T.C. Mem o. 2 01 5- 15 8

UNITED STAT ES TAX COURT

DANIEL H. GEORGE, JR., Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 75 8- 13
. Fi le d Au gu st12 , 20 15
.
Jo hn J.E. Markh am , II, fo r pe ti ti on er. Cari naJ. Ca m

po ba ss o andMo ll y

H. Don oh ue , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Ju dg e: Res po nd en t d et erm in edde fic ie nc ie s i n andpe na lt ie s o n pe ti ti on er’s Fed eral in co m e ta x a s fo ll ows :- 2 -

[* 2] Pen al ti es

Year Defi ci en cy Sec. 6 65 1( f) Sec. 6 66 3 19 95 $1 99 ,08 8 $1 49 ,31 6.0 0
-- 19 96 18 8,0 65 14 1,0 48 .75
-- 19 97 86 ,21 4 64 ,66 0.5 0
-- 19 98 18 0,1 37 13 5,1 02 .75
-- 19 99 32 3,5 34 24 2,6 50 .50
-- 20 00 50 7,5 98 38 0,6 98 .50
-- 20 01 35 8,2 72 26 8,7 04 .00
-- 20 02 32 2,9 84
-- $2 42 ,23 8 As al te rn at iv es to th e se ct io n 6 65 1( f) an d s ect io n 6 66 3 p en al ti es , res po nd en t de te rm in edad di ti on s t o t ax un de r se ct io n 6 65 1( a) an d ape na lty un de r se ct io n 66 62 , res pe ct iv el y . After c on ces si on s, the is su es rem ai ni ng for de ci si on are: (1) whe th er s um s d ep os it edby pet it io ne r an d re la te d i nt eres t fo r th e y ears inis su e are ta x e xe m ptun de r se ct io n 5 01 (a) and (c)( 4) ; (2 ) whe th er p et it io ne r is li ab le fora frau d p en al ty und er s ect io n 6 66 3 o r, al te rn at iv el y , foranaccuracy-rela te d p en al ty un de r se ct io n 6 66 2; an d (3 ) whe th er p et it io ne r is li ab le forfrau d p en al ti es un de r se ct io n 6 65 1( f) o r, al te rn at iv el y , forad di ti on s t o t ax un de r se ct io n 6 65 1( a). Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al Rev enue Co de- 3 -

[* 3] ineffe ctforth e y ears inis su e, an d a ll Ru le refe ren ces are t o the Tax C ou rt Ru le s o f Prac ti ce an d P ro cedur e. FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at ed , andth e st ip ul at edfact s ar e in co rp or at edinou r fi nd in gs by thi s re fere nc e. Pet it io ne r res id edinMas sa chus et ts whe n h e fi le d h is pe ti ti on . Pet it io ne r, a.k .a. Dan West , is a ch em is t wh o h ol ds fou r ch em is try-rel at ed U.S. pat en ts . Duri ng th e y ears inis su e, pe ti ti on er u se d b ot h the ki tc he n and ba se m en t o f hi s h om e to co nduc t ex pe riments an d wen t t o l oc al publ ic li br ari es to co nduc t re se arch . Duri ng th os e y ears , pet it io ne r’s act iv it ie s i nc lu de d p ro vi di ng res earc h s erv ic es to he al th supp le m en t co m pa ni es an d m anuf

actur in g m in eral , he rb al , andch em ic al supp le m en ts , whi chhe so ldto th em . The he al th supp le m en t co m pa ni es , th ro ug h the ir r ep res en ta ti ve s s uc h a s Ri ch ardBrei tb arth o f Bi op ha se Labo rat or ie s, In c., wou ldpro vi de raw m at eri al s an d o th er re so ur ces th atpe ti ti on er n eed edforhi s wo rk . The co m pa ni es co ns id eredpe ti ti on er a v en do r an d wer e una ware o f an y ch ari tabl e o rg an iz at io n o r pu rp os e wit h re sp ectto hi s g oo ds an d s erv ic es . Pet it io ne r rec ei ve d p aym en ts inth e fo rm of c as h o r ch eck s fo r hi s s erv ic es , bu t h e d idno t p ro vi de th e h eal th supp le m en t co m pa ni es with any recei pt s. Ch eck s- 4 -

[* 4] fo r hi s s erv ic es were m ad e o utto pe ti ti on er i n h is na m e o r to “ DanW es t”
. Pet it io ne r as ke d aco m

pany, whi chwas p ay in g $ 5,0 00 a m on thforhi s s erv ic es , to in crea se it s p aym en t t o $ 10 ,00 0 am on thbe cau se he be li ev editto be do in g fin an ci al ly bet te r be cau se of h is pro du ct s. With at l eas t o ne cu st om er, p et it io ne r reque st edth atpaym en ts of $ 10 ,00 0 o r le ss be m ad e in cas h andth atpay m en ts ov er $ 10 ,00 0 b e m ad e b y ch eck . Thatcu st om er wo ul d s en d t o h im “ si gn ifi can t”
cas h p aym en ts th ro ug h F ed eral Exp res s. Pet it io ne r’s act iv it ie s al so in cl ud eddi rect ly adm in is te rin g s up pl em en ts to va rio us in di vi du al s an d g ro up s tha t ca m e to see hi m onth e p or chof h is ho m e. A
sm al l s el ect io n o f th es e cu st om ers , who cam e to form a co re g ro up forpe ti ti on er, be li ev edth ei r “ so le pu rp os e” was to sp readth e wor d abo uthi s p ro du ct s. Th ey di d
so by w or d o f m ou th inset ti ng s s uc h a s m eet in gs at the ir h om es or e nc ou nt ers with p eo pl e o n the street . The co re g ro up als o a ss is te d p et it io ne r in co nduc ti ng retreat s h el d a t p et it io ne r’s ho m e an d n earb y faci li ti es . The co re g ro up wou ldfir st
m eetwith s om eo ne be fo re tha t p ers on co ul d b e in vi te d t o aretreat , i.e., a p ers on co ul d n otjus t s ho w up . The retreat s wer e so m et im es he ldbi m on th ly for ap pr ox im at el y 8-2 4 pa rti ci pa nt s an d u su al ly ran o ve r a l on g wee ke nd(bu t co ul d l as t l on ge r). The retreat s o ffer edex erci se , sp iri tu al ity , ho li st ic m eal s, an d l ectur es onhe al th an d- 5 -

[* 5] sc ie nc e. The fo cal po in t o f th e retreat s, h owe ve r, was p et it io ne r’s pe rs on al adm in is tra ti on of h is nu tri ti on al supp le m en ts to th e p art ic ip an ts . Part ic ip an ts were ch arg edfro m $3 00 to $1 ,00 0 t o a tt en d aretreat . Pet it io ne r so m et im es rece iv edpaym en ts incas h o r by chec k fr om parti ci pa nt s b ut , ag ai n, d idno t p ro vi de an y rece ip ts . Ty

pi cal ly the co re g ro up , act in g a s s ta ff, was
no t ch arg edan y

retreatfees , andm em

be rs were re im

burs edfor

tra ve l ex pe ns es fro m th e m on ey s p ai d b y

no ns ta ff p art ic ip an ts . Pet it io ne r di d n otm ai nt ai n any bo ok s o r rec or ds of h is act iv it ie s, an d the
on ly fina nc ia l re co rd s av ai labl e were tho se m ai nt ai ne d b y bank s wh ere h e h el d
acco un ts . Peti ti on er d ecl in edto op ena co m m erci al bankacco un t o n b eh al f of a ch ari tabl e en ti ty andin st eadus edhi s p ers on al bankacco un ts to de po si t the
earn in gs fro m

hi s ac ti vi ti es . Duri ng th e ei gh t years i n i ss ue , pet it io ne r ha d c on tro l
ov er atlea st14 pe rs on al bankacco un ts at n in e d iff eren t b an ks un de r se ve ral di ffer en t So ci al Secu rit y

nu m be rs . Of th es e acc ou nt s o nl y two were o pe ne d b y pe ti ti on er u si ng hi s ac tu al So ci al Secu rit y nu m be r. The re m ai ni ng 12 acco un ts were o pe ne d b y

pe ti ti on er wi th so m e d ig it s o f hi s So ci al Secu rit y nu m be r tra ns po se d. Al m os t al l the bankacco un ts ha d p et it io ne r’s m ot he r, Nan cy Bu rn ha m , li st edas t he be ne fic iary .- 6 -

[* 6] The acco un ts were o pe ne d andclo se d a s fo ll ows :
Ban k Nam es on

acco un t Co rrec t

SSN Ope ni ng

da te Cl os in g

da te App ro x.

du rat io n Ro ck po rt Nati on al Pet it io ne r Yes 9/ 5/ 19 81 Ope n a s o f 12 /3 1/ 20 02 21 yrs ,

3 m os . + Sal em Fiv e Cen ts Pet it io ne r

orBurn ha m Yes 12 /3 1/ 19 94 7/ 7/ 19 97 2 yrs., 6 m os . Ban kBo st on Pet it io ne r

ATF Brei tb arth No 7/ 14 /1 99 5 12 /1 1/ 19 96 1 yr., 4 m os . East Cam br id ge Pet it io ne r

TR Bu rn ha m No 11 /2 2/ 19 95 11 /1 8/ 19 96 11 m os . Fi rs t Fed eral I Pet it io ne r

ITF Bu rn ha m No 5/ 17 /1 99 6 5/ 31 /1 99 6 15 day s
Bo st on Safe Dep os it Pet it io ne r

ITF Bu rn ha m No 5/ 17 /1 99 6 6/ 7/ 19 96 22 day s
Ci ti zen s I Pet it io ne r tru st ee fo r Bu rn ha m No 11 /8 /1 99 6 11 /2 4/ 19 97 1 yr.
Fi rs t Fed eral II Pet it io ne r

ITF Bu rn ha m No 12 /9 /1 99 6 3/ 11 /1 99 8 1 yr., 3 m os . Ci ti zen s II Pet it io ne r

tru st ee fo r Bu rn ha m No 12 /2 /1 99 7 11 /2 5/ 19 98 11 m os .- 7 -

[* 7] Fir st Fed eral III Pet it io ne r

ITF Bu rn ha m No 3/ 11 /1 99 8 12 /1 5/ 19 98 9 m os . Ci ti zen s III Pet it io ne r

tru st ee fo r Bu rn ha m No 11 /2 5/ 19 98 12 /3 /1 99 9 1 yr.
Fi rs t Fed eral IV Pet it io ne r

ITF Bu rn ha m No 12 /1 5/ 19 98 12 /1 7/ 19 99 1 yr.
Mt . W as hi ng to n Pet it io ne r

ITF Bu rn ha m No 12 /3 /1 99 9 Ope n a s o f 12 /3 1/ 20 02 3 yrs. + Cap it al Cro ss in g Pet it io ne r

ITF Bu rn ha m No 12 /1 5/ 19 99 Ope n a s o f 12 /3 1/ 20 02 3 yrs. +

The fun ds pe ti ti on er re cei ve d fo r hi s g oo ds an d s erv ic es were d ep os it edin to th es e b an k a cco un ts . The d ep os it s, an d i nt eres t ac cru in g the refr om , were as fo ll ows : Tot al

Year de po si te d In te res t 19 95 $4 96 ,05 0 $1 1,3 52 19 96 43 6,3 10 71 ,57 7 19 97 16 3,6 75 10 7,2 65 19 98 38 5,2 03 12 6,9 28 19 99 63 8,8 88 18 4,5 02- 8 -

[* 8] 20 00 1,0 00 ,05 0 26 1,2 07

20 01 54 9,3 71 37 2,0 32 20 02 50 7,1 55 33 7,0 53 Pet it io ne r di d n otus e th es e d ep os it edfun ds forhi s p ers on al ex pe ns es bu t u se d So ci al Secu rit y

di sabi li ty paym en ts to supp ort h im se lf. Pet it io ne r di d n otfil e Fed eral in co m e ta x re tu rn s fo r 19 95 th ro ug h 2 00 1. The Int ern al Rev enue Serv ic e (IR S) s en t an ag en t t o i nv es ti ga te pe ti ti on er. The ag en t wen t t o p et it io ne r’s ho m e to m eetwith h im , bu t p et it io ne r di d n otwantto be in te rv ie wed . Sev eral week s l at er, aro un d Dec em be r 31 , 20 02 , th e ag en t was ab le to co nduc t an in te rv ie w with p et it io ne r ov er the tel ep ho ne . Duri ng th e in te rv ie w, pe ti ti on er i nd ic at edth athe ha d n otfil eda ta x re tu rnsi nc e atlea stth e 1 97 0s
. Pet it io ne r ex pl ai ne d t o the ag en t tha t h e was lo ok in g t o s av e $ 10 m il li on th ro ug h d on at io ns an d wh enhe reac he d tha t am ou nthe wou ldha ve th e res ou rces ne ces sa ry to setup a fo un da ti on . He furt he r ex pl ai ne d tha t i f he ha d t o p ay tax on th e d on at io ns th enhe wou ldno t b e ab le to ful fil l h is dre am an d wo ul d g iv e al l the
m on ey ba ckto th e p eo pl e th atdo na te d i t. He s tate d tha t wh il e h e d idno t m ai nt ai n bu si ne ss reco rd s, h e d idke ep a li stof b en efac to rs who pro vi de d h im with do na ti on s. Th e ag en t as ke d fo r th e li stbu t p et it io ne r di d n otwantto pro vi de it
.- 9 -

[* 9] On Ap ril 3, 2 00 3, the Gov ern m en t o f th e Uni te d S ta te s i nd ic te d p et it io ne r on fou r co un ts of t ax ev as io n fo r th e ta x years 1 99 6 thr ou gh 19 99 invi ol at io n o f
se ct io n 7 20 1. A Fed eral Dis tri ctCo urt jury fou ndpe ti ti on er g ui lty

onall fou r co un ts of t ax ev as io n o n M ay 18 , 20 04 . In h er Me m or an du m of S en te nc in g Heari ng an d R ep ort o f St at em en t o f Rea so n, the Dis tri ctCo urt ju dg e d et erm in ed th e ta x l os s t o b e “ le ve l 1 7 (more tha n $ 32 5,0 00 )”. Pet it io ne r m ov edfora ne w tri al , whi chth e Dis tri ctCo urt d en ie d. He the n ap pe al edth e tr ia l co urt d eci si on . On ap pe al , th e Co urt o f App eal s fo r th e Fi rs t Ci rcu itaffi rm edth e lo wer co urt’s d eci si on inUni te d S ta te s v . Geor ge , 44 8 F .3d96 (1 stCir . 20 06 ). On M ay 12 , 20 03 , pet it io ne r fi le d arti cl es of o rg an iz at io n wi th th e Co m m on weal th of M as sa chus et ts to in co rp or at e Bi og en es is Fo un da ti on , Inc . (Bi og en es is ). The arti cl es pro vi de d tha t Bi og en es is ha d n o m em be rs , th at pe ti ti on er s erv edas i ts so le di rect oran d a ll of i ts off ic ers , andth atit s p rin ci pa l of fic e ad dr es s was th e sa m e as pe ti ti on er’s p ers on al ad dr es s. OnMay 14, 2 00 3, Bi og en es is off

ic ia ll y in co rp or at ed
. On b eh al f of

Bio ge ne si s, p et it io ne r subm it te d F orm 10 23 , App li cat io n fo r Rec og ni ti on of Ex em

pt io n Un de r Sec ti on 50 1( c)(3 ) of th e In te rn al Rev enue Co de , to th e IRS onor a ro un d M ay 22 , 20 03 . Peti ti on er re po rte d tha t h e was fil in g F orm- 10 -

[* 10 ] 10 23 withi n 1 5 m on th s fr om th e en d o f th e m on th inwhi chBio ge ne si s was crea te d o r fo rm ed . The Fo rm 10 23 li st ed“ Dan ie l Geo rg e” as all th e o ffi cers an d
so le di rect orof B io ge ne si s. Itals o re po rte d tha t Bi og en es is rece iv edgi fts , gra nt s, an d c on tri bu ti on s o f $6 ,60 0,0 00 fro m May 3, 20 03 to Decem

be r 31 , 20 03 , andwas pr ojec te d t o re cei ve a to ta l o f $1 0,1 00 ,00 0 b y en d o f 20 05
. A st at em en t at ta ch edto Fo rm 10 23 --re ga rd in g B io ge ne si s’ act iv it ie s an d op erat io na l i nf

orm at io n- -ref

erre d t o B io ge ne si s as “ th e b rai nc hi ldof Dani el Davi d W es t, a s el f-t au gh t nutrit io na l b io ch em is t” an d c larif ie d i n afoo tn ot e th at pe ti ti on er was inth e p ro ces s o f ch an gi ng hi s n am e le ga ll y to Dani el Davi d West
. The st at em en t al so ex pr es se d the “ m is si on ” o f Bi og en es is , as fo ll ows : Afte r m an y

y ears sp en t re fin in g h is tec hn ol og y whi le at the same tim e se rv in g the publ ic an d ra is in g n eces sa ry fun ds , Mr. W es t i s n ow i n a po si ti on to ach ie ve hi s g oa ls by establ is hi ng a fo un da ti on with the m is si on of: 1. Re se arch in g e pi de m io lo gy anden vi ro nm en ta l h eal th ; 2. Dev el op in g andtes ti ng tre atm en ts ba se d o n c el lu lar reg en erat io n te ch no lo gy; 3. Educ at in g the publ ic inth e m ai nt en an ce o f pe rs on al an d en vi ro nm en ta l h eal than d the pre ve nt io n andtre atm en t o f di se as e; an d 4. Pro vi di ng he al th pro du ct s an d treat m en t t o tho se inne ed , reg ard le ss of t he ir f

in an ci al st atus .- 11 -

[* 11 ] Afte r ad di ti on al reque st s fo r in fo rm at io n andco nc ern s ab ou t p et it io ne r’s be in g the so le di rect orwere ad dr es se d (p et it io ne r ad de d two d ire ct or s o n Nov em be r 21 , 20 03 , nei th er o f who m was fr om

th e o rig in al co re g ro up ), th e IRS gr an te d B io ge ne si s t ax -ex em ptst atus un de r se ct io n 5 01 (c)( 3) onDecem be r 2, 20 03
. Pet it io ne r fi le d a20 02 Fo rm 10 40 , U.S. Ind iv idua l In co m e Tax Return, ap pa ren tl y

onor abo utOcto be r 7, 2 00 3, ev enth ou ghth e return i s d at edNov em be r 9, 2 00 7. Inth atreturn h e rep orte d $ 28 of g ro ss in co m e an d z ero tax owed
. Bi og en es is fil eda 20 03 Fo rm 99 0, Re tu rnof Org an iz at io n Ex em ptFro m In co m e Tax , dat edNov em be r 10 , 20 04 . Rev enue was re po rte d a s $ 32 1,0 00 fro m co nt rib ut io ns an d g ift s an d $ 31 2,7 24 fro m othe r in ve st m en t i nc om e. No i nc om epr oduc in g a ct iv it ie s wer e li st ed . Exp en se s co ns is te d o f $2 46 ,70 5 o f le ga l fe es an d $6 00 of t rav el . The o rg an iz at io n’s p rimary ex em ptpu rp os e was li st edas

“ MEDICAL RESEARC H IN CELLULA R REGENERATION”. Bi og en es is retro act iv el y

fil edFo rm s 9 90 , dat edOcto be r 26 , 20 11 , forit s t ax y ears 19 96 th ro ug h 2 00 2. Each of t he se Fo rm s 9 90 li st edth e o rg an iz at io n’s pr im ary ex em

ptpu rp os e as “ RESEARCH IN CELL REGENERATION”. The rep orte d re ve nu e fo r eac h t ax y ear c orres po nd edto each y ear’s “ to ta l d ep os it ed ”
am ountsh own inth e tabl e supr a. The i nc om e was rep orte d a s “pr og ram servi ce- 12 -

[* 12 ] rev enue ” an d the rel at edin te res t as “ in te res t o n s av in gs an d t em po rary cash in ve st m en ts ”. EachFo rm 99 0 s ho wedzero ex pe ns es . The 1 99 6 F orm 99 0 rep orte d fu ndba lanc es at the be gi nn in g o f th e y ear a s $ 50 7,4 02 (th e sa m e am ou nt as th e to ta l o f th e 1 99 5 “ Tot al de po si te d” am ountof $ 49 6,0 50 an d the 19 95 in te res t o f $1 1,3 52 sh own inth e tabl e supr a). OPINION Pet it io ne r te st ifi edth athi s l on gs tand in g g oa l i s t o a m as s $ 10 m il li on an d th at , on ce i t i s ac hi ev ed , he wo ul d the n “ hi re a l eg al tea m , a no np ro fittea m , acco un tant s, an d d o i t ri gh t” , i.e., fo rm a ch ari tabl e o rg an iz at io n. Th is ob jecti ve , he cla im ed , was h is reas on forrun ni ng pro fit -m ot iv at edact iv it ie s fo r th e y ears in is su e an d fo r st oc kp il in g h is earn in gs inhi s p ers on al bankacco un ts . Ban k de po si ts , ho wev er, are pri m a fac ie ev id en ce o f in co m e, Tok ars ki v. Co m m is si on er, 87 T.C. 74 , 77 (19 86 ), an d t ax pay ers are re qu ire d t o i nc lu de inth ei r gr os s i nc om e al l i nc om e fro m

what ev er s ou rce d eri ve d u nl es s o th erwi se ex cl ud edby law, sec
. 61 (a). Inhi s p et it io n, p et it io ne r arg ue d tha t the de po si te d fu nd s fo r th e y ears in is su e were n othi s i nc om e b utwere ei th er: (1) gi fts or c on tri bu ti on s t o h is
or ga ni zat io n, o r (2 ) pr og ram in co m e o f hi s ch ari tabl e o rg an iz at io n e xe m ptfro m ta xa ti on un de r se ct io n 5 01 (3 ) (p res um ab ly sect io n 5 01 (c)( 3) ), or(3) pro gr am- 13 -

[* 13 ] in co m e o f a s oc ia l wel fare org an iz at io n e xe m ptfro m tax at io n u nd er s ect io n 50 1( 4) (pr es um ab ly sect io n 5 01 (c)( 4) ). Thro ug h s ti pu la ti on pe ti ti on er ag reedto th e to ta l am ou nt s o f de po si ts m ad e in to hi s b an k a cco un ts forth e y ears inis su e, an d o n b rie f he ass ert edth atth os e d ep os it edfun ds were n otdo na ti on s b ut co ns ti tu te d e arn in gs fro m th e g oo ds an d s erv ic es th athe pro vi de d. He al so ab an do ne d h is arg um en t tha t thi s i nc om e was ex em ptun de r se ct io n 5 01 (c)( 3)
. Thu s p et it io ne r’s on ly rem ai ni ng arg um en t re ga rd in g thi s i ss ue is th atth e in co m e is ex em

ptfro m tax at io n u nd er s ect io n 5 01 (a) a s p ro gr am in co m e o f an
or ga ni zat io n d es cri be d i n s ect io n 5 01 (c)( 4) , whi chpro vi de s:

(A) Ci vi c le ag ue s o r or ga ni zat io ns no t o rg an iz edforpro fitbu t op erat edex cl us iv el y

for th e p ro m ot io n o f so ci al welf are, o r lo cal as so ci at io ns of e m

pl oyees, the m em

be rs hi p o f whi chis li m it edto th e em pl oyees o f a d es ig na te d p ers on or p ers on s i n aparti cu lar m un ic ip al ity , andth e n etearn in gs of wh ic h are d ev ot edex cl us iv el y to ch ari tabl e, educ at io na l, o r rec reat io na l p ur po se s. (B) Subp arag rap h (A) sh al l n otap pl y to anen ti ty unl es s n o pa rt o f th e n etearn in gs of s uc h e nt ity inur es to th e b en efi t o f an y pr iv at e sh areh ol de r orin di vi du al
. Altho ug h p et it io ne r di d n otfil e fo r se ct io n 5 01 (c)( 3) tax -ex em ptst atus un ti l 20 03 , aft er h e was in di ct ed , he a ss ert s tha t Bi og en es is ne ve rth el es s ex is te d dur in g th e y ears inis su e an d h as alwa y s h el d the same char it ab le , tax -ex em ptpu rp os e. He th eref or e arg ue s tha t wh il e al l i nc om e fro m 20 03 on wardis tax ex em ptun de r- 14 -

[* 14 ] sec ti on 50 1( c)(3 ), an y in co m e earne d b efo re 2 00 3, i nc lu di ng th e y ears in is su e, is ex em

ptfro m tax at io n und er s ect io n 5 01 (c)( 4) , whi ch , he a ss ert s, d oe s n ot requi re fo rm al fil in gs . Res po nd en t fi rs t co nt en ds th atpe ti ti on er i s co ll at eral ly esto pp edfro m rai si ng th is is su e fo r th e y ears 19 96 th ro ug h 1 99 9 b ecau se he rai se d the id en ti cal is su e in hi s p rio r cri m in al ap pe al . The fac ts forall y ears , ho wev er, are rel ev an t t o ou r de te rm in at io ns of wh ethe r a s ect io n 5 01 (c)( 4) org an iz at io n e xi st ed . Thu s whi le un ne ces sary

li ti ga ti onwou ldbe m in im iz edby precl ud in g c ert ai n arg um en ts on th e b as is of c ol la te ral est op pe l, the po ss ib il ity of i nc on si st en t re su lt s b etween

“ es to pp ed ” y ears (19 96 -9 9) an d the rem ai ni ng y ears (19 95 , 20 00 , 20 01 , and20 02 )
co ul d aris e. See Kl ei n v . Comm is si on er, T.C. Mem o. 1 98 4- 39 2, 4 8 T.C.M . (CCH) 65 1, 6 60 (19 84 ), aff’d, 8 80 F.2d26 0 (1 0t h C ir. 1 98 9) . W e d o n otad dr es s res po nd en t’s ar gu m en t tha t co ll at eral est op pe l ap pl ie s t o the ex em ptorg an iz at io n is su e. To qua li fy

fora se ct io n 5 01 (c)( 4) ex em pt io n u nd er the fact s h erei n, the re m us t h av e b een : (1 ) a ci vi c o rg an iz at io n, (2 ) th atis no t o rg an iz edforpro fit , and (3 ) th atis op erat edex cl us iv el y forth e p ro m ot io n o f so ci al welf are. Se e Peo pl e’s Edu c. Cam

p S oc ’y , Inc . v. Co m

m is si on er, 3 31 F.2d92 3, 9 29 (2dCir . 19 64 ), aff’g 39 T.C. 75 6 (1 96 3) ; s ec. 1 .50 1( c)(4 )-1 (a), In co m e Tax Reg s. Th es e requi rem en ts- 15 -

[* 15 ] are s tate d i n the co njunc ti ve ; thu s fa il ur e to sat is fy any on e o f th em

bars qu al ifi cat io n u nd er s ect io n 5 01 (c)( 4) . Cf. Co lu m bi a Park & Recr eat io n As s’n, In c. v. Co m m is si on er, 8 8 T.C. 1 , 13 (19 87 ) (d et erm in in g tha t the requi rem en ts of
se ct io n 5 01 (c)( 3) are s ta te d i n the co nju nc ti ve ), aff’d wi th ou t p ub li sh edop in io n, 83 8 F .2d46 5 (4 thCir . 19 88 ). Add it io na ll y , if an y of a n o rg an iz at io n’s n et earn in gs inur e to th e b en efi t o f anin di vi du al , th enitdo es no t qua li fy . Sec. 50 1( c)(4 )(B) . W e fi rs t ad dr es s wh ethe r th ere was anorg an iz at io n at al l. Pet it io ne r fai le d t o s ho w any dis ti nc t ex is te nc e o f anorg an iz at io n b efo re 20 03 . Duri ng th e y ears inis su e, ne ithe r pe ti ti on er n orhi s co re g ro up m ai nt ai ne d fin an ci al reco rd s, k ep t m in ut es , dra fte d o rg an iz in g d oc um en ts or b y laws, reque st edanem

pl oyer id en ti fic at io n n um be r, orpu t i n p la ce an y

stru ctur es th at wou ldbe ex pe ct edfro m

a co nt in ui ng org an iz at io n. Se e g en eral ly Uni te d S ta te s v . Geo rg e, 44 8 F .3dat 1 01 (m ak in g asi m il ar o bs erv at io n i n p et it io ne r’s cri m in al
cas e). Whe n que st io ne d abo utBio ge ne si s’ exi st en ce dur in g the y ears inis su e, on e co re-g ro up m em

be r te st ifi edth at“ itwasn ’t real ly an en ti ty at th atpo in t tha t I kn ew of . I m ean , we were jus t a g ro up of u s try in g t o h eal ou rs el ve s” . Eventh e st arty ear o f th e al le ge d o rg an iz at io n i s u nc le ar: 19 90 acco rd in g t o the pe ti ti on an d 1 98 9 a cco rd in g t o p et it io ne r’s te st im on y at tria l.- 16 -

[* 16 ] Pet it io ne r arg ue s tha t h is th enact iv it ie s fu nc ti on edas aso ci al welf are or ga ni zat io n andth eref

or e were t ax ex em

ptun de r se ct io n 5 01 (c)( 4) be cau se th ey qu al ifi edas ach ari tabl e o rg an iz at io n p ur su an t t o s ect io n 5 01 (c)( 3) . See s ecs . 1.5 01 (c)( 3) -1 (d )(2 ), 1.5 01 (c)( 4) -1 (a)( 2) , Inc om e Tax Reg s. Inour vi ew, pe ti ti on er’s act iv it ie s wer e co m m erci al an d p ro vi de d s ub st an ti al bu si ne ss pro fit s fo r hi s u se . If, ho wev er, h is act iv it ie s wer e “ ch ari tabl e”, p et it io ne r wou ldhave be ensubjec t t o o rg an iz at io na l re qu ire m en ts m an da te d b y Mas sa chus et ts law. Befo re a ch ari ty may

en ga ge init s ch ari tabl e work o r rai se fun ds inMas sa chus et ts , itm us t fi le co pi es of i ts ag reem en t o f as so ci at io n, co ns ti tu ti on , andbylaws. M as s. Gen . Laws Ann. ch . 12 , sec . 8E (West19 96 ) (as ex is te d o n Dec . 31 , 19 94 ). Once reg is te red , th e ch ari ty m

us t s ub m itan nu al fil in gs . Id. s ec. 8 F. Pet it io ne r fai le d t o sh ow tha t h e h adm etor e ve n c on si de redth es e St at e o rg an iz at io na l re qu ire m en ts . Pet it io ne r al so fai le d t o m eetth e fi li ng requi rem en ts of s ect io n 6 03 3, wh ic h requi res a ta x- ex em

ptorg an iz at io n e arn in g o ve r $5 ,00 0 ay ear ( in cl ud in g asec ti on 50 1( c)(4 ) or gani zat io n) to fil e anan nu al return, i n thi s ca se Fo rm 99 0. Se e se c. 60 33 (a)( 1) , (2) (A)(i i); sec . 1.6 03 3- 1( a)(2 )(i ), In co m e Tax Reg s. Anorg an iz at io n is to di sc lo se onth atreturn, i nt er al ia , it s g ro ss in co m e, rece ip ts , and di sb ur se m en ts an d i s t o k eep rel at edreco rd s. See sec . 60 33 (a), (f ), (i) . Form 99 0- 17 -

[* 17 ] is to be fil edby the 15 thday of t he 5th m on th aft er the org an iz at io n’s an nu al
acco un ti ng pe rio d e nd s. Sec s. 1 .60 33 -1 (b ), 1.6 03 3- 2( e), In co m e Tax Reg s. Pet it io ne r di d n otm ai nt ai n re co rd s i n o rd er t o d is cl os e th is in fo rm at io n, h e fai le d t o fi le Fo rm

99 0 fo r 19 95 , andhe fil edFo rm s 9 90 forth e o th er y ears in is su e eg reg io us ly late . The 1 99 6 F orm 99 0 was fil edonOcto be r 26 , 20 11
. Ass um in g acal en dar y ear ( be cau se pe ti ti on er el ect edno othe r acc ou nt in g p eri od ), th atform was re qu ire d t o b e fi le d b y May 15, 1 99 7, an d thu s was fil edov er 1 4 y ears lat e. Pet it io ne r’s fai lu re t o u nd ert ak e an y org an iz at io na l fo rm al it ie s g iv es ris e to a ne ga ti ve in fere nc e ag ai ns t h is curren t “ retro sp ect iv e” p os it io n. The m os t ap pa ren t o rg an iz at io na l fl aw, ho wev er, i s tha t b efo re 2 00 3 the re was no sep arat io n b etweenpe ti ti on er an d h is act iv it ie s. Pet it io ne r was th e so le
res earc he r, an al y st , pro du cer, s erv ic e p ro vi de r, an d s ci en ti st(an d was lat er d efi ne d
as th e o nl y

di rect oran d o ffi cer) . No o ne inth e co re g ro up be si de s p et it io ne r co ul d ha ve m ad e a g oi ng co nc ernof the all eg edorg an iz at io n’s re po rte d p rimary ex em pt pu rp os e--r es earc h i n c el l re ge ne rat io n- -dur in g the y ears inis su e. (Co ns pi cu ou sl y , cel l-r eg en erat io n re se archwas n ev er m en ti on edat tria l b y pe ti ti on er, the co regr oup wi tn es se s, o r an y on e el se .) Eve n m or e co m

pr om is in g i s tha t p et it io ne r was th e o nl y “ m em be r” o f hi s gr oup wi th co nt ro l o ve r th e al le ge d o rg an iz at io n’s fu nd s h el d i n h is pe rs on al bank- 18 -

[* 18 ] acco un ts . No o ne els e, in cl ud in g the all eg edorg an iz at io n, co ul d h av e u se d th e fu nd s fo r an y

pu rp os e, ch ari tabl e o r ot he rwis e. He am as se d app ro xi m at el y $5 .6 m il li on withi n an e ig ht -y ear p eri od , no ne of wh ic h wen t t owardan y ch ari tabl e u se . A civ ic org an iz at io n h as be enco ns tru edas “ a m ov em en t o f th e ci ti zen ry or of th e co m m un ity .” Co m

m is si on er v . Lake Fo res t, In c., 30 5 F .2d81 4, 8 18 (4t h Ci r. 19 62 ), rev ’g an d re m an di ng 36 T.C. 51 0 (1 96 1) . Whi le th ere m ay be no sp eci fic de fin it io n o f “ ci vi c o rg an iz at io n” , itne ve rth el es s “ m us t b e a co m

m un ity m ov em en t d es ig ne d t o a cco m pl is h c omm

un ity en ds .” Erie En do wm en t v . Uni te d St at es , 31 6 F .2d15 1, 1 56 (3dCir . 19 63 ). Pet it io ne r’s act iv it ie s wer e th e d om in io n of a si ng le pe rs onan d n ota m ov em en t o f an y co m m un ity . Ult im at el y , pet it io ne r di d n ottre athi s ac ti vi ti es forth e y ears inis su e as a se pa rat e en ti ty. In an e ffo rt t o avo idtax at io n, p et it io ne r is be la te dl y trying to
m ak e anorg an iz at io n app ear wh ere n on e h adex is te d. Be cau se th ere was no or ga ni zat io n fo r th e y ears inis su e, pe ti ti on er i s n oten ti tl edto tax -ex em ptst atus , an d the su m s d ep os it edinhi s b an k a cco un ts an d re la te d i nt eres t ar e ta xabl e in co m e to hi m .- 19 -

[* 19 ] Frau d P en al ti es The frau d p en al ti es of s ect io ns 66 63 (a) and66 51 (f) ar e ci vi l s an ct io ns pr ov id edpri m ari ly as sa feg ua rd s fo r th e p ro te ct io n o f th e rev enue an d t o rei m bu rs e th e Gov ern m en t fo r th e h eav y ex pe ns e o f in ve st ig at io n andth e lo ss res ul ti ng fro m

th e ta xp ay er’s fraud . See Hel ve rin g v . Mit ch el l, 3 03 U.S. 39 1, 4 01 (1 93 8) . Sect io n 6 65 1( f) ap pl ie s wh ere atax pay er fraudul en tl y fai ls to fil e a return, whi le sec ti on 66 63 (a) re qu ire s a r eturn t o h av e b eenfil edinord er t o e st ab li sh an un de rp aym en t o f ta x. Se e se c. 66 64 (b ); C layto n v . Comm is si on er, 1 02 T.C. 63 2, 65 2 (1 99 4) ; M oh am edv. Co m mis si on er, T.C. Mem o. 2 01 3- 25 5, at*1 9- *2 0. Th e Co m m is si on er h as th e b ur de n o f pr ov in g fr au d b y cle ar an d c on vi nc in g e vi de nc e. Sec. 7 45 4( a); Ru le 14 2( b) . W e fi rs t co ns id er the sec ti on 66 63 (a) p en al ty. To s us ta inth e 7 5% p en al ty pro vi de d b y sec ti on 66 63 , th e Co m

m is si on er ha s the bu rd enof p ro vi ng (1) anun de rp aym en t o f ta x and(2) th atth e un de rp aym en t was du e to frau d. Se e, e.g ., May v. Co m mis si on er, 1 37 T.C. 14 7 (2 01 1) , aff’d p er o rd er, 2 01 3 WL 13 52 47 7 (6 th Cir . Feb . 19 , 20 13 ); S ad le r v. Co m m is si on er, 1 13 T.C. 99 , 10 2 (1 99 9) ; Pa rk s v . Comm is si on er, 9 4 T.C. 6 54 , 66 0- 66 1 (1 99 0) . The l at te r bu rd enis m etif i t i s s ho wn tha t the tax pa y er i nt en de d to ev ad e ta xe s kno wn t o b e o win g b y co nduc t i nt en de d t o c on ceal , m is le ad , or- 20 -

[* 20 ] othe rwis e p rev en t the co ll ect io n o f su chtax es . DiLeo v. Co m m is si on er, 9 6 T.C. 85 8, 8 74 (19 91 ), aff’d, 9 59 F.2d16 (2dCir . 19 92 ). Pet it io ne r ha s co nc ed edhi s re cei ptof g ro ss in co m e fo r eac h year, in cl ud in g 20 02 , inth e am ou nt s s etforth inou r fi nd in gs , andhe di d n otarg ue an y en ti tl em en t to de du ctex pe ns es rel at edto th atin co m e b ey on d tho se de du ct io ns res po nd en t al read y pe rm it te d. Be cau se hi s i nc om e fo r th e y ears inis su e h as be ende te rm in ed to be tax ab le an d b ecau se he rep orte d andpa idno tax in20 02 when he sh ou ld ha ve pa idtax of $ 32 2,9 84 , res po nd en t’s b ur de n o f pr ov in g the un de rp aym en t fo r 20 02 ha s b eenm et . See, e.g ., Bro ok s v . Commis si on er, 8 2 T.C. 4 13 , 43 2- 43 3 (1 98 4) , aff’d wit ho utpubl is he d o pi ni on , 77 2 F .2d91 0 (9 th Cir . 19 85 ). As t o re sp on de nt ’s sec on d b ur de n, fr au d m ay be pro ve n b y

cir cu m st an ti al
ev id en ce, an d the tax pa y er’s en ti re co ur se of c on du ctm ay est ab li sh th e requi si te frau du le ntin te nt . Rowl ee v . Comm is si on er, 8 0 T.C. 1 11 1, 1 12 3 (1 98 3) . In de te rm in in g wh ethe r pe ti ti on er’s und erp aym en t was du e to frau d, we ap pl y lo ng -rec og ni zed“ba dg es of f rau d” ev ol ve d fr om

cas es an al yzi ng sec ti on 66 63 or fo rm er s ect io n 6 65 3( b) (1 ). See, e.g ., Niedrin gh au s v . Comm is si on er, 9 9 T.C. 2 02 , 21 1 (1 99 2)
.

“ Co ns is te ntfai lu re t o re po rt s ub st an ti al am ou nt s o f in co m e o ve r a num be r of y ears is , st an di ng alo ne , hi gh ly pers ua si ve ev id en ce o f frau du le ntin te nt .”- 21 -

[* 21 ] Tem

pl e v . Comm is si on er, T.C. Mem o. 2 00 0- 33 7, s li p o p. at16 -2 7, af f’d, 62 Fed . App x. 6 05 (6t h C ir. 2 00 3) ; s ee al so Hol landv. Un it edSta te s, 3 48 U.S. 12 1, 13 9 (1 95 4) (de te rm in in g tha t “ ev id en ce o f a co ns is te ntpa tt ernof u nd erre po rti ng larg e am ou nt s o f in co m e” s up po rts “ anin fere nc e o f wil lfu ln es s” ). Deal in g i n c as h is als o c on si de reda ba dg e o f frau d b ecau se itis in di cat iv e o f a t ax pa y er’s at te m pt to av oi d s cru ti ny of h is fin an ces . See Bra df or d v . Comm is si on er, 7 96 F.2d30 3, 30 8 (9 thCir . 19 86 ), aff’g T.C. Me m o. 1 98 4- 60 1. Othe r ba dg es of f rau d i nc lu de (b utare n otli m it edto ) in ad equa te reco rd s, i m pl au si bl e o r in co ns is te nt ex pl an at io ns of b eh av io r, co nc eal in g a ss et s, fa il ur e to co op erat e wit h t ax au th or it ie s, fi li ng of f

al se do cu m en ts , lac k o f cre di bi li ty, an d fa il ur e to fil e ta x returns . Id. at30 7; Tou ss ai ntv. Co m m is si on er, 7 43 F.2d30 9, 3 12 (5t h C ir. 1 98 4) , aff’g T.C. Me m o. 1 98 4- 25 ; Ni edrin gh au s v . Comm is si on er, 9 9 T.C. at21 3 (d et erm in in g tha t a t ax pa y er’s fai lu re t o fi le returns was apart o f hi s “ de li be rat e at te m ptto co nc eal hi s co rrec t t ax li ab il ity an d t o frus tra te it s co ll ect io n” ); St ep he ns on v. Co m

mis si on er, 7 9 T.C. 9 95 , 10 07 (19 82 ), aff’d, 7 48 F.2d33 1 (6 th Ci r. 19 84 ). Bad ge s o f pe ti ti on er’s fraudul en t i nt en t i nc lu de hi s fa il ur e to rep ort o ve r $5 .6 m il li on of i nc om e an d h is de al in gs incas h. He al so fai le d t o m ai nt ai n re co rd s of an y na tu re, fai le d t o fi le tax returns for19 95 th ro ug h 2 00 1, an d fi le d afal se- 22 -

[* 22 ] 20 02 return tha t u nd ers ta te d i nc om e. His fai lu re t o re po rt i nc om e an d t o fi le returns ad ds to hi s o th er at te m pt s t o c on ceal in co m e su chas h is us e o f th e al ia s

“ DanW es t” to whi chbu si ne ss ch eck s wer e m ad e p ay ab le , hi s co ns tantsh ift in g o f ba nkacco un ts th atwere o pe ne d wi th fal se So ci al Securit y nu m be rs , andhi s as ki ng fo r cas h p aym en ts onfees of $ 10 ,00 0 andun de r. See 3 1 U.S.C. s ec. 5 31 3( a) (1 99 4) (requi rin g tha t fi nanc ia l i ns ti tu ti on s re po rt c urren cy tra ns act io ns inex ces s of $1 0,0 00 ); 3 1 C .F.R. se c. 10 3.2 2 (1 99 5) (sa m e). He al so fai le d t o c oo pe rat e wit h ta x aut ho rit ie s wh enhe refu se d h is in it ia l i nt erv ie w andrefu se d t o turn o ve r th e li stof “ do no rs ” th athe pu rp orte d t o h av e. Add it io na ll y , pet it io ne r’s te st im on y oft enlac ke d c red ib il ity , was in co ns is te nt , andsu gg es te d fr au d. Hi s ex pl an at io n abo utacci de nt al ly tran sp os in g hi s So ci al Secu rit y

nu m be r on 12 of t he 14 bankacco un ts he op en edwas st rik in gl y im pl au si bl e g iv enth athe de al s d ai ly in ex act in g n um be rs , form

ul as , and cal cu la ti on s as a ch em is t. If, as he all eg ed , th es e So ci al Securit y nu m be r m is ta ke s are ju stso m e “ in no cen t t en de nc y ” o f hi s b eh av io r (wh ic h we d o n otbe li ev e th ey are) , th enhe sh ou ldha ve writ te n h is So ci al Securit y nu m be r do wn wh engo in g t o op enacco un ts forfun ds th atare ap pa ren tl y ve ry im po rta ntto hi m . Pet it io ne r al so tes ti fie d tha t the freque nttra ns fers of f un ds to an d a m on g h is
va rio us bankacco un ts were “ no t tha t b ig a de al ” b ecau se “ th e o rg an iz at io n’s- 23 -

[* 23 ] m on ey

* * * was alwa y s h el d i n n o m or e th antwo acco un ts at ati m e” an d

“ ev enth ou gh th ere wer e 1 4 a cco un ts , if you d iv id e b y two , th at ’s sev eny ears of two acco un ts at ati m e”. At o ne pe rio d dur in g the y ears inis su e, ho wev er, h e si m ul tane ou sl y

he ldsi x a ct iv e acc ount s. Mo reo ve r 10 of h is 14 acco un ts were op enfor les s tha n 1 1⁄2 years, fi ve of t ho se 10 were o pe n fo r le ss th ana y ear, an d two of tho se fiv e were o pe n fo r le ss th ana m on th . W e in fer tha t p et it io ne r’s tra ns fers to th es e num ero us acco un ts were at te m pt s t o c on ceal in co m e d es pi te hi s un supp orte d c la im

th athe was “ in te res t-r at e” s ho pp in g. An ex am pl e o f pe ti ti on er’s i nc on si st en t t es ti m on y is hi s s ta te m en t tha t “ I’m
no t a c he m is t, b utI ha ve en ou gh ch em is try back gr ou ndto workwith p eo pl e who real ly are ch em is ts ”, ev enth ou gh he ha d s ti pu la te d tha t h e is a ch em is t h ol di ng fo urpa te nt s. He al so tes ti fie d tha t h e “pr et ty m uc h” ha d re co rd s i de nt ifyin g ev eryone who ha d c on tri bu te d m on ey to hi m so th athe co ul d re turnth e m on ey if he di d n otreac h h is go al of a m as si ng $1 0 m il li on . W ithi n m in ut es of t ha t te st im on y , ho wev er, h e ren ounc edhi s s tate m en t tha t h e k ep t re co rd s o f hi s co nt rib ut or s an d i ns te adst at edth athe wou ldrel y onch eck s an d h is m em ory to id en ti fy th em . Inan ot he r ex am

pl e, reg ard in g the po ss ib il ity of h is di pp in g i nt o the de po si te d fu nd s, p et it io ne r te st ifi edth at“ ov er $ 30 0,0 00 of tho se can cel edch eck s- 24 -

[* 24 ] was m on ey

co nt rib ut edor g iv enby m y fam il y , m

y paren ts , m

y fathe r, m y gr an dm ot he r, m

y un cl e. So , th at 's o ve r $3 00 ,00 0 o f m y ownm on ey

inth e ‘90 s go in g t owa rd s the ho us e.” Yetlat er h e te st ifi edth athi s p aren ts an d g ran dm ot he r were p oo r. He di d n otoff er an y ex pl an at io n a s t o h ow h is paren ts an d gr an dm ot he r co ul d b e p oo r y etco nt rib ut e la rg e am ou nt s o f m on ey . The se in co ns is te nc ie s an d the othe r de te rm in edba dg es cle arl y an d
co nv in ci ng ly pro ve frau d. On ce the Co m m is si on er es tabl is he s tha t an y po rti on of
anun de rp aym en t i s at tri bu tabl e to frau d, the en ti re und erp aym en t i s treat edas at tri bu tabl e to frau d, ex cep t wi th res pe ctto an y po rti on of t he un de rp aym en t tha t th e ta xp ay er es tabl is he s, b y a pr ep on de ran ce o f th e ev id en ce, as no t at tri bu tabl e to frau d. Se c. 66 63 (b ). Pet it io ne r di d n otest ab li shth atan y of t he un de rp aym en t was no t at tri bu tabl e to frau d. Th e p en al ty und er s ect io n 6 66 3 i s the refo re s us ta in ed , an d re sp on de nt ’s alt ern at iv e th eo ry un de r se ct io n 6 66 2 d oe s n otne edto be
co ns id ered
. Sect io n 6 65 1( f) p ro vi de s a p en al ty of 75 % of t he am ou ntrequi redto be sh own as t ax onun fil edreturns if the fai lu re t o fi le th e returns is frau du le nt . The ta xp ay er fi rs t m

us t h av e b eenrequi redto fil e a return andth enfai le d t o p ro pe rly fil e itby its du e d at e. See s ecs . 60 12 (a), 6 65 1( a)(1 ), (b )(1 ). Howev er, i f a ta xp ay er can s ho w th atsu chfai lu re i s due to reas on ab le cau se an d n otdu e to- 25 -

[* 25 ] wil lfu l n eg le ct , th enth e se ct io n 6 65 1( f) p en al ty w il l n otbe im po se d. Se e se c. 66 51 (a)( 1) . The s tand ardforpro vi ng frau d u nd er s ect io n 6 65 1( f) co ns id ers th e sa m e el em en ts as t he st an da rdforpro vi ng frau d u nd er s ect io n 6 66 3( a) an d i ts pr ed eces so r se ct io n 6 65 3( b) , in cl ud in g b ad ge s o f frau d. Cl ayto n v . Commis si on er, 10 2 T.C. at65 3. Co ll at eral est op pe l p recl ud es rel it ig at io n o f an y is su e o f fac t o r la w th atwas actua ll y li ti ga te d andne ces saril y

de te rm in edby a val idan d fi na l ju dg m en t. See Mo nt an a v . Uni te d S tate s, 4 40 U.S. 14 7, 1 53 (19 79 ); B ro tm anv. Co m mis si on er, 10 5 T.C. 1 41 , 14 7 (1 99 5) . W e are sat is fie d tha t the de ci si on inUni te d S tate s v . Geo rg e, 44 8 F .3d96 , was fi na l an d tha t p et it io ne r fai le d t o t im el y tak e eff ect iv e in it ia ti ve s n eces sa ry

forrev ie w of aFed eral Co urt o f App eal s d eci si on . See Sup. Ct . R. 13 .1, 1 3.3 ; Fe d. R. Ap p. P. 3 5( c), 4 0( a)(1 ). Fo r 19 96 th ro ug h 1 99 9, re sp on de ntrel ie s o n c ol la te ral est op pe l an d pe ti ti on er’s co nv ic ti on un de r se ct io n 7 20 1 wi th res pe ctto th e se ct io n 6 65 1( f) pe na lt ie s. Th e la w is well est ab li sh edth ata co nv ic ti on forcri m in al tax ev as io n un de r se ct io n 7 20 1 a fte r a tria l o n the m eri ts co ll at eral ly esto ps a ta xp ay er fro m de nyin g fr au du le ntin te ntun de r se ct io n 6 66 3( a) o r it s p red eces so r se ct io n 6 65 3( b) fo r th e sa m e y ear. Se e DiLeo v. Co m m is si on er, 9 6 T.C. at88 5; see als o B oe ttne r v. Co m m is si on er, T.C. Mem o. 1 99 8- 35 9, s li p o p. at9-1 0 (p oi nt in g o utth atth e- 26 -

[* 26 ] ele m en ts of c riminal tax ev as io n u nd er s ect io n 7 20 1 are v irtua ll y id en ti cal to th e el em en ts of t he civ il frau d p en al ty und er fo rm er s ect io n 6 65 3( b) ). Sim il arl y , a co nv ic ti on un de r se ct io n 7 20 1 b as edup onfai lu re t o fi le a return wi ll co ns ti tu te co ll at eral est op pe l fo r th e fraudul en t fa il ur e to fil e p en al ty und er s ect io n 6 65 1( f). See M ad ge v. Co m

mis si on er, T.C. Mem o. 2 00 0- 37 0, s li p o p. at8-9 , aff’d, 2 3 F ed
. App x. 6 04 (8th C ir. 2 00 1)
. Pet it io ne r’s co nv ic ti on s u nd er s ect io n 7 20 1 wer e b as edup on fai lu re t o fi le returns for19 96 th ro ug h 1 99 9- -anis su e h eardat the cri min al tri al an d tha t rece iv eda fi na l ju dg m en t b y th e Co urt o f App eal s fo r th e Fi rs t Ci rcu it . There fo re, pe ti ti on er’s co nv ic ti on s o f cri m in al tax ev as io n u nd er s ect io n 7 20 1 fo r ta xabl e y ears 19 96 th ro ug h 1 99 9 c ol la te ral ly esto p h im fro m de nyin g tha t h is fai lure t o fi le returns forth os e y ears was due to frau d. Reg ard in g the rem ai ni ng y ears for whi chco ll at eral est op pe l d oe s n otap pl y --1 99 5, 2 00 0, an d 2 00 1- -we m us t d eci de whet he r pe ti ti on er was requi redto fil e returns an d, i f so , whethe r hi s fa il ur e to do so was a cco m pa ni edby an in te nt su ffi ci en t t o s us ta inth e se ct io n 6 65 1( f) p en al ty. Pro of of g ro ss rece ip ts inth e am ount s s ho wn b y

th e b an k d ep os it s i n thi s ca se is su ffi ci en t t o s ho w th at pe ti ti on er h adanob li ga ti on to fil e returns . See s ecs . 1, 6 01 1, 6 01 2. Pe ti ti on er fai le d t o fi le returns forth os e y ears , andhe di d n otsh ow tha t h is fai lu re was du e to- 27 -

[* 27 ] reas on ab le cau se . As th e sa m e b ad ge s o f frau d tha t ap pl ie d t o the sec ti on 66 63 an al y si s, s up ra, equa ll y ap pl y he re, res po nd en t’s b ur de n o f pr oo f of frau du le ntin te ntha s al so be ensat is fie d. Co ns eque nt ly, th e p en al ti es un de r se ct io n 6 65 1( f) fo r ta x years 1 99 5 th ro ug h 2 00 1 are s us ta in ed . Becau se of t hi s re su lt , we nee d n otco ns id er res po nd en t’s al te rn at iv e arg um en t u nd er s ect io n 6 65 1( a). Inreac hi ng ou r de ci si on , we hav e co ns id eredall arg um en ts m ad e, an d, t o th e ex te ntno t m en ti on ed , we con cl ud e th atth ey are m oo t, i rrel ev an t, o r witho ut
m eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.