T.C. Memo. 2011-9
UNITED STATES TAX COURT
DAVID W. GOLDSTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 21681-07, 16037-08. Filed January 11, 2011.
David W. Goldston, pro se.
Lauren B. Epstein, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: In separate notices of deficiency, respondent
determined deficiencies and additions to tax as follows:
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Additions to Tax
Year Deficiency Sec. 6651(f) Sec. 6651(a)(2) Sec. 6654
1992 $108,993 $81,744.75 --- $4,753.78
1993 26,993 20,244.75 --- 1,130.99
1994 21,531 15,609.98 $5,382.75 1,117.32
1995 51,236 37,146.10 12,809.00 2,778.13
1996 67,931 49,249.98 16,982.75 3,615.65
1997 70,330 50,989.25 17,582.50 3,762.68
1998 36,645 26,567.63 9,161.25 1,676.82
1999 83,261 60,364.23 20,815.25 4,029.48
2000 95,074 68,928.65 23.768.50 5,078.36
2001 102,138 74,050.05 25,534.50 4,081.80
2002 87,135 63,172.88 21,783.75 2,911.83
1
2003 117,729 85,353.53 27,077.67 3,080.97
1
2004 99,240 71,949.00 16,870.80 2,880.65
1
2005 96,829 70,201.02 10,651.19 3,883.95
1
The addition to tax will continue to accrue from the due
date of the return at a rate of 0.5 percent for each month, or
fraction thereof, of nonpayment, not exceeding 25 percent.
The cases were consolidated for trial, briefing, and opinion.
After concessions, the issue for decision is whether petitioner
is liable for the additions to tax under section 6651(f) for
fraudulent failure to file returns. 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.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in Florida at the time the petitions were
filed. At all material times, he was married to Nancy Sharp
Goldston.
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Petitioner received a degree in dentistry in 1964 and was a
practicing dentist during the years in issue. Before 1990, he
operated his dental practice in corporate form. In 1990, he sold
his practice. Thereafter he worked for various persons and
entities. His gross receipts from dentistry for the years in
issue were as follows:
Year Gross Receipts
1992 $86,557
1993 63,558
1994 165,363
1995 368,711
1996 473,557
1997 489,331
1998 274,353
1999 572,016
2000 645,580
2001 699,487
2002 575,487
2003 830,812
2004 701,565
2005 684,633
Petitioner also received taxable income from various sources
during the years in issue, including taxable retirement
distributions of $174,871 in 1992; sales of property; rentals;
interest; and, beginning in 2002, Social Security benefits.
Petitioner’s total taxable income for the years in issue was as
follows:
Year Taxable Income
1992 $276,657
1993 70,543
1994 53,081
1995 131,391
1996 171,239
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1997 176,916
1998 93,179
1999 206,633
2000 234,059
2001 253,941
2002 221,100
2003 316,680
2004 268,118
2005 261,811
Total 2,735,348
Beginning in or about 1991, petitioner began a course of
conduct intended to conceal the sources and amount of income that
he received. That conduct and concealment continued through the
years in issue, although the sources of income and the names of
the entities used varied from year to year. Petitioner placed
funds and property in the names of nominees and trusts and used
cashier’s checks, money orders, and currency to conduct
transactions, all with the intent and for the purpose of
concealing his income and assets from the Internal Revenue
Service (IRS).
Petitioner opened bank accounts, operated a dentistry
practice, engaged in various real estate transactions, and
purchased residential real property and personal vehicles in the
names of various trusts. The trust names so employed included
Sharp Management Trust, Sharpstone Irrevocable Trust, Cool Stream
Holding Trust, Old Times Holding Trust, High Mountain Holding
Trust, Old Oak Holding Trust, Comfort Holding Trust, Rainy Day
Management Trust, Work Holding Trust, Carriage Holding Trust,
Blue Lake Holding Trust, Patio Holding Trust, and Sun Stroke
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Management Trust. Petitioner was the grantor of the trusts,
managed the assets purportedly held by the trusts, deposited
income from his dental practice in trust accounts and paid
personal expenses from those accounts, and otherwise treated as
his own the assets held in the names of the trusts.
Petitioner failed to file Federal income tax returns for
1992 through 2005. He espoused frivolous tax arguments and
advised others, including patients and an employee, that he was
not required to pay taxes. He did not make any estimated tax
payments.
On June 23, 2005, petitioner was convicted of violation of
section 7201 on an indictment charging that
from on or about the 15th day of April, 1991, and
continuing through in or about September, 2003, * * *
[petitioner] * * *, did willfully attempt to evade and
defeat the payment of a substantial amount of federal
income tax due and owing by him to the United States of
America for the calendar years 1990 and 1991, by
concealing and attempting to conceal from the Internal
Revenue Service the nature and extent of his assets and
the location thereof, by placing funds and property in
the names of nominees and trusts, and by utilizing
cashier’s checks, money orders, and currency to conduct
transactions * * *
On December 16, 2005, petitioner was sentenced to a prison
term of 48 months and ordered to be on supervised release for 36
months upon release from prison. As a condition of his
supervised release, petitioner was required to “cooperate with
the Internal Revenue Service regarding all outstanding taxes,
interest, and penalties * * * [and] provide the Probation Officer
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with verification that the income tax obligations are being met
to the fullest extent possible.”
Since his release, petitioner has not cooperated with the
IRS and has not met his income tax obligations.
OPINION
Notwithstanding his recent incarceration, petitioner’s
denials and defiance of his tax obligations continued through the
time of trial of these cases. He admitted that he did not file
returns for any of the years in issue. He did not dispute any of
the facts establishing his receipt of substantial taxable income
during the years in issue, and his receipt of specific items of
income was deemed admitted pursuant to Rule 90 by his failure to
respond to requests for admissions. No adjustments to the
deficiencies determined by respondent are required on this
record. The deemed admissions also establish petitioner’s
liability for additions to tax under sections 6651(a)(2) and
6654. Petitioner failed to file the answering brief ordered by
the Court, and thus he has not raised any objections to the
extensive and detailed findings of fact proposed in respondent’s
opening brief. In view of the absence of dispute as to the
underlying facts, our findings summarize the material facts
without describing the evidentiary detail.
The addition to tax in cases of fraud is a civil sanction
provided primarily as a safeguard for the protection of the
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revenue and to reimburse the Government for the heavy expense of
investigation and the loss resulting from the taxpayer’s fraud.
Helvering v. Mitchell, 303 U.S. 391, 401 (1938). To sustain the
75-percent addition to tax provided by section 6651(f),
respondent has the burden of proving that petitioner’s failure to
file returns was fraudulent. See sec. 7454(a); Rule 142(b).
(Respondent has pleaded and argued, in the alternative,
applicability of the addition to tax under section 6651(a)(1).
In view of our conclusion that petitioner’s failure to file was
fraudulent, we do not consider that alternative.)
In applying the addition to tax under section 6651(f), we
consider the same elements, or long-recognized “badges of fraud”,
discussed in cases applying section 6663 or former section
6653(b)(1). Clayton v. Commissioner, 102 T.C. 632, 647-653
(1994); see Niedringhaus v. Commissioner, 99 T.C. 202, 211-213
(1992). Fraud may be proved by circumstantial evidence, and the
taxpayer’s entire course of conduct may establish the requisite
fraudulent intent. Rowlee v. Commissioner, 80 T.C. 1111, 1123
(1983). Circumstantial evidence of fraud present here includes
the pattern of failure to file returns, failure to report
substantial amounts of income, concealing assets, dealing in
cash, failing to maintain records, giving implausible or
inconsistent explanations of behavior, and failure to cooperate
with taxing authorities in determining petitioner’s correct
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liability. See, e.g., Bradford v. Commissioner, 796 F.2d 303,
307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Powell v.
Granquist, 252 F.2d 56, 60-61 (9th Cir. 1958); Clayton v.
Commissioner, supra at 647; Grosshandler v. Commissioner, 75 T.C.
1, 20 (1980); Gajewski v. Commissioner, 67 T.C. 181, 199-202
(1976), affd. without published opinion 578 F.2d 1383 (8th Cir.
1978).
Petitioner argues that he had no intention of breaking the
law and that his admitted failure to file returns was not
fraudulent. His filings and his testimony are replete with
implausible and inconsistent explanations of his behavior. He
claims that he acted in accordance with the directions of the
“trustees”, but there is no evidence that anyone other than
petitioner and his wife controlled any of the transactions or
earned any of the income attributed to him. He admits that the
trusts were funded by “gifts” from him, that his personal
expenses were paid from trust bank accounts, and that properties
purchased in the names of various trusts were used by him for
professional and personal purposes. According to his testimony,
the beneficiaries of the trusts were his children and
grandchildren. He claims that his accountant made mistakes
reporting pension plan distributions, and he asserts that his
criminal conviction resulted from false testimony. He asserts
that
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My decision to quit paying the tax was made in 1992,
not before, and was the result of a letter sent, asking
for the basis for their taxing me which received a
reply after about 3 months, which was no answer to my
question, but simply stated to ignore any
correspondence received from them until I received an
answer.
In a statement at the conclusion of the trial, he alleged that he
was a “victim” of tax shelter promoters at some unidentified
time, that thereafter he was repeatedly audited, that he was
convicted because of misconduct by his accountant, and that his
object was “civil disobedience”.
Petitioner engaged in a complex scheme to conceal his income
and assets during the years in issue. His taxable income for
those years exceeded $2.7 million, and his unreported tax
liabilities, before additions to tax, exceeded $1 million. He
was convicted of engaging in that conduct in order to defeat the
payment of taxes due for 1990 and 1991, and the obvious purpose
of continuing the scheme was to evade taxes for the subsequent
years as well. The objective facts are clear and convincing
evidence of fraud sufficient to satisfy respondent’s burden of
proof. The additions to tax for fraud have frequently been
imposed on taxpayers like petitioner “who were knowledgeable
about their taxpaying responsibilities * * * [and] consciously
decided to unilaterally opt out of our system of taxation.”
Miller v. Commissioner, 94 T.C. 316, 335 (1990) (citing numerous
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relevant cases); see Niedringhaus v. Commissioner, supra at 212-
213.
Petitioner’s excuses are unpersuasive, and we do not believe
that he acted as he did for nonfraudulent reasons. He has not
presented evidence of any consultations with competent tax
professionals or reliance on any legal authority for his
positions. He incorporated boilerplate frivolous arguments about
the Paperwork Reduction Act in his petition and alleged in his
pretrial memorandum that the IRS lacks delegated authority to
collect tax. Perhaps he believes that feigning lack of
understanding or sincere beliefs will help him avoid the
consequences of his deliberate choices. In view of his
education, sophistication and success in conducting his
profession and business transactions, persistence after his
criminal conviction, and acknowledged “civil disobedience”, we
reject any suggestion of good faith. See Chase v. Commissioner,
T.C. Memo. 2004-142.
We have considered the other arguments of the parties. They
are irrelevant, moot, or otherwise lack merit. For the reasons
explained above,
Decisions will be entered
for respondent.