George MacIel v. Commissioner of Internal Revenue

George Maciel appeals from a decision of the United States Tax Court, which upheld an Internal Revenue Service (“IRS”) Notice of Deficiency for the 1990, 1991, and 1992 tax years. In a separate proceeding, Maciel pled guilty to criminal tax charges. As part of its sentencing decision in that case, the federal district court found that Maciel had not fraudulently intended to evade the payment of taxes. Maciel contends that, under the doctrine of collateral estoppel, the sentencing court’s finding should have precluded relitigation of the fraud issue before the tax court. Further, Maciel contends that, even if relitigation is not precluded, the tax court erred in finding that he acted fraudulently when he failed to report income from a 1990 business sale. Finally, Maciel challenges the tax court’s denial of various business deductions. We reject Maciel’s preclusion and fraud claims, but we hold that he is entitled to deduct certain bona fide business expenses.

I. Background

During a routine audit in 1994, the IRS determined that Maciel had significantly understated his income on several tax returns. The agency referred Maciel’s case for criminal prosecution. After…