T.C. Memo. 2014-7
UNITED STATES TAX COURT
FRANK ANTHONY COLONNA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17596-12. Filed January 9, 2014.
Frank Anthony Colonna, pro se.
K. Elizabeth Kelly, for respondent.
MEMORANDUM OPINION
CHIECHI, Judge: This case is before us on respondent’s motion for default
judgment (respondent’s motion). We shall grant respondent’s motion.
Petitioner resided in Illinois at the time he filed the petition.
In the petition, petitioner indicated that he disagreed with the determinations
in the notice of deficiency dated April 6, 2012, that respondent issued to him for
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[*2] his taxable years 2005, 2006, 2007, and 2008 and that he attached to the
petition.1 In support of that disagreement, petitioner alleged in the petition:
I disagree with this IRS determination for the following facts. Plea
agreement was approved & signed by all parties to the amount owed.
The amount was completed by my accountant and audited by Federal
IRS agents and agreed upon by IRS agents in Federal court on March
9, 2011 and Judgment was signed by Judge Harry Leinenweber on
March 9, 2011.
In the answer, respondent responded to the above-quoted allegations of
petitioner as follows:
First sentence: Admits petitioner disagrees with respondent’s
determination; denies remaining material allegations of fact, if any.
Second, third and fourth sentences:[2] Admits that petitioner entered
into a plea agreement in which he admitted to knowingly and
willfully failing to report income in tax years 2005, 2006, 2007 and
2008. Denies that respondent was a party to said plea agreement or
that said plea agreement set limitations on petitioner’s tax liability for
the years at issue. Alleges that petitioner’s plea agreement contained
the following language: “This Plea Agreement concerns criminal
liability only. Except as expressly set forth in this Agreement,
nothing herein shall constitute a limitation, waiver or release by the
United States or any of its agencies of any administrative or judicial
civil claim, demand or cause of action it may have against defendant
1
In the form petition that petitioner used, he erroneously checked the box
“Notice of Determination”, instead of the box “Notice of Deficiency”, to indicate
the type of respondent’s determinations that he was disputing in the petition.
2
There is a total of only three sentences. We presume therefore that respon-
dent intended to refer to the second and third sentences, not to the “Second, third
and fourth sentences”.
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[*3] or any other person or entity.” Denies remaining material
allegations of fact, if any.
Respondent further affirmatively alleged in the answer:
8. FURTHER ANSWERING the petition, respondent
alleges
2005
(a) During tax year 2005, petitioner owned and operated
Globel Star Communications, Inc. (Globel Star), a computer modem
repair business.
(b) Petitioner was President, manager, and 100% owner
of Globel Star. Petitioner was required to report all income and
expenses related to the business on Forms 1120S, filed by the corpo-
ration. Petitioner was also required to report all income he received
from the business, including his 100% share of the net profit of the
business, on his personal tax return (Form 1040).
(c) During 2005, petitioner diverted funds from the
business to himself by means of cash withdrawals and the use of
business checks to pay personal expenses.
(d) Petitioner knowingly and willfully failed to report
the cash withdrawals or the payment of personal expenses by the
business as income on his Form 1040.
(e) Petitioner sought to conceal the cash withdrawals
and use of business checks to pay personal expenses by inflating
business expenses on Globel Star’s Form 1120S.
(f) On or about April 17, 2006, petitioner willfully made
and subscribed, and caused to be made and subscribed, a Form 1040
for tax year 2005, which was signed under penalty of perjury and
filed with respondent, which petitioner did not believe to be true and
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[*4] correct as to every matter, in that said return reported on Line 22
that petitioner’s total income was $46,947.00; petitioner knew and
believed that his income exceeded $46,947.00 in that he knowingly
and willfully failed to include additional income of approximately
$156,107.00 he received from the operation of Globel Star. Petitioner
did so with the intent of defrauding respondent.
(g) On or about November 22, 2010, petitioner filed an
amended Form 1040 reporting a corrected tax liability of $39,570.00.
Petitioner’s self-reported liability was then assessed by respondent.
2006
(h) During tax year 2006, petitioner owned and operated
Globel Star Communications, Inc. (Globel Star), a computer modem
repair business.
(i) Petitioner was President, manager, and 100% owner
of Globel Star. Petitioner was required to report all income and
expenses related to the business on Forms 1120S, filed by the corpo-
ration. Petitioner was also required to report all income he received
from the business, including his 100% share of the net profit of the
business, on his personal tax return (Form 1040).
(j) During 2006, petitioner diverted funds from the
business to himself by means of cash withdrawals and the use of
business checks to pay personal expenses.
(k) Petitioner knowingly and willfully failed to report
the cash withdrawals or the payment of personal expenses by the
business as income on his Form 1040.
(1) Petitioner sought to conceal the cash withdrawals
and use of business checks to pay personal expenses by inflating
business expenses on Globel Star’s Form 1120S.
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[*5] (m) On or about April 17, 2007, petitioner willfully
made and subscribed, and caused to be made and subscribed, a Form
1040 for tax year 2006, which was signed under penalty of perjury
and filed with respondent, which petitioner did not believe to be true
and correct as to every matter, in that said return reported on Line 22
that petitioner’s total income was $62,617.00; petitioner knew and
believed that his income exceeded $62,617.00 in that he knowingly
and willfully failed to include additional income of approximately
$231,739.00 he received from the operation of Globel Star. Petitioner
did so with the intent of defrauding respondent.
(n) On or about November 22, 2010, petitioner filed an
amended Form 1040 reporting a corrected tax liability of $66,691.00.
Petitioner’s self-reported liability was then assessed by respondent.
2007
(o) During tax year 2007, petitioner owned and operated
Globel Star Communications, Inc. (Globel Star), a computer modem
repair business.
(p) Petitioner was President, manager, and 100% owner
of Globel Star. Petitioner was required to report all income and
expenses related to the business on Forms 1120S, filed by the corpo-
ration. Petitioner was also required to report all income he received
from the business, including his 100% share of the net profit of the
business, on his personal tax return (Form 1040).
(q) During 2007, petitioner diverted funds from the
business to himself by means of cash withdrawals and the use of
business checks to pay personal expenses.
(r) Petitioner knowingly and willfully failed to report the
cash withdrawals or the payment of personal expenses by the business
as income on his Form 1040.
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[*6] (s) Petitioner sought to conceal the cash withdrawals
and use of business checks to pay personal expenses by inflating
business expenses on Globel Star’s Form 1120S.
(t) On or about April 15, 2008, petitioner willfully made
and subscribed, and caused to be made and subscribed, a Form 1040
for tax year 2007, which was signed under penalty of perjury and
filed with respondent, which petitioner did not believe to be true and
correct as to every matter, in that said return reported on Line 22 that
petitioner’s total income was $123,790.00; petitioner knew and
believed that his income exceeded $123,790.00 in that he knowingly
and willfully failed to include additional income of approximately
$181,993.00 he received from the operation of Globel Star. Petitioner
did so with the intent of defrauding respondent.
(u) On or about November 22, 2010, petitioner filed an
amended Form 1040 reporting a corrected tax liability of $61,209.00.
Petitioner’s self-reported liability was then assessed by respondent.
2008
(v) During tax year 2008, petitioner owned and operated
Globel Star Communications, Inc. (Globel Star), a computer modem
repair business.
(w) Petitioner was President, manager, and 100% owner
of Globel Star. Petitioner was required to report all income and
expenses related to the business on Forms 1120S, filed by the corpo-
ration. Petitioner was also required to report all income he received
from the business, including his 100% share of the net profit of the
business, on his personal tax return (Form 1040).
(x) During 2008, petitioner diverted funds from the
business to himself by means of cash withdrawals and the use of
business checks to pay personal expenses.
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[*7] (y) Petitioner knowingly and willfully failed to report
the cash withdrawals or the payment of personal expenses by the
business as income on his Form 1040.
(z) Petitioner sought to conceal the cash withdrawals
and use of business checks to pay personal expenses by inflating
business expenses on Globel Star’s Form 1120S.
(aa) On or about April 15, 2009, petitioner willfully
made and subscribed, and caused to be made and subscribed, a Form
1040 for tax year 2008, which was signed under penalty of perjury
and filed with respondent, which petitioner did not believe to be true
and correct as to every matter, in that said return reported on Line 22
that petitioner’s total income was $155,582.00; petitioner knew and
believed that his income exceeded $155,582.00 in that he knowingly
and willfully failed to include additional income of approximately
$208,812.00 he received from the operation of Globel Star. Petitioner
did so with the intent of defrauding respondent.
(bb) On or about November 22, 2010, petitioner sub-
mitted to respondent an amended Form 1040 reporting a corrected tax
liability of $81,634.00. This form was not filed by respondent and
petitioner’s self-reported liability has not been assessed.
Petitioner did not file a reply to the answer.
Pursuant to Rule 90(c),3 each of the following matters set forth in
respondent’s request for admissions, which essentially restates many of the
3
All Rule references are to the Tax Court Rules of Practice and Procedure.
All section references are to the Internal Revenue Code in effect for the years at
issue.
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[*8] affirmative allegations in the answer, is deemed admitted.4 See, e.g.,
Marshall v. Commissioner, 85 T.C. 267, 272 (1985).
During taxable years 2005, 2006, 2007, and 2008, petitioner owned 100
percent of Globel Star Communications, Inc. (Globel Star), a computer modem
repair business, and served as its president and manager.
Petitioner filed Form 1040, U.S. Individual Income Tax Return, for each of
his taxable years 2005 (2005 return), 2006 (2006 return), 2007 (2007 return), and
2008 (2008 return).
Petitioner diverted funds received on behalf of Globel Star by means of cash
withdrawals and the use of business checks to pay personal expenses. He did not
report those diverted funds as income in his 2005 return, 2006 return, 2007 return,
or 2008 return.
Petitioner concealed the funds of Globel Star that he diverted (as described
above) by deliberately inflating business expenses that Globel Star claimed in
Form 1120S, U.S. Income Tax Return for an S Corporation, that it filed for each of
its taxable years 2005, 2006, 2007, and 2008.
4
Petitioner failed to file any response to respondent’s request for admis-
sions.
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[*9] Petitioner knowingly and willfully failed to report in his 2005 return, 2006
return, 2007 return, and 2008 return income of approximately $156,107, $231,739,
$181,993, and $208,812, respectively, that he received during those years from the
operation of Globel Star. Petitioner’s failure to do so was with the intent to evade
or defeat Federal income tax (tax) for each of his taxable years 2005, 2006, 2007,
and 2008.
Petitioner knew that his failure to report in his 2005 return, 2006 return,
2007 return, and 2008 return the respective amounts of income (as described
above) would result in his claiming in those returns respective tax liabilities that
were less than the respective tax liabilities that were required to be shown in those
returns.
During each of his taxable years 2005, 2006, 2007, and 2008, petitioner
consistently engaged in illegal gambling activities. He supported those illegal
gambling activities during each of those years with the funds that he had diverted
from Globel Star.
Petitioner entered into a plea agreement in the U.S. District Court for the
Northern District of Illinois in which he pleaded guilty to violating section
7206(1) by knowingly and willfully filing false tax returns for his taxable years
2007 and 2008, respectively. In that plea agreement, petitioner also admitted to
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[*10] knowingly and willfully filing false tax returns for his taxable years 2005
and 2006, respectively.
Respondent issued a notice of deficiency (notice) to petitioner with respect
to his taxable years 2005, 2006, 2007, and 2008.5 In that notice, respondent
determined the following deficiency in, and fraud penalties under section 6663 on,
petitioner’s tax:
Taxable Year Deficiency Fraud Penalty
2005 -0- $28,062.00
2006 -0- 48,853.00
2007 -0- 39,685.00
2008 $65,308 48,217.50
This case was called from the calendar (calendar call) at the trial session of
the Court that began on October 28, 2013, in Chicago, Illinois (Chicago trial
session). Counsel for respondent appeared. There was no appearance by or on
5
Before respondent issued the notice, petitioner had submitted to respondent
an amended tax return for each of his taxable years 2005, 2006, 2007, and 2008 in
which he showed the corrected tax liability for each of those years. Respondent
processed and had filed petitioner’s amended tax returns for 2005, 2006, and 2007
and assessed the corrected respective tax liabilities shown therein. Respondent did
not process or have filed petitioner’s amended tax return for his taxable year 2008
and did not assess the tax liability shown therein.
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[*11] behalf of petitioner, and respondent filed the motion before us. In that
motion, respondent represented the following facts that petitioner does not
dispute.6
Before the calendar call on October 28, 2013, despite repeated attempts to
contact petitioner by respondent’s counsel, petitioner failed to cooperate with
respondent’s counsel in preparing this case for trial and/or attempting to settle it.
Thus, petitioner failed to comply with certain Rules of the Court and our standing
pretrial order dated May 24, 2013. Petitioner’s failure to cooperate with respon-
dent’s counsel is evidenced by the following actions or inactions of petitioner. On
June 13, 2013, respondent sent a letter (June 13, 2013 letter) to petitioner at the
address shown in the petition. Respondent’s counsel asked petitioner to provide
certain specified documents, answers to questions pertaining to his case, and his
6
In an Order dated October 28, 2013 (October 28 Order), we ordered
petitioner’s address of record changed to a different address, i.e., P.O. Box 73,
South Elgin, Illinois 60177 (petitioner’s new address), because respondent
informed us at the calendar call that petitioner’s address was no longer the address
shown for him in our records. In that Order, we also ordered petitioner to file a
response to respondent’s motion that was to be received by November 18, 2013.
On November 17, 2013, petitioner electronically submitted a document titled
“Response” that we had filed on November 18, 2013, as his response to respon-
dent’s motion. That response puzzlingly stated only the following: “Responding
to court date October 28th to set request new trial date I confirm the new address is
* * * [petitioner’s new address shown in the October 28 Order] and responding
before November 18th 2013.”
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[*12] telephone number. Respondent’s counsel proposed that petitioner meet with
her on July 10, 2013, at 10 a.m. The June 13, 2013 letter was returned to
respondent undelivered, and petitioner did not attend the proposed meeting.
On July 29, 2013, respondent served a copy of respondent’s request for
admissions on petitioner at the address shown in the petition.
On August 5, 2013, after having made an extensive search for reliable con-
tact information for petitioner, respondent’s counsel ascertained a telephone
number for petitioner and had a telephone call (August 5, 2013 telephone call)
with him. During that call, petitioner provided respondent’s counsel with his
telephone number and his mailing address at P.O. Box 73, South Elgin, Illinois
60177.7 During the August 5, 2013 telephone call, respondent’s counsel attempted
to schedule a meeting with petitioner to discuss his case, but he indicated that he
would have to check his schedule and call her back.
On August 6, 2013, respondent’s counsel sent a letter (August 6, 2013
letter) to petitioner at the address that he had given her on the preceding day. She
proposed in that letter that petitioner have a conference with her by no later than
August 19, 2013. Respondent’s counsel enclosed with the letter a copy of the
request for admissions that respondent had served on petitioner on July 29, 2013,
7
See supra note 6.
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[*13] at petitioner’s address of record on that date. In both the August 6, 2013
letter and the August 5, 2013 telephone call, respondent’s counsel emphasized to
petitioner that the statements in the request for admissions would be deemed
admitted by him if he did not file a response to that request by August 28, 2013.
Respondent’s counsel spoke again with petitioner on an unspecified date
between August 6 and 28, 2013 (post-August 5, 2013 discussion). Petitioner
indicated during that discussion that he did not know whether he would file a
response to the request for admissions. Petitioner asked during the post-August 5,
2013 discussion with respondent’s counsel about the consequences of his failure
to appear when his case was called at the Chicago trial session. Respondent
informed petitioner that if he failed to appear at that session, respondent would file
a motion for default judgment. Petitioner then asked respondent’s counsel to call
him in early September to schedule a time for a meeting to discuss his case.
The post-August 5, 2013 discussion was the last time respondent’s counsel
spoke with petitioner despite the following attempts to do so. Respondent’s
counsel telephoned petitioner on September 3 and 13, 2013, and left messages
attempting to schedule a meeting. Petitioner never responded to those messages.
On September 13, 2013, respondent’s counsel sent a letter to petitioner at the
address that he had provided to her during the August 5, 2013 telephone call. That
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[*14] letter asked petitioner to contact respondent’s counsel and reminded him of
his obligation under Rule 21 to inform the Court of any change in his address.
Respondent’s counsel called petitioner on October 24 and 25, 2013, and left
messages that respondent’s counsel would file a motion for default judgment if
there was no appearance by him or on his behalf at the calendar call on October
28, 2013, at the Chicago trial session. On October 24, 2013, a copy of
respondent’s pretrial memorandum was mailed to petitioner both at the address
shown in the petition and at the address that petitioner gave her during the August
5, 2013 telephone call.
Petitioner bears the burden of proof with respect to the deficiency
determination for his taxable year 2008. See Rule 142(a). Respondent bears the
burden of proof with respect to the fraud penalty under section 6663 for each of
petitioner’s taxable years 2005, 2006, 2007, and 2008, and respondent must satisfy
that burden by clear and convincing evidence. See sec. 7454(a); Rule 142(b).
On the record before us, we find petitioner in default under Rule 123(a).8
We further find on that record that the undenied admissions and the well-pleaded
facts in the answer establish facts requiring a decision in respondent’s favor with
8
Our holding petitioner in default has the effect of admitting well-pleaded
facts in the answer. See, e.g., Smith v. Commissioner, 91 T.C. 1049, 1056-1057
(1988), aff’d, 926 F.2d 1470 (6th Cir. 1991).
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[*15] respect to both the deficiency determination for petitioner’s taxable year
2008 on which petitioner has the burden of proof and the fraud penalty under
section 6663 for each of his taxable years 2005, 2006, 2007, and 2008 on which
respondent has the burden of proof.
To reflect the foregoing,
An order granting respondent’s
motion and decision for respondent will be
entered.