Veterinary Surgical Consultants, P.c v. Commissioner of Internal Revenue

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-2733
VETERINARY SURGICAL CONSULTANTS, P.C.,
Appellant
v.
COMMISSIONER OF INTERNAL REVENUE
On Appeal from the United States Tax Court
(No. 01-10401)
Tax Court Judge: Honorable Mary Ann Cohen
Submitted Under Third Circuit LAR 34.1(a)
January 16, 2004
Before: SLOVITER, RENDELL and ALDISERT, Circuit Judges.
(Filed: March 10, 2004)
OPINION OF THE COURT
RENDELL, Circuit Judge.
Taxpayer Veterinary Surgical Consultants, P.C. (VSC) appeals from the order of
the Tax Court, holding that Kenneth Sadanaga, D.V.M. (Dr. Sadanaga) was an
“employee” of VSC for federal tax purposes during the years 1997 and 1998, and that
VSC was not entitled to relief from its employment tax liability under Section 530 of the

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2
Revenue Act of 1978. The facts are well known to the parties and need not be repeated
here.
On appeal, VSC also argues that the Internal Revenue Service failed to provide it
with written notice of Section 530, violating its due process rights. The Commissioner
raised the issue of collateral estoppel by virtue of a prior ruling against VSC involving the
same issue of the “employee” status of Sadanaga, and also responded to the merits issue.
VSC did not file a reply brief. We asked for supplemental briefing on the merits issue
following our decision in Nu-Look Design, Inc. v. Comm’r, 356 F.3d 290 (3d Cir. 2004).
The Commissioner agreed that Nu-Look was controlling, but urged again that VSC’s
appeal was collaterally estopped. VSC did not contest Nu-Look’s applicability to the
instant case, but rather urged that Nu-Look was wrongly decided.
We conclude that we need not reach the merits issue as collateral estoppel does
apply here. Principles of collateral estoppel apply in federal income tax cases, just as they
apply in other types of cases. United States v. Int’l Bldg. Co., 345 U.S. 502, 505 (1953).
Collateral estoppel is relevant “where the matter raised in the second suit is identical in all
respects with that decided in the first proceeding and where the controlling facts and
applicable legal rules remain unchanged.” Comm’r v. Sunnen, 333 U.S. 591, 599 (1948).
“If the facts adjudicated in an earlier case relating to one tax year are identical to the facts
of a subsequent suit dealing with a different tax year, the prior judgment is conclusive on
the same legal issues.” Sydnes v. Comm’r, 647 F.2d 813, 814-15 (8th Cir. 1981).

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1We note that even if VSC were not collaterally estopped from raising these issues, our
ruling in Nu-Look would compel a result in favor of the Commissioner on the merits.
3
The Commissioner argues that the earlier judgment of the Tax Court in Veterinary
Surgical Consultants v. Comm’r (VSC I), 117 T.C. 141 (2001), aff’d without published
opinion, sub nom Yeagle Drywall Co. v. Comm’r, 54 Fed. Appx. 100 (3d Cir. 2002),
forecloses the instant challenge. There, the Tax Court held, and we agreed, that Dr.
Sadanaga was an “employee” of VSC for employment tax purposes for the years 1994,
1995 and 1996, and that VSC was not entitled to relief under Section 530. These are the
same legal issues requiring determination here, albeit for the years 1997 and 1998. The
facts here are identical to those in VSC I. And, there has been no change in the
applicable legal rules in the period between VSC I and the instant case. Inasmuch as the
prior ruling determined that Dr. Sadanaga was an “employee” for federal tax purposes
and that VSC was not entitled to relief under Section 530, VSC is collaterally estopped
from contesting those findings here.1
Accordingly, we will affirm.

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