(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.
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.