fraud addition, because civil fraud requires proof of intent to evade tax—an issue not necessarily decided by a § 7206(1) conviction.


Wright v. Commissioner, 84 T.C. 636 (1985)