T.C. Memo. 2005-255
UNITED STATES TAX COURT
STEVEN W. POND, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10911-03. Filed October 31, 2005.
Steven W. Pond, pro se.
Elizabeth Downs, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
FOLEY, Judge: By notices dated April 8, 2003, respondent
determined deficiencies in and additions to petitioner’s 1995,
1996, 1997, 1998, 1999, 2000, and 2001 Federal income taxes. The
issues for decision are whether petitioner received unreported
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income and is liable for the sections 6654(a)1 and 6651(a)(1) or
(f) additions to tax.
FINDINGS OF FACT
In 1980, petitioner began operating a helicopter repair and
maintenance company. While operating the business out of his
home, petitioner provided repair and maintenance services and
equipment sales to his customers. He did not maintain a formal
set of books and records, but he did issue invoices. Petitioner
received both checks and cash for the services he provided.
Petitioner deposited most of the business proceeds into personal
and business bank accounts, and both personal and business
expenses were paid with these funds.
Petitioner’s business gross receipts in 1995, 1996, 1997,
1998, 1999, 2000, and 2001 totaled $70,899, $73,092, $149,366,
$152,353, $74,697, $67,661, and $69,691, respectively. In 1995
and 1996, petitioner received rental income from Tulsa
Helicopters, Inc., in the amounts of $33,815 and $7,363,
respectively. On June 20, 1996, petitioner sold real property
and received $400,000 in proceeds. Prior to the years in issue,
petitioner filed Federal individual income tax returns (returns)
with respondent.
1
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.
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On April 8, 2003, respondent issued petitioner separate
notices of deficiency relating to 1995 through 1997, 1998 through
2000, and 2001. In the notices, respondent determined that
petitioner: (1) Failed to report income relating to 1995 through
2001, (2) was liable for section 6651(f) additions to tax for
fraudulent failure to file returns relating to 1995 through 2001,
(3) was liable in the alternative for section 6651(a)(1)
additions to tax for failure to file returns relating to 1995
through 2001, and (4) was liable for section 6654(a) additions to
tax for failure to pay estimated income taxes relating to 1996
through 2001. On July 8, 2003, petitioner filed his petition,
and on August 28, 2003, respondent filed his answer.
Petitioner resided in Inola, Oklahoma, at the time he filed
his petition.
OPINION
Petitioner concedes that he received unreported income
during the years in issue and does not dispute respondent’s
determinations relating to his rental activity, real estate
sales, wages, and helicopter business gross receipts.
Accordingly, we sustain respondent’s determinations relating to
this unreported income.
Petitioner contends that he believed that he was not
required to file tax returns relating to the years in issue.
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Respondent contends, pursuant to section 6651(f), that petitioner
fraudulently failed to file his returns.
Respondent must establish by clear and convincing evidence
that petitioner, by failing to file, intended to evade tax. See
sec. 7454(a); Clayton v. Commissioner, 102 T.C. 632, 646, 652-653
(1994). While a taxpayer’s failure to file a tax return does
not, standing alone, establish fraud, an inference of fraud is
justified when the failure to file is coupled with other badges
of fraud that establish an intent to conceal or mislead. See
Zell v. Commissioner, 763 F.2d 1139, 1145-1146 (10th Cir. 1985),
affg. T.C. Memo. 1984-152; Clayton v. Commissioner, supra at 653
(stating that “we must consider the same elements” in determining
the fraud penalty, pursuant to section 6663, and fraudulent
failure to file, pursuant to section 6651(f)); Kotmair v.
Commissioner, 86 T.C. 1253 (1986).
In Kotmair, the Commissioner determined that a self-employed
taxpayer, who was convicted of willfully failing to file Federal
income tax returns and did not pay estimated taxes or maintain
adequate books and records, committed fraud, pursuant to section
6653(b). The Court held that the Commissioner had not
established that the taxpayer had the requisite intent to evade
tax because “There was no evidence of any falsification of books
or records, no evidence of any concealment or misleading”. Id.
at 1261. Similarly, at trial, when the Court inquired whether
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petitioner attempted to conceal his income, respondent’s counsel
stated: “No, Your Honor. I don’t contend that he tried to
conceal his income.” In addition, petitioner credibly testified
that he did not file returns relating to the years in issue
because he believed that the exemption amount, pursuant to
section 6012(a)(1)(A), is not defined by statute. Petitioner’s
belief is incorrect but appears to have been earnestly held.
Although petitioner failed to file returns, pay estimated taxes,
or maintain adequate books and records, respondent failed to
clearly and convincingly establish that petitioner had the
requisite intent to evade tax. Accordingly, we reject
respondent’s fraud determinations.
With respect to section 6651(a)(1) and 6654(a) additions to
tax, respondent met his burden of production, pursuant to section
7491(c), and established that petitioner failed to file his 1995
through 2001 returns and pay his 1996 through 2001 estimated
income taxes. See Higbee v. Commissioner, 116 T.C. 438, 446
(2001). Petitioner, however, failed to introduce sufficient facts
to establish the inapplicability of these additions to tax.
Accordingly, we sustain respondent’s determinations relating to
sections 6651(a)(1) and 6654(a) additions to tax.
At trial and in documents filed with the Court, petitioner
raised several groundless contentions. Pursuant to section
6673(a)(1), this Court is authorized to impose a penalty not to
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exceed $25,000 if petitioner advances frivolous arguments.
Respondent did not request the Court to, and we do not, impose a
section 6673 penalty. Nevertheless, we admonish petitioner that
he may be subject to a section 6673 penalty if he asserts
frivolous or groundless contentions in a subsequent proceeding in
this Court.
Contentions we have not addressed are irrelevant, moot, or
meritless.
To reflect the foregoing,
Decision will be entered
under Rule 155.