T.C. Memo. 1999-51
UNITED STATES TAX COURT
JAMES J. BROOKBANK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22898-96. Filed February 25, 1999.
James J. Brookbank, pro se.
Louis H. Hill, for respondent.
MEMORANDUM OPINION
GALE, Judge: Respondent determined deficiencies in and
additions to petitioner's Federal income taxes as follows:
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Additions to Tax, I.R.C.
Sec. Sec. Sec.
Year Deficiency 6653(b)(1) 6653(b)(2) 6654
1982 $ 4,551 $2,276 50% of interest $444
due on $4,551
1983 6,401 3,201 50% of interest 392
due on $6,401
1984 15,843 7,922 50% of interest 997
due on $15,843
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
Petitioner did not appear for trial. Respondent filed
motions for judgment by default and for a penalty under section
6673.
Respondent's Motion for Judgment by Default
Respondent's Motion for Judgment by Default relies on facts
and evidence deemed stipulated pursuant to an Order of the Court
made under Rule 91(f)(3) and, in addition, on facts pleaded in
the answer. Respondent contends that those materials are
sufficient to carry respondent's burden of proof because of
petitioner's default, relying on Smith v. Commissioner, 91 T.C.
1049 (1988), affd. 926 F.2d 1470 (6th Cir. 1991). Respondent,
however, also called two witnesses in further support of
respondent's determination of fraud. The witnesses testified to
income paid to petitioner during the years in issue and
admissions made by petitioner about avoiding payment of income
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taxes by putting assets in the names of family members. The
facts pleaded in the answer and supported in many instances by
the stipulated facts and evidence are summarized below.
Background
Petitioner resided in Ohio at the time that he filed his
petition. During 1982, 1983, and 1984, petitioner was engaged in
the business of selling life insurance. During those years, he
was employed by and received commissions from various life
insurance companies. Petitioner received total income from these
sources of $20,094.50 in 1982, $28,656.12 in 1983, and $47,287.84
in 1984. (The specific amounts paid to petitioner by each
insurance company during each year were set out in detail in the
answer, and supporting documents, including canceled checks and
commission records, were deemed stipulated.)
During 1983 and 1984, petitioner caused substantial portions
of his income to be deposited into a bank account maintained in
the name of his mother and his daughter. Payments out of that
bank account were made for petitioner's use. Petitioner acquired
automobiles and caused them to be registered in the name of his
daughter.
On or about the due dates for his income tax returns for
1982, 1983, and 1984, petitioner prepared Forms 1040 and mailed
them to the Cincinnati Service Center of the Internal Revenue
Service. The Forms 1040 included his name, Social Security
number, address, filing status, and claim of one exemption. The
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phrase "Object--Self Incrimination" was typed on the lines of the
forms designed for financial information and computations.
Petitioner did not include any financial information on any of
the Forms 1040 for 1982, 1983, or 1984 that he sent to the
Service Center. Petitioner was promptly notified by the Internal
Revenue Service that the Forms 1040 were not acceptable as income
tax returns and that he was required to file Federal income tax
returns.
On July 10, 1991, petitioner was convicted of willful
failure to file Federal income tax returns for 1983 and 1984 in
violation of section 7203. Petitioner was sentenced to prison,
but his sentence was suspended and he was placed on probation on
condition that he file income tax returns by December 15, 1991.
Petitioner failed to file the returns within that time and, on
December 20, 1991, his prison sentence was reimposed.
Petitioner's failure to file Federal income tax returns for
1982, 1983, and 1984 was part of an 8-year pattern of failure to
file tax returns commencing in 1977. Petitioner fraudulently
failed to report income tax liabilities of $4,551, $6,401, and
$15,843 for 1982, 1983, and 1984, respectively, and all or part
of the underpayment of income tax for those years is due to fraud
with intent to evade tax.
Discussion
In Smith v. Commissioner, 926 F.2d 1470 (6th Cir. 1991),
affg. 91 T.C. 1049 (1988), the Court of Appeals for the Sixth
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Circuit, to which this case is appealable, sustained a default
judgment, including additions to tax for fraud, against a
taxpayer who failed to appear for trial.
In this case, as appears from the procedural history set
forth below in relation to respondent's motion for a penalty
under section 6673, there is every reason to believe that
petitioner's default was willful and was a continuation of his
history of willful and flagrant disregard of his tax liabilities.
At no time during this proceeding has he offered evidence of any
reasonable dispute with respect to the facts alleged and relied
on by respondent.
Respondent's specific allegations, generally supported by
the evidence deemed stipulated, set forth sufficient facts for
respondent to carry his burden of proof. Failure to file
returns, failure to report income over a period of years, failure
to pay tax over a period of years, and concealment of assets are
common badges of fraud. See, e.g., Bradford v. Commissioner, 796
F.2d 303, 307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601.
Under these circumstances, respondent's burden of proof is
satisfied. See Smith v. Commissioner, supra. Respondent's
motion for default judgment should be granted, and the
deficiencies and additions to tax determined by respondent should
be sustained in full.
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Respondent's Motion Under I.R.C. Section 6673
The stipulated evidence establishes that petitioner filed
so-called "Fifth Amendment" Forms 1040 for the years in issue;
that he was advised promptly by the Internal Revenue Service that
the Forms 1040 were not proper tax returns; that he was convicted
of failure to file tax returns for 2 of the 3 years in issue; and
that he failed to comply with the terms of probation requiring
him to file proper tax returns and, as a result, was sentenced to
prison. Throughout this proceeding, however, petitioner has
contended that he was not required to file tax returns for the
years in issue. Petitioner filed a frivolous reply to the
answer, a frivolous response to requests for admissions, and a
frivolous response to the Court's Order to Show Cause under
Rule 91(f)(2). In an Order deeming certain matters stipulated,
the Court stated:
we have concluded in this Order that a substantial
number of petitioner's responses were "evasive or not
fairly directed" to the proposed stipulation. Should
petitioner persist in conducting the litigation in this
manner, further sanctions may be imposed. Petitioner's
attention is directed to Section 6673(a) of the
Internal Revenue Code, which provides that whenever it
appears to the Tax Court that proceedings before it
have been instituted or maintained by the taxpayer
primarily for delay, or the taxpayer's position is
frivolous or groundless, the Court may require the
taxpayer to pay a penalty of up to $25,000. [Order
dated January 29, 1998.]
Less than 3 weeks after the date of that Order, petitioner served
on respondent frivolous requests for admissions repeating his
allegations that his compensation was not taxable income.
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Shortly before trial, petitioner attempted to withdraw his
petition, again asserting a variety of frivolous arguments.
Notwithstanding repeated warnings, petitioner persisted in
ignoring the facts and law applicable to his case. His conduct
was patently willful. Because he was on notice of the lack of
merit to his claims, his positions were taken in bad faith. We
conclude that petitioner's conduct in this case justifies a
penalty under section 6673 in the amount of $15,000. See Granado
v. Commissioner, 792 F.2d 91 (7th Cir. 1986), affg. T.C. Memo.
1985-237; Sloan v. Commissioner, 102 T.C. 137, 148-149 (1994),
affd. 53 F.3d 799 (7th Cir. 1995); Singer v. Commissioner, T.C.
Memo. 1990-222, affd. without published opinion 935 F.2d 1282 (3d
Cir. 1991).
Both of respondent's motions will be granted.
An appropriate order and
decision will be entered.