T.C. Memo. 1997-258
UNITED STATES TAX COURT
RONALD L. BERKSHIRE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3006-96. Filed June 10, 1997.
John J. Boyle, for respondent.
MEMORANDUM OPINION
VASQUEZ, Judge: This case is before the Court on
respondent's motion for entry of judgment by default pursuant to
Rule 123(a).1 Respondent determined deficiencies in and
additions to petitioner's Federal income tax as follows:
1
All Rule references are to this Court's Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code as in effect for the years in issue.
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Additions to Tax
Sec. Sec. Sec. Sec. Sec.
Year Deficiency 6653(b)(1) 6653(b)(2) 6653(b)(1)(A) 6653(b)(1)(B) 6661
1
1985 $18,982 $9,491 --- --- $4,584
1
1986 25,986 --- --- $19,490 6,497
1
1987 41,712 --- --- 31,284 ---
1
50 percent of the interest due on the deficiency.
Background
Petitioner invoked the jurisdiction of this Court on
February 20, 1996, by timely filing a petition. Petitioner
resided in Columbus, Ohio, at the time the petition was filed.
On April 24, 1996, respondent timely filed an answer to the
petition denying that respondent erred with respect to the
determinations set forth in the deficiency notice. Respondent's
answer includes specific allegations in support of the
determination that petitioner is liable for additions to tax for
fraud for the years in issue. Petitioner failed to file a reply
denying the allegations contained in respondent's answer. Thus,
on June 17, 1996, respondent filed a motion under Rule 37(c) to
have the undenied allegations of fact deemed admitted.
Petitioner was notified of the filing of respondent's Rule 37(c)
motion by notice of filing dated June 17, 1996. Petitioner
failed to respond to the notice of filing and failed to file a
reply to respondent's answer. We granted respondent's motion on
July 15, 1996.
Respondent's answer reads, in pertinent part, as follows:
8. FURTHER ANSWERING the petition, and in support
of the determination that a part of the underpayment of
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tax for the taxable year 1987 is due to fraud, the
respondent affirmatively relies upon the doctrine of
collateral estoppel (estoppel by judgment), and
alleges:
(a) Ronald L. Berkshire, the petitioner herein,
is the same person who was the defendant in the
criminal case of United States of America v. Ronald L.
Berkshire (Western District of Virginia, Case Number
92-00050-01). The Judgment entered in that case became
final on May 24, 1993.
* * * * * * *
(d) The petitioner subsequently entered a plea of
guilty to violation of I.R.C. sec. 7201 for the taxable
year 1987, as set forth against him in Count Three of
the indictment.
(e) On May 24, 1993, the United States District
Court for the Western District of Virginia entered
Judgment against the petitioner pursuant to said plea.
* * *
* * * * * * *
(i) The prior criminal conviction of the
petitioner under I.R.C. sec. 7201 for the taxable year
1987 is conclusive and binding on the petitioner, and,
by reason thereof, the petitioner is estopped in the
instant case under the doctrine of collateral estoppel
(estoppel by judgment) from denying herein that he
willfully engaged in conduct to mislead and to conceal
his true taxable income for the taxable year 1987 with
intent to evade and defeat a part of the income tax due
and owing by him for said year, and that due to such
fraud there is an underpayment of tax within the
meaning of I.R.C. secs. 6653(b)(1)(A) and 6653(b)(1)(B)
for the taxable year 1987.
(j) By reason of such prior criminal conviction,
the petitioner is estopped in the instant case, under
the doctrine of collateral estoppel (estoppel by
judgment) from denying that a part of the underpayment
in income tax for the year 1987 is due to fraud, and
that, therefore, the petitioner is liable for the
additions to tax imposed by I.R.C. secs. 6653(b)(1)(A)
and 6653(b)(1)(B), as determined by the respondent in
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the notice of deficiency upon which the instant case is
based.
9. FURTHER ANSWERING the petition, and in support
of the determination that a part of the underpayment of
tax for the taxable years 1985, 1986 and 1987 is due to
fraud, the respondent alleges:
(a) On or about April 15, 1986, the petitioner
with intent to evade and defeat income tax filed a 1985
joint income tax return (Form 1040) with the Internal
Revenue Service that showed taxable income and taxes
due in the amounts of $8,911.00 and $645.00,
respectively.
(b) For the 1985 taxable year, the petitioner
understated his taxable income by $52,322.00 and
understated his 1985 income tax liabilities by
$18,982.00.
* * * * * * *
(k) On or about April 15, 1986, the petitioner
with intent to evade and defeat income taxes filed a
1986 joint income tax return (Form 1040) with the
Internal Revenue Service that showed taxable income of
$3,526.32 and no taxes due and owing for the year 1986.
(l) For the taxable year 1986, the petitioner
understated his 1986 taxable income by $75,753.00 and
understated his 1986 income taxes by $22,471.00.
* * * * * * *
(v) The petitioner fraudulently and with intent
to evade tax omitted from his income tax returns for
the taxable years 1985 and 1986, taxable income in the
respective amounts of $52,322.00 and $75,753.00.
(w) For the taxable year 1987, the petitioner
failed to file a federal income tax return and paid no
federal tax for that year.
(x) For the taxable year 1987, the petitioner
received taxable income from UNICO, Inc. in a total
amount of $111,195.00.
* * * * * * *
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(z) A part of each deficiency in income tax for
the taxable years 1985, 1986 and 1987, is due to fraud
with intent to evade taxes.
By notice dated October 10, 1996, the Court set this case
for trial at the Columbus, Ohio, trial session beginning on
March 17, 1997. This notice specifically stated that "YOUR
FAILURE TO APPEAR MAY RESULT IN DISMISSAL OF THE CASE AND ENTRY
OF DECISION AGAINST YOU."
On November 7, 1996, petitioner's counsel filed a motion to
withdraw their representation of petitioner. That motion recites
that "Petitioner has instructed counsel not to sign the Decision
Entry previously agreed to between Petitioner and District
Counsel."
This case was called at the Court's trial session in
Columbus, Ohio, on March 17, 1997. Petitioner did not appear,
file a pretrial memorandum, or request a continuance. At that
time, respondent filed the motion for judgment by default
pursuant to the provisions of Rule 123(a).
Discussion
Rule 123(a) provides that if any party fails to plead or
otherwise proceed as provided by the Rules or as required by the
Court, that party may be held in default on the motion of the
other party. Smith v. Commissioner, 91 T.C. 1049, 1056 (1988),
affd. 926 F.2d 1470 (6th Cir. 1991). The action or nonaction on
the part of a taxpayer that constitutes sufficient grounds to
apply Rule 123(a) in proceedings before us is a matter within
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this Court's discretion. Id. Petitioner's failure to appear and
to proceed with prosecution of his case, despite the Court's
warning in its notice setting this case for trial and its
pretrial order, constitutes sufficient grounds for the entry of a
default judgment against him.
Petitioner made no attempt to contact the Court upon his
failure to appear and failed to submit a trial memorandum, as
required by the Court's standing pretrial order, or request a
continuance. Accordingly, we will sustain respondent's
determinations as to the deficiencies and the additions to tax
pursuant to section 6661 on the ground that petitioner either
defaulted or simply failed to carry his burden of proof. See,
e.g., id. at 1052.
Respondent has also moved to default petitioner for the
additions to tax for fraud for the years in issue. When a
taxpayer fails to appear and prosecute his case, entry of a
default decision as to the additions to tax for fraud is
appropriate if, in the answer, the Commissioner alleges facts
which, if proven, clearly and convincingly support such a
judgment. Id. at 1058-1059. The granting of the Rule 37(c)
motion has the effect of establishing facts pleaded in the
answer.
The facts alleged in the answer, deemed admitted, constitute
clear and convincing evidence that petitioner fraudulently
underpaid his taxes for the years in issue. Prominent among the
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matters contained in the answer are petitioner's admissions that:
(1) The omission of specific items of income for the years in
issue is part of a 3-year pattern of intent to evade taxes; (2)
petitioner understated taxable income in the amounts of $52,322
for 1985, $75,753 for 1986, and $111,195 for 1987; and (3) the
deficiency for each of the years in issue is due to fraud with
intent to evade taxes. Additionally, petitioner's conviction
under section 7201 collaterally estops him from denying that
there is an underpayment of his income tax and that some part of
the underpayment is due to fraud for purposes of section
6653(b)(1)(A) and (B) for 1987. Rodney v. Commissioner, 53 T.C.
287, 305 (1960).
The above-pleaded facts clearly establish that petitioner
fraudulently underpaid his income taxes for the years in issue.
Thus, we are satisfied that the additions to tax for fraud for
the years in issue should be sustained by the entry of a default
judgment against petitioner pursuant to Rule 123(a).
To reflect the foregoing,
An appropriate order will
be issued, and decision will be
entered for respondent.