* This order and judgment is not binding precedent, e xcept under the

doctrines of law of the case, res judicata, and col lateral estoppel. The court generally disfavors the citation of orders and judg ments; nevertheless, an order and judgment may be cited under the terms and condi tions of 10th Cir. R. 36.3. 

## F I L E D United States Court of Appeals Tenth Circuit 

### APR 26 1999 

### PATRICK FISHER Clerk UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

STANLEY J. WADE,

Petitioner-Appellant,

v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Nos. 98-9001, 98-9002 (U.S. Tax Court Docket Nos. 4703-94, 4623-94)

ORDER AND JUDGMENT *

Before SEYMOUR , Chief Judge, McWILLIAMS , and HENRY , Circuit Judges.

I. BACKGROUND Mr. Wade and his wife own and operate an apartment rental business in Salt Lake City. In the late eighties, the Wades we re indicted in United States District Court for the District of Utah for filing false income tax returns for 1982 and 1983. Mr. Wade pled guilty, judgment was enter ed against him, and the2

charges against Mrs. Wade were dropped. After the criminal proceedings, Mr. Wade filed returns for years 1985 through 1989. In 1993, the Internal Revenue Service (IRS) issued statutory notices of deficiency to the Wades for taxable years 1982, 198 3, and 1984. The Commissioner asserted deficiencies of $131,240 for 1982 and $156,291 for 1983 for underreporting of rental income. Having determ ined the underreporting was the result of fraud, the Commission asserted additi ons and an additional tax, pursuant to 26 U.S.C. §§ 6653(b) and 6661. The Com missioner asserted a deficiency of $133,837 for 1984, and additional tax es for failure to file a timely return, pursuant to 26 U.S.C. § 6651(a)(1), and fai lure to pay estimated taxes, pursuant to 26 U.S.C. § 6654(a). Mr. Wade petitioned the Tax Court for a redetermination of the deficiencies, challenging their validity and applic ability on various grounds. The Tax Court affirmed all assessed deficiencies in a f inal decision disposing of all claims. We have jurisdiction to hear Mr. Wade’s ap peal pursuant to 26 U.S.C. § 7482, and we affirm the decisions of the Tax Court.

II. DISCUSSION The instant appeal is actually two actions consolid ated for appeal. Case Number 98-9001 deals with the 1984 taxes while Case Number 98-9002 deals3

with the 1982 and 1983 taxes. We address the issue s presented from the 1984 taxes and deficiencies assessed thereon first, thenproceeding to the 1982 and 1983 taxes. A. 1984 Taxes 1. Statute of Limitations Mr. Wade first asserts that the statute of limitati ons bars the assessment of taxes for tax year 1984. The IRS assessed deficien cies against Mr. Wade in late 1993 for failure to file a tax return for the year 1984. Mr. Wade argued that he filed a 1984 tax return in 1988. There is a three- year statute of limitations for the IRS to assess deficiencies after filing. See 26 U.S.C. § 6501(a). If Mr. Wade filed in 1988, the 1993 assessments would be outsid e the limitations period. However, the tax court determined that no return wa s filed for the year 1984. The three-year limitations period does not apply for ye ars in which no return was filed: “In the case of failure to file a return, t he tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.” Id. at § 6501(c)(3). Therefore, unless we find that Mr. Wade did file a 1984 tax return, his statute of lim itations argument is without merit. Whether Mr. Wade filed said return is a que stion of fact which we review for clear error. See Hall v. Commissioner , 30 F.3d 1304, 1304 (10th Cir. 1994). A return is filed as a matter of law when it is del ivered to and received by4

the IRS. See United States v. Lombardo , 241 U.S. 73, 76 (1916). There are exceptions to the “receipt by the IRS” requirement where the evidence is persuasive that the taxpayer did file the return. See , e.g. , Swope v. Commissioner , 63 T.C.M. (CCH) 3078 (1992). In the instant case , however, there is not nearly enough evidence to establish that the tax court clearly erred when it found Mr. Wade did not file his 1984 return. Mr. Wade has presented a 1984 return dated 1988. H e has testified he remembers mailing the return immediately before lun ch with his accountant in 1988. The only evidence Mr. Wade presents to sugge st the Tax Court erred, is his own self-supporting testimony at trial. The Tax Court was aware of this evidence and eitherfound it not credible, or not sufficient to overcome the burden of persuas ion that he filed a return never received by the IRS. Without any contradictory evi dence, we have no ground to hold that the Tax Court clearly erred in finding he did not file a 1984 return until 1993. We affirm the finding of the Tax Court and h old the limitations period does not apply. 2. Addition for Failure to File Mr. Wade argues the Tax Court erred in sustaining an addition to his 1984 taxes for failure to file. 26 U.S.C. § 6651 (a)(1) provides for an addition to taxes for failure to file unless the taxpayer can show a reasonable cause for the failure.5

The taxpayer bears the burden to establish “reasonable cause.” See United States v. Boyle , 469 U.S. 241, 245 (1985). Mr. Wade suggests his reasonable cause for not fili ng was the ongoing criminal proceedings – his attorney advised him to file no income taxes until the investigation was terminated. However, this explan ation does nothing to clarify why Mr. Wade failed to file until 1993. The crimin al investigation ended in 1990. As rationale for his failure to file in 1990, Mr. W ade contends he had already filed in 1988. This argument was rejected by the T ax Court, and, as discussed in the previous section, we do not see the Tax Court’s finding on the matter to be clear error. Furthermore, the contention introduce s further confusion into Mr. Wade’s explanation. His stated reason for failure to file in 1984 is that he was advised not to file until the termination of the cr iminal investigation. Then, when confronted with his failure to file for three years after the investigation terminated, Mr. Wade suggests he filed two years before it terminated. Such internally inconsistent reasoning does not help his position. We affirm the Tax Court’s decision that the additional taxes for fail ure to file were correctly assessed. 3. Deduction of Consulting Fees Mr. Wade claimed a $230,137 deduction from his 1984 taxes for a fee allegedly paid to Profiteer Corp. for vaguely expla ined consulting services. The6

Tax Court found the testimony regarding the deducti on “contradictory and not credible.” Rec. vol. I, doc. 34, at 12. We review credibility determinations for clear error, with heavy deference owed to the trial judge who is best situated to make those calls. See Anderson v. City of Bessemer City , 470 U.S. 564, 575 (1985). The taxpayer has the burden to show entitlement to a deduction. See Love Box Co. v. Commissioner , 842 F.2d 1213, 1216 (10th Cir. 1988). Entitlement to a deduction is shown by establishing, first, that p ayment was made, and second that payment was an “ordinary and necessary expense [] paid or incurred during the taxable year in carrying on any trade or busine ss.” 26 U.S.C. § 162(a). The only evidence offered that Mr. Wade even paid t he $230,000 is an invoice document and a letter from the President of Profiteer. The tax court found the entire suggestion that the money was paid“contradictory and not credible.” Mr. Wade has never consistently or sensibly given an explanation of the service received for the alleged $230,000 payment. The explanation given on appeal is that Profiteer was paid for services “rel ated to the organization of the apartment buildings into a formal entity and with r espect to financial management.” See Apnt. Br. (No. 98-9001) at 18. In testimony, Mr W ade said the payment was made for Profiteer to “sell the apa rtments off,” Rec. vol. I, doc.7

27, at 167, or possibly, in the words of the Tax Co urt, for the “reorganization [of] your building.” Id. at 170. This explanation prompted the tax judge t o note that “[i]t doesn’t make any sense frankly,” to which Mr . Wade responded, “I – to me, Your Honor, now it doesn’t make any sense to me either.” Id. at 174. Having little evidence suggesting that the payments were even made, and a determination of the tax judge that the allegations are not credible, we do not find clear error by the Tax Court in refusing to permit the deduction. Mr. Wade never established he even paid $230,000 and is therefore not entitled to a deduction in that amount.

B. 1982 and 1983 Taxes 1. Additions for Fraud 26 U.S.C. § 6653(b)(1) imposes an addition to tax o f 50% of any underpayment if any part of the underpayment is due to fraud. Section 6653(b)(2) imposes an additional fine of 50% of interest on th e underpayment if any part of the underpayment is due to fraud. The government h as the burden of proving fraud by clear and convincing evidence. See 26 U.S.C. § 7454(a); Tx. Ct. R. 142(b). Mr. Wade paid no taxes for the years 1982 and 1983. His returns showed he owed no taxes because Mr. Wade both initially re duced his stated income by8

the total amount of his maintenance costs, and then took deductions for the same amount. Mr. Wade argues this was a clerical error resulting from the fact that his return preparer deducted the costs not knowing Mr. Wade had already done so. “The existence of fraud is a question of fact, and, hence, the Tax Court's findings are final unless clearly erroneous.” Ruido so Racing Ass’n., Inc. v. Commissioner , 476 F.2d 502, 507 (10th Cir. 1973). The tax court found Mr. Wade had committed fraud on his 1982 and 1983 tax r eturns. See Rec. vol. I, doc 34, at 10. We review for clear error. The indicia of fraud include: (1) understatement o f income; (2) inadequate books and records or alterations of books and recor ds; (3) failure to file tax returns; (4) implausible or inconsistent explanatio ns of behavior; (5) concealing assets; (6) failure to cooperate with tax authoriti es. Tax Ct. Op. at 7 (citing Bradford v. Commissioner , 796 F.2d 303, 307-08 (9th Cir. 1985)). Mr. Wade was convicted of filing false returns for these years under 26 U.S.C. § 7206(1). This is a factor indicating frau d. Wright v. Commissioner , 84 T.C. 636, 643-44 (1985) (“[A] conviction for willfu l falsification, under section 7206(1), while not dispositive, will be one of the facts to be considered in a trial on the merits [as to whether the defendant in the 7 206(1) action committed fraud]”.) Mr. Wade concedes he underpaid his taxes for the r elevant years. This also9

is an indicia of fraud. The Tax Court found Mr. Wa de’s testimony that he knew nothing of his return preparer adding the deduction s “not believable.” See Rec. vol. I, doc 34, at 10. The return preparer testifi ed that he does not recall how he got the figures, but added that he has no paperworkwith those expenses on them (because the Wades did not keep regular records), and thus his regular business practice would have been to ask Mr. Wade what the e xpenses were. See Rec. vol. I, doc 27, at 116. Therefore, Mr. Wade has offered “inconsistent explanations of behavior” in his tax forms, triggering another indi cia of fraud. There is no dispute Mr. Wade kept inadequate books and records, further suggesting fraud. And, there is no dispute that Mr . Wade purchased $400,000 in certificates of deposit in 1983, one of the years h e and his wife allegedly had no taxable income, triggering the fraud indicia of con cealed assets. In fact, the only evidence countering these inferen ces of fraud is the testimony of Mr. Wade. That is not sufficient grou nd on which to overturn the Tax Court’s well-supported factual finding of fraudas clear error. Thus, agreeing with the Tax Court’s finding of fraud, we affirm th e assessment of additions to the Wade’s 1982 and 1983 taxes for fraud. 2. Statute of Limitations The notices of deficiency for the years 1982 and 19 83 were issued by the IRS on December 15, 1993. Under the three-year lim itations period for notice of10

deficiency, Mr. Wade argues notices were due by Apr il 15, 1986 and April 15, 1987 for the two years, respectively. This is corr ect only to the extent that we refuse to affirm the district court’s finding of fr aud in each return. 26 U.S.C. § 6501(a) creates the limitations period. 26 U.S.C. § 6501(c) creates an exception to the period for cases of fra udulent returns. Thus, there is no limitations period if the returns were fraudulent. As discussed in the previous section, there is no basis for overturning the Tax Court’s finding that the returns were fraudulent. Therefore, there is no argument t hat the limitations period applies.

III. CONCLUSION The Tax Court’s finding that Mr. Wade did not file his 1984 return in 1988 as he claims is largely a credibility determination . With no evidence aside from Mr. Wade’s own testimony to challenge the finding, we will not reverse that finding. Therefore, there is no argument that the deficiencies assessed against Mr. Wade for failure to file were barred by the statute of limitations. Furthermore, holding Mr. Wade liable for additions to his 1984 taxes for failure to file was not in error. We agree with the Tax Court’s finding that Mr. Wade ’s testimony that he paid a deductible $230,000 in consulting fees – fo r services he could not quite11

describe – was “contradictory and not credible.” T herefore, the Commissioner’s refusal to allow the deduction for that amount was not error. Finally, the Tax Court correctly found Mr. Wade’s tax returns for 19 82 and 1983 were fraudulent. Thus, the additions for fraud were correctly assess ed and the statute of limitations did not bar the assessment of those additions. Accordingly, we AFFIRM.

Entered for the Court, Robert H. Henry Circuit Judge