1 All Rule references are to this Court's Rules of Practice

and Procedure, and all section references are to the Internal

Revenue Code as in effect for the years in issue.

T.C. Memo. 1997-258

UNITED STATES TAX COURT

RONALD L. BERKSHIRE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3006-96. Filed June 10, 1997.

John J. Boyle, for respondent.

MEMORANDUM OPINION

VASQUEZ, Judge: This case is before the Court on

respondent's motion for entry of judgment by default pursuant to

Rule 123(a).1 Respondent determined deficiencies in and

additions to petitioner's Federal income tax as follows:
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 Additions to Tax 

 Sec. Sec. Sec. Sec. Sec.

Year Deficiency 6653(b)(1) 6653(b)(2) 6653(b)(1)(A) 6653(b)(1)(B) 6661

1985 $18,982 $9,491 1 --- --- $4,584

1986 25,986 --- --- $19,490 1 6,497

1987 41,712 --- --- 31,284 1 ---

1 50 percent of the interest due on the deficiency.

Background

Petitioner invoked the jurisdiction of this Court on

February 20, 1996, by timely filing a petition. Petitioner

resided in Columbus, Ohio, at the time the petition was filed. 

On April 24, 1996, respondent timely filed an answer to the

petition denying that respondent erred with respect to the

determinations set forth in the deficiency notice. Respondent's

answer includes specific allegations in support of the

determination that petitioner is liable for additions to tax for

fraud for the years in issue. Petitioner failed to file a reply

denying the allegations contained in respondent's answer. Thus,

on June 17, 1996, respondent filed a motion under Rule 37(c) to

have the undenied allegations of fact deemed admitted. 

Petitioner was notified of the filing of respondent's Rule 37(c)

motion by notice of filing dated June 17, 1996. Petitioner

failed to respond to the notice of filing and failed to file a

reply to respondent's answer. We granted respondent's motion on

July 15, 1996.

Respondent's answer reads, in pertinent part, as follows:

8. FURTHER ANSWERING the petition, and in support

of the determination that a part of the underpayment of
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tax for the taxable year 1987 is due to fraud, the

respondent affirmatively relies upon the doctrine of

collateral estoppel (estoppel by judgment), and

alleges:

(a) Ronald L. Berkshire, the petitioner herein,

is the same person who was the defendant in the

criminal case of United States of America v. Ronald L.

Berkshire (Western District of Virginia, Case Number

92-00050-01). The Judgment entered in that case became

final on May 24, 1993.

 * * * * * * * 

(d) The petitioner subsequently entered a plea of

guilty to violation of I.R.C. sec. 7201 for the taxable

year 1987, as set forth against him in Count Three of

the indictment.

(e) On May 24, 1993, the United States District

Court for the Western District of Virginia entered

Judgment against the petitioner pursuant to said plea. 

* * *

 * * * * * * *

(i) The prior criminal conviction of the

petitioner under I.R.C. sec. 7201 for the taxable year

1987 is conclusive and binding on the petitioner, and,

by reason thereof, the petitioner is estopped in the

instant case under the doctrine of collateral estoppel

(estoppel by judgment) from denying herein that he

willfully engaged in conduct to mislead and to conceal

his true taxable income for the taxable year 1987 with

intent to evade and defeat a part of the income tax due

and owing by him for said year, and that due to such

fraud there is an underpayment of tax within the

meaning of I.R.C. secs. 6653(b)(1)(A) and 6653(b)(1)(B)

for the taxable year 1987.

(j) By reason of such prior criminal conviction,

the petitioner is estopped in the instant case, under

the doctrine of collateral estoppel (estoppel by

judgment) from denying that a part of the underpayment

in income tax for the year 1987 is due to fraud, and

that, therefore, the petitioner is liable for the

additions to tax imposed by I.R.C. secs. 6653(b)(1)(A)

and 6653(b)(1)(B), as determined by the respondent in
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the notice of deficiency upon which the instant case is

based.

9. FURTHER ANSWERING the petition, and in support

of the determination that a part of the underpayment of

tax for the taxable years 1985, 1986 and 1987 is due to

fraud, the respondent alleges:

(a) On or about April 15, 1986, the petitioner

with intent to evade and defeat income tax filed a 1985

joint income tax return (Form 1040) with the Internal

Revenue Service that showed taxable income and taxes

due in the amounts of $8,911.00 and $645.00,

respectively.

(b) For the 1985 taxable year, the petitioner

understated his taxable income by $52,322.00 and

understated his 1985 income tax liabilities by

$18,982.00.

 * * * * * * *

(k) On or about April 15, 1986, the petitioner

with intent to evade and defeat income taxes filed a

1986 joint income tax return (Form 1040) with the

Internal Revenue Service that showed taxable income of

$3,526.32 and no taxes due and owing for the year 1986.

(l) For the taxable year 1986, the petitioner

understated his 1986 taxable income by $75,753.00 and

understated his 1986 income taxes by $22,471.00.

 * * * * * * *

(v) The petitioner fraudulently and with intent

to evade tax omitted from his income tax returns for

the taxable years 1985 and 1986, taxable income in the

respective amounts of $52,322.00 and $75,753.00.

(w) For the taxable year 1987, the petitioner

failed to file a federal income tax return and paid no

federal tax for that year.

(x) For the taxable year 1987, the petitioner

received taxable income from UNICO, Inc. in a total

amount of $111,195.00.

 * * * * * * *
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(z) A part of each deficiency in income tax for

the taxable years 1985, 1986 and 1987, is due to fraud

with intent to evade taxes.

By notice dated October 10, 1996, the Court set this case

for trial at the Columbus, Ohio, trial session beginning on

March 17, 1997. This notice specifically stated that "YOUR

FAILURE TO APPEAR MAY RESULT IN DISMISSAL OF THE CASE AND ENTRY

OF DECISION AGAINST YOU." 

On November 7, 1996, petitioner's counsel filed a motion to

withdraw their representation of petitioner. That motion recites

that "Petitioner has instructed counsel not to sign the Decision

Entry previously agreed to between Petitioner and District

Counsel."

This case was called at the Court's trial session in

Columbus, Ohio, on March 17, 1997. Petitioner did not appear,

file a pretrial memorandum, or request a continuance. At that

time, respondent filed the motion for judgment by default

pursuant to the provisions of Rule 123(a).

Discussion

Rule 123(a) provides that if any party fails to plead or

otherwise proceed as provided by the Rules or as required by the

Court, that party may be held in default on the motion of the

other party. Smith v. Commissioner, 91 T.C. 1049, 1056 (1988),

affd. 926 F.2d 1470 (6th Cir. 1991). The action or nonaction on

the part of a taxpayer that constitutes sufficient grounds to

apply Rule 123(a) in proceedings before us is a matter within
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this Court's discretion. Id. Petitioner's failure to appear and

to proceed with prosecution of his case, despite the Court's

warning in its notice setting this case for trial and its

pretrial order, constitutes sufficient grounds for the entry of a

default judgment against him.

Petitioner made no attempt to contact the Court upon his

failure to appear and failed to submit a trial memorandum, as

required by the Court's standing pretrial order, or request a

continuance. Accordingly, we will sustain respondent's

determinations as to the deficiencies and the additions to tax

pursuant to section 6661 on the ground that petitioner either

defaulted or simply failed to carry his burden of proof. See,

e.g., id. at 1052.

Respondent has also moved to default petitioner for the

additions to tax for fraud for the years in issue. When a

taxpayer fails to appear and prosecute his case, entry of a

default decision as to the additions to tax for fraud is

appropriate if, in the answer, the Commissioner alleges facts

which, if proven, clearly and convincingly support such a

judgment. Id. at 1058-1059. The granting of the Rule 37(c)

motion has the effect of establishing facts pleaded in the

answer.

The facts alleged in the answer, deemed admitted, constitute

clear and convincing evidence that petitioner fraudulently

underpaid his taxes for the years in issue. Prominent among the
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matters contained in the answer are petitioner's admissions that: 

(1) The omission of specific items of income for the years in

issue is part of a 3-year pattern of intent to evade taxes; (2)

petitioner understated taxable income in the amounts of $52,322

for 1985, $75,753 for 1986, and $111,195 for 1987; and (3) the

deficiency for each of the years in issue is due to fraud with

intent to evade taxes. Additionally, petitioner's conviction

under section 7201 collaterally estops him from denying that

there is an underpayment of his income tax and that some part of

the underpayment is due to fraud for purposes of section

6653(b)(1)(A) and (B) for 1987. Rodney v. Commissioner, 53 T.C.

287, 305 (1960).

The above-pleaded facts clearly establish that petitioner

fraudulently underpaid his income taxes for the years in issue. 

Thus, we are satisfied that the additions to tax for fraud for

the years in issue should be sustained by the entry of a default

judgment against petitioner pursuant to Rule 123(a).

To reflect the foregoing,

An appropriate order will

be issued, and decision will be

entered for respondent.