Goodman v. Commissioner, Docket No. 7701-82
| Citation | 49 TCM (CCH) 1087,1985 TC Memo 151 |
| Decision Date | 28 March 1985 |
| Docket Number | 12128-83.,Docket No. 7701-82 |
| Parties | James C. Goodman v. Commissioner. |
| Court | United States Tax Court |
James C. Goodman, pro se, West Columbia, S. C. Scott E. Itkin, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in, and additions to, petitioner's Federal income taxes:1
Additions to Tax
Docket Sec
No. Year Deficiency 6653(b)2 Sec. 6654
7701-82 1978.... $5,788.70 $2,894.35 $184.63
1979.... 5,636.15 2,818.08 234.27
12128-83 1980.... 1,999.38 999.69 598.31
1981.... 1,196.62 127.39 82.91
When these consolidated cases were called for trial on February 29, 1984, respondent submitted a motion to dismiss for failure to properly prosecute as to the deficiencies in income and additions to tax pursuant to section 6654. The Court granted respondent's motion to dismiss3 and took respondent's motion to impose damages under advisement.
Consequently, the issues remaining for decision are (1) whether respondent has carried his burden of proving that a part of the underpayments in tax for the years 1978 through 1981 were due to fraud as required by section 6653(b); and (2) whether damages should be awarded the United States pursuant to section 6673.
Petitioner resided in West Columbia, South Carolina, when he filed his petitions in these cases. He filed income tax returns for the taxable years 1976 and 1977, but did not file valid Federal income tax returns (Forms 1040) for the years 1978 through 1981.
During the period between April 15, 1979 and April 15, 1980, petitioner filed two documents with respondent which had the appearance of Forms 1040, but contained no financial information whatsoever. Attached to each such purported Form 1040 were numerous pages of information relating to petitioner's tax protestor assertions.
From 1978 through 1981, petitioner was employed as a commission salesman for Redi-Crafts, Inc. Petitioner received taxable commission income during each of the years in issue.
Petitioner failed to meet with respondent at a conference scheduled on November 8, 1983, refused to provide documents asked for in respondent's Request for Production of Documents, and failed to reply meaningfully to respondent's Interrogatories. On November 29, 1983, respondent mailed Requests for Admissions to petitioner. Petitioner did not provide proper responses to these Requests for Admissions. Pursuant to Rule 90(c), if an admission is not properly admitted, denied, or qualified, it is deemed admitted.
Petitioner served frivolous interrogatories upon respondent, compelling respondent to seek a protective order from this Court, which was granted on January 31, 1984.
Petitioner was convicted by the state of South Carolina for failure to pay tax or supply information with intent to evade South Carolina income tax for the year 1978. He was fined $1,000 plus costs and placed on probation for three years.
Petitioner was advised that his legal arguments were frivolous. He nevertheless adamantly refused to alter his stale and meritless tax protestor positions, which continued throughout this proceeding. These "arguments" are not worthy of further comment except to state that they have been rejected in a multitude of cases, and are "nothing but arrogant sophistry."4
The 50 percent addition to tax in the case of fraud is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud. Helvering v. Mitchell 38-1 USTC ¶ 9152, 303 U. S. 391, 401 (1938).
Respondent has the burden of proving, by clear and convincing evidence, that some part of an underpayment for each year was due to fraud. Sec. 7454(a); Rule 142(b). This burden is met if it is shown that the taxpayer intended to evade taxes known to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of such taxes. Stoltzfus v. United States 68-2 USTC ¶ 9499, 398 F. 2d 1002, 1004 (3d Cir. 1968); Webb v. Commissioner 68-1 USTC ¶ 9341, 394 F. 2d 366 (5th Cir. 1968), affg. a Memorandum Opinion of this Court Dec. 29,014(M).
The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Gajewski v. Commissioner Dec. 34,088, 67 T. C. 181, 199 (1976), affd. without published opinion, 578 F. 2d 1383 (8th Cir. 1978). Fraud is never presumed, but rather must be established by affirmative evidence. Beaver v. Commissioner Dec. 30,380, 55 T. C. 85, 92 (1970). Fraud may, however, be proved by circumstantial evidence because direct proof of the taxpayer's intent is rarely available. Spies v. United States 43-1 USTC ¶ 9243, 317 U. S. 492 (1943); Rowlee v. Commissioner Dec. 40,228, 80 T. C. 1111 (1983). The taxpayer's entire course of conduct may establish the requisite fraudulent intent. Stone v. Commissioner Dec. 30,767, 56 T. C. 213, 223-224 (1971); Otsuki v. Commissioner Dec. 29,807, 53 T. C. 96, 105-106 (1969).
The "willful failure to file a timely return *** does not in itself and without more establish liability for a fraud penalty." Cirillo v. Commissioner 63-1 USTC ¶ 9311, 314 F. 2d 478, 482 (3d Cir. 1963), revg. in part and affg. in part a Memorandum Opinion of this Court. Willful failure to file returns for an extended period, however, is "persuasive evidence of an intent to defraud the government." Stoltzfus v. United States, supra at 1005, Marsellus v. Commissioner 77-1 USTC ¶ 9129, 544 F. 2d 883, 885 (5th Cir. 1977) affg. a Memorandum Opinion of this Court Dec. 33,567(M). An intention to evade taxes may be inferred from the circumstances attending a particular failure to file. Cirillo v. Commissioner, supra at 482. A pattern of nonfiling, when coupled with affirmative evidence of intent to defraud, warrants imposition of the addition to tax for fraud. Stoltzfus v. United States, supra at 1004; Grosshandler v. Commissioner Dec. 37,317, 75 T. C. 1, 19 (1980).5
Other indicia of fraud include the failure to furnish books and records, Lollis v. Commissioner 79-1 USTC ¶ 9379, 595 F. 2d 1189 (9th Cir. 1979); Otsuki v. Commissioner, supra; and the failure to cooperate with respondent's agent during his investigation. Lord v. Commissioner 75-2 USTC ¶ 9799, 525 F. 2d 741 (9th Cir. 1975).6
In the instant cases, petitioner failed to file income tax returns for all of the years in issue despite having earned substantial income. This four year pattern of failing to file returns is evidence of fraud. We are convinced that petitioner was familiar with relevant law and, as evidenced by his proper filing of returns in 1976 and 1977, was aware of his obligation to file returns and pay taxes. Petitioner also failed to furnish books and records to respondent and he refused to cooperate during respondent's investigation.
Petitioner knew that the tactics he employed were not legitimate tax avoidance but an orchestrated program of tax evasion. Petitioner is free to argue his theories to Congress, but he cannot disregard the laws passed by Congress and upheld by the Courts, fail to perform an affirmative duty imposed him by those laws, and then expect to avoid the consequences of his avowedly freely exercised disobedience.
On the basis of the record before us, we find that respondent has clearly and convincingly demonstrated fraud for the years in issue before us under section 6653(b).
We now consider respondent's motion that we impose damages pursuant to section 6673. Petitioner's position set forth in his petition, which has continued during the pendency of this case, relates only to standard tax protester arguments and does not address the issues of the notice of deficiency. Petitioner's position is that wages are not income. This contention is purely and totally frivolous. Petitioner filed motions for jury trials and served respondent with frivolous interrogatories. Petitioner pursued a course of conduct that was obstructive, dilatory and deliberate in failing to comply with the Rules of this Court.
Accordingly, petitioner instituted these proceedings and asserted as his defense to respondent's determinations nothing but frivolous contentions. His behavior before this Court makes it obvious that he...
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