1 Rule references are to the Tax Court Rules of Practice

and Procedure, and section references are to the Internal Revenue

Code in effect for the years in issue. 

T.C. Memo. 1997-387

UNITED STATES TAX COURT

KENNETH A. WEINER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 663-93. Filed August 25, 1997.

Kenneth A. Weiner, pro se.

William G. Bissell, for respondent.

MEMORANDUM OPINION

LARO, Judge: Respondent moves pursuant to Rule 1211 for an

order granting summary judgment in respondent's favor. 

Respondent's motion for summary judgment is based on matters
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deemed admitted by reason of petitioner's failure to respond to

requests for admission served by respondent under Rule 90. 

Respondent determined deficiencies for 1984 and 1985 based on

petitioner's failure to report gross income received from his

participation in an investment scheme. The resulting

deficiencies in income tax and additions to tax are as follows:

 Additions to Tax1 

Year Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2)

1984 $547,778 $273,889 50% of the 

 interest due

 on $547,778

1985 2953,134 476,567 50% of the

 interest due

 on $953,134

1In the event that the fraud addition to tax is not

sustained, respondent asserted in the alternative the negligence

addition to tax pursuant to sec. 6653(a).

2The face of the notice of deficiency incorrectly lists the

deficiency for 1985 as $975,113. The summary contained therein,

however, correctly lists the deficiency as $953,134.

Based on matters deemed admitted, respondent claims that

there is no genuine issue of material fact as to either

petitioner's liability for deficiencies in his 1984 and 1985

income tax or petitioner's liability for the fraud additions

under section 6653(b)(1) and (2). The Court ordered petitioner

to respond to respondent's motion on or before June 20, 1997. 

Petitioner failed to do so. Petitioner was incarcerated in the

Federal Penitentiary in Bastrop, Texas, when he petitioned the

Court. 

We hold for respondent on all issues.
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Background

Petitioner petitioned the Court on January 11, 1993, to

redetermine respondent's determination of deficiencies and

additions. On August 18, 1993, this case was calendared for

trial at the trial session commencing on January 24, 1994. 

Beginning in November 1993, petitioner filed with the Court seven

separate motions for continuance. The Court granted the seventh

motion on July 18, 1996, and this case was calendared for trial 

at the trial session commencing on April 14, 1997. 

On January 29, 1997, respondent served petitioner with

requests for admission. The admissions requested were, in

pertinent part, as follows:

3. The petitioner filed an individual income tax

return, Form 1040, for each of the years 1984 and 1985. 

He reported gross income of $46,825.00 for 1984 and

$73,762.00 for 1985, and reported tax liabilities of

$7,783.00 and $21,979.00 for 1984 and 1985,

respectively. * * *

4. The petitioner * * * was charged with multiple

counts of wire fraud under 18 U.S.C. §1343, mail fraud

under 18 U.S.C. §1343, interstate transportation of

property taken by fraud under 18 U.S.C. §2314,

conspiracy to defraud the United States under 18 U.S.C.

§371, and filing false income tax returns under 26

U.S.C. §7206(1) for the years 1984 and 1985 * * *.

* * * * * * *

6. The petitioner's objective [in conducting the

investment scheme] was to defraud the United States by

conducting the financial and banking activities of the

investment scheme in a manner which was not readily

traceable, by failing to maintain records of the

financial activities of the investment scheme, and by

failing to report to appropriate government agencies
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the financial activities of the investment scheme as

required by law. * * *

* * * * * * *

7. The unlawful combination, conspiracy,

confederation, and agreement was to be accomplished by

the following means and methods:

a. The petitioner * * * used numerous

bank accounts, maintained in various names,

including COMSEC Corporation * * * to conduct

the financial activities of the investment

scheme, for the purpose of concealing the

financial activities of the investment

scheme.

b. The petitioner * * * conducted much

of the business of the investment scheme in

currency and cashier's check, for the purpose

of hindering and preventing the tracing of

the financial activities of the investment

scheme.

c. The petitioner * * * failed to

maintain accurate books and records of the

financial activities of the investment scheme

as required by law * * *.

* * * * * * *

8. In furtherance of the conspiracy and to

effect the objects thereof, the following acts were 

done and performed by or on behalf of the petitioner 

* * *:

a. On or about May 17, 1982, the

petitioner caused the incorporation of COMSEC

Corporation under Michigan law.

b. On or about April 18, 1993, the

petitioner * * * opened a savings account 

* * * at the American Federal Savings and Loan, 

Detroit, Michigan.
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c. On or about July 23, 1982, the

petitioner * * * opened a checking account in

the name of COMSEC Corporation at the

Michigan National Bank, Detroit, Michigan.

d. On or about July 23, 1982, the

petitioner * * * opened a savings account in

the name of COMSEC Corporation at the

Michigan National Bank, Detroit, Michigan.

e. On or about May 14, 1984, the

petitioner * * * opened a checking account 

* * * at the Manufacturers Bank, Detroit, 

Michigan.

f. On or about October 25, 1984, the

petitioner * * * opened a checking account in

the name of COMSEC Corporation at the

Michigan National [B]ank, Detroit, Michigan.

g. On or about April 8, 1985, the

petitioner * * * opened an account in the

name[] of COMSEC Corporation at the Comerica

Bank, Detroit, Michigan.

* * * * * * *

i. On or about April 8, 1985, the

petitioner * * * opened a savings account in

the name of COMSEC Corporation at the

Comerica Bank, Detroit Michigan.

j. On or about May 28, 1985, the

petitioner * * * opened a checking account in

the name of COMSEC Corporation at the

Manufacturers Bank, Detroit, Michigan.

k. On or about January 7, 1985, the

petitioner was added as an authorized signer

for an existing checking account in the name

of Associated Medical Research at the

Manufacturers Bank, Detroit, Michigan.

l. On or about January 7, 1985, * * *

petitioner opened a checking account in the

name of Associated Medical Research at the

Manufacturers Bank, Detroit, Michigan.
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m. During the calendar years 1984 and

1985, the petitioner * * * used accounts

described above for the receipt and

disbursement of funds relating to the

investment scheme.

n. During the calendar years 1984 and

1985, the petitioner received approximately

$100,000 in currency from banking

transactions relating to the investment

scheme * * *.

o. During the calendar years 1984 and

1985, the petitioner used over $800,000 in

investment scheme funds to purchase cashiers

checks payable to himself * * *. 

* * * * * * *

10. On or about April 15, 1985, the petitioner

filed his federal individual income tax return for the

calendar year 1984, which income tax return was not

true and correct in that he did not report his income

from his involvement in the investment scheme.

11. On or about October 17, 1986, the petitioner

filed his federal individual income tax return for the

calendar year 1985, which income tax return was not

true and correct in that he did not report his income

from his involvement in the investment scheme.

12. In a jury verdict dated January 14, 1991, the

aforementioned Michigan district court found petitioner

guilty on all counts pertaining to him of the

superseding indictment. * * * 

* * * * * * *

16. The petitioner omitted all of his income in

the amounts of $1,100,411.00 received in 1984 and

$1,905,387.00 received in 1985 from the investment

scheme, from his 1984 and 1985 income tax returns,

respectively, and filed these returns with the

fraudulent intent to evade the tax due on that income.

17. As a result of not reporting the

aforementioned amounts of income, the petitioner
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understated his income and his tax liability for the

years 1984 and 1985.

[18]. The deficiencies in income tax for the

taxable years 1984 and 1985 are due, in whole or in

part, to the petitioner's fraudulent intent to evade

income tax.

[19]. A part of the underpayment of the tax

required to be shown on the petitioner's income tax

returns for each of the years 1984 and 1985 is due to

fraud.

Petitioner failed to respond to respondent's requests for

admission as required by Rule 90(c). Thereafter, on April 8,

1997, the Court granted petitioner's eighth motion for

continuance to allow petitioner time to recover from an

operation. This case was calendared for trial at the trial

session commencing on September 15, 1997. 

On May 13, 1997, respondent filed with the Court a motion

for summary judgment asking that, on the basis of matters deemed

admitted by petitioner as set forth in respondent's requests for

admission, we find petitioner liable for deficiencies and

additions to tax. The Court on May 14, 1997, ordered a response

from petitioner to respondent's motion for summary judgment to be

received or on before June 20, 1997. The order was returned as

unclaimed; petitioner had vacated his last known address without

informing the Court of a change in address as required by Rule

21(b)(4). In addition to failing to respond to the Court's

order, petitioner has not filed any motion to withdraw the deemed

admissions pursuant to Rule 90(f).
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Discussion

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials of phantom factual issues. 

Kroh v. Commissioner, 98 T.C. 383, 390 (1992); Shiosaki v.

Commissioner, 61 T.C. 861, 862 (1974). Summary judgment is

appropriate "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law." Rule 121(b). Because summary

adjudication decides an issue against a party before trial, we

grant such a remedy cautiously and sparingly and only after

carefully ascertaining that the moving party has met all the

requirements for summary adjudication. Associated Press v.

United States, 326 U.S. 1, 6 (1945); Espinoza v. Commissioner,

78 T.C. 412, 416 (1982).

The Court will not resolve disagreements over material

factual issues through summary adjudication. Espinoza v.

Commissioner, supra at 416. The moving party bears the burden

of proving that there is no genuine issue of material fact, and

factual inferences are viewed in a light most favorable to the

nonmoving party. United States v. Diebold, Inc., 369 U.S. 654,

655 (1962); Kroh v. Commissioner, supra at 390. A fact is

material if it "tends to resolve any issues that have been
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properly raised by the parties". 10A Wright & Miller, Federal

Practice and Procedure: Civil, sec. 2725, at 93 (2d ed. 1983). 

A. Deficiencies for 1984 and 1985

The first issue is whether petitioner is liable for the

deficiencies. Respondent moves the Court to hold as a matter of

law that petitioner owes deficiencies of $547,778 and $953,134

for 1984 and 1985, respectively. Under Rule 90(c), matters set

forth in requests for admission are deemed admitted unless an

answer or objection is served on the requesting party "within

30 days after service of the request or within such shorter or

longer time as the Court may allow". Since petitioner has failed

to respond to respondent's requests, the facts as set forth

therein are deemed admitted and are a sufficient basis on which

to grant respondent's motion for summary judgment as to the

deficiencies. Coninck v. Commissioner, 100 T.C. 495, 496 (1993);

Marshall v. Commissioner, 85 T.C. 267, 271-272 (1985); Freedson

v. Commissioner, 65 T.C. 333, 334-336 (1975), affd. on another

issue 565 F.2d 954 (5th Cir. 1978). 

Section 61 defines gross income as income from whatever

source derived. The Supreme Court has held that when earnings

are acquired, lawfully or unlawfully, without a consensual

recognition of an obligation to repay, there is income to the

taxpayer. James v. United States, 366 U.S. 213, 219 (1961). 
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In James, the Court stated that "This standard brings wrongful

appropriations within the broad sweep of 'gross income'". Id. 

Petitioner is deemed to have admitted facts which establish

substantial, intentional omissions of taxable income for 1984 and

1985. The deemed admissions establish that petitioner was a

participant in an investment scheme from which he received over

$1 million from investors in 1984 and nearly $2 million from

investors in 1985. Specifically, petitioner is deemed to have

admitted under Rule 90(c) that:

10. [he] filed his federal individual income tax

return for the calendar year 1984, which income tax

return was not true and correct in that he did not

report his income from his involvement in the

investment scheme.

11. [he] filed his Federal income tax return for

the calendar year 1985, which income tax return was not

true and correct in that he did not report his income

from his involvement in the investment scheme.

* * * * * * *

16. [he] omitted all of his income in the amounts

of $1,100,411.00 received in 1984 and $1,905,387.00

received in 1985 from the investment scheme, from his

1984 and 1985 income tax returns, respectively * * *.

17. [he] understated his income and his tax

liability for the years 1984 and 1985.

The deemed admissions establish that there is no genuine issue of

material fact with respect to the deficiencies in issue. 

Marshall v. Commissioner, supra at 271-272; Freedson v.

Commissioner, supra at 334-336. We grant summary judgment to

respondent with respect to those deficiencies.
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B. Section 6653(b)(1) and (2) Additions to Tax for Fraud

The second issue is whether petitioner is liable for the

additions to tax for fraud under section 6653(b)(1) and (2). 

 The additions to tax for fraud are civil sanctions "provided

primarily as a safeguard for the protection of the 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).

Fraud is defined as intentional wrongdoing on the part of

the taxpayer with the specific purpose of evading a tax believed

to be owing. Mitchell v. Commissioner, 118 F.2d 308, 310 (5th

Cir. 1941), revg. 40 B.T.A. 424 (1939); Petzoldt v. Commissioner,

92 T.C. 661, 698 (1989). Section 7454 provides in pertinent part

that "In any proceeding involving the issue whether the

petitioner has been guilty of fraud with intent to evade tax, the

burden of proof in respect of such issue shall be upon the

Secretary." Rule 142(b) requires that this burden be carried by

clear and convincing evidence. Castillo v. Commissioner, 84 T.C.

405, 408 (1985). 

For the fraud additions to be imposed, there must be an

underpayment of tax required to be shown on the return that is

due to fraud. Fraud is shown by proof that the taxpayer intended

to conceal, mislead, or otherwise prevent the collection of his

or her taxes, and that there is an underpayment of tax. Spies v.
- 12 -

United States, 317 U.S. 492, 499 (1943); Stoltzfus v. United

States, 398 F.2d 1002, 1005 (3d Cir. 1968); Webb v. Commissioner,

394 F.2d 366, 377 (5th Cir. 1968), affg. T.C. Memo. 1966-81;

Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

Because matters deemed admitted pursuant to Rule 90 are

conclusively established and may be sufficient to support the

granting of a motion for summary judgment, respondent may

establish fraud by relying on petitioner's deemed admissions. 

Marshall v. Commissioner, supra at 272-273; Morrison v.

Commissioner, 81 T.C. 644, 651 (1983); Doncaster v. Commissioner,

77 T.C. 334, 336 (1981). Petitioner is deemed to have admitted

under Rule 90(c) that:

16. [he] omitted all of his income in the amounts

of $1,100,411.00 received in 1984 and $1,905,387.00

received in 1985 from the investment scheme, from his

1984 and 1985 income tax returns, respectively, and

filed these returns with the fraudulent intent to evade

the tax due on that income.

* * * * * * *

[18]. [t]he deficiencies in income tax for the

taxable years 1984 and 1985 are due, in whole or in

part, to the petitioner's fraudulent intent to evade

income tax.

[19]. [a] part of the underpayment of the tax

required to be shown on the petitioner's income tax

returns for each of the years 1984 and 1985 is due to

fraud.

Courts have relied on a number of indicia of fraud in

deciding section 6653(b) cases. Indicia of fraud include: 

(1) A pattern of understatement of income, (2) maintaining
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inadequate books and records, (3) failing to file tax returns,

(4) giving implausible or inconsistent explanations of behavior,

(5) concealing assets, (6) failing to cooperate with taxing

authorities, (7) engaging in illegal activities, (8) attempting

to conceal illegal activities, (9) dealing in cash, and (10)

failing to make estimated tax payments. Recklitis v.

Commissioner, 91 T.C. 874, 910 (1988). Although no single factor

is necessarily dispositive on the issue of fraud, the existence

of several indicia is persuasive circumstantial evidence. 

Petzoldt v. Commissioner, supra at 700. We proceed by addressing

the indicia of fraud that are relevant to the case at hand.

Respondent has affirmatively shown various indicia of fraud

committed by petitioner. First, petitioner's understatement of

income in 1984 and 1985 indicates fraud. Through the deemed

admitted facts, respondent has established that over a 2-year

period petitioner engaged in a pattern of concealing substantial

amounts of income. Petitioner received substantial income from

his involvement in the investment scheme in 1984 and 1985 which

he failed to report on his 1984 and 1985 Federal income tax

returns. This is strong evidence of an intent to evade tax. 

Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962), affg.

T.C. Memo. 1959-172.

Second, the handling of one's affairs in such a way as to

avoid making records usual in transactions, the concealment of
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assets, and extensive dealings in cash support an inference of

fraud. Spies v. United States, supra at 499; Parks v.

Commissioner, 94 T.C. 654, 664-665 (1990) (purchase of cashier's

checks to avoid filing of Currency Transaction Reports). 

Beginning in 1982, petitioner opened 10 separate checking and

savings accounts. Then, in a series of transactions, petitioner,

among other things, converted over $800,000 in investor funds

into cashier's checks made payable to himself in order to avoid

creating a transactional record in the corporate accounts. 

Respondent has established, through petitioner's deemed

admissions, that petitioner's objective was to defraud the United

States by conducting the financial and banking activities of the

investment scheme in a manner that was not readily traceable.

And finally, in addition to the various indicia of fraud

that are present, we consider as evidence of fraud petitioner's

conviction under section 7206(1) for filing a false income tax

return. In Wright v. Commissioner, 84 T.C. 636, 643 (1985), this

Court concluded that a prior conviction under section 7206(1)

does not collaterally estop a petitioner from contesting a fraud

determination under section 6653(b). However, a conviction for

willful falsification, while not dispositive, is evidence of

fraud. Id. at 643-644. On January 14, 1991, petitioner was

found guilty under section 7206(1) on two counts of filing false

income tax returns for 1984 and 1985.
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In conclusion, the deemed admissions by petitioner that he

understated income, concealed assets, dealt extensively in cash,

and was convicted for filing a false income tax return establish

by clear and convincing evidence that the underpayments of income

tax on his 1984 and 1985 income tax returns were due in their

entirety to fraud.

Respondent's motion for summary judgment will be granted.

To reflect the foregoing,

An appropriate order

will be issued, and decision will 

be entered.