Brooks v. Comm'r of Internal Revenue
| Decision Date | 08 March 1984 |
| Docket Number | Docket No. 4370–80. |
| Citation | 82 T.C. No. 30,82 T.C. 413 |
| Parties | GLENN D. BROOKS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Respondent determined deficiencies totaling $123,582.09 and additions to tax for fraud under section 6653(b), I.R.C. 1954, totaling $61,791.06, for the years 1967 through 1973. The case was twice set for trial and continued at petitioner's request. At the time of the second continuance, and also after the third notice of trial was sent, petitioner was warned that the case would not be continued again. Petitioner did not appear on the date set for trial. A default was declared, and respondent proceeded to trial of the fraud issues. Held, motion to set aside default, on ground that petitioner's failure to appear was due to misunderstanding that case was settled, denied; deficiencies and additions to tax sustained. Glenn D. Brooks, pro se.
Elaine Moriwaki, for the respondent.
Respondent determined deficiencies in and additions to tax as follows:
+------------------------------------------------------+
¦Year ¦Deficiencies ¦Additions to tax sec. 6653(b)1 ¦
+------+--------------+--------------------------------¦
¦ ¦ ¦ ¦
+------+--------------+--------------------------------¦
¦1967 ¦$4,568.92 ¦$2,284.46 ¦
+------+--------------+--------------------------------¦
¦1968 ¦4,237.88 ¦2,118.94 ¦
+------+--------------+--------------------------------¦
¦1969 ¦13,636.67 ¦6,818.34 ¦
+------+--------------+--------------------------------¦
¦1970 ¦51,314.19 ¦25,657.10 ¦
+------+--------------+--------------------------------¦
¦1971 ¦10,762.24 ¦5,381.12 ¦
+------+--------------+--------------------------------¦
¦1972 ¦24,442.05 ¦12,221.03 ¦
+------+--------------+--------------------------------¦
¦1973 ¦14,620.14 ¦7,310.07 ¦
+------------------------------------------------------+
On the third date on which the case was set for trial, following two continuances requested by petitioner, petitioner failed to appear. The Court declared a default and allowed respondent to present evidence with respect to the additions to tax for fraud. Petitioner has moved to set aside the default, claiming that he did not appear because he thought the case was settled. For reasons set forth below, the motion to set aside the default is denied, and a decision will be entered in favor of respondent for the full amount of the deficiencies and additions to tax.
Petitioner was a resident of Bishop, California, during the years in issue and at the time that his petition herein was filed. For the years 1966 through 1973, petitioner filed joint Federal income tax returns with Betty H. Brooks.
Sometime prior to August 7, 1973, respondent commenced an investigation into the tax liability of petitioner. During the course of that investigation, respondent's agents attempted to interview petitioner. On the first attempt, petitioner claimed to be someone other than Glenn D. Brooks. Ultimately, however, the agents interviewed petitioner with respect to taxable and nontaxable sources of income. Petitioner stated that at some point in time he found some money, but he refused to tell the investigating agents how much he found or to identify an alleged witness to the find. Petitioner stated that he had lived frugally and saved money and that he had received small gifts from his parents. He indicated that he had deposited some or ali of the money found, saved, and received as gifts into bank accounts, but he made inconsistent statements as to when the amounts were deposited. He refused to respond to questions concerning the largest amount of cash he ever had on hand. He initially agreed to allow respondent's agents to review his books and records, but he then refused to do so.
The interview with petitioner and petitioner's failure to produce books and records from which his tax liability could be determined prompted respondent's agents to obtain various third-party records and prepare various schedules, which were finally incorporated into an analysis of petitioner's net worth and expenditures. In that analysis, the sum of $1,000, which had been mentioned by petitioner during the interview by respondent's agents, was used as the beginning cash on hand. Respondent's analysis did not include any greater sum for cash on hand because review of petitioner's bank accounts failed to confirm petitioner's statements that he had found a large amount of cash that was subsequently deposited in bank accounts. The net-worth analysis prepared by respondent concluded that petitioner's net worth had increased steadily from $93,889.31 on December 31, 1966, to $413,320.37 on December 31, 1973. This analysis was the basis for the notice of deficiency sent to petitioner on January 25, 1980, that determined the deficiencies and additions to tax set forth above.
On June 8, 1976, a five count indictment was filed in the United States District Court for the Eastern District of California, charging petitioner with violations of section 7201 (criminal tax evasion). Count 5 of the indictment charged Petitioner with violation of section 7201 for the taxable year 1973. On November 8, 1976, petitioner entered a plea of guilty to count 5 of the indictment, and on December 20, 1976, he was convicted of violation of section 7201 for the taxable year 1973.
The petition herein was filed on March 27, 1980. Respondent's answer, attached to which was a copy of the net-worth analysis, was filed May 9, 1980. Petitioner's reply was filed on June 3, 1980. Both the petition and the reply filed on behalf of petitioner were signed by Norman H. McNeil (McNeil) and Clyde R. Maxwell as counsel for petitioner. Maxwell had represented petitioner during the criminal tax case.
On February 4, 1982, Respondent's First Request for Admissions was served on McNeil as counsel for petitioner. Contemporaneously, respondent served on McNeil interrogatories that called for further information concerning petitioner's contentions with respect to any responses that were not an unqualified admission. Among the admissions requested were the following:
16. During the period in question, petitioner engaged in the sale of emeralds.
17. During the period in question, petitioner received gross income of at least $28,917.76 from the sale of emeralds, as reflected by the photocopies of nine checks (front and back copies) attached * * *.
18. During the period in question, petitioner owned and operated a moving and storage business.
19. Petitioner operated his moving and storage business under the name Bishop Moving and Storage (hereinafter Bishop).
Other admissions requested dealt with petitioner's business of farming or horse ranching, nontaxable receipts, cash accumulations, liabilities to third persons as of the end of each year in issue, and the accuracy of other items included in respondent's net-worth analysis. No responses to Respondent's First Request for Admissions were ever filed with the Court as required by Rule 90(c). Untimely responses served on respondent on or about April 15, 1982, admitted the above facts, but the answers to interrogatories failed to provide any specific information concerning the alleged cost of the emeralds, the amount of any nontaxable receipts or money found, or outstanding liabilities not taken into account in respondent's analysis.
On February 26, 1982, the parties were served with Notice Setting the Case for Trial in Los Angeles, California, on May 17, 1982. Petitioner, through his counsel, moved for continuance of the trial, representing among other things, that “an independent accounting by petitioner [with respect to respondent's net-worth analysis] is incomplete.” The motion for continuance was granted.
On February 7, 1983, the parties were served with Notice Setting the Case for Trial in Los Angeles, California, on May 9, 1983. On February 23, 1983, Respondent's Second Request for Admissions was served on McNeil as counsel for petitioner. The matters that petitioner was requested to admit included the above-stated facts concerning his conviction, the manner of preparation of his income tax returns, and various transactions reflected in the net-worth analysis prepared by respondent. No response to the request for admissions was ever filed, and, pursuant to Rule 90(c), the matters set forth therein are deemed admitted and are so found.
On April 4, 1983, petitioner, through McNeil, filed a motion for continuance of the May 9 trial date, representing that petitioner had been unavailable to his retained accountant and counsel because he had been incarcerated in jail on a misdemeanor conviction related to his moving business. The motion alleged in part:
4. It is essential for petitioner's case that he and his accountant screen the records to isolate trust fund liabilities for 1966 to 1973, inclusive. Petitioner was remiss in not following through with this obligation prior to his incarceration and providing for past due accounting fees but the incarceration effectively prevented him from meeting the accountant. On petitioner's behalf, he is scheduled to commence work with the accountant on April 6, 1983.
5. Counsel for petitioner visited with him on two separate occasions in the Inyo County Jail for the purposes of ascertaining if on-going factual development was feasible and to resolve the serious problem of continued representation without payment of fees. The jail restrictions made further work on the case untenable and the court would not release petitioner for meetings with the accountant. The incarceration also depleted petitioner's liquid asset position. Nonetheless, petitioner is on notice that the filing of this motion is the last act...
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