Walters v. Commissioner

• Decision Date: 15 November 1988
• Docket Number: Docket No. 4110-87.
• Citation: 1988 TC Memo 530,56 TCM (CCH) 664
• Parties: Roy H. Walters v. Commissioner.
• Court: U.S. Tax Court

56 T.C.M. (CCH) 664 (1988)

T.C. Memo. 1988-530.

Roy H. Walters v. Commissioner.

Docket No. 4110-87.

United States Tax Court.

Filed November 15, 1988.

Roy H. Walters, pro se. Kathleen L. Midian, for the respondent.

Memorandum Opinion

WHALEN, Judge:

This case is before the Court on respondent's Motion For Summary Judgment And Imposition Of Damages Under I.R.C. Section 6673,¹ filed December 18, 1987, and heard February 9, 1988 in Cleveland, Ohio.

In his timely statutory notice dated January 7, 1987,² respondent determined the following deficiencies in, and additions to, petitioner's Federal income tax:

                   Additions to Tax, I.R.C. Sections         YearDeficiency6653(b)6653(b)(1)6653(b)(2)6654(a)6661(a)3
                      1981 ..........     $ 8,736.00             $4,368.00                  -                        -                 $  612.46                 -
                      1982 ..........      15,612.00                 --                $7,806.00                  *                1,519.95            $3,903.00
                * 50% of the statutory interest on $15,612.00, computed from April 15, 1983 to the earlier of the date of assessment or the
                date of payment
                

The above deficiencies and additions result from respondent's underlying determination that petitioner failed to report wage and other income in the amount of $28,983.81 for 1981 and $44,771.51 for 1982.

Petitioner resided in Toledo, Ohio at the time he filed the petition in this case. The petition contested respondent's determination primarily by raising various generic "tax protestor" constitutional claims, but did not allege any specific facts to support such claims.⁴

Respondent, with leave of Court, lodged his Answer on July 31, 1987 and filed his Amendment To Answer on May 21, 1987.⁵ In his Answer, respondent denied the material allegations of fact and error contained in the petition. In his Amendment To Answer, respondent made certain affirmative allegations of fact which, if true, would conclusively determine petitioner's liability for the deficiencies and additions determined by respondent. Petitioner failed to reply to respondent's Answer or Amendment To Answer as required by Rule 37(a).

On October 1, 1987, respondent filed with leave of Court Motion For Entry Of Order That Undenied Allegations In Answer Be Deemed Admitted, asking that we deem admitted pursuant to Rule 37(c) the undenied affirmative allegations contained in his Amendment To Answer.⁶ On October 1, 1987, the Court served petitioner with notice of respondent's motion. The notice informed petitioner that if he replied to respondent's Answer on or before October 22, 1987, as required by Rules 37(a) and (b), the Court would deny respondent's motion. The notice also advised petitioner that if he did not reply as directed, the Court would grant respondent's motion and deem admitted the affirmative allegations set forth in respondent's Answer. Petitioner still did not reply to respondent's Answer or Amendment To Answer, or respond in any fashion to respondent's motion. On November 10, 1987, the Court granted respondent's motion and deemed admitted the undenied affirmative allegations of fact set forth in respondent's Amendment To Answer.

Respondent subsequently moved for summary judgment and the imposition of damages, which he had previously sought in his Amendment to Answer. Based on the record, including the facts deemed admitted, we must decide whether petitioner is liable for the deficiencies and additions to tax determined by respondent. We must also decide whether the imposition of damages is appropriate.

Summary Judgment

This Court may grant summary judgment "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(b). See Naftel v. Commissioner Dec. 42,414, 85 T.C. 527, 529 (1985); Jacklin v. Commissioner Dec. 39,278, 79 T.C. 340, 344 (1982); Espinoza v. Commissioner Dec. 38,853, 78 T.C. 412, 416 (1982). The moving party, respondent in this case, bears the burden of proving that there is no genuine issue of material fact. Naftel v. Commissioner, supra at 529; Espinoza v. Commissioner, supra at 416. The moving party also bears the burden of proving that it should prevail on the substantive questions at issue as a matter of law. Rule 121(b). The Court will view factual material and inferences drawn therefrom in the light most favorable to the party opposing the motion for summary judgment. Naftel v. Commissioner, supra at 529; Jacklin v. Commissioner, supra at 344.

Respondent contends that, in light of the facts deemed admitted pursuant to Rule 37(c), there is no genuine issue of material fact and he is entitled to judgment as a matter of law. We agree.

As a threshold matter, we emphasize that petitioner has had ample opportunity to respond to the affirmative allegations contained in respondent's Amendment To Answer and has chosen not to do so. Petitioner was also specifically warned that the Court would deem such allegations admitted in the event petitioner failed to reply to respondent's Motion for Entry of Order That Undenied Allegations in Answer be Deemed Admitted. Furthermore, petitioner has not asked the Court to vacate its order deeming such affirmative allegations in the amended answer admitted.⁷

With regard to the tax deficiencies determined by respondent, the additions to tax for failure to pay estimated tax under section 6654(a), and the addition to tax for underpayment attributable to substantial understatement of income tax under section 6661(a), respondent's determinations are presumptively correct and petitioner bears the burden of proving otherwise. Rule 142(a); Castillo v. Commissioner Dec. 41,940, 84 T.C. 405, 408 (1985). Based on the facts which petitioner has been deemed to have admitted, petitioner has not met his burden of proof. See Marshall v. Commissioner Dec. 42,301, 85 T.C. 267 (1985); Doncaster v. Commissioner Dec. 38,135, 77 T.C. 334 (1981); Gromnicki v. Commissioner Dec. 44,960(M), T.C. Memo. 1988-358. Accordingly, we grant respondent summary judgment with respect to such deficiencies and additions.

With regard to the additions to tax for fraud under section 6653(b) for the year 1981, and under sections 6653(b)(1) and 6653(b)(2) for the year 1982, respondent bears the burden of proving fraud by clear and convincing evidence. Section 7454(a), Rule 142(b); Zack v. Commissioner 82-2 USTC ¶ 9689, 692 F.2d 28, 29 (6th Cir. 1982), affg. a Memorandum Opinion of this Court Dec. 38,481(M),⁸ cert. denied 460 U.S. 1084 (1983); Castillo v. Commissioner, supra at 408. Respondent must show 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, that there is an underpayment of tax, and that some portion of the underpayment for each taxable year was due to the taxpayer's fraudulent intent. Stoltzfus v. United States 68-2 USTC ¶ 9499, 398 F.2d 1002, 1004 (3d Cir. 1968), cert. denied 393 U.S. 1020 (1969); Webb v. Commissioner 68-1 USTC ¶ 9341, 394 F.2d 366, 377-378 (5th Cir. 1968), affg. a Memorandum Opinion of this Court; Dec. 27,918(M)⁹Rowlee v. Commissioner Dec. 40,228, 80 T.C. 1111, 1123 (1983). The existence of fraud is a question of fact to be resolved upon review of the entire record. Rowlee v. Commissioner, supra at 1123; Gajewski v. Commissioner Dec. 34,088, 67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383 (8th Cir. 1978). While fraud will never be presumed, Beaver v. Commissioner Dec. 30,380, 55 T.C. 85, 92 (1970), it may be proved by circumstantial evidence, e.g., Stephenson v. Commissioner Dec. 39,562, 79 T.C. 995, 1005-1006 (1982), affd. 84-2 USTC ¶ 9964 748 F.2d 331 (6th Cir. 1984).

To satisfy his burden of proving fraud, respondent relies on the deemed admissions of petitioner. This is an appropriate procedure under the Rules of this Court, Gilday v. Commissioner Dec. 32,609, 62 T.C. 260 (1974), and we may grant respondent summary judgment if the facts deemed admitted under Rule 37(c) clearly and convincingly establish an underpayment of tax, some part of which in each of the subject years is due to fraud. Marshall v. Commissioner, supra at 272-273; Doncaster v. Commissioner, supra at 336-338; Gilday v. Commissioner, supra at 262-263.

The undenied allegations of fact contained in respondent's Amendment To Answer, and constructively admitted by petitioner under Rule 37(c), clearly establish that: (1) petitioner derived unreported taxable wage and other income in the taxable years 1981 and 1982, as determined by respondent, for which petitioner received appropriate Forms W-2 from his employer; (2) petitioner was required to file Federal income tax returns for 1981 and 1982, but filed an inadequate "tax protestor" return for 1981 and failed to file any return for 1982; (3) petitioner had previously filed valid Federal income tax returns for 1979 and 1980, and therefore knew of his obligation to file such returns for 1981 and 1982; (4) petitioner improperly reduced and prevented the withholding of his Federal income tax by, among other things, filing nine false Forms W-4 over a three-year period commencing in June of 1981; and (5) petitioner failed to cooperate with respondent's representatives in the determination of his proper income and corresponding tax liability. A pattern of failing to file income tax returns, especially after having filed such returns in the past, or of filing inadequate "tax protestor" returns, is circumstantial evidence of fraud. Zell v. Commissioner 85-2 USTC ¶ 9698, 763 F.2d 1139, 1145-1146 (10th Cir. 1985), affg. a Memorandum Opinion of this Court Dec. 41,093(M);¹⁰ Castillo v. Commissioner, supra at 409. While such evidence, standing alone, does not establish fraud, Kotmair v. Commissioner Dec....