1 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 taxable years in issue, unless

otherwise indicated.

T.C. Memo. 1995-541

UNITED STATES TAX COURT

BRUCE P. CADWELL, Petitioner v.

 COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17703-94. Filed November 15, 1995.

Steven B. Jacobs, for petitioner.

Kevin G. Croke, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PARR, Judge: This case is presently before the Court on

respondent's Motion for Summary Judgment pursuant to Rule 121 of

the Tax Court Rules of Practice and Procedure;1 the motion was

filed October 23, 1995.
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2 Prior to the issuance of the notices of deficiency,

petitioner agreed that he failed to report income for the tax

years 1983-88, but he disagreed with respondent's imposition of

the additions to tax for fraud under sec. 6653(b).

By separate notices of deficiency, respondent determined

additions to petitioner's Federal income tax for fraud under

section 6653(b), as follows:2

 Additions to Tax 

 Sec. Sec. Sec. Sec.

Year Deficiency 6653(b)(1) 6653(b)(2) 6653(b)(1)(A) 6653(b)(1)(B)

1983 $-0- 6,364 1 -- --

1984 -0- 5,848 1 -- --

1985 -0- 3,743 1 -- --

1986 -0- -- -- $10,285 1

1987 -0- -- -- 3,773 1

1988 -0- -- -- 2,248 --

1 50 percent of the interest due on the portion of the

underpayment attributable to fraud.

Petitioner timely filed his petition, and respondent

thereafter filed her answer to the petition. In her answer,

respondent alleged the facts on which she relied to support her

determinations of additions to tax for fraud. Petitioner did not

file a reply to respondent's answer. On January 26, 1995,

respondent filed a motion under Rule 37(c) for an order that the

undenied allegations in the answer be deemed to be admitted. A

copy of that motion and the Court's Notice of Filing of Motion

for Order Under Rule 37 were served on petitioner's counsel by

the Court on January 27, 1995. The Notice gave petitioner until

February 16, 1995, to file a reply in which case respondent's

motion would be denied. Petitioner did not file a reply, and, on
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February 24, 1995, the Court granted respondent's motion and

deemed admitted for purposes of this case the undenied

affirmative allegations of fact contained in paragraphs 7 and 8

of respondent's answer. Rule 37(c). On promulgation of our

order the pleadings herein were closed. See Rules 34, 36, 37,

38, 121. The following findings of fact are based upon the

allegations in the answer which are deemed to be admitted.

FINDINGS OF FACT

Petitioner filed Federal income tax returns in 1979, 1980,

and 1981 jointly with his wife (Pamela Marie Tinsley-Cadwell). 

Although aware of his filing obligation, petitioner failed to

file timely tax returns for tax years 1983 through 1988,

resulting in the omission of $243,170 of income. During the

years at issue, petitioner received $243,170 in the form of wage

income or self-employment income as follows:

Year Payer Income

1983 Holaday-Parks, Inc. $47,562.74

1984 Holaday-Parks, Inc. 4,777.51

1984 Peter Kiewit Sons Co. 11,923.67

1984 Natkin Sheet Metal Co. 20,183.68

1984 Sun-Air Sheet Metal, Inc. 1,392.33

1984 Toklat Sheet Metal, Inc. 13,078.02

Total 1984 51,355.21

1985 Toklat Sheet Metal, Inc. 39,681.41

1986 Toklat Sheet Metal, Inc. 52,000.62

1987 Toklat Sheet Metal, Inc. 20,987.72

1987 Sandstrom Plumbing & Heating 9,501.36

Total 1987 30,489.08
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1988 Sandstrom Plumbing & Heating 18,794.71

1988 Wayne R. Sandstrom Et al. Ptr. 3,287.00

Total 1988 22,081.71

Petitioner filed Form W-4 with exempt status during the

years 1983, 1984, 1985, 1987, and 1988, claiming he owed no tax

in each of the prior years and expected to owe no income tax for

the current year. Petitioner requested his union to withhold

information from the Internal Revenue Service (IRS). The

majority of petitioner's paychecks were signed over to a third

party in an attempt to conceal transactions from the IRS.

Petitioner was the defendant in the criminal case of United

States v. Cadwell, Docket No. A91-0022CR (D. Alaska 1991). 

Respondent herein is a party in privity with the United States,

the prosecuting party in the aforesaid case. In that case,

petitioner was indicted on four counts of income tax evasion, in

violation of section 7201. On July 1, 1991, petitioner entered a

plea of guilty to counts III and IV of the indictment for the

charged offense of Attempted Evasion of Income Tax relating to

his personal income tax returns for tax years 1986 and 1987.

The District Court accepted petitioner's guilty plea to

counts III and IV of the indictment upon being satisfied that

there was adequate factual basis that petitioner did willfully

attempt to evade and defeat part of his income tax for the

taxable years 1986 and 1987, and was therefore guilty as charged.

Petitioner was convicted on his guilty plea, and the judgment is

final.
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One of the issues in the instant case is whether the

additions to tax under section 6653(b) should be imposed against

petitioner for the taxable years 1986 and 1987. This same issue

was presented and determined against petitioner in the criminal

case, to the extent that a conviction on counts III and IV in the

indictment is dependent upon a finding that petitioner did

willfully attempt to evade or defeat part of his income tax.

The prior criminal conviction of petitioner under section

7201 for the taxable years 1986 and 1987 is conclusive and

binding upon him. By reason thereof, petitioner is estopped in

the instant case under the doctrine of collateral estoppel from

denying herein that he did willfully attempt to evade or defeat

his Federal income tax liability for the taxable years 1986 and

1987, and that he knew and believed that the items described in

counts III and IV of the indictment, and which are the basis of

allegations of fraud in respondent's answer, were reportable as

taxable income in 1986 and 1987, respectively.

OPINION

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. Florida Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no
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genuine issue as to any material fact and that 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); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving

party bears the burden of proving that there is no genuine issue

of material fact, and factual inferences will be read in a manner

most 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).

Section 6653(b) provides for the imposition of an addition

to tax if any part of any underpayment of tax required to be

shown on the return is due to fraud. The burden of proof with

respect to fraud is upon the Commissioner to prove, by clear and

convincing evidence, that some part of the underpayment of tax

was due to fraud with an intent to evade tax. Sec. 7454(a); Rule

142(b); Imburgia v. Commissioner, 22 T.C. 1002 (1954). That

burden can be satisfied by the Commissioner by undenied facts

deemed admitted under Rule 37(c). Doncaster v. Commissioner, 77

T.C. 334 (1981); Marcus v. Commissioner, 70 T.C. 562 (1978),

affd. without published opinion 621 F.2d 439 (5th Cir. 1980); 

Gilday v. Commissioner, 62 T.C. 260 (1974). Furthermore, if the

fraud allegations are deemed admitted by motion under Rule 37(c),

the Commissioner may move for judgment on the fraud issue on the

basis of the facts deemed admitted pursuant to Rule 120 (Judgment
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on the Pleadings), Rule 121 (Summary Judgment), or Rule 122

(Submission Without Trial). Gordon v. Commissioner, 73 T.C. 736,

739 (1980).

Petitioner conceded an understatement of tax for each of the

years at issue. Accordingly, we must determine whether any part

of the underpayment was due to fraud with intent to evade income

tax by petitioner. In the case at bar, material allegations in

the answer with respect to fraud have been deemed to be admitted

by our granting of respondent's Rule 37(c) motion. In our view,

those findings of fact clearly and convincingly establish fraud

with intent to evade tax.

For the tax years 1986 and 1987, fraud is conclusively

established by petitioner's prior conviction under section 7201

for those years. Arctic Ice Cream Co. v. Commissioner, 43 T.C.

68 (1964). As to the remaining years--1983, 1984, 1985, and

1988--there are numerous badges of fraud. Petitioner

misrepresented his status as exempt on Form W-4; i.e., he claimed

he owed no taxes for the years at issue, but he had unreported

income in the amount of $243,170. In an attempt to conceal his

income and evade taxes, petitioner withheld information from the

IRS. Moreover, he signed his paychecks over to third parties in

an attempt to conceal transactions from the IRS and evade taxes. 

Furthermore, petitioner knew of his tax return filing obligation,

yet he willfully failed to file tax returns for the years at

issue.
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The facts admitted establish a pattern of fraudulent

conduct, including failure to report income and elaborate efforts

to conceal that income and to prevent the collection of taxes on

that income. The admitted facts thus constitute clear and

convincing evidence of fraud for all of the years in issue, and

respondent's burden of proof has been satisfied.

Because the matters admitted are sufficient to satisfy

respondent's burden of proving fraud and there exists no genuine

issue of any material fact, respondent's Motion for Summary

Judgment will be granted. Rule 121(b).

An appropriate order and 

decision will be entered for 

respondent.