received from sales or organizational activity engaged in after December 31, 1989.
Gang argues that this provision helps her argument because views of a Congress subsequent to the Congress that enacted § 6700 are entitled to significant weight when the precise intent of the enacting Congress is obscure. (Plaintiff's Motion at 6, citing Gates v. United States, 874 F.2d 584, 587 (8th Cir. 1989)). In fact, just the opposite is true in this case. Unlike the 1989 enacting legislation, the 1984 enacting legislation did not mention "activities," and Congress gave no indication that the 1989 enacting legislation was clarifying the effective date language in the 1984 enacting legislation. The 1989 effective date shows only that Congress knew how to craft a prospective statute when it so desired. By implication, Congress chose not to make the 1984 amendment prospective only. See United States v. Poff, 926 F.2d 588, 591 (7th Cir.) (en banc), cert. denied, 116 L. Ed. 2d 67, 112 S. Ct. 96 (1991) (a choice of different words reflects an intent to say something different); Zabielski v. Montgomery Ward & Co., 919 F.2d 1276, 1279 (7th Cir. 1990); see also United States v. Price, 361 U.S. 304, 313, 80 S. Ct. 326, 332, 4 L. Ed. 2d 334 (1960) (views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one).
Gang seeks the benefit of a principle of statutory interpretation that would require the resolution of ambiguities in penalty statutes in favor of lenity. Busic v. United States, 446 U.S. 398, 406, 100 S. Ct. 1747, 1752, 64 L. Ed. 2d 381 (1980); United States v. Keller, 730 F. Supp. 151, 158 (N.D. Ill. 1990). The rule of lenity applies only in cases in which the statutory language and the legislative history is ambiguous. Id. Although the legislative history is not particularly helpful, the statutory language regarding the effective date is clear. Accordingly, this rule has no application to this case.
Gang cites to several cases involving the dispute over whether the $ 1,000 or 10% penalty apply, which Congress resolved by amendment in 1989. Planned Investments, Inc. v. United States, 881 F.2d 340 (6th Cir. 1989); Spriggs v. United States, 660 F. Supp. 789 (E.D. Va. 1987), aff'd by unpublished opinion, 850 F.2d 690 (4th Cir. 1988); In re Tax Refund Litigation, 766 F. Supp. 1248 (E.D.N.Y. 1991). According to Gang, these cases show that, in resolving this dispute, both the courts and the IRS focused on the year in which the promoter engaged in the fraudulent promoting activity, and not the year in which the promoter derived the income from the activity. This may be true, but none of these cases involve a discussion of whether the 10% or 20% penalty apply. As such, they have little relevance. For example in Planned Investments, a case disputing whether the IRS had sent the proper notice to a taxpayer, the court stated in a footnote that "the 1984 amendment's [20%] penalty is concededly inapplicable to [the taxpayer's] 1982 conduct." 881 F.2d at 342 n.1. This was the case because the taxpayer had promoted a fraudulent tax shelter in 1982 and stopped deriving income from the tax shelter by November 1983, well before the 1984 amendment. Id., at 341. See also Hersch v. United States, 88-1 U.S. Tax Cas. para. 83,753 (E.D.N.Y. 1988). In two cases the taxpayer promoted a tax shelter in 1982 and received income in 1984, but in neither case was it clear -- or relevant to the discussion -- that the income was received after the July 18, 1984 amendment. See In re Tax Refund Litigation, 766 F. Supp. at 1252 and n.1; Spriggs v. United States, 660 F. Supp. at 790.
B. Collateral Estoppel
Gang argues that the IRS is estopped from arguing that the 20% penalty applies because in Datamatic Services, which involved the same fraudulent tax shelter as this case, the IRS sought only a 10% penalty. For proof, Gang cites the testimony of IRS agent Steven Pischak in the Datamatic Services trial, who testified that under the law, the Datamatic penalty should be "calculated at 10 percent of the gross income that is received or to be received. . . ." In addition, Gang notes that the IRS proffered a jury instruction stating: "under Section 6700 of the Code this penalty shall equal ten percent of the gross income derived or to be derived . . . from such organization or sale. . . ."
Collateral estoppel applies, precluding relitigation of a question, only if the question was actually adjudicated and the adjudication was necessary to the judgment. Brown v. Felsen, 442 U.S. 127, 139, 60 L. Ed. 2d 767, 99 S. Ct. 2205 n.10 (1979); Truck Insurance Exchange v. Ashland Oil, Inc., 951 F.2d 787 (7th Cir. January 6, 1992). In other words, a question must be both litigated and decided for collateral estoppel to bar its relitigation. Id. "The first requirement will usually be satisfied merely by the designation of the question as one for trial (for example by being listed on the pretrial order as an issue to be tried)." Id.
The pretrial order in Datamatic Services lists as only one contested issue of law: "whether the activities engaged in by the plaintiff constitute a violation of Section 6700(a)(1) and (2)(B) of the Internal Revenue Code." (IRS's Brief, Exhibit 1). Accordingly, the parties in Datamatic Services litigated only the question of liability under § 6700 and not the percentage of the penalty. Consequently collateral estoppel has no application to this case.
C. Ex Post Facto
Finally, Gang argues that applying the 20% penalty in § 6700 violates Article I, Section 9 of the Constitution ("No bill of Attainer or ex post facto Law shall be passed."). Applying the 1984 amendment of § 6700 to Gang does not violate the ex post facto clause. This is a civil, not a criminal case. Collins v. Youngblood, 497 U.S. 37, 110 S. Ct. 2715, 2718, 111 L. Ed. 2d 30 (1990); Harisiades v. Shaughnessy, 342 U.S. 580, 594-95, 72 S. Ct. 512, 521-22, 96 L. Ed. 586 (1952); Helvering v. Mitchell, 303 U.S. 391, 401, 404-05, 58 S. Ct. 630, 635-36, 82 L. Ed. 917 (1938) (upholding, as a civil penalty, a 50% additional tax imposed where payment was deficient due to intentional fraud); DeMartino v. Commissioner, 862 F.2d 400, 409 (2nd Cir. 1988) (upholding, as a civil penalty, a tax penalty under 26 U.S.C. § 6621 for business transactions that are shams). The Court rejects the language to the contrary -- without citation or discussion -- in one § 6700 tax case, Weir v. United States, 716 F. Supp. 574, 581 (N.D. Ala. 1989). In addition, the taxpayer in Weir both set up and received all the income derived from the fraudulent tax shelter prior to the 1984 amendment, and to that extent, the case is factually distinguishable from the instant case. A 20% penalty is simply not so punitive as to be criminal either in purpose or effect. See United States v. Ward, 448 U.S. 242, 248-49, 100 S. Ct. 2636, 2641-42, 65 L. Ed. 2d 742 (1980).
The Court holds that under 26 U.S.C. § 6700 the gross income that Gang "derived" from her fraudulent tax shelter after July 18, 1984 must be taxed at 20%. Gang's motion for partial summary judgment is denied. The IRS's cross-motion for partial summary judgment is granted.
ILANA DIAMOND ROVNER
UNITED STATE DISTRICT COURT
DATED: January 21, 1992