T.C. Memo. 1998-28
UNITED STATES TAX COURT
RAYMOND E. ROTH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21823-96. Filed January 22, 1998.
Respondent moved under Rule 37(c), Tax Court Rules of
Practice and Procedure, that the undenied allegations in the
answer be deemed admitted. Petitioner did not avail himself
of the opportunity to file a reply or otherwise object to
the motion. We granted respondent’s Rule 37(c) motion.
Respondent moved for judgment on the pleadings under Rule
120, Tax Court Rules of Practice and Procedure.
Held: Respondent’s motion for judgment on the
pleadings is granted; decision will be entered for
respondent as to all the deficiencies and additions to tax
determined in the notices of deficiency.
Raymond E. Roth, pro se.
Janet J. Johnson, for respondent.
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MEMORANDUM OPINION
CHABOT, Judge: This matter is before us on respondent’s
motion for judgment on the pleadings under Rule 120.1 Respondent
determined deficiencies in Federal individual income tax and
additions to tax under sections 6651(f)2 (fraud), 6654
(underpayment of estimated tax), and 6663 (fraud) against
petitioner as follows:
Additions to Tax
Year Deficiency Sec. 6651(f) Sec. 6654 Sec. 6663
1989 $21,344 $15,474 $112 --
1990 11,065 -- -- $8,299
1991 6,882 -- -- 5,162
1992 11,934 8,652 336 --
1
1993 11,597 8,408 486 --
1994 14,183 6,170 662 --
1
The cover letter and schedule 1 of the notice of deficiency
show this as a $8,408 addition to tax under sec. 6663. Schedule
7 of the notice of deficiency shows this as a $8,408 addition to
tax under sec. 6651(f). The matter is clarified in respondent’s
answer as being under sec. 6651(f). Petitioner has not raised
any concern about this matter. Taking into account the record as
a whole, we hold that respondent determined that the $8,408
addition to tax for 1993 was under sec. 6651(f) and not under
sec. 6663. Bokum v. Commissioner, 94 T.C. 126, 127 n.2 (1990),
affd. 992 F.2d 1132 (11th Cir. 1993); Saint Paul Bottling Co. v.
Commissioner, 34 T.C. 1137 (1960).
1
Unless indicated otherwise, all Rule references are to
the Tax Court Rules of Practice and Procedure.
2
Unless indicated otherwise, all section references are
to sections of the Internal Revenue Code of 1986 as in effect for
the years in issue.
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The issues for decision are (1) whether there are any
genuine issues as to material facts and, if there are no such
issues, then (2) whether respondent is entitled to judgment as a
matter of law on the deficiencies and additions to tax.
Background--Procedure
Petitioner invoked this Court’s jurisdiction by filing a
timely petition from the two notices of deficiency that embodied
respondent’s determinations described supra. Respondent filed an
answer to the petition, including specific allegations with
regard to the fraud determinations. Petitioner did not file a
reply to this answer. Respondent filed a motion pursuant to Rule
37(c) that undenied allegations in the answer be deemed admitted.
The Court issued an order to petitioner, advising him of the
filing of respondent’s motion under Rule 37(c) and directing
petitioner to file a reply to respondent’s answer within 20 days
of the order. Petitioner failed to file a reply to respondent’s
answer or otherwise respond to the Court’s order. Consequently,
we granted respondent’s Rule 37(c) motion, and the undenied
allegations set forth in respondent’s answer were deemed to be
admitted. Gilday v. Commissioner, 62 T.C. 260, 261-262 (1974);
see Gordon v. Commissioner, 73 T.C. 736, 739-740 (1980).
On May 20, 1997, the Court served the parties with notice of
trial in St. Louis, Mo., the location designated by petitioner.
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On August 22, 1997, respondent filed the instant motion for
judgment on the pleadings. After several unsuccessful informal
attempts to contact petitioner to arrange for a telephone
conference to discuss the instant motion,3 the Court struck the
case from the October 27, 1997, St. Louis trial session and
established a briefing schedule on the instant motion.
Petitioner has not filed any brief or otherwise responded to the
instant motion.
Our findings are based entirely on those matters that are
admitted or deemed admitted in the pleadings.
Background--Facts
When the petition was filed in the instant case, petitioner
resided in Belleville, Illinois.
During each of the years 1989, 1990, 1991, 1992, 1993, and
1994, petitioner was engaged in the business of publishing a
magazine entitled “Southern Illinois Prep Sports” (hereinafter
sometimes referred to as SIPS), featuring local high school
athletes. Petitioner conducted this business as a sole
proprietorship doing business as “Southern Illinois Prep Sports”.
In each of the years 1990, 1991, 1992, 1993, and 1994, petitioner
published two editions of SIPS: a football issue in the fall and
3
At some point after the notice of trial was served and
before respondent filed the instant motion for judgment on the
pleadings, petitioner apparently moved from the address listed in
the petition. Petitioner has not communicated with the Court,
formally or informally, since then.
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a basketball issue in the winter. In 1989, he published three
editions--fall, winter, and spring.
During the period 1989, through 1994, petitioner sold
advertising in SIPS to local businesses at the following rates:
$55 for a business card-sized advertisement; $85 for one-sixth
page; $120 for one-quarter page; $200 for one-half page; and $360
for a full page.
During 1990 and 1991, petitioner derived revenue in the
amounts of $50,710 and $44,125, respectively, from selling
advertising in SIPS. Of the amounts so derived, $25,140 and
$20,895 were not reported on petitioner’s income tax returns for
1990 and 1991, respectively. Petitioner understated his taxable
income on his tax returns for 1990 and 1991 in the amounts of
$30,385 and $26,670, respectively. Petitioner understated his
income tax liabilities on his tax returns for 1990 and 1991 in
the amounts of $11,065 and $6,882, respectively.
Petitioner did not file income tax returns for 1989, 1992,
1993, and 1994. During 1989, 1992, 1993, and 1994, petitioner
derived revenue in the amounts of $77,175, $52,485, $53,575, and
$59,780, respectively, from selling advertising in SIPS.
Petitioner failed to report taxable income for 1989, 1992, 1993,
and 1994, in the amounts of $57,505, $31,885, $30,477, and
$36,551, respectively. As a result of not filing income tax
returns for 1989, 1992, 1993, and 1994, petitioner understated
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his income tax liabilities for those years in the amounts of
$21,344, $11,934, $11,597, and $14,183, respectively.
Petitioner failed to produce any records or other
information with respect to these sales of advertising, to
respondent in connection with the examination of his tax returns
for 1990 and 1991, and in connection with the examination of
petitioner’s 1989, 1992, 1993, and 1994 income tax liabilities.
Discussion
(1) Judgment on the pleadings
A motion for judgment on the pleadings will be granted only
if the pleadings do not raise a genuine issue as to a material
fact and the moving party is entitled to a judgment as a matter
of law. DuPont v. Commissioner, 74 T.C. 498, 504 (1980); Anthony
v. Commissioner, 66 T.C. 367, 368, (1976), affd. without
published opinion 566 F.2d 1168 (3d Cir. 1977).
(2) Genuine issue as to material fact
In the instant case, there are no genuine issues as to the
material facts found supra, under Background--Facts, these
matters having been deemed admitted by order of the Court.
Petitioner is deemed to have admitted that he understated
his tax liabilities by specified amounts for each of the 6 years
in issue. This “bottom line” admission eliminates any need to
consider matters which might otherwise affect tax liability, such
as deductions, credits, or tax filing status.
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Because petitioner has failed to plead that any addition to
tax should be reduced on account of prepayment credits, or that
any fraud addition to tax should be reduced on account of some
part of the underpayment’s not being due to fraud, or that any
addition to tax should be reduced on account of any matter other
than the amount of the underpayment, there are no genuine issues
as to material facts affecting the amounts of any additions to
tax.
(3) Judgment as a matter of law
Respondent is entitled to judgment as a matter of law with
respect to the deficiencies and the additions to tax under
section 6654.
As to the fraud additions to tax, in order to carry the
burden of proof for a year, respondent must prove two elements,
as follows: (1) That petitioner has an underpayment of tax for
that year, and (2) that some part of that underpayment is due to
fraud. Sec. 7454(a); Rule 142(b); e.g., Carter v. Campbell, 264
F.2d 930, 936 (5th Cir. 1959); Stone v. Commissioner, 56 T.C.
213, 220 (1971); Otsuki v. Commissioner, 53 T.C. 96, 105, 106
(1969). Each of these elements must be proven by clear and
convincing evidence. DiLeo v. Commissioner, 96 T.C. 858, 873
(1991), affd. 959 F.2d 16 (2d Cir. 1992); Parks v. Commissioner,
94 T.C. 654, 663-664 (1990); Hebrank v. Commissioner, 81 T.C.
640, 642 (1983).
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For this purpose, respondent need not prove the precise
amount of the underpayment resulting from fraud, but only that
there is some underpayment and that some part of it is
attributable to fraud. E.g., Lee v. United States, 466 F.2d 11,
16-17 (5th Cir. 1972); Plunkett v. Commissioner, 465 F.2d 299,
303 (7th Cir. 1972), affg. T.C. Memo. 1970-274. In carrying this
burden, respondent may not rely on petitioner’s failure to meet
his burden of proving error in respondent’s determinations as to
the deficiencies. E.g., Petzoldt v. Commissioner, 92 T.C. 661,
700 (1989); Habersham-Bey v. Commissioner, 78 T.C. 304, 312
(1982), and cases cited therein.
Where fraud is determined for each of several years,
respondent’s burden applies separately for each of the years.
Drieborg v. Commissioner, 225 F.2d 216, 219-220 (6th Cir. 1955),
affg. in part and revg. in part a Memorandum Opinion of this
Court dated Feb. 24, 1954; Estate of Stein v. Commissioner, 25
T.C. 940, 959-963 (1956), affd. sub nom. Levine v. Commissioner,
250 F.2d 798 (2d Cir. 1958). A mere understatement of income
does not establish fraud. However, a pattern of consistent
underreporting of income for a number of years is strong evidence
of fraud. Estate of Mazzoni v. Commissioner, 451 F.2d 197, 202
(3d Cir. 1971), affg. T.C. Memos. 1970-144 and 1970-37; Adler v.
Commissioner, 422 F.2d 63, 66 (6th Cir. 1970), affg. T.C. Memo.
1968-100; Otsuki v. Commissioner, 53 T.C. at 108.
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The issue of fraud poses a factual question that is to be
decided on an examination of all the evidence in the record.
Plunkett v. Commissioner, 465 F.2d at 303; Mensik v.
Commissioner, 328 F.2d 147, 150 (7th Cir. 1964), affg. 37 T.C.
703 (1962); Stone v. Commissioner, 56 T.C. at 224.
In order to establish fraud as to petitioner, respondent
must show that petitioner intended to evade taxes, which he knew
or believed were owed, by conduct intended to conceal, mislead,
or otherwise prevent the collection of taxes. E.g., Webb v.
Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. T.C. Memo.
1966-81; Powell v. Granquist, 252 F.2d 56, 60 (9th Cir. 1958);
Danenberg v. Commissioner, 73 T.C. 370, 393 (1979); McGee v.
Commissioner, 61 T.C. 249, 256-257 (1973), affd. 519 F.2d 1121
(5th Cir. 1975). This intent may be inferred from circumstantial
evidence, Powell v. Granquist, 252 F.2d at 61; Gajewski v.
Commissioner, 67 T.C. 181, 200 (1976), affd. without published
opinion 578 F.2d 1383 (8th Cir. 1978), including the
implausibility of petitioner’s explanations, Bradford v.
Commissioner, 796 F.2d 303, 307 (9th Cir. 1986) (and cases
therein cited), affg. T.C. Memo. 1984-601; Boyett v.
Commissioner, 204 F.2d 205, 208 (5th Cir. 1953), affg. a
Memorandum Opinion of this Court dated Mar. 14, 1951.
Respondent has proven by clear and convincing evidence that
there was an underpayment of tax for each of the years in issue.
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Respondent has proven by clear and convincing evidence that
for 6 consecutive years petitioner received advertising revenue
in amounts ranging from $44,125 to $77,175 per year, and
averaging more than $56,000 per year. For 4 of these years
petitioner omitted all of these receipts, for the other 2 years
petitioner omitted about half of these receipts. For these 6
years petitioner omitted taxable income in amounts ranging from
$26,670 to $57,505 per year, and averaging more than $35,000 per
year. This pattern of consistent underreporting of income is
strong evidence of fraudulent omissions of income, which resulted
in underpayments of tax for each of the 6 years in issue.
When the foregoing is combined with petitioner’s failure to
produce to respondent any records or other information with
respect to sales of advertising, in connection with respondent’s
examination of petitioner’s income tax liabilities for the 6
years in issue, we conclude that respondent has proven by clear
and convincing evidence that a part or all of the underpayment
for each of the years in issue is due to petitioner’s fraud.
Petitioner has not alleged in the pleadings that any part of
the deficiency for any of the years in issue is not due to fraud.
We hold that respondent’s motion for judgment on the
pleadings should be granted as to both the determined
deficiencies and the additions to tax under sections 6651(f),
6654, and 6663. To reflect this,
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An appropriate order
granting respondent’s motion
for judgment on the pleadings
will be issued; decision will
be entered for respondent.