Monday, June 13, 2016
Nacchio v. United States, Nos. 2015-5114 & 2015-5115 (Fed. Cir. June 10, 2016):
This is a tax case arising out of a criminal conviction for insider trading. Joseph P. Nacchio and Anne M. Esker (“Nacchio”) filed this action in the Court of Federal Claims seeking an income tax credit of $17,974,832 for taxes paid on trading profits of $44,632,464.38, which Nacchio was later ordered to forfeit to the United States following his conviction for insider trading with respect to those profits. The government opposed Nacchio’s request, contending that his forfeiture payment was a nondeductible penalty or fine and that he was estopped from seeking tax relief because of his criminal conviction. The parties filed cross-motions for summary judgment.
The Court of Federal Claims denied the government’s motion for summary judgment and granted Nacchio’s cross-motion for partial summary judgment, holding that: (1) Nacchio may deduct his criminal forfeiture payment under Internal Revenue Code (I.R.C.)2 § 165, but not under I.R.C. § 162; and (2) Nacchio is not collaterally estopped from pursuing special tax relief under I.R.C. § 1341. Rather than proceed to trial on Nacchio’s claim for special relief under I.R.C. § 1341, the government stipulated to the entry of final judgment in favor of Nacchio, waiving its right to challenge Nacchio’s claims under § 1341 on other than deductibility and estoppel grounds; the government expressly reserved its right to appeal the court’s adverse rulings on those issues. Nacchio reserved his right to appeal the court’s adverse ruling as to deductibility under § 162.
The government filed this appeal on the grounds reserved in the parties’ stipulation. Nacchio filed a crossappeal. We find that Nacchio has failed to establish that his criminal forfeiture was not a “fine or similar penalty” and, therefore, reverse the court’s judgment of deductibility under § 165. We affirm the court’s judgment of nondeductibility under § 162. Because establishing deductibility under another section of the tax code is a prerequisite to pursuing special relief under § 1341, Nacchio cannot pursue a deduction under § 1341. Judgment must be entered in favor of the government.