T.C. Memo. 2009-12
UNITED STATES TAX COURT
EDWARD R. VOCCOLA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5398-06. Filed January 15, 2009.
Edward R. Voccola, pro se.
Nina P. Ching, for respondent.
MEMORANDUM OPINION
NIMS, Judge: This matter is before the Court on
respondent’s motion for summary judgment under Rule 121. Unless
otherwise indicated, all Rule references are to the Tax Court
Rules of Practice and Procedure, and all section references are
to the Internal Revenue Code in effect for the years in issue.
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Respondent determined the following deficiencies, penalties,
and addition with respect to petitioner’s Federal income tax:
Penalty Addition to Tax
Year Deficiency Sec. 6663 Sec. 6651(a)(1)1
1999 $218,567 $163,925.25 $14,429
2000 338,277 253,529.25 --
1
Respondent’s motion for summary judgment incorrectly states
the sec. 6651(a)(1) addition to tax as sec. 6651(a)(2). The
notice of deficiency, dated Dec. 16, 2005, states the addition as
sec. 6651(a)(1).
The issues for consideration are: (1) Whether petitioner
underreported income during the years in issue; (2) whether
petitioner is liable for the addition to tax for failure to
timely file a return under section 6651(a)(1); and (3) whether
petitioner is liable for fraud penalties under section 6663.
Background
On December 16, 2005, respondent sent petitioner notices of
deficiency for the 1999 and 2000 tax years. Petitioner filed a
petition with this Court on March 15, 2006, challenging the
determined deficiencies, addition to tax, and penalties. At the
time he filed his petition, petitioner resided in Massachusetts.
On May 12, 2006, respondent filed an answer to the petition. The
answer included an affirmative allegation of fraud. Petitioner
did not file a reply.
On August 7, 2006, pursuant to Rule 37(c), respondent moved
for entry of an order that the undenied allegations in the answer
be deemed admitted (Rule 37(c) motion) by petitioner. The Court
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ordered petitioner to file a reply by August 30, 2006, but
petitioner never did so.1 On September 19, 2006, the Court
granted respondent’s Rule 37(c) motion and deemed admitted
paragraphs 5(a) through (bbb) of respondent’s answer.
On April 4, 2007, respondent filed a motion for summary
judgment on the basis of the deemed admissions. The Court
ordered petitioner to file a response by April 23, 2007, but he
did not do so. The Court heard respondent’s motion on May 21,
2007. Petitioner did not appear at the hearing and did not file
a Rule 50(c) statement in lieu of an appearance.
Respondent’s motion for summary judgment requests that we
sustain the deficiencies, addition to tax, and penalties
determined in the notices of deficiency. Respondent contends the
facts deemed admitted under Rule 37(c) are sufficient to satisfy
his burdens of proof as to the deficiencies, addition to tax, and
penalties.
The deemed admissions under Rule 37(c) establish the
following facts.
1
The Court’s order dated Aug. 8, 2006, on respondent’s Rule
37(c) motion directing petitioner to file a reply was returned to
the Court marked “unclaimed”, but petitioner later received a
copy of the order granting the Rule 37(c) motion enclosed in a
letter respondent sent to petitioner on Feb. 27, 2007, almost 3
full months before the hearing on respondent’s motions for
summary judgment.
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Petitioner omitted income and claimed false deductions on
his 1999 and 2000 income tax returns as part of a 10-year pattern
of intentionally evading tax.
On March 29, 2000, petitioner was indicted on three counts
of tax evasion in violation of section 7201. Petitioner was
charged with filing fraudulent joint income tax returns for the
1993, 1994, and 1995 taxable years, in that they overstated
itemized deductions, reported negative taxable income, and
reported a tax liability of zero. Petitioner pleaded guilty to
all 3 counts, and the U.S. District Court for the District of
Massachusetts entered judgment accordingly on December 30, 2000.
On September 10, 2002, petitioner was indicted on 11 counts
of securities fraud, 2 counts of falsely representing Social
Security numbers, 4 counts of mail fraud, and 1 count of wire
fraud. Petitioner pleaded guilty to all of the charges.
For the tax years at issue, petitioner filed Forms 1040,
U.S. Individual Income Tax Return, Forms 1045, Application for
Tentative Refund, and Forms 1040X, Amended U.S. Individual Income
Tax Return, to claim losses and generate refunds to which he was
not entitled for those years.
On December 11, 2000, petitioner filed a late return for the
1999 tax year as a married individual filing separately.
Petitioner claimed and received a refund of $18,509. Petitioner
then filed a timely return for the 2000 tax year, reporting a
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liability of $35,815 and an overpayment of $140,178. Respondent
made adjustments to petitioner’s return and recomputed his total
tax liability as $54,939.
Petitioner then filed a return for the 2001 tax year and
reported a tax liability of zero and a $164,418 loss on Schedule
C, Profit or Loss From Business. Petitioner also filed a Form
1045 for the 1999 tax year, whereby petitioner claimed a
carryback net operating loss of $159,755 resulting from the
claimed loss in the 2001 taxable year. Respondent accordingly
issued petitioner a refund of $66,247 on March 25, 2002.
On or about May 8, 2002, petitioner filed a Form 1040X for
the 2001 tax year, increasing his Schedule C loss to $295,185.
He also requested another refund for the 1999 tax year, claiming
a carryback net operating loss of $290,400 as a result of the
increased Schedule C loss for the 2001 tax year. Respondent
accordingly issued petitioner a $52,410 refund on July 1, 2002.
On or about October 16, 2002, petitioner submitted a second
Form 1040X for the 2001 tax year which further increased his
Schedule C loss for that year to $521,757. Petitioner again
requested a refund for the 1999 tax year, claiming a carryback
net operating loss of $393,338 resulting from the increased 2001
Schedule C loss. This reduced petitioner’s tax liability for
1999 to zero, and the remaining claimed net operating loss of
$123,754 was carried forward to the 2000 tax year. At the same
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time petitioner also requested a refund for the 2000 tax year.
On January 6, 2003, respondent issued petitioner refunds for both
years of $23,455 and $27,671.12, respectively.
On or about June 1, 2004, petitioner submitted a Form 1040X
for the 2000 tax year, claiming a net operating carryback loss of
$130,368. Petitioner then requested a refund of $28,151, but
respondent rejected this claim.
After the carrybacks and carryforwards on his 1999 and 2000
tax returns, petitioner’s reported taxable income was negative
$29,917 and negative $43,874, respectively. His reported tax
liabilities were zero and $28,395, respectively.
Petitioner prepared these returns himself. Petitioner holds
a master’s degree in business administration from Temple
University Graduate School of Business, a juris doctor degree
from Suffolk University School of Law, and a master of laws
degree in taxation from Boston University School of Law. He also
has years of work experience as a tax specialist.
Petitioner’s correct taxable income in those years was
actually $577,603 and $937,038. Petitioner claimed
unsubstantiated Schedule C losses totaling $175,439 and $413,038
and unsubstantiated net operating loss carrybacks of $393,338 and
$123,754, respectively. Petitioner also failed to report
interest and dividend income received in both years.
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Petitioner’s correct tax liabilities for 1999 and 2000 were
$218,567 and $366,672, respectively. Thus, petitioner
understated his income tax liabilities by $218,567 and $338,277.
In support of his 2000 tax return, petitioner submitted a
Form W-2, Wage and Tax Statement, purportedly from State Street
Bank & Trust Co. (SSB&T). This Form W-2 understated his wage
income for the year and was not the one actually prepared or
issued by SSB&T. On Schedules C of his returns for the 1999 and
2000 tax years, petitioner also wrongfully claimed he was a
“trader in securities” using a “mark-to-market” accounting
method. Petitioner failed to maintain complete and accurate
records of his income-producing activities and to produce such
records to respondent in connection with the examination of his
1999 and 2000 tax returns.
Discussion
Summary judgment may be granted when there is no genuine
issue of material fact and a decision may be rendered as a matter
of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C.
518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). The opposing
party cannot rest upon mere allegations or denials in his
pleadings and must “set forth specific facts showing that there
is a genuine issue for trial.” Rule 121(d). The moving party
bears the burden of proving there is no genuine issue of material
fact, and factual inferences will be read in a manner most
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favorable to the party opposing summary judgment. Dahlstrom v.
Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner,
79 T.C. 340, 344 (1982).
The first issue for decision is whether we should grant
respondent summary judgment as to the deficiencies for the years
in question.
Respondent’s motion is supported by petitioner’s failure to
answer the affirmative allegations in the answer. Where a reply
is not filed, the affirmative allegations in the answer will be
deemed denied unless the Commissioner, within 45 days after
expiration of the time for filing the reply, files a motion that
specified allegations in the answer be deemed admitted. Rule
37(c). Facts deemed admitted under Rule 37(c) are considered
conclusively established and may be relied on by the Commissioner
even when he bears the burden of proof. Baptiste v.
Commissioner, 29 F.3d 1533, 1537 (11th Cir. 1994), affg. T.C.
Memo. 1992-198.
In his answer, respondent alleged that petitioner
understated income by neglecting to report interest and dividends
received, underreporting wages, and failing to substantiate
claimed losses. Because petitioner did not reply to these
allegations and the Court granted respondent’s Rule 37(c) motion,
petitioner is deemed to have admitted these facts. These
admissions are adequate to support respondent’s burden of proving
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no genuine issue of material fact exists as to the deficiency
determinations. Accordingly, we will grant respondent’s motion
as to the deficiencies determined for the years in issue.
The second issue for decision is whether we should grant
respondent’s motion for summary judgment as to the section
6651(a)(1) addition to tax for the 1999 tax year.
Section 6651(a)(1) provides for an addition to tax of up to
25 percent for failure to timely file a return unless such
failure was due to reasonable cause and not willful neglect.
United States v. Boyle, 469 U.S. 241, 245 (1985); Baldwin v.
Commissioner, 84 T.C. 859, 870 (1985). Since petitioner did not
deny the affirmative allegation that he filed his 1999 return
late, he is deemed to have admitted this fact and is liable for
the addition to tax under section 6651(a)(1). We accordingly
will grant respondent’s motion for summary judgment as to the
section 6651(a)(1) addition to tax.
The third issue is whether we should grant respondent’s
motion for summary judgment as to the section 6663 fraud
penalties.
Section 6663 imposes a penalty equal to 75 percent of the
portion of any underpayment attributable to fraud. The
Commissioner bears the burden of proving by clear and convincing
evidence that an underpayment exists and that some portion of the
underpayment for each year is due to fraud with the intent to
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evade tax. Sec. 7454(a); Rule 142(b). Deemed admissions under
Rule 37(c) are sufficient to satisfy this burden. Doncaster v.
Commissioner, 77 T.C. 334, 336-338 (1981).
Petitioner’s deemed admissions also satisfy respondent’s
burden of proof for the section 6663 fraud penalties. Petitioner
is deemed to have admitted that he fraudulently omitted income
and claimed false deductions as part of a plan to evade tax.
These admissions sufficiently establish that some portion of the
underpayment for each year was due to fraud with intent to evade
tax. We, therefore, will grant respondent’s motion for summary
judgment as to the section 6663 penalties.
To reflect the foregoing,
An appropriate order and
decision will be entered.